KBRA Affirms Ratings for Spend Life Wisely Company, Inc.

KBRA affirms the senior unsecured debt rating of BBB-, the subordinated debt rating of BB+, and the short-term debt rating of K3 for Durant, Oklahoma based Spend Life Wisely Company, Inc. ("SLW", or "the company"). In addition, KBRA affirms the deposit and senior unsecured ratings of BBB, the subordinated debt rating of BBB-, and the short-term debt and deposit ratings of K3 for its primary subsidiary, First United Bank and Trust Company. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by SLW’s long track record of strong credit performance, with an NCO ratio that has tracked at or below 30 bps since 2012, including more recently, with the company reporting rather negligible credit losses over a multi-year period. This is, in part, due to its comparatively higher concentration in lower-risk residential mortgage loans, which represented 43% of total loans at 4Q24, a relatively granular commercial loan book, and its diligent loan underwriting and monitoring practices.

The company maintains meaningful market share in several favorable regions across parts of Oklahoma and Texas, providing SLW with a solid core deposit base. However, funding has become strained after multiple years of high growth (4-year CAGR of ~20% from 2020 - 2023), particularly within the residential mortgage portfolio where loans are typically, match funded with wholesale funding, including brokered deposits which totaled approximately $2 billion at 4Q24, or 16% of total deposits. This has resulted in above-average funding costs, with the company reporting a total cost of funds of 2.93% for 2024. With that said, earnings trends were rather favorable throughout 2024, in large part, due to cost savings initiatives that resulted in a 5% decrease in noninterest expenses as well as improvements in NIM related to the higher repricing of fixed-rate assets and stable funding costs through 9M24, prior to the impacts of the 100 bps in rate cuts by the FOMC that began in September of 2024, which should provide a tailwind to recent NIM trends into early 2025. We further note, that while materially impacted by the challenging mortgage banking environment, noninterest income continued to track slightly above rated peer averages at 0.7% of average assets in 2024 (~20% of total revenues).

Historically, SLW has managed its capital levels well below rated peer averages (generally ~300 bps below average in recent years), though has made a concerted effort to build its capital ratios throughout 2024, adding roughly 70 bps to its CET1 ratio (9.0% at 4Q24). With asset growth expected to remain rather limited in 2025, in conjunction with stabilized earnings, continued improvements in capital should occur, with the company targeting levels more in line with rated peers over the long-term.

Rating Sensitivities

The continued execution of the company’s strategy to strengthen the balance sheet through a meaningful reduction in wholesale funding and increasing capital ratios to levels more closely aligned with higher-rated peers along with continued stable asset quality could result in positive rating momentum over time. Conversely, material deterioration in asset quality with credit losses impacting the profitability of the company could result in negative rating action.

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