Central Bancompany (CBC) Q3 2026 Earnings Call: Net Interest Margin Reaches 4.51%

Key Takeaways

• Central Bancompany reported Q3 2026 net income of $116.2 million, or $0.48 per share, with return on assets of 2.27%.
• Net interest income rose $20 million year over year to $218.9 million. The fully taxable equivalent net interest margin increased 12 basis points to 4.51%.
• Noninterest-bearing deposits grew 6% year over year. Management said mid-single-digit annual growth is a reasonable long-term expectation, supported by its checking-account-focused customer acquisition strategy.
• Credit remained stable, with net charge-offs of 12 basis points. Management described the increase in commercial nonperforming assets as borrower-specific rather than a broader portfolio trend.
• The company held approximately $2 billion of excess capital, equal to $8.28 per share, and had $96 million of remaining share repurchase authorization.
• Central Bancompany expects to recognize an approximately $27 million nonrecurring pretax gain in Q4 2026 from terminating its pension plan.

Key Financial Data

Business and Operating Performance

Loan growth was 3% on a linked-quarter annualized basis. Excluding the continued decline in other consumer loans, growth was approximately 4%. Management said commercial loan pipelines remained as strong as in the prior quarter on both a gross and net basis.

The consumer portfolio continued to shift away from higher-yielding indirect loans toward residential first mortgages and home equity lines of credit. Commercial lending was described as operating normally despite some moderation in borrower activity in certain markets.

Payments volume increased year over year. Consumer payment growth was led by debit cards and expansion of the retail customer base. The company exited several small activities, including gift cards, because their expense levels were too high, while continuing to invest in commercial payments.

Deposit growth remains centered on checking accounts rather than high-yield savings products. Consumer deposits represent more than 50% of the deposit base, with noninterest-bearing balances accounting for a significant portion.

Public-fund deposits typically reach a seasonal low in September and rise on a spot basis during Q4 as Missouri property tax payments are collected. Management said average public-fund balances are generally flat from Q3 to Q4, with Q1 typically the highest quarter on an average-balance basis.

Management Outlook

Management sees further potential for net interest margin and net interest income to increase. Approximately $700 million of fixed-rate loans are scheduled to reprice in Q4, with management estimating that current reinvestment yields are roughly 100 basis points higher than the rates rolling off.

The company’s internal modeling points to additional net interest income opportunities in 2027 and 2028, but that analysis assumes a static balance sheet and the September 30 interest-rate curve. Management emphasized that the future rate path and deposit-cost beta remain uncertain.

For loan growth, management said mid-single-digit expansion is an appropriate long-term expectation. Current growth may remain below that level when competition becomes more intense or pricing is less rational.

The company expects an approximately $27 million nonrecurring pretax pension termination gain in Q4 2026. No decision has been made on how the benefit may be deployed.

Risks and Areas to Watch

• The uncertain interest-rate path creates variability in deposit costs and net interest margin. Management cited a low- to mid-20% deposit beta in previous rising-rate environments as its general expectation.
• Higher rates are causing some moderation in commercial borrower activity and appetite in certain markets, although strength elsewhere has kept the overall pipeline stable.
• Mortgage revenue declined during the quarter, though originations remained profitable on a direct-cost basis.
• Commercial nonperforming assets increased modestly. Management attributed the change to specific situations and said it had not identified a broader deterioration by portfolio or asset class.
• Central Bancompany remains slightly asset-sensitive. It added a cash flow hedge at quarter-end and is considering additional measures to reduce exposure to rate volatility.
• Share repurchases may remain limited in the near term as management balances perceived share value, trading liquidity, the remaining authorization and potential M&A opportunities.

Analyst Q&A Highlights

Management said higher-for-longer rates support the company’s asset-sensitive model, but it is now taking steps to moderate that sensitivity. In addition to the new cash flow hedge, the securities portfolio may be used to manage interest-rate exposure and capture repricing opportunities.

On capital allocation, management said it continues to see value in the shares at approximately $34 to $35, but less than when they traded around $24 to $25. Buybacks will therefore remain opportunistic, partly to avoid reducing liquidity in the stock. The M&A strategy remains unchanged, with no transaction update provided.

Regarding credit, management plans to keep the allowance coverage ratio broadly stable, allowing loan growth to drive modest increases in the absolute allowance balance. The ongoing consumer loan mix shift was described as slightly favorable from a credit perspective.

The company confirmed that floating-rate loans totaled approximately $2.5 billion, although management did not provide the mix between prime- and SOFR-linked loans during the call.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good day, and thank you for standing by. Welcome to the Central Bancompany Third Quarter 2026 Earnings Conference Call .[Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, John Ross, President and CEO. Please go ahead.

John Ross

Thank you, operator. Good morning, and thank you for joining us for Central Bancompany, Third Quarter 2026 Earnings Call. With me in the room today is our Chief Financial Officer, James Ciroli, Chief Customer Officer, Dan West; and Chief Credit Officer, Eric Hallgren. As a reminder, I'd 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'd like to share 2 notable Central Bancompany promotions before we dive into the third quarter financials. Matt 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 and has been promoted to the newly created position of Head of Consumer and Small Business Lending, a strategic focus for our company. Congratulations, Brandy 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%. The 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 remain 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 repurchases in light of our limited authorization. With that, I'd like to open the line for questions. Operator?

Operator

[Operator Instructions] Our first question comes from the line of Ryan Kenny with Morgan Stanley.

Question-and-Answer Session

Ryan Kenny

So maybe just starting out on the payments business, you highlighted the increase in transaction activity. Can you talk a bit about what you're doing to drive growth in payments and also to much degree does the payments business bring in low-cost deposits.

James Ciroli

Thanks, Ryan. This is Jim. I didn't sure I got all of that. But -- so yes, happy to try to be more transparent on the payment business, payment volumes are up nicely on a year-over-year basis. And we're deeply committed to that business as well. Let me turn it over to Dan West use for what are some of the things that we're doing in that area to maximize our payments.

Daniel Westhues

Yes. On the consumer side, we run a pretty modest credit card portfolio, but then our debit card portfolio is really what's driving the payments volume -- that goes directly with the growth in our retail base. So as we grow the retail base, 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 we're on with that were too high. So on the commercial side, we're continually very active in trying to grow that business within our own existing base.

James Ciroli

And continue to make investments there.

Ryan Kenny

And the noninterest-bearing deposits in the quarter were up nicely 6% year-over-year. And can you impact what's driving the growth that you're seeing in noninterest-bearing balances? And how is alien do you think that growth can be given higher rates?

John Ross

The -- great question, Ryan. So the 6% is kind of consistent with our long-term trend. And I would remind you and I know you're new to the story, so maybe this isn't as much of a reminder. We really focus on our customer acquisition on checking accounts and not high-yield savings. We're not trying to buy money. We're trying to bring new customers in, on the checking account side. And so it's -- I don't think it's 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. Dan, anything to add there?

Daniel Westhues

No, exactly what you said. And then year-over-year, even our think consumer deposit base, it's over 50% of the base and the noninterest-bearing is a big portion of that. That's what we focus on. And year-over-year, it continues to grow even with seasonality.

Operator

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

Christopher McGratty

Great. Jim, maybe a question for you on the debate of margin in NII dollars. I guess, who you stand its modest balance sheet growth, but the NIM continues to go up obviously, you're well positioned for this environment. Maybe you could unpack the outlook for margins and balance sheet growth.

John Ross

Yes, I appreciate the question. And I think it's 1 of the key questions for us. So it's a great it's a great thing to focus on because we put on Page 5 within the slide deck, a couple of things we thought would be helpful. So in the upper right-hand part of that slide, we talk about what our fixed loan repricing looks like on a go-forward basis. So fourth quarter, we've got $700 million rolling off -- and next year, we got $2.2 million of loans rolling off. Those are all rolling off at pretty much a 6 flat rate.

And when we're investing, we're improving I think we're improving yields around 100 basis points as we're reinvesting that fixed rate book into where we currently stand. Now there's a couple of other things going on in there, largely you'll notice that we're continuing to see declines in our other consumer portfolio. That's 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 residential first mortgages and some -- and we saw nice HELOC growth in our loans this past quarter.

So there's a little bit of a mix shift going on in the consumer side from a from a commercial side, it's business as usual. So we continue to think there's 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, the time will tell, and we're not really sure what rates were declining last year.

Now they're increasing. So we're not really sure what the forward look on rates is going to be. We've 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've seen kind of a mid- to low 20s type of a beta, and that's kind of our expectation. So -- and then finally, I'd throw securities in there where 1 quarter ago, we'd say there wasn't 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 on the bottom right corner on Page 5.

We kind of show -- we give you an analysis that we've given you before, which is a static portfolio. So we're not taking any credit for loan growth or deposit growth in that static curve and full disclosure, it's a September 30 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 '27 and '28 relative to our projections -- for 2026 in those 2 numbers.

So you can see what our own internal models are telling us, again, with those 2 assumptions, static curve, static balance sheet. And I think the conclusions are correct. There's additional opportunity for that net interest margin and net interest income to grind higher.

Unknown Executive

I'd just say 1 quick thing because Chris put out a report that basically says the NIM and or as a return on handle common equity. And I think Jim was saying, well, we're going to have NIM that's higher. We're going to have a balance sheet that continues to grow on our house historically. And so those will both do well. But the only thing I would add to your report is -- we don't look at -- we look at return on tangible common equity obviously.

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 trend higher based on our strategy.

Christopher McGratty

Great. And as the follow-up, you talked about the gain from the pension termination. I think in the past, Jim, you've taken some proceeds and done some modest retool into the book, the balance sheet. I guess, a, is that another option -- and then b, maybe more broadly for the team, any change in M&A conversations. What's available?

Unknown Executive

I'll take on the first part of that, and I'll pass it over to James for the second part of that. So we just locked in as James mentioned in his prepared remarks, we just locked this in last week. So we've not made any decisions as to whether there's something that's the right thing to do, that's prudent from a business strategy to do that would spend that in any way. I'd say we're probably less focused on that aspect than just looking at what's the right thing to do for our business and what's going to set us up for success in the future. We've not made any decisions.

James Ciroli

Higher rates create opportunity as far as to look at Yes. On the M&A side, I would just say you followed the story closely. So I think you and the community is broadly familiar with the strategy we're prosecuting against. We continue to prosecute against it, and we have no updates for you at this time.

Operator

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

Matt Olney

Just want to go back to the loan growth discussion, and I'm curious what you're 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'd be curious what you're hearing with conversations with some of your commercial borrowers and higher rates and future demand.

John Ross

Yes. So I appreciate the question, Matt. As you know, and you 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'd say normally over a long period of time, kind of 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'll underperform averages, and I think that 4% is consistent with that expectation. Looking at where our pipelines are. I'd say our pipeline we continue to be encouraged by our commercial loan pipeline. From a gross basis and a net basis, they're as strong as they were a quarter ago. So I think we continue to be optimistic in terms of being able to grow from here in the right way.

But Eric, what else should I add to that?

Eric Hallgren

I think certainly, given kind of the rate environment and the outlook, we're 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 diversity in the makeup of those markets because where certain communities may soften a bit, we're seeing really strong activity in other markets. So to Jim's point on that basis, our pipeline looks to be at the same levels it has over the last several quarters. So we're hopeful and optimistic that, that momentum will continue as we look into the end of the year.

Matt Olney

Okay. Appreciate the color on that. And then just as a follow-up, -- you mentioned on that Slide 5, your assumptions and the static balance sheet and the impact to higher rates it feels like it's a nice place to be given kind of the market expectations now at higher rates. But I'm curious kind of moving into the future, what 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

John Ross

Matt, that's a very prescient question because I would tell you that when you look at our Q, where we make the interest rate risk disclosures, and you'll see that we're still slightly asset sensitive. And it's not lost on us that this higher for longer rate environment is something that benefits our business model.

So beginning last quarter, and we're going to continue to look at this. We did put on a cash flow hedge at the very end of the quarter that's designed to moderate that asset sensitivity back a little bit. And I think that now in the rate cycle, it is probably the right time to think about are there means that we can take that are prudent and reduce our exposure a little bit to potential rate volatility.

I think Jim mentioned, it's kind of a crazy environment where a year ago, we were looking at 3 successive rate cuts. And now we're looking at a rate hike that just happened, probably another 1 happens in December and something early next year. So with this period of rate uncertainty -- and I think it's probably better if we can take some of that asset sensitivity off the table, and that's what we're 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.

Operator

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

Nathan Race

Just going back to the capital discussion. -- just going back to the capital discussion. Curious how you guys are thinking about maybe stepping up on buybacks until we see an acquisition announcement just how you're thinking about maybe greater buybacks going forward just to provide a more kind of consistent comprehensive total return to shareholders versus kind of just balancing the float that's out there.

Unknown Executive

That's 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 mentioned this on Slide 13 as well as what we were just talking about in the -- with Matt on the previous question about the higher for longer rate.

I don't think the benefits are yet fully reflected in our stock price from either of those. And also I'd add, when you look at our performance relative to the people that we compare ourselves to, which is a high-performing peer group. We think there is some unrecognized value that there is still value at $34, $35 a share. but it's not as great as it was at $24, $25 a share.

So we're not as aggressive with our buyback. We're also concerned about managing the value that we think continues to exist in the stock and balancing that off against the float that we have. wasn't even a year ago that we went public. So we're 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 $100 million authorization -- and so we want to 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.

Unknown Executive

Once we do a deal, get more flow out there, the dynamic will change, but it will also always be balanced against the M&A opportunity set going forward. So it's limited in the near term. And I think we've gotten favorable feedback on that from investors because we don't want to kill the liquidity in the stock that exists by what we're doing. So that's kind of how we gave to going for now.

Nathan Race

Yes. That's really helpful. Just 1 kind of housekeeping question as a follow-up. Jim, I think floating rate loans are about $2.5 billion. And can you just remind me of the mix between prime and [indiscernible] 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 at September benefit loan yield as we kind of think about forward rate expectations on the short curve.

Unknown Executive

I'm going to have to get back to you, Nate. That's -- I understand the question. It's a very good question, but I'm going to have to get back to you on the mix.

Nathan Race

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

Unknown Executive

Yes.

Operator

Next question comes from the line of Brandon Berman with Bank of America.

Brandon Berman

I wanted to start on the deposit side. And I was wondering if you could sort of help unpack, I believe there's some seasonality with the public deposit portfolio. I believe it drops 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.

Unknown Executive

Yes. So you're absolutely right. I'd say it troughs in September. Let's unpack that a little bit by going back to what really drives that seasonality, and it's really in the state of Missouri, and we have a very special relationship with the state of Missouri. But in the state of Missouri, tax payments or do property tax payments or do in December. So while it troughs in September, what we'll 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 kind of move around the different pockets within the state but they stay kind of within the state pockets.

And then from March 31 throughout the rest of the year until collections resume again at the end of the year, the various places where the state collects the money and then distribute that out to its agencies in the agency spending down throughout the year.

So that's the seasonality you see we've put something together on Page 9 of the slide deck that helps dimension the cost of those, and you can see why we're focused on those because as we look at our total deposit costs period over period on period, the change in costs is often driven by just what's going on in this portfolio where our cost of deposits is not extremely high, but higher than where they are in the consumer and commercial books. So hopefully, I've to mention what we expect in terms of the seasonality of those of those changes.

I would also point out going from Q2 to Q3-- not only do we see some seasonal declines in the public fund deposits because the trough in September, but we typically see a small seasonal decline in our consumer deposits as well. Got you.

Brandon Berman

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 borrower or borrowers you discussed last quarter? Or was there something else that led to the increase?

Unknown Executive

Yes. I'll 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 such low numbers for the past couple of quarters that I really -- I think that's kind of the law of small numbers. We're seeing increases that are not significant, but numbers that are bouncing around the bottom. But Eric, how would you answer that?

Eric Hallgren

Yes, Brandon. So the increase that we saw is really kind of situational and specific to certain commercial situations -- we haven't really observed a thematic shift in the portfolio or any specific asset class that gives us a real concern. And despite a fairly modest adjustment and level relative to our balance sheet on nonperforming 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 don't see anything shifting or dramatically changing in the near term.

Unknown Executive

Last thing I'd add to that is that we're 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're seeing, even though, as I elaborated earlier, we are having a small positive from a credit perspective, mix shift on the consumer side.

Operator

Thank you. I'm showing no further questions. So with that, I'll hand the call back over to President and CEO, John Ross, for any closing remarks.

John Ross

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

Operator

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