Commercial Bancgroup Third Quarter 2025 Earnings Call - IPO Closed, Q4 Loan Pipeline to Restore Growth While NIM Holds Above 4%
Summary
Commercial Bancgroup closed its IPO on September 30, 2025 and reported another quarter of steady profitability despite the resource drain of going public. Through nine months the bank posted $27.1 million in net income, modest revenue and EPS gains, stronger tangible book value, and an efficiency ratio in the mid-40s. Management says asset quality is pristine and the loan pipeline is full, setting expectations for positive loan growth in Q4 that should more than offset earlier payoffs.
The margin picture looks resilient. Management reported a September net interest margin near 4.05% and expects runway to keep NIM above historical standard spreads, aided by a short-duration, flexible balance sheet. ROA ticked up, ROE declined year over year, and the team flagged selective M&A interest for sub-$1 billion targets while keeping deposit pricing short and cautious.
Key Takeaways
- IPO completed on September 30, 2025, turning Commercial Bancgroup into a public company.
- Nine-month 2025 net income was $27.1 million, a 4.9% increase year over year.
- Nine-month revenue totaled $66.9 million, up 1.9% year over year.
- Earnings per share for the first nine months were $2.22, a 6.2% increase versus prior year.
- Tangible book value per share rose to $19.05, a 14.5% increase year over year.
- Efficiency ratio remained solid: 47.6% YTD and 46.19% for Q3 (versus 48.13% in Q3 2024).
- Q3 net income was $9.5 million (up 3.3% year over year) and Q3 revenue was $22.9 million (up 4.6%).
- ROA improved slightly to 1.60% YTD (1.69% for Q3); ROE declined to 15.5% YTD and 15.76% in Q3, down materially year over year.
- Asset quality remains strong, with loan delinquencies around 0.5% and a reported total debt ratio of 2.19%.
- Management reported a September net interest margin of about 4.05% and said the balance sheet is short and flexible, enabling quick repricing.
- Loan payoffs from large long-term borrowers who sold businesses pressured year-to-date loan growth, but the loan pipeline is robust for Q4 and expected to produce positive year-end loan growth (not expected to meet original budget).
- Deposit pricing pressures exist on short-term CDs (highest around 3.85% for 7-9 months), but management is keeping maturities short to preserve flexibility.
- Bank described as roughly neutral-to-asset sensitive with an expected standard spread near $3.75–$3.80, currently running above $4.00.
- Management expressed active interest in M&A for community banks in the $500 million to $750 million size range and said relationships are generating potential opportunities, though no deals announced.
- Management emphasized disciplined execution through the IPO process and signaled confidence in using the public platform to pursue growth and shareholder value.
Full Transcript
Conference Operator: Thank you for standing by. At this time, I would like to welcome everyone to the Commercial Bancgroup third quarter 2025 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Terry Lee, President and CEO. You may begin.
Terry Lee, President and CEO, Commercial Bancgroup: Good morning. Thank you for joining us today for our first earnings call, as we successfully completed our public company offering on September 30, 2025, the last day of the third quarter. I’m Terry Lee, President and CEO, and with me today is Adam Robertson, Chairman, Philip J. Metheny, our Chief Financial Officer, and Richard Sprinkle, our Chief Credit Officer. Before we begin, I must remind everyone that this call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on our current expectations and assumptions and are subject to risks and uncertainties that could cause actual results to differ materially from our expectations. For a discussion of these risks and uncertainties, we encourage you to review our full safe harbor statement and cautionary language, including our earnings press release and in our latest SEC filing.
Also, during the call today, we may discuss certain non-GAAP measures. Reconciliation of those measures to the most directly comparable GAAP measure can be found in our earnings release, which is available on our website and filed with the SEC. We’re pleased to report the successful completion of our IPO at Commercial Bancgroup, became a public company on September 30, as mentioned earlier. As each of you are aware, the IPO process is an expansive and very time-consuming process that requires a tremendous amount of human resources commitment, coupled with a lot of professional guidance. Even this time, with all this effort directed toward our IPO, Commercial Bancgroup has produced another impressive financial performance quarter. This performance demonstrates the depth of our many talented members that understand our core mission, our values, staying focused to produce strong financial results while at the same time working on a once-in-a-lifetime project.
I would like to just review a few of our financial metrics for the first nine months of 2025. Our net income, $27.1 million. That’s a 4.9% increase year to date. Return on assets, 1.60%, 1.9% increase. Return on equity is 15.5%, slight decrease over 2024, an 8.5% decrease. Revenue came in at $66.9 million, a 1.9% increase. Our expenses actually fell to $31.9 million, which was an eight basis points reduction. Earnings per share came in at $2.22 per share, a 6.2% increase. Our tangible book value per share, $19.05, that’s a 14.5% increase. Our efficiency ratio held strong at 47.6% through the first nine months of 2025. We experienced moderate loan growth year over year due to headwinds from some large payoffs we experienced the first half of 2025. These payoffs were from long-term borrowers selling their business.
The loan portfolio activity remains robust, enabling us to keep pace with the loan payoffs. We anticipate a strong loan closing volume for the fourth quarter of 2025, which will more than offset the payoff volume and provide for a moderate growth for the entire fiscal year in 2025. The asset quality remains very strong. Our loan delinquencies are at historical goals of 0.5%, and our total debt ratio is at 2.19%. Looking ahead, we are confident in our strategy and our direction as we move into the public bank space. With our ability to navigate this new opportunity the public market provides for us to continue to grow our franchise, providing long-term value to our shareholders and providing positive experiences for every customer every day. With that, I will now turn the call over to Philip J.
Metheny, our CFO, to provide a more detailed review of our third quarter. Philip?
Philip J. Metheny, Chief Financial Officer, Commercial Bancgroup: Thank you, Terry. I would like to provide to highlight our financial metrics for the third quarter 2025 compared to the third quarter 2024. Net income for 2025 was $9.5 million compared to $9.2 million for 2024, for a 3.3% increase. Revenue, we had $22.9 million for a 4.6% increase over the prior year. Our expenses were maintained flat at $10.6 million compared to $10.5 million in the prior year for the third quarter, for just a minor increase of 1%. Earnings per share for the third quarter of 2025 was $0.77 a share, 4% increase over the prior year. Tangible book per share was $19.05, a 14.5% increase over the prior year. Our efficiency ratio remains strong at 46.19% compared to 48.13%, a 4% decrease from the prior year.
ROA for the third quarter of 2025 was 1.69 compared to 1.65 for 2024, a 2.4% increase from the prior year. ROE was 15.76%, a 9% decrease from the prior year.
Terry Lee, President and CEO, Commercial Bancgroup: Terry, this concludes our prepared remarks. I’ll ask the operator to open the call for any questions that the listeners may have.
Conference Operator: At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from the line of Brett Rabattin with Hovde Group. Please go ahead.
Hey, guys. Good morning.
Terry Lee, President and CEO, Commercial Bancgroup: Morning. Morning.
Morning. Wanted to start off just, you know, Terry, we’ve talked about the loan pipeline being strong. You said fourth quarter you expected some solid loan growth. Can you maybe just give us any idea of the magnitude in 4Q and then just what you’re growing and what the outlook is, and maybe what payoffs activity you experienced during 3Q?
We didn’t have a lot of payoff experience during the third quarter. I think we had one at the very start that concluded. Maybe it actually started, some of it was paid off in the second quarter and finished up in the third quarter. Our loan activity has been really brisk. Our pipeline is really full for fourth quarter closings. We feel confident that we will end the year in a positive from where we started last year. One of the things is one of the customers that paid us off, they all, at the end of every year, drew up a huge line of credit to the tune of about $30 million for distributions to a doctor’s group. As a result of that, every year we would have a huge run-up in our outstandings on loans, and then it worked its way down through the first quarter.
We’re not going to have that this year. Even not having that, we’re still going to end the year positive in loan growth over where we were last year. We won’t meet budget, but we’ll have a nice loan growth for year-end. That’s assuming, of course, the attorneys get everything done, we get everything closed, and those types of things. The pipeline looks good and we’ve got a lot of closings lined up.
Okay. Great. I know you guys are slightly asset sensitive, you know, and the Fed’s possibly going to cut one or two times here at the end of the year. Any thoughts on the margin in 4Q and just, you know, what you guys are seeing on loan and deposit pricing that might either help or hinder the margin?
I think we’re more neutral as far as our asset situation right now. We just finished our board report yesterday and we were, for the month of September, to make sure I get my months right here, for the month of September, we were $4.05 in our net interest margin. Our net interest margin is holding strong, a quarter of a basis point. We just got so much flexibility in our balance sheet because we’re so short. We can adjust pretty fast to any rates, be it up or down. We just got a lot of flexibility. I think, again, if you look at our historical trends in earnings that we provided through this IPO process, you saw our earnings increase in every rate environment to the extreme that most of us have experienced in our entire lives.
We just got flexibility the way that we manage our balance sheet more to our balance sheet to manage more following the loan portfolio. To do that, we kind of match things up with the loan portfolio and that keeps our spread pretty good. If I’m telling what our spread is going to be, it’s going to be $3.75 to $3.80 as standard. Right now, it’s a little bit over $4. I don’t anticipate that changing at all. Deposit pricing, no, we’re probably like every other banker. We feel like we probably pay more for some CDs than we should. We’re paying like $3.85, I think, right now is the highest CD we’ve got, but it’s only for seven or nine months. Again, keeping that pricing really short in an environment that we’re going to see decrease.
We’re just, I think we’re just in a good spot right now from a balance sheet perspective to react to whatever we need to do and maintain our earnings going forward.
Okay. That’s helpful. The last one I wanted to ask was just around M&A. We saw an acquisition in West Tennessee yesterday. I was just curious, I know you’re excited about the environment for possibly adding additional bank size scale to your franchise. Any thoughts on how you see the M&A climate environment for you? I know you’re looking at deals, but any thoughts on what you’re seeing out there?
I really think it’s good. I’ve been able to attend a few meetings where CEOs are at and just general conversation. It’s just a positive buzz for us. I think everybody now will begin to recognize us as kind of the only buyer that’s in the marketplace for that $500 million to $750 million size bank. We’ve got a ton of relationships already built throughout the state. I’ve got a network of CEOs that I talk with constantly, getting a lot of very positive feedback for the opportunities that even they see, even the ones not interested in selling right now, that they see that we’ve got available to us. There are several that we’re kind of looking a little bit at now. Nothing that I can announce officially or seriously, but we never stop looking and we never stop asking.
That’s the key to it, don’t ever stop looking and don’t ever stop asking. Sometimes ones that you don’t even anticipate show up on your doorstep.
Okay, that’s really helpful. Congrats on the strong profitability in the quarter.
We’re really happy with it.
Conference Operator: Again, if you would like to ask a question, press star, then the number one on your telephone keypad. If there are no further questions at this time, I will now turn the call back over to Adam Robertson, Chairman of the Board, for closing remarks.
Adam Robertson, Chairman of the Board, Commercial Bancgroup: On behalf of the Board of Directors, I’d like to thank you for joining us today and your interest in Commercial Bancgroup. Our focus remains on quality growth, maintaining solid asset quality, and driving consistent earnings performance, even in a challenging rate environment. The Board remains confident in our management team and pursuing opportunities that enhance shareholder value, all while preserving the principles that define our community banking model. I look forward to speaking with you again in the next quarter.
Conference Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.