# EDGAR Filing Document

**Accession Number:** 0000875357
**File Stem:** 0000875357-23-000015
**Filing Date:** 2023-3
**Character Count:** 416433
**Document Hash:** 07e5f12292b55b49baaae2be6dd91871
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0000875357-23-000015.hdr.sgml**: 20230328

**ACCESSION NUMBER**: 0000875357-23-000015

**CONFORMED SUBMISSION TYPE**: ARS

**PUBLIC DOCUMENT COUNT**: 1

**CONFORMED PERIOD OF REPORT**: 20221231

**FILED AS OF DATE**: 20230328

**DATE AS OF CHANGE**: 20230328

**EFFECTIVENESS DATE**: 20230328

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** BOK FINANCIAL CORP
- **CENTRAL INDEX KEY:** 0000875357
- **STANDARD INDUSTRIAL CLASSIFICATION:** NATIONAL COMMERCIAL BANKS [6021]
- **IRS NUMBER:** 731373454
- **STATE OF INCORPORATION:** OK
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** ARS
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-37811
- **FILM NUMBER:** 23767744

**BUSINESS ADDRESS:**
- **STREET 1:** BANK OF OKLAHOMA TOWER
- **STREET 2:** BOSTON AVENUE AT SECOND STREET
- **CITY:** TULSA
- **STATE:** OK
- **ZIP:** 74172
- **BUSINESS PHONE:** 9185886000

**MAIL ADDRESS:**
- **STREET 1:** BANK OF OKLAHOMA TOWER
- **STREET 2:** P O BOX 2300
- **CITY:** TULSA
- **STATE:** OK
- **ZIP:** 74192

**FORMER COMPANY:**
- **FORMER CONFORMED NAME:** BOK FINANCIAL CORP ET AL
- **DATE OF NAME CHANGE:** 19950626

### Attached PDF Documents

**Attachment 1:** `bokfinancial2022annualrepo.pdf`

2022

# Annual report

BOK FINANCIAL CORPORATION

# 2022 financial highlights

- First- and fourth-highest pre-provision net revenue quarters in company's history.1
- Record organic core loan growth of $2.4 billion from 2021.
- Record derivative fees of $45.7 million and investment banking fees of $45.6 million.
- Treasury Services surpassed $100 million in operating revenue for the first time.
- Record Trust fee revenue of more than $200 million, a 10% increase from the prior year.

AT DECEMBER 31, 2022

| ASSETS | $47.8 bn |
| --- | --- |
| LOANS | $22.6 bn |
| DEPOSITS | $34.5 bn |
| ASSETS UNDER MANAGEMENT & ADMINISTRATION | $99.7 bn |

1Pre-provision net revenue is a non-GAAP measure. Refer to Table 32 in our 2022 Form 10-K for a reconciliation with financial measures defined by GAAP.

![img-0.jpeg](img-0.jpeg)

![img-1.jpeg](img-1.jpeg)

# Revenue Diversity*

- Net interest 64.8%
- Brokerage/Trd 7.5%
- Transaction card 5.6%
- Fiduciary & asset management 10.5%
- Service charges 5.9%
- Mortgage 2.6%
- Other 3.1%

![img-2.jpeg](img-2.jpeg)

# Loan Portfolio*

- Commercial 30.7%
- Commercial real estate 20.4%
- Energy 15.2%
- Healthcare 17.0%
- Residential mortgage 9.5%
- Consumer 7.1%
- Paycheck protection program 0.1%

![img-3.jpeg](img-3.jpeg)

# Credit ratings

|  | S&P | MOODY'S | FITCH |
| --- | --- | --- | --- |
| BOK FINANCIAL CORPORATION Long-term Issuer | BBB+ (ON) | A3 (ON) | A (ON) |
| BOKF, NA Long-term Issuer | A- (ON) | A3 (ON) | A (ON) |

*As of December 31, 2022.

Dear Shareholders,

As I began my new role as BOK Financial president and CEO at the beginning of 2022, I shared with our employees key foundational values and leadership principles that have shaped my career. These eight attributes gave insight into how I would lead the company and set expectations on what success looks like at BOK Financial.

Although the philosophy evolved from a number of outside sources, most of them were already alive and well inside our company. Values like playing to win the right way and holding ourselves and each other accountable are lived every day by our employees. Not only are these values illustrative of what makes our company different, they’re also a key driver of our success in this past year and in years to come.

![img-4.jpeg](img-4.jpeg)

## Hold our teams and each other accountable for results.

## Play to win and be dissatisfied when we lose.

The company posted net income of $520.3 million or $7.68 per diluted share, down from $618.1 million, or $8.95 per diluted share in 2021. The results for the year were impacted by large year-over-year swings in loan loss provision levels and a precipitous drop in mortgage activity driven by the Federal Reserve's tightening cycle.

Despite these challenges, we saw considerable momentum in the second half of the year. In fact, at $231.3 million, the fourth quarter was our best pre-provision net revenue1 in our company's history.

Our focus on accelerating top line growth was reflected in loan growth of $2.4 billion which resulted in year-end loan balances of $22.6 billion. This was the best organic loan growth year in our history and best percentage organic loan growth year since 2006. Much of this growth was driven by commercial and commercial real estate loans, underscoring our ongoing commitment to serving the needs of small businesses, international corporations and everything in between. Those commercial relationships also helped to grow our Treasury Services revenue by 10%, topping $100 million in operating revenue for the first time.

Growth in our loan portfolio helped to magnify the benefit of the Federal Reserve's 425 basis point increase to the Fed Funds rate. For the year, our net interest revenue totaled $1.2 billion, an increase of $93.3 million; our net interest margin expanded to 2.98% from 2.60%. Although the Fed has signaled the possibility of continued rate hikes in 2023, we took actions in the fourth quarter of 2022 to move toward a more neutral interest rate position as the risks are more balanced now, and we've captured most of the benefit from the rising rates.

The impact of the worst combined equity and fixed-income markets since the late 1960s was reflected in our Wealth Management results, which saw net income drop by $7.1 million to $106.2 million. Decreased trading activities, disruption in the fixed-income markets and narrowing margins all impacted our results, however we continue to add new client relationships and grow existing ones.

This relationship building allowed us to keep assets under management or administration relatively flat from the prior year despite the equity markets being down by 20% and fixed income markets by 15%.

In addition, wealth management grew loans by 9%, and our Trust area surpassed $200 million in operating revenue for the first time, a 10% increase over 2021.

The sharp decline in the mortgage production markets drove a $56.5 million decrease in mortgage banking revenue, although the reduction was largely offset by increased customer hedging, investment banking, and fiduciary and asset management revenues. It's fair to say that the strength of our diversified revenue model was on full display in 2022.

## Principled leadership at BOK Financial

- Do the right thing all the time.
- Hold our teams and each other accountable for results.
- Trust each other more; trust drives better collaboration.
- Fear of making a mistake cannot paralyze us.
- We are full of grit.
- Play to win and be dissatisfied when we lose.
- Value people and talent, but teams above all.
- We are one team.

## Trust each other more; trust drives better collaboration.

## Fear of making a mistake cannot paralyze us.

Our ability to collaborate across business lines, between operational and front line areas, and across markets is essential to our success. It's a discipline that allows us to serve the complete financial needs of our clients and ensures we continue to evolve those relationships as needs change.

The interest rate environment in which we find ourselves-the first materially rising-rate environment for nearly 15 years-is an area where that collaborative discipline will differentiate us. This environment is aligned with our brand of active wealth management which will be in greater demand in an era of economic uncertainty. We're also working across lines of business to help commercial clients seeking creative ways to generate better returns for short-term funds while meeting their risk and liquidity needs.

Over the past couple of years, many parts of our company have been involved in transformative technology projects that will enhance our client experience across our commercial, wealth and payment platforms. These projects have been a significant lift for both our front-line teams and our operational and information technology teams. Our teams have worked closely on these multi-year projects, and we look forward to seeing these significant investments positively impact our client interactions.

## We are one team.

## Value people and talent, but teams above all.

Our ability to recruit, retain and advance talent has always been a strength at all levels of our company. In 2022, that discipline was brought to bear on our executive leadership team as we shifted roles in a number of areas, including information technology, consumer banking and commercial banking. New perspectives paired with a deep understanding of our culture are creating new energy in the company.

Two significant retirements also brought about change within the company. Norm Bagwell retired after leading our Texas bank for more than 15 years. We are fortunate that he continues to play a role in client development and employee recruiting in Texas.

The Lone Star state continues to be an important growth focus for us, which is why we were so pleased to name Mark Wade as CEO for Bank of Texas. Mark has been with us for more than 20 years, most recently leading our commercial banking division. He has brought a passion for growth to his new role and will lead our expansion plans for this dynamic market.

Steven Nell also announced plans for his retirement in 2022. Steven has been an exceptional CFO for more than 20 years, and all those who had the pleasure of working with him know him to be an outstanding leader and human being. I, personally, am grateful for all of Steven's innumerable contributions to our company.

With Steven's departure at the end of February, Marty Grunst has stepped into the role of CFO. Marty previously served as our chief risk officer and treasurer before that. He has more than three decades of experience in the financial industry, and his strategic and operational expertise has helped to make this a seamless transition.

## We are full of grit.

## Do the right thing all the time.

Our focus on doing the right thing goes beyond regulations and codes of conduct. We believe that doing right by our employees creates an environment where they are energized and committed to doing right by our clients. We know that our company does well when our clients and our communities are doing well.

That commitment to our communities was evident in late 2022 as we celebrated an important giving milestone for our company and our foundation: surpassing $100 million in contributions to nonprofits serving our communities. Since its creation in 2000, the BOKF Foundation has been funded through a portion of the company's profits allowing us to give back to our communities in a significant way. We're proud of the impact that we've had and are committed to continuing to advance the communities we are so proud to serve.

I want to close by thanking our employees who continually go beyond for our clients and communities. We are grateful for their commitment and the ongoing support of our board of directors, clients and you, our shareholders.

![img-5.jpeg](img-5.jpeg)

Sincerely,

**Stacy C. Kymes**

President and Chief Executive Officer

1Pre-provision net revenue is a non-GAAP measure. Refer to Table 32 in our 2022 Form 10-K for a reconciliation with financial measures defined by GAAP.

**UNITED STATES**
**SECURITIES AND EXCHANGE COMMISSION**
**Washington, D.C. 20549**

# **FORM 10-K**

(Mark One)

☑ **ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the fiscal year ended December 31, 2022

**OR**

☐ **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

For the transition period from __________ to __________

**Commission File No. 001-37811**

# **BOK FINANCIAL CORP**

(Exact name of registrant as specified in its charter)

OK

73-1373454

(State or other jurisdiction
of incorporation or organization)

(I.R.S. Employer
Identification No.)

Bank of Oklahoma Tower

Boston Avenue at Second Street

Tulsa, OK

(Address of Principal Executive Offices)

74172

(Zip Code)

(918) 588-6000

(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act: None

Securities registered pursuant to Section 12 (g) of the Act:

Common stock, $0.00006 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☑

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "larger accelerated filer," "accelerated filer," and "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☑ Accelerated filer ☐ Non-accelerated filer ☐ Smaller reporting company ☐ Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐

Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐

The aggregate market value of the registrant's common stock ('Common Stock') held by non-affiliates is approximately $2.4 billion (based on the June 30, 2022 closing price of Common Stock of $75.58 per share). As of January 31, 2023, there were 66,971,817 shares of Common Stock outstanding.

#### **DOCUMENTS INCORPORATED BY REFERENCE**

Part III incorporates certain information by reference from the Registrant's Proxy Statement for the 2023 Annual Meeting of Shareholders.

# **BOK Financial Corporation**
**Form 10-K**
**Year Ended December 31, 2022**

# Index

|  | Part I |  |
| --- | --- | --- |
| Item 1 | Business | 1 |
| Item 1A | Risk Factors | 10 |
| Item 1B | Unresolved Staff Comments | 17 |
| Item 2 | Properties | 17 |
| Item 3 | Legal Proceedings | 17 |
| Item 4 | Mine Safety Disclosures | 17 |
|  | Part II |  |
| Item 5 | Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 18 |
| Item 6 | Selected Financial Data | 21 |
| Item 7 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 21 |
| Item 7A | Quantitative and Qualitative Disclosures about Market Risk | 73 |
| Item 8 | Financial Statements and Supplementary Data | 78 |
| Item 9 | Changes In and Disagreements with Accountants on Accounting and Financial Disclosure | 153 |
| Item 9A | Controls and Procedures | 153 |
| Item 9B | Other Information | 153 |
|  | Part III |  |
| Item 10 | Directors, Executive Officers and Corporate Governance | 153 |
| Item 11 | Executive Compensation | 153 |
| Item 12 | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 154 |
| Item 13 | Certain Relationships and Related Transactions, and Director Independence | 154 |
| Item 14 | Principal Accountant Fees and Services | 154 |
|  | Part IV |  |
| Item 15 | Exhibits, Financial Statement Schedules | 154 |
|  | Signatures | 157 |
| Exhibit 10.4.12 | Employment Agreement between BOK Financial and Martin E. Grunst dated March 1, 2023. |  |
| Exhibit 21 | Subsidiaries of the Registrant |  |
| Exhibit 23 | Consent of Independent Registered Public Accounting Firm |  |
| Exhibit 31.1 | Chief Executive Officer Section 302 Certification |  |
| Exhibit 31.2 | Chief Financial Officer Section 302 Certification |  |
| Exhibit 32 | Section 906 Certifications |  |

# PART I

## ITEM 1. BUSINESS

### General

Developments relating to individual aspects of the business of BOK Financial Corporation ('BOK Financial' or 'the Company') are described below. Additional discussion of the Company's activities during the current year appears within Item 7 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'

### Description of Business

BOK Financial is a financial holding company incorporated in the state of Oklahoma in 1990 whose activities are governed by the Bank Holding Company Act of 1956 ('BHCA'), as amended by the Financial Services Modernization Act or Gramm-Leach-Bliley Act and the Dodd-Frank Wall Street Reform and Consumer Protection Act (the 'Dodd-Frank Act'). BOK Financial offers full service banking in Oklahoma, Texas, New Mexico, Northwest Arkansas, Colorado, Arizona, and Kansas/Missouri. At December 31, 2022, the Company reported total consolidated assets of $48 billion.

BOKF, NA is a wholly owned subsidiary bank of BOK Financial. BOKF, NA operates TransFund, Cavanal Hill Investment Management and BOK Financial Asset Management, Inc. BOKF, NA operates banking divisions across eight states: Bank of Albuquerque, Bank of Oklahoma, Bank of Texas and BOK Financial in Arizona, Arkansas, Colorado, Kansas and Missouri; as well as having limited purpose offices in Nebraska, Wisconsin and Connecticut. Other wholly owned subsidiaries of BOK Financial include BOK Financial Securities, Inc., a broker/dealer that primarily engages in retail and institutional securities sales and municipal bond underwriting; BOK Financial Private Wealth, Inc., an investment adviser to high net worth clients; and BOK Financial Insurance, Inc., a broker providing insurance services. Other non-bank subsidiary operations do not have a significant effect on the Company's financial statements.

Our overall strategic objective is to emphasize growth in long-term value by building on our leadership position in Oklahoma through expansion into other high-growth markets in contiguous states. We operate primarily in the metropolitan areas of Tulsa and Oklahoma City, Oklahoma; Dallas, Fort Worth and Houston, Texas; Albuquerque, New Mexico; Denver, Colorado; Phoenix, Arizona, and Kansas City, Kansas/Missouri. Our acquisition strategy targets fairly priced quality organizations with demonstrated solid growth that would supplement our principal lines of business. We provide additional growth opportunities by hiring talent to enhance competitiveness, adding locations and broadening product offerings. Our operating philosophy embraces local decision-making in each of our geographic markets while adhering to common Company standards.

Our primary focus is to provide a comprehensive range of nationally competitive financial products and services in a personalized and responsive manner. Products and services include loans and deposits, cash management services, fiduciary and insurance services, mortgage banking and brokerage and trading services to middle-market businesses, financial institutions and consumers. Commercial banking represents a significant part of our business. Our credit culture emphasizes building relationships by making high quality loans and providing a full range of financial products and services to our customers. We also offer products that leverage our energy financing expertise and enable us to offer commodity derivatives for customers to use in their risk management. Our diversified base of revenue sources is designed to generate returns across a range of economic situations. Wealth management also continues to be a strategic focus. We provide liquidity to the mortgage markets through trading of U.S. government agency issued mortgage-backed securities and related derivative contracts and currently service approximately $100 billion of assets under management or administration.

BOK Financial's corporate headquarters is located at Bank of Oklahoma Tower, Boston Avenue at Second Street, Tulsa, Oklahoma 74172.

The Company's Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports are available on the Company's website at www.bokf.com as soon as reasonably practicable after the Company electronically files such material with or furnishes it to the Securities and Exchange Commission.

1

# Operating Segments

BOK Financial operates three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer commodity risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund electronic funds network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through the retail branch network and all mortgage loan origination and servicing activities. Wealth Management engages in brokerage and trading activities mainly related to providing liquidity to the mortgage markets through trading of U.S. government agency mortgage-backed securities and related derivative contracts. Wealth Management also provides fiduciary services, private bank services, investment advisory services and insurance services in all markets. Additionally, Wealth Management underwrites state and municipal securities. Discussion of these principal lines of business appears within the Lines of Business section of 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'

# Competition

BOK Financial and its operating segments face competition from other banks, thrifts, credit unions and other non-bank financial institutions such as investment banking firms, investment advisory firms, brokerage firms, investment companies, financial technology firms, government agencies, mortgage brokers and insurance companies. The Company competes largely on the basis of customer services, interest rates on loans and deposits, lending limits and customer convenience. Some operating segments face competition from institutions that are not as closely regulated as banks, and therefore are not limited by the same capital requirements and other restrictions. All market share information presented below is based upon share of deposits in specified areas according to the Federal Deposit Insurance Corporation ('FDIC') as of June 30, 2022.

We are the largest financial institution in the state of Oklahoma with 13% of the state's total deposits. We have 31% and 11% of the market share in the Tulsa and Oklahoma City areas, respectively. We compete with two banks that have operations nationwide and have greater access to funds at lower costs, higher lending limits, and greater access to technology resources. We also compete with regional and locally-owned banks in both the Tulsa and Oklahoma City areas as well as in every other community in which we do business throughout the state.

We compete against numerous financial institutions in the state of Texas, including some of the largest in the United States, and have a market share of approximately 2% in the Dallas, Fort Worth area and less than 1% in the Houston area. We have an 11% market share in the Albuquerque area and compete with four large national banks, some regional banks and several locally-owned smaller community banks. Our market share is approximately 4% in the Denver area. We serve Benton and Washington counties in Arkansas with a market share of approximately 1%. Our market share is approximately 2% in the Kansas City, Missouri/Kansas area and approximately 1% in the Phoenix area. The Company's ability to expand into additional states remains subject to various federal and state laws.

# Human Capital Management and Practices

In order to continue leading the industry as a provider of financial solutions to businesses, institutions and individuals across the country, it is crucial that we attract, develop and retain top talent. To facilitate talent attraction and retention, we strive to make BOK Financial an inclusive workplace with opportunities for our employees to grow and develop in their careers. We support our employees with strong compensation, benefits, wellness programs and development resources. We also work to build connections between our employees and our communities. 'Actively advancing the communities we serve' is one of our core values. Those familiar with BOK Financial will recognize the generosity of our employees in our communities as one of the hallmarks of our culture and a source of pride as we live out our purpose statement of 'Achieving More Together.'

Our talented workforce is the key to our success. At December 31, 2022, we had 4,791 full-time and part-time employees, the majority of which are full-time employees. None of the Company's employees are represented by collective bargaining agreements. Management considers its employee relations to be good. Our employees are primarily distributed over our eight state footprint, to include: Oklahoma, Texas, Arkansas, Kansas, Missouri, Colorado, New Mexico and Arizona.

## *Diversity and Inclusion Efforts*

We believe that our organization should reflect the diversity of the communities we serve. We also recognize that in order for a diverse workforce to thrive, we must prioritize inclusion efforts. The following categories represent areas of focus for Diversity, Equity and Inclusion ('DEI'): community engagement, senior leader engagement, Communities of Practice and diverse recruiting practices and education.

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As of December 31, 2022, 56% of our overall workforce was female, and 32% of our overall workforce was comprised of people of color. In 2022, BOK Financial was again recognized by 'Diversity, Inc.' as one of the 'Top Regional Companies' with respect to scoring criteria related to DEI organizational practices.

#### *Community Engagement*

In 2022, the Company and the BOKF Foundation gave a combined $6.1 million to organizations making a difference in our communities. Our employees donated more than 33,000 volunteer hours, and more than 358 employees served in 665 leadership roles with 430 nonprofit boards. Over the past ten years, we have committed $768 million in loan funding to support affordable housing projects and $362 million in affordable housing investments.

#### *Senior Leader Engagement*

Our DEI Council is led by our CEO and President, Stacy Kymes, and includes other members of our executive leadership team as well as senior leaders throughout our footprint. We are members of the 'CEO Action for Diversity and Inclusion' Pledge. The pledge outlines our commitment to cultivating a trusting environment where all ideas are welcomed, and employees feel comfortable and empowered to have discussions about diversity and inclusion.

#### *Mentorship Program*

Our mentorship program launched in late 2020. We believe mentorship programs are a valuable tool for helping employees successfully shape their long-term career trajectory. Mentor matches are prioritized for females and people of color. In 2022, we launched Cohort 4 and 5 with 127 mentors/mentees participating in the program. In 2022, 26% of our participants were people of color and 53% were female.

#### *Communities of Practice (CoP)*

In 2020, we introduced a concept from Harvard Business Review called 'Communities of Practice' ('CoP') as a way for our organization to build inclusive groups to harness the collective power of diverse skills, styles, strengths and experiences - and leverage those strengths into advancing our business. CoP also provide exposure opportunities for employees to interact with others across the organization at all levels. As of December 31, 2022, we had 20 active CoP, including: Advancing Minority Owned Businesses, Mentoring, Practicing Inclusion, Diverse Recruiting Practices, Engagement Practices and Culture Ambassadors. Any person from across the organization can join any CoP; these groups highlight our enterprise focus on inclusivity.

#### *Diverse Recruiting Practices*

Our recruiting organization is fully AIRS® (Advanced Internet Recruitment Strategies) Certified and held accountable to monthly recruitment outreach efforts to diverse organizations, including HBCUs (Historically Black Colleges and Universities). University recruiting has been a focal point for our diversity efforts. In 2022, 35% of our class of interns and early career associates identified as people of color.

#### *Diversity Education*

Unconscious bias education was introduced to all managers in order to provide tools that support awareness of the automatic patterns of thinking related to hiring practices. We also partner with LinkedIn Learning to ensure all employees across the company have equal access to development opportunities. The concept of 'inclusion' is woven into many of the learning opportunities offered by our Talent and Organizational Development team; examples include: 'Leveraging Inclusion and Mitigating Unconscious Bias,' 'Emergenetics Applications,' 'Emotional Intelligence Skills' and 'Crucial Conversations.'

#### *Benefits and Compensation Offerings*

BOK Financial is committed to the health and wellness of our employees. We provide our employees and their families with access to a variety of flexible and convenient health and wellness programs. We encourage engagement in healthy behaviors and offer options, where possible, to customize benefits to meet the needs of employees and their families. We provide robust compensation and benefits programs to help meet the needs of our employees. In addition to base salaries, these programs may include incentive compensation, discretionary bonuses, equity, 401(k), health and wellness benefits, health savings and flexible

3

spending accounts, paid time off, family leave, flexible work schedules, employee assistance programs and tuition reimbursement.

#### *Talent Development*

Our talent development programs provide employees with resources they need to achieve their career goals. Development offerings are focused on supporting career development goals, increasing skill sets, and preparing employees to expand in their current role or develop for future roles. We offer a variety of learning modalities, from on demand resources to interactive sessions facilitated by Talent Development Consultants. Our employees are provided many opportunities to advance their careers within our organization. During 2022, 32% of all of positions filled were with internal employees.

#### *Connecting with Our Employees*

Engagement is an important component of our culture. We encourage our employees to provide feedback in a survey format with the last one completed in 2021. In 2021, 91% of our workforce participated in the survey, and results were shared and discussed across the Company. We will seek feedback in the same format in 2023. We have consistently had employee participation in excess of 80% since the inception of our engagement survey.

#### *Connecting with Our Communities*

Our employees are passionate about many causes, and the Company’s corporate giving and volunteering programs support and encourage employees by engaging with those causes. Our employee-led giving program allows employees to nominate and vote for nonprofit organizations across our footprint to receive financial benefit from the BOKF Foundation. In 2022, over 1,700 employees nominated and voted on 165 nonprofit organizations to receive funding. This was the second year of the Company’s pilot program where we accelerated resources to underserved minority communities by supporting nonprofit organizations providing programs to help close gaps in four key areas: income inequality, workforce development, education and mentoring, and social justice inequities.

### **Supervision and Regulation**

BOK Financial and its subsidiaries are subject to extensive regulations under federal and state laws. Both the scope of the laws and regulations and the intensity of the supervision to which our business is subject have increased in recent years. Regulatory enforcement and fines have also increased across the banking and financial services sector. Many of these changes have occurred as a result of the Dodd-Frank Act and its implementing regulations, most of which are now in place. These regulations and others are designed to promote safety and soundness, protect consumers and ensure the stability of the banking system as a whole. The purpose of these regulations is not necessarily to protect shareholders and creditors. As detailed below, these regulations require the Company and its subsidiaries to maintain certain capital balances and require the Company to provide financial support to its subsidiaries. These regulations may restrict the Company’s ability to diversify, to acquire other institutions and to pay dividends on its capital stock. These regulations also include requirements on certain programs and services offered to our customers, including restrictions on fees charged for certain services. The Company expects that its business will remain subject to extensive regulation and supervision.

The following information summarizes certain existing laws and regulations that affect the Company’s operations. It does not summarize all provisions of these laws and regulations and does not include all laws and regulations that affect the Company presently or in the future.

#### *General*

As a financial holding company, BOK Financial is regulated under the BHCA and is subject to regular inspection, examination and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve Board”). Under the BHCA, BOK Financial files quarterly reports and other information with the Federal Reserve Board.

BOKF, NA is organized as a national banking association under the National Banking Act, and is subject to regulation, supervision and examination by the Office of the Comptroller of the Currency (the “OCC”), the FDIC, the Federal Reserve Board, the Consumer Financial Protection Bureau (“CFPB”) and other federal and state regulatory agencies. The OCC has primary supervisory responsibility for national banks and must approve certain corporate or structural changes including changes in capitalization, payment of dividends, change of place of business, and establishment of a branch or operating subsidiary. The OCC performs examinations concerning safety and soundness, the quality of management and directors,

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information technology and compliance with applicable regulations. The National Banking Act authorizes the OCC to examine every national bank as often as necessary.

A financial holding company, and the companies under its control, are permitted to engage in activities considered 'financial in nature' as defined by the BHCA, Gramm-Leach-Bliley Act and Federal Reserve Board interpretations. Activities that are 'financial in nature' include securities underwriting and dealing, insurance underwriting, merchant banking, operating a mortgage company, performing certain data processing operations, servicing loans and other extensions of credit, providing investment and financial advice, owning and operating savings and loan associations, and leasing personal property on a full pay-out, non-operating basis. A financial holding company is required to notify the Federal Reserve Board within thirty days of engaging in new activities determined to be 'financial in nature.' BOK Financial is engaged in some of these activities and has notified the Federal Reserve Board.

In order for a financial holding company to commence any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must be 'well capitalized' and 'well managed' and have received a rating of at least 'satisfactory' in its most recent examination under the Community Reinvestment Act. A financial holding company and its depository institution subsidiaries are considered to be 'well capitalized' if they meet the requirements discussed in the section captioned 'Capital Adequacy and Prompt Corrective Action' which follows. A financial holding company and its depository institution subsidiaries are considered to be 'well managed' if they receive a composite rating and management rating of at least 'satisfactory' in their most recent examinations. If a financial holding company fails to meet these requirements, the Federal Reserve Board may impose limitations or conditions on the conduct of its activities and the company may not commence any new financial activities without prior approval.

The BHCA requires the Federal Reserve Board's prior approval for the direct or indirect acquisition of more than five percent of any class of voting stock of any non-affiliated bank. Under the Federal Bank Merger Act, the prior approval of the OCC is required for a national bank to merge with another bank or purchase the assets or assume the deposits of another bank. In reviewing applications seeking approval of merger and acquisition transactions, the bank regulatory authorities consider, among other things, the competitive effect and public benefits of the transactions, the capital position of the combined organization, the applicant's performance record under the Community Reinvestment Act and fair housing laws and the effectiveness of the subject organizations in combating money laundering activities.

A financial holding company and its subsidiaries are prohibited under the BHCA from engaging in certain tie-in arrangements in connection with the provision of any credit, property or services. Thus, a subsidiary of a financial holding company may not extend credit, lease or sell property, furnish any services or fix or vary the consideration for these activities on the condition that (1) the customer obtain or provide additional credit, property or services from or to the financial holding company or any subsidiary thereof, or (2) the customer may not obtain some other credit, property or services from a competitor, except to the extent reasonable conditions are imposed to insure the soundness of credit extended.

The Company and other non-bank subsidiaries are also subject to other federal and state laws and regulations. For example, BOK Financial Securities, Inc. is regulated by the Securities and Exchange Commission ('SEC'), the Financial Industry Regulatory Authority ('FINRA'), the Federal Reserve Board, and state securities regulators. Such regulations generally include licensing of certain personnel, customer interactions and trading operations.

#### *Enhanced Prudential Standards*

The Dodd-Frank Act directed the Federal Reserve Board to monitor emerging risks to financial institutions and enacted enhanced supervision and prudential standards applicable to bank holding companies with consolidated assets of $50 billion or more and non-bank covered companies designated as systematically important to the Financial Stability Oversight Council (often referred to as systemically important financial institutions). The Dodd-Frank Act mandated that certain regulatory requirements applicable to systemically important financial institutions be more stringent than those applicable to other financial institutions.

Subsequent legislation raised the threshold for systemically important financial institutions from $50 billion to $250 billion while providing the Federal Reserve Board with authority to establish incremental prudential standards for banks between $100 billion and $250 billion. Current rules adopted by the OCC require heightened standards for financial institutions that report at least $50 billion of average consolidated assets over a four quarter period after an 18-month grace period. These heightened standards require establishing and implementing a risk governance framework to cover the bank's risk-taking activities.

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### *Consumer Financial Protection*

We are subject to a number of federal and state consumer protection laws that extensively govern our relationship with our customers. These laws include the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Truth in Lending Act, the Truth in Savings Act, the Electronic Fund Transfer Act, the Expedited Funds Availability Act, the Home Mortgage Disclosure Act, the Fair Housing Act, the Real Estate Settlement Procedures Act, the Fair Debt Collection Practices Act, the Service Members Civil Relief Act and these laws' respective state-law counterparts, as well as state usury laws and laws regarding unfair and deceptive acts and practices. These and other federal laws, among other things, require disclosures of the cost of credit and terms of deposit accounts, provide substantive consumer rights, prohibit discrimination in credit transactions, regulate the use of credit report information, provide financial privacy protections, prohibit unfair, deceptive and abusive practices, restrict our ability to raise interest rates and subject us to substantial regulatory oversight. Violations of applicable consumer protection laws can result in significant potential liability from litigation brought by customers, including actual damages, restitution and attorneys' fees. Federal bank regulators, state attorneys general and state and local consumer protection agencies may also seek to enforce consumer protection requirements and obtain these and other remedies, including regulatory sanctions, customer rescission rights, action by the state and local attorneys general in each jurisdiction in which we operate and civil money penalties. Failure to comply with consumer protection requirements may also damage our reputation and result in our failure to obtain any required bank regulatory approval for merger or acquisition transactions we may wish to pursue or our prohibition from engaging in such transactions even if approval is not required.

The CFPB has broad rule-making authority for a wide range of consumer financial laws that apply to all banks, including, among other things, the authority to prohibit 'unfair, deceptive or abusive' acts and practices. Abusive acts or practices are defined as those that materially interfere with a consumer's ability to understand a term or condition of a consumer financial product or service or take unreasonable advantage of a consumer's (i) lack of financial savvy, (ii) inability to protect himself in the selection or use of consumer financial products or services, or (iii) reasonable reliance on a covered entity to act in the consumer's interests. The CFPB can issue cease-and-desist orders against banks and other entities that violate consumer financial laws. The CFPB may also institute a civil action against an entity in violation of federal consumer financial laws in order to impose a civil penalty or injunction.

### *Community Reinvestment Act*

The Community Reinvestment Act of 1977 ('CRA') requires depository institutions to assist in meeting the credit needs of their market areas consistent with safe and sound banking practice. Under the CRA, each depository institution is required to help meet the credit needs of its market areas by, among other things, providing credit to low- and moderate-income individuals and communities. Depository institutions are periodically examined for compliance with the CRA and are assigned ratings. In order for a financial holding company to commence any new activity permitted by the BHCA, or to acquire any company engaged in any new activity permitted by the BHCA, each insured depository institution subsidiary of the financial holding company must have received a rating of at least 'satisfactory' in its most recent examination under the CRA. Furthermore, banking regulators take into account CRA ratings when considering a request for an approval of a proposed transaction. BOKF, NA received a rating of 'outstanding' in its most recent CRA examination, which is above 'satisfactory.'

### *Financial Privacy*

The federal banking regulators adopted rules that limit the ability of banks and other financial institutions to disclose non-public information about consumers to non-affiliated third parties. These limitations require disclosure of privacy policies to consumers and, in some circumstances, allow consumers to prevent disclosure of certain personal information to a non-affiliated third party. These regulations affect how consumer information is transmitted through diversified financial companies and is conveyed to outside parties.

### *Capital Adequacy and Prompt Corrective Action*

The Federal Reserve Board, the OCC and the FDIC have issued substantially similar risk-based and leverage capital guidelines applicable to United States banking organizations to ensure capital adequacy based upon the risk levels of assets and off-balance sheet financial instruments. In addition, these regulatory agencies may from time to time require that a banking organization maintain capital above the minimum levels, whether because of its financial condition or actual or anticipated growth. Capital adequacy guidelines and prompt corrective action regulations involve quantitative measures of assets, liabilities, and certain off-balance sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators regarding components, risk weighting and other factors.

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Federal Reserve Board risk-based guidelines define four capital metrics based on three categories of regulatory capital. Common equity Tier 1 capital ('CET1') includes common shareholders' equity, less goodwill, most intangible assets and other adjustments. Tier 1 capital consists of CET1 capital plus certain additional capital instruments and related surplus. Supplementary capital ('Tier 2') consists of preferred stock not qualifying as Tier 1 capital, qualifying mandatory convertible debt securities, limited amounts of subordinated debt, other qualifying term debt and allowances for credit losses, subject to limitations. Assets and off-balance sheet exposures are assigned to categories of risk-weights, based primarily upon relative credit risk. Risk-based capital ratios are calculated by dividing CET1, Tier 1 and total capital by risk-weighted assets. In addition to the risk-based capital ratios, the Company is also subject to the leverage ratio. The leverage ratio is determined by dividing Tier 1 capital by adjusted average total assets.

Additional capital rules were effective for banks and bank holding companies, including BOK Financial, on January 1, 2015 as part of a package of regulatory reforms developed by the Basel Committee on Banking Supervision ('BCBS') to strengthen the regulation, supervision and risk management of the banking sector, commonly referred to as the Basel III framework.

Failure to meet minimum capital requirements would be subject to regulatory restrictions on capital distributions (including but not limited to dividends and share repurchases) and executive bonus payments.

The Federal Deposit Insurance Corporation Improvement Act of 1991 (the 'FDICIA'), among other things, identifies five capital categories for insured depository institutions from well capitalized to critically under-capitalized and requires the respective federal regulatory agencies to implement systems for prompt corrective action for institutions failing to meet minimum capital requirements within such categories. FDICIA imposes progressively more restrictive covenants on operations, management and capital distributions, depending upon the category in which an institution is classified. The various regulatory agencies have adopted substantially similar regulations that define the five capital categories identified by FDICIA, using the total risk-based capital, Tier 1 risk-based capital and leverage capital ratios as the relevant capital measures. Such regulations establish various degrees of corrective action to be taken when an institution is considered under-capitalized.

#### *Stress Testing*

The Regulatory Relief Act eliminated the requirement for periodic company run capital stress tests known as the Dodd-Frank Act Stress Test for banks with assets less than $250 billion. Although the mandate has been lifted, the Company still continues to perform capital stress testing on a regular basis.

#### *Executive and Incentive Compensation*

Guidelines adopted by federal banking agencies prohibit excessive compensation as an unsafe and unsound practice and describe compensation as excessive when the amounts paid are unreasonable or disproportionate to the services performed by an executive officer, employee, director or principal shareholder. The Federal Reserve Board has issued comprehensive guidance on incentive compensation intended to ensure that the incentive compensation policies do not undermine safety and soundness by encouraging excessive risk taking. This guidance covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, based on key principles that (i) incentives do not encourage risk-taking beyond the organization's ability to identify and manage risk, (ii) compensation arrangements are compatible with effective internal controls and risk management, and (iii) compensation arrangements are supported by strong corporate governance, including active and effective board oversight. Deficiencies in compensation practices may affect supervisory ratings and enforcement actions may be taken if incentive compensation arrangements pose a risk to safety and soundness.

#### *Deposit Insurance*

Substantially all of the deposits held by the subsidiary banks are insured up to applicable limits by the Deposit Insurance Fund ('DIF') of the FDIC and are subject to deposit insurance assessments to maintain the DIF. On October 18, 2022, the FDIC finalized a rule that would increase initial base deposit insurance assessment rates by 2 basis points beginning with the first quarterly assessment period of 2023. The FDIC, as required under the Federal Deposit Insurance Act, established a plan in September 2020 to restore the DIF reserve ratio to meet or exceed the statutory minimum of 1.35 percent within eight years. This plan did not include an increase in the deposit insurance assessment rate. Based on the FDIC's recent projections, however, the FDIC determined that the DIF reserve ratio is at risk of not reaching the statutory minimum by the statutory deadline of September 30, 2028 without increasing the deposit insurance assessment rates. The increased assessment would improve the likelihood that the DIF reserve ratio would reach the required minimum by the statutory deadline, consistent with the FDIC's Amended Restoration Plan. The rule will become effective as of January 1, 2023.

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## *Dividends*

A key source of liquidity for BOK Financial is dividends from BOKF, NA, which is limited by various banking regulations to net profits, as defined, for the year plus retained profits for the preceding two years. Dividends are further restricted by minimum capital requirements and the Company's internal capital policy. BOKF, NA's dividend limitations are discussed under the heading 'Liquidity and Capital' within 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'

## *Source of Strength Doctrine*

According to Federal Reserve Board policy, a bank holding company is expected to act as a source of financial strength to each subsidiary bank and to commit resources to support each such subsidiary. This support may be required at times when a bank holding company may not be able to provide such support.

## *Transactions with Affiliates*

The Federal Reserve Board regulates transactions between the Company and its subsidiaries. Generally, the Federal Reserve Act and Regulation W, as amended by the Dodd-Frank Act, limit the Company's banking subsidiary and its subsidiaries, to lending and other 'covered transactions' with affiliates. The aggregate amount of covered transactions a banking subsidiary or its subsidiaries may enter into with an affiliate may not exceed 10% of the capital stock and surplus of the banking subsidiary. The aggregate amount of covered transactions with all affiliates may not exceed 20% of the capital stock and surplus of the banking subsidiary.

Covered transactions with affiliates are also subject to collateral requirements and must be conducted on arm's length terms. Covered transactions include (a) a loan or extension of credit by the banking subsidiary, including derivative contracts, (b) a purchase of securities issued to a banking subsidiary, (c) a purchase of assets by the banking subsidiary unless otherwise exempted by the Federal Reserve, (d) acceptance of securities issued by an affiliate to the banking subsidiary as collateral for a loan, and (e) the issuance of a guarantee, acceptance or letter of credit by the banking subsidiary on behalf of an affiliate.

## *Bank Secrecy Act and USA PATRIOT Act*

The Bank Secrecy Act ('BSA') and The USA PATRIOT Act of 2001 ('PATRIOT Act') impose many requirements on financial institutions in the interest of national security and law enforcement. BSA requires banks to maintain records and file suspicious activity reports that are of use to law enforcement and regulators in combating money laundering and other financial crimes. The PATRIOT Act is intended to deny terrorists and criminals the ability to access the U.S. financial services system and places significantly greater requirements on financial institutions. Financial institutions, such as the Company and its subsidiaries, must have a designated BSA Officer, internal controls, independent testing and training programs commensurate with their size and risk profile. As part of its internal control program, a financial institution is expected to have effective customer due diligence and enhanced due diligence requirements for high-risk customers, as well as processes to prohibit transactions with entities subject to Office of Foreign Asset Control sanctions. Documentation and recordkeeping requirements, as well as system requirements, aimed at identifying and reporting suspicious activity reporting, must increase with the institution's size and complexity. Failure to implement or maintain adequate programs and controls to combat terrorist financing and money laundering may have serious legal, financial and reputational consequences.

## *Volcker and Swap Rules*

Title VI of the Dodd-Frank Act, commonly known as the Volcker Rule, prohibits the Company from (1) engaging in short-term proprietary trading for our own account, and (2) having certain ownership interests in or relationships with private equity or hedge funds. The fundamental prohibitions of the Volcker Rule apply to banking entities of any size, including the Company and its bank subsidiary. Trading activity remains largely unaffected by the Volcker Rule as most of our trading activity is exempted or excluded from the proprietary trading prohibitions.

Title VII of the Dodd-Frank Act, commonly known as the Swap Rule, subjects nearly all derivative transactions to the regulations of the Commodity Futures Trading Commission ('CFTC') or SEC. This includes registration, recordkeeping, reporting, capital, margin and business conduct requirements on swap dealers and major swap participants. Under CFTC and SEC rules, entities transacting in less than $8 billion in notional value of swaps over any 12 month period are exempt from the definition of and registration as a 'swap dealer.' The Company currently estimates that the nature and volume of its swaps activity will not require it to register as a swap dealer.

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# Governmental Policies and Economic Factors

The operations of BOK Financial and its subsidiaries are affected by legislative changes and by the policies of various regulatory authorities and, in particular, the policies of the Federal Reserve Board. The Federal Reserve Board has statutory objectives to maximize employment and maintain price stability. Among the instruments of monetary policy used by the Federal Reserve Board to implement these objectives are: open-market operations in U.S. government securities, changes in the discount rate and federal funds rate on bank borrowings, and changes in reserve requirements on bank deposits. The effect of future changes in such policies on the business and earnings of BOK Financial and its subsidiaries is uncertain.

Economic variables have changed vastly throughout 2022. At the beginning of the year, the Federal Funds rate was near zero, and the housing market was in a boom with elevated levels of originations and an acceleration in the rise of home prices. Consumer spending was also high. Starting in March 2022, the Federal Reserve raised the Federal Funds rate seven times through the end of the year for a total of 425 basis points due to a four-decade inflation high. While oil prices soared in the first half of the year fueled by the Russia-Ukraine conflict, they began to subside in the second half of the year. Unemployment remains low, coming in at 3.5% for December 2022.

Our base case economic forecast for the fourth quarter of 2022 assumes the Russia-Ukraine conflict remains isolated. Inflation continues to improve from the peak experienced in the third quarter of 2022 and reaches 3.0% by end of 2023. There are two additional federal funds rate increases in the first quarter of 2023 and is held flat for the remainder of 2023. Job openings revert to more normalized levels and overall hiring levels decline, causing the national unemployment rate to modestly increase over the next four quarters. Inflation pressures cause modest declines in real household income compared to pre-pandemic levels, resulting in below-trend GDP growth. See 'Summary of Credit Loss Experience' section in Management's Discussion and Analysis for further discussion around our economic forecast.

## Foreign Operations

BOK Financial does not engage in operations in foreign countries, nor does it lend to foreign governments.

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# ITEM 1A. RISK FACTORS

BOK Financial Corporation and its subsidiaries could be adversely affected by risks and uncertainties that could have a material impact on its financial condition and results of operations, as well as on its common stock and other financial instruments. Risk factors which are significant to the Company include, but are not limited to:

# Strategic, Compliance and Regulatory Risk Factors

# *Adverse factors could impact BOK Financial's ability to implement its operating strategy.*

Although BOK Financial has developed an operating strategy which it expects to result in continuing improved financial performance, BOK Financial cannot ensure that it will be successful in fulfilling this strategy or that this operating strategy will be successful. Achieving success is dependent upon a number of factors, many of which are beyond BOK Financial's direct control. Factors that may adversely affect BOK Financial's ability to implement its operating strategy include:

- deterioration of BOK Financial's asset quality;
- deterioration in general economic conditions, especially in BOK Financial's core markets;
- inability to control BOK Financial's non-interest expenses;
- inability to increase non-interest income;
- inability to access capital;
- decreases in net interest margins;
- increases in competition;
- a breach in the security of BOK Financial's systems; and
- adverse regulatory developments.

# *Substantial competition could adversely affect BOK Financial.*

Banking is a competitive business. BOK Financial competes actively for loan, deposit and other financial services business in the southwest region of the United States. BOK Financial's competitors include a large number of small and large local and national banks, savings and loan associations, credit unions, trust companies, broker-dealers and underwriters, as well as many financial and non-financial firms that offer services similar to those of BOK Financial. Large national financial institutions have substantial capital, technology and marketing resources. Such large financial institutions may have greater access to capital at a lower cost than BOK Financial does, which may adversely affect BOK Financial's ability to compete effectively.

BOK Financial has expanded into markets outside of Oklahoma, where it competes with a large number of financial institutions that have an established customer base and greater market share than BOK Financial. With respect to some of its services, BOK Financial competes with non-bank companies that are not subject to regulation. The absence of regulatory requirements may give non-banks a competitive advantage.

The increasingly competitive environment is in part a result of changes in regulation, changes in technology and product delivery systems and the accelerating pace of consolidation among financial service providers. Our success depends on our ability to respond to the threats and opportunities of financial technology innovations. Developments in "fintech" and crypto-currencies have the potential to disrupt the financial industry and change the way banks do business. Investment in new technology to stay competitive could result in significant costs and increased cybersecurity risk. Our success depends on our ability to adapt to the pace of the rapidly changing technological environment, which is important to retention and acquisition of customers.

# *Government regulations and political environment could adversely affect BOK Financial.*

BOK Financial and BOKF, NA are subject to banking laws and regulations that limit the type of acquisitions and investments that we may make. In addition, certain permitted acquisitions and investments are subject to prior review and approval by banking regulators, including the Federal Reserve, OCC and FDIC. Banking regulators have broad discretion on whether to approve proposed acquisitions and investments. In deciding whether to approve a proposed acquisition, federal banking regulators will consider, among other things, the effect of the acquisition on competition; the convenience and needs of the communities to be served, including our record of compliance under the Community Reinvestment Act; and our effectiveness in combating money laundering. They will also consider our financial condition and our future prospects, including projected capital ratios and levels; the competence, experience, and integrity of our management; and our record of compliance with laws and regulations.

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Regulatory authorities may change their interpretation of these statutes and regulations, including the OCC, our primary regulator, and the CFPB, our regulator for certain designated consumer laws and regulations. Violations of laws and regulations could limit the growth potential of BOK Financial's businesses. We have made extensive investments in human and technological resources to address enhanced regulatory expectations, including investments in the areas of risk management, compliance, and capital planning.

Political developments, including recent Federal executive and legislative changes, add additional uncertainty to the implementation, scope and timing of changes in the regulatory environment for the banking industry and for the broader economy. Concern regarding the ability of Congress and the President to reach agreement on federal budgetary matters, including the debt ceiling, or prolonged stalemates leading to total or partial governmental shutdowns may also have adverse economic consequences and create the risk of economic instability or market volatility, with potential negative consequences to our business and financial performance. Additionally, changes in fiscal, monetary or regulatory policy, including as a result of labor shortages, wage pressures, supply chain disruptions and higher inflation, could increase our compliance costs and adversely affect our business operations and results of operations.

Federal budget deficit concerns and the potential for political conflict over legislation to raise the U.S. government's debt limit may increase the possibility of a default by the U.S. government on its debt obligations, related credit-rating downgrades, or an economic recession in the United States. Many of our investment securities are issued by the U.S. government and government agencies and sponsored entities. As a result of uncertain domestic political conditions, including potential future federal government shutdowns, the possibility of the federal government defaulting on its obligations for a period of time due to debt ceiling limitations or other unresolved political issues, investments in financial instruments issued or guaranteed by the federal government pose liquidity risks. In connection with prior political disputes over U.S. fiscal and budgetary issues leading to the U.S. government shutdown in 2011, S&P lowered its long term sovereign credit rating on the U.S. from AAA to AA+. A further downgrade, or a downgrade by other rating agencies, as well as sovereign debt issues facing the governments of other countries, could have a material adverse impact on financial markets and economic conditions in the U.S. and worldwide.

*Our business, financial condition, liquidity and results of operations could be adversely affected by a health pandemic such as the COVID-19 pandemic or other health crisis.*

A pandemic or other health crisis could destabilize the financial markets and the general economy. Forced shutdowns or regulations limiting business could have an adverse effect on our customers, limiting their ability to satisfy obligations and limiting growth or demand for our loans and other services, which could affect our liquidity, financial condition and results of operations.

*The effects of climate change and resulting government regulations could adversely affect BOK Financial and BOK Financial customers.*

The current and anticipated effects of climate change have resulted in increased political and social attention. Climate changes present physical and transition risks to BOK Financial, both of which are expected to increase over time. Physical risks relate to the harm of people or property arising from acute, climate-related disaster events such as hurricanes or tornadoes, as well as longer-term chronic phenomena such as higher average temperatures. Physical risks specific to BOK Financial include:

- Increases in extreme weather events could damage or destroy the property of BOK Financial or its customers, disrupting operations and causing significant expenditures.
- Significant damages to real properties securing our loans could cause the value of the loan portfolio to contract. Borrowers may be unable to make payments on loans increasing delinquency rates and average loan loss severity.
- Wide-ranging weather disasters, including but not limited to, long periods of drought and rising sea levels, could result in an economic downturn and a decline in market conditions. Liquidity risks could arise as operational needs change for both BOK Financial and its customers.
- We may not have adequate insurance coverage for some potential natural, catastrophic climate change-related events.

Transition risks relate to stresses arising from the shifts in regulatory policies, consumer or business sentiment, or technologies required to limit climate change. The U.S. Congress, state legislatures and federal and state regulatory agencies have continued to propose and advance numerous legislative and regulatory initiatives seeking to mitigate the effects of climate change. Transition risks specific to BOK Financial include:

- Compliance, operating, maintenance and remediation costs may require a significant amount of capital affecting BOK Financial's liquidity position.

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- BOK Financial's credit portfolios include carbon-intensive industries, which could be adversely impacted by the transition to a low-carbon economy. BOK Financial has a long-standing relationship with the energy industry, and the local economies within BOK Financial's geographical footprint have a concentration in energy-related industries. The regulatory impacts on the energy industry could lead to sharp changes in the values of certain assets or liabilities, increase costs, hinder financial results and shrink the industry. These changes could have a significant effect on the general economic conditions within our footprint.

## Credit Risk Factors

### *Adverse regional economic developments could negatively affect BOK Financial's business.*

At December 31, 2022, loans to businesses and individuals with collateral primarily located in Texas represented approximately 32% of the total loan portfolio, loans to businesses and individuals with collateral primarily located in Oklahoma represented approximately 16% of our total loan portfolio and loans to businesses and individuals with collateral primarily located in Colorado represented approximately 11% of our total loan portfolio. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas. Poor economic conditions in Texas, Oklahoma, Colorado or other markets in the southwest region may cause BOK Financial to incur losses associated with higher default rates and decreased collateral values in BOK Financial's loan portfolio. A regional economic downturn could also adversely affect revenue from brokerage and trading activities, mortgage loan originations and other sources of fee-based revenue.

### *Extended oil and gas commodity price downturns could negatively affect BOK Financial customers.*

At December 31, 2022, 15% of BOK Financial's total loan portfolio is comprised of loans to borrowers in the energy industry. The energy industry is historically cyclical, and prolonged periods of low oil and gas commodity prices could negatively impact borrowers' ability to pay. In addition, the Company does business in several major oil and natural gas producing states including Oklahoma, Texas and Colorado. The economies of these states could be negatively impacted by prolonged periods of low oil and gas commodity prices resulting in increased credit migration to classified and nonaccruing categories, higher loan loss provisions and risk of credit losses from both energy borrowers and businesses and individuals in those regional economies.

### *Other adverse economic factors affecting particular industries could have a negative effect on BOK Financial customers and their ability to make payments to BOK Financial.*

Certain industry-specific economic factors also affect BOK Financial. For example, BOK Financial's loan portfolio includes commercial real estate loans. A downturn in the real estate industry in general or in certain segments of the commercial real estate industry in the southwest region could also have an adverse effect on BOK Financial's operations. Regulatory changes in healthcare may negatively affect our customers. Legislation affecting reimbursement rates along with the continued transition to managed care in place of fee for service payments could affect their ability to pay.

### *Adverse global economic factors could have a negative effect on BOK Financial customers and counterparties.*

Economic conditions globally could impact BOK Financial's customers and counterparties with which we do business. Pandemics, such as the COVID-19 pandemic, may affect economies around the world. The Russia-Ukraine conflict has resulted in volatile oil prices as well as affected other global economic factors.

BOK Financial, its customers and counterparties may be negatively affected by the volatility and uncertainty related to inflation and the effects of inflation. Prolonged periods of inflation may impact our profitability by negatively affecting our fixed costs and expenses, including increasing funding costs and expenses related to talent acquisition and retention. Additionally, inflation may lead to a decrease in consumer purchasing power and negatively impact the need or demand for our products or services. If significant inflation continues, the creditworthiness of our borrowers and their ability to repay loans timely may be affected.

The Company, its customers and counterparties may also be adversely affected by global events, such as natural disasters, and other external events beyond our control, including public health issues, terrorist attacks and acts of war. These global events may significantly affect long-term and short-term interest rates, energy prices, the value of financial assets and ultimately economic activity in our primary markets. The adverse effect of these events on the Company may include narrowing of the spread between interest income and interest expense, a reduction in fee income, an increase in credit losses and a decrease in demand for loans and other products and services.

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# **Liquidity, Price, and Interest Rate Risk Factors**

# *Fluctuations in interest rates could adversely affect BOK Financial's business.*

BOK Financial's business is highly sensitive to:

- the monetary policies implemented by the Federal Reserve Board, including the discount rate on bank borrowings and changes in reserve requirements, which affect BOK Financial's ability to make loans and the interest rates we may charge;
- changes in prevailing interest rates, due to the dependency of the subsidiary banks on interest income;
- changes in depositor behavior; and
- open market operations in U.S. government securities.

A significant increase in market interest rates, or the perception that an increase may occur, could adversely affect both BOK Financial's ability to originate new loans and BOK Financial's ability to grow. Conversely, a decrease in interest rates could result in acceleration in the payment of loans, including loans underlying BOK Financial's holdings of residential mortgage-backed securities and termination of BOK Financial's mortgage servicing rights. In addition, changes in market interest rates, changes in the relationships between short-term and long-term market interest rates or changes in the relationships between different interest rate indices, could affect the interest rates charged on interest-earning assets differently than the interest rates paid on interest-bearing liabilities. This difference could result in an increase in interest expense relative to interest income, which would reduce the Company's net interest revenue. In a rising interest rate environment, the composition of the deposit portfolio could shift resulting in a mix that is more sensitive to changes in interest rates than is the current mix. Deposit repricing behavior may also differ from our models or from previous rate increases. An increase in market interest rates also could adversely affect the ability of BOK Financial's floating-rate borrowers to meet their higher payment obligations. If this occurred, it could cause an increase in nonperforming assets and net charge-offs which could adversely affect BOK Financial's business.

On March 5, 2021, the U.K. Financial Conduct Authority ("FCA") confirmed that the publication of the principal tenors of the U.S. dollar London Interbank Offered Rate ("LIBOR") will cease immediately following a final publication on June 30, 2023. Further, U.S. regulators released a joint inter-agency statement about their expectations that banks cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021. On March 15, 2022, the President of the United States of America signed into law the Adjustable Interest Rate (LIBOR) Act ("LIBOR Act"). Under the LIBOR Act, on the first London banking day after June 30, 2023 ("LIBOR Replacement Date"), a benchmark replacement recommended by the Board of Governors of the Federal Reserve System ("Board") will replace LIBOR in specific contracts. In the fourth quarter of 2022, the Board issued its final regulations ("Final Regulations") implementing the LIBOR Act. The Final Regulations: (i) address the applicability of the LIBOR Act to various LIBOR contracts, (ii) identify the Board-selected benchmark replacements for various types of LIBOR contracts, (iii) include specific benchmark replacement conforming changes, (iv) address the issue of preemption and (v) provide other clarifications, definitions, and information. The regulations will become effective thirty (30) days after the publication of the Final Regulation in the Federal Register.

The Company ceased production of new LIBOR-based exposure as of December 31, 2021 and now offers floating rate products in various alternative reference rates with the majority of volume being observed thus far in simple or term rate versions of the Secured Overnight Financing Rate ("SOFR"). Key loan provisions have been modified so that new and renewed loans include LIBOR fallback language designed to ensure the smoothest possible transition from LIBOR to the new benchmark when such transition occurs. All existing financial contracts with direct exposure to LIBOR have been inventoried. The Company has taken action to transition these exposures to an alternative reference rate in advance of the June 30, 2023 deadline. However, if exposures are not transitioned as of the LIBOR Replacement Date, the organization expects to implement the fallback language of each contract or follow the LIBOR Act as appropriate. Additionally, the Company has some debt instruments subject to the LIBOR Act. The overall economic impact of the LIBOR transition to the organization is expected to be minimal as the Company is implementing appropriate credit spread adjustments to exposures that are being transitioned from LIBOR to SOFR.

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*Changes in mortgage interest rates could adversely affect mortgage banking operations along with mortgage servicing rights as well as BOK Financial's substantial holdings of residential mortgage-backed securities, and brokerage and trading revenue.*

BOK Financial derives a substantial amount of revenue from mortgage banking activities, the production and sale of mortgage loans and the servicing of mortgage loans. In addition, as part of BOK Financial's mortgage banking business, BOK Financial has substantial holdings of mortgage servicing rights. Revenue generated from the production and sale of mortgage loans is affected by mortgage interest rates and government policies related to economic stimulus and home ownership. Falling interest rates tend to increase mortgage lending activities and related revenue while rising interest rates have an opposite effect.

Mortgage servicing revenue is a fee earned over the life of the related loan. However, mortgage servicing rights are assets that are carried at fair value, which are very sensitive to numerous factors with the primary factor being changes in market interest rates. Falling interest rates tend to increase loan prepayments, which may lead to a decrease in the value of related servicing rights. We attempt to manage this risk by maintaining an active hedging program. The primary objective of the Company's hedging program is to provide an offset to changes in the fair value of these rights due to hedgeable risks, primarily changes in market interest rates. Due to numerous unhedgeable factors, hedging strategies may not offset all changes in the fair value of the asset. Such unhedgeable factors include, but are not limited to, changes in customer prepayment or delinquency behavior that is inconsistent with historical actual performance in a similar market environment; changes in the long-term or short-term primary/secondary mortgage spreads; and changes in survey-driven assumptions such as the cost of servicing and discount rates.

We also hold a substantial portfolio of residential mortgage-backed securities issued by U.S. government agencies. The fair value of residential mortgage-backed securities is highly sensitive to changes in interest rates. A significant decrease in interest rates may lead mortgage holders to refinance the mortgages constituting the pool backing the securities subjecting BOK Financial to a risk of prepayment and decreased return on investment due to subsequent reinvestment at lower interest rates. A significant decrease in interest rates may also accelerate premium amortization. Conversely, a significant increase in interest rates may cause mortgage holders to extend the term over which they repay their loans, which delays the Company's opportunity to reinvest funds at higher rates. We mitigate this risk somewhat by investing principally in shorter duration mortgage products which are less sensitive to changes in interest rates; however this strategy may not be successful.

In addition, the Company actively engages in trading activities that provide U.S. government agency residential mortgage-backed securities and related derivative instruments to our customers. Trading activities generate net interest revenue and trading revenue. Trading revenue and customer hedging revenue varies in response to customer demand. The value of trading securities will increase in response to decreases in interest rates or decrease in response to increases in interest rates and other bond market factors. We mitigate the market risk of holding trading securities through appropriate economic hedging techniques, which may not be effective.

*Models may fail to reasonably predict changes in values caused by changes in interest rates, prepayment speeds, and other relevant stimuli, which could adversely affect our business or results of operations.*

We use quantitative models to assist in measuring risk and predicting changes in the value of financial instruments. The outputs of these models are used to determine hedging strategy related to mortgage servicing rights, mortgage production pipeline and trading securities. We also use models to estimate the effects of changing interest rates and other market measures in order to adequately structure assets and liabilities to manage interest rate sensitivity. Inaccurate information obtained from these models could result in poor management decisions that lead to an elevated exposure to interest rates which could adversely affect our results of operations.

*Market disruptions could impact BOK Financial's funding sources.*

BOK Financial's subsidiary bank may rely on other financial institutions and the Federal Home Loan Bank of Topeka as a significant source of funds. Our ability to fund loans, manage our interest rate risk and meet other obligations depends on funds borrowed from these sources. The inability to borrow funds at market interest rates could have a material adverse effect on our operations.

14

# Operating and Transaction Risk Factors

### ***Dependence on technology increases cybersecurity, data privacy and technology failure risk.***

The Company is dependent on its technological ability to process, record and monitor a large number of customer transactions and store and protect a significant amount of sensitive customer information. Our customers' use of our internet-based services, and our customer and regulatory expectations regarding operational and information security and reliability have increased over time. We face compliance risks and costs relating to the data privacy laws existing in multiple jurisdictions. Congress and the legislatures of states in which we operate regularly consider legislation that would impose more stringent data privacy requirements resulting in increased compliance costs.

Cybersecurity risks for financial institutions have increased significantly in recent years in part because of the proliferation of new technologies, the increased use of the internet and mobile technologies to conduct financial transactions, and the increased sophistication and ever changing cyberattack techniques used by organized crime, hackers, terrorists, hostile foreign governments and other external parties to obtain confidential customer information and misappropriate customer funds, and may disrupt operations through Ransomware. Such parties may seek to gain access to our systems directly or use equipment or security passwords belonging to employees, customers, third party services providers or other users of our systems. Accordingly, our operational systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions, breakdowns and cyber attacks.

Our business, financial, accounting, data processing systems and other operating systems and facilities may stop operating properly or become disabled as a result of a number of factors that may be wholly or partially beyond our control. In addition to cyber attacks, there could be sudden increases in customer transaction volume, electrical or telecommunications outages, extended disruptions in operations or technology, natural disasters, pandemics, and events arising from political or social matters, including terrorist attacks. Third parties with whom we do business or that facilitate our business activities including exchanges, clearing houses, financial intermediaries or vendors that provide services or security solutions for our operations, could also be sources of operational or information security risk to the Company including breakdowns or failures of their own systems, capacity constraints or cyber attacks.

Cybersecurity risk management programs are expensive to maintain and will not protect the Company from all risks associated with maintaining the security of customer data from external and internal intrusions, disaster recovery and failures in controls used by our vendors. A material breach of customer data security or operational or system failure may negatively impact our business reputation and cause a loss of customers, result in increased expense to contain the event and/or require that we provide credit monitoring services for or reimburse affected customers, result in regulatory fines, penalties or intervention, or result in litigation, all of which could have a materially adverse effect on our results of operations and financial condition.

Although to date we have not experienced any material losses relating to cyber attacks or other information security breaches or operational failures, there can be no assurance that we will not suffer such losses in the future. Attempts to compromise our cybersecurity are regular and frequent. Our risk and exposure to these matters remains heightened, and as a result the continued development and enhancement of our controls, processes and practices designed to protect and facilitate the recovery of our systems, computers, software, data and networks from attack, damage or unauthorized access remains a high priority for us. As an additional layer of protection, we have purchased network and privacy liability risk insurance coverage. Our cybersecurity insurance may not provide sufficient coverage in the event of a breach or may not be available in the future on acceptable terms.

### ***We depend on third parties for critical components of our infrastructure.***

We outsource a significant portion of our information systems, communications, data management and transaction processing to third parties. These third parties are sources of risk associated with operational errors, system interruptions or breaches, unauthorized disclosure of confidential information and misuse of intellectual property. If the service providers encounter any of these issues, we could be exposed to disruption of service, reputation damages, and litigation risk that could be material to our business.

### ***Our business may be adversely affected if we are unable to hire and retain qualified employees.***

An increasing competitive factor in the financial services industry is the ability to attract and retain talented and diverse employees across several lines of business. The transition by many employers to remote work and work-from-home that occurred during the COVID-19 pandemic seems likely to continue. Employers, now less constrained by physical geography, particularly those in markets with elevated employee compensation, may increasingly compete for our employees.

15

# ***We may be adversely affected and experience losses related to fraud or theft.***

Attempts to commit fraud, including but not limited to, card fraud, check fraud, electronic fraud, wire fraud, social engineering and phishing attacks, are becoming increasingly more sophisticated and may go undetected by the systems and procedures we have in place to monitor our operations. We have experienced, and may experience again in the future, losses incurred due to customer, employee, or third party fraud and theft. These losses may be material, negatively affect our results of operations, financial condition or prospects, and may lead to significant reputational risks and other effects. We continue to invest in fraud prevention in the form of people and systems designed to prevent, detect and mitigate the customer and financial impacts.

# **Risks Related to an Investment in Our Stock**

*Although publicly traded, BOK Financial's common stock has substantially less liquidity than the average trading market for a stock quoted on the NASDAQ National Market System.*

A relatively small fraction of BOK Financial's outstanding common stock is actively traded. The risks of low liquidity include increased volatility of the price of BOK Financial's common stock. Low liquidity may also limit holders of BOK Financial's common stock in their ability to sell or transfer BOK Financial's shares at the price, time and quantity desired.

# ***BOK Financial's principal shareholder controls a majority of BOK Financial's common stock.***

Mr. George B. Kaiser owns approximately 57% of the outstanding shares of BOK Financial's common stock at December 31, 2022. Mr. Kaiser is able to elect all of BOK Financial's directors and effectively control the vote on all matters submitted to a vote of BOK Financial's common shareholders. Mr. Kaiser's ability to prevent an unsolicited bid for BOK Financial or any other change in control could have an adverse effect on the market price for BOK Financial's common stock. A substantial majority of BOK Financial's directors are not officers or employees of BOK Financial or any of its affiliates. However, because of Mr. Kaiser's control over the election of BOK Financial's directors, he could change the composition of BOK Financial's Board of Directors so that it would not have a majority of outside directors.

# ***Possible future sales of shares by BOK Financial's principal shareholder could adversely affect the market price of BOK Financial's common stock.***

Mr. Kaiser has the right to sell shares of BOK Financial's common stock in compliance with the federal securities laws at any time, or from time to time. The federal securities laws will be the only restrictions on Mr. Kaiser's ability to sell. Because of his current control of BOK Financial, Mr. Kaiser could sell large amounts of his shares of BOK Financial's common stock by causing BOK Financial to file a registration statement that would allow him to sell shares more easily. In addition, Mr. Kaiser could sell his shares of BOK Financial's common stock without registration under Rule 144 of the Securities Act. Although BOK Financial can make no predictions as to the effect, if any, that such sales would have on the market price of BOK Financial's common stock, sales of substantial amounts of BOK Financial's common stock, or the perception that such sales could occur, could adversely affect market prices. If Mr. Kaiser sells or transfers his shares of BOK Financial's common stock as a block, another person or entity could become BOK Financial's controlling shareholder.

# ***Statutory restrictions on subsidiary dividends and other distributions and debts of BOK Financial's subsidiaries could limit amounts BOK Financial's subsidiaries may pay to BOK Financial.***

A substantial portion of BOK Financial's cash flow typically comes from dividends paid by BOKF, NA. Statutory provisions and regulations restrict the amount of dividends BOKF, NA may pay to BOK Financial without regulatory approval. Management also developed, and the BOK Financial Board of Directors approved, an internal capital policy that is more restrictive than the regulatory capital standards. In the event of liquidation, creditors of the subsidiary banks and other non-bank subsidiaries of BOK Financial are entitled to receive distributions from the assets of that subsidiary before BOK Financial, as holder of an equity interest in the subsidiaries, is entitled to receive any distributions.

16

# **ITEM 1B. UNRESOLVED STAFF COMMENTS**

None.

# **ITEM 2. PROPERTIES**

BOK Financial and its subsidiaries own and lease improved real estate that is carried at $386 million, net of depreciation and amortization. The Company's principal offices are located in leased premises in the Bank of Oklahoma Tower in Tulsa, Oklahoma. Banking offices are primarily located in Tulsa and Oklahoma City, Oklahoma; Dallas, Fort Worth and Houston, Texas; Albuquerque, New Mexico; Denver, Colorado; Phoenix, Arizona; and Kansas City, Kansas/Missouri. Primary operations facilities are located in Tulsa and Oklahoma City, Oklahoma; Dallas, Texas and Albuquerque, New Mexico. The Company's facilities are suitable for their respective uses and present needs.

The information set forth in Note 5 of the Company's Notes to Consolidated Financial Statements, which appear elsewhere herein, provides further discussion related to properties.

# **ITEM 3. LEGAL PROCEEDINGS**

The information set forth in Note 14 of the Company's Notes to Consolidated Financial Statements, which appear elsewhere herein, provides discussion related to legal proceedings.

# **ITEM 4. MINE SAFETY DISCLOSURES**

Not applicable.

17

## PART II

### ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

BOK Financial's $0.00006 par value common stock is traded on the NASDAQ Stock Market under the symbol BOKF. As of January 31, 2023, common shareholders of record numbered 647 with 66,971,817 shares outstanding.

The highest and lowest quarterly closing bid price for shares and cash dividends declared per share of BOK Financial common stock follows:

|  | First | Second | Third | Fourth |
| --- | --- | --- | --- | --- |
| 2022: |  |  |  |  |
| Low | $93.95 | $74.40 | $71.14 | $90.41 |
| High | 115.68 | 92.60 | 95.05 | 109.57 |
| Cash dividends declared | 0.53 | 0.53 | 0.53 | 0.54 |
| 2021: |  |  |  |  |
| Low | $68.97 | $83.71 | $77.86 | $90.31 |
| High | 97.60 | 92.25 | 91.80 | 108.91 |
| Cash dividends declared | 0.52 | 0.52 | 0.52 | 0.53 |

18

## Shareholder Return Performance Graph

Set forth below is a line graph comparing the change in cumulative shareholder return of the NASDAQ Composite Index, the Keefe, Bruyette & Woods (KBW) NASDAQ Bank Index and the KBW NASDAQ Regional Banking Index for the period commencing December 31, 2017 and ending December 31, 2022.* We are adding in the KBW Regional Bank Index this year, to eventually replace KBW NASDAQ Bank Index in our performance graph as the composition of the KBW Regional Bank index is more relevant to our size and market cap. Furthermore, BOKF is included in the KBW Regional Banking Index.

### Total Return Performance

![img-0.jpeg](img-0.jpeg)

| Index | Period Ending December 31, |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 |
| BOK Financial Corporation | 100.00 | 81.02 | 98.92 | 80.15 | 126.31 | 127.05 |
| NASDAQ Composite | 100.00 | 97.16 | 132.81 | 192.47 | 235.15 | 158.65 |
| KBW NASDAQ Bank Index | 100.00 | 82.29 | 112.01 | 100.46 | 138.97 | 109.23 |
| KBW NASDAQ Regional Banking Index | 100.00 | 82.50 | 102.15 | 93.25 | 127.42 | 118.59 |

* Graph assumes value of an investment in the Company's Common Stock for each index was $100 on December 31, 2017. Cash dividends on Common Stock are assumed to have been reinvested in BOK Financial Common Stock.

19

The following table provides information with respect to purchases made by or on behalf of the Company or any 'affiliated purchaser' (as defined in Rule 10b-18(a)(3) under the Securities Exchange Act of 1934), of the Company's common stock during the three months ended December 31, 2022.

| Period | Total Number of Shares Purchased 2 | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs 1 | Maximum Number of Shares that May Yet Be Purchased Under the Plans |
| --- | --- | --- | --- | --- |
| October 1, 2022 to October 31, 2022 | - | $ - | - | 348,535 |
| November 1, 2022 to November 30, 2022 | 244,406 | $104.26 | 244,406 | 4,755,594 |
| December 1, 2022 to December 31, 2022 | 70,000 | $99.25 | 70,000 | 4,685,594 |
| Total | 314,406 |  | 314,406 |  |

$^{1}$ On November 1, 2022, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock. As of December 31, 2022, the Company had repurchased 314,406 shares under this plan. This authorization replaces a previous authorization for the repurchase of five million common shares, under which 4,651,465 shares were repurchased. Future repurchases of the Company's common stock will vary based on market conditions, regulatory limitations and other factors.

$^{2}$ The Company may repurchase shares from employees to cover the exercise price and taxes in connection with employee shared-based compensation.

20

## ITEM 6. SELECTED FINANCIAL DATA

The selected financial data is set forth within Table 1 of Item 7, 'Management's Discussion and Analysis of Financial Condition and Results of Operations.'

## ITEM 7. Management's Discussion and Analysis of Financial Condition and Results of Operations

**Table 1 - Consolidated Selected Financial Data**

|  | December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Selected Financial Data |  |  |  |
| Earnings per share (based on average equivalent shares): |  |  |  |
| Basic | $7.68 | $8.95 | $6.19 |
| Diluted | 7.68 | 8.95 | 6.19 |
| Percentages (based on daily averages): |  |  |  |
| Return on average assets | 1.11% | 1.23% | 0.89% |
| Return on average shareholders' equity | 10.81% | 11.59% | 8.55% |
| Dividend payout ratio | 27.65% | 23.29% | 33.04% |
| Allowance for loan losses to loans, excluding PPP loans 1 | 1.05% | 1.29% | 1.82% |
| Combined allowance for credit losses to loans, excluding PPP loans 1,2 | 1.32% | 1.45% | 2.00% |

$^{1}$ Metric meaningful due to the U.S. government agency guarantee and short-term nature of the Paycheck Protection Program ('PPP') loans.

$^{2}$ Includes allowance for loan losses and accrual for off-balance sheet credit risk.

## Management's Assessment of Operations and Financial Condition

### Overview

The following discussion is management's analysis to assist in the understanding and evaluation of the financial condition and results of operations of BOK Financial Corporation ('BOK Financial' or 'the Company'). This discussion should be read in conjunction with the Consolidated Financial Statements and footnotes and selected financial data presented elsewhere in this report. This section and other sections provide information about our recent financial performance. For information about results of operations for 2021 compared with 2020, see the respective sections in Management's Discussion and Analysis included in our 2021 Form 10-K filed February 23, 2022.

Economic conditions have been volatile in 2022 with soaring inflation, fluctuating oil prices caused by the Russia-Ukraine conflict and the lingering effects of the COVID-19 pandemic. In order to combat rising inflation, the Federal Reserve began increasing the Federal Funds rate in March and continued to do so through the end of the year for a total 425 basis point increase. Consumer spending has remained high through 2022, and unemployment remains low at 3.5% for December 2022. See 'Summary of Credit Loss Experience' section of Management's Discussion and Analysis for additional discussion around our economic forecast.

21

## *Performance Summary*

Net income for the year ended December 31, 2022 totaled $520.3 million or $7.68 per diluted share compared with net income of $618.1 million or $8.95 per diluted share for the year ended December 31, 2021. Pre-provision net revenue ('PPNR'), a non-GAAP measure, was $690.1 million for 2022 compared to $697.9 million in the prior year.

Highlights of 2022 included:

- • Net interest revenue totaled \$1.2 billion for 2022, an increase of \$93.3 million over the prior year. Net interest margin was 2.98% for 2022 compared to 2.60% for 2021. In response to rising inflation, the Federal Reserve increased the federal funds rate 425 basis points since the beginning of the year. The resulting impact on market interest rates has increased net interest margin as our earning assets, led by our significant percentage of variable-rate commercial loans, reprice at a higher rate and faster pace than our interest-bearing liabilities. Average earning assets were \$40.1 billion for 2022, down \$3.7 billion compared to 2021, largely due to decreased trading securities.
- • Fees and commissions revenue was \$657.2 million for 2022, a decrease of \$11.1 million compared to 2021. Mortgage banking revenue decreased \$56.5 million due to a decrease in mortgage production volume caused by rising mortgage interest rates and continued housing inventory shortages. Other revenue decreased \$14.3 million, primarily due to lower production revenue on repossessed oil and gas properties sold in 2021. Brokerage and trading revenues grew \$28.0 million, largely due to increased customer hedging and investment banking revenues. Fiduciary and asset management revenue increased \$18.1 million with growth in mutual fund fees and decreased fee waivers.
- • Other gains and losses, net decreased \$63.6 million due to sales of an alternative investment and repossessed assets in the prior year.
- • Other operating expense totaled \$1.2 billion, a \$13.2 million decrease compared to 2021. Personnel expense decreased \$24.5 million, primarily driven by lower incentive compensation costs, partially offset by higher regular compensation. Non-personnel expense increased \$11.2 million, largely due to additional business promotion fees, project-related data processing and communications and professional fees. These were partially offset by lower mortgage banking costs and expenses on repossessed assets.
- • The net economic cost of the changes in the fair value of mortgage servicing rights and related economic hedges was \$12.5 million during 2022 compared to an economic benefit of \$21.0 million during 2021 due to increased market volatility throughout 2022.
- • We recorded a \$30.0 million provision for expected credit losses in 2022, primarily due to strong growth in loans and loan commitments, partially offset by improvement in credit quality metrics. The uncertainty in our economic forecast increased and some key economic factors were less favorable to growth across all scenarios. A negative \$100.0 million provision for expected credit losses was recorded in 2021. The combined allowance for credit losses totaled \$296.6 million or 1.31% of outstanding loans at December 31, 2022. The combined allowance for credit losses was \$289.4 million or 1.43% of outstanding loans at December 31, 2021.
- • Nonperforming assets not guaranteed by U.S. government agencies decreased \$23.7 million compared to December 31, 2021. Potential problem loans decreased \$128 million and other loans especially mentioned increased \$5.5 million. Net charge-offs were \$21.1 million or 0.10% of average loans in 2022. Net loans charged-off were \$37.0 million or 0.17% of average loans in 2021.
- • Period-end outstanding loan balances increased \$2.4 billion to \$22.6 billion at December 31, 2022. Of this increase, commercial loans increased \$1.7 billion, commercial real estate loans increased \$775 million, and loans to individuals grew by \$146 million. Paycheck Protection Program loans decreased \$262 million. Average outstanding loan balances were \$21.3 billion, a \$216 million decrease.
- • Average deposits decreased \$70 million to \$37.9 billion and period-end deposits decreased \$6.8 billion to \$34.5 billion, primarily driven by institutional clients moving to off-balance sheet alternatives seeking higher yields.
- • The Company's common equity Tier 1 capital ratio was 11.69% at December 31, 2022. In addition, the Tier 1 capital ratio was 11.71%, total capital ratio was 12.67% and leverage ratio was 9.91% at December 31, 2022. At December 31, 2021, the Tier 1 capital ratio was 12.25%, the total capital ratio was 13.29% and the leverage ratio was 8.55%.
- • The Company repurchased 1,632,401 common shares at an average price of \$94.88 per share during 2022 and 1,359,657 common shares at an average price of \$86.74 during 2021.

22

• The Company paid cash dividends of $2.13 per common share during 2022 and $2.09 per common share in 2021.

Net income for the fourth quarter of 2022 totaled $168.4 million or $2.51 per diluted share, compared to $156.5 million or $2.32 per diluted share for the third quarter of 2022.

Highlights of the fourth quarter of 2022 included:

- Net interest revenue totaled $352.6 million for the fourth quarter of 2022, an increase of $36.3 million compared to the prior quarter. Net interest margin was 3.54% compared to 3.24%. In response to rising inflation, the Federal Reserve increased the federal funds rate another 125 basis points in the fourth quarter. The resulting impact on market interest rates increased our net interest margin.
- Fees and commissions revenue was relatively consistent with the prior quarter at $193.6 million. Increased brokerage and trading revenue, transaction card revenue, and other revenue was offset by lower revenue from mortgage banking and deposit service charges.
- Operating expense increased $23.7 million to $318.5 million. Personnel expense increased $16.1 million, largely driven by higher incentive compensation expense. Non-personnel expense increased $7.6 million, primarily related to project-related professional fees and data processing and communications costs.
- We recorded a $15.0 million provision for expected credit losses in the fourth quarter of 2022, primarily due to strong growth in loans and loan commitments. The level of uncertainty in the economic outlook remained high and key economic factors in the base case were slightly less favorable to economic growth. We also recorded a $15.0 million provision for expected credit losses in the third quarter of 2022, primarily as a result of growth in loans and loan commitments during the quarter.

23

## Critical Accounting Policies & Estimates

The Consolidated Financial Statements and accompanying notes are prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP"). The Company's accounting policies are more fully described in Note 1 of the Consolidated Financial Statements. Management makes significant assumptions and estimates in the preparation of the Consolidated Financial Statements and accompanying notes in conformity with GAAP that may be highly subjective, complex and subject to variability. Actual results could differ significantly from these assumptions and estimates. The following discussion addresses the most critical areas where these assumptions and estimates could affect the financial condition, results of operations and cash flows of the Company. These critical accounting policies and estimates have been discussed with the appropriate committees of the Board of Directors.

### *Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Loan Commitments*

The allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments represent the portion of amortized cost basis of loans and related unfunded commitments we do not expect to collect over the asset's contractual life, considering past events, current conditions, as well as reasonable and supportable forecasts of future economic conditions. Appropriateness of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments is determined by a senior management Allowance Committee which requires judgment about effects of uncertain matters, resulting in a subjective calculation which is inherently imprecise. Because of the subjective forward-looking nature of the calculation, changes in these measures may not directly correlate with actual economic events. In future periods, management judgment may consider new or changed information which may cause significant changes in these allowances in those future periods.

On January 1, 2020, BOK Financial's accounting policies changed significantly with the adoption of Financial Accounting Standards Board ("FASB") Accounting Standards Update No. 2016-13 *Financial Instruments - Credit Losses (Topic 326): Assets Measured at Amortized Cost* ("ASU 2016-13" or "CECL"). Prior years were not restated. Prior to January 1, 2020, general allowances and nonspecific allowances were based on incurred credit losses. See Note 4 to the Consolidated Financial Statements for the description of the expected credit losses calculation of the allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments.

For the majority of risk-graded loans, the accruing loan's expected credit loss estimate is sensitive to management judgment, particularly probability of default and loss given default assumptions, changes in specific macroeconomic factor forecasts and the probability weight assigned to each economic scenario, and appropriate adjustments.

Significant assumptions and estimates affecting the allowance for loan losses and accrual for off-balance sheet credit risk include:

- Probability of default and loss given default measurements are based on historical data that may not be a good predictor of future performance or actual losses.
- Probability of default is based on risk grades, a subjective measurement of the risk of a loan. This subjective assessment of risk may not reflect actual risk of loss.
- The forecast for each relevant economic loss driver and the probability weighting of economic scenarios are overseen by a senior management Economic Forecast Committee which includes members independent of the allowance process.
- The Allowance Committee may increase or decrease the allowance to reflect risks not captured in the quantitative component. Examples of circumstances that may result in adjustments include, but are not limited to, new lines of business, market conditions that have not been previously encountered, observed changes in credit risk that are not yet reflected in macroeconomic factors, or economic conditions that impact loss given default assumptions.

Although the resulting expected credit loss estimate represents management's best estimates at the time, actual credit losses will differ from management's estimate. Portfolio composition will change over time, actual economic conditions will differ from probability-weighted assumptions, borrower-specific circumstances will change, as well as other factors. Differences between actual losses and management's estimates may materially affect the Company's results of operations.

24

We describe critical elements affecting our estimate of expected credit loss in the 'Summary of Credit Loss Experience' section of Management's Discussion and Analysis. While it is challenging to evaluate the allowance impact for a change in a particular input, results of such an analysis demonstrate how the quantitative element of the allowance behaves under different conditions. The sensitivity to management's economic scenario weighting may be quantified by comparing the results of weighting each economic scenario at 100%. For example, compared to a 100% Base Case scenario, a 100% Downside case would result in an additional $117 million in quantitative reserve, while a 100% Upside Case would result in $18 million less in quantitative reserve at December 31, 2022. Such sensitivity calculations do not necessarily reflect the nature and extent of future changes in the related allowance for a number of reasons including (1) management's weighting of multiple forecasted economic scenarios in estimating expected credit losses; (2) management's predictions of future economic trends and relationships among the scenarios may differ from actual events; and (3) management's application of subjective measures to modeled results when appropriate.

### *Fair Value Measurement*

Certain assets and liabilities are recorded at fair value in the Consolidated Financial Statements. Fair value is defined by applicable accounting guidance as the price to sell an asset or transfer a liability in an orderly transaction between market participants in the principal markets for the given asset or liability at the measurement date based on market conditions at that date. An orderly transaction assumes exposure to the market for a customary period for marketing activities prior to the measurement date and not a forced liquidation or distressed sale.

A hierarchy for fair value has been established that prioritizes the inputs of valuation techniques used to measure fair value into three broad categories: unadjusted quoted prices in active markets for identical assets or liabilities (Level 1), other observable inputs that can be observed either directly or indirectly (Level 2) and unobservable inputs for assets or liabilities (Level 3). Fair value may be recorded for certain assets and liabilities every reporting period on a recurring basis or under certain circumstances on a non-recurring basis. Fair value measurements of significant assets or liabilities that are based on unobservable inputs (Level 3) are considered Critical Accounting Policies and Estimates. Additional discussion of fair value measurement and disclosure is included in Notes 7 and 19 of the Consolidated Financial Statements.

#### *Mortgage Servicing Rights*

We have a significant investment in mortgage servicing rights ('MSRs'). Our MSRs are primarily retained from sales in the secondary market of residential mortgage loans we have originated or purchased from correspondent lenders. MSRs may be purchased from other lenders. Both originated and purchased MSRs are initially recognized at fair value. We carry all MSRs at fair value. Changes in fair value are recognized in earnings as they occur.

MSRs are not traded in active markets. The fair value of MSRs is determined by discounting the projected cash flows. Certain significant assumptions and estimates used in valuing MSRs are based on current market sources including projected prepayment speeds, assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates. Assumptions used to value our MSRs are considered significant unobservable inputs and represent our best estimate of assumptions that market participants would use to value this asset. A separate third party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated periodically for changes in market conditions and adjusted to better correlate with actual performance of our servicing portfolio. The discount rate is based on benchmark rates for mortgage loans plus a market spread expected by investors in servicing rights. Significant assumptions used to determine the fair value of our MSRs are presented in Note 7 to the Consolidated Financial Statements. At least quarterly, we request estimates of fair value from outside sources to corroborate the results of the valuation model.

The assumptions used in this model are primarily based on mortgage interest rates. Evaluation of the effect of a change in one assumption without considering the effect of that change on other assumptions is not meaningful. Considering all related assumptions, we expect a 50 basis point increase in primary mortgage interest rates to increase the fair value of our servicing rights by $6.1 million. We expect an $8.2 million decrease in the fair value of our MSRs from a 50 basis point decrease in primary mortgage interest rates.

25

## *Results of Operations*

### **Net Interest Revenue and Net Interest Margin**

#### *2022 Net Interest Revenue*

Net interest revenue is the interest earned on debt securities, loans and other interest-earning assets less interest paid for interest-bearing deposits and other borrowings. The net interest margin is calculated by dividing tax-equivalent net interest revenue by average interest-earning assets. Net interest spread is the difference between the average rate earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is typically greater than net interest spread due to interest income earned on assets funded by non-interest bearing liabilities such as demand deposits and equity.

Tax-equivalent net interest revenue totaled $1.2 billion for 2022, an increase of $92.9 million over the prior year. This includes $7.3 million of PPP loan fees for 2022 and $42.7 million for 2021. Net interest revenue increased $100.8 million due to changes in interest rates and decreased $7.9 million from a decrease in earning assets, partially offset by a decrease in interest-bearing liabilities. Table 3 shows the effects on net interest revenue due to changes in average balances and interest rates for the various types of earning assets and interest-bearing liabilities. In addition, see the Annual Financial Summary of consolidated daily average balances, yields and rates as shown in Table 2.

Net interest margin was 2.98% for 2022 and 2.60% for 2021. The tax-equivalent yield on earning assets was 3.42% for 2022 compared to 2.74% in 2021. During 2022, the Federal Reserve increased the federal funds rate 425 basis points in response to rising inflation. The resulting impact on market interest rates has increased net interest margin as our earning assets, led by our significant percentage of variable-rate commercial loans, reprice at a higher rate and faster pace than our interest-bearing liabilities. Loan yields increased 100 basis points to 4.62%. The available for sale securities portfolio yield increased 27 basis points to 2.07%. The yield on trading securities grew 26 basis points to 2.24% and the yield on interest-bearing cash and cash equivalents increased 131 basis points to 1.44%.

Funding costs increased 49 basis points compared to 2021. The cost of interest-bearing deposits increased 39 basis points. The cost of other short-term borrowings increased 144 basis points. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 26 basis points for 2022, up from 7 basis points for 2021.

Average earning assets for 2022 decreased $3.7 billion or 9% compared 2021. Average trading securities balances decreased $3.1 billion in response to lower origination volumes in the residential mortgage industry driven by increases in mortgage interest rates. The average balance of available for sale securities, which consists largely of residential and commercial mortgage-backed securities guaranteed by U.S. government agencies, decreased $1.7 billion, while investment securities increased $1.3 billion. In the second quarter 2022, we transferred $2.4 billion of U.S. government agency mortgage-backed securities from available for sale to the investment securities portfolio to limit the effect of future rate increases on the tangible common equity ratio. Average loans, net of allowance for loan losses, decreased $136 million.

Total average deposits decreased $70 million compared to the prior year. Average interest-bearing transaction account balances decreased $1.1 billion while average demand deposit balances increased $1.4 billion. Average time deposits also decreased $430 million. Average short-term borrowings decreased $1.9 billion.

Our overall objective is to manage the Company's balance sheet in such a way as to limit exposure to changes in interest rates. These strategies are further described in the Market Risk section of this report. Approximately 79% of our commercial and commercial real estate loan portfolios are either variable rate loans or fixed rate loans that will reprice within one year. These loans are funded primarily by deposit accounts that are either non-interest bearing or that reprice more slowly than the loans. The result is a balance sheet that would be asset-sensitive which means that assets generally reprice more quickly than liabilities. One of the strategies that we use to manage toward a relative rate-neutral position is to purchase fixed rate residential mortgage-backed securities issued primarily by U.S. government agencies and fund them with market rate sensitive liabilities. The liability-sensitive nature of this strategy provides an offset to the asset-sensitive characteristics of our loan portfolio. We also may use derivative instruments to manage our interest rate risk.

The effectiveness of these strategies is reflected in the overall change in net interest revenue due to changes in interest rates as shown in Table 3 and in the interest rate sensitivity projections as shown in the Market Risk section of this report.

26

**Table 2 - Annual Financial Summary**

Consolidated Daily Average Balances, Average Yields and Rates

(Dollars in thousands, except per share data)

|  | Year Ended |  |  |
| --- | --- | --- | --- |
|  | December 31, 2022 |  |  |
|  | Average Balance | Revenue/ Expense | Yield/ Rate |
| Assets |  |  |  |
| Interest-bearing cash and cash equivalents | $801,180 | $11,552 | 1.44% |
| Trading securities | 4,723,130 | 115,295 | 2.24% |
| Investment securities | 1,493,322 | 24,490 | 1.64% |
| Available for sale securities | 11,643,103 | 249,361 | 2.07% |
| Fair value option securities | 64,776 | 2,145 | 3.40% |
| Restricted equity securities | 180,760 | 8,282 | 4.58% |
| Residential mortgage loans held for sale | 139,553 | 6,027 | 4.31% |
| Loans | 21,279,187 | 983,413 | 4.62% |
| Allowance for loan losses | (245,915) |  |  |
| Loans, net of allowance | 21,033,272 | 983,413 | 4.68% |
| Total earning assets | 40,079,096 | 1,400,565 | 3.42% |
| Receivable on unsettled securities sales | 310,974 |  |  |
| Cash and other assets | 6,634,566 |  |  |
| Total assets | $47,024,636 |  |  |
| Liabilities and equity |  |  |  |
| Interest-bearing deposits: |  |  |  |
| Transaction | $20,550,624 | $108,956 | 0.53% |
| Savings | 969,279 | 489 | 0.05% |
| Time | 1,446,613 | 12,304 | 0.85% |
| Total interest-bearing deposits | 22,966,516 | 121,749 | 0.53% |
| Funds purchased and repurchase agreements | 1,265,045 | 13,158 | 1.04% |
| Other borrowings | 1,628,972 | 39,325 | 2.41% |
| Subordinated debentures | 131,206 | 6,490 | 4.95% |
| Total interest-bearing liabilities | 25,991,739 | 180,722 | 0.70% |
| Non-interest bearing demand deposits | 14,884,765 |  |  |
| Due on unsettled securities purchases | 451,530 |  |  |
| Other liabilities | 879,691 |  |  |
| Total equity | 4,816,911 |  |  |
| Total liabilities and equity | $47,024,636 |  |  |
| Tax-equivalent net interest revenue |  | $1,219,843 | 2.72% |
| Tax-equivalent net interest revenue to earning assets |  |  | 2.98% |
| Less tax-equivalent adjustment |  | 8,463 |  |
| Net interest revenue |  | 1,211,380 |  |
| Provision for credit losses |  | 30,000 |  |
| Other operating revenue |  | 643,257 |  |
| Other operating expense |  | 1,164,480 |  |
| Net income before taxes |  | 660,157 |  |
| Federal and state income taxes |  | 139,864 |  |
| Net income |  | 520,293 |  |
| Net income attributable to non-controlling interests |  | 20 |  |
| Net income attributable to BOK Financial Corporation shareholders |  | $520,273 |  |
| Earnings Per Average Common Share Equivalent: |  |  |  |
| Net income: |  |  |  |
| Basic |  | $7.68 |  |
| Diluted |  | $7.68 |  |

Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield/rate calculations are generally based on the conventions that determine how interest income and expense is accrued.

27

**Table 2 - Annual Financial Summary (continued)**

Consolidated Daily Average Balances, Average Yields and Rates

(Dollars in thousands, Except Per Share Data)

|  | Year Ended |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | December 31, 2021 |  |  | December 31, 2020 |  |  |
|  | Average Balance | Revenue/ Expense | Yield/ Rate | Average Balance | Revenue/ Expense | Yield/ Rate |
| Assets |  |  |  |  |  |  |
| Interest-bearing cash and cash equivalents | $816,425 | $1,060 | 0.13% | $634,401 | $2,830 | 0.45% |
| Trading securities | 7,823,705 | 156,214 | 1.98% | 3,078,075 | 67,942 | 2.75% |
| Investment securities | 222,426 | 11,065 | 4.97% | 265,455 | 12,760 | 4.81% |
| Available for sale securities | 13,342,526 | 230,698 | 1.80% | 12,420,678 | 261,404 | 2.21% |
| Fair value option securities | 67,881 | 1,542 | 2.38% | 769,760 | 18,475 | 2.39% |
| Restricted equity securities | 195,488 | 5,703 | 2.92% | 281,594 | 10,963 | 3.89% |
| Residential mortgage loans held for sale | 188,888 | 5,465 | 2.93% | 215,296 | 6,397 | 3.05% |
| Loans | 21,495,156 | 777,124 | 3.62% | 23,402,195 | 898,445 | 3.84% |
| Allowance for loan losses | (326,121) |  |  | (368,820) |  |  |
| Loans, net of allowance | 21,169,035 | 777,124 | 3.67% | 23,033,375 | 898,445 | 3.90% |
| Total earning assets | 43,826,374 | 1,188,871 | 2.74% | 40,698,634 | 1,279,216 | 3.24% |
| Receivable on unsettled securities sales | 667,149 |  |  | 3,329,727 |  |  |
| Cash and other assets | 5,658,180 |  |  | 4,676,029 |  |  |
| Total assets | $50,151,703 |  |  | $48,704,390 |  |  |
| Liabilities and equity |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Transaction | $21,673,472 | $21,961 | 0.10% | $18,676,146 | $60,424 | 0.32% |
| Savings | 865,245 | 374 | 0.04% | 666,549 | 385 | 0.06% |
| Time | 1,876,901 | 11,149 | 0.59% | 2,220,749 | 29,187 | 1.31% |
| Total interest-bearing deposits | 24,415,618 | 33,484 | 0.14% | 21,563,444 | 89,996 | 0.42% |
| Funds purchased and repurchase agreements | 2,238,702 | 8,084 | 0.36% | 3,635,541 | 15,605 | 0.43% |
| Other borrowings | 2,599,861 | 9,793 | 0.38% | 4,659,453 | 41,011 | 0.88% |
| Subordinated debentures | 224,058 | 10,535 | 4.70% | 275,965 | 13,944 | 5.05% |
| Total interest-bearing liabilities | 29,478,239 | 61,896 | 0.21% | 30,134,403 | 160,556 | 0.53% |
| Non-interest bearing demand deposits | 13,505,359 |  |  | 11,201,554 |  |  |
| Due on unsettled securities purchases | 800,667 |  |  | 1,081,674 |  |  |
| Other liabilities | 1,013,050 |  |  | 1,193,445 |  |  |
| Total equity | 5,354,388 |  |  | 5,093,314 |  |  |
| Total liabilities and equity | $50,151,703 |  |  | $48,704,390 |  |  |
| Tax-equivalent net interest revenue |  | $1,126,975 | 2.53% |  | $1,118,660 | 2.71% |
| Tax-equivalent net interest revenue to earning assets |  |  | 2.60% |  |  | 2.83% |
| Less tax-equivalent adjustment |  | 8,942 |  |  | 10,216 |  |
| Net interest revenue |  | 1,118,033 |  |  | 1,108,444 |  |
| Provision for credit losses |  | (100,000) |  |  | 222,592 |  |
| Other operating revenue |  | 755,775 |  |  | 842,320 |  |
| Other operating expense |  | 1,177,708 |  |  | 1,164,308 |  |
| Net income before taxes |  | 796,100 |  |  | 563,864 |  |
| Federal and state income taxes |  | 179,775 |  |  | 128,793 |  |
| Net income |  | 616,325 |  |  | 435,071 |  |
| Net income (loss) attributable to non-controlling interests |  | (1,796) |  |  | 41 |  |
| Net income attributable to BOK Financial Corporation shareholders |  | $618,121 |  |  | $435,030 |  |
| Earnings Per Average Common Share Equivalent: |  |  |  |  |  |  |
| Net income: |  |  |  |  |  |  |
| Basic |  | $8.95 |  |  | $6.19 |  |
| Diluted |  | $8.95 |  |  | $6.19 |  |

28

**Table 3 - Annual Volume/Rate Analysis**

|  | Year Ended |  |  | Year Ended |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | December 31, 2022 / 2021 |  |  | December 31, 2021 / 2020 |  |  |
|  | Change | Change Due To 1 |  | Change | Change Due To 1 |  |
|  |  | Volume | Yield / Rate |  | Volume | Yield / Rate |
| Tax-equivalent interest revenue: |  |  |  |  |  |  |
| Interest-bearing cash and cash equivalents | $10,492 | $(111) | $10,603 | $(1,770) | $540 | $(2,310) |
| Trading securities | (40,919) | (58,095) | 17,176 | 88,272 | 128,039 | (39,767) |
| Investment securities | 13,425 | 43,575 | (30,150) | (1,695) | (2,018) | 323 |
| Available for sale securities | 18,663 | (14,377) | 33,040 | (30,706) | 20,115 | (50,821) |
| Fair value option securities | 603 | (50) | 653 | (16,933) | (16,899) | (34) |
| Restricted equity securities | 2,579 | (476) | 3,055 | (5,260) | (3,286) | (1,974) |
| Residential mortgage loans held for sale | 562 | (1,696) | 2,258 | (932) | (694) | (238) |
| Loans | 206,289 | (8,240) | 214,529 | (121,321) | (71,533) | (49,788) |
| Total tax-equivalent interest revenue | 211,694 | (39,470) | 251,164 | (90,345) | 54,264 | (144,609) |
| Interest expense: |  |  |  |  |  |  |
| Transaction deposits | 86,995 | (3,662) | 90,657 | (38,463) | 6,108 | (44,571) |
| Savings deposits | 115 | 35 | 80 | (11) | 121 | (132) |
| Time deposits | 1,155 | (3,132) | 4,287 | (18,038) | (3,277) | (14,761) |
| Funds purchased and repurchase agreements | 5,074 | (6,827) | 11,901 | (7,521) | (5,491) | (2,030) |
| Other borrowings | 29,532 | (13,467) | 42,999 | (31,218) | (13,023) | (18,195) |
| Subordinated debentures | (4,045) | (4,485) | 440 | (3,409) | (2,532) | (877) |
| Total interest expense | 118,826 | (31,538) | 150,364 | (98,660) | (18,094) | (80,566) |
| Tax-equivalent net interest revenue | 92,868 | (7,932) | 100,800 | 8,315 | 72,358 | (64,043) |
| Change in tax-equivalent adjustment | (479) |  |  | (1,274) |  |  |
| Net interest revenue | $93,347 |  |  | $9,589 |  |  |

$^{1}$ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

29

### *Fourth Quarter 2022 Net Interest Revenue*

Tax-equivalent net interest revenue totaled $354.9 million for the fourth quarter of 2022, an increase of $36.4 million compared to the third quarter of 2022. The rapid increase in interest rates combined with our strong loan growth and our asset-sensitive position drove a linked quarter increase in net interest revenue and a 30 basis point increase in net interest margin.

Net interest margin was 3.54% for the fourth quarter of 2022 compared to 3.24% for the third quarter of 2022. The Federal Reserve increased the federal funds rate 125 basis points in the fourth quarter in response to rising inflation. The resulting impact on market interest rates increased the net interest margin. The tax-equivalent yield on earning assets was 4.53% for the fourth quarter of 2022, an increase of 82 basis points compared to the third quarter of 2022. Loan yields increased 110 basis points to 5.99%. The yield on trading securities was up 98 basis points to 3.70% while the yield on available for sale securities increased 33 basis points to 2.54%. The yield on interest-bearing cash and cash equivalents increased 219 basis points to 4.06%.

Funding costs increased 81 basis points compared to the third quarter of 2022. The cost of other short-term borrowings increased 171 basis points while the cost of interest-bearing deposits increased 59 basis points. The cost of other borrowings was up 175 basis points to 4.08%. The cost of funds purchased and repurchase agreements increased 133 basis points to 2.05%. The benefit to net interest margin from earning assets funded by non-interest bearing liabilities was 58 basis points in the fourth quarter of 2022 and 29 basis points in the third quarter of 2022.

Average earning assets for the fourth quarter of 2022 increased $757 million over the third quarter of 2022. Average loans, net of allowance for loan losses, increased $375 million, largely due to growth in commercial and commercial real estate loans. Available for sale securities increased $648 million as we repositioned our balance sheet to a more rate-risk neutral position. Average interest bearing cash and cash equivalents decreased $180 million while average trading securities balances decreased $91 million.

Average deposits decreased $1.6 billion compared to the third quarter of 2022 as customers redeploy resources following the savings trend during the height of the COVID-19 pandemic. Average demand deposit balances decreased $929 million. Average interest-bearing transaction accounts decreased $658 million. Other borrowings increased $994 million while funds purchased and repurchase agreements increased $246 million.

30

**Table 4 - Quarterly Financial Summary**

Consolidated Daily Average Balances, Average Yields and Rates

(In thousands, except per share data)

|  | Three Months Ended |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | December 31, 2022 |  |  | September 30, 2022 |  |  |
|  | Average Balance | Revenue/ Expense | Yield/ Rate | Average Balance | Revenue/ Expense | Yield/ Rate |
| Assets |  |  |  |  |  |  |
| Interest-bearing cash and cash equivalents | $568,307 | $5,822 | 4.06% | $748,263 | $3,520 | 1.87% |
| Trading securities | 3,086,985 | 28,473 | 3.70% | 3,178,068 | 22,772 | 2.72% |
| Investment securities | 2,535,305 | 9,223 | 1.46% | 2,593,989 | 9,207 | 1.42% |
| Available for sale securities | 10,953,851 | 73,317 | 2.54% | 10,306,257 | 59,144 | 2.21% |
| Fair value option securities | 92,012 | 931 | 4.40% | 36,846 | 286 | 2.98% |
| Restricted equity securities | 216,673 | 3,088 | 5.70% | 173,656 | 2,703 | 6.23% |
| Residential mortgage loans held for sale | 98,613 | 1,390 | 5.56% | 132,685 | 1,684 | 5.05% |
| Loans | 21,976,004 | 331,649 | 5.99% | 21,599,232 | 265,997 | 4.89% |
| Allowance for loan losses | (242,450) |  |  | (241,136) |  |  |
| Loans, net of allowance | 21,733,554 | 331,649 | 6.06% | 21,358,096 | 265,997 | 4.94% |
| Total earning assets | 39,285,300 | 453,893 | 4.53% | 38,527,860 | 365,313 | 3.71% |
| Receivable on unsettled securities sales | 194,996 |  |  | 219,113 |  |  |
| Cash and other assets | 5,729,322 |  |  | 6,372,229 |  |  |
| Total assets | $45,209,618 |  |  | $45,119,202 |  |  |
| Liabilities and equity |  |  |  |  |  |  |
| Interest-bearing deposits: |  |  |  |  |  |  |
| Transaction | $18,898,315 | $60,893 | 1.28% | $19,556,806 | $31,266 | 0.63% |
| Savings | 969,275 | 205 | 0.08% | 978,596 | 135 | 0.05% |
| Time | 1,417,606 | 4,476 | 1.25% | 1,409,069 | 3,314 | 0.93% |
| Total interest-bearing deposits | 21,285,196 | 65,574 | 1.22% | 21,944,471 | 34,715 | 0.63% |
| Funds purchased and repurchase agreements | 1,046,447 | 5,407 | 2.05% | 800,759 | 1,445 | 0.72% |
| Other borrowings | 2,523,195 | 25,961 | 4.08% | 1,528,887 | 8,988 | 2.33% |
| Subordinated debentures | 131,180 | 2,038 | 6.16% | 131,199 | 1,677 | 5.07% |
| Total interest-bearing liabilities | 24,986,018 | 98,980 | 1.57% | 24,405,316 | 46,825 | 0.76% |
| Non-interest bearing demand deposits | 14,176,189 |  |  | 15,105,305 |  |  |
| Due on unsettled securities purchases | 575,957 |  |  | 331,428 |  |  |
| Other liabilities | 853,134 |  |  | 501,731 |  |  |
| Total equity | 4,618,320 |  |  | 4,775,422 |  |  |
| Total liabilities and equity | $45,209,618 |  |  | $45,119,202 |  |  |
| Tax-equivalent net interest revenue |  | $354,913 | 2.96% |  | $318,488 | 2.95% |
| Tax-equivalent net interest revenue to earning assets |  |  | 3.54% |  |  | 3.24% |
| Less tax-equivalent adjustment |  | 2,287 |  |  | 2,163 |  |
| Net interest revenue |  | 352,626 |  |  | 316,325 |  |
| Provision for credit losses |  | 15,000 |  |  | 15,000 |  |
| Other operating revenue |  | 197,086 |  |  | 189,698 |  |
| Other operating expense |  | 318,456 |  |  | 294,751 |  |
| Net income before taxes |  | 216,256 |  |  | 196,272 |  |
| Federal and state income taxes |  | 47,864 |  |  | 39,681 |  |
| Net income |  | 168,392 |  |  | 156,591 |  |
| Net income (loss) attributable to non-controlling interests |  | (37) |  |  | 81 |  |
| Net income attributable to BOK Financial Corp. shareholders |  | $168,429 |  |  | $156,510 |  |
| Earnings Per Average Common Share Equivalent: |  |  |  |  |  |  |
| Basic |  | $2.51 |  |  | $2.32 |  |
| Diluted |  | $2.51 |  |  | $2.32 |  |

Yield calculations are shown on a tax equivalent at the statutory federal and state rates for the periods presented. The yield calculations exclude security trades that have been recorded on trade date with no corresponding interest income and the unrealized gains and losses. The yield calculation also includes average loan balances for which the accrual of interest has been discontinued and are net of unearned income. Yield/rate calculations are generally based on the conventions that determine how interest income and expense is accrued

31

**Table 4 - Quarterly Financial Summary (continued)**

Consolidated Daily Average Balances, Average Yields and Rates

| Three Months Ended |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| June 30, 2022 |  |  | March 31, 2022 |  |  | December 31, 2021 |  |  |
| Average Balance | Revenue / Expense | Yield / Rate | Average Balance | Revenue / Expense | Yield / Rate | Average Balance | Revenue / Expense | Yield / Rate |
| $843,619 | $1,737 | 0.83% | $1,050,409 | $473 | 0.18% | $1,208,552 | $483 | 0.16% |
| 4,166,954 | 23,009 | 2.00% | 8,537,390 | 41,041 | 1.71% | 9,260,778 | 44,537 | 1.89% |
| 610,983 | 3,585 | 2.35% | 195,198 | 2,475 | 5.07% | 213,188 | 2,661 | 4.99% |
| 12,258,072 | 58,882 | 1.84% | 13,092,422 | 58,018 | 1.77% | 13,247,607 | 55,638 | 1.72% |
| 54,832 | 437 | 2.92% | 75,539 | 491 | 2.81% | 46,458 | 302 | 2.71% |
| 167,732 | 1,384 | 3.30% | 164,484 | 1,107 | 2.69% | 137,874 | 1,028 | 2.98% |
| 148,183 | 1,559 | 4.22% | 179,697 | 1,394 | 3.11% | 163,433 | 1,242 | 3.06% |
| 21,057,714 | 205,694 | 3.92% | 20,463,662 | 180,073 | 3.57% | 20,242,653 | 188,547 | 3.70% |
| (246,064) |  |  | (254,191) |  |  | (271,794) |  |  |
| 20,811,650 | 205,694 | 3.96% | 20,209,471 | 180,073 | 3.61% | 19,970,859 | 188,547 | 3.75% |
| 39,062,025 | 296,287 | 2.96% | 43,504,610 | 285,072 | 2.58% | 44,248,749 | 294,438 | 2.66% |
| 457,165 |  |  | 375,616 |  |  | 585,901 |  |  |
| 7,769,208 |  |  | 6,680,848 |  |  | 5,769,406 |  |  |
| $47,288,398 |  |  | $50,561,074 |  |  | $50,604,056 |  |  |
| $21,037,294 | $11,454 | 0.22% | $22,763,479 | $5,343 | 0.10% | $22,326,401 | $5,097 | 0.09% |
| 981,493 | 76 | 0.03% | 947,407 | 73 | 0.03% | 909,131 | 96 | 0.04% |
| 1,373,036 | 2,332 | 0.68% | 1,589,039 | 2,182 | 0.56% | 1,747,715 | 2,351 | 0.53% |
| 23,391,823 | 13,862 | 0.24% | 25,299,925 | 7,598 | 0.12% | 24,983,247 | 7,544 | 0.12% |
| 1,224,134 | 1,608 | 0.53% | 2,004,466 | 4,698 | 0.95% | 2,893,128 | 5,292 | 0.73% |
| 1,301,358 | 3,286 | 1.01% | 1,148,440 | 1,090 | 0.38% | 880,837 | 1,091 | 0.49% |
| 131,219 | 1,473 | 4.50% | 131,228 | 1,302 | 4.02% | 131,224 | 1,330 | 4.02% |
| 26,048,534 | 20,229 | 0.31% | 28,584,059 | 14,688 | 0.21% | 28,888,436 | 15,257 | 0.21% |
| 15,202,597 |  |  | 15,062,282 |  |  | 14,818,841 |  |  |
| 380,332 |  |  | 519,097 |  |  | 629,642 |  |  |
| 924,605 |  |  | 1,247,785 |  |  | 898,848 |  |  |
| 4,732,330 |  |  | 5,147,851 |  |  | 5,368,289 |  |  |
| $47,288,398 |  |  | $50,561,074 |  |  | $50,604,056 |  |  |
|  | $276,058 | 2.65% |  | $270,384 | 2.37% |  | $279,181 | 2.45% |
|  |  | 2.76% |  |  | 2.44% |  |  | 2.52% |
|  | 2,040 |  |  | 1,973 |  |  | 2,104 |  |
|  | 274,018 |  |  | 268,411 |  |  | 277,077 |  |
|  | - |  |  | - |  |  | (17,000) |  |
|  | 168,617 |  |  | 87,856 |  |  | 157,443 |  |
|  | 273,655 |  |  | 277,618 |  |  | 299,495 |  |
|  | 168,980 |  |  | 78,649 |  |  | 152,025 |  |
|  | 36,122 |  |  | 16,197 |  |  | 34,836 |  |
|  | 132,858 |  |  | 62,452 |  |  | 117,189 |  |
|  | 12 |  |  | (36) |  |  | (129) |  |
|  | $132,846 |  |  | $62,488 |  |  | $117,318 |  |
|  | $1.96 |  |  | $0.91 |  |  | $1.71 |  |
|  | $1.96 |  |  | $0.91 |  |  | $1.71 |  |

32

**Table 5 - Quarterly Volume/Rate Analysis**

|  | Three Months Ended |  |  |
| --- | --- | --- | --- |
|  | Dec. 31, 2022 / Sep. 30, 2022 |  |  |
|  | Change Due To 1 |  |  |
|  | Change | Volume | Yield / Rate |
| Tax-equivalent interest revenue: |  |  |  |
| Interest-bearing cash and cash equivalents | $2,302 | $(1,338) | $3,640 |
| Trading securities | 5,701 | (2,207) | 7,908 |
| Investment securities | 16 | (230) | 246 |
| Available for sale securities | 14,173 | 5,012 | 9,161 |
| Fair value option securities | 645 | 427 | 218 |
| Restricted equity securities | 385 | 619 | (234) |
| Residential mortgage loans held for sale | (294) | (445) | 151 |
| Loans | 65,652 | 5,205 | 60,447 |
| Total tax-equivalent interest revenue | 88,580 | 7,043 | 81,537 |
| Interest expense: |  |  |  |
| Transaction deposits | 29,627 | (1,730) | 31,357 |
| Savings deposits | 70 | (3) | 73 |
| Time deposits | 1,162 | 23 | 1,139 |
| Funds purchased and repurchase agreements | 3,962 | 862 | 3,100 |
| Other borrowings | 16,973 | 8,034 | 8,939 |
| Subordinated debentures | 361 | - | 361 |
| Total interest expense | 52,155 | 7,186 | 44,969 |
| Tax-equivalent net interest revenue | 36,425 | (143) | 36,568 |
| Change in tax-equivalent adjustment | 124 |  |  |
| Net interest revenue | $36,301 |  |  |

$^{1}$ Changes attributable to both volume and yield/rate are allocated to both volume and yield/rate on an equal basis.

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## Other Operating Revenue

### 2022 Other Operating Revenue

Other operating revenue was $643.3 million for 2022, a decrease of $112.5 million or 15% compared to 2021. A decline in mortgage banking revenue and other gains, net was partially offset by increased brokerage and trading revenue and fiduciary and asset management revenue.

**Table 6 - Other Operating Revenue**

(Dollars in thousands)

|  | Year Ended December 31, |  | 2022 vs. 2021 | 2022 vs. 2021 | Year Ended December 31, | 2021 vs. 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | Increase (Decrease) | % Increase (Decrease) | 2020 | Increase (Decrease) | % Increase (Decrease) |
| Brokerage and trading revenue | $140,978 | $112,989 | $27,989 | 25% | $221,833 | $(108,844) | (49)% |
| Transaction card revenue | 104,266 | 96,983 | 7,283 | 8% | 90,182 | 6,801 | 8% |
| Fiduciary and asset management revenue | 196,326 | 178,274 | 18,052 | 10% | 167,445 | 10,829 | 6% |
| Deposit service charges and fees | 110,636 | 104,217 | 6,419 | 6% | 96,805 | 7,412 | 8% |
| Mortgage banking revenue | 49,365 | 105,896 | (56,531) | (53)% | 182,360 | (76,464) | (42)% |
| Other revenue | 55,642 | 69,950 | (14,308) | (20)% | 51,695 | 18,255 | 35% |
| Total fees and commissions revenue | 657,213 | 668,309 | (11,096) | (2)% | 810,320 | (142,011) | (18)% |
| Other gains, net | 123 | 63,742 | (63,619) | N/A | 6,046 | 57,696 | N/A |
| Gain (loss) on derivatives, net | (73,011) | (19,378) | (53,633) | N/A | 42,320 | (61,698) | N/A |
| Gain (loss) on fair value option securities, net | (20,358) | (2,239) | (18,119) | N/A | 53,248 | (55,487) | N/A |
| Change in fair value of mortgage servicing rights | 80,261 | 41,637 | 38,624 | N/A | (79,524) | 121,161 | N/A |
| Gain (loss) on available for sale securities, net | (971) | 3,704 | (4,675) | N/A | 9,910 | (6,206) | N/A |
| Total other operating revenue | $643,257 | $755,775 | (112,518) | (15)% | $842,320 | $(86,545) | (10)% |

### Fees and commissions revenue

Diversified sources of fees and commissions revenue are a significant part of our business strategy and represented 35% of combined net interest revenue before provision for credit losses and fees and commission revenue. We believe that a variety of fee revenue sources provides an offset to changes in interest rates, values in the equity markets, commodity prices and consumer spending, all of which can be volatile. Many of these economic factors, such as rising interest rates, that we expect will result in growth in net interest revenue or fiduciary and asset management revenue may also decrease mortgage banking production volumes and related trading. The velocity of changes in market conditions and interest rates may result in timing differences between when offsetting impacts and benefits are realized. As interest rates are expected to move higher, we expect to experience increased benefits to our net interest margin, which provides an offset to reduced mortgage-related fee income. Generally, for operating revenues not as directly related to movement in interest rates, we expect growth to come through offering new products and services and by further development of our presence in other markets. However, current and future economic conditions, including the recent impact of the COVID-19 pandemic, regulatory constraints, increased competition and saturation in our existing markets could affect the rate of future increases.

Brokerage and trading revenue, which includes revenues from trading, customer hedging, retail brokerage and investment banking, increased $28.0 million or 25% over the prior year.

34

Trading revenue includes net realized and unrealized gains and losses primarily related to sales of residential mortgage-backed securities guaranteed by U.S. government agencies and related derivative instruments that enable our mortgage banking customers to manage their production risk. Trading revenue also includes net realized and unrealized gains and losses on municipal securities and other financial instruments that we sell to institutional customers, along with changes in the fair value of financial instruments we hold as economic hedges against market risk of our trading securities. Trading revenue was $20.3 million for 2022, a decrease of $7.3 million compared to 2021. Trading revenue was negatively affected by the disruption of the fixed income markets early in 2022. This was largely offset by favorable market conditions and increased market volatility, which led to higher margins and increased trading activity in the second half of the year. See additional discussion in 'Lines of Business' section of Management's Discussion and Analysis.

Customer hedging revenue is based primarily on realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs. As more fully discussed under Customer Derivative Programs in Note 6 of the Consolidated Financial Statements, we offer commodity, interest rate, foreign exchange and equity derivatives to our customers. Derivative contracts executed with customers are offset with contracts between selected counterparties and exchanges to minimize market risk from changes in commodity prices, interest rates or foreign exchange rates. Customer hedging revenue, which is largely volume driven, totaled $45.7 million for 2022, an increase of $25.3 million or 124% compared to 2021 and was primarily attributed to our energy and interest rate derivative customers. Customer hedging revenue includes credit valuation adjustments of the fair value of derivatives to reflect the risk of counterparty default.

Investment banking, which includes fees earned upon completion of underwriting, financial advisory services and loan syndication fees, totaled $45.6 million for 2022, an increase of $11.2 million or 33% compared to 2021, largely related to the timing and volume of commercial loan syndication fees and municipal bond transactions.

Revenue earned from retail brokerage transactions totaled $16.4 million for 2022, a decrease of $2.4 million or 13% compared to 2021. Retail brokerage revenue is primarily based on fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Revenue is primarily based on the volume of customer transactions and applicable commission rate for each type of product.

Insurance brokerage fees were $12.9 million for 2022, an increase of $1.1 million or 9% over the prior year.

Transaction card revenue depends largely on the volume and amount of transactions processed, the number of TransFund automated teller machine ('ATM') locations and the number of merchants served. Transaction card revenue totaled $104.3 million for 2022, a $7.3 million or 8% increase over 2021. Revenues from the processing of transactions on behalf of the members of our TransFund electronic funds transfer ('EFT') network totaled $84.6 million, up $4.5 million or 6% over 2021. The number of TransFund ATM locations totaled 2,774 at December 31, 2022 compared to 2,593 at December 31, 2021. Corporate card revenue totaled $7.2 million, up $2.3 million or 45% over 2021 due to increased transactions from the broader reopening of the economy. Merchant services fees paid by customers for account management and electronic processing of card transactions totaled $12.4 million, relatively consistent with the prior year.

Fiduciary and asset management revenue is earned through managing or holding of assets for customers and executing transactions or providing related services. Approximately 80% of fiduciary and asset management revenue is primarily based on the fair value of assets. Rates applied to those asset values vary based on the nature of the relationship. Fiduciary and managed asset relationships generally have a higher fee rate than non-fiduciary and/or managed relationships.

Fiduciary and asset management revenue increased $18.1 million or 10% compared to 2021. Higher mutual fund fees and a reduction in fee waivers was partially offset by lower trust fees. During the height of the COVID-19 pandemic, we voluntarily waived certain administration fees on the Cavanal Hill money market funds in order to maintain positive yields on these funds in the low short-term interest rate environment. This practice subsided in 2022. We had approximately $3.1 million in fee waivers during 2022 compared to approximately $11.7 million in fee waivers during 2021.

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A distribution of assets under management or administration and related fiduciary and asset management revenue follows:

**Table 7 - Assets Under Management or Administration**

|  | Year Ended December 31, |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 |  |  | 2021 |  |  | 2020 |  |  |
|  | Balance 1 | Revenue 2 | Margin 3 | Balance 1 | Revenue 2 | Margin 3 | Balance 1 | Revenue 2 | Margin 3 |
| Managed fiduciary assets: |  |  |  |  |  |  |  |  |  |
| Personal | $10,317,729 | $107,325 | 1.04% | $12,739,289 | $110,052 | 0.86% | $11,172,457 | $96,094 | 0.86% |
| Institutional | 17,229,041 | 33,482 | 0.19% | 17,477,280 | 29,286 | 0.17% | 15,364,387 | 26,555 | 0.17% |
| Total managed fiduciary assets | 27,546,770 | 140,807 | 0.51% | 30,216,569 | 139,338 | 0.46% | 26,536,844 | 122,649 | 0.46% |
| Non-managed assets: |  |  |  |  |  |  |  |  |  |
| Fiduciary | 28,513,725 | 43,220 | 0.15% | 34,320,264 | 28,645 | 0.08% | 28,949,648 | 38,899 | 0.13% |
| Non-fiduciary | 19,467,202 | 12,299 | 0.06% | 20,253,072 | 10,291 | 0.05% | 18,599,156 | 5,897 | 0.03% |
| Safekeeping and brokerage assets under administration | 24,207,343 | - | - % | 20,127,816 | - | - % | 17,506,599 | - | - % |
| Total non-managed assets | 72,188,270 | 55,519 | 0.08% | 74,701,152 | 38,936 | 0.05% | 65,055,403 | 44,796 | 0.07% |
| Total assets under management or administration | $99,735,040 | $196,326 | 0.20% | $104,917,721 | $178,274 | 0.17% | $91,592,247 | $167,445 | 0.18% |

$^{1}$ Assets under management or administration balance excludes certain assets under custody held by a sub-custodian where minimal revenue is recognized. $17 billion, $22 billion and $21 billion of such assets are excluded from the 2022, 2021 and 2020 assets under management or administration balances, respectively.

$^{2}$ Fiduciary and asset management revenue includes asset-based and other fees associated with the assets.

$^{3}$ Revenue divided by period-end balance.

A summary of changes in assets under management or administration for the year ended December 31, 2022, 2021, and 2020 follows:

**Table 8 - Changes in Assets Under Management or Administration**

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Beginning balance | $104,917,721 | $91,592,247 | $82,740,961 |
| Net inflows (outflows) | 572,812 | 4,786,237 | 1,859,868 |
| Net change in fair value | (5,755,493) | 8,539,237 | 6,991,418 |
| Ending balance | $99,735,040 | $104,917,721 | $91,592,247 |

Assets under management as of December 31, 2022 consist of 45% fixed income, 32% equities, 14% cash and 9% alternative investments. Net inflows to assets under management increased during 2022 as new financial institution client relationships were gained and existing clients added to their asset balances. The decrease in fair value of $5.8 billion mainly resulted from declines in both the fixed income and equity markets in 2022.

Deposit service charges and fees totaled $110.6 million for 2022, a $6.4 million or 6% increase over 2021, largely affected by transaction volumes as customer activity resumed following the height of the COVID-19 pandemic. Service charges earned primarily on commercial deposit accounts totaled $56.6 million, a $2.3 million or 4% increase over the previous year. Overdraft fees and non-sufficient fund fees earned primarily on consumer deposit accounts totaled $25.4 million for 2022, an increase of $3.8 million or 18% over 2021. Changes were implemented in the fourth quarter of 2022 to eliminate non-sufficient funds fees

36

and reduce consumer overdraft fees, which is expected to reduce total deposit service charges by approximately $10 million in 2023. Check card revenue totaled $23.3 million, relatively unchanged from 2021.

Mortgage banking revenue totaled $49.4 million for 2022, a $56.5 million or 53% decrease compared to 2021. Rising mortgage interest rates, low inventory, and home price affordability have placed pressure on mortgage loan originations and margins in 2022. Mortgage production revenue decreased $62.6 million. Production volume was down $1.6 billion and production revenue as a percentage of production volume also decreased 250 basis points to (0.17)%. Mortgage refinancing activity was 24% of total production in 2022 compared to 54% in 2021. Mortgage servicing revenue was $51.2 million, a $6.0 million increase compared to the prior year. The average outstanding principal balance of mortgage loans serviced for others totaled $17.9 billion at December 31, 2022, a $2.5 billion increase compared to December 31, 2021. During 2022, we acquired $3.8 billion in unpaid principal balance of mortgage servicing rights. This, combined with a purchase in the fourth quarter of 2021 with an unpaid principal balance of $2.0 billion, led to the higher mortgage servicing revenue in 2022.

**Table 9 - Mortgage Banking Revenue**

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Mortgage production revenue | $(1,838) | $60,712 | $125,848 |
| Mortgage loans funded for sale | $1,180,403 | $2,818,789 | $3,764,112 |
| Add: Current year end outstanding commitments | 45,492 | 171,412 | 380,637 |
| Less: Prior year end outstanding commitments | 171,412 | 380,637 | 158,460 |
| Total mortgage production volume | 1,054,483 | 2,609,564 | 3,986,289 |
| Production revenue as a percentage of production volume | (0.17)% | 2.33% | 3.16% |
| Realized margin on funded mortgage loans | 0.63% | 2.71% | 2.87% |
| Mortgage loan refinances to mortgage loans funded for sale | 24% | 54% | 58% |
| Primary mortgage interest rates: |  |  |  |
| Average | 5.34% | 2.96% | 3.10% |
| Period end | 6.41% | 3.11% | 2.67% |
| Mortgage servicing revenue | $51,203 | $45,184 | $56,512 |
| Average outstanding principal balance of mortgage loans serviced for others | 17,871,306 | 15,404,548 | 18,422,210 |
| Average mortgage servicing fee rates | 0.29% | 0.29% | 0.31% |

Primary rates disclosed in Table 9 above represent rates generally available to borrowers on 30 year conforming mortgage loans.

Other revenue totaled $55.6 million for 2022, a decrease of $14.3 million or 20% compared to 2021, primarily due to lower production revenue from repossessed oil and gas properties sold in 2021; however, this impact was also partially offset by lower operating expenses related to these properties.

#### *Other gains, net and net gains on securities and derivatives*

Other gains, net decreased $63.6 million compared to 2021. In 2021, the sale of an alternative investment and sale of an equity interest received as part of the workout of a defaulted energy loan resulted in a $45.2 million gain. In addition, we experienced a $15.7 million decrease in the value of deferred compensation investments, which are held to offset the cost of various employee benefit programs in 2022.

As discussed in the Market Risk section following, the fair value of our MSRs changes in response to changes in primary mortgage loan rates and other assumptions. We attempt to mitigate the earnings volatility caused by changes in the fair value of MSRs by designating certain financial instruments, generally U.S. government agency residential mortgage-backed securities for which we have elected the fair value option, as an economic hedge. Changes in the fair value of these instruments are generally expected to partially offset changes in the fair value of MSRs.

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**Table 10 - Gain (Loss) on Mortgage Servicing Rights, Net of Economic Hedge**

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Gain (loss) on mortgage hedge derivative contracts, net | $(72,987) | $(19,632) | $42,096 |
| Gain (loss) on fair value option securities, net | (20,358) | (2,239) | 53,248 |
| Gain (loss) on economic hedge of mortgage servicing rights | (93,345) | (21,871) | 95,344 |
| Gain (loss) on change in fair value of mortgage servicing rights | 80,261 | 41,637 | (79,524) |
| Gain (loss) on changes in fair value of mortgage servicing rights, net of economic hedges included in other operating revenue | (13,084) | 19,766 | 15,820 |
| Net interest revenue on fair value option securities 1 | 569 | 1,279 | 9,085 |
| Total economic benefit (cost) of changes in the fair value of mortgage servicing rights, net of economic hedges | $(12,515) | $21,045 | $24,905 |

$^{1}$ Actual interest earned on fair value option securities less internal transfer-priced cost of funds.

# *Fourth Quarter 2022 Other Operating Revenue*

**Table 11 - Fourth Quarter 2022 Other Operating Revenue**

|  | Three Months Ended |  | Increase (Decrease) | % Increase (Decrease) |
| --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 | Sep. 30, 2022 |  |  |
| Brokerage and trading revenue | $63,008 | $61,006 | $2,002 | 3% |
| Transaction card revenue | 27,136 | 25,974 | 1,162 | 4% |
| Fiduciary and asset management revenue | 49,899 | 50,190 | (291) | (1)% |
| Deposit service charges and fees | 26,429 | 28,703 | (2,274) | (8)% |
| Mortgage banking revenue | 10,065 | 11,282 | (1,217) | (11)% |
| Other revenue | 17,034 | 15,479 | 1,555 | 10% |
| Total fees and commissions revenue | 193,571 | 192,634 | 937 | - % |
| Other gains, net | 8,427 | 979 | 7,448 | N/A |
| Gain (loss) on derivatives, net | 4,548 | (17,009) | 21,557 | N/A |
| Loss on fair value option securities, net | (2,568) | (4,368) | 1,800 | N/A |
| Change in fair value of mortgage servicing rights | (2,904) | 16,570 | (19,474) | N/A |
| Gain (loss) on available for sale securities, net | (3,988) | 892 | (4,880) | N/A |
| Total other operating revenue | 197,086 | 189,698 | 7,388 | 4% |

Other operating revenue was $197.1 million for the fourth quarter of 2022, a $7.4 million or 4% increase compared to the third quarter of 2022.

Brokerage and trading revenue increased $2.0 million to $63.0 million. Trading revenue grew $9.5 million, largely due to an increase in volume and higher margins on U.S. agency residential mortgage-backed securities trading activity driven by favorable market conditions and increased market volatility. A decline from heightened energy derivative activity in the third quarter led to a $4.7 million decrease in customer hedging revenue. Investment banking revenue decreased $2.4 million, following record levels in the third quarter driven primarily by municipal bond transaction growth. Other revenue increased $1.6 million, largely due to higher revenue on repossessed assets while transaction card revenue grew $1.2 million along with a rise in seasonal transaction volumes.

Deposit service charges decreased $2.3 million. In the fourth quarter, we implemented changes to eliminate non-sufficient funds fees and reduce consumer overdraft fees.

38

Mortgage banking revenue was $10.1 million for the fourth quarter of 2022, a decrease of $1.2 million compared to the third quarter of 2022, as rising mortgage interest rates and continued inventory constraints place pressure on mortgage loan originations. Mortgage loan production volumes were $111 million for the fourth quarter of 2022 compared to $230 million in the third quarter of 2022. Production revenue as a percentage of production volume, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, decreased 254 basis points to (3.59)%.

Other gains, net, increased $7.4 million compared to the prior quarter primarily driven by the sale of a repossessed entity combined with a change in the value of deferred compensation investments which are held to offset the cost of various employee benefit programs. We also recognized a $4.0 million loss on the sale of available for sale securities in the fourth quarter as we repositioned our balance sheet for the current rate environment.

## Other Operating Expense

### 2022 Other Operating Expense

Other operating expense for 2022 totaled $1.2 billion, a $13.2 million or 1% decrease compared to the prior year. Personnel expense decreased $24.5 million or 4%. Non-personnel expense increased $11.2 million or 2%.

**Table 12 - Other Operating Expense**

|  | Year Ended December 31, |  | 2022 vs. 2021 | 2022 vs. 2021 | Year Ended December 31, | 2021 vs. 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | Increase (Decrease) | % Increase (Decrease) | 2020 | Increase (Decrease) | % Increase (Decrease) |
| Regular compensation | $399,107 | $384,808 | $14,299 | 4% | $390,282 | $(5,474) | (1)% |
| Incentive compensation: |  |  |  |  |  |  |  |
| Cash-based compensation | 172,595 | 187,974 | (15,379) | (8)% | 183,868 | 4,106 | 2% |
| Share-based compensation | 9,565 | 13,246 | (3,681) | (28)% | 18,228 | (4,982) | (27)% |
| Deferred compensation | (6,235) | 9,789 | (16,024) | (164)% | 8,401 | 1,388 | 17% |
| Total incentive compensation | 175,925 | 211,009 | (35,084) | (17)% | 210,497 | 512 | - % |
| Employee benefits | 95,886 | 99,565 | (3,679) | (4)% | 87,695 | 11,870 | 14% |
| Total personnel expense | 670,918 | 695,382 | (24,464) | (4)% | 688,474 | 6,908 | 1% |
| Business promotion | 26,435 | 16,289 | 10,146 | 62% | 14,511 | 1,778 | 12% |
| Charitable contributions to BOKF Foundation | 2,500 | 9,000 | (6,500) | (72)% | 9,000 | - | - % |
| Professional fees and services | 56,342 | 50,906 | 5,436 | 11% | 53,437 | (2,531) | (5)% |
| Net occupancy and equipment | 116,867 | 108,587 | 8,280 | 8% | 112,722 | (4,135) | (4)% |
| Insurance | 17,994 | 15,881 | 2,113 | 13% | 19,990 | (4,109) | (21)% |
| Data processing & communications | 165,907 | 151,614 | 14,293 | 9% | 135,497 | 16,117 | 12% |
| Printing, postage and supplies | 15,857 | 14,218 | 1,639 | 12% | 15,061 | (843) | (6)% |
| Amortization of intangible assets | 15,692 | 18,311 | (2,619) | (14)% | 20,443 | (2,132) | (10)% |
| Mortgage banking costs | 35,834 | 42,698 | (6,864) | (16)% | 56,711 | (14,013) | (25)% |
| Other expense | 40,134 | 54,822 | (14,688) | (27)% | 38,462 | 16,360 | 43% |
| Total other operating expense | $1,164,480 | $1,177,708 | $(13,228) | (1)% | $1,164,308 | $13,400 | 1% |
| Average number of employees (full-time equivalent) | 4,759 | 4,816 | (57) | (1)% | 5,011 | (195) | (4)% |

39

### *Personnel expense*

Personnel expense decreased $24.5 million in 2022. Cash-based incentive compensation plans, which are either intended to provide current rewards to employees who generate long-term business opportunities for the Company based on growth in loans, deposits, customer relationships and other measurable metrics or intended to compensate employees with commissions on completed transactions, decreased $15.4 million or 8% compared 2021, primarily related to a decline in institutional trading activity, partially offset by increased incentives from growth in loans and loan commitments in the current year. Deferred compensation expense, which is offset by deferred compensation investments in other revenue, decreased $16.0 million or 164%, directly related to market movements. Regular compensation increased $14.3 million or 4%, largely due to employee merit increases received in the first quarter. Changes in assumptions of certain performance-based equity awards led to a $3.7 million or 28% decrease in share-based compensation expense. Employee benefits expense decreased $3.7 million or 4% primarily due to reduced employee healthcare costs.

### *Non-personnel expense*

Non-personnel expense increased $11.2 million or 2% over the prior year.

Data processing and communications expense increased $14.3 million or 9% and professional fees and services increased $5.4 million or 11%, both largely affected by on-going technology project costs. Higher travel costs following a lull in travel during the COVID-19 pandemic and increased advertising costs led to a $10.1 million or 62% increase in business promotion expense. Occupancy and equipment expense was also up $8.3 million or 8% driven largely by higher operating costs on leases.

Other expense decreased $14.7 million or 27%, primarily due to lower operating expenses on repossessed assets sold in 2021; however, this was offset by lower operating revenue on these properties. Mortgage banking costs decreased $6.9 million or 16%, primarily due to a decrease in prepayments. Charitable contributions to the BOKF Foundation were $2.5 million in the current year compared to $9.0 million in the prior year. During the height of the COVID-19 pandemic and the extreme needs it created in the communities we serve, we increased our charitable contributions to the BOKF Foundation during 2021.

40

Fourth Quarter 2022 Operating Expenses

**Table 13 - Fourth Quarter 2022 Other Operating Expense**

|  | Three Months Ended |  | Increase (Decrease) | % Increase (Decrease) |
| --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 | Sep. 30, 2022 |  |  |
| Regular compensation | $102,943 | $101,368 | $1,575 | 2% |
| Incentive compensation: |  |  |  |  |
| Cash-based compensation | 54,295 | 44,376 | 9,919 | 22% |
| Share-based compensation | 3,107 | 3,744 | (637) | (17)% |
| Deferred compensation | 3,864 | (1,005) | 4,869 | (484)% |
| Total incentive compensation | 61,266 | 47,115 | 14,151 | 30% |
| Employee benefits | 22,210 | 21,865 | 345 | 2% |
| Total personnel expense | 186,419 | 170,348 | 16,071 | 9% |
| Business promotion | 7,470 | 6,127 | 1,343 | 22% |
| Charitable contributions to BOKF Foundation | 2,500 | - | 2,500 | N/A |
| Professional fees and services | 18,365 | 14,089 | 4,276 | 30% |
| Net occupancy and equipment | 29,227 | 29,296 | (69) | - % |
| Insurance | 4,677 | 4,306 | 371 | 9% |
| Data processing & communications | 43,048 | 41,743 | 1,305 | 3% |
| Printing, postage and supplies | 3,890 | 4,349 | (459) | (11)% |
| Amortization of intangible assets | 3,736 | 3,943 | (207) | (5)% |
| Mortgage banking costs | 9,016 | 9,504 | (488) | (5)% |
| Other expense | 10,108 | 11,046 | (938) | (8)% |
| Total other operating expense | 318,456 | 294,751 | 23,705 | 8% |

Other operating expense for the fourth quarter of 2022 totaled $318.5 million, an increase of $23.7 million or 8% over the third quarter of 2022.

Personnel expense increased $16.1 million or 9% compared to the third quarter of 2022. Cash-based incentive compensation increased $9.9 million or 22% due to increased sales activity combined with a one-time incentive given to all employees in the fourth quarter. Deferred compensation expense, which is offset by deferred compensation investments in other revenue, increased $4.9 million or 484%.

Non-personnel expense increased $7.6 million or 6% compared to the third quarter of 2022. A $4.3 million or 30% increase in professional fees and services and $1.3 million or 3% increase in data processing and communications expense was largely attributed to ongoing technology projects. The fourth quarter of 2022 included a $2.5 million charitable donation to the BOKF Foundation as we continue to focus on the communities we serve.

## Income Taxes

Income tax expense was $139.9 million or 21.2% of net income before taxes for 2022 and $179.8 million or 22.6% of net income before taxes for 2021.

Net deferred tax assets totaled $321.3 million at December 31, 2022 compared to net deferred tax assets of $34.5 million at December 31, 2021. We have evaluated the recoverability of our deferred tax assets based on the generation of future taxable income during the periods in which those temporary differences become deductible and determined that no valuation allowance was required in 2022 or 2021.

Income tax expense was $47.9 million or 22.1% of net income before taxes for the fourth quarter of 2022 compared to $39.7 million or 20.2% of net income before taxes for the third quarter of 2022.

41

## Lines of Business

We operate three principal lines of business: Commercial Banking, Consumer Banking and Wealth Management. Commercial Banking includes lending, treasury and cash management services and customer risk management products for small businesses, middle market and larger commercial customers. Commercial Banking also includes the TransFund EFT network. Consumer Banking includes retail lending and deposit services, lending and deposit services to small business customers served through our consumer branch network and all mortgage loan origination and servicing activities. Wealth Management provides fiduciary services, private bank services, insurance and investment advisory services in all markets. Wealth Management also underwrites state and municipal securities and engages in brokerage and trading activities.

In addition to our lines of business, we have a Funds Management unit. The primary purpose of this unit is to manage our overall liquidity needs and interest rate risk. Each line of business borrows funds from and provides funds to the Funds Management unit as needed to support their operations. Operating results for Funds Management and other include the effect of interest rate risk positions and risk management activities, securities gains and losses, the provision for credit losses in excess of net loans charged off, tax planning strategies and certain executive compensation costs that are not attributed to the lines of business. The Funds Management unit also initially recognizes accruals for loss contingencies when losses become probable. Actual losses are recognized by the lines of business if the accruals are settled.

We allocate resources and evaluate the performance of our lines of business using the net direct contribution, which includes the allocation of funds and capital costs. Credit costs are attributed to the lines of business based on net loans charged off or recovered. The difference between credit costs attributed to the lines of business and the consolidated provision for credit losses is attributed to Funds Management. In addition, we measure the performance of our business lines after allocations of certain indirect expenses and taxes based on statutory rates.

The cost of funds borrowed from the Funds Management unit by the operating lines of business is transfer priced at rates that approximate market rates for funds with similar repricing and cash flow characteristics. Market rates are generally based on the applicable wholesale borrowing rates or interest rate swap rates, adjusted for prepayment risk and liquidity risk. This method of transfer-pricing funds that support assets of the operating lines of business tends to insulate them from interest rate risk.

The value of funds provided by the operating lines of business to the Funds Management unit is also based on rates that approximate wholesale market rates for funds with similar repricing and cash flow characteristics. Market rates are generally based on a proxy of wholesale borrowing rates or interest rate swap rates. The funds credit formula applied to deposit products with indeterminate maturities is established based on their repricing characteristics reflected in a combination of the short-term wholesale funding rate and a moving average of an intermediate term swap rate, with an appropriate spread applied to both. Shorter duration products are weighted towards the short term wholesale funding rates and longer duration products are weighted towards the intermediate swap rates. The expected duration ranges from 30 days for certain rate-sensitive deposits to five years. In order to appropriately reflect the organizational value of these deposits to the lines of business, methodology adjustments are made each January that attribute more or less deposit credit value to the business lines dependent upon historical and forward-looking interest rate expectations with the offset to Funds Management and other. After several years of decreased funding credits provided to business lines from a sustained low interest rate environment, increases in short-term and long-term rates in response to the Federal Reserve's actions to control inflation caused a commensurate increase in funding credits to business lines in 2022.

Economic capital is assigned to the business units by a capital allocation model that reflects management's assessment of risk. This model assigns capital based upon credit, operating, interest rate and other market risk inherent in our business lines and recognizes the diversification benefits among the units. The level of assigned economic capital is a combination of the risk taken by each business line, based on its actual exposures and calibrated to its own loss history where possible. Average invested capital includes economic capital and amounts we have invested in the lines of business.

As shown in Table 14 following, net income attributable to our lines of business increased $103.0 million or 22% compared to the prior year. Net interest revenue grew by $211.0 million over the prior year, primarily due to increases in the short-term interest rate related to a 425 basis point increase in the federal funds rate by the Federal Reserve during 2022. Net charge-offs decreased $12.1 million compared to the prior year. Other operating revenue decreased $31.8 million. The prior year included the sale of an alternative investment that resulted in a $31.1 million pre-tax gain, net of non-controlling interest. Other operating expense was consistent with prior year. The decrease in net income attributed to Funds Management and other is largely due to the excess provision for expected credit losses over net charge-offs recorded in 2022 compared to a release of provision recorded in the prior year.

42

**Table 14 - Net Income by Line of Business**
(In thousands)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Commercial Banking | $460,361 | $328,516 | $306,005 |
| Consumer Banking | 5,889 | 27,643 | 97,974 |
| Wealth Management | 106,173 | 113,246 | 115,302 |
| Subtotal | 572,423 | 469,405 | 519,281 |
| Funds Management and other | (52,150) | 148,716 | (84,251) |
| Total | $520,273 | $618,121 | $435,030 |

*2022 Commercial Banking*

Commercial Banking contributed $460.4 million to consolidated net income in 2022, an increase of $131.8 million or 40% compared to the prior year.

**Table 15 - Commercial Banking**
(In thousands)

|  | Year Ended December 31, |  | 2022 vs. 2021 | 2022 vs. 2021 | Year Ended December 31, | 2021 vs. 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | Increase (Decrease) | % Increase (Decrease) | 2020 | Increase (Decrease) | % Increase (Decrease) |
| Net interest revenue from external sources | $818,213 | $606,902 | $211,311 | 35% | $714,932 | $(108,030) | (15)% |
| Net interest expense from internal sources | (73,764) | (71,167) | (2,597) | 4% | (126,444) | 55,277 | (44)% |
| Total net interest revenue | 744,449 | 535,735 | 208,714 | 39% | 588,488 | (52,753) | (9)% |
| Net loans charged off | 17,726 | 31,128 | (13,402) | (43)% | 69,475 | (38,347) | (55)% |
| Net interest revenue after net loans charged off | 726,723 | 504,607 | 222,116 | 44% | 519,013 | (14,406) | (3)% |
| Fees and commissions revenue | 233,873 | 227,081 | 6,792 | 3% | 187,119 | 39,962 | 19% |
| Other gains, net | 7,721 | 35,321 | (27,600) | (78)% | 242 | 35,079 | 14495% |
| Other operating revenue | 241,594 | 262,402 | (20,808) | (8)% | 187,361 | 75,041 | 40% |
| Personnel expense | 174,505 | 168,285 | 6,220 | 4% | 159,165 | 9,120 | 6% |
| Non-personnel expense | 116,212 | 112,804 | 3,408 | 3% | 99,738 | 13,066 | 13% |
| Other operating expense | 290,717 | 281,089 | 9,628 | 3% | 258,903 | 22,186 | 9% |
| Net direct contribution | 677,600 | 485,920 | 191,680 | 39% | 447,471 | 38,449 | 9% |
| Gain on financial instruments, net | 1 | 154 | (153) | N/A | 193 | (39) | N/A |
| Gain (loss) on repossessed assets, net | (1,903) | 13,001 | (14,904) | N/A | (2,677) | 15,678 | N/A |
| Corporate expense allocations | 67,337 | 49,941 | 17,396 | 35% | 24,862 | 25,079 | 101% |
| Income before taxes | 608,361 | 449,134 | 159,227 | 35% | 420,125 | 29,009 | 7% |
| Federal and state income taxes | 148,000 | 120,618 | 27,382 | 23% | 114,120 | 6,498 | 6% |
| Net income | $460,361 | $328,516 | $131,845 | 40% | $306,005 | $22,511 | 7% |
| Average assets | $29,084,957 | $28,536,881 | $548,076 | 2% | $26,994,075 | $1,542,806 | 6% |
| Average loans | 17,553,398 | 16,853,006 | 700,392 | 4% | 18,711,372 | (1,858,366) | (10)% |
| Average deposits | 18,323,412 | 17,659,695 | 663,717 | 4% | 14,319,729 | 3,339,966 | 23% |
| Average invested capital | 2,057,560 | 2,082,488 | (24,928) | (1)% | 2,220,177 | (137,689) | (6)% |

43

Net interest revenue increased $208.7 million or 39% compared to the prior year primarily due to an increase in the spread on deposits sold to our Funds Management unit. Net loans charged-off decreased $13.4 million.

Fees and commissions revenue increased $6.8 million or 3%. Customer hedging revenue grew $11.3 million, primarily attributed to our energy and interest rate derivative customers. Syndication fees increased $7.5 million due to the timing and volume of completed transactions during the year. Transaction card revenue was also up $7.0 million due to growth in revenues from the processing of transactions on behalf of the members of our TransFund EFT network combined with increased transactions from the broader reopening of the economy. These were partially offset by a decline in production revenue from repossessed oil and gas properties sold in 2021.

Operating expense increased $9.6 million or 3% over 2021. Personnel expense increased $6.2 million or 4%, primarily due to incentive compensation costs associated with growth in loans and deposit balances. Non-personnel expense increased $3.4 million or 3%, primarily due to project related data processing and communications fees, occupancy expenses and business promotion fees. These were partially offset by decreased operating expenses on repossessed oil and gas properties sold in 2021. The prior year also included the sale of an alternative investment that resulted in a $31.1 million pre-tax gain, net of non-controlling interest. Corporate expense allocations increased $17.4 million or 35% compared to the prior year due to growth in lending activity.

The average outstanding balance of loans attributed to Commercial Banking increased $700 million or 4% compared to 2021 to $17.6 billion. See the Loans section of Management's Discussion and Analysis of Financial Condition following for additional discussion of changes in commercial and commercial real estate loans, which are primarily attributed to the Commercial Banking segment.

Average deposits attributed to Commercial Banking were $18.3 billion for 2022, a $664 million or 4% increase over the prior year. See Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital for further discussion of this change.

44

Fourth Quarter 2022 Commercial Banking

**Table 16 - Commercial Banking - Fourth Quarter 2022**

|  | Three Months Ended |  | Increase (Decrease) | % Increase (Decrease) |
| --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 | Sep. 30, 2022 |  |  |
| Net interest revenue from external sources | $271,615 | $226,016 | $45,599 | 20% |
| Net interest expense from internal sources | (38,781) | (17,951) | (20,830) | (116)% |
| Total net interest revenue | 232,834 | 208,065 | 24,769 | 12% |
| Net loans charged off (recovered) | 14,411 | (526) | 14,937 | 2840% |
| Net interest revenue after net loans charged off (recovered) | 218,423 | 208,591 | 9,832 | 5% |
| Fees and commissions revenue | 58,881 | 58,147 | 734 | 1% |
| Other gains, net | 3,213 | 2,239 | 974 | N/A |
| Other operating revenue | 62,094 | 60,386 | 1,708 | 3% |
| Personnel expense | 48,366 | 44,998 | 3,368 | 7% |
| Non-personnel expense | 31,356 | 30,874 | 482 | 2% |
| Other operating expense | 79,722 | 75,872 | 3,850 | 5% |
| Net direct contribution | 200,795 | 193,105 | 7,690 | 4% |
| Gain on financial instruments, net | 140 | 4 | 136 | N/A |
| Gain (loss) on repossessed assets, net | 978 | (158) | 1,136 | N/A |
| Corporate expense allocations | 18,007 | 16,451 | 1,556 | 9% |
| Income before taxes | 183,906 | 176,500 | 7,406 | 4% |
| Federal and state income taxes | 44,532 | 42,670 | 1,862 | 4% |
| Net income | $139,374 | $133,830 | $5,544 | 4% |
| Average assets | $28,373,856 | $28,890,429 | $(516,573) | (2)% |
| Average loans | 18,254,559 | 17,904,779 | 349,780 | 2% |
| Average deposits | 16,832,244 | 17,966,661 | (1,134,417) | (6)% |
| Average invested capital | 2,107,241 | 2,059,149 | 48,092 | 2% |

Commercial Banking contributed $139.4 million to consolidated net income in the fourth quarter of 2022, an increase of $5.5 million compared to the third quarter of 2022. Net interest revenue increased $24.8 million over the prior quarter, largely due to an increase in the spread on deposits sold to our Funds Management unit. Net loans charged off increased $14.9 million. Personnel expense increased $3.4 million driven by incentive compensation costs associated with growth in revenue.

45

## 2022 Consumer Banking

Consumer Banking services are provided through four primary distribution channels: traditional branches, the 24-hour ExpressBank call center, internet banking and mobile banking. Consumer Banking also conducts mortgage banking activities through offices located outside our Consumer Banking markets.

Net income attributed to Consumer Banking totaled $5.9 million for 2022 compared to $27.6 million in the prior year. This decrease is largely due to lower mortgage loan production volumes as rising mortgage interest rates and continued inventory constraints place pressure on mortgage loan originations.

**Table 17 - Consumer Banking**

(In thousands)

|  | Year Ended December 31, |  | 2022 vs. 2021 | 2022 vs. 2021 | Year Ended December 31, | 2021 vs. 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | Increase (Decrease) | % Increase (Decrease) | 2020 | Increase (Decrease) | % Increase (Decrease) |
| Net interest revenue from external sources | $69,646 | $67,856 | $1,790 | 3% | $78,004 | $(10,148) | (13)% |
| Net interest revenue from internal sources | 88,603 | 35,671 | 52,932 | 148% | 69,000 | (33,329) | (48)% |
| Total net interest revenue | 158,249 | 103,527 | 54,722 | 53% | 147,004 | (43,477) | (30)% |
| Net loans charged off | 5,260 | 4,009 | 1,251 | 31% | 2,805 | 1,204 | 43% |
| Net interest revenue after net loans charged off | 152,989 | 99,518 | 53,471 | 54% | 144,199 | (44,681) | (31)% |
| Fees and commissions revenue | 121,926 | 173,364 | (51,438) | (30)% | 245,554 | (72,190) | (29)% |
| Other losses, net | (107) | (23) | (84) | 365% | (1,835) | 1,812 | (99)% |
| Other operating revenue | 121,819 | 173,341 | (51,522) | (30)% | 243,719 | (70,378) | (29)% |
| Personnel expense | 87,183 | 85,989 | 1,194 | 1% | 91,903 | (5,914) | (6)% |
| Other non-personnel expense | 122,027 | 123,607 | (1,580) | (1)% | 138,499 | (14,892) | (11)% |
| Total other operating expense | 209,210 | 209,596 | (386) | - % | 230,402 | (20,806) | (9)% |
| Net direct contribution | 65,598 | 63,263 | 2,335 | 4% | 157,516 | (94,253) | (60)% |
| Gain (loss) on financial instruments, net | (93,346) | (21,871) | (71,475) | N/A | 95,344 | (117,215) | N/A |
| Change in fair value of mortgage servicing rights | 80,261 | 41,637 | 38,624 | N/A | (79,524) | 121,161 | N/A |
| Gain on repossessed assets, net | 139 | 85 | 54 | N/A | 276 | (191) | N/A |
| Corporate expense allocations | 44,965 | 46,010 | (1,045) | (2)% | 42,155 | 3,855 | 9% |
| Net income before taxes | 7,687 | 37,104 | (29,417) | (79)% | 131,457 | (94,353) | (72)% |
| Federal and state income taxes | 1,798 | 9,461 | (7,663) | (81)% | 33,483 | (24,022) | (72)% |
| Net income | $5,889 | $27,643 | $(21,754) | (79)% | $97,974 | $(70,331) | (72)% |
| Average assets | $10,230,437 | $10,029,687 | $200,750 | 2% | $9,842,114 | $187,573 | 2% |
| Average loans | 1,688,697 | 1,769,384 | (80,687) | (5)% | 1,764,682 | 4,702 | - % |
| Average deposits | 8,763,046 | 8,439,577 | 323,469 | 4% | 7,599,937 | 839,640 | 11% |
| Average invested capital | 250,546 | 250,554 | (8) | - % | 259,333 | (8,779) | (3)% |

Net interest revenue from Consumer Banking activities increased by $54.7 million or 53% compared to 2021, primarily due to an increase in the spread on deposits sold to our Funds Management unit. Average consumer deposits grew $323 million or 4%.

46

Fees and commissions revenue decreased $51.4 million or 30% compared to the prior year, largely attributed to reduced mortgage loan production volume combined with narrowing margins. Mortgage production volume decreased $1.6 billion or 60% and production revenue as a percentage of production volume, which includes unrealized gains and losses on our mortgage commitment pipeline and related hedges, decreased 250 basis points to (0.17)%. Operating expense was consistent with the prior year. Corporate expense allocations decreased $1.0 million or 2% compared to the prior year.

The net cost of change in fair value of mortgage servicing rights and related economic hedges, as more fully presented in Table 10, was $12.5 million for 2022 compared to a net benefit of $21.0 million in 2021.

# *Fourth Quarter 2022 Consumer Banking*

**Table 18 - Consumer Banking - Fourth Quarter 2022**

|  | Three Months Ended |  | Increase (Decrease) | % Increase (Decrease) |
| --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 | Sep. 30, 2022 |  |  |
| Net interest revenue from external sources | $18,464 | $17,482 | $982 | 6% |
| Net interest revenue from internal sources | 34,838 | 26,469 | 8,369 | 32% |
| Total net interest revenue | 53,302 | 43,951 | 9,351 | 21% |
| Net loans charged off | 1,544 | 1,408 | 136 | 10% |
| Net interest revenue after net loans charged off | 51,758 | 42,543 | 9,215 | 22% |
| Fees and commissions revenue | 27,618 | 30,230 | (2,612) | (9)% |
| Other losses, net | (35) | (44) | 9 | N/A |
| Other operating revenue | 27,583 | 30,186 | (2,603) | (9)% |
| Personnel expense | 22,446 | 22,243 | 203 | 1% |
| Non-personnel expense | 32,080 | 30,993 | 1,087 | 4% |
| Other operating expense | 54,526 | 53,236 | 1,290 | 2% |
| Net direct contribution | 24,815 | 19,493 | 5,322 | 27% |
| Gain (loss) on financial instruments, net | 1,805 | (21,395) | 23,200 | N/A |
| Change in fair value of mortgage servicing rights | (2,904) | 16,570 | (19,474) | N/A |
| Corporate expense allocations | 11,972 | 10,792 | 1,180 | 11% |
| Income before taxes | 11,744 | 3,876 | 7,868 | 203% |
| Federal and state income taxes | 2,748 | 906 | 1,842 | 203% |
| Net income | $8,996 | $2,970 | $6,026 | 203% |
| Average assets | $10,078,381 | $10,233,401 | $(155,020) | (2)% |
| Average loans | 1,725,555 | 1,686,498 | 39,057 | 2% |
| Average deposits | 8,617,085 | 8,812,884 | (195,799) | (2)% |
| Average invested capital | 256,905 | 250,256 | 6,649 | 3% |

Consumer Banking contributed $9.0 million to net income in the fourth quarter of 2022, an increase of $6.0 million compared to the third quarter of 2022. Net interest revenue increased $9.4 million, mainly due to improved spreads on deposits sold to our Funds Management unit. Fees and commissions revenue decreased $2.6 million. Deposit service charges decreased $1.5 million from reduced consumer overdraft charges as expected from changes implemented in the fourth quarter of 2022. Mortgage banking revenue decreased $1.2 million due to reduced mortgage production volume combined with narrowing margins. Other operating expense increased $1.3 million over the third quarter of 2022 due to increases in professional fees and other expenses.

47

## 2022 Wealth Management

Wealth Management contributed $106.2 million to consolidated net income in 2022, a decrease of $7.1 million or 6% compared to the prior year.

**Table 19 - Wealth Management**

|  | Year Ended December 31, |  | 2022 vs. 2021 | 2022 vs. 2021 | Year Ended December 31, | 2021 vs. 2020 | 2021 vs. 2020 |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | 2022 | 2021 | Increase (Decrease) | % Increase (Decrease) | 2020 | Increase (Decrease) | % Increase (Decrease) |
| Net interest revenue from external sources | $155,974 | $214,458 | $(58,484) | (27)% | $130,818 | $83,640 | 64% |
| Net interest revenue (expense) from internal sources | 5,623 | (386) | 6,009 | (1557)% | (13,528) | 13,142 | (97)% |
| Total net interest revenue | 161,597 | 214,072 | (52,475) | (25)% | 117,290 | 96,782 | 83% |
| Net loans recovered | (175) | (223) | 48 | (22)% | (209) | (14) | 7% |
| Net interest revenue after net loans recovered | 161,772 | 214,295 | (52,523) | (25)% | 117,499 | 96,796 | 82% |
| Fees and commissions revenue | 339,538 | 298,765 | 40,773 | 14% | 399,229 | (100,464) | (25)% |
| Other gains (losses), net | (37) | 197 | (234) | (119)% | (395) | 592 | (150)% |
| Other operating revenue | 339,501 | 298,962 | 40,539 | 14% | 398,834 | (99,872) | (25)% |
| Personnel expense | 223,718 | 234,031 | (10,313) | (4)% | 243,681 | (9,650) | (4)% |
| Other non-personnel expense | 88,459 | 86,695 | 1,764 | 2% | 82,335 | 4,360 | 5% |
| Other operating expense | 312,177 | 320,726 | (8,549) | (3)% | 326,016 | (5,290) | (2)% |
| Net direct contribution | 189,096 | 192,531 | (3,435) | (2)% | 190,317 | 2,214 | 1% |
| Gain on financial instruments, net | 4 | - | 4 | N/A | 4 | (4) | N/A |
| Corporate expense allocations | 50,241 | 40,341 | 9,900 | 25% | 35,359 | 4,982 | 14% |
| Net income before taxes | 138,859 | 152,190 | (13,331) | (9)% | 154,962 | (2,772) | (2)% |
| Federal and state income tax | 32,686 | 38,944 | (6,258) | (16)% | 39,660 | (716) | (2)% |
| Net income | $106,173 | $113,246 | $(7,073) | (6)% | $115,302 | $(2,056) | (2)% |
| Average assets | $16,209,684 | $19,425,475 | $(3,215,791) | (17)% | $15,695,646 | $3,729,829 | 24% |
| Average loans | 2,166,231 | 1,981,159 | 185,072 | 9% | 1,758,226 | 222,933 | 13% |
| Average deposits | 8,491,377 | 9,426,771 | (935,394) | (10)% | 8,676,047 | 750,724 | 9% |
| Average invested capital | 279,939 | 310,627 | (30,688) | (10)% | 300,860 | 9,767 | 3% |

Combined net interest revenue and fees and commission revenue attributed to the Wealth Management segment totaled $501.1 million for 2022, a decrease of $11.7 million compared to the prior year. Total revenue from trading activities decreased $89.5 million compared to 2021, largely due to disruption in the fixed income markets due to economic uncertainty, primarily in the first quarter of 2022, combined with narrowing margins and lower trading volumes. This decrease was partially offset by an increase in the spread on deposits sold to our Funds Management unit. Fiduciary and asset management revenue increased $18.0 million. Growth in mutual fund fees and decreased waivers were partially offset by lower trust fees. Other revenue increased $26.7 million, largely due to higher derivative margin use fees.

Average Wealth Management loans grew by $185 million or 9% to $2.2 billion. Average deposits attributed to Wealth Management decreased $935 million or 10% to $8.5 billion in 2022.

Operating expense decreased $8.5 million or 3% compared to the prior year due to incentive compensation costs related to reduced trading activity. Corporate expense allocations increased $9.9 million or 25% over the prior year.

48

Fourth Quarter 2022 Wealth Management

**Table 20 - Wealth Management - Fourth Quarter 2022**

|  | Three Months Ended |  | Increase (Decrease) | % Increase (Decrease) |
| --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 | Sep. 30, 2022 |  |  |
| Net interest revenue from external sources | $25,585 | $34,746 | $(9,161) | (26)% |
| Net interest revenue (expense) from internal sources | 8,913 | (1,162) | 10,075 | 867% |
| Total net interest revenue | 34,498 | 33,584 | 914 | 3% |
| Net loans recovered | (22) | (22) | - | - % |
| Net interest revenue after net loans recovered | 34,520 | 33,606 | 914 | 3% |
| Fees and commissions revenue | 114,630 | 113,113 | 1,517 | 1% |
| Other losses, net | (20) | - | (20) | N/A |
| Other operating revenue | 114,610 | 113,113 | 1,497 | 1% |
| Personnel expense | 59,041 | 56,939 | 2,102 | 4% |
| Non-personnel expense | 22,970 | 22,212 | 758 | 3% |
| Other operating expense | 82,011 | 79,151 | 2,860 | 4% |
| Net direct contribution | 67,119 | 67,568 | (449) | (1)% |
| Corporate expense allocations | 12,733 | 12,934 | (201) | (2)% |
| Income before taxes | 54,390 | 54,634 | (244) | - % |
| Federal and state income taxes | 12,790 | 12,826 | (36) | - % |
| Net income | $41,600 | $41,808 | $(208) | - % |
| Average assets | $12,912,630 | $13,818,299 | $(905,669) | (7)% |
| Average loans | 2,223,275 | 2,163,975 | 59,300 | 3% |
| Average deposits | 7,888,753 | 7,999,074 | (110,321) | (1)% |
| Average invested capital | 292,689 | 284,681 | 8,008 | 3% |

Wealth Management contributed $41.6 million to net income in the fourth quarter of 2022, consistent with the third quarter of 2022. Combined net interest and fee revenue totaled $149.1 million, an increase of $2.4 million compared to prior quarter, primarily due to higher volume of U.S. government agency residential mortgage-backed securities trading activity. Other revenue decreased $2.3 million due to lower energy hedging in the fourth quarter. Operating expense increased $2.9 million, primarily due to increased volume-driven incentive compensation costs.

49

# Financial Condition

## Securities

We maintain a securities portfolio to enhance profitability, manage interest rate risk, provide liquidity and comply with regulatory requirements. Securities are classified as trading, held for investment, or available for sale. See Note 2 to the Consolidated Financial Statements for the composition of the securities portfolio as of December 31, 2022 and December 31, 2021.

We hold an inventory of trading securities in support of sales to a variety of customers including banks, corporations, insurance companies, money managers and others. Trading securities totaled $4.5 billion at December 31, 2022, a decrease of $4.7 billion compared to December 31, 2021. Our trading portfolio expanded during 2021 in order to provide greater liquidity in the housing market during a time of record mortgage loan production volumes and to meet demand of our growing institutional customer base. As inflation pressure increased throughout 2022 and the conflict in Ukraine intensified, fixed income markets were disrupted reducing the demand for these securities. Consequently, we reduced our inventory of trading securities. As discussed in the Market Risk section of this report, trading activities involve risk of loss from adverse price movements. We mitigate this risk within board-approved value-at-risk limits through the use of derivative contracts, short-sales and other techniques. These limits remain relatively unchanged from levels set before our expanded trading activities.

At December 31, 2022, the carrying value of investment (held-to-maturity) securities was $2.5 billion, including a $558 thousand allowance for expected credit losses, compared to $211 million at December 31, 2021 with a $555 thousand allowance for expected credit losses. The fair value of investment securities was $2.3 billion at December 31, 2022 and $231 million at December 31, 2021. Investment securities consist primarily of residential mortgage-backed securities issued by U.S. government agencies, intermediate and long-term, fixed rate Oklahoma and Texas municipal bonds, and taxable Texas school construction bonds. The investment security portfolio is diversified among issuers. During the second quarter of 2022, the Company transferred certain U.S. government agency mortgage-backed securities from the available for sale portfolio to the investment securities portfolio to limit the effect of future rate increases on the tangible common equity ratio. No gains or losses were recognized in the Consolidated Statements of Earnings at the time of the transfer. At the time of transfer, the fair value totaled $2.4 billion, amortized cost totaled $2.7 billion and the pretax unrealized loss totaled $268 million. Transfers of debt securities into the investment securities portfolio are made at fair value at the date of transfer. The unrealized holding gain or loss at the date of transfer is retained in Accumulated Other Comprehensive Income and in the carrying value of the investment securities portfolio. Such amounts are amortized over the estimated remaining lives of the securities as an adjustment to yield, offsetting the related amortization of the premium or accretion of the discount on the transferred securities.

Available for sale securities, which may be sold prior to maturity, are carried at fair value. Unrealized gains or losses, net of deferred taxes, are recorded as Accumulated Other Comprehensive Income in shareholders' equity. At December 31, 2022, the fair value of available for sale securities was $11.5 billion, a decrease of $1.7 billion compared to December 31, 2021. The amortized cost of available for sale securities totaled $12.4 billion at December 31, 2022, a decrease of $705 million compared to December 31, 2021. Available for sale securities consist primarily of U.S. government agency residential mortgage-backed securities and U.S. government agency commercial mortgage-backed securities. Both residential and commercial mortgage-backed securities have credit risk from delinquency or default of the underlying loans. We mitigate this risk by primarily investing in securities issued by U.S. government agencies for which the principal and interest payments on the underlying loans are fully guaranteed. Commercial mortgage-backed securities have prepayment penalties similar to commercial loans. At December 31, 2022, residential mortgage-backed securities represented 56% of total fair value of available for sale securities.

A primary risk of holding residential mortgage-backed securities comes from extension during periods of rising interest rates or prepayment during periods of falling interest rates. We evaluate this risk through extensive modeling of risk both before making an investment and throughout the life of the security. Our best estimate of the effective duration of the combined residential mortgage-backed securities portfolio held in investment and available for sale securities portfolios at December 31, 2022 is 3.2 years. Management estimates the combined portfolios' duration extends to 3.7 years assuming an immediate 200 basis point upward shock. The estimated duration contracts to 2.9 years assuming a 100 basis point decline in the current rate environment.

The aggregate gross amount of unrealized losses on available for sale securities totaled $894 million at December 31, 2022, a $780 million increase compared to December 31, 2021. On a quarterly basis, we perform an evaluation on debt securities to determine if the unrealized losses are temporary as more fully described in Note 2 of the Consolidated Financial Statements. No credit impairment of available for sale securities was identified in 2022.

50

Certain residential mortgage-backed securities issued by U.S. government agencies and included in Fair value option securities on the Consolidated Balance Sheets have been segregated and designated as economic hedges of changes in the fair value of our mortgage servicing rights. We have elected to carry these securities at fair value with changes in fair value recognized in current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of mortgage servicing rights and related derivative contracts. Fair value option securities totaled $297 million, an increase of $253 million over 2021. See Market Risk section for further details.

### **Bank-Owned Life Insurance**

We have approximately $407 million of bank-owned life insurance at December 31, 2022. This investment is expected to provide a long-term source of earnings to support existing employee benefit programs. Approximately $312 million is held in separate accounts and $95 million represents the cash surrender value of policies held in general accounts and other amounts due from various insurance companies. Our separate account holdings are invested in diversified portfolios of investment-grade fixed income securities and cash equivalents including U.S. Treasury and Agency securities, residential mortgage-backed securities, corporate debt, asset-backed and commercial mortgage-backed securities. The portfolios are managed by unaffiliated professional managers within parameters established in the portfolio’s investment guidelines. The cash surrender value of certain life insurance policies is further supported by a stable value wrap which protects against changes in the fair value of the investments. As of December 31, 2022, the fair value of investments held in separate accounts covered by the stable value wrap was approximately $282 million. Since the underlying fair value of the investments held in separate accounts at December 31, 2022 was below the net book value of the investments, $29 million of cash surrender value was supported by the stable value wrap. Future rate increases may cause write-downs in the short-term. The stable value wrap is provided by a domestic financial institution.

51

## Loans

The aggregate loan portfolio before allowance for loan losses totaled $22.6 billion at December 31, 2022, an increase of $2.4 billion compared to December 31, 2021, driven by growth in commercial loans, commercial real estate loans and loans to individuals.

**Table 21 - Loans**

(In thousands)

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Commercial: |  |  |
| Healthcare | $3,845,017 | $3,414,940 |
| Services | 3,431,521 | 3,367,193 |
| Energy | 3,424,790 | 3,006,884 |
| General business | 3,496,859 | 2,717,448 |
| Total commercial | 14,198,187 | 12,506,465 |
| Commercial real estate: |  |  |
| Industrial | 1,221,501 | 766,125 |
| Multifamily | 1,212,883 | 786,404 |
| Office | 1,053,331 | 1,040,963 |
| Retail | 620,518 | 679,917 |
| Residential construction and land development | 95,684 | 120,016 |
| Other commercial real estate | 402,860 | 437,900 |
| Total commercial real estate | 4,606,777 | 3,831,325 |
| Paycheck protection program | 14,312 | 276,341 |
| Loans to individuals: |  |  |
| Residential mortgage | 1,890,784 | 1,722,170 |
| Residential mortgage guaranteed by U.S. government agencies | 245,940 | 354,173 |
| Personal | 1,601,150 | 1,515,206 |
| Total loans to individuals | 3,737,874 | 3,591,549 |
| Total | $22,557,150 | $20,205,680 |

### Commercial

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent ongoing relationships based on a thorough knowledge of the customer, the customer’s industry and market. While commercial loans are generally secured by the customer’s assets including real property, inventory, accounts receivable, operating equipment, interests in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer’s business. Inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

Commercial loans totaled $14.2 billion or 63% of the loan portfolio at December 31, 2022, increasing $1.7 billion or 14% compared to December 31, 2021, primarily related to growth in general business loan balances, with healthcare, energy and services loans also increasing.

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Approximately 73% of commercial loans are located within our geographic footprint, based on collateral location. Loans for which the collateral location is less relevant, such as unsecured loans and reserve-based energy loans, are categorized by the borrower's primary operating location. The largest concentration of loans in this segment outside of our footprint is California, totaling 5% of the segment.

Supporting the energy industry with loans to producers and other energy-related entities has been a hallmark of the Company since its founding and represents a large portion of our commercial loan portfolio. In addition, energy production and related industries have a significant impact on the economy in our primary markets. Loans collateralized by oil and gas properties are subject to semi-annual engineering reviews by our internal staff of petroleum engineers. These reviews are used as the basis for developing the expected cash flows supporting the loan amount. The projected cash flows are discounted according to risk characteristics of the underlying oil and gas properties. Loans are evaluated to demonstrate with reasonable certainty that crude oil, natural gas and natural gas liquids can be recovered from known oil and gas reservoirs under existing economic and operating conditions at current pricing levels and with existing conventional equipment and operating methods and costs. As part of our evaluation of credit quality, we analyze rigorous stress tests over a range of commodity prices and take proactive steps to mitigate risk when appropriate.

Outstanding energy loans totaled $3.4 billion or 15% of total loans at December 31, 2022. Approximately $2.7 billion or 78% of energy loans were to oil and gas producers, a $478 million increase compared to December 31, 2021. The majority of this portfolio is first lien, senior secured, reserve-based lending, which we believe is the lowest risk form of energy lending. Approximately 72% of the committed production loans are secured by properties primarily producing oil and 28% of the committed production loans are secured by properties primarily producing natural gas.

Loans to midstream oil and gas companies totaled $575 million or 17% of energy loans, a decrease of $71 million compared to the prior year. Loans to borrowers that provide services to the energy industry totaled $157 million or 5% of energy loans, a $15 million increase during 2022. Loans to other energy borrowers, including those engaged in wholesale or retail energy sales, totaled $26 million or less than 1% of energy loans, a $3.9 million decrease from the prior year.

Unfunded energy loan commitments were $3.8 billion at December 31, 2022, up $806 million over December 31, 2021. While utilization levels remain low, this provides ample capacity for growth from our current customer base.

The healthcare sector of the loan portfolio totaled $3.8 billion or 17% of total loans. Healthcare loans increased $430 million over December 31, 2021, primarily due to growth in loans to senior housing and care facilities. Healthcare sector loans consist primarily of loans for the development and operation of senior housing and care facilities including independent living, assisted living and skilled nursing. Generally, we loan to borrowers with a portfolio of multiple facilities that serves to help diversify risks specific to a single facility.

The services sector of the loan portfolio increased $64 million to $3.4 billion or 15% of total loans. Service sector loans consist of a large number of loans to a variety of businesses including Native American tribal and state and local municipal government entities, Native American tribal casino operations, educational services, foundations and not-for-profit organizations and specialty trade contractors. Approximately $1.6 billion of the services category is made up of loans with individual balances of less than $10 million. Service sector loans are generally secured by the assets of the borrower with repayment coming from the cash flows of ongoing operations of the customer's business.

General business loans increased $779 million to $3.5 billion or 16% of total loans. General business loans primarily consist of $2.1 billion of wholesale/retail loans and $1.4 billion of loans from other commercial industries.

We participate in shared national credits when appropriate to obtain or maintain business relationships with local customers. Shared national credits are defined by banking regulators as credits of more than $100 million and with three or more non-affiliated banks as participants. At December 31, 2022, the outstanding principal balance of these loans totaled $5.3 billion, including $2.5 billion in the energy sector. Based on dollars committed, approximately 80% of shared national credits are to borrowers with local market relationships and we serve as the agent lender in approximately 22% of our shared national credits. We hold shared national credits to the same standard of analysis and perform the same level of review as internally originated credits. Our lending policies generally avoid loans in which we do not have the opportunity to maintain or achieve other business relationships with the customer. In addition to management's quarterly assessment of credit risk, banking regulators annually review a sample of shared national credits for proper risk grading.

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### *Commercial Real Estate*

Commercial real estate represents loans for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes generally within our geographical footprint. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

The outstanding balance of commercial real estate loans totaled $4.6 billion or 20% of the loan portfolio, an increase of $775 million over December 31, 2021. Loans secured by industrial facilities increased $455 million or 59%. Loans secured by multifamily real estate increased $426 million or 54%. Loans secured by retail facilities decreased $59 million or 9%. Other real estate loans decreased $35 million or 8%.

Approximately 67% of commercial real estate loans are in our geographic footprint based on collateral location. The largest concentration of loans in this segment outside our footprint is Utah, totaling 10% of the segment. All other states represent less than 5% individually.

Unfunded commercial real estate loan commitments were $3.1 billion at December 31, 2022, a $1.2 billion increase over the prior year. We take a disciplined approach to managing our concentration of commercial real estate loan commitments as a percentage of Tier 1 Capital. While loan commitments are presently at the upper concentration limit, we expect continued growth in our outstanding commercial real estate balances as loans fund.

### *Paycheck Protection Program*

We participated in programs initiated by the Coronavirus Aid, Relief and Economic Security Act ('CARES Act'), including the Small Business Administration's ('SBA') Paycheck Protection Program ('PPP') that began on April 3, 2020. PPP provided fully forgivable loans when utilized for qualified expenditures including to help small business maintain payrolls during the COVID-19 pandemic. The remaining loans in this portfolio generally have a contractual term of five years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed, and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a fixed interest rate of 1%. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. The remaining outstanding balance of PPP loans was $14 million or less than 1% of the loan portfolio. Remaining unaccreted origination fees were not significant at December 31, 2022.

### *Loans to Individuals*

Loans to individuals include residential mortgage and personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. These loans are secured by a first or second mortgage on the customer's primary residence. Personal loans consist primarily of loans to Wealth Management clients secured by the cash surrender value of insurance policies and marketable securities. It also includes direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. These loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

In general, we sell the majority of our conforming fixed rate mortgage loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Home equity loans are primarily first-lien and fully amortizing.

Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the underlying agency guarantee. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet.

54

Loans to individuals totaled $3.7 billion or 17% of the loan portfolio, growing $146 million over December 31, 2021. Approximately 91% of loans to individuals are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans, are categorized by the borrower’s primary operating location.

The Company secondarily evaluates loan portfolio performance based on the primary geographical market managing the loan. Loans attributed to a geographical market may not represent the location of the borrower or the collateral. All permanent mortgage loans serviced by our mortgage banking unit and held for investment by the Company are centrally managed by the Oklahoma market.

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**Table 22 - Loans Managed by Primary Geographical Market**

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Texas: |  |  |
| Commercial | $6,869,979 | $6,068,700 |
| Commercial real estate | 1,555,508 | 1,253,439 |
| Paycheck protection program | 8,639 | 81,654 |
| Loans to individuals | 982,700 | 942,982 |
| Total Texas | 9,416,826 | 8,346,775 |
| Oklahoma: |  |  |
| Commercial | 3,379,468 | 2,633,014 |
| Commercial real estate | 582,109 | 546,021 |
| Paycheck protection program | 3,109 | 69,817 |
| Loans to individuals | 2,077,124 | 2,024,404 |
| Total Oklahoma | 6,041,810 | 5,273,256 |
| Colorado: |  |  |
| Commercial | 2,147,969 | 1,936,149 |
| Commercial real estate | 613,912 | 470,937 |
| Paycheck protection program | 1,230 | 82,781 |
| Loans to individuals | 241,902 | 256,533 |
| Total Colorado | 3,005,013 | 2,746,400 |
| Arizona: |  |  |
| Commercial | 1,123,569 | 1,130,798 |
| Commercial real estate | 860,947 | 674,309 |
| Paycheck protection program | 720 | 21,594 |
| Loans to individuals | 229,872 | 186,528 |
| Total Arizona | 2,215,108 | 2,013,229 |
| Kansas/Missouri: |  |  |
| Commercial | 310,715 | 338,697 |
| Commercial real estate | 479,968 | 382,761 |
| Paycheck protection program | - | 4,718 |
| Loans to individuals | 131,307 | 110,889 |
| Total Kansas/Missouri | 921,990 | 837,065 |
| New Mexico: |  |  |
| Commercial | 262,735 | 306,964 |
| Commercial real estate | 417,008 | 442,128 |
| Paycheck protection program | 614 | 13,510 |
| Loans to individuals | 67,163 | 63,930 |
| Total New Mexico | 747,520 | 826,532 |
| Arkansas: |  |  |
| Commercial | 103,752 | 92,143 |
| Commercial real estate | 97,325 | 61,730 |
| Paycheck protection program | - | 2,267 |
| Loans to individuals | 7,806 | 6,283 |
| Total Arkansas | 208,883 | 162,423 |
| Total BOK Financial loans | $22,557,150 | $20,205,680 |

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**Table 23 - Loan Maturity and Interest Rate Sensitivity at December 31, 2022**

|  | Total | Remaining Maturities of Selected Loans |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  |  | Within 1 Year | 1-5 Years | 5 - 15 Years | After 15 Years |
| Loan maturity: |  |  |  |  |  |
| Commercial | $14,198,187 | $2,218,916 | $9,907,795 | $1,826,250 | $245,226 |
| Commercial real estate | 4,606,777 | 1,532,618 | 2,767,611 | 281,275 | 25,273 |
| Paycheck protection program | 14,312 | 8,643 | 5,669 | - | - |
| Loans to individuals | 3,737,874 | 581,351 | 1,084,957 | 670,433 | 1,401,133 |
| Total | $22,557,150 | $4,341,528 | $13,766,032 | $2,777,958 | $1,671,632 |
| Interest rate sensitivity for selected loans with: |  |  |  |  |  |
| Predetermined interest rates | $6,363,116 | $375,344 | $2,531,446 | $2,144,232 | $1,312,094 |
| Floating or adjustable interest rates | 16,194,034 | 3,966,184 | 11,234,586 | 633,726 | 359,538 |
| Total | $22,557,150 | $4,341,528 | $13,766,032 | $2,777,958 | $1,671,632 |

### Off-Balance Sheet Commitments

We enter into certain off-balance sheet arrangements in the normal course of business as shown in Table 24. Loan commitments may be unconditional obligations to provide financing or conditional obligations that depend on the borrower’s financial condition, collateral value or other factors. Standby letters of credit are unconditional commitments to guarantee the performance of our customer to a third party. Since some of these commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

We have off-balance sheet commitments related to certain residential mortgage loans sold into mortgage-backed securities as part of our mortgage banking activities. We retain off-balance sheet credit risk related to losses in excess of amounts guaranteed by the U.S. Department of Veteran’s Affairs ('VA').

We also have off-balance sheet credit risk related to certain residential mortgage loans primarily originated under community development loan programs that were sold to a U.S. government agency with full recourse prior to 2007. We are obligated to repurchase these loans for the life of these loans in the event of foreclosure for the unpaid principal and interest at the time of foreclosure. The majority of our conforming fixed rate loan originations are sold in the secondary market, and we only retain repurchase obligations under standard underwriting representations and warranties.

**Table 24 - Off-Balance Sheet Credit Commitments**

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Loan commitments | $15,424,431 | $12,471,482 |
| Standby letters of credit | 740,039 | 699,743 |
| Unpaid principal balance of residential mortgage loans sold with recourse | 44,742 | 54,619 |
| Unpaid principal balance of residential mortgage loans transferred into mortgage-backed securities guaranteed by U.S. Dept. of Veteran’s Affairs | 1,005,368 | 1,095,877 |

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## Customer Derivative Programs

We offer programs that permit our customers to hedge various risks including fluctuations in energy, interest rates, foreign exchange rates, and other commodities. Each of these programs work essentially the same way. Derivative contracts are executed between the customers and the Company. Offsetting contracts are executed between the Company and selected counterparties or exchanges to minimize market risk to us from changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to the customer contracts except for a fixed pricing spread or a fee paid to us as compensation for administrative costs, credit risk and profit.

The customer derivative programs create credit risk for potential amounts due to the Company from our customers and from the counterparties. Customer credit risk is monitored through existing credit policies and procedures. The effects of changes in commodity prices, interest rates or foreign exchange rates are evaluated across a range of possible options to determine the maximum exposure we are willing to have individually to any customer. Customers may also be required to provide cash margin or other collateral in conjunction with our credit agreements to further limit our credit risk.

Counterparty credit risk is evaluated through existing policies and procedures. This evaluation considers the total relationship between BOK Financial and each of the counterparties. Individual limits are established by management, approved by Credit Administration and reviewed by the Asset/Liability Committee. Margin collateral is required if the exposure between the Company and any counterparty exceeds established limits. Based on declines in the counterparties' credit ratings, these limits may be reduced and additional margin collateral may be required.

A deterioration of the credit standing of one or more of the customers or counterparties to these contracts may result in BOK Financial recognizing a loss as the fair value of the affected contracts may no longer move in tandem with the offsetting contracts. This occurs if the credit standing of the customer or counterparty deteriorates such that either the fair value of underlying collateral no longer supports the contract or the customer or counterparty's ability to provide margin collateral becomes impaired. Credit losses on customer derivatives reduce brokerage and trading revenue in the Consolidated Statements of Earnings.

Derivative contracts are carried at fair value. At December 31, 2022, the net fair values of derivative contracts, before consideration of cash margin, reported as assets under these programs totaled $1.0 billion compared to $1.1 billion at December 31, 2021. Derivative contracts carried as assets include energy contracts with fair values of $638 million, foreign exchange contracts with fair values of $217 million and interest rate swaps primarily sold to loan customers with fair values of $159 million. Before consideration of cash margin paid to counterparties, the aggregate net fair values of derivative contracts held under these programs reported as liabilities totaled $1.0 billion.

At December 31, 2022, total derivative assets were reduced by $182 million of cash collateral received from counterparties, and total derivative liabilities were reduced by $484 million of cash collateral paid to counterparties related to instruments executed with the same counterparty under a master netting agreement. Derivative contracts executed with customers may be secured by non-cash collateral in conjunction with a credit agreement with that customer such as proven producing oil and gas properties. Access to this collateral in the event of default is reasonably assured.

A table showing the notional and fair value of derivative assets and liabilities on both a gross and net basis is presented in Note 6 to the Consolidated Financial Statements.

The fair value of derivative contracts reported as assets under these programs, net of cash margin held by the Company, by category of debtor at December 31, 2022 follows in Table 25.

**Table 25 - Fair Value of Derivative Contracts**

(In thousands)

| Customers | $595,711 |
| --- | --- |
| Banks and other financial institutions | 136,134 |
| Exchanges and clearing organizations | 99,394 |
| Fair value of customer hedge asset derivative contracts, net | $831,239 |

The largest exposure to a single counterparty was to an exchange for $88 million of net derivative positions and $104 million of cash collateral placed at December 31, 2022.

58

Our customer derivative program also introduces liquidity and capital risk. We are required to provide cash margin to certain counterparties when the net negative fair value of the contracts exceeds established limits. Also, changes in commodity prices affect the amount of regulatory capital we are required to hold as support for the fair value of our derivative assets. These risks are modeled as part of the management of these programs. Based on current prices, a decrease in market prices down to an equivalent of $60.93 per barrel of oil would decrease the fair value of derivative assets by $328 million with lending customers comprising the bulk of the assets. An increase in prices up to the equivalent of $91.25 per barrel of oil would increase the fair value of derivative assets by $601 million. Liquidity requirements of this program are also affected by our credit rating. A decrease in our credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $10 million. The fair value of our to-be-announced residential mortgage-backed securities and interest rate swap derivative contracts is affected by changes in interest rates. Based on our assessment as of December 31, 2022, changes in interest rates would not materially impact regulatory capital or liquidity needed to support this portion of our customer derivative program.

59

## Summary of Credit Loss Experience

**Table 26 - Summary of Credit Loss Experience**

|  | Year Ended |  |
| --- | --- | --- |
|  | Dec. 31, 2022 | Dec. 31, 2021 |
| Allowance for loan losses: |  |  |
| Beginning balance | $256,421 | $388,640 |
| Loans charged off | (28,746) | (51,351) |
| Recoveries of loans previously charged off | 7,601 | 14,334 |
| Net loans charged off | (21,145) | (37,017) |
| Provision for credit losses | 428 | (95,202) |
| Ending balance | $235,704 | $256,421 |
| Accrual for off-balance sheet credit risk from unfunded loan commitments: |  |  |
| Beginning balance | $32,977 | 36,921 |
| Provision for credit losses | 27,942 | (3,944) |
| Ending balance | $60,919 | $32,977 |
| Accrual for off-balance sheet credit risk associated with mortgage banking activities: |  |  |
| Beginning balance | $3,382 | $4,282 |
| Loans charged off | (105) | (179) |
| Provision for credit losses | 1,627 | (721) |
| Ending balance | $4,904 | $3,382 |
| Allowance for credit losses related to held-to-maturity (investment) securities: |  |  |
| Beginning balance | $555 | $688 |
| Provision for credit losses | 3 | (133) |
| Ending balance | $558 | $555 |
| Total provision for credit losses | $30,000 | $(100,000) |
| Average loans by portfolio segment : |  |  |
| Commercial | $13,393,796 | $13,304,596 |
| Commercial real estate | 4,345,783 | 4,075,831 |
| Paycheck protection program | 13,501 | 293,976 |
| Loans to individuals | 3,526,107 | 3,820,753 |
| Net charge-offs (annualized) to average loans | 0.10% | 0.17% |
| Net charge-offs (annualized) to average loans by portfolio segment: |  |  |
| Commercial | 0.13% | 0.25% |
| Commercial real estate | - % | 0.04% |
| Paycheck protection program | - % | - % |
| Loans to individuals | 0.10% | 0.05% |
| Recoveries to gross charge-offs | 26.44% | 27.91% |
| Provision for loan losses (annualized) to average loans | - % | (0.44)% |
| Allowance for loan losses to loans outstanding at period-end | 1.04% | 1.27% |
| Accrual for unfunded loan commitments to loan commitments | 0.39% | 0.26% |
| Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to loans outstanding at period-end | 1.31% | 1.43% |

60

### *Allowance for Loan Losses and Accrual for Off-Balance Sheet Credit Risk from Unfunded Loan Commitments*

Expected credit losses on assets carried at amortized cost are recognized over their expected lives based on models that measure the probability of default and loss given default over a 12-month reasonable and supportable forecast period. Models incorporate base case, downside, and upside macroeconomic variables such as real gross domestic product ('GDP') growth, civilian unemployment rate and West Texas Intermediate ('WTI') oil prices on a probability weighted basis. See Note 4 to the Consolidated Financial Statements for additional discussion of methodology of allowance for loan losses.

A $30.0 million provision for credit losses was recorded for the year ended December 31, 2022, primarily due to strong growth in loans and loan commitments, partially offset by improvement in credit quality metrics. The uncertainty in our economic forecast increased resulting in an increase in the probability weighting of the downside scenario. In addition, some key economic factors were less favorable to growth across all scenarios.

Non-pass grade loans, which include loans especially mentioned, accruing substandard and nonaccruing loans, decreased $135 million to $321 million at December 31, 2022. Non-pass grade loans were composed primarily of $98 million or 3% of commercial healthcare loans, $58 million or 2% of commercial services loans, $57 million or 2% of commercial general business loans, $31 million or 1% of energy loans and $24 million or 1% of commercial real estate loans. A summary of outstanding loan balances by risk grade is included in Note 4 to the Consolidated Financial Statements.

We recorded a $15.0 million provision for credit losses in the fourth quarter of 2022, primarily due to strong growth in loans and loan commitments. The level of uncertainty in the economic outlook remained high, and key economic factors in the base case were slightly less favorable to economic growth.

At December 31, 2022, the allowance for loan losses totaled $236 million or 1.04% of outstanding loans. Excluding residential mortgage loans guaranteed by U.S. government agencies, the allowance for loan losses was 221% of nonaccruing loans. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $297 million or 1.31% of outstanding loans and 278% of nonaccruing loans at December 31, 2022.

A $100.0 million negative provision for credit losses was recorded for the year ended December 31, 2021 primarily related to improvements in our reasonable and supportable forecasts of macroeconomic variables influenced by the anticipated impact of the COVID-19 pandemic developments. Throughout 2021, energy commodity prices strengthened and stabilized and the outlook of growth in GDP and the labor markets improved. Changes from credit quality metrics, primarily from changes in specific impairment, improving credit quality metrics and lower loan balances resulted in a decrease in the allowance for loan losses.

At December 31, 2021, the allowance for loan losses was $256 million or 1.27% of outstanding loans. Excluding loans guaranteed by U.S. government agencies, the allowance for loan losses was 213% of nonaccruing loans. The combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments was $289 million or 1.43% of outstanding loans and 241% of nonaccruing loans.

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A summary of macroeconomic variables considered in developing our estimate of expected credit losses at December 31, 2022 follows:

|  | Base | Downside | Upside |
| --- | --- | --- | --- |
| Scenario probability weighting | 50% | 40% | 10% |
| Economic outlook | The Russia-Ukraine conflict remains isolated. The Federal Reserve increases the federal funds rate twice in the first quarter of 2023, resulting in a target range of 4.75% to 5.00%. No additional rate increases in 2023 are anticipated. Inflation pressures cause modest declines in real household income compared to pre-pandemic levels, resulting in below-trend GDP growth. Job openings revert to more normalized levels, and overall hiring levels decline causing the national unemployment rate to modestly increase over the next four quarters. | The Russia-Ukraine conflict remains isolated. Higher levels of inflation force the Federal Reserve to adopt a more aggressive monetary policy as compared to the base case scenario. This results in a federal funds rate target range of 5.75% to 6.00% by December 2023. Inflation moderates slightly from the peak experienced in the third quarter of 2022, but remains elevated through the forecast horizon. The United States economy is pushed into a recession with a contraction in economic activity and a sharp increase in the unemployment rate. | The Russia-Ukraine conflict remains isolated. The Federal Reserve increases the federal funds rate once in the first quarter of 2023, resulting in a target range of 4.50% to 4.75%. No additional rate increases in 2023 are anticipated. Inflation continues to improve from the peak experienced in the third quarter of 2022. Labor force participants continue to re-enter the job market to help fill the elevated level of job openings. This increase in employment helps maintain real household income above its pre-pandemic trend. This, coupled with a drawdown in savings, supports consumer spending and produces GDP growth consistent with pre-pandemic levels. |
| Macro-economic factors | - GDP is forecasted to grow by 0.9% over the next 12 months. - Civilian unemployment rate of 3.9% in the first quarter of 2023 increasing to 4.1% by the fourth quarter of 2023. - WTI oil prices are projected to generally follow the NYMEX forward curve that existed at the end of December 2022 and are expected to average $75.05 per barrel over the next 12 months. | - GDP is forecasted to contract 1.3% over the next 12 months. - Civilian unemployment rate of 4.8% in the first quarter of 2023 worsens to 6.0% by the fourth quarter of 2023. - WTI oil prices are projected to average $65.87 per barrel over the next twelve months, peaking at $70.78 in the first quarter of 2023 and falling 15% over the following three quarters. | - GDP is forecasted to grow by 1.6% over the next 12 months. - Civilian unemployment rate of 3.7% in the first quarter of 2023 increases slightly to 3.8% by the fourth quarter of 2023. - WTI oil prices are projected to average $83.58 per barrel over the next 12 months. |

#### *Net Loans Charged Off*

In 2022, net loans charged off totaled $21 million or 0.10%, down from $37 million or 0.17% of average loans in 2021.

In 2022, net charge-offs of commercial loans were $17.7 million, primarily related to a single services borrower in the fourth quarter. Net commercial real estate loan charge-offs were $92 thousand and net loan charge-offs of loans to individuals were $3.4 million. Net charge-offs of loans to individuals include deposit account overdraft losses.

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## Nonperforming Assets

As more fully described in Note 1 to the Consolidated Financial Statements, loans are generally classified as nonaccruing when it becomes probable that we will not collect the full contractual principal and interest. Accruing renegotiated loans guaranteed by U.S. government agencies represent residential mortgage loans that have been modified in troubled debt restructurings. Interest continues to accrue based on the modified terms of the loan and loans may be sold once they become eligible according to U.S. government agency guidelines. Real estate and other repossessed assets are assets acquired in partial or total forgiveness of loans. The assets are carried at the lower of cost, as determined by fair value at the date of foreclosure, or current fair value, less estimated selling costs. A summary of nonperforming assets follows in Table 27:

**Table 27 - Nonperforming Assets**

(Dollars in thousands)

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Nonaccruing loans: |  |  |
| Commercial |  |  |
| Energy | $1,399 | $31,091 |
| Healthcare | 41,034 | 15,762 |
| Services | 16,228 | 17,170 |
| General business | 1,636 | 10,081 |
| Total commercial | 60,297 | 74,104 |
| Commercial real estate | 16,570 | 14,262 |
| Paycheck protection program | - | - |
| Loans to individuals |  |  |
| Residential mortgage | 29,791 | 31,574 |
| Residential mortgage guaranteed by U.S. government agencies | 15,005 | 13,861 |
| Personal | 134 | 258 |
| Total loans to individuals | 44,930 | 45,693 |
| Total nonaccruing loans | 121,797 | 134,059 |
| Accruing renegotiated loans guaranteed by U.S. government agencies | 163,535 | 210,618 |
| Real estate and other repossessed assets | 14,304 | 24,589 |
| Total nonperforming assets | $299,636 | $369,266 |
| Total nonperforming assets excluding those guaranteed by U.S. government agencies | $121,096 | $144,787 |
| Allowance for loan losses to nonaccruing loans 1 | 220.71% | 213.33% |
| Combined allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments to nonaccruing loans 1 | 277.76% | 240.77% |
| Nonperforming assets to outstanding loans and repossessed assets | 1.33% | 1.83% |
| Nonperforming assets to outstanding loans and repossessed assets 1 | 0.54% | 0.73% |
| Nonaccruing loans to outstanding loans | 0.54% | 0.66% |
| Nonaccruing commercial loans to outstanding commercial loans | 0.42% | 0.59% |
| Nonaccruing commercial real estate loans to outstanding commercial real estate loans | 0.36% | 0.37% |
| Nonaccruing loans to individuals to outstanding loans to individuals 1 | 0.86% | 0.98% |
| Accruing loans 90 days or more past due 1 | $510 | $313 |

$^{1}$ Excludes residential mortgages guaranteed by U.S. government agencies.

Excluding loans guaranteed by U.S. government agencies, nonperforming assets decreased $24 million compared to December 31, 2021, primarily due to a $30 million decrease in nonaccruing energy loans, a $10 million decrease in real estate and other repossessed assets and an $8.4 million decrease in nonaccruing general business loans. These decreases were partially offset by a $25 million increase in nonaccruing healthcare sector loans. Newly identified nonaccruing loans totaled $97 million, offset by $55 million in payments, $29 million of charge-offs, $13 million of loans returning to accrual status and $12 million in foreclosures. The Company generally retains nonperforming assets to maximize potential recovery, which may cause future nonperforming assets to decrease more slowly.

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A rollforward of nonperforming assets for the years ended December 31, 2022 and December 31, 2021 follows in Table 28.

**Table 28 - Rollforward of Nonperforming Assets**

|  | Year Ended December 31, 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Nonaccruing Loans |  |  |  | Renegotiated Loans | Real Estate and Other Repossessed Assets | Total Nonperforming Assets |
|  | Commercial | Commercial Real Estate | Loan to Individuals | Total |  |  |  |
| Balance, December 31, 2021 | $74,104 | $14,262 | $45,693 | $134,059 | $210,618 | $24,589 | $369,266 |
| Additions | 58,822 | 20,683 | 17,372 | 96,877 | 38,644 | - | 135,521 |
| Payments | (42,484) | (944) | (12,049) | (55,477) | (6,382) | - | (61,859) |
| Charge-offs | (22,382) | (269) | (6,095) | (28,746) | - | - | (28,746) |
| Net gains (losses) and write-downs | - | - | - | - | - | (1,194) | (1,194) |
| Foreclosure of nonaccruing loans | (7,960) | (3,956) | (410) | (12,326) | - | 12,326 | - |
| Foreclosure of loans guaranteed by U.S. government agencies | - | - | (4,929) | (4,929) | (3,431) | - | (8,360) |
| Proceeds from sales | - | - | - | - | (71,520) | (21,417) | (92,937) |
| Net transfers to nonaccruing loans | - | - | 5,774 | 5,774 | (5,774) | - | - |
| Return to accrual status | 197 | (13,206) | (426) | (13,435) | - | - | (13,435) |
| Other, net | - | - | - | - | 1,380 | - | 1,380 |
| Balance, December 31, 2022 | $60,297 | $16,570 | $44,930 | $121,797 | $163,535 | $14,304 | $299,636 |

|  | Year Ended December 31, 2021 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Nonaccruing Loans |  |  |  | Renegotiated Loans | Real Estate and Other Repossessed Assets | Total Nonperforming Assets |
|  | Commercial | Commercial Real Estate | Loan to Individuals | Total |  |  |  |
| Balance, December 31, 2020 | $167,159 | $27,246 | $40,288 | $234,693 | $151,775 | $90,526 | $476,994 |
| Additions | 61,129 | 327 | 25,241 | 86,697 | 105,535 | 8,688 | 200,920 |
| Net transfer from premises and equipment | - | - | - | - | - | 217 | 217 |
| Payments | (102,717) | (10,537) | (17,443) | (130,697) | (3,948) | - | (134,645) |
| Charge-offs | (43,956) | (2,485) | (4,910) | (51,351) | - | - | (51,351) |
| Net gains (losses) and write-downs | - | - | - | - | - | 13,842 | 13,842 |
| Foreclosure of nonaccruing loans | (7,511) | - | (809) | (8,320) | - | 8,320 | - |
| Foreclosure of loans guaranteed by U.S. government agencies | - | - | (2,435) | (2,435) | (866) | - | (3,301) |
| Proceeds from sales | - | - | - | - | (37,322) | (97,004) | (134,326) |
| Net transfers to nonaccruing loans | - | - | 6,081 | 6,081 | (6,081) | - | - |
| Return to accrual status | - | (289) | (320) | (609) | - | - | (609) |
| Other, net | - | - | - | - | 1,525 | - | 1,525 |
| Balance, December 31, 2021 | $74,104 | $14,262 | $45,693 | $134,059 | $210,618 | $24,589 | $369,266 |

64

We foreclose on loans guaranteed by U.S. government agencies in accordance with agency guidelines. Generally these loans are not eligible for modification programs or have failed to comply with modified loan terms. Principal is guaranteed by agencies of the U.S. government, subject to limitations and credit risk is limited. These properties will be conveyed to the agencies and receivables collected once applicable criteria have been met.

#### *Real Estate and Other Repossessed Assets*

Real estate and other repossessed assets totaled $14 million at December 31, 2022, composed primarily of $9.5 million of developed commercial real estate. Real estate and other repossessed assets decreased $10 million compared to December 31, 2021, primarily related to the sale of developed commercial real estate and oil and gas properties.

#### **Liquidity and Capital**

BOK Financial has numerous material cash requirements in the normal course of business. These obligations include deposits and other borrowed funds, leased premises, commitments to extend credit to borrowers and to purchase securities, derivative contracts and contracts for services such as data processing that are integral to our operations. Additional information on loan commitments can be found in the 'Loan Commitments' section of Management's Discussion and Analysis while the distribution of time deposit balances can be located in Note 8, 'Deposits,' and information related to Other Borrowings can be located in Note 9, 'Other Borrowings.'

Our funding sources, which primarily include deposits and borrowings from the Federal Home Loan Banks, provide adequate liquidity to meet our operating needs. Based on the average balances for 2022, approximately 80% of our funding was provided by deposit accounts, 6% from borrowed funds, less than 1% from long-term subordinated debt and 10% from equity. The loan to deposit ratio increased to 65% at December 31, 2022 from 49% at December 31, 2021, and continues to provide significant on-balance sheet liquidity to meet future loan demand and contractual obligations. BOK Financial, similar to the banking industry as a whole, saw deposits decline in 2022 as customers begin redeploying capital and moving to other off-balance sheet alternatives seeking higher yields in the rising interest rate environment. We are maintaining higher balances at the Federal Reserve to cover vital business obligations, to meet future asset growth opportunities and to stay nimble in a rising rate environment.

#### *Subsidiary Bank*

Deposits and borrowed funds are the primary sources of liquidity for the subsidiary bank. Deposit accounts represent our largest funding source. We compete for retail and commercial deposits by offering a broad range of products and services and focusing on customer convenience. Retail deposit growth is supported through personal and small business checking, online bill paying services, mobile banking services, an extensive network of branch locations and ATMs and our ExpressBank call center. Commercial deposit growth is supported by offering treasury management and lockbox services. We also acquire brokered deposits when the cost of funds is advantageous to other funding sources.

**Table 29 - Average Deposits by Line of Business**

|  | Year Ended December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Commercial Banking | $18,323,412 | $17,659,695 |
| Consumer Banking | 8,763,046 | 8,439,577 |
| Wealth Management | 8,491,377 | 9,426,771 |
| Subtotal | 35,577,835 | 35,526,043 |
| Funds Management and other | 2,273,446 | 2,394,934 |
| Total | $37,851,281 | $37,920,977 |

Average deposits for 2022 totaled $37.9 billion, a decrease of $70 million compared to the prior year, primarily driven by institutional clients moving to off-balance sheet alternatives seeking higher yields. Interest-bearing transaction deposit account balances decreased $1.1 billion while demand deposits increased $1.4 billion. Average time deposits also decreased $430 million.

65

Average deposits attributed to Commercial Banking were $18.3 billion for 2022, a $664 million or 4% increase over 2021. Demand deposit balances increased $984 million or 11%. Time deposit balances decreased $227 million or 43% while interest-bearing transaction account balances decreased $94 million or 1%. Commercial customers continued to retain large cash reserves, especially in the first half of the year, primarily due to a combination of factors including uncertainty about the economic environment and potential for growth, lack of preferable liquid alternatives and a desire to minimize deposit charges through the earnings credit. The earnings credit is a non-cash method that enables commercial customers to offset deposit service charges based on account balances. We anticipate that commercial deposit balances may contract as short-term rates continue to move higher enhancing other investment alternatives for commercial customers.

Average Consumer Banking deposit balances increased $323 million or 4% over the prior year. Average interest-bearing transaction account balances increased $234 million or 6%. Average demand deposit account balances grew by $101 million or 3% while savings deposits increased $99 million or 12%. Time deposit balances decreased $110 million or 14%.

Average Wealth Management deposit balances decreased by $935 million or 10% compared to the prior year. Interest-bearing transaction balances decreased $1.1 billion or 14%. Non-interest-bearing demand deposits increased $234 million or 17% and time deposit balances decreased $110 million or 19%.

Brokered deposits included in time deposits averaged $51 million for 2022 compared to $62 million for 2021. Brokered deposits included in time deposits totaled $42 million at December 31, 2022 and $49 million at December 31, 2021.

Average interest-bearing transaction accounts for 2022 included $1.9 billion of brokered deposits compared to $2.1 billion for 2021. Brokered deposits included in interest-bearing transaction accounts totaled $1.5 billion at December 31, 2022 and $2.1 billion at December 31, 2021.

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The distribution of our period end deposit account balances among principal markets follows in Table 30.

**Table 30 - Period End Deposits by Principal Market Area**

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Oklahoma: |  |  |
| Demand | $4,585,963 | $5,433,405 |
| Interest-bearing: |  |  |
| Transaction | 9,475,528 | 12,689,367 |
| Savings | 555,407 | 521,439 |
| Time | 794,002 | 978,822 |
| Total interest-bearing | 10,824,937 | 14,189,628 |
| Total Oklahoma | 15,410,900 | 19,623,033 |
| Texas: |  |  |
| Demand | 3,873,759 | 4,552,983 |
| Interest-bearing: |  |  |
| Transaction | 4,878,482 | 5,345,461 |
| Savings | 178,356 | 178,458 |
| Time | 356,538 | 337,559 |
| Total interest-bearing | 5,413,376 | 5,861,478 |
| Total Texas | 9,287,135 | 10,414,461 |
| Colorado: |  |  |
| Demand | 2,462,891 | 2,526,855 |
| Interest-bearing: |  |  |
| Transaction | 2,123,218 | 2,334,371 |
| Savings | 77,961 | 78,636 |
| Time | 135,043 | 174,351 |
| Total interest-bearing | 2,336,222 | 2,587,358 |
| Total Colorado | 4,799,113 | 5,114,213 |
| New Mexico: |  |  |
| Demand | 1,141,958 | 1,196,057 |
| Interest-bearing: |  |  |
| Transaction | 691,915 | 858,394 |
| Savings | 112,430 | 107,963 |
| Time | 133,625 | 163,871 |
| Total interest-bearing | 937,970 | 1,130,228 |
| Total New Mexico | 2,079,928 | 2,326,285 |

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|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Arizona: |  |  |
| Demand | 844,327 | 934,282 |
| Interest-bearing: |  |  |
| Transaction | 739,628 | 834,491 |
| Savings | 16,496 | 16,182 |
| Time | 24,846 | 31,274 |
| Total interest-bearing | 780,970 | 881,947 |
| Total Arizona | 1,625,297 | 1,816,229 |
| Kansas/Missouri: |  |  |
| Demand | 436,259 | 658,342 |
| Interest-bearing: |  |  |
| Transaction | 694,163 | 1,086,946 |
| Savings | 20,678 | 18,844 |
| Time | 12,963 | 12,255 |
| Total interest-bearing | 727,804 | 1,118,045 |
| Total Kansas/Missouri | 1,164,063 | 1,776,387 |
| Arkansas: |  |  |
| Demand | 50,180 | 42,499 |
| Interest-bearing: |  |  |
| Transaction | 56,181 | 119,543 |
| Savings | 3,083 | 3,213 |
| Time | 4,825 | 6,196 |
| Total interest-bearing | 64,089 | 128,952 |
| Total Arkansas | 114,269 | 171,451 |
| Total BOK Financial deposits | $34,480,705 | $41,242,059 |

Estimated uninsured deposits totaled $21.3 billion at December 31, 2022 and $27.1 billion at December 31, 2021. The portion of time deposits in excess of the FDIC limit, as applied without regard to other deposit balances held by the depositor, were $373 million at December 31, 2022.

In addition to deposits, liquidity for the subsidiary bank is provided primarily by federal funds purchased, securities repurchase agreements and Federal Home Loan Bank borrowings. Federal funds purchased consist primarily of unsecured, overnight funds acquired from other financial institutions. Funds are primarily purchased from bankers' banks and Federal Home Loan Banks from across the country. The Company had no wholesale federal funds purchased at December 31, 2022 or December 31, 2021. Securities repurchase agreements generally mature within 90 days and are secured by certain trading or available for sale securities. Federal Home Loan Bank borrowings are generally short term and are secured by a blanket pledge of eligible collateral (generally unencumbered U.S. Treasury and mortgage-backed securities, 1-4 family residential mortgage loans, multifamily and other qualifying commercial real estate loans). Amounts borrowed from the Federal Home Loan Bank of Topeka averaged $1.6 billion during 2022 and $1.7 billion during 2021.

At December 31, 2022, the estimated unused credit available to BOKF, NA from collateralized sources was approximately $12.5 billion.

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BOKF, NA also has a liability related to the repurchase of certain delinquent residential mortgage loans previously sold in GNMA mortgage pools. Interest is payable monthly at rates contractually due to investors.

See Note 9 to the Consolidated Financial Statements for a summary of other borrowings.

#### *Parent Company and Other Non-Bank Subsidiaries*

The primary sources of liquidity for BOK Financial are cash on hand and dividends from the subsidiary bank. Cash and cash equivalents totaled $165 million at December 31, 2022. Dividends from the subsidiary bank are limited by various banking regulations to net profits, as defined, for the year plus retained profits for the two preceding years. Dividends are further restricted by minimum capital requirements. At December 31, 2022, based on the most restrictive limitations as well as management's internal capital policy, BOKF, NA could declare up to $227 million of dividends without regulatory approval. Dividend constraints may be alleviated through increases in retained earnings, capital issuances or changes in risk weighted assets. Future losses or increases in required regulatory capital could also affect its ability to pay dividends to the parent company.

As a result of the acquisition of CoBiz Financial, we obtained $60 million of subordinated debt issued in June 2015 that will mature on June 25, 2030. This debt bears interest at the rate of 5.625% through June 25, 2025 and thereafter, the notes will bear an annual floating rate equal to 3-month LIBOR plus 317 basis points. We also acquired $72 million of junior subordinated debentures. Interest is based on spreads over 3-month LIBOR ranging from 145 basis points to 295 basis points and mature September 17, 2033 through September 30, 2035. The junior subordinated debentures are subject to early redemption prior to maturity. These LIBOR-based subordinated debentures will be subject to transition on July 1, 2023 in conjunction with the Adjustable Interest Rate (LIBOR) Act as implemented by the Board of Governors of the Federal Reserve System.

Shareholders' equity at December 31, 2022 was $4.7 billion, a decrease of $681 million compared to December 31, 2021. Net income less cash dividends paid increased equity $376 million during 2022. Changes in interest rates resulted in an accumulated other comprehensive loss of $837 million at December 31, 2022, compared to accumulated comprehensive income of $72 million at December 31, 2021. We also repurchased $155 million of common shares during 2022. Capital is managed to maximize long-term value to the shareholders. Factors considered in managing capital include projections of future earnings, asset growth and acquisition strategies, and regulatory and debt covenant requirements. Capital management may include subordinated debt issuance, share repurchase and stock and cash dividends.

On November 1, 2022, the Company's board of directors authorized the Company to repurchase up to five million shares of the Company's common stock, subject to market conditions, securities laws and other regulatory compliance limitations. This authorization replaces the existing board authorization for the purchase of five million common shares, under which 4,651,465 shares were repurchased. As of December 31, 2022, the Company had repurchased 314,406 shares under this new authorization. The Company repurchased 1,632,401 shares during 2022 at an average price of $94.88 per share. We view share buybacks opportunistically, but within the context of maintaining our strong capital position.

BOK Financial and the subsidiary bank are subject to various capital requirements administered by federal agencies. Failure to meet minimum capital requirements, including a capital conservation buffer, can result in certain mandatory and additional discretionary actions by regulators that could have a material impact on operations including restrictions on capital distributions from dividends and share repurchases and executive bonus payments. These capital requirements include quantitative measures of assets, liabilities and off-balance sheet items. The capital standards are also subject to qualitative judgments by the regulators.

A summary of minimum capital requirements follows for BOK Financial on a consolidated basis in Table 31.

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**Table 31 - Capital Ratios**

|  | Minimum Capital Requirement | Capital Conservation Buffer | Minimum Capital Requirement Including Capital Conservation Buffer | December 31, |  |
| --- | --- | --- | --- | --- | --- |
|  |  |  |  | 2022 | 2021 |
| Risk-based capital: |  |  |  |  |  |
| Common equity Tier 1 | 4.50% | 2.50% | 7.00% | 11.69% | 12.24% |
| Tier 1 capital | 6.00% | 2.50% | 8.50% | 11.71% | 12.25% |
| Total capital | 8.00% | 2.50% | 10.50% | 12.67% | 13.29% |
| Tier 1 Leverage | 4.00% | N/A | 4.00% | 9.91% | 8.55% |
| Average total equity to average assets |  |  |  | 10.24% | 10.68% |
| Tangible common equity ratio |  |  |  | 7.63% | 8.61% |

In March 2020, in response to the impact on the financial markets by the COVID-19 pandemic, the banking agencies issued an interim final rule permitting banking organizations that implement CECL the option to delay for two years an estimate of the CECL methodology's effect on regulatory capital, followed by a three-year transition period. The estimate includes the implementation date adjustment as of January 1, 2020 plus an estimate of the impact of the change for a two year period following implementation of CECL. We elected to delay the regulatory capital impact of the transition in accordance with the interim final rule. Deferral of the impact of CECL added 8 basis points to the Company's Common equity Tier 1 capital at December 31, 2022.

Capital resources of financial institutions are also regularly measured by the tangible common shareholders' equity ratio. Tangible common shareholders' equity is shareholders' equity as defined by generally accepted accounting principles in the United States of America ('GAAP'), including unrealized gains and losses on available for sale securities, less intangible assets and equity which does not benefit common shareholders. Equity that does not benefit common shareholders includes preferred equity. This non-GAAP measure is a valuable indicator of a financial institution's capital strength since it eliminates intangible assets from shareholders' equity and retains the effect of unrealized losses on securities and other components of accumulated other comprehensive income in shareholders' equity.

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## Non-GAAP Measures

In this report we may sometimes use non-GAAP financial measures. Please note that although non-GAAP financial measures provide useful insight to analysts, investors and regulators, they should not be considered in isolation or relied upon as a substitute for analysis using GAAP measures.

Table 32 following provides a reconciliation of the non-GAAP measures with financial measures defined by GAAP.

**Table 32 - Non-GAAP Measures**

(Dollars in thousands)

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Tangible common equity ratio: |  |  |
| Total shareholders' equity | $4,682,649 | $5,363,732 |
| Less: Goodwill and intangible assets, net | 1,120,880 | 1,136,527 |
| Tangible common equity | 3,561,769 | 4,227,205 |
| Total assets | 47,790,642 | 50,249,431 |
| Less: Goodwill and intangible assets, net | 1,120,880 | 1,136,527 |
| Tangible assets | $46,669,762 | $49,112,904 |
| Tangible common equity ratio | 7.63% | 8.61% |
| Pre-provision net revenue: |  |  |
| Net income before taxes | $660,157 | $796,100 |
| Add: Provision for expected credit losses | 30,000 | (100,000) |
| Less: Net income (loss) attributable to non-controlling interests | 20 | (1,796) |
| Pre-provision net revenue | $690,137 | $697,896 |

Pre-provision net revenue is a measure of revenue less expenses, and is calculated before provision for credit losses and income tax expense. This financial measure is frequently used by investors and analysts that enables them to assess a company's ability to generate earnings to cover credit losses through a credit cycle. It also provides an additional basis for comparing the results of operations between periods by isolating the impact of the provision for credit losses which can vary significantly between periods.

## Off-Balance Sheet Arrangements

See Note 14 to the Consolidated Financial Statements for a discussion of the Company's significant off-balance sheet commitments.

## Recently Issued Accounting Standards

See Note 1 of the Consolidated Financial Statements for disclosure of newly adopted and pending accounting standards.

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# Forward-Looking Statements

This 10-K contains forward-looking statements that are based on management's beliefs, assumptions, current expectations, estimates and projections about BOK Financial, the financial services industry, the economy generally and the expected or potential impact of the COVID-19 pandemic, and the related responses of the government, consumers, and others, on our business, financial condition and results of operations. Words such as 'anticipates,' 'believes,' 'estimates,' 'expects,' 'forecasts,' 'plans,' 'projects,' 'will,' 'intends,' variations of such words and similar expressions are intended to identify such forward-looking statements. Management judgments relating to and discussion of the provision and allowance for credit losses, allowance for uncertain tax positions, accruals for loss contingencies and valuation of mortgage servicing rights involve judgments as to expected events and are inherently forward-looking statements. Assessments that acquisitions and growth endeavors will be profitable are necessary statements of belief as to the outcome of future events based in part on information provided by others which BOK Financial has not independently verified. These various forward-looking statements are not guarantees of future performance and involve certain risks, uncertainties, and assumptions which are difficult to predict with regard to timing, extent, likelihood and degree of occurrence. Therefore, actual results and outcomes may materially differ from what is expected, implied or forecasted in such forward-looking statements. Internal and external factors that might cause such a difference include, but are not limited to changes in government, consumer or business responses to, and ability to treat or prevent further outbreak of the COVID-19 pandemic, commodity prices, interest rates and interest rate relationships, inflation, demand for products and services, the degree of competition by traditional and nontraditional competitors, changes in banking regulations, tax laws, prices, levies and assessments, the impact of technological advances, and trends in customer behavior as well as their ability to repay loans. BOK Financial and its affiliates undertake no obligation to update, amend or clarify forward-looking statements, whether as a result of new information, future events, or otherwise.

Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.

## Legal Notice

As used in this report, the term 'BOK Financial' and such terms as 'the Company,' 'the Corporation,' 'our,' 'we' and 'us' may refer to one or more of the consolidated subsidiaries or all of them taken as a whole. All these terms are used for convenience only and are not intended as a precise description of any of the separate companies, each of which manages its own affairs.

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# ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

## Market Risk

Market risk is a broad term for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various factors, including interest rates, foreign exchange rates, commodity prices or equity prices. Financial instruments that are subject to market risk can be classified either as held for trading or held for purposes other than trading. Market risk excludes changes in fair value due to credit of the individual issuers of financial instruments.

BOK Financial is subject to market risk primarily through the effect of changes in interest rates on both its assets held for purposes other than trading and trading assets. The effects of other changes such as foreign exchange rates, commodity prices or equity prices do not pose significant market risk to BOK Financial. BOK Financial has no material investments in assets that are affected by changes in foreign exchange rates or equity prices. Energy and other commodity derivative contracts, which are affected by changes in commodity prices, are matched against offsetting contracts as previously discussed.

The Asset/Liability Committee is responsible for managing market risk in accordance with policy limits established by the Board of Directors. The Committee monitors projected variation in net interest revenue, net income and economic value of equity due to specified changes in interest rates. These limits also set maximum levels for short-term borrowings, short-term assets, public funds and brokered deposits and establish minimum levels for un-pledged assets, among other things. Further, the Board approved market risk limits for fixed income trading, mortgage pipeline and mortgage servicing assets inclusive of economic hedge benefits. Exposure is measured daily and compliance is reviewed monthly. Deviations from the Board approved limits, which periodically occur throughout the reporting period, may require management to develop and execute plans to reduce exposure. These plans are subject to escalation to and approval by the Board.

The simulations used to manage market risk are based on numerous assumptions regarding the effects of changes in interest rates on the timing and extent of repricing characteristics, future cash flows and customer behavior. These assumptions are inherently uncertain and, as a result, models cannot precisely estimate or precisely predict the impact of higher or lower interest rates. Actual results will differ from simulated results due to timing, magnitude and frequency of interest rate changes, market conditions and management strategies, among other factors.

### *Interest Rate Risk - Other than Trading*

As previously noted in the Net Interest Revenue section of this report, management has implemented strategies to manage the Company's balance sheet to have relatively limited exposure to changes in interest rates over a twelve-month period. The effectiveness of these strategies in managing the overall interest rate risk is evaluated through the use of an asset/liability model. BOK Financial performs a sensitivity analysis to identify more dynamic interest rate risk exposures, including embedded option positions, on net interest revenue. A simulation model is used to estimate the effect of changes in interest rates on our performance across multiple interest rate scenarios. Our current internal policy limit for net interest revenue variation due to a 200 basis point parallel change in market interest rates over twelve months is a maximum decline of 5%. The results of a 200 basis point decrease in interest rates in the current low deposit rate environment are not meaningful. Until such time as it becomes meaningful, we will instead report the effect of a 100 basis point decrease in interest rates. Management also reviews alternative rate changes and time periods.

On March 5, 2021, the U.K. Financial Conduct Authority ('FCA') confirmed that the publication of the principal tenors of the U.S. dollar London Interbank Offered Rate ('LIBOR') will cease immediately following a final publication on June 30, 2023. Further, U.S. regulators released a joint inter-agency statement about their expectations that banks cease entering into new contracts that use USD LIBOR as a reference rate as soon as practicable and in any event by December 31, 2021.

The Bank has ceased production of new LIBOR-based exposure as of December 31, 2021 and now offers floating rate products in various alternative reference rates with the majority of volume being observed thus far in simple or term rate versions of the Secured Overnight Financing Rate ('SOFR'). Key loan provisions have been modified so that new and renewed loans include LIBOR fallback language designed to ensure the smoothest possible transition from LIBOR to the new benchmark when such transition occurs. All existing financial contracts with direct exposure to LIBOR have been inventoried, and the Company has taken action to transition these exposures to an alternative reference rate in advance of the June 30, 2023 deadline.

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The Company’s primary interest rate exposures include the Federal Funds rate, which affects short-term borrowings, and the prime lending rate, LIBOR and SOFR, which are the basis for much of the variable rate loan pricing. Additionally, residential mortgage rates directly affect the prepayment speeds for residential mortgage-backed securities and mortgage servicing rights. Derivative financial instruments and other financial instruments used for purposes other than trading are included in this simulation. In addition, the impact on the level and composition of demand deposit accounts and other core deposit balances resulting from a significant increase in short-term market interest rates and the overall interest rate environment is likely to be material. The simulation incorporates assumptions regarding the effects of such changes based on a combination of historical analysis and expected behavior. The impact of planned growth and new business activities is factored into the simulation model.

The interest rate sensitivity in Table 33 indicates management’s estimation of the impact of rate changes on net interest revenue. Should deposit costs be 10% more sensitive to changes in rates, the variation in net interest revenue over the next twelve months would be (1.75)%, or ($27.2 million) for the 200 basis point increase scenario. Alternatively, should deposit funding costs be 10% less sensitive to changes in rates, the variation in net interest revenue over the next twelve months would be an increase of 0.34%, or $5.2 million for the 200 basis point increase scenario. Additionally, in a flattening yield curve scenario where long-term rates increase by 100 basis points and short-term rates increase by 200 basis points, net interest revenue would decrease approximately 2.52%, or $39.1 million.

**Table 33 - Interest Rate Sensitivity**

|  | December 31, 2022 |  |  | December 31, 2021 |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 200 bp Increase | 100 bp Increase | 100 bp Decrease | 200 bp Increase | 100 bp Increase | 100 bp Decrease |
| Anticipated impact over the next twelve months on net interest revenue | $(10,980) | $8,440 | $(42,660) | $87,241 | $54,213 | $(24,759) |
|  | (0.71)% | 0.54% | (2.75)% | 7.60% | 4.72% | (2.16)% |
| Anticipated impact over months twelve through twenty-four | $4,090 | $40,190 | $(129,900) | $185,054 | $129,850 | $(74,983) |
|  | 0.24% | 2.39% | (7.71)% | 16.03% | 11.25% | (6.50)% |

BOK Financial is also subjected to market risk through changes in the fair value of mortgage servicing rights. Changes in the fair value of mortgage servicing rights are highly dependent on changes in primary mortgage rates offered to borrowers, intermediate-term interest rates that affect the value of custodial funds, and assumptions about servicing revenues, servicing costs and discount rates. As primary mortgage rates increase, prepayment speeds slow and the value of our mortgage servicing rights increases. As primary mortgage rates fall, prepayment speeds increase and the value of our mortgage servicing rights decreases.

We maintain a portfolio of financial instruments which may include debt securities issued by the U.S. government or its agencies and interest rate derivative contracts held as an economic hedge of the changes in the fair value of our mortgage servicing rights. Composition of this portfolio will change based on our assessment of market risk. Changes in the fair value of residential mortgage-backed securities are highly dependent on changes in secondary mortgage rates required by investors, and interest rate derivative contracts are highly dependent on changes in other market interest rates. While primary and secondary mortgage rates generally move in the same direction, the spread between them may widen and narrow due to market conditions and government intervention. Changes in the forward-looking spread between the primary and secondary rates can cause significant earnings volatility.

Management performs a stress test to measure market risk due to changes in interest rates inherent in its MSR portfolio and hedges. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity, that may result. The Board has approved a $20 million market risk limit for mortgage servicing rights, net of economic hedges.

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**Table 34 - MSR Asset and Hedge Sensitivity Analysis**

|  | December 31, |  |  |  |
| --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 |  |
|  | Up 50 bp | Down 50 bp | Up 50 bp | Down 50 bp |
| MSR Asset | $6,100 | $(8,195) | $31,856 | $(41,815) |
| MSR Hedge | (7,400) | 6,810 | (38,213) | 36,692 |
| Net Exposure | (1,300) | (1,385) | (6,357) | (5,123) |

#### *Trading Activities*

The Company bears market risk by originating residential mortgages held for sale ('RMHFS'). RMHFS are generally outstanding for 60 to 90 days, which represents the typical period from commitment to originate a loan to sale of the closed loan to an investor. Primary mortgage interest rate changes during this period affect the value of RMHFS commitments and loans. We use forward sale contracts to mitigate market risk on all closed mortgage loans held for sale and on an estimate of mortgage loan commitments that are expected to result in closed loans.

A variety of methods are used to monitor market risk of mortgage origination activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and revenue sensitivity limits.

Management performs a stress test to measure market risk due to changes in interest rates inherent in the mortgage production pipeline. The stress test shocks applicable interest rates up and down 50 basis points and calculates an estimated change in fair value, net of economic hedging activity that may result. The Board has approved a $7 million market risk limit for the mortgage production pipeline, net of forward sale contracts.

**Table 35 - Mortgage Pipeline Sensitivity Analysis**

|  | Year Ended December 31, |  |  |  |
| --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 |  |
|  | Up 50 bp | Down 50 bp | Up 50 bp | Down 50 bp |
| Average 1 | $(75) | $(183) | $(430) | $(439) |
| Low 2 | 381 | 91 | 103 | 13 |
| High 3 | (402) | (779) | (1,244) | (1,097) |
| Period End | (71) | (30) | (85) | (181) |

$^{1}$ Average represents the simple average of each daily value observed during the reporting period.

$^{2}$ Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.

$^{3}$ High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.

BOK Financial enters into trading activities both as an intermediary for customers and for its own account. As an intermediary, we take positions in securities, generally residential mortgage-backed securities, government agency securities and municipal bonds. These securities are purchased for resale to customers, which include individuals, corporations, foundations and financial institutions. On a limited basis, we may also take trading positions in U.S. Treasury securities, residential mortgage-backed securities, and municipal bonds to enhance returns on securities portfolios. Both of these activities involve interest rate risk, liquidity risk and price risk. BOK Financial has an insignificant exposure to foreign exchange risk and does not take positions in commodity derivatives.

A variety of methods are used to monitor and manage the market risk of trading activities. These methods include daily marking of all positions to market value, independent verification of inventory pricing, and position limits for each trading activity. Risk management tools include Value at Risk ('VaR'), stress testing and sensitivity analysis. Economic hedges in either the futures or cash markets may be used to reduce the risk associated with some trading programs. Basis Risk can result when trading asset values and the instruments used to hedge them move at different rates.

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VaR measures the potential loss of a given position or portfolio of positions at a specified confidence level and time horizon. BOK Financial utilizes a historical VaR methodology to measure and aggregate risks across its covered trading positions. For Market Risk Rule purposes, the Company calculates VaR using a historical simulation approach and measures the potential trading losses using a 10-day holding period and a 99% confidence level.

Due to inherent limitations of the VaR methodology, including its reliance on past market behavior which might not be indicative of future market performance, VaR is only one of several tools used to measure and manage market risk. Other tools used to actively manage market risk include stress testing ('Stressed VaR'), and sensitivity analysis.

Stressed VaR is calculated using the same internal models as used for the VaR-based measure. Stressed VaR is calculated over a ten-day holding period at a one-tail, 99% confidence level and employs a historical simulation approach based on a continuous twelve-month historical window selected to reflect a period of significant financial stress for the Company's trading portfolio.

The trading portfolio's VaR and Stressed VaR profiles are influenced by a variety of factors, including the size and composition of the portfolio, market volatility, and the correlation between different positions. A portfolio of trading positions is typically less risky than the sum of the risk from each of the individual sub-portfolios because, under normal market conditions, risk within each category partially offsets the exposure to other risk categories. Table 36 below summarizes certain VaR and Stressed VaR based measures for the three months ended December 31, 2022, September 30, 2022, December 31, 2021 and September 30, 2021. In the fourth quarter of 2022, the period-end VaR and SVaR measures increased relative to the previous quarter mainly due to an increase in total trading assets. Both VaR and SVaR measures decreased relative to 2021 due to a decrease in basis risk between trading assets and their economic hedges.

**Table 36 -VaR and SVaR Measures**

|  | Three Months Ended |  |  |  | Three Months Ended |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Dec. 31, 2022 |  | Sep. 30, 2022 |  | Dec. 31, 2021 |  | Sep. 30, 2021 |  |
|  | 10 day 99% VaR | 10 day 99% SVaR | 10 day 99% VaR | 10 day 99% SVaR | 10 day 99% VaR | 10 day 99% SVaR | 10 day 99% VaR | 10 day 99% SVaR |
| Average 1 | $3,927 | $7,091 | $2,644 | $7,555 | $8,930 | $40,010 | $9,600 | $19,230 |
| Low | 933 | 3,210 | 1,044 | 4,051 | 6,100 | 21,390 | 5,220 | 9,050 |
| High | 9,077 | 15,396 | 5,930 | 14,030 | 15,060 | 67,440 | 16,350 | 37,810 |
| Period End | 8,000 | 13,819 | 1,584 | 5,478 | 9,770 | 45,050 | 5,690 | 22,200 |

The Company monitors the accuracy of internal VaR models and modeling processes by back-testing model performance. The Company updates historical data used by the VaR model on a regular basis and model validators independent of business lines perform regular modeled validations to access model input, processing, and reporting components. These models are required to be independently validated and approved prior to implementation.

#### *Limit Structure*

Beyond VaR and SVaR described above, Management also performs a sensitivity analysis to measure market risk from changes in interest rates on its trading portfolio. Applicable interest rates are shocked up and down 50 basis points calculating an estimated change in fair value, net of economic hedging activity that may result. The Board has approved an $8 million market risk limit for the trading portfolio, net of economic hedges.

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**Table 37** -Trading Securities Sensitivity Analysis

|  | Year Ended December 31, |  |  |  |
| --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 |  |
|  | Up 50 bp | Down 50 bp | Up 50 bp | Down 50 bp |
| Average 1 | $790 | $280 | $(852) | $3,364 |
| Low 2 | 8,643 | 12,277 | 8,631 | 13,323 |
| High 3 | (11,253) | (6,325) | (9,345) | (5,392) |
| Period End | 3,507 | (3,458) | 1,587 | 355 |

$^{1}$ Average represents the simple average of each daily value observed during the reporting period.

$^{2}$ Low represents least risk of loss in fair value measured as the smallest negative value or the largest positive value observed daily during the reporting period.

$^{3}$ High represents the greatest risk of loss in fair value measured as the largest negative value or the smallest positive value observed daily during the reporting period.

### *Model Risk Governance and Review*

BOK Financial has an internal but independent Model Risk Governance and Review ('MRGR') team that validates models to verify they are conceptually sound, computationally accurate, performing as expected and in line with their intended use. MRGR also enforces the Company's model risk governance program that defines roles and responsibilities, including the authority to levy findings requiring remediation and to restrict model usage.

### *Model Validation*

MRGR is independent of both the developers and users of the models. The team validates models through an evaluation process that assesses the data, theory, implementation, outcomes and governance of each scenario. MRGR assigns each model a model risk score, which determines the frequency and scope of each validation. Validations comprise an assessment of model performance as well as a model's potential limitations given its particular assumptions or weaknesses. Based on the results of the review, the team determines the use case for the model. The ultimate validation results may require remediation actions from the business line. MRGR communicates their result as one of the following three outcomes: 'Approved for use,' 'Approved with findings,' or 'Unapproved.'

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## ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

### Report of Management on Internal Control over Financial Reporting

Management of BOK Financial Corporation is responsible for establishing and maintaining adequate internal control over financial reporting and for assessing the effectiveness of internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f), as amended. Management has assessed the effectiveness of the Company's internal control over financial reporting based on the criteria established in 'Internal Control - Integrated Framework,' issued by the Committee of Sponsoring Organizations ('COSO') of the Treadway Commission in 2013. Based on that assessment and criteria, management has determined that the Company maintained effective internal control over financial reporting as of December 31, 2022.

Ernst & Young LLP (PCAOB ID: 42), the independent registered public accounting firm that audited the Consolidated Financial Statements of the Company included in this annual report has issued an audit report on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022. Their report, which expresses an unqualified opinion on the effectiveness of the Company's internal control over financial reporting as of December 31, 2022, is included in this annual report.

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# Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of BOK Financial Corporation

## Opinion on Internal Control over Financial Reporting

We have audited BOK Financial Corporation's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, BOK Financial Corporation (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of BOK Financial Corporation as of December 31, 2022 and 2021, and the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes, and our report dated March 1, 2023 expressed an unqualified opinion thereon.

## Basis for Opinion

The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

## Definition and Limitations of Internal Control over Financial Reporting

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Ernst & Young LLP

Tulsa, Oklahoma

March 1, 2023

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# Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of BOK Financial Corporation

## Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of BOK Financial Corporation (the Company) as of December 31, 2022 and 2021, the related consolidated statements of earnings, comprehensive income, changes in equity, and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated March 1, 2023 expressed an unqualified opinion thereon.

## Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

## Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

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### *Allowance for credit losses*

#### *Description of the Matter*

The Company's loan portfolio totaled $22.6 billion as of December 31, 2022, and the associated allowance for credit losses (ACL) was $296.6 million. A $30 million provision for credit losses was recorded for the year ended December 31, 2022. As discussed in Note 1 and 4 to the consolidated financial statements, management's estimate for the expected credit losses within the loan portfolio represents the portion of amortized cost basis of loans and related unfunded commitments they do not expect to collect over the asset's contractual life, considering past events, current conditions, as well as reasonable and supportable forecasts of future economic conditions. The allowance for credit losses consists of specific allowances attributed to certain individual loans, generally non-accruing loans, with dissimilar risk characteristics that have not yet been charged down to amounts they expect to recover, general allowances for estimated credit losses on pools of loans that share similar risk characteristics, and qualitative reserves with the estimated impact of factors that are not captured in the modeled results or historical experience.

Auditing management's estimate of the ACL and related provision for credit losses was complex due to the allowance models used, high degree of subjectivity in evaluating management's development of forecasts of future economic conditions ('economic scenarios'), probability weighting of economic scenarios, and qualitative reserves used in the general allowance.

#### *How We Addressed the Matter in Our Audit*

We obtained an understanding, evaluated the design and tested the operating effectiveness of internal controls over the ACL process, including, among others, controls over the development, operation, and monitoring of economic scenarios, probability weighting of economic scenarios and qualitative reserves used in the allowance results.

We involved EY specialists in testing management's models including evaluating model methodology, model performance and testing key modeling assumptions as well as controls covering the economic scenarios used by the ACL models. Additionally, with the support of EY specialists, we assessed the economic scenarios and related probability weights by evaluating management's methodology and agreeing a sample of key economic variables used to external sources. We also performed various sensitivity analyses and analytical procedures, including comparison of a sample of the key economic variables to alternative external sources and historical statistics.

With respect to general ACL models, with the support of EY specialists, we evaluated model design and re-performed the calculation for a sample of models. We also tested the appropriateness of key inputs and assumptions used in these models by agreeing a sample of inputs to source documentation.

We evaluated the overall ACL amount, including model estimates, qualitative reserves, and whether the recorded ACL appropriately reflects expected credit losses. We performed analytical procedures on the ACL, charge-off and delinquency rates, and coverage ratios of the allowance. Our audit response also included specific substantive tests of management's process to measure qualitative reserves, including those related to the significant judgments made by management. We compared calculations to industry peer data and compared qualitative reserves to prior periods and prior economic cycles. We also evaluated if the qualitative reserves were applied based on a comprehensive framework and that all available information was considered, well-documented, and consistently applied. We searched for and evaluated information that corroborates or contradicts management's economic scenarios and related probability weights as well as identification and measurement of qualitative reserves.

/s/ Ernst & Young LLP

We have served as the Company's auditor since 1990.

Tulsa, Oklahoma

March 1, 2023

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## Consolidated Statements of Earnings

(In thousands, except share and per share data)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Interest and dividend revenue |  |  |  |
| Loans | $976,653 | $769,357 | $889,507 |
| Residential mortgage loans held for sale | 6,027 | 5,465 | 6,397 |
| Trading securities | 115,048 | 155,989 | 67,689 |
| Investment securities | 24,072 | 10,430 | 11,943 |
| Available for sale securities | 248,323 | 230,383 | 261,196 |
| Fair value option securities | 2,145 | 1,542 | 18,475 |
| Restricted equity securities | 8,282 | 5,703 | 10,963 |
| Interest-bearing cash and cash equivalents | 11,552 | 1,060 | 2,830 |
| Total interest and dividend revenue | 1,392,102 | 1,179,929 | 1,269,000 |
| Interest expense |  |  |  |
| Deposits | 121,749 | 33,484 | 89,996 |
| Borrowed funds | 52,483 | 17,877 | 56,616 |
| Subordinated debentures | 6,490 | 10,535 | 13,944 |
| Total interest expense | 180,722 | 61,896 | 160,556 |
| Net interest and dividend revenue | 1,211,380 | 1,118,033 | 1,108,444 |
| Provision for credit losses | 30,000 | (100,000) | 222,592 |
| Net interest and dividend revenue after provision for credit losses | 1,181,380 | 1,218,033 | 885,852 |
| Other operating revenue |  |  |  |
| Brokerage and trading revenue | 140,978 | 112,989 | 221,833 |
| Transaction card revenue | 104,266 | 96,983 | 90,182 |
| Fiduciary and asset management revenue | 196,326 | 178,274 | 167,445 |
| Deposit service charges and fees | 110,636 | 104,217 | 96,805 |
| Mortgage banking revenue | 49,365 | 105,896 | 182,360 |
| Other revenue | 55,642 | 69,950 | 51,695 |
| Total fees and commissions | 657,213 | 668,309 | 810,320 |
| Other gains, net | 123 | 63,742 | 6,046 |
| Gain (loss) on derivatives, net | (73,011) | (19,378) | 42,320 |
| Gain (loss) on fair value option securities, net | (20,358) | (2,239) | 53,248 |
| Change in fair value of mortgage servicing rights | 80,261 | 41,637 | (79,524) |
| Gain (loss) on available for sale securities, net | (971) | 3,704 | 9,910 |
| Total other operating revenue | 643,257 | 755,775 | 842,320 |
| Other operating expense |  |  |  |
| Personnel | 670,918 | 695,382 | 688,474 |
| Business promotion | 26,435 | 16,289 | 14,511 |
| Charitable contributions to BOKF Foundation | 2,500 | 9,000 | 9,000 |
| Professional fees and services | 56,342 | 50,906 | 53,437 |
| Net occupancy and equipment | 116,867 | 108,587 | 112,722 |
| Insurance | 17,994 | 15,881 | 19,990 |
| Data processing and communications | 165,907 | 151,614 | 135,497 |
| Printing, postage and supplies | 15,857 | 14,218 | 15,061 |
| Amortization of intangible assets | 15,692 | 18,311 | 20,443 |
| Mortgage banking costs | 35,834 | 42,698 | 56,711 |
| Other expense | 40,134 | 54,822 | 38,462 |
| Total other operating expense | 1,164,480 | 1,177,708 | 1,164,308 |
| Net income before taxes | 660,157 | 796,100 | 563,864 |
| Federal and state income taxes | 139,864 | 179,775 | 128,793 |
| Net income | 520,293 | 616,325 | 435,071 |
| Net income (loss) attributable to non-controlling interests | 20 | (1,796) | 41 |
| Net income attributable to BOK Financial Corporation shareholders | $520,273 | $618,121 | $435,030 |
| Earnings per share: |  |  |  |
| Basic | $7.68 | $8.95 | $6.19 |
| Diluted | $7.68 | $8.95 | $6.19 |
| Average shares used in computation: |  |  |  |
| Basic | 67,212,728 | 68,591,920 | 69,840,977 |
| Diluted | 67,212,735 | 68,594,322 | 69,844,172 |
| Dividends declared per share | $2.13 | $2.09 | $2.05 |

See accompanying notes to Consolidated Financial Statements.

82

## Consolidated Statements of Comprehensive Income

(In thousands)

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Net income | $520,293 | $616,325 | $435,071 |
| Other comprehensive income (loss) before income taxes: |  |  |  |
| Net change in unrealized gain (loss) | (1,227,414) | (341,369) | 313,796 |
| Reclassification adjustments included in earnings: |  |  |  |
| Interest revenue, Investment securities | 42,514 | - | - |
| Operating expense, Personnel | (3,483) | - | - |
| Loss (gain) on available for sale securities, net | 971 | (3,704) | (9,910) |
| Other comprehensive gain (loss), before income taxes | (1,187,412) | (345,073) | 303,886 |
| Federal and state income taxes | (278,086) | (81,576) | 72,941 |
| Other comprehensive gain (loss), net of income taxes | (909,326) | (263,497) | 230,945 |
| Comprehensive income (loss) | (389,033) | 352,828 | 666,016 |
| Comprehensive income (loss) attributable to non-controlling interests | 20 | (1,796) | 41 |
| Comprehensive income (loss) attributable to BOK Financial Corp. shareholders | $(389,053) | $354,624 | $665,975 |

See accompanying notes to Consolidated Financial Statements.

83

## Consolidated Balance Sheets

(In thousands, except share data)

|  | December 31, |  |
| --- | --- | --- |
|  | 2022 | 2021 |
| Assets |  |  |
| Cash and due from banks | $943,810 | $712,067 |
| Interest-bearing cash and cash equivalents | 457,906 | 2,125,343 |
| Trading securities | 4,464,161 | 9,136,813 |
| Investment securities, net of allowance (fair value: 2022 - $2,346,768; 2021 - $231,395) | 2,513,687 | 210,444 |
| Available for sale securities | 11,493,860 | 13,157,817 |
| Fair value option securities | 296,590 | 43,770 |
| Restricted equity securities | 299,651 | 83,113 |
| Residential mortgage loans held for sale | 75,272 | 192,295 |
| Loans | 22,557,150 | 20,205,680 |
| Allowance for loan losses | (235,704) | (256,421) |
| Loans, net of allowance | 22,321,446 | 19,949,259 |
| Premises and equipment, net | 565,175 | 574,148 |
| Receivables | 273,815 | 223,021 |
| Goodwill | 1,044,749 | 1,044,749 |
| Intangible assets, net | 76,131 | 91,778 |
| Mortgage servicing rights | 277,608 | 163,198 |
| Real estate and other repossessed assets, net of allowance (2022 - $10,115; 2021 - $6,083) | 14,304 | 24,589 |
| Derivative contracts, net | 880,343 | 1,097,297 |
| Cash surrender value of bank-owned life insurance | 406,751 | 405,607 |
| Receivable on unsettled securities sales | 31,004 | 56,172 |
| Other assets | 1,354,379 | 957,951 |
| Total assets | $47,790,642 | $50,249,431 |
| Liabilities and Equity |  |  |
| Liabilities: |  |  |
| Noninterest-bearing demand deposits | $13,395,337 | $15,344,423 |
| Interest-bearing deposits: |  |  |
| Transaction | 18,659,115 | 23,268,573 |
| Savings | 964,411 | 924,735 |
| Time | 1,461,842 | 1,704,328 |
| Total deposits | 34,480,705 | 41,242,059 |
| Funds purchased and repurchase agreements | 2,270,377 | 2,326,449 |
| Other borrowings | 4,736,908 | 36,753 |
| Subordinated debentures | 131,205 | 131,226 |
| Accrued interest, taxes and expense | 296,870 | 273,041 |
| Derivative contracts, net | 554,900 | 275,625 |
| Due on unsettled securities purchases | 147,470 | 160,686 |
| Other liabilities | 484,849 | 435,221 |
| Total liabilities | 43,103,284 | 44,881,060 |
| Shareholders' equity: |  |  |
| Common stock ($0.00006 par value; 2,500,000,000 shares authorized; shares issued and outstanding: 2022 - 76,423,345; 2021 - 76,254,029) | 5 | 5 |
| Capital surplus | 1,390,395 | 1,378,794 |
| Retained earnings | 4,824,164 | 4,447,691 |
| Treasury stock (shares at cost: 2022 - 9,464,711; 2021 - 7,786,257) | (694,960) | (535,129) |
| Accumulated other comprehensive income (loss) | (836,955) | 72,371 |
| Total shareholders' equity | 4,682,649 | 5,363,732 |
| Non-controlling interests | 4,709 | 4,639 |
| Total equity | 4,687,358 | 5,368,371 |
| Total liabilities and equity | $47,790,642 | $50,249,431 |

See accompanying notes to Consolidated Financial Statements.

84

## Consolidated Statements of Changes in Equity

(In thousands)

|  | Common Stock |  | Capital Surplus | Retained Earnings | Treasury Stock |  | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity | Non-Controlling Interests | Total Equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Shares | Amount |  |  | Shares | Amount |  |  |  |  |
| Balance, December 31, 2019 | 75,759 | $5 | $1,350,995 | $3,729,778 | 5,179 | $(329,906) | $104,923 | $4,855,795 | $8,124 | $4,863,919 |
| Transition adjustment - CECL | - | - | - | (46,696) | - | - | - | (46,696) | - | (46,696) |
| Balance, January 1, 2020, Adjusted | 75,759 | $5 | $1,350,995 | $3,683,082 | 5,179 | $(329,906) | $104,923 | $4,809,099 | $8,124 | $4,817,223 |
| Net income (loss) | - | - | - | 435,030 | - | - | - | 435,030 | 41 | 435,071 |
| Other comprehensive income | - | - | - | - | - | - | 230,945 | 230,945 | - | 230,945 |
| Repurchase of common stock | - | - | - | - | 1,107 | (75,830) | - | (75,830) | - | (75,830) |
| Share-based compensation plans: |  |  |  |  |  |  |  |  |  |  |
| Stock options exercised | 12 | - | 675 | - | - | - | - | 675 | - | 675 |
| Non-vested shares awarded, net | 224 | - | - | - | - | - | - | - | - | - |
| Vesting of non-vested shares | - | - | - | - | 72 | (5,608) | - | (5,608) | - | (5,608) |
| Share-based compensation | - | - | 16,392 | - | - | - | - | 16,392 | - | 16,392 |
| Cash dividends on common stock | - | - | - | (144,437) | - | - | - | (144,437) | - | (144,437) |
| Capital calls and distributions, net | - | - | - | - | - | - | - | - | 17,130 | 17,130 |
| Balance, December 31, 2020 | 75,995 | $5 | $1,368,062 | $3,973,675 | 6,358 | $(411,344) | $335,868 | $5,266,266 | $25,295 | $5,291,561 |
| Net income (loss) | - | - | - | 618,121 | - | - | - | 618,121 | (1,796) | 616,325 |
| Other comprehensive loss | - | - | - | - | - | - | (263,497) | (263,497) | - | (263,497) |
| Repurchase of common stock | - | - | - | - | 1,360 | (117,938) | - | (117,938) | - | (117,938) |
| Share-based compensation plans: |  |  |  |  |  |  |  |  |  |  |
| Stock options exercised | 17 | - | 973 | - | - | - | - | 973 | - | 973 |
| Non-vested shares awarded, net | 242 | - | - | - | - | - | - | - | - | - |
| Vesting of non-vested shares | - | - | - | - | 68 | (5,847) | - | (5,847) | - | (5,847) |
| Share-based compensation | - | - | 9,759 | - | - | - | - | 9,759 | - | 9,759 |
| Cash dividends on common stock | - | - | - | (144,105) | - | - | - | (144,105) | - | (144,105) |
| Capital calls and distributions, net | - | - | - | - | - | - | - | - | (18,860) | (18,860) |
| Balance, December 31, 2021 | 76,254 | $5 | $1,378,794 | $4,447,691 | 7,786 | $(535,129) | $72,371 | $5,363,732 | $4,639 | $5,368,371 |

85

(In thousands)

|  | Common Stock |  | Capital Surplus | Retained Earnings | Treasury Stock |  | Accumulated Other Comprehensive Income (Loss) | Total Shareholders' Equity | Non-Controlling Interests | Total Equity |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Shares | Amount |  |  | Shares | Amount |  |  |  |  |
| Balance, December 31, 2021 | 76,254 | 5 | 1,378,794 | 4,447,691 | 7,786 | (535,129) | 72,371 | 5,363,732 | 4,639 | 5,368,371 |
| Net income (loss) | - | - | - | 520,273 | - | - | - | 520,273 | 20 | 520,293 |
| Other comprehensive loss | - | - | - | - | - | - | (909,326) | (909,326) | - | (909,326) |
| Repurchase of common stock | - | - | - | - | 1,633 | (154,887) | - | (154,887) | - | (154,887) |
| Share-based compensation plans: |  |  |  |  |  |  |  |  |  |  |
| Stock options exercised | 1 | - | 37 | - | - | - | - | 37 | - | 37 |
| Non-vested shares awarded, net | 168 | - | - | - | - | - | - | - | - | - |
| Vesting of non-vested shares | - | - | - | - | 46 | (4,944) | - | (4,944) | - | (4,944) |
| Share-based compensation | - | - | 11,564 | - | - | - | - | 11,564 | - | 11,564 |
| Cash dividends on common stock | - | - | - | (143,800) | - | - | - | (143,800) | - | (143,800) |
| Capital calls and distributions, net | - | - | - | - | - | - | - | - | 50 | 50 |
| Balance, December 31, 2022 | 76,423 | $5 | $1,390,395 | $4,824,164 | 9,465 | $(694,960) | $(836,955) | $4,682,649 | $4,709 | $4,687,358 |

See accompanying notes to Consolidated Financial Statements.

86

## Consolidated Statements of Cash Flows

(In thousands)

|  | Year Ended |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Cash Flows From Operating Activities: |  |  |  |
| Net income | $520,293 | $616,325 | $435,071 |
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: |  |  |  |
| Provision for credit losses | 30,000 | (100,000) | 222,592 |
| Change in fair value of mortgage servicing rights due to market changes | (80,261) | (41,637) | 79,524 |
| Change in fair value of mortgage servicing rights due to principal payments | 31,741 | 38,761 | 41,598 |
| Net unrealized losses (gains) from derivative contracts | (52,214) | 30,201 | (59,253) |
| Share-based compensation | 11,564 | 9,759 | 16,392 |
| Depreciation and amortization | 107,563 | 102,468 | 99,013 |
| Net amortization of discounts and premiums | 9,215 | 18,293 | 5,357 |
| Net losses (gains) on financial instruments and other losses (gains), net | 846 | (67,446) | (15,949) |
| Net gain on mortgage loans held for sale | (2,948) | (70,464) | (114,545) |
| Mortgage loans originated for sale | (1,180,403) | (2,818,789) | (3,764,112) |
| Proceeds from sale of mortgage loans held for sale | 1,295,588 | 2,939,522 | 3,817,475 |
| Capitalized mortgage servicing rights | (18,215) | (31,132) | (31,209) |
| Change in trading and fair value option securities | 4,419,761 | (4,357,950) | (2,103,931) |
| Change in receivables | (34,301) | 39,183 | 945,087 |
| Change in other assets | 13,205 | (12,568) | 1,739 |
| Change in other liabilities | 50,836 | 12,897 | 8,895 |
| Net cash provided by (used in) operating activities | 5,122,270 | (3,692,577) | (416,256) |
| Cash Flows From Investing Activities: |  |  |  |
| Proceeds from maturities or redemptions of investment securities | 157,796 | 33,865 | 46,992 |
| Proceeds from maturities or redemptions of available for sale securities | 2,192,200 | 3,500,081 | 2,695,067 |
| Purchases of investment securities | (10,000) | - | - |
| Purchases of available for sale securities | (4,533,892) | (4,607,199) | (4,575,324) |
| Proceeds from sales of available for sale securities | 307,481 | 622,881 | 384,507 |
| Change in amount receivable on unsettled available for sale securities transactions | 9,629 | (10,406) | (6,357) |
| Loans originated, net of principal collected | (2,348,586) | 2,853,326 | (1,103,752) |
| Net payments or proceeds on derivative asset contracts | (7,099) | 161,093 | (121,130) |
| Net change in restricted equity securities | (216,538) | 88,278 | 289,161 |
| Proceeds from disposition of assets | 60,769 | 165,040 | 73,135 |
| Purchases of assets | (215,046) | (204,287) | (141,134) |
| Net cash provided by (used in) investing activities | (4,603,286) | 2,602,672 | (2,458,835) |
| Cash Flows From Financing Activities: |  |  |  |
| Net change in demand deposits, transaction deposits and savings accounts | (6,518,868) | 5,360,979 | 8,773,433 |
| Net change in time deposits | (242,486) | (262,800) | (250,721) |
| Net change in other borrowed funds | 4,609,824 | (1,269,241) | (5,091,026) |
| Repayment of subordinated debentures | - | (150,000) | - |
| Change in amount due on unsettled security purchases | (17,782) | (117,452) | 63,521 |
| Issuance of common and treasury stock, net | (4,907) | (4,874) | (4,933) |
| Net change in derivative margin accounts | 519,797 | (467,865) | (600,218) |
| Net payments or proceeds on derivative liability contracts | (1,569) | (79,962) | 127,054 |
| Repurchase of common stock | (154,887) | (117,938) | (75,830) |
| Dividends paid | (143,800) | (144,105) | (144,437) |
| Net cash provided by (used in) financing activities | (1,954,678) | 2,746,742 | 2,796,843 |
| Net increase (decrease) in cash and cash equivalents | (1,435,694) | 1,656,837 | (78,248) |
| Cash and cash equivalents at beginning of period | 2,837,410 | 1,180,573 | 1,258,821 |
| Cash and cash equivalents at end of period | $1,401,716 | $2,837,410 | $1,180,573 |
| Supplemental Cash Flow Information: |  |  |  |
| Cash paid for interest | $176,081 | $68,775 | $160,288 |
| Cash paid for taxes | $79,532 | $135,331 | $136,181 |
| Net loans and bank premises transferred to repossessed real estate and other assets | $12,326 | $8,320 | $85,323 |
| Transfer of available for sale securities to investment securities | $2,454,273 | $ - | $ - |
| Increase in U.S. government guaranteed loans eligible for repurchase | $34,259 | $87,087 | $290,977 |
| Increase in receivables from conveyance of GNMA OREO | $8,451 | $6,376 | $11,322 |
| Right-of-use assets obtained in exchange for operating lease liabilities | $22,059 | $40,798 | $16,177 |

See accompanying notes to Consolidated Financial Statements.

87

# Notes to Consolidated Financial Statements

## (1) Significant Accounting Policies

### *Basis of Presentation*

The Consolidated Financial Statements of BOK Financial Corporation ('BOK Financial' or 'the Company') have been prepared in conformity with accounting principles generally accepted in the United States ('U.S. GAAP'), including interpretations of U.S. GAAP issued by federal banking regulators and general practices of the banking industry. The Consolidated Financial Statements include the accounts of BOK Financial and its subsidiaries, principally BOKF, NA, BOK Financial Securities, Inc., BOK Financial Private Wealth, Inc., BOK Financial Insurance, Inc. and Cavanal Hill Distributors, Inc. All significant intercompany transactions are eliminated in consolidation.

The Consolidated Financial Statements include the assets, liabilities, non-controlling interests and results of operations of variable interest entities ('VIEs') when BOK Financial is determined to be the primary beneficiary. Variable interest entities are generally defined as entities that either do not have sufficient equity to finance their activities without support from other parties or whose equity investors lack a controlling financial interest. Determination that the Company is the primary beneficiary considers the power to direct the activities that most significantly impact the variable interest's economic performance and the obligation to absorb losses of the variable interest or the right to receive benefits of the variable interest that could be significant to the variable interest.

Certain prior year amounts have been reclassified to conform to current year presentation.

### *Nature of Operations*

BOK Financial, through its subsidiaries, provides a wide range of financial services to commercial and industrial customers, other financial institutions, municipalities, and consumers. These services include depository and cash management; lending and lease financing; mortgage banking; securities brokerage, trading and underwriting; and personal and corporate trust.

BOKF, NA operates as Bank of Oklahoma primarily in the Tulsa and Oklahoma City metropolitan areas of the state of Oklahoma and Bank of Texas primarily in the Dallas, Fort Worth and Houston metropolitan areas of the state of Texas. In addition, BOKF, NA does business as BOK Financial in the metropolitan areas of Phoenix, Arizona; Northwest Arkansas; Denver, Colorado; Kansas City, Missouri/Kansas; and as Bank of Albuquerque in Albuquerque, New Mexico. BOKF, NA also operates the TransFund electronic funds network, Cavanal Hill Investment Management, and BOK Financial Asset Management, Inc.

### *Use of Estimates*

Preparation of BOK Financial's Consolidated Financial Statements requires management to make estimates of future economic activities, including loan collectability, loss contingencies, prepayments and cash flows from customer accounts. These estimates are based upon current conditions and information available to management. Actual results may differ significantly from these estimates.

### *Acquisitions*

Assets and liabilities acquired, including identifiable intangible assets, are recorded at fair value on the acquisition date. The purchase price includes consideration paid at closing and the estimated fair value of contingent consideration that will be paid in the future, subject to achieving defined performance criteria. Premiums and discounts assigned to interest-earning assets and interest-bearing liabilities are amortized over the lives of the acquired assets and liabilities on either an individual instrument or pool basis. Goodwill is recognized as the excess of the purchase price over the net fair value of assets acquired and liabilities assumed.

Acquired loans with more than an insignificant credit deterioration since inception are recorded at fair value plus a gross-up amount which is offset by an allowance for credit losses. Acquired loans without a more than insignificant credit deterioration since inception are recorded at fair value. An allowance for credit losses is recognized through a provision for credit losses, similar to origination loans.

The Consolidated Statements of Earnings include the results of operations from the acquisition date.

88

### *Goodwill and Intangible Assets*

Goodwill for each reporting unit is evaluated for impairment annually as of October 1st or more frequently if conditions indicate that impairment may have occurred. The evaluation of possible goodwill impairment involves significant judgment based upon short-term and long-term projections of future performance. Reporting units are defined by the Company as significant lines of business within each operating segment. This definition is consistent with the manner in which the chief operating decision maker assesses the performance of the Company and makes decisions concerning the allocation of resources.

During the evaluation for impairment, management qualitatively assesses whether it is more likely than not that the fair value of the reporting units is less than their carrying value. Reporting unit carrying value includes sufficient capital to exceed regulatory requirements plus goodwill. This assessment includes consideration of relevant events and circumstances including, but not limited to, macroeconomic conditions, industry and market conditions, the financial and stock performance of the Company and other relevant factors. Specifically, the analysis may include:

- • General economic conditions including overall economic activity, consumer spending and mobility, unemployment rates, consumer confidence, and duration and severity of any current market moving instability.
- • Global health concerns including ongoing pandemics or potential for widespread health issues, the future course of a pandemic and the potential for medical advances.
- • Regional economic conditions including demand for oil and price stability of oil, other overarching conditions that may be affecting any of the Company's primary states such as weather or other catastrophes, pandemics and health related lockdowns, or other state mandates.
- • Industry conditions including federal funds rate movement by the Federal Reserve, the interest rate environment and the resulting effect on net interest revenue and operating revenue, and regulatory mandates that hinder or provide relief to the financial services industry.
- • Company specific conditions including current and forecasted income, changes in stock price, the Company's stock price compared to peers and other indexes, book value per share compared to fair value per share, goodwill compared to total shareholders' equity, current capital and liquidity position, demand for products and services, health of the loan portfolio and other credit related factors, and current credit ratings with the ratings agencies, and regulatory ratings.
- • Reporting unit performance and forecasts including any event that may significantly impact a reporting unit.

If management concludes based on the qualitative assessment that goodwill may be impaired, a quantitative impairment test will be applied to goodwill at all reporting units. The quantitative analysis compares the fair value of the reporting unit with its carrying value. The fair value of each reporting unit is estimated by the discounted future earnings method. Goodwill is considered impaired if the fair value of the reporting unit is less than the carrying value of the reporting unit, including goodwill.

Both the qualitative assessment and quantitative analysis require significant management judgment, including estimates of changes in future economic conditions and their underlying causes and duration, the reasonableness and effectiveness of management's responses to those changes, changes in governmental fiscal and monetary policies, and fair value measurements based largely on significant unobservable inputs. The results of these judgments may have a significant impact on the Company's reported results of operations.

Intangible assets are generally composed of customer relationships, naming rights, non-compete agreements and core deposit premiums. They are amortized using accelerated or straight-line methods, as appropriate, over the estimated benefit periods. These periods range from 3 years to 20 years. The net book values of identifiable intangible assets are evaluated for impairment when economic conditions indicate impairment may exist.

### *Cash Equivalents*

Due from banks, funds sold (generally federal funds sold for one day), resell agreements (which generally mature within one day to 30 days) and investments in money market funds are considered cash equivalents.

89

# *Securities*

Securities are identified as trading, investment (held to maturity) or available for sale at the time of purchase based upon the intent of management, liquidity and capital requirements, regulatory limitations and other relevant factors. Trading securities, which are acquired for profit through resale, are carried at fair value with unrealized gains and losses included in current period earnings. Investment securities are carried at amortized cost. Amortization is computed by methods that approximate level yield and is adjusted for changes in prepayment estimates. Securities identified as available for sale are carried at fair value. Unrealized gains and losses are recorded, net of deferred income taxes, as accumulated other comprehensive income in shareholders' equity. Available for sale securities are separately identified as pledged to creditors if the creditor has the right to sell or re-pledge the collateral.

The purchase or sale of securities is recognized on a trade date basis. Realized gains and losses on sales of securities are based upon specific identification of the security sold. A receivable or payable is recognized for subsequent transaction settlement.

On a quarterly basis, the Company performs separate evaluations of debt investment and available for sale securities for the presence of impairment. We assess whether impairment is present on an individual security basis when the fair value of a debt security is less than the amortized cost.

Management determines whether it intends to sell or if it is more likely than not that it will be required to sell impaired securities. This determination considers current and forecasted liquidity requirements and securities portfolio management. If the Company intends to sell or it is more likely than not that it will be required to sell the impaired debt security, a charge is recognized against earnings for the entire unrealized loss. For all impaired debt securities for which there is no intent or expected requirement to sell, the evaluation considers all available evidence to assess whether it is more likely than not that all amounts due would not be collected according to the security's contractual terms and whether there is any impairment attributable to credit-related factors. If an impairment exists, the amount attributed to credit-related factors is measured and an allowance for credit loss is recognized. Declines in fair value that are not recorded in the allowance are recorded in other comprehensive income, net of taxes.

BOK Financial may elect to carry certain securities that are not held for trading purposes at fair value with changes in fair value recognized in current period income. These securities are held with the intent that gains or losses will offset changes in the fair value of mortgage servicing rights or other financial instruments.

Restricted equity securities represent equity interests the Company is required to hold in the Federal Reserve Banks and Federal Home Loan Banks. Restricted equity securities are carried at cost as these securities do not have a readily determined fair value because ownership of these shares is restricted and they lack a market.

The fair value of our securities portfolio is generally based on a single price for each financial instrument provided to us by a third-party pricing service determined by one or more of the following:

- Quoted prices for similar, but not identical, assets or liabilities in active markets;
- Quoted prices for identical or similar assets or liabilities in inactive markets;
- Inputs other than quoted prices that are observable, such as interest rate and yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates; and
- Other inputs derived from or corroborated by observable market inputs.

The underlying methods used by the third-party pricing services are considered in determining the primary inputs used to determine fair values. We evaluate the methodologies employed by the third-party pricing services by comparing the price provided by the pricing service with other sources, including brokers' quotes, sales or purchases of similar instruments and discounted cash flows to establish a basis for reliance on the pricing service values. Significant differences between the pricing service provided value and other sources are discussed with the pricing service to understand the basis for their values. Based on all observable inputs, management may adjust prices obtained from third-party pricing services to more appropriately reflect the prices that would be received to sell assets or paid to transfer liabilities in orderly transactions in the current market.

90

## *Derivative Instruments*

Derivative instruments may be used by the Company as part of its internal risk management programs or may be offered to customers. All derivative instruments are carried at fair value and changes in fair value are generally reported in income as they occur. The determination of fair value of derivative instruments considers changes in interest rates, commodity prices and foreign exchange rates. Fair values for exchange-traded contracts are based on quoted prices in an active market for identical instruments. Fair values for over-the-counter contracts are generated internally using third-party valuation models. Inputs used in third-party valuation models to determine fair values are considered significant other observable inputs. Credit risk is also considered in determining fair value. Deterioration in the credit rating of customers or other counterparties reduces the fair value of asset contracts. Deterioration of our credit rating could decrease the fair value of our derivative liabilities.

When bilateral netting agreements or similar agreements exist between the Company and its counterparties that create a single legal claim or obligation to pay or receive the net amount in settlement of the individual derivative contracts, the Company reports derivative assets and liabilities on a net by derivative contract by counterparty basis.

Derivative contracts may also require the Company to provide or receive cash margin as collateral for derivative assets and liabilities. Derivative assets and liabilities are reported net of cash margin when certain conditions are met. In addition, derivative contracts executed with customers under Customer Risk Management Programs may be secured by non-cash collateral in conjunction with a credit agreement with that customer. Access to collateral in the event of default is reasonably assured.

BOK Financial offers programs that permit its customers to manage various risks, including fluctuations in energy, interest rates, foreign exchange rates, and other commodities with derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by the borrower to modify interest rate terms of their loans. Derivative contracts are executed between the customers and BOK Financial. Offsetting contracts are executed between BOK Financial and other selected counterparties to minimize market risk from changes in commodity prices, interest rates or foreign exchange rates. The counterparty contracts are identical to customer contracts, except for a fixed pricing spread or fee paid to BOK Financial as profit and compensation for administrative costs and credit risk which is recognized over the life of the contracts and included in Other Operating Revenue - Brokerage and trading revenue in the Consolidated Statements of Earnings.

BOK Financial may offer derivative instruments such as to-be-announced U.S. agency residential mortgage-backed securities to mortgage banking customers to enable them to manage their market risk or to mitigate the Company's market risk of holding trading securities. Changes in the fair value of derivative instruments for trading purposes or used to mitigate the market risk of holding trading securities are included in Other Operating Revenue - Brokerage and trading revenue.

BOK Financial may use derivative instruments in managing its interest rate sensitivity, as part of its economic hedge of the changes in the fair value of mortgage servicing rights. Changes in the fair value of derivative instruments used in managing interest rate sensitivity and as part of its economic hedge of changes in the fair value of mortgage servicing rights are included in Other Operating Revenue - Gain (loss) on derivatives, net in the Consolidated Statements of Earnings.

BOK Financial also enters into mortgage loan commitments that are considered derivative contracts. Forward sales contracts that have not been designated as hedging instruments are used to economically hedge these mortgage loan commitments as well as mortgage loans held for sale. Mortgage loan commitments, forward sales contracts, and residential mortgage loans held for sale are carried at fair value. Changes in the fair value are reported in Other Operating Revenue - Mortgage banking revenue.

## *Loans*

Loans are either secured or unsecured based on the type of loan and the financial condition of the borrower. Repayment is generally expected from cash flow or proceeds from the sale of selected assets of the borrower. BOK Financial is exposed to risk of loss on loans due to the borrower's financial difficulties, which may arise from any number of factors, including problems within the respective industry or local economic conditions. Access to collateral, in the event of borrower default, is reasonably assured through adherence to applicable lending laws and through sound lending standards and credit review procedures. Accounting policies for all loans, excluding residential mortgage loans guaranteed by U.S. government agencies, are as follows.

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Interest is accrued at the applicable interest rate on the outstanding principal amount. Loans are placed on nonaccruing status when, in the opinion of management, full collection of principal or interest is uncertain. Internally risk graded loans are individually evaluated for nonaccruing status quarterly. Non-risk graded loans are generally placed on nonaccruing status when 90 days or more past due or within 60 days of being notified of the borrower's bankruptcy filing. Interest previously accrued but not collected is charged against interest income when the loan is placed on nonaccruing status. Payments received on nonaccruing loans are applied to principal or recognized as interest income, according to management's judgment as to the collectability of principal. Loans may be returned to accruing status when, in the opinion of management, full collection of principal and interest, including principal previously charged off, is probable based on improvements in the borrower's financial condition or a sustained period of performance.

For loans acquired with no evidence of credit deterioration, discounts are accreted on either an individual basis for loans with unique characteristics or on a pool basis for groups of homogeneous loans. Accretion is discontinued when a loan with an individually attributed discount is placed on nonaccruing status.

Loans to borrowers experiencing financial difficulties may be modified in troubled debt restructurings ('TDRs'). TDRs are generally classified as nonaccruing, excluding loans guaranteed by U.S. government agencies. Modifications generally consist of extension of payment terms or interest rate concessions and may result either voluntarily through negotiations with the borrower or involuntarily through court order. Payment deferrals of up to six months are generally considered to be short-term modifications. Generally, principal and accrued but unpaid interest is not voluntarily forgiven.

Performing loans may be renewed under the then current collateral, debt service ratio and other underwriting standards. Nonaccruing loans may also be renewed and will remain classified as nonaccruing.

Occasionally, loans, other than residential mortgage loans, may be held for sale in order to manage credit concentration. These loans are carried at the lower of cost or fair value with gains or losses recognized in gain (loss) on assets.

All loans are charged-off when the loan balance or a portion of the loan balance is no longer supported by the paying capacity of the borrower or when the required cash flow is reduced in a TDR. The charge-off amount is determined through an evaluation of available cash resources and collateral value. Internally risk graded loans are evaluated quarterly and charge-offs are taken in the quarter in which the loss is identified. Non-risk graded loans that are past due between 60 days and 180 days, based on the loan product type, are charged off. Loans to borrowers whose personal obligation has been discharged through Chapter 7 bankruptcy proceedings are charged off within 60 days of notice of the bankruptcy filing, regardless of payment status.

Loan origination and commitment fees and direct loan acquisition and origination costs are deferred and amortized as an adjustment to yield over the life of the loan or over the commitment period, as applicable. Amortization does not anticipate loan prepayments. Net unamortized fees are recognized in full at time of payoff.

We sell qualifying residential mortgage loans guaranteed by U.S. government agencies into GNMA pools. GNMA optional repurchase programs allow financial institutions to buy back individual delinquent mortgage loans that meet certain criteria from the securitized loan pool for which the institution provides servicing. At the servicer's option and without GNMA's prior authorization, the servicer may repurchase a delinquent loan for an amount equal to 100% of the remaining principal balance of the loan. These loans no longer qualify for sale accounting and are recognized in the Consolidated Balance Sheets. The loans are considered to be impaired because we do not expect to receive all principal and interest based on the loan's contractual terms. A portion of the principal balance continues to be guaranteed; however, interest accrues at a curtailed rate as specified in the programs. The carrying value of these loans is reduced based on an estimate of expected cash flows discounted at the original note rate plus a liquidity spread. These loans may be modified in TDRs in accordance with U.S. government agency guidelines. Interest continues to accrue at the modified rate. Loans repurchased from GNMA under the program may either be resold into GNMA pools after a performance period specified by the program or foreclosed and conveyed to the guarantors.

Loans are disaggregated into portfolio segments and further disaggregated into classes. The portfolio segment is the level at which the Company develops and documents a systematic method for determining its Allowance for Credit Losses. Classes are based on the risk characteristics of the loans and the Company's method for monitoring and assessing credit risk.

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### *Allowances for Credit Losses and Accrual for Off-balance Sheet Credit Risk from Unfunded Loans Commitments*

The allowance for loan losses and accrual for off-balance sheet credit risk from unfunded loan commitments represent the portion of the amortized cost basis of loans and related unfunded commitments that we do not expect to collect over the asset's contractual life, considering past events, current conditions, and reasonable and supportable forecasts of future economic conditions. The appropriateness of the allowance for credit losses and accrual for off-balance sheet credit risk from unfunded loan commitments, including industry and product adjustments, is assessed quarterly by a senior management Allowance Committee. This review is based on an on-going evaluation of the estimated expected credit losses in the portfolio and on unused commitments to provide financing. A well documented methodology has been developed and is applied by an independent Credit Administration department to assure consistency across the Company. Because of the subjective forward-looking nature of the calculation, changes in these measures may not directly correlate with actual economic events. In future periods, management judgment may consider new or changed information which may cause significant changes in these allowances in those future periods.

The allowance for loan losses consists of specific allowances attributed to certain individual loans, generally nonaccruing loans, with dissimilar risk characteristics that have not yet been charged down to amounts we expect to recover and general allowances for estimated credit losses on pools of loans that share similar risk characteristics.

When full collection of principal or interest is uncertain, the loan's risk characteristics have changed, and we exclude the loan from the general allowance pool, typically designating it as nonaccruing. For these loans, a specific allowance reflects the expected credit loss.

We measure specific allowances for loans excluded from the general allowance pool by an evaluation of estimated future cash flows discounted at the loan's initial effective interest rate or the fair value of collateral for certain collateral dependent loans. For a non-collateral dependent loan, the specific allowance is the amount by which the loan's amortized cost basis exceeds its net realizable value. We measure the specific allowance for collateral dependent loans as the amount by which the loan's amortized cost basis exceeds its fair value. When repayment is expected to be provided substantially through the sale of collateral, we deduct estimated selling costs from the collateral's fair value. Generally, third party appraisals that conform to Uniform Standards of Professional Appraisal Practice serve as the basis for the fair value of real property held as collateral. These appraised values are on an 'as-is' basis and generally are not adjusted by the Company. We obtain updated appraisals at least annually or more frequently if market conditions indicate collateral values may have declined. For energy loans, our internal staff of engineers generally determines collateral value of mineral rights based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions. Our special assets staff generally determines the value of other collateral based on projected liquidation cash flows under current market conditions. We evaluate collateral values and available cash resources quarterly. Historical statistics may be used to estimate specific allowances in limited situations, such as when a collateral dependent loan is removed from the general allowance pool near the end of a reporting period until an appraisal of collateral value is received or a full assessment of future cash flows is completed.

General allowances estimate expected credit losses on pools of loans sharing similar risk characteristics that are expected to occur over the loan's estimated remaining life. The loan's estimated remaining life represents the contractual term adjusted for amortization, estimates of prepayments, and borrower-owned extension options. Approximately 90% of the committed dollars in the loan portfolio is risk graded loans with general allowance model inputs that include probability of default, loss given default, and exposure at default. Probability of default is based on the migration of loans from performing to nonperforming using historical life of loan analysis periods. Loss given default is based on the aggregate losses incurred, net of estimated recoveries. Exposure at default represents an estimate of the outstanding amount of credit exposure at the time a default may occur.

Charge-off migration is used to calculate the general allowance for the majority of non-risk graded loans to individuals. The expected credit loss on less than 10% of the committed dollars in the portfolio is calculated using charge-off migration.

The expected credit loss on approximately 1% of the committed dollars in the portfolio is calculated using a non-modeled approach. Specifically, the calculation applies a long-term net charge-off rate to the loan balances, adjusted for the weighted average remaining maturity of each portfolio.

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In estimating the expected credit losses for general allowances on performing risk-graded loans, each portfolio class is assigned relevant economic loss drivers which best explain variations in portfolio net loss rates. The probability of default estimates for each portfolio class are adjusted for current and forecasted economic conditions. The result is applied to the exposure at default and loss given default to calculate the lifetime expected credit loss estimate. Selection of relevant economic loss drivers is re-evaluated periodically and involves statistical analysis as well as management judgment. The unemployment rate factors significantly in the allowance for loan losses calculation, affecting commercial and loans to individuals segments. Other primary factors impacting the commercial portfolio include BBB corporate spreads, real gross domestic product growth rate, and energy commodity prices. The primary commercial real estate variables are vacancy rate and BBB corporate spreads. In addition to the unemployment rate, the forecast for loans to individuals is tied to home price index. The forecasts may include regional economic factors when localized conditions diverge from national conditions.

An Economic Forecast Committee, consisting of senior management with members largely independent of the allowance process, develops a twelve-month forward-looking forecast for the relevant economic loss drivers. Management develops these forecasts based on external data as well as a view of future economic conditions, which may include adjustments for regional conditions. The forecast includes three economic scenarios and probability weights for each scenario. The base forecast represents management's view of the most likely outcome, while the downside forecast reflects reasonably possible worsening economic conditions, and the upside forecast projects reasonably possible improving conditions.

At the end of the one-year reasonable and supportable forecast period, we transition from shorter-term expected losses to long-term loss averages for the loan's estimated remaining life. The difference between short-term loss forecasts and long-term loss averages is run-off over the reversion horizon, up to three years, depending on the forecasted economic scenarios.

General allowances also consider the estimated impact of factors that are not captured in the modeled results or historical experience. These factors may increase or decrease modeled results by amounts determined by the Allowance Committee. Factors not captured in modeled results or historical experience may include for example, new lines of business, market conditions that have not been previously encountered, observed changes in credit risk that are not yet reflected in macro-economic factors, or economic conditions that impact loss given default assumptions.

The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees that are not unconditionally cancellable by the bank. This accrual is included in other liabilities in the Consolidated Balance Sheets. The appropriateness of the accrual is determined in the same manner as the allowance for loan losses, with the added consideration of commitment usage over the remaining life for those loans that the bank can not unconditionally cancel.

A provision for credit losses is charged against or credited to earnings in amounts necessary to maintain an appropriate Allowance for Credit Losses. Recoveries of loans previously charged off are added to the allowance when received.

#### *Real Estate and Other Repossessed Assets*

Real estate and other repossessed assets are acquired in partial or total forgiveness of loans. These assets are carried at the lower of cost, which is the fair value at date of foreclosure less estimated disposal costs, or current fair value less estimated disposal costs. Decreases in fair value below cost are recognized as asset-specific valuation allowances which may be reversed when supported by future increases in fair value. Subsequent increases in fair value may be used to reduce the valuation allowance but not below zero.

Fair values of real estate are based on 'as is' appraisals which are updated at least annually or more frequently for certain asset types or assets located in certain distressed markets. Fair values based on appraisals are generally considered to be based on significant other observable inputs. The Company also considers decreases in listing price and other relevant information in quarterly evaluations and reduces the carrying value of real estate and other repossessed assets when necessary. Fair values based on list prices and other relevant information are generally considered to be based on significant unobservable inputs. Additional costs incurred to complete real estate and other repossessed assets may increase the carrying value, up to current fair value based on 'as completed' appraisals. The fair value of mineral rights included in repossessed assets is generally determined by our internal staff of engineers based on projected cash flows from proven oil and gas reserves under existing economic and operating conditions. Proven oil and gas reserves are estimated quantities that geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs using existing prices and costs. Projected cash flows incorporate assumptions related to a number of factors including production, sales prices, operating expenses, severance, ad valorem taxes, capital costs and appropriate discount rate. Fair values determined through this process are considered to be based on Level 3 inputs. The value of other repossessed assets is generally determined by our special assets staff based on projected liquidation cash flows under current market conditions.

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Income generated by these assets is recognized as received. Operating expenses are recognized as incurred. Gains or losses on sales of real estate and other repossessed assets are based on the cash proceeds received less the cost basis of the asset, net of any valuation allowances. The estimated disposal costs of real estate and other repossessed assets are evaluated by the Company on an annual basis based on actual results.

#### *Transfers of Financial Assets*

BOK Financial regularly transfers financial assets as part of its mortgage banking activities and periodically may transfer other financial assets. Transfers are recorded as sales when the criteria for surrender of control are met.

The Company has elected to carry certain residential mortgage loans held for sale at fair value under the fair value option. Changes in fair value are recognized in net income as they occur. These loans are reported separately in the Consolidated Balance Sheets and changes in fair value are recorded in Other Operating Revenue - Mortgage banking revenue in the Consolidated Statements of Earnings.

Fair value of conforming residential mortgage loans that will be sold to U.S. government agencies is based on sales commitments or market quotes considered Level 2 inputs. Fair value of mortgage loans that are unable to be sold to U.S. government agencies is based on Level 3 inputs using quoted prices of loans that are sold in securitization transactions with a liquidity discount applied. The fair value is corroborated with an independent third party on at least an annual basis.

BOK Financial retains a repurchase obligation under underwriting representations and warranties related to residential mortgage loans transferred and generally retains the right to service the loans. These are not credit obligations. The Company may incur a recourse obligation in limited circumstances. Separate accruals are recognized in Other liabilities in the Consolidated Balance Sheets for repurchase and recourse obligations. These reserves reflect the estimated amount of probable loss the Company will incur as a result of repurchasing a loan, indemnifications, and other settlement resolutions.

Repurchases of loans with an origination defect that are also credit impaired are considered collateral dependent and are initially recognized at net realizable value (appraised value less the cost to sell). The difference between unpaid principal balance and net realizable value is not accreted. Repurchases of loans with an origination defect that are not credit impaired are carried at fair value as of the repurchase date. Interest income continues to accrue on these loans and the discount is accreted over the estimated life of the loan.

The Company may also choose to purchase GNMA loans once certain mandated delinquency criteria are met. The loans that are eligible and are chosen to be repurchased are initially recognized at fair value based on expected cash flows discounted using the average agency guaranteed debenture rates, average actual principal loss rates and liquidity premium.

The Company may also retain a residual interest in excess cash flows generated by the assets. All assets obtained, including cash, servicing rights and residual interests, and all liabilities incurred, including recourse obligations, are initially recognized at fair value. All assets transferred are derecognized and any gain or loss on the sale is recognized in earnings. Subsequently, servicing rights and residual interest are carried at fair value with changes in fair value recognized in earnings as they occur.

#### *Mortgage Servicing Rights*

Mortgage servicing rights may be purchased or may be recognized when mortgage loans are originated and sold with servicing rights retained. All mortgage servicing rights are carried at fair value. Changes in the fair value are recognized in earnings as they occur.

Mortgage servicing rights are not traded in active markets. A cash flow model is used to determine fair value. Key assumptions and estimates, including projected prepayment speeds and assumed servicing costs, earnings on escrow deposits, ancillary income and discount rates, used by this model are based on current market sources. Assumptions used to value mortgage servicing rights are considered significant unobservable inputs. A separate third-party model is used to estimate prepayment speeds based on interest rates, housing turnover rates, estimated loan curtailment, anticipated defaults and other relevant factors. The prepayment model is updated daily for changes in market conditions and adjusted to better correlate with actual performance of BOK Financial's servicing portfolio. Fair value estimates from outside sources are received at least quarterly to corroborate the results of the valuation model.

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## *Premises and Equipment*

Premises and equipment are carried at cost, including capitalized interest when appropriate, less accumulated depreciation and amortization. Depreciation and amortization are computed on a straight-line basis over the estimated useful lives of the assets or, for leasehold improvements, over the shorter of the estimated useful lives or remaining lease terms. Useful lives range from 5 years to 40 years for buildings and improvements, 3 years to 10 years for software and related implementation costs, and 3 years to 10 years for furniture and equipment. Construction in progress represents facilities construction and data processing systems projects underway that have not yet been placed into service. Depreciation and amortization begin once the assets are placed into service.

Repair and maintenance costs, including software maintenance and enhancement costs, are charged to expense as incurred. Software licensing costs are generally charged to expense as incurred. Software licensing costs are capitalized if the contractual right to take possession of the software exists and it is feasible to take possession without significant penalty. Capitalized costs are amortized over the shorter of the estimated useful life of the software or remaining contractual life of the license.

Premises no longer used by the Company are transferred to real estate and other repossessed assets. The transferred amount is the lower of cost less accumulated depreciation or fair value less estimated disposal costs as of the transfer date.

Premises and equipment includes rights to use leased facilities and equipment. Right of use assets are initially measured by the present value of future rent payments over lease terms, adjusted for rent concessions. Rent payments exclude both payments made for non-lease components such as services and variable lease payments other than payments dependent on an index at lease commencement. Lease term includes options reasonably certain to be exercised. The right of use assets and lease liabilities are amortized to achieve straight-line expense over the lease term. Upon lease modification, the right of use asset and liability are reassessed and remeasured. Right of use assets are evaluated for impairment when facts and circumstances change that indicate an impairment may be necessary. Leases less than twelve months are excluded from capitalization.

Ongoing technology projects of significant size or length are reviewed at least annually for impairment. Accumulated costs are reviewed for projects or components of projects that do not support the value of the asset being developed. Findings of obsolescence, duplicate effort or other conditions that do not support the recorded value are impaired, with the cost of the impaired components being charged to current-year earnings.

## *Federal and State Income Taxes*

Determination of income tax expense and related assets and liabilities is complex and requires estimates and judgments when applying tax laws, rules, regulations and interpretations. It also requires judgments as to future earnings and the timing of future events. Accrued income taxes represent an estimate of net amounts due to or from taxing jurisdictions based upon these estimates, interpretations and judgments.

BOK Financial and its subsidiaries file consolidated tax returns. The subsidiaries provide for income taxes on a separate return basis and remit to BOK Financial amounts determined to be currently payable. BOK Financial is an agent for its subsidiaries under the Company's tax sharing agreements and has no ownership rights to any refunds received for the benefit of its subsidiaries.

Management evaluates the Company's current tax expense or benefit based upon estimates of taxable income, tax credits and statutory federal and state income tax rates. The amount of current income tax expense or benefit recognized in any period may differ from amounts reported to taxing authorities. Annually, we file tax returns with each jurisdiction where we conduct business and adjust recognized income tax expense or benefit to filed tax returns.

Deferred tax assets and liabilities are recognized based upon the differences between the values of assets and liabilities as recognized in the financial statements and their related tax basis using enacted tax rates in effect for the year in which the differences are expected to be recovered or settled. The effect of changes in statutory tax rates on the measurement of deferred tax assets and liabilities is recognized through income tax expense in the period the change is enacted. A valuation allowance is provided when it is more likely than not that some portion of the entire deferred tax asset may not be realized.

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BOK Financial also recognizes the benefit of uncertain tax positions when based upon all relevant evidence, it is more-likely-than-not that our position would prevail upon examination, including resolution of related appeals or litigation, based upon the technical merits of the position. Unrecognized tax benefits, including estimated interest and penalties, are assessed quarterly and are part of our current accrued income tax liability. These may be adjusted through current income tax expense in future periods based on changing facts and circumstances, completion of examinations by taxing authorities or expiration of a statute of limitations. Estimated penalties and interest are recognized in income tax expense. Income tax expense in future periods may decrease if an uncertain tax position is favorably resolved, generally upon completion of an examination by the taxing authorities, expiration of a statute of limitations, or changes in facts and circumstances.

#### *Employee Benefit Plans*

BOK Financial sponsors a defined contribution plan ("Thrift Plan") and a defined benefit cash balance pension plan ("Pension Plan"). Employer contributions to the Thrift Plan, which matches employee contributions subject to percentage and years of service limits, are expensed when incurred. Pension Plan costs, which are based upon actuarial computations of current costs, are expensed annually. Pension Plan benefits were curtailed as of April 1, 2006. At December 31, 2022, the Pension Plan has been terminated, all benefits have been paid and all obligations settled. Prior to termination, BOK Financial recognized the funded status of its employee benefit plans. Adjustments required to recognize the Pension Plan's net funded status were made through accumulated other comprehensive income, net of deferred income taxes. See Note 11, "Employee Benefit Plans" for further discussion.

#### *Share-Based Compensation Plans*

BOK Financial awards non-vested common shares and stock options as compensation to certain officers. The grant date fair value of non-vested shares is based on the then-current market value of BOK Financial common stock. Non-vested shares generally cliff vest in 3 years and are subject to a holding period after vesting of 2 years. The grant date fair value of stock options is based on the Black-Scholes option pricing model. Stock options generally have graded vesting over 7 years. Each tranche is considered a separate award for valuation and compensation cost recognition. No options have been granted since 2013.

Compensation cost is initially based on the grant date fair value of the award and recognized as expense over the service period, which is generally the vesting period. Expense is reduced for estimated forfeitures over the vesting period and adjusted for actual forfeitures as they occur. Share-based compensation awarded to certain officers has performance conditions that affect the number of awards granted. Compensation cost is adjusted based on the probable outcome of the performance conditions.

Restricted stock units ("RSUs") may also be awarded for certain executives who have elected to defer income recognition upon vesting of their awards. RSUs are subject to the same vesting criteria as non-vested shares. Upon vesting and meeting other relevant conditions, RSUs are settled through cash distributions. The value of the awards will vary in amounts equal to changes in the fair value of an equal number of BOK Financial common shares.

Tax effects of share-based payments are recognized through tax expense. Dividends on non-vested shares are charged to retained earnings. Dividend equivalents on RSUs are charged to expense.

#### *Other Operating Revenue*

Fees and commissions revenue is generated through the sales of products, consisting primarily of financial instruments, and the performance of services for customers under contractual obligations. Revenue from providing services for customers is recognized at the time services are provided in an amount that reflects the consideration we expect to be entitled to for those services. Revenue is recognized based on the application of five steps:

- Identify the contract with a customer
- Identify the performance obligations in the contract
- Determine the transaction price
- Allocate the transaction price to the performance obligations in the contract
- Recognize revenue when (or as) the Company satisfies a performance obligation

For contracts with multiple performance obligations, individual performance obligations are accounted for separately if the customer can benefit from the good or service on its own or with other resources readily available to the customer and the promise to transfer goods and services to the customer is separately identifiable in the contract. The transaction price is allocated to the performance obligations based on relative standalone selling prices.

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Revenue is recognized on a gross basis whenever we have primary responsibility and risk in providing the services or products to our customers and have discretion in establishing the price for the services or products. Revenue is recognized on a net basis whenever we act as an agent for products or services of others.

Brokerage and trading revenue includes revenues from trading, customer hedging, retail brokerage, investment banking and insurance brokerage. Trading revenue includes net realized and unrealized gains primarily related to sales of securities to institutional customers and related derivative contracts. Customer hedging revenue includes realized and unrealized changes in the fair value of derivative contracts held for customer risk management programs including credit valuation adjustments, as necessary. We offer commodity, interest rate, foreign exchange and equity derivatives to our customers. These customer contracts are offset with contracts with selected counterparties and exchanges to minimize changes in market risk from changes in commodity prices, interest rates or foreign exchange rates. Retail brokerage revenue represents fees and commissions earned on sales of fixed income securities, annuities, mutual funds and other financial instruments to retail customers. Investment banking revenue includes fees earned upon completion of underwriting and financial advisory services. Investment banking revenue also includes fees earned in conjunction with loan syndications. Insurance brokerage revenues represent fees and commissions earned on placement of insurance products with carriers for property and casualty and health coverage.

Transaction card revenue includes merchant discount fees and electronic funds transfer network fees, net of interchange fees paid to card issuers and assessments paid to card networks. Merchant discount fees represent fees paid by customers for account management and electronic processing of card transactions. Merchant discount fees are recognized at the time the customer's transactions are processed or other services are performed. The Company also maintains the TransFund electronic funds transfer network for the benefit of its members, which includes BOKF, NA. Electronic funds transfer fees are recognized as electronic transactions are processed on behalf of its members.

Fiduciary and asset management revenue includes fees from asset management, custody, recordkeeping, investment advisory and administration services. Revenue is recognized on an accrual basis at the time the services are performed and may be based on either the fair value of the account or the service provided.

Deposit service charges and fees include commercial account service charges, overdraft fees, check card fee revenue and automated service charges and other deposit service fees. Fees are recognized at least quarterly in accordance with published deposit account agreements and disclosure statements for retail accounts or contractual agreements for commercial accounts. Item charges for overdraft or non-sufficient funds items are recognized as items are presented for payment. Account balance charges and activity fees are accrued monthly and collected in arrears. Commercial account activity fees may be offset by an earnings credit based on account balances. Check card fees represent interchange fees paid by a merchant bank for transactions processed from cards issued by the Company. Check card fees are recognized when transactions are processed.

Mortgage banking revenue includes revenues recognized in conjunction with the origination, marketing and servicing of conventional and government-sponsored residential mortgage loans. Mortgage production revenue includes net realized gains (losses) on sales of residential mortgage loans in the secondary market and the net change in unrealized gains (losses) on residential mortgage loans held for sale. Mortgage production revenue also includes changes in the fair value of derivative contracts not designated as hedging instruments related to residential mortgage loan commitments and forward sales contracts. Mortgage servicing revenue includes servicing fee income and late charges on loans serviced for others.

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## Newly Adopted and Pending Accounting Pronouncements

The following is a summary of newly adopted and pending accounting pronouncements that may have a more than insignificant effect on the Company's financial statements.

### Financial Accounting Standards Board ('FASB')

#### FASB Accounting Standards Update No. 2020-04, *Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting* ('ASU 2020-04')

On March 12, 2020, the FASB issued ASU 2020-04 which provides optional expedients and exceptions for applying U.S. GAAP to contract modifications and hedging relationships that reference LIBOR or another reference rate expected to be discontinued, subject to meeting certain criteria. Under the new guidance, an entity can elect by accounting topic or industry subtopic to account for the modification of a contract affected by reference rate reform as a continuation of the existing contract, if certain conditions are met. In addition, the new guidance allows an entity to elect on a hedge-by-hedge basis to continue to apply hedge accounting for hedging relationships in which the critical terms change due to reference rate reform, if certain conditions are met. A one-time election to sell and/or transfer held-to-maturity debt securities that reference a rate affected by reference rate reform is also allowed. ASU 2020-04 became effective for all entities as of March 12, 2020 and will apply to all LIBOR reference rate modifications through December 31, 2022. Adoption of ASU 2020-04 did not have a material impact on the Company's financial statements.

#### FASB Accounting Standards Update No. 2021-01, *Reference Rate Reform (Topic 848): Scope* ('ASU 2021-01')

On January 7, 2021, the FASB issued ASU 2021-01 which clarifies that certain optional expedients and exceptions in Topic 848 for contract modifications and hedge accounting apply to derivatives that are affected by the discounting transition. The amendments in this update are elective and apply to all entities that have derivative instruments that use an interest rate for margining, discounting, or contract price alignment that is modified as a result of reference rate reform. The amendments also optionally apply to all entities that designate receive-variable-rate, pay-variable-rate cross-currency interest rate swaps as hedging instruments in net investment hedges that are modified as a result of reference rate reform. ASU 2021-01 is effective immediately for all entities and amendments may be applied on a full retrospective basis as of any date from the beginning of an interim period that includes or is subsequent to March 12, 2020. Adoption of ASU 2021-01 did not have a material impact on the Company's financial statements.

#### FASB Accounting Standards Update No. 2022-01, *Derivatives and Hedging (Topic 815), Fair Value Hedging - Portfolio Layer Method* ('ASU 2022-01')

On March 28, 2022, the FASB issued ASU 2022-01 which clarifies existing guidance around fair value hedge accounting of interest rate risk for portfolios of financial assets. Under existing guidance, the 'last-of-layer' method (now known as the 'portfolio layer' method) enables an entity to apply fair value hedging to a stated amount of a closed portfolio of prepayable financial assets without having to consider prepayment risk or credit risk when measuring those assets. ASU 2022-01 expands the scope of this guidance to allow entities to apply the portfolio layer method to portfolios of all financial assets, including both prepayable and non-prepayable financial assets. ASU 2022-01 is effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. Adoption of ASU 2022-01 is not expected to have a material impact on the Company's financial statements as we do not currently apply hedge accounting to our financial assets.

#### FASB Accounting Standards Update No. 2022-02, *Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings and Vintage Disclosures* ('ASU 2022-02')

On March 31, 2022, the FASB issued ASU 2022-02 which eliminates the accounting guidance on troubled debt restructurings ('TDRs') for creditors in ASC 310-40, while also no longer requiring an entity to consider renewals, modifications, and extensions that result from reasonably expected TDRs in their calculation of the allowance for credit losses. ASU 2022-02 requires enhanced disclosures for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulties. Further, it requires entities to disclose gross write-offs recorded in the current period by year of origination in the vintage disclosures on a year-to-date basis. ASU 2022-02 is effective for fiscal years beginning after December 15, 2022 and amendments related to TDR recognition and measurement may be applied using either a prospective or modified retrospective transition method, while amendments on TDR and vintage disclosures are to be adopted prospectively. The Company will adopt ASU 2022-02 on January 1, 2023, using the prospective transition method. Adoption of this standard will not have a material effect on the Company's financial condition or results of operations.

99

# FASB Accounting Standards Update No. 2022-06, *Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848 ('ASU 2020-06')*

On December 21, 2022, the FASB issued ASU 2022-06, which defers the sunset date of ASU 2020-04 from December 31, 2022 to December 31, 2024; the details of ASU 2020-04 are described further above. Adoption of ASU 2022-06 did not have a material impact on the Company's financial statements.

# **(2) Securities**

# **Trading Securities**

The fair value and net unrealized gain (loss) included in trading securities is as follows (in thousands):

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Net Unrealized Gain (Loss) | Fair Value | Net Unrealized Gain (Loss) |
| U.S. government securities | $9,823 | $(16) | $23,610 | $40 |
| Residential agency mortgage-backed securities | 4,406,848 | 4 | 9,068,900 | (9,338) |
| Municipal securities | 21,484 | (136) | 25,783 | 34 |
| Other trading securities | 26,006 | (175) | 18,520 | (26) |
| Total trading securities | $4,464,161 | $(323) | $9,136,813 | $(9,290) |

# **Investment Securities**

The amortized cost and fair values of investment securities are as follows (in thousands):

|  | December 31, 2022 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Amortized Cost | Carrying Value 1 | Fair Value | Gross Unrealized |  |
|  |  |  |  | Gain | Loss |
| Municipal securities | $170,629 | $170,629 | $176,621 | $6,456 | $(464) |
| Mortgage-backed securities: |  |  |  |  |  |
| Residential agency | 2,538,565 | 2,315,219 | 2,143,360 | 155 | (172,014) |
| Commercial agency | 17,259 | 15,609 | 14,588 | - | (1,021) |
| Other debt securities | 12,788 | 12,788 | 12,199 | - | (589) |
| Total investment securities | $2,739,241 | $2,514,245 | $2,346,768 | $6,611 | $(174,088) |
| Allowance for credit losses | (558) | (558) | - | - | - |
| Investment securities, net of allowance | $2,738,683 | $2,513,687 | $2,346,768 | $6,611 | $(174,088) |

$^{1}$ Carrying value includes $225 million of net unrealized loss which remains in Accumulated Other Comprehensive Income ('AOCI') in the Consolidated Balance Sheets related to certain securities transferred during the second quarter of 2022 from the Available for Sale securities portfolio to the Investment securities portfolio.

|  | December 31, 2021 |  |  |  |  |
| --- | --- | --- | --- | --- | --- |
|  | Amortized Cost | Carrying Value | Fair Value | Gross Unrealized |  |
|  |  |  |  | Gain | Loss |
| Municipal securities | $203,772 | $203,772 | $223,609 | $19,851 | $(14) |
| Residential agency mortgage-backed securities | 6,939 | 6,939 | 7,500 | 561 | - |
| Other debt securities | 288 | 288 | 286 | - | (2) |
| Total investment securities | $210,999 | $210,999 | $231,395 | $20,412 | $(16) |
| Allowance for credit losses | (555) | (555) | - | - | - |
| Investment securities, net of allowance | $210,444 | $210,444 | $231,395 | $20,412 | $(16) |

100

The amortized cost and fair values of investment securities at December 31, 2022, by contractual maturity, are as shown in the following table (dollars in thousands):

|  | Less than One Year | One to Five Years | Six to Ten Years | Over Ten Years | Total | Weighted Average Maturity 1 |
| --- | --- | --- | --- | --- | --- | --- |
| Fixed maturity debt securities: |  |  |  |  |  |  |
| Carrying value | $23,329 | $103,089 | $67,660 | $4,948 | $199,026 | 4.33 |
| Fair value | 23,440 | 109,073 | 65,947 | 4,948 | 203,408 |  |
| Residential mortgage-backed securities: |  |  |  |  |  |  |
| Carrying value |  |  |  |  | $2,315,219 | 2 |
| Fair value |  |  |  |  | 2,143,360 |  |
| Total investment securities: |  |  |  |  |  |  |
| Carrying value |  |  |  |  | $2,514,245 |  |
| Fair value |  |  |  |  | 2,346,768 |  |

$^{1}$ Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without penalty.

$^{2}$ The average expected lives of residential mortgage-backed securities were 5.4 years based upon current prepayment assumptions.

## Temporarily Impaired Investment Securities

(In thousands):

|  | December 31, 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Number of Securities | Less Than 12 Months |  | 12 Months or Longer |  | Total |  |
|  |  | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss |
| Investment: |  |  |  |  |  |  |  |
| Municipal securities | 22 | $18,037 | $406 | $544 | $58 | $18,581 | $464 |
| Mortgage-backed securities: |  |  |  |  |  |  |  |
| Residential agency | 116 | $2,142,114 | $172,014 | $ - | $ - | $2,142,114 | $172,014 |
| Commercial agency | 2 | $14,588 | $1,021 | $ - | $ - | $14,588 | $1,021 |
| Other debt securities | 3 | $9,428 | $571 | $257 | $18 | $9,685 | $589 |
| Total investment securities | 143 | $2,184,167 | $174,012 | $801 | $76 | $2,184,968 | $174,088 |

|  | December 31, 2021 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Number of Securities | Less Than 12 Months |  | 12 Months or Longer |  | Total |  |
|  |  | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss |
| Investment: |  |  |  |  |  |  |  |
| Municipal securities | 1 | $ - | $ - | $587 | $14 | $587 | $14 |
| Other debt securities | 2 | 273 | 2 | - | - | 273 | 2 |
| Total investment securities | 3 | $273 | $2 | $587 | $14 | $860 | $16 |

101

## Available for Sale Securities

The amortized cost and fair value of available for sale securities are as follows (in thousands):

|  | December 31, 2022 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Amortized Cost | Fair Value | Gross Unrealized |  |
|  |  |  | Gain | Loss |
| U.S. Treasury | $1,000 | $898 | $ - | $(102) |
| Municipal securities | 687,875 | 624,500 | 321 | (63,696) |
| Mortgage-backed securities: |  |  |  |  |
| Residential agency | 6,161,358 | 5,814,496 | 13,085 | (359,947) |
| Residential non-agency | 616,423 | 577,576 | 11,776 | (50,623) |
| Commercial agency | 4,892,257 | 4,475,917 | 3,479 | (419,819) |
| Other debt securities | 500 | 473 | - | (27) |
| Total available for sale securities | $12,359,413 | $11,493,860 | $28,661 | $(894,214) |

|  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- |
|  | Amortized Cost | Fair Value | Gross Unrealized |  |
|  |  |  | Gain | Loss |
| U.S. Treasury | $1,001 | $1,000 | $ - | $(1) |
| Municipal securities | 515,551 | 508,365 | 1,302 | (8,488) |
| Mortgage-backed securities: |  |  |  |  |
| Residential agency | 7,908,587 | 8,006,616 | 155,477 | (57,448) |
| Residential non-agency | 10,625 | 24,339 | 13,714 | - |
| Commercial agency | 4,628,172 | 4,617,025 | 36,868 | (48,015) |
| Other debt securities | 500 | 472 | - | (28) |
| Total available for sale securities | $13,064,436 | $13,157,817 | $207,361 | $(113,980) |

The amortized cost and fair values of available for sale securities at December 31, 2022, by contractual maturity, are as shown in the following table (dollars in thousands):

|  | Less than One Year | One to Five Years | Six to Ten Years | Over Ten Years | Total | Weighted Average Maturity 1 |
| --- | --- | --- | --- | --- | --- | --- |
| Fixed maturity debt securities: |  |  |  |  |  |  |
| Amortized cost | $121,279 | $2,529,961 | $2,396,317 | $534,075 | $5,581,632 | 6.11 |
| Fair value | 118,907 | 2,358,353 | 2,126,561 | 497,967 | 5,101,788 |  |
| Residential mortgage-backed securities: |  |  |  |  |  |  |
| Amortized cost |  |  |  |  | $6,777,781 | 2 |
| Fair value |  |  |  |  | 6,392,072 |  |
| Total available-for-sale securities: |  |  |  |  |  |  |
| Amortized cost |  |  |  |  | $12,359,413 |  |
| Fair value |  |  |  |  | 11,493,860 |  |

$^{1}$ Expected maturities may differ from contractual maturities, because borrowers may have the right to call or prepay obligations with or without penalty.

$^{2}$ The average expected lives of residential mortgage-backed securities were 4.4 years based upon current prepayment assumptions.

102

Sales of available for sale securities resulted in gains and losses as follows (in thousands):

|  | Year Ended December 31, |  |  |
| --- | --- | --- | --- |
|  | 2022 | 2021 | 2020 |
| Proceeds | $307,481 | $622,881 | $384,507 |
| Gross realized gains | 5,054 | 5,702 | 9,976 |
| Gross realized losses | (6,025) | (1,998) | (66) |
| Related federal and state income tax expense | (227) | 889 | 2,524 |

The fair value of debt securities pledged as collateral for repurchase agreements, public trust funds on deposit and for other purposes, as required by law was $11.2 billion at December 31, 2022 and $10.2 billion at December 31, 2021. The secured parties do not have the right to sell or re-pledge these securities.

### Temporarily Impaired Available for Sale Securities

(In thousands)

|  | December 31, 2022 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Number of Securities | Less Than 12 Months |  | 12 Months or Longer |  | Total |  |
|  |  | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss |
| Available for sale: |  |  |  |  |  |  |  |
| U.S. Treasury | 1 | $ - | $ - | $899 | $102 | $899 | $102 |
| Municipal securities | 227 | 146,634 | 5,301 | 428,248 | 58,395 | 574,882 | 63,696 |
| Mortgage-backed securities: |  |  |  |  |  |  |  |
| Residential agency | 613 | $3,879,582 | $256,973 | $863,732 | $102,974 | $4,743,314 | $359,947 |
| Residential non-agency | 26 | 499,716 | 50,623 | - | - | 499,716 | 50,623 |
| Commercial agency | 285 | 1,647,778 | 63,701 | 2,535,816 | 356,118 | 4,183,594 | 419,819 |
| Other debt securities | 1 | - | - | 473 | 27 | 473 | 27 |
| Total available for sale securities | 1,153 | $6,173,710 | $376,598 | $3,829,168 | $517,616 | $10,002,878 | $894,214 |

|  | December 31, 2021 |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- |
|  | Number of Securities | Less Than 12 Months |  | 12 Months or Longer |  | Total |  |
|  |  | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss | Fair Value | Unrealized Loss |
| Available for sale: |  |  |  |  |  |  |  |
| U.S. Treasury | 1 | $1,000 | $1 | $ - | $ - | $1,000 | $1 |
| Municipal securities | 175 | 423,575 | 7,762 | 22,476 | 726 | 446,051 | 8,488 |
| Mortgage-backed securities: |  |  |  |  |  |  |  |
| Residential agency | 120 | $2,382,094 | $37,121 | $750,044 | $20,327 | $3,132,138 | $57,448 |
| Commercial agency | 165 | 2,104,689 | 35,488 | 703,216 | 12,527 | 2,807,905 | 48,015 |
| Other debt securities | 1 | - | - | 472 | 28 | 472 | 28 |
| Total available for sale securities | 462 | $4,911,358 | $80,372 | $1,476,208 | $33,608 | $6,387,566 | $113,980 |

No credit impairment of available for sale securities was identified in 2022. Unrealized losses are related to changes in interest rates subsequent to purchase and are not attributable to credit. Based on evaluations of impaired securities as of December 31, 2022, the Company does not intend to sell any impaired available for sale securities before fair value recovers to the current amortized cost, and it is more-likely-than-not that the Company will not be required to sell impaired securities before fair value recovers, which may be maturity.

103

## Fair Value Option Securities

Fair value option securities represent securities which the Company has elected to carry at fair value and are separately identified on the Consolidated Balance Sheets with changes in the fair value recognized in earnings as they occur. Certain residential mortgage-backed securities issued by U.S. government agencies and derivative contracts are held as an economic hedge of the mortgage servicing rights.

The fair value and net unrealized gain (loss) included in fair value option securities is as follows (in thousands):

|  | December 31, 2022 |  | December 31, 2021 |  |
| --- | --- | --- | --- | --- |
|  | Fair Value | Net Unrealized Gain (Loss) | Fair Value | Net Unrealized Gain (Loss) |
| Residential agency mortgage-backed securities | $296,590 | $338 | $43,770 | $1,591 |

## (3) Derivatives

The following table summarizes the fair values of derivative contracts recorded as 'derivative contracts' assets and liabilities in the balance sheet at December 31, 2022 (in thousands):

|  | Assets |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Notional 1 | Gross Fair Value | Netting Adjustments | Net Fair Value Before Cash Collateral | Cash Collateral | Fair Value Net of Cash Collateral |
| Customer risk management programs: |  |  |  |  |  |  |
| Interest rate contracts | $2,629,318 | $158,825 | $ - | $158,825 | $(114,955) | $43,870 |
| Energy contracts | 7,918,020 | 1,232,283 | (594,543) | 637,740 | (67,024) | 570,716 |
| Foreign exchange contracts | 219,791 | 216,569 | - | 216,569 | - | 216,569 |
| Equity option contracts | 21,102 | 193 | - | 193 | (109) | 84 |
| Total customer risk management programs | 10,788,231 | 1,607,870 | (594,543) | 1,013,327 | (182,088) | 831,239 |
| Trading | 17,400,037 | 126,910 | (74,647) | 52,263 | (4,646) | 47,617 |
| Interest rate risk management programs | 85,000 | 1,500 | (13) | 1,487 | - | 1,487 |
| Total derivative contracts | $28,273,268 | $1,736,280 | $(669,203) | $1,067,077 | $(186,734) | $880,343 |

|  | Liabilities |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Notional 1 | Gross Fair Value | Netting Adjustments | Net Fair Value Before Cash Collateral | Cash Collateral | Fair Value Net of Cash Collateral |
| Customer risk management programs: |  |  |  |  |  |  |
| Interest rate contracts | $2,629,122 | $158,816 | $ - | $158,816 | $ - | $158,816 |
| Energy contracts | 8,696,060 | 1,242,058 | (594,543) | 647,515 | (484,319) | 163,196 |
| Foreign exchange contracts | 214,855 | 211,233 | - | 211,233 | (7) | 211,226 |
| Equity option contracts | 21,102 | 193 | - | 193 | - | 193 |
| Total customer risk management programs | 11,561,139 | 1,612,300 | (594,543) | 1,017,757 | (484,326) | 533,431 |
| Trading | 14,038,906 | 94,958 | (74,647) | 20,311 | (423) | 19,888 |
| Interest rate risk management programs | 178,806 | 1,594 | (13) | 1,581 | - | 1,581 |
| Total derivative contracts | $25,778,851 | $1,708,852 | $(669,203) | $1,039,649 | $(484,749) | $554,900 |

$^{1}$ Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

104

The following table summarizes the fair values of derivative contracts recorded as 'derivative contracts' assets and liabilities in the balance sheet at December 31, 2021 (in thousands):

|  | Assets |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Notional 1 | Gross Fair Value | Netting Adjustments | Net Fair Value Before Cash Collateral | Cash Collateral | Fair Value Net of Cash Collateral |
| Customer risk management programs: |  |  |  |  |  |  |
| Interest rate contracts | $2,614,162 | $53,881 | $(10,101) | $43,780 | $ - | $43,780 |
| Energy contracts | 6,360,095 | 1,168,363 | (375,624) | 792,739 | - | 792,739 |
| Foreign exchange contracts | 216,272 | 215,148 | - | 215,148 | - | 215,148 |
| Equity option contracts | 42,136 | 755 | - | 755 | (242) | 513 |
| Total customer risk management programs | 9,232,665 | 1,438,147 | (385,725) | 1,052,422 | (242) | 1,052,180 |
| Trading | 35,592,751 | 139,694 | (104,326) | 35,368 | (721) | 34,647 |
| Internal risk management programs | 869,506 | 10,687 | (217) | 10,470 | - | 10,470 |
| Total derivative contracts | $45,694,922 | $1,588,528 | $(490,268) | $1,098,260 | $(963) | $1,097,297 |

|  | Liabilities |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Notional 1 | Gross Fair Value | Netting Adjustments | Net Fair Value Before Cash Collateral | Cash Collateral | Fair Value Net of Cash Collateral |
| Customer risk management programs: |  |  |  |  |  |  |
| Interest rate contracts | $2,614,162 | $54,062 | $(10,101) | $43,961 | $(33,870) | $10,091 |
| Energy contracts | 6,480,840 | 1,210,946 | (375,624) | 835,322 | (803,102) | 32,220 |
| Foreign exchange contracts | 208,381 | 207,119 | - | 207,119 | (447) | 206,672 |
| Equity option contracts | 42,136 | 755 | - | 755 | - | 755 |
| Total customer risk management programs | 9,345,519 | 1,472,882 | (385,725) | 1,087,157 | (837,419) | 249,738 |
| Trading | 41,285,649 | 152,947 | (104,326) | 48,621 | (24,074) | 24,547 |
| Internal risk management programs | 298,832 | 1,557 | (217) | 1,340 | - | 1,340 |
| Total derivative contracts | $50,930,000 | $1,627,386 | $(490,268) | $1,137,118 | $(861,493) | $275,625 |

$^{1}$ Notional amounts for commodity contracts are converted into dollar-equivalent amounts based on dollar prices at the inception of the contract.

105

The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the Consolidated Statements of Earnings (in thousands):

|  | Year Ended December 31, |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | 2022 |  | 2021 |  | 2020 |  |
|  | Brokerage and Trading Revenue | Gain (Loss) on Derivatives, Net | Brokerage and Trading Revenue | Gain (Loss) on Derivatives, Net | Brokerage and Trading Revenue | Gain (Loss) on Derivatives, Net |
| Customer risk management programs: |  |  |  |  |  |  |
| Interest rate contracts | $10,690 | $ - | $5,503 | $ - | $4,507 | $ - |
| Energy contracts | 34,435 | - | 14,190 | - | 17,287 | - |
| Agricultural contracts | - | - | 27 | - | 34 | - |
| Foreign exchange contracts | 591 | - | 712 | - | 921 | - |
| Equity option contracts | - | - | - | - | - | - |
| Total customer risk management programs | 45,716 | - | 20,432 | - | 22,749 | - |
| Trading 1 | 48,616 | - | (11,453) | - | 8,255 | - |
| Internal risk management programs | - | (73,011) | - | (19,378) | - | 42,320 |
| Total derivative contracts | $94,332 | $(73,011) | $8,979 | $(19,378) | $31,004 | $42,320 |

$^{1}$ Includes changes in fair value of to-be-announced U.S. agency residential mortgage-backed securities and other derivative instruments offered to mortgage banking customers to manage their market risk or held to mitigate market risk of trading securities portfolio, which is offset by changes in fair value of trading securities also included in Brokerage and trading revenue in the Consolidated Statement of Earnings.

As discussed in Note 7, certain derivative contracts not designated as hedging instruments related to mortgage loan commitments and forward sales contracts are included in Residential mortgage loans held for sale on the Consolidated Balance Sheets. See Note 7 for additional discussion of notional, fair value and impact on earnings of these contracts.

No derivative contracts have been designated as hedging instruments for financial reporting purposes.

#### (4) Loans and Allowances for Credit Losses

The portfolio segments of the loan portfolio are as follows (in thousands):

|  | December 31, 2022 |  |  |  | December 31, 2021 |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  | Fixed Rate | Variable Rate | Non-accrual | Total | Fixed Rate | Variable Rate | Non-accrual | Total |
| Commercial | $3,378,110 | $10,759,780 | $60,297 | $14,198,187 | $3,360,117 | $9,072,244 | $74,104 | $12,506,465 |
| Commercial real estate | 874,716 | 3,715,491 | 16,570 | 4,606,777 | 929,015 | 2,888,048 | 14,262 | 3,831,325 |
| Paycheck protection program | 14,312 | - | - | 14,312 | 276,341 | - | - | 276,341 |
| Loans to individuals | 2,099,165 | 1,593,779 | 44,930 | 3,737,874 | 2,037,792 | 1,508,064 | 45,693 | 3,591,549 |
| Total | $6,366,303 | $16,069,050 | $121,797 | $22,557,150 | $6,603,265 | $13,468,356 | $134,059 | $20,205,680 |
| Foregone interest on nonaccrual loans |  |  |  | $6,796 |  |  |  | $14,102 |

At December 31, 2022, loans to businesses and individuals with collateral primarily located in Texas totaled $7.3 billion or 32% of the total loan portfolio. Loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.5 billion or 16% of our total loan portfolio. Loans to businesses and individuals with collateral primarily located in Colorado totaled $2.5 billion or 11% of our total loan portfolio. Loans for which the collateral location is not relevant, such as unsecured loans and reserve-based energy loans, are distributed by the borrower's primary operating location. These geographic concentrations subject the loan portfolio to the general economic conditions within these areas.

At December 31, 2021, loans to businesses and individuals with collateral primarily located in Texas totaled $6.8 billion or 34% of the loan portfolio, loans to businesses and individuals with collateral primarily located in Oklahoma totaled $3.2 billion or 16% of the loan portfolio and loans to businesses and individuals with collateral primarily located in Colorado totaled $2.5 billion or 12% of the loan portfolio.

106

## *Commercial*

Commercial loans represent loans for working capital, facilities acquisition or expansion, purchases of equipment and other needs of commercial customers primarily located within our geographical footprint. Commercial loans are underwritten individually and represent on-going relationships based on a thorough knowledge of the customer, the customer's industry and market. While commercial loans are generally secured by the customer's assets including real property, inventory, accounts receivable, operating equipment, interest in mineral rights and other property and may also include personal guarantees of the owners and related parties, the primary source of repayment of the loans is the on-going cash flow from operations of the customer's business. Inherent lending risk is centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with commercial lending policies.

At December 31, 2022, commercial loans with collateral primarily located in Texas totaled $4.7 billion or 33% of the commercial loan portfolio segment. Commercial loans with collateral primarily located in Oklahoma totaled $2.1 billion or 15% of the commercial loan portfolio segment. Commercial loans with collateral primarily located in Colorado totaled $1.8 billion or 12% of the commercial loan portfolio segment. The commercial loan portfolio segment is further divided into loan classes. The services loan class totaled $3.4 billion or 15% of total loans. Approximately $1.6 billion of loans in the services class consisted of loans with individual balances of less than $10 million. Businesses included in the services class include Native American tribal and state and local municipal government entities, Native American tribal casino operations, educational services, foundations and not-for-profit organizations and specialty trade contractors. The energy loan class totaled $3.4 billion or 15% of total loans, including $2.7 billion of outstanding loans to energy producers. Approximately 72% of the committed production loans are secured by properties primarily producing oil and 28% of the committed production loans are secured by properties primarily producing natural gas. The healthcare loan class totaled $3.8 billion or 17% of total loans. The healthcare loan class consists primarily of loans for the development and operation of senior housing and care facilities, including independent living, assisted living and skilled nursing. Healthcare also includes loans to hospitals and other medical service providers.

At December 31, 2021, commercial loans with collateral primarily located in Texas totaled $4.4 billion or 35% of the commercial loan portfolio segment, commercial loans with collateral primarily located in Oklahoma totaled $1.7 billion or 13% of the commercial loan portfolio segment and commercial loans with collateral primarily located in Colorado totaled $1.6 billion or 13% of the commercial loan portfolio segment. The services loan class totaled $3.4 billion or 17% of total loans. Approximately $1.7 billion of loans in the services category consisted of loans with individual balances of less than $10 million. The energy loan class totaled $3.0 billion or 15% of total loans, including $2.2 billion of outstanding loans to energy producers. At December 31, 2021, approximately 67% of committed production loans were secured by properties primarily producing oil and 33% were secured by properties producing natural gas. The healthcare loan class totaled $3.4 billion or 17% of total loans.

## *Commercial Real Estate*

Commercial real estate loans are for the construction of buildings or other improvements to real estate and property held by borrowers for investment purposes primarily within our geographical footprint. We require collateral values in excess of the loan amounts, demonstrated cash flows in excess of expected debt service requirements, equity investment in the project and a portion of the project already sold, leased or permanent financing already secured. The expected cash flows from all significant new or renewed income producing property commitments are stress tested to reflect the risks in varying interest rates, vacancy rates and rental rates. As with commercial loans, inherent lending risks are centrally monitored on a continuous basis from underwriting throughout the life of the loan for compliance with applicable lending policies.

At December 31, 2022, 30% of commercial real estate loans were secured by properties primarily located in the Dallas and Houston metropolitan areas of Texas and 9% of commercial real estate loans were secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma. At December 31, 2021, 30% of commercial real estate loans are secured by properties primarily located in the Dallas and Houston metropolitan areas of Texas and 12% of commercial real estate loans were secured by properties located primarily in the Tulsa and Oklahoma City metropolitan areas of Oklahoma.

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## *Paycheck Protection Program*

BOK Financial actively participated in programs initiated by the Coronavirus Aid, Relief and Economic Security Act ('CARES Act'), including the Small Business Administration's ('SBA') Paycheck Protection Program ('PPP') that began on April 3, 2020. PPP provided fully forgivable loans when utilized for qualified expenditures, including to help small businesses maintain payrolls during the COVID-19 pandemic. The remaining loans in the portfolio generally have a contractual term of five years, though most are expected to be forgiven prior to maturity after completion of a compliance period. Loans are guaranteed, and amounts forgiven will be reimbursed to the Company by the SBA. The loans carry a fixed interest rate of 1%. Interest plus loan fees, which vary depending on loan size, are accrued over the contractual life of the loan. Remaining unaccreted origination fees were not significant at December 31, 2022.

## *Loans to Individuals*

Loans to individuals include residential mortgage and personal loans. Residential mortgage loans provide funds for our customers to purchase or refinance their primary residence or to borrow against the equity in their home. These loans are secured by a first or second mortgage on the customer's primary residence. Personal loans consist primarily of loans to Wealth Management clients secured by the cash surrender value of insurance policies and marketable securities. Personal loans also include direct loans secured by and for the purchase of automobiles, recreational and marine equipment as well as unsecured loans. These loans are made in accordance with underwriting policies we believe to be conservative and are fully documented. Loans may be individually underwritten or credit scored based on size and other criteria. Credit scoring is assessed based on significant credit characteristics including credit history, residential and employment stability.

In general, we sell the majority of our conforming fixed rate residential mortgage loan originations in the secondary market and retain the majority of our non-conforming and adjustable-rate mortgage loans. Our mortgage loan portfolio does not include payment option adjustable rate mortgage loans or adjustable rate mortgage loans with initial rates that are below market. Home equity loans are primarily first-lien and fully amortizing.

Residential mortgage loans guaranteed by U.S. government agencies have limited credit exposure because of the agency guarantee. This amount includes residential mortgage loans previously sold into GNMA mortgage pools that the Company may repurchase when certain defined delinquency criteria are met. Because of this repurchase right, the Company is deemed to have regained effective control over these loans and must include them on the Consolidated Balance Sheet.

Approximately 91% of the loans in this segment are secured by collateral located within our geographical footprint. Loans for which the collateral location is less relevant, such as unsecured loans are categorized by the borrower's primary location.

## *Credit Commitments*

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of conditions established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. At December 31, 2022, outstanding commitments totaled $15.4 billion. Because some commitments are expected to expire before being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. BOK Financial uses the same credit policies in making commitments as it does loans.

The amount of collateral obtained, if deemed necessary, is based upon management's credit evaluation of the borrower.

Standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Because the credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan commitments, BOK Financial uses the same credit policies in evaluating the creditworthiness of the customer. Additionally, BOK Financial uses the same evaluation process in obtaining collateral on standby letters of credit as it does for loan commitments. The term of these standby letters of credit is defined in each commitment and typically corresponds with the underlying loan commitment. At December 31, 2022, outstanding standby letters of credit totaled $740 million.

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# *Allowances for Credit Losses and Accrual for Off-balance Sheet Credit Risk from Unfunded Loans Commitments*

BOK Financial maintains an allowance for loan losses and accrual for off-balance sheet credit risk from unfunded commitments. The allowance consists of specific allowances attributed to certain individual loans, generally nonaccruing loans, with dissimilar risk characteristics that have not yet been charged down to amounts we expect to recover and general allowances for estimated credit losses on pools of loans that share similar risk characteristics based on probability of default, loss given default and exposure at default for each loan class developed based on current and forecasted relevant economic loss drivers.

The accrual for off-balance sheet credit risk is maintained at a level that is appropriate to cover estimated losses associated with credit instruments that are not currently recognized as assets such as loan commitments, standby letters of credit or guarantees that are not unconditionally cancellable by the bank.

The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the year ended December 31, 2022 is summarized as follows (in thousands):

|  | Commercial | Commercial Real Estate | Paycheck Protection Program | Loans to Individuals | Nonspecific Allowance | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Allowance for loan losses: |  |  |  |  |  |  |
| Beginning balance | $162,056 | $58,553 | $ - | $35,812 | $ - | $256,421 |
| Provision for loan losses | (12,782) | (813) | - | 14,023 | - | 428 |
| Loans charged off | (22,382) | (269) | - | (6,095) | - | (28,746) |
| Recoveries of loans previously charged off | 4,694 | 177 | - | 2,730 | - | 7,601 |
| Ending balance | $131,586 | $57,648 | $ - | $46,470 | $ - | $235,704 |
| Allowance for off-balance sheet credit risk from unfunded loan commitments: |  |  |  |  |  |  |
| Beginning balance | $13,812 | $17,442 | $ - | $1,723 | $ - | $32,977 |
| Provision for off-balance sheet credit risk | 4,434 | 23,048 | - | 460 | - | 27,942 |
| Ending balance | $18,246 | $40,490 | $ - | $2,183 | $ - | $60,919 |

A $30.0 million provision for credit losses was recorded for the year ended December 31, 2022, primarily due to strong growth in loans and loan commitments, partially offset by improvement in credit quality metrics. The uncertainty in our economic forecast increased resulting in an increase in the probability weighting of the downside scenario. In addition, some key economic factors were less favorable to growth across all scenarios.

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The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit for the year ended December 31, 2021 is summarized as follows (in thousands):

|  | Commercial | Commercial Real Estate | Paycheck Protection Program | Loans to Individuals | Nonspecific Allowance | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Allowance for loan losses: |  |  |  |  |  |  |
| Beginning balance | $254,934 | $86,558 | $ - | $47,148 | $ - | $388,640 |
| Provision for loan losses | (59,326) | (26,522) | - | (9,354) | - | (95,202) |
| Loans charged off | (43,956) | (2,485) | - | (4,910) | - | (51,351) |
| Recoveries of loans previously charged off | 10,404 | 1,002 | - | 2,928 | - | 14,334 |
| Ending balance | $162,056 | $58,553 | $ - | $35,812 | $ - | $256,421 |
| Allowance for off-balance sheet credit risk from unfunded loan commitments: |  |  |  |  |  |  |
| Beginning balance | $14,422 | $20,571 | $ - | $1,928 | $ - | $36,921 |
| Provision for off-balance sheet credit risk | (610) | (3,129) | - | (205) | - | (3,944) |
| Ending balance | $13,812 | $17,442 | $ - | $1,723 | $ - | $32,977 |

The activity in the allowance for loan losses and the allowance for off-balance sheet credit losses related to loan commitments and standby letters of credit is for the year ended December 31, 2020 summarized as follows (in thousands):

|  | Commercial | Commercial Real Estate | Paycheck Protection Program | Loans to Individuals | Nonspecific Allowance | Total |
| --- | --- | --- | --- | --- | --- | --- |
| Allowance for loan losses: |  |  |  |  |  |  |
| Beginning balance | $118,187 | $51,805 | $ - | $23,572 | $17,195 | $210,759 |
| Transition adjustment | 33,681 | (4,620) | - | 13,943 | (17,195) | 25,809 |
| Beginning balance, adjusted | 151,868 | 47,185 | - | 37,515 | - | 236,568 |
| Provision for loan losses | 171,800 | 40,407 | - | 10,253 | - | 222,460 |
| Loans charged off | (73,370) | (1,300) | - | (4,729) | - | (79,399) |
| Recoveries | 4,636 | 266 | - | 4,109 | - | 9,011 |
| Ending balance | $254,934 | $86,558 | $ - | $47,148 | $ - | $388,640 |
| Allowance for off-balance sheet credit risk from unfunded loan commitments: |  |  |  |  |  |  |
| Beginning balance | 1,434 | 107 | - | 44 | - | 1,585 |
| Transition adjustment | 10,144 | 11,660 | - | 1,748 | - | 23,552 |
| Beginning balance, adjusted | 11,578 | 11,767 | - | 1,792 | - | 25,137 |
| Provision for off-balance sheet credit losses | 2,844 | 8,804 | - | 136 | - | 11,784 |
| Ending balance | $14,422 | $20,571 | $ - | $1,928 | $ - | $36,921 |

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The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2022 is as follows (in thousands):

|  | Collectively Measured for General Allowances |  | Individually Measured for Specific Allowances |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Recorded Investment | Related Allowance | Recorded Investment | Related Allowance | Recorded Investment | Related Allowance |
| Commercial | $14,137,890 | $127,566 | $60,297 | $4,020 | $14,198,187 | $131,586 |
| Commercial real estate | 4,590,207 | 56,098 | 16,570 | 1,550 | 4,606,777 | 57,648 |
| Paycheck protection program | 14,312 | - | - | - | 14,312 | - |
| Loans to individuals | 3,692,944 | 46,470 | 44,930 | - | 3,737,874 | 46,470 |
| Total | $22,435,353 | $230,134 | $121,797 | $5,570 | $22,557,150 | $235,704 |

The allowance for loan losses and recorded investment of the related loans by portfolio segment for each impairment measurement method at December 31, 2021 is as follows (in thousands):

|  | Collectively Measured for General Allowances |  | Individually Measured for Specific Allowances |  | Total |  |
| --- | --- | --- | --- | --- | --- | --- |
|  | Recorded Investment | Related Allowance | Recorded Investment | Related Allowance | Recorded Investment | Related Allowance |
| Commercial | $12,432,361 | $158,063 | $74,104 | $3,993 | $12,506,465 | $162,056 |
| Commercial real estate | 3,817,063 | 56,204 | 14,262 | 2,349 | 3,831,325 | 58,553 |
| Paycheck protection program | 276,341 | - | - | - | 276,341 | - |
| Loans to individuals | 3,545,856 | 35,812 | 45,693 | - | 3,591,549 | 35,812 |
| Total | $20,071,621 | $250,079 | $134,059 | $6,342 | $20,205,680 | $256,421 |

#### Credit Quality Indicators

The Company utilizes risk grading as primary credit quality indicators as it influences the probability of default which is a key attribute in the expected credit losses calculation. Substantially all commercial as well as commercial real estate loans and certain loans to individuals are risk graded based on a quarterly evaluation of the borrowers' ability to repay the loans. Certain commercial loans and most loans to individuals are small, homogeneous pools that are not risk-graded. The credit quality of these loans is based on past due days in accordance with regulatory guidelines.

We have included in the credit quality indicator 'pass' loans that are in compliance with the original terms of the agreement and currently exhibit no factors that cause management to have doubts about the borrowers' ability to remain in compliance with the original terms of the agreement, which is consistent with the regulatory guideline of 'pass.' This also includes past due residential mortgages that are guaranteed by agencies of the U.S. government that continue to accrue interest based on criteria of the guarantors' programs.

Other loans especially mentioned ('Special Mention') are currently performing in compliance with the original terms of the agreement but may have a potential weakness that deserves management's close attention, consistent with regulatory guidelines. Non-graded loans 30 to 59 days past due are categorized as Special Mention.

The risk grading process identifies certain loans that have a well-defined weakness (for example, inadequate debt service coverage or liquidity or marginal capitalization; repayment may depend on collateral or other risk mitigation) that may jeopardize liquidation of the debt and represent a greater risk due to deterioration in the financial condition of the borrower. This is consistent with the regulatory guideline for 'substandard.' Because the borrowers are still performing in accordance with the original terms of the loan agreements, these loans remain on accruing status. Non-graded loans 60 to 89 days past due are categorized as Accruing Substandard.

Nonaccruing loans represent loans for which full collection of principal and interest is uncertain. This includes certain loans considered 'substandard' and all loans considered 'doubtful' by regulatory guidelines. Non-graded loans 90 or more days past due are categorized as Nonaccrual.

Probability of default is lowest for pass graded loans and increases for each credit quality indicator, Special Mention, and Accruing Substandard.

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