December 15, 2017 / 9:10 PM / in a year

Fitch Affirms BOK Financial at 'A'; Outlook Stable

(The following statement was released by the rating agency) CHICAGO, December 15 (Fitch) Fitch Ratings has affirmed BOKF's ratings at 'A'/'F1'. The Rating Outlook remains Stable. A full list of rating actions follows at the end of this release. The rating action follows a periodic review of the midtier regional banking group, which includes BankUnited, Inc. (BKU), BOK Financial Corp. (BOKF), Cathay General Bancorp (CATY), East West Bancorp, Inc. (EWBC), First Horizon National Corporation (FHN), First National of Nebraska, Inc. (FNNI), Fulton Financial Corporation (FULT), Hilltop Holdings Inc. (HTH), Synovus Financial Corp. (SNV), Trustmark Corporation (TMRK), UMB Financial Corp. (UMBF), Umpqua Holdings Corporation (UMPQ) and Wintrust Financial Corporation (WTFC). Company-specific rating rationales for the other banks are published separately, and for further discussion of the large regional bank sector in general, refer to the special report titled 'Midtier Regional Bank Periodic Review,' to be published shortly. KEY RATING DRIVERS IDRs, VRs, AND SENIOR DEBT Today's affirmation reflects BOKF's long-term, consistent strategy that has led to earnings and credit outperformance relative to peers over various economic cycles. Moreover, the affirmation reflects BOKF's strong company profile, supported by good deposit market share in its key markets, as well as business lines that provide consistent revenue to the bank. Fitch views BOKF's strong fundamentals and prudent culture as a by-product of its ownership and governance structures, with a long-term controlling shareholder balanced by public float that provides market signals, additional regulatory oversight and increased transparency. BOKF remains one of the higher rated banks in its peer group as well as Fitch's bank rated universe. While nonperforming assets (NPAs; excluding government guaranteed loans) remain above those of similarly rated banks at1.5% of loans plus other real estate owned, Fitch observes that BOKF's actual credit losses remain very relatively low. Net charge-offs (NCOs) spiked during the most recent energy downturn at 0.56% of average loans in 1Q16. However, NCOs have averaged 7bps since, well-below industry averages. Fitch views this as a likely result of BOKF's strong underwriting and low risk appetite. Fitch's expectations that average credit losses will remain manageable and below those of BOKF's peers is reflected in today's affirmation and Stable Outlook. As expected, earnings have improved over the last year and are more in-line with longer-term averages. BOKF's return on average assets (ROA) has exceeded 1% over the last three quarters. Similar to most banks, BOKF's earnings have benefitted from higher interest rates as well as strong credit quality. The company has not taken a loan loss provision during 2017 after taking $65 million of provisions during the first nine months of 2017 given its sustained low level of NCOs as well as muted loan growth. While Fitch does not view this as sustainable over the long term, BOKF's allowance for loan and lease losses (ALLL) remains at one of the highest levels of the peer group at nearly 1.5% of total loans. Thus, absent any notable deterioration in credit deterioration or meaningful loan growth, Fitch would expect earnings to continue to be supported by reserve releases over the near term. Earnings should also continue to be aided by a good contribution from non-interest income which approximates nearly 50% of the company's revenue, as well as satisfactory operating expense management as demonstrated by a mid-60% efficiency ratio. Moreover, the company has been able to maintain above-average capital levels even while increasing its dividend during 2017, its 12th year in a row with a dividend increase. BOKF's Fitch Core Capital-to-Risk-Weighted Assets ratio was 10.95%, around 50bps higher than the peer median at 3Q17. The company has typically maintained capital above peers, which has supported a relatively higher rating over time. Fitch's expectations that this will continue to be the case is incorporated into today's affirmation and Stable Outlook. Funding and liquidity remain strong and supportive of the bank's high rating. BOKF's loan-to-deposit (LTD) remains below that of peer averages at 79.8% as of 3Q17, which could augment the company's ability to keep deposit pricing relatively low as rates rise and subsequently improve earnings. BOKF's funding profile also benefits from its aforementioned strong deposit market share in its primary operating markets which could aid in maintaining low funding costs over time. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES BOKF's subordinated debt is notched one level below its VR for loss severity. BOKFs's preferred stock is notched five levels below its VR, two times for loss severity and three times for non-performance. These ratings are in accordance with Fitch's criteria and assessment of the instruments non-performance and loss severity risk profiles and have thus been affirmed due to the affirmation of the VR. LONG- AND SHORT-TERM DEPOSIT RATINGS BOKF, NA's uninsured deposit ratings are rated one notch higher than the bank'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. HOLDING COMPANY BOKF's VR is equalized with those of its operating companies and banks, reflecting its role as the bank holding company, which is mandated in the U.S. to act as a source of strength for its bank subsidiaries. Ratings are also equalized reflecting the very close correlation between holding company and subsidiary failure and default probabilities. SUPPORT RATING AND SUPPORT RATING FLOOR BOKF has a Support Rating (SR) of '5' and Support Rating Floor (SRF) of 'NF'. In Fitch's view, the probability of support is unlikely. IDRs and VRs do not incorporate any support. RATING SENSITIVITIES IDRs, VRs, AND SENIOR DEBT Fitch sees little upside in BOKF's ratings given their already relatively high level. BOKF's rating incorporates Fitch's view that NPA levels will moderate over the rating time horizon with credit costs below peer averages. While unexpected, Fitch could take negative rating action if the bank's NPAs remain stubbornly high and subsequently result in credit costs that bring earnings structurally lower than peers. In addition, although not anticipated, BOK's ratings would be reassessed if there are any changes to its current ownership structure or unexpected senior management changes. In 4Q16 the company took an impairment charge on its mortgage servicing right (MSR) hedge that notably and adversely impacted earnings. Fitch expects that this was a one-time occurrence and generally positively views risk management practices at BOKF. However, further impairment charges that cause notable volatility on quarterly earnings performance could result in negative rating action as this would potentially point to ineffective hedging and ineffective risk management. Fitch expects BOKF to be active in merger and acquisition (M&A) for both banks and nonbanks. Fitch expects this M&A activity to be reasonable in size, in geography and within the bank's core competencies. To the extent that BOKF partakes in M&A activity that does not fit these attributes and/or results in earnings and capital metrics that are not commensurate with its rating level, Fitch could take negative rating action. SUBORDINATED DEBT AND OTHER HYBRID SECURITIES The ratings for BOKF and its operating companies' subordinated debt, trust preferred securities, and preferred stock are sensitive to any change to the VR. LONG- AND SHORT-TERM DEPOSIT RATINGS The long- and short-term deposit ratings are sensitive to any change to BOKF's long- and short-term IDR. 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 potential that Fitch could notch the holding company VR from the ratings of the operating companies. SUPPORT RATING AND SUPPORT RATING FLOOR Since BOKF's Support and Support Rating Floors are '5' and 'NF', respectively, there is limited likelihood that these ratings will change over the foreseeable future. Fitch has affirmed the following ratings with a Stable Outlook: BOK Financial Corporation --Long-term IDR at 'A'; --Short-term IDR at 'F1'; --Viability Rating at 'a'; --Subordinated debt at 'A-'; --Support Floor at 'NF'; --Support at '5'. BOKF, N.A. --Long-term IDR 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'. Contact: Primary Analyst Bain K. Rumohr, CFA Director +1-312-368-3153 Fitch Ratings, Inc. 70 W. 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