KBRA Affirms Ratings for Bank OZK

KBRA affirms the deposit and senior unsecured debt ratings of A-, the subordinated debt rating of BBB+, the preferred stock rating of BBB, and the short-term deposit and debt ratings of K2 for Little Rock, Arkansas based Bank OZK (NASDAQ: OZK) (“the bank”). The Outlook for all long-term ratings is Negative.

Key Credit Considerations

The Negative Outlook primarily reflects continued stress within OZK’s RESG portfolio, which has contributed to comparatively elevated credit losses in 2025 and through 9M26, with NCO ratios of 0.5% and 0.6%, respectively. Although credit metrics have recently shown signs of stabilization, and credit costs have been rather manageable (provisions for credit losses have ranged between 0.4% - 0.5% of average assets since 2023), KBRA believes credit losses could remain elevated into 2027 given the challenging operating environment. KBRA views the increased diversification of the loan portfolio favorably; however, much of this progress reflects rapid growth in the CIB segment, which has grown 238% since YE24 and encompasses several newer lending verticals with limited seasoning and credit performance history. This risk is somewhat mitigated by the portfolio’s favorable credit performance to date.

OZK maintains a somewhat unique capital profile, with risk-based capital ratios tracking below its Tier1 leverage and TCE ratios. This is primarily related to its loan portfolio which includes a significant level of unfunded commitments ($18 billion at 3Q26), resulting in the bank’s risk weighted density (risk weighted assets to total assets) consistently tracking above 100%. As such, while its Tier1 leverage and TCE ratios (14.0% and 12.1%, respectively at 3Q26) have tracked well above rated peer averages, its risk-based capital measures were well below, including its CET1 ratio (11.8%) which has generally trended roughly 150 bps - 200 bps below rated peers in recent years.

OZK continues to generate above-peer profitability, supported by its comparatively higher-yielding, albeit higher-risk, loan portfolio, with reported ROAA of 1.6% for 9M26. Earnings have moderated since peaking in 2023, primarily reflecting NIM compression related to Fed rate cuts in late 2024 and 2025, as well as elevated, though relatively consistent, credit costs. OZK’s funding strategy utilizes its widespread retail branch network to generate funding primarily via consumer time deposits (45% of total deposits), supplemented by wholesale sources (~25% of total funding in recent years). This has contributed to the bank's comparatively higher funding costs, which have tracked near 2.6% through 9M26. However, we note the relative granularity of its deposit book, with uninsured deposits in line with rated peers (mid-30% range in recent years) and a materially lower amount of reciprocals.

Rating Sensitivities

A revision of the Outlook to Stable could be considered with meaningful improvement in asset quality, including the timely resolution of the bank’s foreclosed assets and credit losses trending toward levels consistent with higher-rated peers, while maintaining capital at current levels, including a CET1 ratio in the upper-11% range. Conversely, a lack of meaningful improvement in asset quality over the near term, with credit losses remaining materially above rated peers, or more aggressive capital management that weakens capital ratios, could result in a rating downgrade.

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Methodology