We have reiterated our long-term Neutral recommendation on
BOK Financial Corporation
) based on its solid fundamentals and recent acquisition amidst
the current economic environment.
In August 2012, BOK Financial announced the acquisition of
Denver-based wealth management firm The Milestone Group Inc. The
acquisition demonstrates BOK Financial's aim of diversifying its
revenue opportunities by augmenting fee-based businesses.
Previously, the company purchased United Banks of Colorado in
2007 as well as Colorado State Bank and Trust in 2003, and
continues to have a robust presence in Denver.
Therefore, with the acquisition of Milestone Group, BOK will
expand further in Denver with the help of the acquired firm's
wealth management brand and proficiency. Furthermore, BOK
Financial's assets under management and administration will sum
up to about $50 billion.
There has been a positive development on BOK Financial's ratings
front as well. The long-term Issuer Default Ratings (IDR) of the
company and its leading bank subsidiary, BOKF, NA, have been
upgraded to 'A' from 'A-' by Fitch Ratings. The outlook assigned
A diverse earnings base, solid capital position and its
healthy liquid profile are the factors behind the ratings
upgrade. According to Fitch, BOK Financial's solid fundamentals
are a consequence of its ownership as well as structure of
We believe that BOK Financial's diverse revenue mix and favorable
geographic footprint would support its growth. In fact, strategic
expansions and local-leadership-based business model aided it to
thrive as a leading financial service provider from a bank in
Solid capital position and impressive capital deployment measures
instill investors' confidence in the stock. Even without
participating in the Treasury's Capital Purchase Program or
opting for a dividend cut, the company's capital ratios were
solid. Notably, in May 2012, the company increased its quarterly
cash dividend by a nickel to 38 cents per share, which marked the
seventh consecutive annual increase since it paid its first cash
dividend in 2005.
However, the persistently low interest environment remains a
matter of concern and continues to impact the margin of the
company. Though there has been a slight uptick in the second
quarter of 2012 (3.30%), we believe that with expectations of a
continual low interest rate environment in the upcoming quarters,
the pressure on the margin would remain owing to an increase in
Moreover, BOK Financial's mortgage banking operations cause
significant unpredictability in results. It has invested a
substantial amount of its holdings in residential mortgage-backed
securities. These securities are highly sensitive to changes in
interest rates and are also subject to credit risks from
delinquency or default of the underlying loans. Moreover, the
company is subject to risks emanating from its private label
mortgage-backed securities portfolio.
In addition, with BOK Financial having substantial business
concentration in the Oklahoma market and the energy sector, the
company's earnings are susceptible to any downturn in the region
or in that particular sector. Hence, with such concentration
risk, we remain cautious.
Also, the regulatory issues and stricter capital norms remain a
headwind for the company and might limit its top-line growth,
increase compliance cost and curtail flexibility with respect to
However, BOK Financial currently retains a Zacks #2 Rank, which
translates into a short-term Buy rating. One of its closest
Texas Capital Bancshares Inc.
) also carries the same Zacks Rank.
BOK FINL CORP (BOKF): Free Stock Analysis
TEXAS CAP BCSHS (TCBI): Free Stock Analysis
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