CFR Cullen Frost Bankers Inc

The long-term Issuer Default Ratings (IDR) of BOK Financial Corp. (BOKF) and its lead bank subsidiary, BOKF, NA was affirmed by Fitch Ratings at 'A-'. However, the rating outlook has been revised to Positive from Stable.

The rating affirmation of BOK Financial can be attributed to strong and consistent performance amidst a tough credit cycle as opposed to dividend cuts or bailout relief. To the company’s credit, its steady performance aided it in maintaining a solid capital position.

BOK Financial has adhered to conservative underwriting standards and this resulted in sturdy asset quality with very low charge-off levels, which in turn bolstered its performance. Besides, its diverse revenue mix as well as favorable geographic footprint has backed its growth.

Offsetting the positives are an elevated level of nonperforming assets (NPAs) and a $500 million exposure to sub investment grade private-label mortgage-backed securities. Higher NPA levels reflect the company’s slow asset disposition process rather than poor asset quality. These raise the company’s future credit loss risk. The company also possesses a highly liquid balance sheet that weighs on its interest margin. Yet, the company saw a steady margin as it is managed well.

The revision in outlook to positive stems form the rating agency’s view that BOK Financial’s persistent and solid operating performance coupled with a reduction in NPA levels as well as private-label mortgage-backed securities without incurring substantial credit impairments, could lead to BOK's IDR upgrade.

BOK Financial’s growth strategy has involved comparatively smaller footprint acquisitions and this has helped the company to garner a larger share of the market. If prospects arise, this strategy could continue in the near to intermediate term. However, if the company alters its growth strategy, making larger acquisition or moving out of its current footprint, its ratings may come under pressure.

BOK Financial’s second quarter 2011 earnings came in at $69.0 million or $1.00 per share, which were above the Zacks Consensus Estimate of 98 cents. The results also compare favorably with the prior-quarter earnings of $64.8 million or 94 cents and prior-year earnings of $63.5 million or 93 cents.

Results primarily reflect a decrease in loan loss provisions and improved credit quality. Increases in fees and commissions revenue also supported top-line growth.

Our Take

Strategic expansions and local-leadership based business model of BOK Financial, which has peers such as Cullen/Frost Bankers Inc. (CFR) and First Financial Bankshares Inc. (FFIN), have aided its expansion into a leading financial service provider from a small bank in Oklahoma.

A diverse revenue stream, sturdy capital position and expense control initiatives augur well. A dividend hike is encouraging. Yet a slow economic recovery and regulatory issues remain headwinds to the company.

BOK Financial shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation.

 
BOK FINL CORP (BOKF): Free Stock Analysis Report
 
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FIRST FIN BK-TX (FFIN): Free Stock Analysis Report
 
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