- Key insight: Bank OZK Chairman and CEO George Gleason says the CRE downturn that has persisted since interest rates spiked in 2022 and 2023 is now in its late innings, with recovery about a year away.
- Supporting data: Bank OZK had doubled its allowance for credit losses over the past three years in anticipation of some deterioration in its CRE portfolio.
- Expert quote: “We’re well positioned to get through the rest of the cycle in good form.” — George Gleason
Though net charge-offs in Bank OZK’s signature commercial real estate business jumped sharply during last year’s fourth quarter, Chairman and CEO George Gleason believes better times are just around the corner.
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“We’re seeing a lot of green shoots out there on leasing and property sales,” Gleason said Wednesday on a conference call with analysts. “We’re not all the way through the cycle, but we think 2026 is pretty near the end.”
Gleason, who has led the $40.8 billion-asset bank since 1979, isn’t providing any guidance yet. But he’s counting on a recovery beginning next year.
“We’re very optimistic about 2027,” Gleason said.
Gleason is no outlier in his bullish CRE outlook.
On Tuesday, U.S. Bancorp in Minneapolis reported the first linked-quarter increase in its CRE portfolio in nearly three years, with average balances increasing nearly $250 million to $48.5 billion on Dec. 31, 2025.
Likewise, M&T Bancorp Chief Financial Officer Daryl Bible said Friday that his $213.5 billion-asset company saw CRE originations pick up markedly during the fourth quarter. M&T is now expecting its CRE book to begin growing again during the second quarter of 2026.
According to the Federal Reserve Bank of St. Louis, unfunded CRE commitments, which it describes as an indicator of future loan growth, increased for the second consecutive quarter in the three months ending Dec. 31. That result reversed nine quarterly declines that stretched from the second quarter in 2023 through midyear 2025.
At Bank OZK, CRE loans originated by its Real Estate Specialties Group totaled $1.61 billion during the three months ending Dec. 31, 2025, more than double the $700 million reported for the quarter ending Sept. 30.
According to Gleason, the national CRE marketplace has been
Bank OZK has built a national reputation for commercial real estate expertise, due both to the scale of its operation and its lack of hiccups it’s experienced over the past decade. Its company-wide annual net charge-off ratio has remained at or below 0.50% since 2011 and has consistently tracked below the industry average.
But for the three months ending Dec. 31, 2025, the bank’s net charge-off ratio ballooned to 1.18%, a level not seen since the financial crisis era, as the company recognized charge-offs on four loans it had previously classified or criticized.
Gleason, however, indicated the problems are isolated, and he predicted that net charge-offs will normalize in 2026.
“We’re well positioned to get through the rest of the cycle in good form,” he said on the conference call.
The spike in problem loans was not accompanied by a parallel surge to the allowance for credit losses — primarily because Bank OZK has been stockpiling reserves with the expectation that loan losses would escalate at some point. Indeed, the allowance for credit losses, which totaled $300 million midway through 2022, finished 2025 at $632 million — an amount Gleason said would be adequate to cover the lower charge-off level anticipated for 2026.
The ACL build was “based on the expectation that the longer this challenging cycle drove on … the more likely it would be that individual sponsors on some individual projects would run into trouble,” Gleason said.
The ample reserve level helped support Bank OZK’s profitability. Net income totaled $171.9 million for the quarter ending Dec. 31, 2025, down a modest 3.5% from the same three months in 2024. Full-year 2025 profits of $699.3 million were virtually unchanged from the 2024 result of $700.3 million.
Analysts appeared to view Bank OZK’s fourth-quarter credit woes as a blip, as opposed to an emerging systemic issue.
Piper Sandler analyst Steven Scouten wrote in a research note that even with the elevated net charge-offs in the fourth quarter, Bank OZK built its allowance for credit losses by $12 million for the full year and still managed to deliver strong profitability.
Investors, too, seemed to take the rise in net charge-offs in stride. Bank OZK’s shares finished up less than 1% Wednesday at $47.83.