BOK FINANCIAL CORPORATION
Fitch Ratings has affirmed the Long-Term (LT) and Short-Term Issuer Default Ratings (IDR) of
The Rating Outlook remains Stable. Fitch also affirmed the Viability Ratings (VR) of both companies at 'a'.
Key Rating Drivers
Affirmation Reflects Strengths: The affirmation of BOKF's LT IDR at 'A' and Stable Outlook reflects the company's strong business profile, deposit franchise in key markets and revenue diversification, which differentiates it from mid-tier peers. BOKF's ratings reflect the consistent, long-term strategy that has resulted in earnings and credit performance above peers' through various business cycles. However, Fitch considers BOKF to be a highly rated bank, especially among its mid-tier regional peers, and therefore has less headroom at its current rating in the economic environment.
Strong Franchise, Diverse Business Model Supports Rating: BOKF's rating benefits from its deposit franchise in key markets and its high level of diversification into business lines such as brokerage and trading. Management is experienced, and management quality is in line with a bank of BOKF's size, complexity and current rating.
Expertise, Collateral Offset Some Risks of Energy Concentrations: BOKF's approach to underwriting is appropriate for its rating, and the bank's on-staff experts and focus on reserve-based lending mitigate a significant portion of the risks associated with its relatively high concentration in oil and gas lending, at 14% of total loans at YE23. Risk controls are strong and have supported the bank's credit performance over time.
Conservative Impairments Not Paired With Outsized Losses: BOKF has historically taken a conservative approach to loan impairment and working out of problem loans, leading to an elevated ratio of impaired loans to gross loans compared with peers, with 0.94% at YE23 compared to a peer median of 0.58%. However, net charge offs remained below the peer median. Asset quality remains benign and reserve coverage above the peer median, appropriately reflecting BOKF's concentrations, including oil and gas.
Diverse Revenue Streams Drive Consistent Earnings: BOKF's earnings performance has been strong and consistent over time and the bank is differentiated from peers through its greater level of revenue diversity. Over the past four years, approximately 38% of total revenue was derived from fee producing businesses, much of it from BOKFs wealth segment, which includes brokerage and trading. This diversity mitigates some of the risk of rate-driven volatility in net interest income, allowing the bank to generate more stable returns over time.
Capital Levels Solid: BOKF's capital profile is solid and supportive of the rating. BOKF has continuously accreted capital through earnings, building to a Common Equity Tier 1 (CET1) ratio of 12.06% at YE2023, above its levels prior to the CoBiz acquisition in 2018. Fitch expects BOKF to maintain its benchmark CET1 ratio in line with or above those of its peers, even factoring in potential share repurchases. BOKF's unrealized losses on their securities portfolio are manageable. At YE23, CET1 inclusive of AOCI and unrealized losses on held-to-maturity securities would have been 10.2%.
Deposit Levels Retrace, Liquidity Profile Remains Strong: BOKF's funding and liquidity profile has historically been strong, even as excess deposits flowed out of the bank. BOKF began to see deposit runoff in 2H22, as interest rates increased. However, BOKF retains one of the lowest loan-to-deposit ratios in the mid-tier peer group. Additionally, BOKF's deposit franchise in its core market has afforded the bank a solid cost of funds advantage over peers.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
Significant deterioration in asset quality could drive negative rating action. Pressure could emerge if impaired loans to gross loans were to meaningfully exceed 2% and be expected to remain above that threshold for multiple quarters. This ratio peaked at 1.36% in 4Q20. Additionally, credit losses out of line with peers, especially attributable to the bank's oil and gas portfolio, could create negative rating pressure.
Outsized deterioration in the level and downside volatility of earnings, relative to peers would create negative rating momentum. Likewise, a significant shift in strategy resulting in a reduction in revenue diversity at the bank could lead to negative rating pressure. The bank's rating would be at risk if CET1 were to approach or ultimately dip below 10% and remain there absent a credible plan to build levels back above the 10% threshold.
In Fitch's view, BOKF has material key person risk associated with its majority shareholder,
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Fitch sees limited upside potential for BOKF's ratings as the company is already comparatively higher rated in the context of the bank's company profile. Over the long term, upward rating momentum would be predicated on BOKF reducing the concentrations in the loan portfolio in volatile industries, as well as increasing its operating scale and footprint, with a leading franchise across multiple business segments or geographies, in line with larger regional banks. This would need to occur while maintaining the revenue diversification that differentiates BOKF from its peers.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Long- and Short-Term Deposit Ratings:
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
Factors that could, individually or collectively, lead to positive rating action/upgrade:
Long- and Short-Term Deposit Ratings: The long-term deposit rating is sensitive to any positive change to
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Long- and Short-Term Deposit Ratings: The long-term deposit rating is sensitive to any negative change to
VR ADJUSTMENTS
The Viability Rating (VR) has been assigned in line with the implied VR.
The Business Profile score of 'a-' has been assigned higher than the implied score of 'bbb' due to a positive adjustment for the Business Model.
The Funding and Liquidity score of 'a' has been assigned lower than the implied score of 'aa' due to a negative adjustment for Contingent Liquidity Access.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
ESG Considerations
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores.
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