BOK Financial's Ratings Affirmed By Moody's, Outlook Stable
Zacks Investment Research | Jul 02, 2019 09:46PM ET
BOK Financial Corporation (NASDAQ:BOKF) and its bank subsidiary BOKF, NA’s ratings have been affirmed by Moody’s Investors Service. The outlook for the company has remained stable.
The subsidiary is rated a2 standalone baseline credit assessment (BCA) and Aa3/Prime-1 for deposits. Also, the holding company’s issuer rating of A3 was affirmed.
Reasons for Affirmation
Per Moody's, the company’s unchanged BCA rating is reflective of its sustainable regional banking franchise that supports both strong core deposit base and recurring revenue base. Also, its strong liquidity, adequate capitalization and conservative risk culture offset concerns over high energy concentration and moderate commercial real estate (CRE) concentration.
Also, the ratings agency was impressed by the company’s historical good asset quality performance, which is reflective of its conservative risk culture. Though high exposure to energy loans poses a concern, the firm's good underwriting, as seen by its strong track record in low energy cycle net charge-offs compared to peers, is a tailwind.
The company’s recent fall in capital on account of acquisition and share repurchases is a negative. Moody's said that the ratings affirmation incorporates its expectations of improvement in BOK Financial’s capitalization owing to retained earnings combined with modest loan growth and shareholder returns.
Also, stabilization in the energy sector in 2017 has supported BOK Financial's profitability, which is now in line with the similarly rated peer median. Furthermore, profitability benefits from healthy fee-based revenues, which provides some level of resilience in its earnings profile in a low interest rate environment.
BOK Financial’s funding profile benefits from a stable core deposit base that is supported by its leading deposit market share in its home state Oklahoma. In addition, the bank has sizeable holdings of liquid assets, which support its strong liquidity profile and the conservative composition of its securities portfolio. This offsets its modest reliance on market funds, which largely consists of FHLB borrowings.
What Could Drive Ratings Up or Down?
Upward movement in ratings would depend on substantial and sustained improvement in capitalization, reduced asset concentrations in energy and CRE and a greater proportion of deposit funding.
On the other hand, downward ratings movement could occur if Moody's expected improvement in BOK Financial's capitalization does not materialize. Additionally, evidence of increased appetite for credit risk could add downward rating pressure.
Shares of the company have gained 7.7% year to date against the Zacks Investment Research
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