NOTES TO FINANCIAL STATEMENTS
December 31, 2022 and 2021
Note 1 – Description of Plan
The following description of the BOK Financial 401(k) Plan (the Plan) provides only general information. Participants should refer to the Summary Plan Description or the Plan Document for a more complete description of the Plan's provisions.
General
The Plan is a defined contribution plan covering all eligible employees of BOK Financial Corporation (BOKF) and its subsidiaries and affiliates (collectively, the Employer or Company). An eligible employee may enter the Plan on the first day of the month following the date the employee has completed one full month of service. All newly eligible employees are automatically enrolled in the Plan at a 6% contribution rate unless the employee designates on the enrollment form not to participate or to participate at another allowable contribution rate. The Plan is subject to the provisions of the Employee Retirement Income Security Act of 1974, as amended (ERISA).
BOKF, NA, a subsidiary of BOKF, holds and manages the assets of the Plan, maintains participant account records and makes distributions to Plan participants. The Plan's investments are held by a bank-administered trust fund at BOKF, NA. The Retirement Plan Committee of BOKF, NA (Plan Administrator) determines the appropriateness of the Plan's investment offerings and monitors investment performance.
Contributions
Participants may elect to defer up to 100% of their compensation, as defined in the Plan document, as either pretax or Roth contributions to the Plan. In addition, participants may make after-tax contributions, which shall not exceed 6% of the participant's compensation. Contributions were limited to the Internal Revenue Service (IRS) allowable maximum amount of $20,500 for 2022.
Participants who attained age 50 on or before December 31, 2022, were allowed to make catch-up contributions up to an additional $6,500 in 2022.
Participants may also contribute amounts representing distributions from other qualified defined benefit or defined contribution plans (rollover contributions). Participants direct the investment of their contributions into various investment options offered by the Plan. Participants may elect investment in a variety of registered investment companies, the BOK Financial Retirement Class III Funds and the BOKF, NA International Strategic Allocation Fund, which are collective investment funds, BOKF Common Stock and Cavanal Hill Cash Management Fund. Participants may also elect a self-directed option that allows them to invest in a variety of securities in accordance with the Plan Document.
The Employer makes a matching contribution to the Plan in either cash or in shares of BOKF Common Stock. For the 2022 Plan year, the matching contribution of $28,676,692 was made in cash. Participants with six months of service are eligible for Employer matching contributions on the first day of the quarter.
For each dollar of a participant's contribution, up to 6% of compensation per pay period, based on the participant's years of service, the Employer makes a matching contribution that increases as follows:
| | | | | | | | |
| Years of Service | | Matching Percentage |
| Less than four years | | 50% |
| Four to nine years | | 100% |
| Ten to fourteen years | | 150% |
| Fifteen or more years | | 200% |
Matching contributions for the 2022 Plan year were limited to a maximum of $36,600 based on the participant's years of service and the Internal Revenue Code (the Code) annual compensation limit.
The Company also makes a special contribution (Qualified Non-Elective Contribution) for participants making less than $40,000. This special contribution ranges from $250 to $750 based on compensation levels. Participants with one year of service, defined as 1,000 hours of service during the Plan year, are eligible for the special contribution. The aggregate special contribution for the 2022 Plan year was $141,350.
The Employer may, at its sole discretion, make an additional discretionary contribution to the Plan. For the 2022 Plan year, an additional discretionary contribution of $1,405,802 was made.
Participant accounts
Each participant's account is credited with the participant's contributions, Employer matching and special contributions, as well as allocations of the Plan earnings. Participants are charged with an allocation of certain administrative expenses that are paid by the Plan. Allocations are based on participant earnings, account balances, or specific participant transactions, as defined in the Plan document. The benefit to which a participant is entitled is the benefit that can be provided from the participant's vested account.
Vesting
Participants vest in Employer matching contributions based upon years of service, as defined in the Plan document. Participants are vested at 20% per year making them fully vested upon completion of five years of service and are immediately vested in their deferred pre-tax, Roth 401(k), after-tax contributions, Employer special contributions and the actual earnings thereon.
Notes receivable from participants
Participants may borrow against their accounts in amounts of not less than $1,000 and not to exceed the lesser of 50% of the participant's vested account balance or $50,000, reduced by the excess of the participant's highest outstanding loan balance during the previous 12-month period ending on the date of the loan over the participant's current outstanding participant loan balance on the date of the loan. Loans bear interest based on the current banking prime rate when the loan is requested and may not exceed a five-year term, unless the proceeds are used to acquire the primary residence of the participant, in which case the maximum term is 25 years. Repayment is made by payroll withholdings, and the maximum number of loans a participant may have outstanding at one time is two. The loans are secured by the balance in the participant's account. Interest rates ranged from 3.25% to 7.75% at December 31, 2022. If a participant terminates employment with the Company, the outstanding loan balance is due and payable immediately. If the loan is not repaid in full upon termination, the balance will be treated as a distribution to the participant.
Payment of benefits
A participant, who terminates employment with a vested account balance of less than $1,000, including rollover contributions, will receive a lump-sum payment. If the participant's vested balance exceeds $1,000, but is less than $5,000 (including rollover contributions), and the participant has not elected to receive a lump-sum payment directly, transfer to another eligible retirement plan or a direct rollover, the Plan will place the distribution into an individual retirement account designated by the Plan Administrator. Balances over $5,000 are not distributed without the participant's consent.
Forfeitures
The Plan had $439,514 and $326,679 in unallocated forfeitures at December 31, 2022 and 2021, respectively. Such amounts are invested in the Cavanal Hill Cash Management Fund. Forfeitures are first used to pay for administrative expenses and any remaining amounts are used to reduce future Employer matching contributions. The Employer paid all such eligible administrative expenses in 2022. Forfeitures in the amount of $141,350 were used to fund Qualified Non-Elective Contributions in 2022.
Plan termination
Although it has not expressed any intent to do so, the Employer reserves the right to discontinue or to amend the Plan, in whole or in part, from time-to-time, subject to the provisions of ERISA. In the event of Plan termination, participants will become 100% vested in their accounts.
Note 2 – Summary of Significant Accounting Policies
Basis of accounting
The financial statements of the Plan are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America. Benefit payments are recorded when paid. For the year ended December 31, 2022, there were $2,008,172 benefits requested before year-end that had not yet been paid.
Administrative expenses
The participants pay loan origination fees and fees related to self-directed investment options. The Employer voluntarily pays all other administrative expenses, which were $1,522,576 in 2022. The Company will not seek reimbursement from the Plan for the payment of these expenses. Certain administrative functions are performed by officers and employees of the Company. No officer or employee receives compensation from the Plan for these services.
Notes receivable from participants
Notes receivable from participants represent participant loans that are recorded at their unpaid principal balance plus any accrued unpaid interest. Interest income on notes receivable from participants is recorded when it is earned. Related fees are recorded as administrative expenses and are expensed when incurred. No allowance for credit losses was recorded at December 31, 2022 or 2021. If a participant ceases to make loan repayments and the Plan Administrator deems the participant loan to be in default, the participant loan balance is reduced and a benefit payment is recorded.
Investment valuation and income recognition
Investments are reported at fair value. Fair value is the price that would be received to sell the investment in an orderly transaction between market participants at the measurement date. The Plan's Retirement Plan Committee determines the Plan's valuation policies utilizing information provided by the investment advisors and custodian. See Note 3 for discussion of fair value measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date. Net change in the fair value of investments includes the Plan's gains and losses on investments bought and sold as well as held during the year. Certain fees incurred by the Plan are included in net change in fair value of investments.
Use of estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.
Note 3 – Fair Value Measurements
The fair value hierarchy prioritizes the inputs to valuation techniques used to measure fair value. The three levels of valuation hierarchy are described below:
Level 1 – Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Plan has the ability to access.
Level 2 – Inputs to the valuation methodology include:
•quoted prices for similar 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 for the asset or liability; or
•inputs that are derived principally from or corroborated by observable market data by correlation or other means.
If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 – Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
Following is a description of the valuation methodologies used for assets measured at fair value by the Plan. There have been no changes in the methodologies used at December 31, 2022 and 2021. During the year ended December 31, 2022, there were no transfers of financial instruments into or out of Level 3.
BOKF common stock and common stock in self-directed brokerage accounts: Valued at the closing price reported on the active market on which the individual securities are traded. A 30-day reinvestment restriction has been established for BOKF Common Stock.
Money market fund and other registered investment companies including mutual funds in self-directed brokerage accounts: Valued at the net asset value (NAV) of shares held by the Plan at year end.
Collective investment funds: Valued at the NAV of shares held by the Plan at year end, as a practical expedient of fair value. The NAV is provided by the collective investment funds' trustee, which is BOKF, NA, and is derived from market quotes for identical assets. The practical expedient would not be used if it is determined to be probable that the fund will sell the investment for an amount different from the reported NAV. The fair value of the investment in the collective investment fund is provided to the Plan by the trustee daily. The trustee determines the NAV per share by dividing the total fair value of the accounts by the number of the shares outstanding. The shares of these accounts may be purchased from the trustee or sold to the trustee daily at the NAV. There are no restrictions or notice requirements for participant transactions similar to an open end mutual fund. Restrictions and notice requirements apply in situations where the Plan desires to liquidate all the shares held in an account. The Plan makes no funding commitments to the collective investment funds.
The following table presents information about the Plan's assets measured at fair value on a recurring basis:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2022 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| BOKF common stock | | $ | 52,305,828 | | | $ | — | | | $ | — | | | $ | 52,305,828 | |
| Registered investment companies | | 541,057,611 | | | — | | | — | | | 541,057,611 | |
| Self-directed brokerage accounts | | 50,430,646 | | | 477,353 | | | — | | | 50,907,999 | |
| Collective investment funds measured at NAV* | | — | | | — | | | — | | | 228,235,145 | |
| Total | | $ | 643,794,085 | | | $ | 477,353 | | | $ | — | | | $ | 872,506,583 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | December 31, 2021 |
| | | Level 1 | | Level 2 | | Level 3 | | Total |
| BOKF common stock | | $ | 52,289,931 | | | $ | — | | | $ | — | | | $ | 52,289,931 | |
| Registered investment companies | | 663,851,565 | | | — | | | — | | | 663,851,565 | |
| Self-directed brokerage accounts | | 59,069,941 | | | 772,054 | | | — | | | 59,841,995 | |
| Collective investment funds measured at NAV* | | — | | | — | | | — | | | 279,413,148 | |
| Total | | $ | 775,211,437 | | | $ | 772,054 | | | $ | — | | | $ | 1,055,396,639 | |
* In accordance with Subtopic 820-10, certain investments that were measured at NAV per share (or its equivalent) have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the line items presented in the statements of net assets available for benefits.
Note 4 – Income Tax Status
The Company adopted a Volume Submitter Profit Sharing Plan with a Cash or Deferred Arrangement and received an opinion letter from the IRS dated September 30, 2014, stating that the Plan is qualified under Section 401(a) of the Code and, therefore, the related trust is exempt from taxation. Subsequent to this opinion letter by the IRS, the Plan was amended. Once qualified, the Plan is required to operate in conformity with the Code to maintain its qualification. The Plan Administrator believes the Plan is being operated in compliance with the applicable requirements of the Code and, therefore, believes that the Plan, as amended, is qualified and the related trust is tax-exempt. The Plan is subject to routine audits by taxing jurisdictions; however, there are currently no audits for any tax periods in progress.
Effective July 31, 2022, the Company adopted a Preapproved Defined Contribution Plan (the Preapproved Plan) sponsored by BOKF, NA. The IRS has determined and informed the Preapproved Plan sponsor by a favorable opinion letter dated June 30, 2020, stating that the Preapproved Plan is designed in accordance with the applicable sections of the Code.
Note 5 – Reconciliation of Financial Statements to the Form 5500
The following reconciles net assets available for benefits per the financial statements to the Form 5500:
| | | | | | | | | | | | | | |
| | | December 31, |
| | | 2022 | | 2021 |
| Net assets available for benefits per the financial statements | | $ | 915,760,609 | | | $ | 1,069,131,220 | |
| Less: benefits payable | | 2,008,172 | | | 504,028 | |
| Net assets available for benefits per the Form 5500 | | $ | 913,752,437 | | | $ | 1,068,627,192 | |
The following is a reconciliation of benefit payments per the financial statements to the Form 5500 at December 31, 2022:
| | | | | |
| Benefit payments per the financial statements | $ | 60,890,195 | |
| Add: benefits payable at end of year | 2,008,172 | |
| Less: benefits payable at beginning of year | 504,028 | |
| Benefit payments per the Form 5500 | $ | 62,394,339 | |
Benefits payable are recorded on the Form 5500 for payments to participants that have been processed and approved for payment prior to December 31, 2022 but not yet paid.
Note 6 – Risks and Uncertainties
The Plan invests in various investment securities. Investment securities are exposed to various risks such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is at least reasonably possible that changes in the values of investment securities will occur in the near term and that such changes could materially affect participants' account balances and the amounts reported in the Statements of Net Assets Available for Benefits.
Note 7 – Related Parties
The Plan holds investments in funds that are part of the Cavanal Hill mutual fund family. Cavanal Hill Investment Management, Inc., a wholly owned subsidiary of BOKF, NA, is the administrator to and investment advisor for the Cavanal Hill Funds, a diversified, open-ended investment company established as a business trust under the Investment Company Act of 1940. BOKF, NA is custodian of investments owned by the Cavanal Hill Funds and Cavanal Hill Distributors, Inc., a wholly owned subsidiary of BOK Financial Corporation, is distributor of the Funds. A BOKF, NA executive officer serves on the Cavanal Hill Funds' board of trustees and BOKF, NA officers serve as president and secretary of the Cavanal Hill Funds. A majority of the members of the Cavanal Hill Funds' board of trustees are, however, independent of BOKF, NA and the Cavanal Hill Funds are managed by its board of trustees. Participants should refer to the Cavanal Hill Funds prospectus for additional information.
A portion of the Plan's assets are invested in BOKF Common Stock. Since BOKF is the Plan Sponsor, investments involving BOKF Common Stock qualify as party-in-interest transactions. The Plan is authorized to include BOK Financial Retirement Class III Funds as investment options. The BOK Financial Retirement Class III Funds include eight different managed funds designed to meet different risk tolerances and years to retirement. The portfolios are comprised of different asset classes, capitalizations and investment styles. The Plan also is authorized to include the BOKF, NA Strategic Allocation Fund (SAF) as an international investment option.
As noted above, Cavanal Hill Investment Management, Inc. serves as investment advisor for the Cavanal Hill Funds and BOKF, NA serves as custodian and administrator to the BOK Financial Retirement Class III Funds and SAF. All the transactions described in this Note are exempt from prohibited transactions rules.
Note 8 – Contingencies
In accordance with the provisions of U.S. GAAP for contingencies, the Plan accrues for a litigation-related liability when it is probable that such a liability has been incurred and the amount of the loss can be reasonably estimated. Plan management evaluates the Plan's outstanding legal proceedings, if any, periodically to assess whether any litigation reserve is required, and makes adjustments in such reserves, upwards or downwards, as appropriate, based on Plan management's best judgment after consultation with counsel. While the outcome of litigation is inherently uncertain, Plan management believes, based upon its current knowledge, after consultation with counsel, in light of all information known to it at December 31, 2022 that there are no pending or threatened legal proceedings affecting the Plan that would require the establishment of a litigation reserve.
Note 9 – Subsequent Events
The Plan Administrator has evaluated subsequent events that have occurred after December 31, 2022 through the issuance of the financial statements.
SUPPLEMENTAL SCHEDULE