Good day, and thank you for standing by. Welcome to the Central Bancompany Third Quarter 2026 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 star one one on your telephone. You will then hear an automated message advising your hand has been raised. To withdraw your question, please press star one one 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 Ross, President and CEO. Please go ahead.
Thank you, operator. Good morning, and thank you for joining us for Central Bancompany's third quarter 2026 earnings call. With me in the room today is our Chief Financial Officer, Jim Ciroli, Chief Customer Officer, Dan Westhues, 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 four of our press release. I'd like to share two 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, 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 Matt, 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 non-recurring pre-tax 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?
Certainly. As a reminder, to ask a question, please press star one one. One moment, please. Our first question comes from the line of Ryan Kenny with Morgan Stanley.
Hey, good morning. Thanks for taking my questions. 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? Also, to what degree does the payments business bring in low-cost deposits?
Thanks, Ryan. This is Jim. I'm not sure I got all of that. But yeah, happy to try to be more transparent on the payment business. The payment volumes are up nicely on a year-over-year basis. We're deeply committed to that business as well. I'm going to turn over to Dan Westhues for what are some of the things that we're doing in that area to maximize our payments.
Yeah. On the consumer side, we run a pretty modest credit card portfolio, but our debit card portfolio is really what's driving the payments volume. That goes directly with the growth in our retail base. 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 went along with that were too high. On the commercial side, we're continually very active in trying to grow that business within our own existing base.
Continue to make investments there.
Yes.
Non-interest-bearing deposits in the quarter were up nicely at 6% year-over-year. Can you unpack what's driving the growth that you're seeing in non-interest-bearing balances? How resilient do you think that growth can be given higher rates?
Great question, Ryan. The 6% is kind of consistent with our long-term trend. I would remind you that I know you are new to the story, so maybe this is not as much of a reminder. We really focus on 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. 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.
Dan, anything to add there?
No. Just exactly what you said. That year-over-year, if you take a look at our consumer deposit base, it is over 50% of the base, and the non-interest bearing is a big portion of that. That is what we focused on. Year-over-year, it continues to grow even with seasonality.
Thank you.
Thank you. Our next question comes from the line of Christopher McGratty with KBW.
Great. Good morning. Jim, maybe a question for you on the debate of margin and NII dollars. I guess where do you stand? You had, 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. Thanks.
Yeah, I appreciate the question. I think it is one of the key questions for us. It is a great thing to focus on because we put on page five 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 $700 million rolling off. Next year, we have $2.2 billion of loans rolling off. Those are all rolling off at pretty much a 6.0% flat rate. When we are investing, I think we are improving yields around 100 basis points as we are reinvesting that fixed rate book into where we currently stand. 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 in direct lending. Those are a little bit higher yielding, maybe a little bit more credit loss content. Those are really being replaced with residential first mortgages and we saw nice HELOC growth in our loans this past quarter. There is a little bit of a mix shift going on in the consumer side. From a commercial side, it is business as usual. 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. We are 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. Then finally, I would throw securities in there, where one quarter ago, we would say there was not much of a repricing opportunity within our securities book. There is a significant repricing opportunity within our securities book, and we added those to page five as well. Then in the bottom right corner on page five, we give you an analysis we have given you before, which is in a static portfolio. We are not taking any credit for loan growth or deposit growth in that static curve.
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 two numbers. You can see what our own internal models are telling us, again, with those two assumptions: static curve, static balance sheet. I think the conclusions are correct. There is additional opportunity for that net interest margin and net interest income to grind higher.
I would just say one quick thing because Chris put out a report that basically says there is a NIM, NII, or return on tangible common equity. I think Jim is saying, well, we are going to have NIM that is higher. We are going to have a balance sheet that continues to grow as it has historically. So those will both do well. But the only I would add to your report is 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 grind higher based on our strategy.
Great. Thanks for that. As a 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 retooling of the book, the balance sheet. I guess, A, is that another option? Then B, maybe more broadly for the team, any change in M&A conversations? What's available? Thanks.
I'll take on the first part of that, and I'll toss it over to JR for the second part of that. We just locked in, as JR mentioned in his prepared remarks, we just locked this in last week. 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.
Higher rates do create opportunities for us 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.
Thank you. 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'm curious what you're hearing from your commercial borrowers today with respect to higher rates. 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. Thanks.
Yeah. I appreciate the question, Matt. 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'd say normally, over a long period of time, kind of the mid-single digits growth for our loan portfolio is I think the right expectation. 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 growth basis and a net basis. They're as strong as they were a quarter ago. I think we continue to be optimistic in terms of being able to grow from here in the right way.
Eric, what else should I add to that?
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. 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're 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. We're hopeful and optimistic that that momentum will continue as we look into the end of the year.
Okay. Appreciate the color on that. Then just as a follow-up, you mentioned on slide five 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 of higher rates. I'm curious, kind of moving in 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? Thanks.
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. 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 JR mentioned it's kind of a crazy environment where a year ago we were looking at three successive rate cuts, and now we're looking at a rate hike that just happened, probably another one happens in December and something early next year. With this period of rate uncertainty, 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 five, we kind of dimension what we think the repricing opportunity is over time with that portfolio.
Okay. Thanks for the color.
Thank you. 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. Curious how you guys are thinking about maybe stepping up on buybacks until we see an acquisition announcement and 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.
That's a great question. 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 dimension this on slide 13, as well as what we were just talking about with Matt in 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. I'd add, when you look at our performance relative to the people that we compare ourselves to, which is that 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.
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. It 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. 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 spending that authorization.
Once we do a deal, get more float out there, the dynamic will change, but it will also always be balanced against the M&A opportunities that we see going forward. 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 overdoing it. That's kind of how we gauge the $100 million for now.
Yeah, that's really helpful. Just one kind of housekeeping question as a follow-up. Jim, I think floating rate loans are about $2.5 billion. Could 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 at September benefit loan yields as we kind of think about forward rate expectations on the short end of the curve.
I'm going to have to get back to you, Nate. I understand the question. It's a very good question. But I'm going to have to get back to you on the mix.
Okay. But the $2.5 billion is still kind of the right number on the floating rate side of things?
Yes.
Okay, great. All right. Okay, great. Thanks, guys.
Thanks, Nate.
Thank you. Our next question comes from the line of Brandon Berman with Bank of America.
Good morning. Thank you for taking my questions.
Good morning, Brandon.
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 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.
Yeah. 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 are due, property tax payments are due in December. While it troughs in September, what we'll see on an average basis, comparing third quarter to 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 on a spot basis, the deposits kind of move around to different pockets within the state, but they stay kind of within the state pockets.
From March 31st 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 distributes that out to its agencies, the agencies spend it down throughout the year. That's the seasonality you see. We've put something together on page nine of the slide deck that helps to 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 over 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.
Hopefully I've dimensioned what we expect in terms of the seasonality of those changes. I would also point out, going from Q2- 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. Thank you. As a follow-up and just more of a housekeeping item, the increase in commercial non-performers 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? Thank you.
Yeah, I'll turn that over to Eric. Look, I would point out that when I see non-performing assets going up, albeit small numbers, and delinquencies going down, commercial delinquencies have been such low numbers for the past couple of quarters that 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.
Eric, how would you answer that?
Yeah, Brandon, 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 non-performing assets, 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 any things shifting or thematically changing in the near term.
Great. Thank you guys.
Yeah, 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 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.
Thank you. I'm showing no further questions. With that, I'll hand the call back over to President and CEO, John 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.