Prepared remarks
Good day, and thank you for standing by. Welcome to the Central Bancompany First Quarter 2026 Earnings Conference Call. 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 Bancompany's First Quarter 2026 Earnings Call. With me in the room today are 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 3 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 nonfinancial 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 of 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 $0.46 per fully diluted share. Return on average assets of 2.2%, NIM on an FTE basis of 4.36% and 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 up 5% year-over-year. Lastly, capital levels at the holding company remained 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?
Questions and answers
And our first question is coming from the line of Manan Gosalia of Morgan Stanley.
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 yields, spreads, fixed rate loan repricing, et cetera. 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.
Yes, happy to, Manan. So this is Jim. Looking at it on a linked quarter basis, loan yields came down 3 basis points, almost entirely due to loan fees coming off of higher prepayment fees in the prior quarter, given that we had fewer prepayments this quarter. I would also note that our loans into the quarter were higher than our average, so we're showing growth momentum coming out of the quarter and into the second quarter. With fewer prepayments, we like that scenario. Additionally, we repriced about $400 million in the quarter, and we anticipate about $1.8 billion more for the rest of the repricings this year. Those repriced loans are coming out at about a 5.80% type yield. We continue to see loan opportunities at roughly 300 basis points over similar maturity treasuries. As that $1.8 billion reprices over the rest of the year, I think that could provide some upside to NIM. One thing I would point out is that when you look at our NIM coming down, I wouldn't necessarily focus on the loan yields alone; they only came down 3 basis points. On the deposit side, our deposit costs came down 5 basis points if you factor out the shift higher in public funds that we signaled on the last call. Public funds ended the fourth quarter higher, and we talked about the seasonality there. Seasonality would cause averages for the first quarter to be higher than the averages for the fourth quarter, and that's exactly what we saw. We anticipate that the public funds, as you can see on Slide 9 that we added to the deck, started to come down by the end of the quarter. So the ending balance was lower than the average balance, and that's exactly what we said on the last call. Did I cover everything you wanted me to cover there, Manan? That was a lot.
That was great detail. I really appreciate that. So then maybe 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 continue to have a lot of small numbers on our asset quality statistics. When you have small numbers, small changes can seem larger than they actually are. So I think what we're looking at in our asset quality numbers continues to be pristine. Small changes in that pristine condition can lead to big percentage changes, but that doesn't necessarily mean anything. Eric, what color can you add?
Yes. Thanks, Jim. Manan, the increase was primarily driven in the first quarter by commercial. That was really concentrated in a small number of markets and largely attributable to a handful of commercial clients. From what we see, we don't anticipate those delinquencies to grade any further and expect resolution here. Overall, we view it as isolated pockets of stress and not an indication of systemic weakness emerging as we look ahead for the rest of the year.
And our next question will be coming from the line of Nathan Race of Piper Sandler.
Can I just go back to your other comments around some of the deposit flows in the quarter. I'm curious how you think about working down some of the excess liquidity that weighed on the margin in 1Q and generally how we should think about the size of the balance sheet, specifically earning assets as a better jump-off point for the second quarter?
That's a great question, Nate. We worked hard in the first quarter. If you recall, the path of rates looked favorable in earlier parts of the quarter, but near the end of the quarter, where we like to extend duration in our securities portfolio is about the 4-year mark, and we saw rates come up in that part of the curve. We stepped up the pace of our buying activity in March, and that continued into April. In April, we're reinvesting cash into securities yielding about 4.30% right now. We continue to work to find attractive opportunities, focusing on securities that are U.S. government guaranteed or sponsored by agencies of the U.S. government. We avoid taking on significant convexity risk. There's a lot of work by our treasury team, and when the market presents the right opportunities, like it did in March and April, we were able to move more and faster in that environment.
Got you. That's helpful. Maybe changing gears a little bit. You guys are obviously continuing to build excess capital, really strong trajectory going forward as evidenced here in 1Q as well. Jim — sorry, JR, I would love to get your thoughts on your optimism level for an acquisition announcement this year and just generally how conversations are trending. It seems like you guys have the competitive currency to share with potential partners, but would love some updated thoughts on that front.
Yes. It's a very understandable question. More than half of 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 replay the comments we made last quarter. To summarize briefly, we do think we're well positioned and we are in active discussions, but 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 continuing to work hard on it. So no real updates this quarter.
Okay. Fair enough. Helpful. Maybe one last one for me. Payments revenue tends to show a seasonal decline in the first quarter. I'm curious if you guys still feel like some of the initiatives you put in place, particularly with Dan and his team, are bearing fruit? And do you still think some of the payments revenue projections that you've talked about in the past hold true in terms of a nice ramp over the balance of this year?
We do. Nate, as you noticed, the seasonality between Q4 and Q1 comes off a strong Q4, and Q1 declines from that. But when you look year-over-year, consumers are still spending, so there's no concern from a consumer perspective. We're seeing nice growth on the commercial side with some of the programs we're implementing. We continue to feel pretty sanguine about that business as we look forward.
And our next question will be coming from the line of Matt Olney of Stephens.
Just want to go back to the deposit discussion. Jim, you already addressed the moving parts around the public funds and Slide 9 is helpful for that. Any general observations you can share as far as just the competitive dynamics for deposits in your marketplace and what you're seeing more recently?
That's a fair question, Matt, and welcome to coverage on our stock. Adjusting for seasonality, we're growing deposits in our markets mid-single digits, and we're doing that through acquisition campaigns where we focus on growing checking accounts. We're focused on being our depositors' primary checking account—primacy overall. This quarter, once you normalize the activity, you can see the mid-single-digit growth I'm referring to. We're not out competing for yield-seeking funds; we're competing on service and primacy. I don't think we would be the best to ask about broader competitive dynamics; yes, competition exists, but that is not the market we compete in directly.
Okay. Appreciate the color on that. Then going back to the capital discussion, I think you noted in the prepared remarks you stepped up the share repurchase program this quarter, just over 1 million shares. Help us appreciate your capital allocation strategy and where buybacks come into play. I think JR already addressed M&A, so put that aside for a second. I'm trying to appreciate the ROIC around 12% based on what you guys think. Any more color on capital allocation and buybacks?
One thing to point out is that even with the $32 million that we bought back this quarter and the stepped-up dividend, we still continue to grow our excess capital number—from about $1.8 billion to $1.9 billion. More than half of our tangible book value is excess capital. When we look at that excess capital, we roughly value it dollar for dollar. If you strip that out and look at our core capital versus any measure you want—trailing 12 months or next 12 months expectations—looking at 2027 earnings, we think the stock is still cheap. If we intend to use that stock in an M&A transaction, having it that cheap is something we want to improve; we'd like to get more value for the stock in the market. JR, anything you want to add?
No, to your point on ROIC, we calculate it the same way we look at other bank acquisitions because that's a good practice, and we also look at several other methods. Practically speaking, bringing a single-digit P/E multiple on a forward basis when you look at the core bank is very attractive. Obviously, $32 million is a small portion of our excess capital, but we were pleasantly surprised with the increase in liquidity in the stock, which may provide more opportunities going forward. We were a bit constrained in our initial resolve of the $50 million because we were concerned about impacting liquidity, but we've been pleasantly surprised to see a pickup.
Our next question will be coming from the line of Christopher McGratty of KBW.
Jim, on expenses, really good performance in the quarter. Can you speak to sustainability and maybe broader operating leverage expectations?
Great question. What you saw on a quarter-over-quarter basis is a bit lower expenses. For the current quarter, we've signaled that we'll have some additional costs of around $5 million a year in terms of public company expenses. The first quarter has about that run rate in it. We are still in the middle of our core conversion, but during the quarter we capitalized about $700,000 of the dollars we spent. I think the first quarter noninterest expense is fairly loaded; that's a fairly sustainable run rate. There might be a little uptick because we do merit increases in March, but I wouldn't expect much of an uptick.
Okay. That's helpful. If I could go to Slide 5, the updated rate sensitivity static analysis, it looks a touch improved from last quarter. The base case shows a pretty good ramp in both years. Can you speak to broader strategies being contemplated to lock in margins given higher-for-longer is seemingly the base case? How should we think about progression of NII as you get a little better loan repricing and adjustment?
I appreciate the question. I go back to what I said earlier about investing our excess cash. For most of the quarter, the differential between the 4-year point on the curve and the overnight point was slight, but the curve steepened with an anticipation we won't have a rate cut until late 2027. As that environment improved, we accelerated our investing strategy to put excess cash to work. Real opportunities also come from continuing to grow noninterest-bearing deposits; there's still some movement to be made on the deposit cost side and managing those down. About 90% of our deposit base is non-maturity, and to work costs down from the rate cuts we saw in late 2025, our market CEOs have to go out and manually work those accounts with their depositors. It's not something that just mechanically comes down. We still think a low-20s beta is appropriate, but because of the non-maturity nature, it's going to take a little while. Also consider seasonality: we roll out of Q1 with higher public fund deposits, which is why we put Slide 9 there for transparency. As those public funds come down across Q2 and Q3, I expect the mix and lower costs will continue to benefit NIM.
Okay. If I could squeeze one on the excess cash: where 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 that way as much; it's not necessarily a percentage target. It's more about finding appropriate earning asset opportunities that meet our risk and duration objectives, and that's probably a few hundred million on the balance sheet to continue to invest prudently depending on market conditions.
I'm showing no further questions at this time. I would now like to turn the call back to John Ross, President and CEO. Please go ahead for closing remarks.
Thank you, operator, and thank you to those on the call for taking an interest in our company.
Thank you for joining today's conference call. You may now disconnect.