Fitch Ratings has affirmed BOK Financial (BOKF) ratings at 'A/F1'. The Rating Outlook remains Stable. The affirmation reflects BOKF's consistent performance and strong overall financial profile relative to Fitch's mid-tier regional banking peers.
The rating action follows a periodic review of the mid-tier regional banking group, which includes Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corp. (FHN), First National of Nebraska, Inc. (FNNI), First Republic Bank (FRC), Fulton Financial Corp (FULT), People's United Financial Inc. (PBCT), Synovus Financial Corp. (SNV), TCF Financial Corp. (TCB), Trustmark Corporation (TRMK), Webster Financial Corp. (WBS), Wintrust Financial Corp (WTFC), and UMB Financial Corporation (UMB).
Company-specific rating rationales for the other banks are published separately.
KEY RATING DRIVERS - IDRS, VRs AND SENIOR DEBT
The affirmation of BOKF's ratings and Outlook reflect the company's stable performance and continued strength in nearly every financial profile metric relative to mid-tier regional banking peers. The bank has consistently reported above-peer-average credit quality while conservatively managing a sound capital base. BOKF's liquidity and funding profile is also better than peers with total loans-to-deposits amongst the lowest in the group at 63%. Furthermore, BOKF's earnings are one of the strongest and most diverse of the mid-tier group. Return on average assets and return on average equity for year-end 2014 totalled 1.06% and 9.20%, respectively, with nearly half of revenue occurring from fee-generating business.
Since last review, BOKF has continued to conservatively manage capital levels while improving asset quality modestly. Leverage and total risk based capital ratios remain healthy at 9.96% and 14.61% at fourth-quarter (4Q'14). The bank's tangible common equity and tier 1 common ratios were also above peer averages at 10.08% and 13.29%, respectively, for 4Q'14. Nonperforming assets (not guaranteed by U.S. government agencies) totalled 0.92% of outstanding loans and repossessed assets at 4Q'14. Net charge-offs to average assets have remained under 1% since 2009 and totalled to a net recovery of 6 basis points (bps) for year-end 2014.
BOKF's sound credit quality and ample capital levels are offset by the bank's outsized exposure to the energy sector in Oklahoma and Texas. While BOKF has maintained relatively strong credit quality throughout the economic cycle and multiple periods of oil price volatility, BOKF is at near historic lows on nonperforming assets and net charge-off ratios. As a result, Fitch expects BOKF to experience some level of asset quality deterioration over the intermediate term. However, given BOKF's energy and geographic concentrations, Fitch notes this decline may be more pronounced if oil prices remain depressed through the end of the 2015.
As discussed in Fitch's Special Report "U.S. Banks: The Risks with Energy Slide", Fitch believes that most of its rated U.S. banks with exposure to the energy sector should be able to withstand the recent decline in energy prices over the near term. In Fitch's view, BOKF is better positioned from an underwriting standpoint than many marginal lenders in the sector due to its core competency in the energy sector and long history of conservative risk culture. For example, BOKF typically underwrites to lower oil prices and lends to more established companies with lower levels of leverage. Additionally, most of BOKF's borrowers hedge their oil exposures over a 1-to-2-year horizon, reducing the effect of volatile crude prices using futures contracts that lock in fuel prices in advance.
The main risk for BOKF would be a prolonged period of severely depressed energy prices. While BOKF's projects minimal loss in a scenario where oil prices are sustained at $45 per barrel through 2H'16, Fitch believes there may be some weakness in loan performance tied to energy and a potential rise in provisions for credit losses if energy prices remain depressed. Partially offsetting this concern is Fitch's view that BOKF's capital levels provide a sufficient buffer against losses in excess of management's projections.
RATING SENSITIVITIES - IDRS, VRs AND SENIOR DEBT
BOKF is currently one of the highest rated banks within Fitch's Mid-Tier Bank Peer Group. As such, upward rating potential is limited. Conversely, negative rating action may ensue should BOKF experience asset quality deterioration that results in material increases in credit losses that impact earnings and capital levels.
As discussed, most of the economies BOKF serve are considered to be highly correlated to the energy industry. Fitch notes that structural stresses may materialize in BOKF's markets if oil prices remain under pressure over the next 12 to 18 months. Should credit losses begin to exceed long-term averages or peer levels due to a prolonged decline in oil prices, negative pressure on BOKF's ratings and Outlook may occur. Additionally, a rapid increase in utilization rates on lines of credit in higher risk energy segments such as service providers may suggest borrower stress and prompt a rating review in the near- to intermediate-term.
RATING SENSITIVITIES - HOLDING COMPANY
Should BOKF's holding company begin to exhibit signs of weakness, demonstrate trouble accessing the capital markets, or have inadequate cash flow coverage to meet near-term obligations, there is the potential that Fitch could notch the holding company IDR and VR from the ratings of the operating companies. This is viewed as unlikely though for BOKF, given the strength of the holding company liquidity profile.
KEY RATING DRIVERS - SUPPORT RATING AND SUPPORT RATING FLOOR
BOKF has a Support Rating of '5' and Support Rating Floor of 'NF'. In Fitch's view, BOKF is not systemically important and therefore, the probability of support is unlikely. IDRs and VRs do not incorporate any support.
RATING SENSITVITIES - SUPPORT RATING AND SUPPORT RATING FLOOR
BOKF's Support Rating and Support Rating Floor are sensitive to Fitch's assumption around capacity to procure extraordinary support in case of need.
KEY RATING DRIVERS - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
Subordinated debt and other hybrid capital issued by BOKF and by various issuing vehicles are all notched down from BOKF or its bank subsidiaries' VRs in accordance with Fitch's assessment of each instrument's respective non-performance and relative loss severity risk profiles.
RATING SENSITIVITIES - SUBORDINATED DEBT AND OTHER HYBRID SECURITIES
The ratings of subordinated debt and other hybrid capital issued by BOKF and its subsidiaries are primarily sensitive to any change in BOKF's VR.
KEY RATING DRIVERS - SUBSIDIARY AND AFFILIATED COMPANY
The IDRs and VRs of BOKF's bank subsidiaries benefit from the cross-guarantee mechanism in the U.S. under FIRREA, and therefore the IDRs and VRs are equalized across the group.
RATING SENSITIVITIES - SUBSIDIARY AND AFFILIATED COMPANY
As the IDRs and VRs of the subsidiaries are equalised with those of BOKF to reflect support from their ultimate parent, they are sensitive to changes in the parent's propensity to provide support, which Fitch currently does not expect, or from changes in BOKF's IDRs.
To the extent that one of BOKF's subsidiary or affiliated companies is not considered to be a core business, Fitch could also notch the subsidiary's rating from BOKF's IDR.
KEY RATING DRIVERS - LONG- AND SHORT-TERM DEPOSIT RATINGS
BOKF's uninsured deposit ratings are rated one notch higher than the company's IDR and senior unsecured debt because U.S. uninsured deposits benefit from depositor preference. U.S. depositor preference gives deposit liabilities superior recovery prospects in the event of default.
KEY RATING SENSITIVITIES - LONG- AND SHORT-TERM DEPOSIT RATINGS
The ratings of long- and short-term deposits issued by BOKF and its subsidiaries are primarily sensitive to any change in BOKF's long- and short-term IDRs.
Fitch has affirmed the following ratings with a Stable Outlook:
BOK Financial Corporation
--Long-term IDR at 'A'; Outlook Stable;
--Short-term IDR at 'F1';
--Viability Rating at 'a';
--Support Floor at 'NF';
--Support at '5'.
BOKF, N.A.
--Long-term IDR at 'A'; Outlook Stable;
--Subordinated debt at 'A-';
--Long-term deposit at 'A+'
--Short-term IDR at 'F1';
--Short-term deposit at 'F1';
--Viability Rating at 'a';
--Support Floor at 'NF';
--Support at '5'.
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--U.S. Banking Quarterly comment: 4Q14 (Jan. 28, 2015)
--U.S. Banks: The Risks with Energy Slide (Jan. 16, 2015)
--U.S. Basel III and Dodd Frank Act Regulatory Guide (Nov. 21, 2014)
--'2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)' (Nov. 12, 2014);
--'U.S. Banks: Implications of an Interest Rate Shock Scenario' (Oct. 30, 2014)
--U.S. Banks: Liquidity and Deposit Funding (Aug. 08, 2013);
--U.S. Banks: Interest Rate Risks (What Happens When Rates Rise) (June 18, 2013);
--U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In? (July 11, 2013);
--'Index Trend Analysis - 4Q14 (Fitch Fundamentals Index Remains Neutral)' (January 2015);
--'Risk Radar Global 3Q14' (Sept. 15, 2014);
--'Global Financial Institutions Rating Criteria' (Jan. 31, 2014);
--'Rating FI Subsidiaries and Holding Companies' (Aug. 10, 2012);
--'Assessing and Rating Bank Subordinated and Hybrid Securities Criteria' (Jan. 31, 2014);
--'U.S. Bank HoldCos & OpCos: Evolving Risk Profiles' (March 27, 2014);
--'Rating Considerations for U.S. Bank Holdco & Opcos' (Update on Position Outlined in 1Q14) (Dec. 1, 2014)
Applicable Criteria and Related Research:
Rating Considerations for U.S. Bank Holdco & Opcos (Update on Position Outlined in 1Q14)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=821068
U.S. Bank HoldCos & OpCos: Evolving Risk Profiles
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=742096
Rating FI Subsidiaries and Holding Companies
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=679209
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397
Risk Radar Global 3Q14
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=773568
U.S. Bank Mergers and Acquisitions -- When Will The Catalysts Kick In?
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=712539
U.S. Banks: Interest Rate Risks (What Happens When Rates Rise)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=710875
U.S. Banks: Liquidity and Deposit Funding
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=714196
U.S. Banks: Implications of an Interest Rate Shock Scenario
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=800748
2015 Outlook: U.S. Banks (Growth in a Challenging Rate Environment)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=809228
U.S. Basel III and Dodd Frank Act Regulatory Guide (Applicability of New Bank Regulations in the U.S.)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=798848
U.S. Banks: The Risks with Energy Slide
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=854268
U.S. Banking Quarterly Comment: 4Q14 (All Eyes on Oil Prices and Interest Rates)
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=849388
Additional Disclosure
Solicitation Status
http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=978969
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