ANB ratings cut as KBRA cites weaker earnings and lower capital buffers

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ANB ratings cut by KBRA

Highlights

KBRA downgrades ANB's senior unsecured debt to BBB- from BBB and revises outlook on all long-term ratings to Stable from Negative due to weaker earnings and capital buffers.
ANB's net interest margin remains below peers and CET1 ratio is projected to decline by 220 basis points from 2021 through 2025 amid a shift toward higher-yielding loans.
Asset quality remains strong, with loan loss reserves at 1.25% of loans and total deposit costs at 1.55% in Q1 2026, supporting a stable funding profile.

Rating actions and financial rationale

As reported by Kroll Bond Rating Agency, KBRA downgrades ANB's senior unsecured debt rating to BBB- from BBB, its subordinated debt rating to BB+ from BBB-, and affirms the short-term debt rating at K3. For lead subsidiary The American National Bank of Texas, KBRA downgrades deposit and senior unsecured debt ratings to BBB from BBB+, subordinated debt to BBB- from BBB, and short-term deposit and debt ratings to K3 from K2, while revising the outlook on all long-term ratings to Stable from Negative.

KBRA says the downgrade reflects a weaker earnings profile tied to a sizable concentration in longer-term, lower-yielding investment securities, which account for about 31% of earning assets, and a net interest margin that remains below peers amid deposit competition. The agency also points to capital levels that trend below peers, with balance sheet expansion in 2022 and 2023 contributing to a 220 basis point decline in the CET1 ratio from 2021 through 2025.

Additional pressure comes from larger accumulated other comprehensive losses linked to the securities portfolio and a rise in risk-weighted density as ANB shifts more of its earning assets toward loans to improve margin. KBRA says that repositioning should support earnings over time, but the transition is expected to weigh on performance in the near to intermediate term, with a return to 1% return on assets not expected for several years.

Stable outlook supported by credit quality

Despite the downgrade, KBRA says ANB's strong credit profile helps offset weaker earnings and capital generation. Asset quality metrics remain solid, with historically low nonperforming assets and limited loss content, while loan loss reserves stand at 1.25% of loans at the end of the first quarter of 2026, covering nonperforming assets five times.

The ratings also continue to benefit from ANB's branch-based deposit franchise, which supports stable funding and relatively low funding costs. Total deposit costs are 1.55% in the first quarter of 2026, and noninterest-bearing deposits make up 35% of total deposits, limiting reliance on wholesale funding and keeping the balance sheet more conservative than many peers.

KBRA adds that margin performance has improved recently, with net interest margin expanding by 43 basis points since 2024, partly due to higher construction and development exposure and pricing power in legacy markets. Noninterest income, at about 18% of revenue, also supports earnings.

Looking ahead, KBRA says positive rating action is not currently likely after the downgrade. Over time, improved earnings closer to peer levels, return on assets near 1%, and CET1 capital near 11%, while maintaining strong credit quality, could support positive rating momentum; by contrast, a sharp deterioration in asset quality, weaker capital management, or a materially higher risk profile could lead to renewed negative pressure.

In our earlier article on Fitch’s rating actions for NewDay Partnership Master Issuer Plc, we explained how structural changes in the securitisation reshaped note protection and led to mixed outcomes across the capital structure. We noted the upgrade of the class B notes, the downgrade of the class C notes, and the withdrawal of the class E rating, alongside improving charge-off performance but continued operational and retailer concentration risks.

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