Central Bancompany, Inc.

and thank you for standing by. Welcome to the Central Band Company first quarter 2026 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your telephone. You will then hear an automated message advising your hand is raised. To answer your question, please press star 11 again. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, John Ross, President and CEO. Please go ahead.

Thank you, Operator. Good morning, and thank you for joining us for Central Bank Company's first quarter 2026 earnings call. With me in the room today are our Chief Financial Officer, Jim Cerulli, Chief Customer Officer, Dan Westhues, and Chief Credit Officer, Eric Holdren. As a reminder, I'd like to point out that the discussion today is subject to the same forward-looking considerations outlined on page three of our press release. Today, we plan to briefly discuss first quarter highlights before opening the line for questions. Before I turn to the numbers, please allow me to share some non-financial highlights. In the first quarter, we were humbled to again be named one of America's best banks by Forbes, as well as the best performing U.S. public bank with more than $10 billion in assets by S&P Global Market Intelligence. Recognition from such organizations is a testament to the efforts of our nearly 3,000 full-time employees, who I'd like to thank for their continued legendary service. With that, let's cover the financial results. For the quarter, Central Bank posted net income of $111.1 million, or 46 cents per fully diluted share. Return on average assets of 2.2%, NIM on an FTE basis of 4.36%, and an efficiency ratio on an FTE basis of 45.7%. Relative to the first quarter of 2025, net income increased $16.3 million, or 17%. Our asset quality remained consistent with 10 basis points of net charge-offs again this quarter, and allowance covered 130 basis points of total loans. We remain encouraged by the continued resumption of growth in our balance sheet with ending loans excluding other consumer of nearly 6% annualized quarter-over-quarter and average deposits of 5% year-over-year. Lastly, capital levels at the holding company remain well above target with approximately $1.9 billion of excess or $7.80 per share. We leaned into capital deployment this quarter by announcing a meaningful increase to our quarterly dividend and repurchasing $32 million worth of our shares, taking advantage of attractive prices and expanded liquidity. We are pleased with these results and appreciate those on the line for joining us for this call.

With that, I'd like to open the line for questions. Operator?

As a reminder, if you have a question, please press star 11 on your telephone. You'll hear that automated message advising your hand is raised. To remove yourself, please press star 11 again.

One moment while we compile the Q&A roster. And our first question is coming from the line of Manon Gosalia of Morgan Stanley.

Your line is open. Hi.

Good morning, all.

Good morning, Brian.

So it looks like loan yields held up nicely despite rate cuts at the end of last year. I was hoping you can help us with what's going on under the surface in terms of, you know, yields, spreads, fixed rate loan repricing, et cetera. You know, anything that can help us think through the forward look under different rate scenarios, given that rate expectations have been moving around quite significantly over the past several weeks.

Yeah, happy to, Manan. So this is Jim. So, you know, looking at it on a linked quarter basis, as you look at the loan yields, yeah, sure, they came down three basis points. Almost all of that was loan fees, just coming off of higher prepayment fees in the prior quarter, which being that we had fewer prepayments this quarter. And I would also note that our loans kind of into the quarter higher than their average. So we're showing kind of growth momentum coming out of the quarter and into the second quarter. So with your repayments, we kind of like that scenario. What I would say additionally is that we repriced about 400 million in the quarter and we anticipate about a billion eight more for the rest of the year repricing. When those loans are repricing, they're coming out at like a 580-ish type yield. And we continue to see loan opportunities at 300 basis points over similar maturity treasuries. So as that billion eight reprices over the rest of the year, I think that could provide some upside to where we were in MIM. One of the things I would just point out, look at our NIM coming down, I wouldn't necessarily focus on the loan yields coming down. Sure, they came down three basis points. But if you look at the deposit side, our deposit costs came down five basis points. If you factor out the shift higher in public funds, we kind of signaled on the last call. So public funds ended the fourth quarter higher. And we talked about the seasonality there and said seasonality would kind of go sideways during the quarter, i.e., the averages for the first quarter were going to be higher than the averages for the fourth quarter, the length quarter, in public funds. And that's exactly what we saw. And we anticipate that the public funds, you saw those. I point out slide 9 that we added to the deck. But you saw our public fund deposits. At the end of the quarter, start to come down. So the ending balance was lower than the average balance, and that's exactly what we said on the call last time. Did I cover everything you wanted me to cover there, Manan? That was a lot.

Yeah, no, that was great detail. I really appreciate that. So then maybe to just pivot over to the credit side, I see the credit remained broadly solid in the quarter. I guess if I really had to nitpick, one question is on the delinquencies. we've had a couple of quarters where they've edged up a little bit, and it looks like it was driven by commercial. So any thoughts you can give there on what you're seeing and your views on credit overall?

I'll turn to Eric Hallgren, our chief credit officer, in a second. What I'm seeing right now is that we still continue to have a lot of small numbers in our asset quality statistics. And so when you have small numbers, small changes can seem like They're bigger than they actually are. So I think that really what we're looking at in our asset quality numbers continues to be pristine. And just, like I said, small changes in that pristineness can lead to big percentage changes, but that doesn't necessarily mean anything. Eric, what color can you add?

Yeah, thanks, Jim. So the increase in monon, as you noted, was primarily driven in the first quarter by commercial. That was really concentrated to a small number of markets and largely attributable to a handful of commercial clients. From what we see, we don't anticipate those delinquencies degrading any further and expect resolution here. So overall, we view it as isolated pockets of stress and not indication of systemic weakness kind of emerging as we look ahead for the rest of the year.

Got it. That's great. Thanks so much for the color.

Thank you. One moment for the next question, please. And our next question will be coming from the line of Nathan Race of Piper Sandler. Your line is open.

Hey, guys. Good morning. We're all doing well in terms of taking the questions. Jim, just going back to your earlier comments around some of the deposit flows in the quarter, you know, I'm just curious how you're thinking about, you know, working down some of the excess liquidity that kind of weighed on the margin. in one queue and just generally how we should think about the size of the balance sheet specifically. Can Irene ask this as a better jump off point for the second quarter?

That's a great question, Nick, and I appreciate it because we really worked hard in the first quarter. If you recall the path of rates, it wasn't terribly looking good in earlier parts of the quarter, but at the end of the quarter, Where we like to extend duration to is about the four year mark with our security portfolio. And near the end of the quarter, we saw rates come up in that part of the curve. And so we stepped up the pace of our buying activity in March and that continued into April as well. In fact, in April, we're seeing, we're reinvesting that cash into about a 430 yield right now. We continue to work hard to try to find great opportunities. We want to find things that are U.S. government guaranteed or at least sponsored by agencies of the U.S. government. We don't like taking on a lot of convexity risk. And trying to deploy that money, there's a lot of work by our treasury team. And so when the market comes back in where we want it to be, like it did in March and April, were able to move even more and faster in that environment than we did.

Gotcha. That's helpful. Maybe changing gears a little bit, you know, you guys are obviously continuing to build, you know, excess capital, but really strong clips going forward as evidenced here in 1Q as well. So, Jim would – I'm sorry, JR, would love to get your kind of thoughts I'm just kind of your optimism level for an acquisition announcement this year and just generally how conversations are trending. It seems like you guys have a competitive currency to share with potential partners, but we'd just love some updated thoughts on that front.

Yeah, it's a very understandable question. More than half our capital is excess, and it is a major focus of ours on a daily basis. Having said all of that, We have no real updates for you at this stage. You can kind of push replay on the comments we made last quarter and just summarizing those briefly. We do think we're well positioned. We are in active discussions. Nothing is imminent. We see everything that's out there and we'll update you when we have a deal. But until then, we're just going to work really hard on it. So no real updates this quarter for you.

Okay, fair enough. Helpful. Maybe one last one for me. You know, the payments revenue, you know, tends to show kind of a seasonally decline in the first quarter. You know, just curious if you guys still feel like some of the initiatives you put in place, particularly with Dan and his team, you know, are bearing fruit. And do you still think, you know, some of the payments revenue projections that we've talked about in the past, you know, kind of hold true in terms of kind of a nice ramp over the balance of this year?

We do. I mean, yeah, I appreciate, Nate, that you noticed the seasonality between Q4 and Q1. It really comes off of a good quarter in Q4 and it comes down pretty sharply. But, you know, when you look at this on a year-over-year basis, what we're seeing is still the consumers still spending. So there's no concern from a consumer spending perspective. And we're seeing nice growth on the commercial side with some of the programs we're putting into place.

So I would say, yeah, we continue to feel pretty sanguine about that business as we look forward.

Okay, great. I appreciate all the color. Thanks, guys. Thank you.

Thank you. One moment for the next question, please. And our next question will be coming from the line of Matt Olney of Stevens. Your line is open.

Hey, thanks. Good morning, everybody. Just want to go back to the deposit discussion. And Jim, you already addressed the moving parts around the public funds, and slide nine is helpful for that. Any general observations you can share as far as just the competitive dynamics for deposits in your marketplace and kind of what you're seeing more recently?

That's a fair question, Matt. And welcome to coverage on our stock. So I'm looking forward to spending more time with you as well. What you're going to find as you look at us is we're out there generally growing deposits at around, you know, adjusting for seasonality, which we had a lot this quarter. Adjusting for seasonality, we're growing deposits kind of mid-single digits across our markets, but we're doing that through our acquisition campaigns where we're focused on growing checking accounts. So we're focused really on being our depositors' primary checking account. We're focused on primacy overall. And I think this quarter, once you normalize the activity, you can see the growth that I'm talking about in terms of mid-single digits. So we're not really out there competing for the yield-seeking funds. We're out there competing on service, trying to be people's primary checking account in the markets that we serve. So I don't think we would be the best to ask, you know, the competitive questions. Yeah, I think it is competitive out there from what I hear, but that's not really the market we compete in.

Okay. Appreciate the color on that. And then I guess going back to the capital discussion, I think you noted in prepared remarks you stepped up the share repurchase program this quarter, just over a million shares. I guess help us appreciate your capital allocation strategy and where buybacks come into play. And I think JR already addressed the M&A question, so just put that aside for a second. I'm trying to appreciate the – I think you disclosed that ROIC of around 12% based off kind of the way you guys think about it. Any more color you can share on cap allocation and the buybacks?

Yeah. So, you know, one of the things I would point out is that Even with the $32 million that we bought back this quarter and we stepped up the dividend, we still continued to grow our excess capital number. So it went from $1.8 billion to $1.9 billion, as JR said. More than half of our tangible book value is excess capital. And when we look at that excess capital and we look at where we value that at roughly $1 per dollar, I don't know how else you'd value that, and you strip out and look at what our core capital is, and compare that to any measure you want, trailing 12 months, next 12 months of expectation. Looking at 2027 earnings, we think the stock is still cheap. And if we intend to use that stock in an M&A transaction, having it that cheap is something that we'd like to work against. We'd like to get that stock a little bit more valued in the marketplace. J.R., anything you want to add to that?

No, I mean, to your point on Roe, if we do calculate it, we calculate it in the same way that we look at other bank acquisitions because we think that's a good practice. And we look at several other methods as well. But practically speaking, it's the intuition of bringing a single-digit piggy multiple on a forward basis when you look at the core bank is very attractive. Now, obviously, $32 million is a drop in the bucket compared to our excess capital. The one last thing I would add that we were pleasantly surprised was the increase in the liquidity in the stock, which will maybe provide us more opportunities on that front as we go forward here as well. We were a little bit constrained in our initial, you know, resolution of the $50 million because we were concerned about impacting the liquidity of the stock, but we've been pleasantly surprised to see it pick up here.

Okay, that's perfect, guys. Thanks for the color.

Thank you. Thanks, Matt.

Thank you.

One moment for the next question. And our next question will be coming from the line of Christopher McGathery of KBW. Your line is open.

Oh, great. Good morning. Jim, on expenses, really good performance in the quarter. Can you speak to sustainability and maybe broader operating leverage expectations? Thanks.

Yeah, great question. Look, I think what you saw on a quarter-over-quarter basis is that come down a little bit. What I would share with you on the current quarter, we've signaled that we're going to have some additional costs of around $5 million a year in terms of public company expenses. When we look at it, the first quarter has about that run rate in it. So the other thing I would share is that know we are still in the middle of our core conversion but during the quarter we only capitalized uh 700 000 of the of the dollars that we spent so i think the first quarter nie is is fairly loaded um i think that's a fairly sustainable end rate there might be a little uptick because we do marry increases in march but there's there's not going to be much of an uptick

that I would expect.

Okay, that's helpful. And if I could go to slide five, the updated rate sensitivity static analysis, I think it was up a touch, call it 100 basis points from last quarter, but the base case shows a pretty good ramp in both years. Can you speak to just broader, any strategies being contemplated to lock in the margins given higher for longer is seemingly a base case? How we should be thinking about progression of NII as you get a little bit better growth in the loan fee adjustment that you talked about?

Chris, I appreciate the question. I really go back to what I was talking with Nate about and answering Nate's question. I think the I think that one of our biggest opportunities is to continue to invest our excess cash. And because most of the quarter, the differential between the four-year point on the curve and the overnight point on the curve was slight, that's kind of steepened a little bit with an anticipation that we won't have a rate cut until sometime late in 27. And as that environment has improved, we've accelerated our investing strategy to put that excess capital cash to work. But also having said that, I think the real opportunities come from continuing to grow and not interfering deposits. I think there's still some movement to do on the deposit cost side and managing those down. I'd point out that 90% of our deposit base is non-maturity. And so in order to work that down from the rate cuts we saw in late 25, our market CEOs have to go out there every day and try to manually work that count with their depositors. And so it's not something that just mechanically comes down. We still think a low 20s beta is appropriate, but because of that nature of the non-maturity deposits, that's going to take a little while to come in. And then I point out the seasonality too, is we roll out of first quarter with the higher public fund deposits, and that's why we put slide nine in there, Chris, to help give you transparency on that phenomenon and the seasonality. So as that comes down, like I said earlier, had we not mixed higher in public fund deposits, our cost of deposits would have been down five basis points on a linked quarter basis. And so as we see those public fund deposits come down across Q2 and Q3, I expect that the I expect that the mixing lower in those deposits will continue to benefit net interest margin as well.

Okay, just if I could squeeze one on the excess cash. How does that settle in terms of proportional balance sheet over the next couple of years? Where do you want to run cash to earning assets?

I don't think of it as much that way as I think of balance. So it's not necessarily a percentage bill. We use it as a balance sheet.

and that's probably $500 million on the balance sheet. All right. Thank you. Thank you. Thank you.