Derivatives

9 Months Ended

Sep. 30, 2023

Derivative Instrument Detail [Abstract]

Derivatives [Text Block]

Derivatives

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 reported in earnings as they occur. Credit risk is also considered in determining fair value. Deterioration in the credit rating of customer or other counterparties reduce 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 arrangements 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 type by counterparty basis.

Derivative contracts may 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.

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

Customer Risk Management Programs

BOK Financial offers programs to permit its customers to manage various risks, including fluctuations in energy, cattle and other agricultural products, interest rates and foreign exchange rates with derivative contracts. Customers may also manage interest rate risk through interest rate swaps used by borrowers 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 the risk of 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.

Trading

BOK Financial may offer derivative instruments such as to-be-announced 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.

Internal Risk Management Programs

BOK Financial may use derivative contracts in managing its interest rate sensitivity, as part of its economic hedge of the change 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 the 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.

As discussed in Note 5, 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 5 for additional discussion of notional, fair value and impact on earnings of these contracts.

The following table summarizes the fair values of derivative contracts recorded as "derivative contracts" assets and liabilities in the balance sheet at September 30, 2023 (in thousands):

	Assets
	Notional1		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	$	2,763,185	$	160,856	$	—	$	160,856	$	(160,548)	$	308
Energy contracts	8,617,592		972,109		(607,483)		364,626		(34,399)		330,227
Foreign exchange contracts	70,676		68,262		—		68,262		(2,086)		66,176
Equity option contracts	5,524		47		—		47		(47)		—
Total customer risk management programs	11,456,977		1,201,274		(607,483)		593,791		(197,080)		396,711
Trading	24,569,954		234,809		(85,411)		149,398		—		149,398
Internal risk management programs	—		—		—		—		—		—
Total derivative contracts	$	36,026,931	$	1,436,083	$	(692,894)	$	743,189	$	(197,080)	$	546,109
	Liabilities
	Notional1		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	$	2,763,185	$	160,869	$	—	$	160,869	$	—	$	160,869
Energy contracts	8,941,634		966,583		(607,483)		359,100		(242,133)		116,967
Foreign exchange contracts	64,921		62,306		—		62,306		—		62,306
Equity option contracts	5,524		47		—		47		—		47
Total customer risk management programs	11,775,264		1,189,805		(607,483)		582,322		(242,133)		340,189
Trading	18,778,554		150,983		(85,412)		65,571		(6,138)		59,433
Internal risk management programs	295,000		4,325		—		4,325		—		4,325
Total derivative contracts	$	30,848,818	$	1,345,113	$	(692,895)	$	652,218	$	(248,271)	$	403,947

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

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
Internal 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
Internal 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.

The following summarizes the pre-tax net gains (losses) on derivative instruments and where they are recorded in the income statement (in thousands):

	Three Months Ended
	September 30, 2023				September 30, 2022
	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	$	800	$	—	$	2,677	$	—
Energy contracts	5,994		—		10,386		—
Foreign exchange contracts	61		—		116		—
Equity option contracts	—		—		—		—
Total customer risk management programs	6,855		—		13,179		—
Trading1	21,511		—		52,373		—
Internal risk management programs	—		(9,010)		—		(17,009)
Total derivative contracts	$	28,366	$	(9,010)	$	65,552	$	(17,009)

1    Represents changes in fair value of to-be-announced securities and other derivative instruments 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 Statements of Earnings.

	Nine Months Ended
	September 30, 2023				September 30, 2022
	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	4,909		—		9,958		—
Energy contracts	23,797		—		26,870		—
Foreign exchange contracts	145		—		422		—
Equity option contracts	—		—		—		—
Total customer risk management programs	28,851		—		37,250		—
Trading1	22,590		—		68,071		—
Internal risk management programs	—		(18,513)		—		(77,559)
Total derivative contracts	$	51,441	$	(18,513)	$	105,321	$	(77,559)

1    Represents changes in fair value of to-be-announced securities and other derivative instruments 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 Statements of Earnings.