KBRA Affirms Ratings for South Plains Financial, Inc.

KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Lubbock, Texas-based South Plains Financial, Inc. (NASDAQ: SPFI) (“the company”). Additionally, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the lead subsidiary, City Bank. The Outlook for all long-term ratings is Stable.

Key Credit Considerations

The ratings are supported by the company’s historically strong earnings performance with ROA averaging 1.39% over the last five years, while recently remaining above 1% despite funding pressure due to the interest rate environment. SPFI’s earnings profile is underpinned by an above peer average NIM (3.89% at 1H25) attributable to the earning asset mix leaning more towards higher-yielding loans, with loans to average earning assets at 74%, further upheld by minimal credit costs over a multi-year period (0.3% of average assets at 1H25). Further supporting the earnings base is the company’s diversified revenue stream with noninterest income comprising 22% of total revenue, largely derived of service charges, fee income, and the sale of loans. The company maintains a durable, branch-based deposit franchise, with a majority of deposits in rural markets, largely in Texas. As such, SPFI carries a stable NIB deposit base representing 27% of total deposits, supporting its peer-like funding base, as deposit costs were well managed at 2.15% for 1H25. Furthermore, the company maintains a stable funding profile largely derived in core deposits accounting for 87% of the funding base and a loan-to-deposit ratio of 83%, providing the company with funding flexibility. Also, the company has demonstrated sound credit performance over a multi-year period, supported by the underlying strength of the regional Texas economy, as well as management’s stringent credit underwriting and review standards, which we attribute to the team’s experience and implementation of sound enterprise risk culture. As such, charge-off activity has tracked below 10 bps over the last five-years, and we view the company as well reserved for any potential losses as the LLR covers NPAs by more than 4x. In common with the industry trends, SPFI has exhibited negative credit migration as classified and criticized loan balances remained elevated at 2.7% and 4.1% of total loans, respectively, as of 2Q25. However, we anticipate low loss content partially attributable to management's proactive approach to problem loan workouts. The ratings reflect disciplined capital management as the TCE and CET1 ratio were 10% and 13.9%, respectively, as of 2Q25. Moving forward, given muted loan growth, KBRA believes the company will continue to build its capital base, which we view as sufficient protection against a potential credit cycle.

Rating Sensitivities

Further geographic diversification along with strong earnings performance which exceeds that of rated peers, increased stable noninterest revenue as well as credit outperformance, and strong capital protection could lead to positive rating momentum over time. Conversely, a rating downgrade in the near term is not expected. However, material deterioration asset quality adversely impacting earnings over an extended period, deteriorating capital levels inconsistent with the rating category or significant runoff of core deposits could cause rating pressure.

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