(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, 2012 (in thousands):



	Gross Basis								Net Basis²
	Assets				Liabilities				Assets			Liabilities
	Notional¹		Fair Value		Notional¹		Fair Value		Fair Value			Fair Value
Customer risk management programs:
Interest rate contracts³
To-be-announced mortgage-backed securities	$	12,850,805	$	46,113	$	13,239,078	$	43,064	$	30,457		$	27,408
Interest rate swaps	1,319,827		72,201		1,319,827		72,724		72,201			72,724
Energy contracts	1,346,780		82,349		1,334,349		83,654		37,864			39,169
Agricultural contracts	212,434		3,638		212,135		3,571		474			407
Foreign exchange contracts	180,318		180,318		179,852		179,852		180,318			179,852
Equity option contracts	211,941		12,593		211,941		12,593		12,593			12,593
Total customer derivative before cash collateral	16,122,105		397,212		16,497,182		395,458		333,907			332,153
Less: cash collateral	—		—		—		—		(3,464		)	(49,369		)
Total customer derivatives	16,122,105		397,212		16,497,182		395,458		330,443			282,784
Interest rate risk management programs	66,000		7,663		50,000		805		7,663			805
Total derivative contracts	$	16,188,105	$	404,875	$	16,547,182	$	396,263	$	338,106		$	283,589


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


²	Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.


³	Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage banking customers to hedge their loan production.

When bilateral netting 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 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. As of December 31, 2012, a decrease in credit rating to below investment grade would increase our obligation to post cash margin on existing contracts by approximately $35 million.

The following table summarizes the fair values of derivative contracts recorded as “derivative contracts” assets and liabilities in the balance sheet at December 31, 2011 (in thousands):



	Gross Basis								Net Basis²
	Assets				Liabilities				Assets			Liabilities
	Notional¹		Fair Value		Notional¹		Fair Value		Fair Value			Fair Value
Customer risk management programs:
Interest rate contracts³
To-be-announced residential mortgage-backed securities	$	9,118,627	$	101,189	$	9,051,627	$	99,211	$	68,519		$	66,541
Interest rate swaps	1,272,617		81,261		1,272,617		81,891		81,261			81,891
Energy contracts	1,554,400		158,625		1,799,367		171,050		62,945			75,370
Agricultural contracts	146,252		4,761		148,924		4,680		782			701
Foreign exchange contracts	73,153		73,153		72,928		72,928		73,153			72,928
Equity option contracts	208,647		12,508		208,647		12,508		12,508			12,508
Total customer derivative before cash collateral	12,373,696		431,497		12,554,110		442,268		299,168			309,939
Less: cash collateral	—		—		—		—		(11,690		)	(73,712		)
Total customer derivatives	12,373,696		431,497		12,554,110		442,268		287,478			236,227
Interest rate risk management programs	44,000		6,381		25,000		295		6,381			295
Total derivative contracts	$	12,417,696	$	437,878	$	12,579,110	$	442,563	$	293,859		$	236,522


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


²	Derivative contracts are recorded on a net basis in the balance sheet in recognition of master netting agreements that enable the Company to settle all derivative positions with a given counterparty in total and to offset the net derivative position with the related cash collateral.


³	Includes interest rate swaps used by borrowers to modify interest rate terms of their loans and to be announced securities used by mortgage banking customers to hedge their loan production.

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



	Year Ended
	December 31, 2012					December 31, 2011					December 31, 2010
	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
To-be-announced residential mortgage-backed securities	$	1,070	$	—		$	(4,047	)	$	—	$	1,685	$	—
Interest rate swaps	3,458		—			3,193					1,099		—
Energy contracts	8,171		—			5,262			—		7,951		—
Agricultural contracts	382		—			341			—		629		—
Foreign exchange contracts	612		—			565			—		375		—
Equity option contracts	—		—			—			—		—		—
Total Customer Risk Management Programs	13,693		—			5,314			—		11,739		—
Interest Rate Risk Management Programs	—		(301		)	—			2,526		—		3,032
Total Derivative Contracts	$	13,693	$	(301	)	$	5,314		$	2,526	$	11,739	$	3,032

At December 31, 2012, BOK Financial had interest rate swaps with a notional value of $91 million used as part of the economic hedge of the change in the fair value of the mortgage servicing rights.

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. Forward sales contracts are not considered swaps under the Commodity and Futures Trading Commission final rules.

None of these derivative contracts have been designated as hedging instruments.