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There has been a positive development on BOK Financial Corp.’s (BOKF - Analyst Report) front. The long-term Issuer Default Ratings (IDR) of BOK Financial and its lead bank subsidiary, BOKF, NA, have been upwardly revised to 'A' from 'A-' by Fitch Ratings. The outlook assigned is Stable.

A diverse earnings base, solid capital position and its healthy liquid profile are the positive factors behind the ratings upgrade of BOK Financial. According to Fitch, BOK Financial’s solid fundamentals are a consequence of its ownership as well as structure of governance. 

Its large deposit base and diverse revenue stream have helped BOK Financial enjoy robust stability in earnings over the years. It is the company’s core deposit base that gives it the opportunity to have a significantly high and stable source of liquidity as well as a low-cost source of funds. It is this factor that helps distinguish it from its rivals.

The positive attributes are offset to some extent by its energy sector exposure. Particularly with its concentration in Oklahoma and to some extent in Texas and the related exposure to the energy sector (with around 20% of the bank’s loan portfolio to that sector), the ratings of BOK Financial are susceptible to a slump in that sector.

The rating agency acknowledges the solid loan underwriting practice at BOK Financial. But it is the geographic concentration in Oklahoma and Texas which accounts for the company’s total loan portfolio of 45% and 30%, respectively, making a large part of its non-energy sector loans being positively correlated with the energy industry. Hence, this results in a greater risk than the 20% direct exposure the company has in the energy sector.

In addition, BOK Financial’s non-performing ratios that are higher than its peers and risk from its private label mortgage backed securities portfolio are the headwinds. With its solid capital levels and strong credit practice, however, the rating agency expects BOK Financial to manage such risks well. 

Our Viewpoint

The rating upgrades are welcome as they have an important role in preserving investor confidence in the stock and help boost its creditworthiness in the market.

We also believe that BOK Financial’s diverse revenue stream, sturdy capital position and expense control initiatives augur well for investors. Capital deployment efforts also bode well and boost investors’ confidence. Nevertheless, a protracted economic recovery and its exposure to the energy sector and risky assets remain our concerns.

The shares of BOK Financial currently retain a Zacks #3 Rank, which translates into a short-term Hold rating. However, its peer company, Texas Capital Bancshares Inc. (TCBI - Analyst Report) has a Zacks #1 Rank, implying a short-term Strong Buy rating.

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