Bank OZK Optimistic About Commercial Real Estate Recovery Despite Recent Downturn
Bank OZK, led by Chairman and CEO George Gleason, is cautiously optimistic about a recovery in the commercial real estate (CRE) sector. Despite a downturn that has persisted since interest rates spiked in 2022 and 2023, Gleason believes the sector is approaching the end of its cycle, with a recovery anticipated to begin in 2027.
Bank OZK’s CRE Portfolio and Credit Losses
Bank OZK has doubled its allowance for credit losses over the past three years in anticipation of some deterioration in its CRE portfolio. Despite a sharp increase in net charge-offs in the bank’s signature commercial real estate business during last year’s fourth quarter, Gleason is confident that the bank is well-positioned to weather the rest of the cycle.
“We’re seeing a lot of green shoots out there on leasing and property sales,” Gleason said recently during a conference call with analysts. “We’re not all the way through the cycle, but we think 2026 is pretty near the end.”
Positive Signs in the CRE Market
Bank OZK is not alone in its hopeful outlook for the CRE market. 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.
Furthermore, the Federal Reserve Bank of St. Louis reported that unfunded CRE commitments, an indicator of future loan growth, increased for the second consecutive quarter in the three months ending Dec. 31, 2025. This reversed nine quarterly declines that stretched from the second quarter of 2023 through mid-year 2025.
Bank OZK’s Expertise in Commercial Real Estate
Bank OZK has built a national reputation for commercial real estate expertise, thanks to the scale of its operation and its track record over the past decade. Its company-wide annual net charge-off ratio has remained at or below 0.50% since 2011, consistently tracking below the industry average.
However, the bank’s net charge-off ratio spiked to 1.18% for the three months ending Dec. 31, 2025, a level not seen since the financial crisis era. Gleason, however, believes these problems are isolated and expects net charge-offs to normalize in 2026.
Bank OZK’s Financial Position
The spike in problem loans was not accompanied by a parallel surge in the allowance for credit losses, primarily because Bank OZK has been stockpiling reserves with the expectation of escalating loan losses. By the end of 2025, the allowance for credit losses, which totaled $300 million midway through 2022, had risen to $632 million.
Despite an elevated net charge-off ratio in the fourth quarter, Bank OZK managed to build its allowance for credit losses by $12 million for the full year and still deliver strong profitability. Net income for the quarter ending Dec. 31, 2025, totaled $171.9 million, 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 and investors seem to view Bank OZK’s fourth-quarter credit woes as a blip, rather than an emerging systemic issue. Bank OZK’s shares finished up less than 1% on Wednesday at $47.83.
In conclusion, despite challenges in the commercial real estate sector over the past few years, Bank OZK remains optimistic that recovery is on the horizon. With a robust allowance for credit losses and strong profitability, the bank is well-positioned to weather the rest of the cycle and thrive in the anticipated upturn.
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