Central Bancompany (CBC) Q3 2026 Earnings Report, Transcript and Summary

Good day, and thank you for standing by. Welcome to the Central Bank Company Third Quarter 26 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John T. Ross, President and CEO. Please go ahead.

Thank you, operator. Good morning and thank you for joining us for Central Bank Company's third quarter 26 earnings call. With me in the room today is our Chief Financial Officer, James K. Ciroli, chief customer officer, Daniel H. Westhues and chief credit officer, Eric A. Hallgren. As a reminder, I would like to point out that the discussion today is subject to the same forward looking considerations outlined on page 4 of our press release. I would like to share 2 notable central banker promotions before we dive into the third quarter financials. Matthew Adams, who joined us 19 years ago and most recently served as our senior lender in Oklahoma, has been elevated to CEO of that region. Brandy Bryant, who has been with us for over 28 years, and has most recently served as a market CEO, has been promoted to the newly created position of head of consumer and small business lending, a strategic focus for our company. Congratulations Brandy and Matthew, on your well deserved new roles. Now moving on to financials. We are pleased to report net income of $116.2 million in the third quarter or $0.48 per share. Which resulted in a return on assets of 2.27%. Net interest income of $218.9 million this quarter up $20 million from the prior year quarter. We posted 4.51% FTE net interest margin up 12 basis points from the prior year quarter. The cost of deposits was down 8 basis points from the same quarter last year, reflecting the rate cuts we had late last year. While we have been disciplined in our deposit pricing, and expect that to continue, the unusual turbulence of the current rate environment introduces uncertainty and time will tell as to our deposit cost beta from here. Irrespective we remained well positioned for higher interest rates. Our core fee income grew 4% year-over-year or 8% excluding mortgage. While mortgage revenues have declined this quarter, we are pleased that originations remain profitable on a direct cost basis. Turning to expenses. Our FTE efficiency ratio for the quarter was 45.4%. Overall, expenses remain well controlled. As we have disclosed previously, we are in the process of terminating our pension plan which was frozen in 2018. We have now contracted the associated termination payments and expect to record a nonrecurring pretax gain of approximately $27 million in the fourth quarter. As for credit, it again remained benign with just 12 basis points of net charge offs in the quarter. Lastly, our capital levels remain well above target with $2 billion of excess capital or $8.28 per share. We repurchased a minimal amount of shares during the quarter and still have $96 million of repurchase authority remaining. We see value in the shares at current levels as outlined in our deck, but we will continue to be opportunistic with our repurchase in light of our limited authorization. With that, I would like to open the line for questions, operator.

Certainly. As a reminder, to ask a question, please press *11. 1 moment, please. Our first question comes from the line of Ryan Kenny with Morgan Stanley.

Hey, good morning. Thanks for taking my questions. So maybe just starting out on the payments business, you highlighted the increase in transaction activity. Can you talk a bit about what you are doing to drive growth in payments? And also to what degree does the payments business bring in low cost deposits?

I am not. Ryan.

This is James K. Ciroli. I did not-- make sure I got all of that. But. Yeah. So, yeah, happy to try to be more transparent on the payment business. The payment volumes are up nicely on a year over year basis. And we are deeply committed to that business as well. I am going to turn it over to Daniel H. Westhues for-- you know, what are some of the things that we are doing in that area to maximize our payments. Yeah.

On the consumer side, you know, we run a pretty modest credit card portfolio. And. But then our debit card portfolio is really what is driving the payments volume. That goes directly with the growth in our retail base. So as we grow the retail base, that pay-- that payment area grows. We did exit a few small areas, gift cards, a few things like that, which are kind of in those numbers, but the expenses that went along with that were too high. So on the commercial side, we are continually very active in trying to grow that business within our own existing base. And continuing to make investments there.

Yes. And then noninterest bearing deposits in the quarter were up nicely. 6% year-over-year. And can you unpack what is driving the growth that you are seeing in noninterest bearing balances? And how resilient do you think that growth can be given higher rates?

that is a great question, Ryan. So the 6% is kind of consistent with our long term trend. And I would remind you that and I know you are new to the story, so maybe this is not as much of a reminder. We really focus on customer-- our customer acquisition on checking accounts and not high yield savings. We are not trying to buy money. We are trying to bring new customers in on the checking account side and so it is. I do not think it is a surprise to see the 6% number for us. I think some number in the mid-single-digits range is where we should expect to be year in and year out across a pretty long horizon. Daniel, anything you would add there?

No. Exactly what you said. And then year over year, our. Even our take a look at our consumer deposit base, it is it is over 50% of the base, and the non. And the noninterest bearing is a big portion of that. that is what we focus on. And year over year, it continues to grow even with seasonal. Thank you.

Thank you.

And our next question comes from the line of Christopher McGratty with KBW.

Great. Good morning.

Good morning, Christopher.

James K. Ciroli, maybe a question for you on the debate of margin in NII dollars. I guess, where do we stand? I guess, modest balance sheet growth, but the NIM continues to go up. Obviously, you are well positioned for this environment. Maybe you could unpack the outlook for margins and balance sheet growth.

Yes. I appreciate the question. And I think it is 1 of the key questions for us. So it is a great thing to focus on because look at what we put on page 5 within the slide deck a couple of things that we thought would be helpful. So in the upper right hand corner of that slide, we talk about what our fixed loan repricing looks like on a go forward basis. So fourth quarter, we have got $700 million rolling off. And next year, we have got $2.2 million of loans rolling off. Those are all rolling off at pretty much a 6% flat rate. And when we are investing, improving I think we are improving yields around 100 basis points as we are reinvesting that fixed rate book into where we currently stand. Now there is a couple of other things going on in there. Largely, you will notice that we are continuing to see declines in our other consumer portfolio that is largely indirect lending. Those are a little bit higher yielding. Maybe a little bit more credit loss content. And those are really being replaced with you know, residential first mortgages and some we saw nice HELOC growth in our loans this past quarter. So there is a little bit of a mix shift going on in the consumer side. From a commercial side, it is business as usual, so we continue to think there is a nice opportunity to expand margin coming from the left hand side of the balance sheet. When you look at the right hand side of the balance sheet, time will tell, and we are not really sure what rates were declining last year. Now they are increasing. So not really sure what the forward look on rates is going to be. We have always done an incredible job here at Central of managing our deposit costs because we compete on service and not on price. But even in, rising rate environments, we have seen kind of a mid- to low-20s type of a beta, and that is kind of our expectation. So. And then finally, I would throw securities in there. where 1 quarter ago, we would say there was a bunch of repricing opportunity within our securities book. There is a significant repricing opportunity within our securities book, and we added those to page 5 as well. And then in the bottom right corner on page 5, we kind of show-- we give you an analysis we have given you before, which is in a static portfolio. So we are not taking any credit for loan growth or deposit growth in that. Static curve. And full disclosure, it is a September 30th curve where rates were a little bit higher than where they are today. But you can see where we expect to have net interest income in 2027 and 2028 relative to our projections for 2026 in those 2 numbers. So you can see what our what our own internal models are telling us again, with those 2 assumptions, static curve, static balance sheet. And I think I think the conclusions are correct. there is additional opportunity for that net interest margin and net interest income to grind higher.

I will just say 1 quick thing because Christopher put out a report that basically says is the NIM, NII, or is the return on tangible common equity And I think Jim was saying, well, we are going to have them that is higher. We are going to have a balance sheet that continues to grow as a house historically. And so those will both do well. But the only thing I would add to your report is we do not look at. We look at return on tangible common equity, But what we look at internally is net income less a capital charge for the capital required to generate that income to put that loan growth in context of the capital that it consumes to do it. We call that shareholder value added and those components that Jim referred to. will grind higher based on our strategy.

Great. Thanks for that. And as the follow-up, you talked about the gain from the pension termination, I think, in the past James K. Ciroli, you have taken some proceeds and done some modest retooling of the book, the balance sheet. I guess, a, is that another option? And then b, maybe more broadly for the team, you know, any change in M&A conversations what is available? Thanks.

I will take on the first part of that, and I will turn it over to Gerard for the second part of that. So we just locked in, John T. Ross mentioned in his prepared remarks, we just locked this in last week. So we have not made any decisions as to whether there is a. Something that is the right thing to do, that is prudent from a business strategy to do that would spend that in any way. I would say we are probably less focused on that aspect than just looking at what is the right thing to do for our business and what is going to set us up for success in the future, we have not made any decisions. Higher rate is a great opportunity as far as what to look at. Yes.

On the M&A side, I would just say you followed the story closely. So I think you are. You and the community is broadly familiar with the strategy we are prosecuting against. We continue to prosecute against it, and we have no updates for you at this time. Thank you.

And our next question comes from the line of Matt Olney with Stephens.

Hey, thanks. Good morning. I just want to go back to the loan growth discussion, and I am curious what you are hearing from your commercial borrowers today with respect to higher rates. And investors are just concerned that higher rates are going to ultimately lead to some demand destruction at some point. So I would be curious what you are hearing with conversations with your. Some of your commercial borrowers and higher rates and future demand. Thanks.

Yeah. So I appreciate the question, Matthew. As you know and can see in our numbers, we grew loans at a 3% linked quarter annualized basis. If you back out the other consumer decline, which has been declining for several quarters, that actual linked quarter annualized growth is about 4%, which I would say normally you know, over a long period of time, kind of the mid-single-digits growth for our loan portfolio is, I think, the right expectation. So 4% seems right to us when environments are a little bit more competitive and a little bit more irrational at times. I think we will underperform averages, and I think that 4% is consistent with that expectation. Looking at where our pipelines are, say our pipeline continue to be encouraged by our commercial loan pipeline from a gross basis and a net basis. They are as strong as they were a quarter ago. So I think we continue to be you know, optimistic in terms of being able to grow from here in the right way But, Eric, what else should I add to that?

I think certainly given kind of the rate environment and the outlook, we are seeing a little bit of moderation in certain markets in terms of just borrower activity and appetite as they look forward into the next year? But I think the beauty of our franchise is the diversity and the makeup of those markets because where certain communities may soften a bit, we are seeing really strong activity in other markets. So to Jim's point, on a net basis, our pipeline looks to be at the same levels it has over the last several quarters. So we are hopeful and optimistic that, that momentum will continue as we look into the end of the year.

Okay. Appreciate the color on that. And then just as a follow-up, you mentioned on that slide 5 your assumption and the static balance sheet and the impact to higher rates It feels like it is a nice place to be given the market expectations now of higher rates. But I am curious, kind of moving in the future, are some strategies that we could expect from the bank down the road if and when you guys do think about moderating your asset sensitivity? What are some strategies you guys would probably focus on? Thanks.

Matthew, that is a very prescient question because I would tell you that when you look at when you look at our queue where we make the interest rate risk disclosures, and you will see that we are we are still slightly asset sensitive. And it is not lost on us that this hire for longer rate environment is something that benefits our business model. So, beginning last quarter, we are going to continue to look at this, we did put on a cash flow hedge at the very end of the quarter that is designed to moderate that asset sensitivity back a little bit And I think that, you know, now in the rate cycle, it is probably the right time to think about are there means that we can we can take that are prudent and reduce our exposure a little bit to potential rate volatility. I think John T. Ross mentioned it is kind of a crazy environment where you know, a year ago, we were looking at you know, 3 successive rate cuts, and now we are looking at rate hike that just happened, probably another 1 happens in December and something early next year. So with this period of rate uncertainty, I think it is it is probably better if we can take some of that asset sensitivity off the table and what we are going to look at. We do some of that through our securities portfolio as well. And on page 5, we kind of dimension what we think the repricing opportunity is over time with that portfolio. Okay, thanks for the color.

Thank you. And our next question comes from the line of Nathan Race with Piper Sandler.

Hey, guys. Good morning. Thanks for taking the questions. Just going back to the capital discussion. Yeah, just thanks. Just going back to the capital discussion. You know, curious how you guys are thinking about maybe stepping up on buybacks until we see an acquisition announcement. Just how you are thinking about maybe, you know, greater buybacks going forward just to provide a more a kind of consistent comprehensive total return to shareholders versus just balancing the float that is out there?

that is a great that is a great question, and I appreciate you mentioning the float at the end. Look. I would say that when you think about the value of our excess capital, $8.28 of that per share, And the opportunity to earn an even higher return, we could mention this on slide 13. As well as what we were just talking about with Matthew in the previous question about the higher for longer rate. I do not I do not think the benefits are yet fully reflected in our stock price from either of those And also, I would add, when you look at our performance relative to the people that we compare ourselves to, which a high performing peer group. We think there is some unrecognized value that there is still value at $34.35 a share, but it is not as great as it was at $24.25 a share. So we are not as aggressive with our buyback. We are also concerned about managing the value that we think continues to exist in the stock. And balancing that off against, a, the float that we have. I was not even a year ago that we went public, so we are just always kind of a little bit tepid, a little bit reluctant to go out there aggressively and buy that back.

And we only have a $100 million authorization And so we wanna make sure that we pick our spots and pick them in the right places if we are going to take action on that. On spending that authorization. Once we do a deal, we will get more flow out there, the dynamic will change, but it will all always be balanced against the M&A opportunity set going forward. So it is limited in the near term and I think we have gotten favorable feedback on that from investors because we do not want to kill the liquidity in stock that exists by overdoing. that is kind of how we gauge the $100 million for now.

Yeah. that is really helpful. Just 1 kinda housekeeping question. As a follow-up. James K. Ciroli, I think floating rate loan floating rate loans are about $2.5 billion. Can you just remind me of the mix between Prime and SOFR within that $2.5 billion Just trying to get a sense for how much of the move up in SOFR ahead of the Fed rate hike in September benefit loan yields as we kind of think about forward rate expectations on the short end of the curve?

I am going to have to get back to you, Nate. that is I understand the question. A very good question. But I am going to have to get back to you on the mix.

Okay. But the $2.5 billion still kind of the right number? On the floating rate side of things? Okay.

Yes.

Great. Alright. Okay. Great. Thanks, guys. Thanks, Nate.

Thank you. And our next question comes from the line of Brandon Berman with Bank of America.

Good morning. Thank you for taking my questions. I wanted to start on the deposit side, and I was wondering if you could sort of help unpack. I believe there is some seasonality with the public deposit portfolio. I believe it troughs in September. And then grows in the fourth quarter. Can you just talk about the movers on the deposit cost side, understanding that deposit beta uncertainty still exists, but understanding what the potential impact could be from public deposit growth in the fourth quarter?

Yes. So you are absolutely right. I would say it drops in September. Let's unpack that a little bit by going back to what really drives that seasonality. And it is really the state of Missouri. And we have a very special relationship with the state of Missouri. But in the state of Missouri, tax payments are due, property tax payments are due in December. So while it troughs in September, what we will see on an average basis comparing third quarter or fourth quarter typically in a year is that average is flattish. But on a spot basis, that will go up. And our highest quarter from an average basis is going to be the first quarter which is kind of interesting actually because the. On a spot basis, the deposits kinda move around in different pockets within the state. But they stay kind of within the state pockets. And then from March 31st throughout the rest of the year until collections resume again and at the end of the year, the various places where the state-- that state collects the money and then distributes it out to its agencies and then the agencies spend it down throughout the year. So that is the seasonality you see We put something together on page 9 of the slide deck. That helps dimension the cost of those. And you can see why we are focused on those. Because as we look at our total deposit costs period over period over period, the change in costs is often driven by just what is going on in this portfolio where our cost of deposits is. Not extremely high, but higher than higher than where they are in the consumer and commercial books. So hopefully, I have dimensioned what we expect in terms of the seasonality of those of those changes. I would also point out, you know, it can. Going from Q2 to Q3, not only do we see some seasonal declines in the public fund deposits because they trough in September, but we typically see a small seasonal decline in our consumer deposits as well.

Got you. And then as a follow-up and just more of a housekeeping item. The increase in commercial nonperformers this quarter were those still primarily related to the isolated borrowers you discussed last quarter? Or was there something else that led to the increase?

Yes. I will turn that over to Eric. But look, I would point out that when I see nonperforming assets going up, albeit small numbers and delinquencies going down, Delinquent Commercial delinquencies have been at such low numbers for the past couple of quarters that I really I think that is kind of the law of small numbers. We are seeing increases that are not significant, but numbers that are bouncing around the bottom. But how would you answer that?

Yeah, Brandon. So the increase that we saw is really situational and specific to certain commercial situations. We have not really observed a thematic shift in the portfolio or any specific asset class that gives us real concern and despite a fairly modest adjustment and level relative to our balance sheet on nonperforming performing assets, excuse me, we remain pretty convicted in kind of the positioning of the portfolio as well as the indication of credit risk that we see going forward. And do not see anything shifting or dramatically changing in the near term.

Yes, last thing I would add to that is that we are trying to keep the allowance coverage ratio to the loan portfolio stable and let loan growth drive an increase, a small increase in the absolute level of the allowance, which you are seeing even though, as I elaborated earlier, we are having a small positive from a credit perspective, mix shift on the consumer side.

Thank you.

And I am showing no further questions. So with that, I will hand the call back over to president and CEO, John T. Ross, for any closing remarks.

Thank you, operator, We were pleased to deliver another solid quarter and appreciate everyone taking the time to join us this morning. Thanks again, and we will talk to you in the New Year.

Ladies and gentlemen, thank you for participating. This does conclude today's program, and you may now disconnect.