Central Bancompany, Inc. (CBC) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Central Bancompany Second Quarter 2026 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to turn 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 Second Quarter 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 4 of our press release. Today, we plan to again briefly provide some details on second quarter highlights before opening the line for questions. I'd like to begin with some nonfinancial updates for the second quarter. We opened 3 new full-service branches during the second quarter, 1 in St. Louis and 2 in Colorado, as part of our growth strategy in underpenetrated metro markets. Our Kansas City teammates were also busy welcoming World Cup fans and putting exclusive Soccer Capital of America debit cards in their wallets. But more than anything, I guess, you could say it was business as usual here at Central Bank. I'd like to thank the nearly 3,000 full-time employees across our organization for their continued efforts, providing legendary service to our clients and communities. I will now turn it over to Jim to cover a few financial highlights.

Thank you, JR. Net income of $113.8 million for the quarter or $0.47 per share produced a return on average assets of 2.24%. Relative to the second quarter of 2025, adjusted net income increased by $15.4 million or 16%. Net interest income increased $17.7 million over the prior year quarter with average earning assets up $1.1 billion, and net interest margin on an FTE basis expanding 13 basis points to 4.43%. Loan yields over the past year have been relatively stable despite a decline in short-term rates and a mixing of the consumer portfolio into lower-yielding, but lower-risk mortgage loans and out of the higher-yielding consumer loans where we're being more selective. During the quarter, our cost of deposits declined 3 basis points due mostly to a lower level of public fund deposits. We expect the public fund deposits will continue to decline seasonally in Q3 before increasing in Q4. Our core fee income ratio was 24.5%, reflecting seasonality and continued growth in noninterest income, a remarkable achievement considering the increase in net interest income. During the quarter, we participated in Visa's shares exchange offer, converting a portion of our Class B shares and recognizing a gain of $8.4 million. Additionally, we took advantage of higher rates to marginally reduce our asset sensitivity by selling $210 million in shorter-duration securities, taking a loss of $7.8 million, and reinvesting the proceeds in medium-term duration securities with a 250-basis-point pickup in yield. We posted an FTE efficiency ratio of 46.1%. On a linked-quarter basis, we typically experience more of an expense increase moving from Q1 to Q2. The largest component of this increase was salary and benefits. Last year, we had a 4.9% linked quarter increase. This year, we saw a similar increase of 5.3%. While our merit raises drive most of this increase, this quarter, we had the impact of; a, deferred compensation expense, which totaled $1 million with an equal offset in other noninterest income; and b, higher performance-related compensation. Mortgage commissions were $1.0 million seasonally higher in Q2. Commissions are recognized when loans close, so 1Q commission expense related to the revenue from December through February, the lowest volume part of the year. Our asset quality remained consistent with just 10 basis points of net charge-offs again this quarter. Our NPA ratio picked up slightly as we downgraded one small commercial loan into nonperforming status at the end of the quarter. Delinquencies were only 22 basis points of total loans, a decline from the prior quarter, driven by improvement in commercial loans and consumer credit cards. Lastly, capital levels at the holding company remained well above target with approximately $1.9 billion of excess capital or $7.98 per share. We announced this morning that our Board refreshed our stock buyback authorization to $100 million, which replaces the $11 million remaining on the buyback authorization we announced in February. While we have been pleased to see our stock outperform the market in the second quarter, we still see value at current levels, and we'll continue to be opportunistic with our new authorization. With that, I'd like to open the line for questions. Lisa?

[Operator Instructions] Our first question will be coming from the line of Man Gosalia of Morgan Stanley.

You guys saw a really -- some nice pickup in commercial loan growth in the second quarter. The comments in your deck sounded pretty positive as well. Does it feel there's more room for loan growth to pick up here based on some of the trends that you're seeing in your footprint?

Yes, Man. Loan growth was pretty broad-based during the quarter. And look, net of the decline in other consumer loans, which, as I mentioned in my prepared remarks, we're deemphasizing and being selective, we grew at a 6.5% annualized pace this quarter and finished the quarter with an ending balance higher than our average balance. So carrying some nice momentum into the second quarter. So we continue to see good opportunities. The pipelines are robust and similar to what they were, I'd say, in the first half of 2025.

Got it. And maybe on the other side of the balance sheet, as you think about deposit costs overall, any trends you noticed as you went through the quarter? Is deposit competition picking up in your footprint? And I guess how do you expect that to trend from here given the positivity on the lending side?

I think price competition in yield-seeking deposits is always intense, but that's not necessarily where we compete. We were really trying to go out there and win primacy of our customers and our communities. So we're out there trying to grow noninterest-bearing deposits. And you know there's seasonality in our deposit numbers. So the best way to look at this is on a year-over-year basis, where you can see total deposits are up 3%, but if you look at just noninterest bearing on a year-over-year basis, so taking the seasonality out of it, they're up 5%. So I think in terms of price competition, where we really don't compete, it's intense, but where we compete in terms of service and looking for primacy of our customers, I think we're doing quite well as you can see with that 5% year-over-year growth.

The next question is coming from the line of Chris McGratty of KBW.

The question is on M&A. Obviously, your stock has done well. I'm interested in kind of an update on the conversations, pipelines, willingness to transact?

Chris, you're kind of cutting in and out. Just to make sure, your question is about M&A and whether the dialogue or the nature has changed in the backdrop of stock price moving around?

That's right. Yes.

Yes. No real change on our end. I mean, as you know, the discipline that we've communicated is predicated on absolute valuations, and so the market moves don't make a substantial move. I would also note that we're trying to do a little bit different type of deal, all things that we communicated in the IPO. So no update on our strategy. We mentioned last time maybe a little bit change in our tactics in terms of the velocity and formality of our approaches to these high-quality banks that we're pursuing. But there is no update on the status of any of those, and we look forward to the time when we can update you on the status of those, but there's nothing to report at this time.

Okay. Great. And then, Jim, you touched on the one downgrade of the commercial loan in the quarter. Any additional color you could place on that?

I don't think there's any real -- look, it's a small loan. When you look at our portfolio, our median size is $150,000, right? So it was bigger than that, but it's, in the overall scheme of things, [indiscernible]. $11.5 billion, close to $12 billion portfolio, it's a really small shift. There's no trends that we're seeing in the portfolio. There's nothing really going on, but let me turn it over to Eric and see if there's anything...

Yes. I think the only thing I would add on that one in particular, it is very specific to the situation of the borrower and really not indicative of any shift in kind of asset quality of like-kind assets or collateral position. So we feel pretty good it's isolated and don't see a significant trend or shift in kind of risk profile going forward.