KBRA Downgrades Ratings for Fidelity Financial Corporation; Outlook Stable

KBRA downgrades the senior unsecured debt rating to BBB- from BBB, downgrades the subordinated debt rating to BB+ from BBB-, and affirms the short-term debt rating of K3 for Wichita, Kansas-based Fidelity Financial Corporation (“FFC”, “Fidelity”, or “the company”). Additionally, KBRA downgrades the deposit and senior unsecured debt ratings to BBB from BBB+, the subordinated debt rating to BBB- from BBB, and the short-term deposit and debt ratings to K3 from K2 for its subsidiary, Fidelity Bank, National Association. The Outlook for all long-term ratings is revised to Stable from Negative.

Key Credit Considerations

The downgrade of the ratings is driven by the company’s current capital position with risk-based capital ratios tracking more than 200 bps below the rated peer average for an extended period of time, including a CET1 ratio of 9.4% at 1Q26. While we acknowledge the modest positive trajectory in capital, we believe a stronger capital position is warranted, in part, due to concentrations in both the loan portfolio (CRE concentration above 300% of risk-based capital) and the deposit book.

FFC has delivered sustained improvement in profitability over the past year and year-to-date, with ROA trending closer to peer averages. Earnings performance has been supported by meaningful NIM expansion, benefiting from the Federal Reserve's rate cuts given the bank's liability-sensitive balance sheet and meaningfully higher earning asset yields relative to peers given the bank’s commercial lending focus. Notably, FFC's NIM expanded by 50 bps in 2025, with positive momentum continuing through the first half of 2026. Management expects the margin to stabilize during the second half of the year. With respect to funding, FFC maintains a solid core funding profile, supported by increased core deposits and reduced reliance on wholesale funding. In addition, management expects the efficiency ratio to improve to below 60% in the second half of the year from 70% a year ago, reflecting management's strategic focus on enhancing operating efficiency through ongoing cost rationalization and disciplined expense management initiatives.

FFC’s asset quality remains healthy despite isolated credit migration. While the NPA ratio has tracked higher than rated peers in recent years in the 1.20% to 1.50% range, losses have been well contained overall. Management continues to proactively resolve problem credits, resulting in net recoveries in recent quarters. Credit performance continues to reflect FFC’s conservative underwriting standards, disciplined risk management, and historically lower loss content across economic cycles.

Rating Sensitivities

Positive rating momentum could be considered if FFC were to meaningfully improve capital levels tracking in line with higher rated peers while sustaining positive profitability trends and maintaining a healthy credit profile. Conversely, ratings could come under pressure if unexpected credit deterioration weakens profitability through elevated credit losses and materially impacts capital ratios.

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