Bank OZK says spike in charge-offs is no cause for alarm

Core Viewpoint - Bank OZK's Chairman and CEO George Gleason expresses optimism about a recovery in the commercial real estate (CRE) sector, predicting that the downturn is nearing its end and a rebound could begin as early as 2026 [2][9]. Company Performance - Bank OZK's net charge-off ratio increased to 1.18% for the quarter ending December 31, 2025, the highest level since the financial crisis, attributed to charge-offs on four previously criticized loans [7]. - Despite the rise in net charge-offs, the bank's profitability remained strong, with net income of $171.9 million for the quarter, down only 3.5% from the previous year, and full-year profits of $699.3 million, virtually unchanged from 2024 [10]. - The bank's allowance for credit losses rose significantly from $300 million in mid-2022 to $632 million by the end of 2025, which is expected to cover anticipated lower charge-off levels in 2026 [8][10]. Industry Trends - U.S. Bancorp reported its first linked-quarter increase in its CRE portfolio in nearly three years, with average balances rising by nearly $250 million to $48.5 billion as of December 31, 2025 [3]. - M&T Bancorp also noted a marked increase in CRE originations during the fourth quarter, expecting growth in its CRE book starting in the second quarter of 2026 [3]. - The Federal Reserve Bank of St. Louis indicated that unfunded CRE commitments increased for the second consecutive quarter, reversing a trend of nine quarterly declines [4]. Market Sentiment - Analysts view Bank OZK's fourth-quarter credit issues as a temporary setback rather than a systemic problem, with some noting the bank's ability to build its allowance for credit losses while maintaining profitability [11]. - Investors reacted positively to the news, with Bank OZK's shares rising less than 1% to $47.83 following the announcement [11].