KBRA Downgrades Ratings for The ANB Corporation; Revises Outlook to 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 Terrell, Texas-based The ANB Corporation (“the company” or “ANB”). In addition, 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 the lead subsidiary, The American National Bank of Texas. The Outlook for all long-term ratings is revised to Stable from Negative.

Key Credit Considerations

The rating downgrade is predicated upon the company’s weakened earnings portfolio driven by a meaningful concentration in longer term, lower-yielding investment securities (~31% of earning assets), as well as a below-peer net interest margin that is pressured by the competitive deposit environment. At the same time, the company’s capital position has trended below peers, with balance sheet expansion particularly in 2022-2023 contributing to a 220 bp decline in the CET1 ratio from 2021 through 2025. The capital base is further pressured by the larger AOCL tied to the aforementioned securities portfolio as well as the increase in risk-weighted density as ANB shifts its earning asset mix toward loans in an effort to improve the margin. While this repositioning should support earnings over time, the transition is expected to weigh on performance in the near-to intermediate-term, with the company likely to continue 'under-earning' relative to peers; a return to a 1% ROA is not expected for several years. In the interim, weaker earnings have limited internal capital generation, leaving the company with comparatively less loss-absorbing capacity should credit conditions deteriorate. This risk is mitigated by ANB’s strong credit profile, which has consistently outperformed peers and is a trend we expect to continue. While partially supported by the benign credit environment, the company’s favorable loss history is reflective of disciplined underwriting practices, solid borrower credit profiles, and the benefits of operating in the resilient Dallas-Forth Worth MSA. Asset quality metrics remain solid with historically low levels of NPAs and minimal loss content, while loan loss reserves totaled 1.25% of loans at 1Q26, covering NPAs by 5x. The ratings are supported by the company’s durable, branch-based deposit franchise which underpins a stable funding profile and relatively low funding costs (1.55% total deposit costs for 1Q26), supported by a meaningful proportion of noninterest-bearing deposits (35% of deposits). This core-funded structure, with minimal reliance on wholesale funding, contributes to a more conservative balance sheet relative to peers, as reflected in a lower loan-to-deposit and loan-to-earning asset ratios that are expected to remain stable despite continued loan growth. More recently, margin performance has improved, with NIM expanding 43 bps since 2024, driven, in part, by a higher C&D exposure and pricing power in legacy markets. Earnings are also supported by solid noninterest income levels (~18% of revenue), largely derived from fee income.

Rating Sensitivities

Given the downgrade, positive rating action is not currently likely; however, an improvement in the earnings profile to levels in line with peers or tracking near 1% ROA, and a rebuild of its capital ratios to be more consistent with rated peers, including CET1 near 11%, while maintaining solid credit quality with minimal loss content, could result in positive rating momentum over time. Conversely, given the revision to Stable Outlook from Negative Outlook, a rating downgrade is unlikely in the near to medium term. However, an unexpected deterioration in asset quality further weakening the bank’s earnings power, significant deterioration in regulatory capital management, or if the risk profile materially increases, negative rating momentum could occur, likely a negative outlook.

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