National Bank Holdings Corp (NBHC) 2025 Q2 法說會逐字稿

Good morning, everyone. Welcome to the National Bank Holdings Corporation 2025 second-quarter earnings call.

My name is [Rachel]. I will be your operator today.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

We will begin today's call with prepared remarks, followed by question-and-answer session.

I would like to remind you that this conference call will contain forward-looking statements, including, but not limited to, statements regarding the company's strategy, loans, deposits, capital, net interest income, non-interest income, margins, allowance, taxes, and non-interest expense. Actual results could differ materially from those discussed today.

These forward-looking statements are subject to risks, uncertainties, and other factors, which are disclosed in more detail in the company's most recent filings with the US Securities and Exchange Commission. These statements speak only as of the date of this call. National Bank Holdings Corporation undertakes no obligation to update or revise these statements.

In addition, the call today will reference certain non-GAAP measures, which National Bank Holdings Corporation believes provides useful information for investors. Reconciliations of these non-GAAP financial measures to the GAAP measures are provided in the news release posted on the Investor Relations section of www.nationalbankholdings.com.

It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman and CEO, Mr. Tim Laney.

Thanks, Rachel. Good morning and thank you for joining us as we discuss National Bank Holdings' second-quarter results. I'm joined by our President, Aldis Birkans; as well as our Chief Financial Officer, Nicole Van Denabeele.

We delivered earnings of $0.88 during the second quarter, with a 14.2% return on tangible equity and a 1.5% return on assets. We delivered a strong net interest margin of 3.95%, resulting from deposit and loan pricing discipline.

During the quarter, our teams produced $323 million of loan fundings, while also remaining focused on reducing exposure within certain higher-risk industries, which Nicole and Aldis will speak to later. We believe these actions will result in more responsible profits in the future.

During the quarter, we also took action to reduce our core bank annualized personnel expense run rate by a full 10%.

Finally, we are pleased to share that we successfully launched release 1 of 2UniFi in the Apple App Store and expect to go live on Android, July 30. Activity has been solid, particularly in light of the fact that we have not even launched our marketing campaigns. Further, user feedback has been quite positive.

On that note, I'll turn the call over to Nicole. Nicole?

Thank you, Tim. Good morning.

During today's call, I will cover the financial results for the second quarter, as well as touch on our guidance for the rest of the year, which does not include any future interest rate policy changes by the Fed.

For the second quarter, we reported net income of $34 million or $0.88 of earnings per diluted share. This resulted in a strong return on average tangible assets of 1.5% and return on average tangible common equity of 14.2%.

We grew our fully taxable equivalent pre-provision net revenue by 19.9% over the second quarter last year, maintained a strong net interest margin, and built additional excess capital.

As Tim shared, our teams generated $323 million of loan fundings during the second quarter. Elevated loan paydowns, coupled with strategic portfolio reductions within targeted industries, led to a decline in loan balances during the quarter.

Our bankers remain committed to growing client relationships. We continue to build our pipelines and are projecting annualized mid-single-digit loan growth for the second half of the year.

Fully taxable equivalent net interest margin expanded 2 basis points during the quarter to 3.95%. Fully taxable equivalent net interest income increased $0.7 million during the quarter to $89.3 million and grew by 4.7% compared to the second quarter of last year. The year-over-year increase in net interest income is a direct result of our disciplined loan and deposit pricing over the last 12 months, which has resulted in solid margin expansion.

Second quarter's new loan originations came on at a weighted average yield of 7.4%. For the remainder of 2025, we project fully taxable equivalent net interest margin to remain in the mid-3.9%. As I mentioned earlier, this does not incorporate any future interest rate decisions by the Fed.

Turning to deposits, seasonal tax outflows resulted in a decline in average deposit balances of $58.8 million during the quarter. Cost of deposits totaled 2.05% and our total cost of funds was 2.09%.

Turning to credit quality, non-performing loans decreased during the quarter to $33.3 million. Our non-performing loan ratio remains below peer averages at 45 basis points of total loans.

Annualized net charge-offs for the quarter were just 5 basis points. The allowance to total loans ratio remained consistent at 1.2%. Additionally, we continue to hold $20 million of marks against our acquired loan portfolio, which adds an additional 26 basis points of loan loss coverage if applied across the entire loan portfolio.

Non-interest income for the second quarter totaled $17.1 million, 11% higher than the first quarter and 22% higher than the second quarter of last year. For the second half of 2025, we project our total non-interest income to be in the range of $34 million to $36 million.

Non-interest expense totaled $62.9 million, a $0.9 million increase over the first quarter as a result of $1.9 million of payroll tax credits, which lowered the first quarter's expenses. Excluding the payroll tax credits benefiting the first quarter, non-interest expense decreased $1 million on a linked-quarter basis as a direct result of intentional efforts to lower our operating expenses.

In light of the ongoing economic uncertainty, we took action during the second quarter and executed on an expense reduction plan. We incurred nominal restructuring expenses during the quarter and estimate the actions taken at the end of the second quarter will reduce our annual core bank personnel expense by approximately $15 million. As a result, we are lowering our projection for non-interest expense. We now project our non-interest expense for the second half of the year to be in the range of $126 million to $128 million.

As you have heard, we are pleased to have launched 2UniFi last week. As a reminder, we are preparing to provide 2UniFi revenue guidance with 2025 year-end results.

For the second quarter, 2UniFi expenses totaled $4.6 million. We project 2UniFi expense for the second half of the year to be in the range of $16 million to $17 million, increasing primarily as a result of amortization expense on the capitalized development asset now that 2UniFi is live.

With the expense reduction actions taken in the second quarter, we project to continue to grow quarterly pre-provision net revenue, even with the increase in the 2UniFi expense expected in the second half of 2025.

We maintained strong levels of liquidity and continued to build excess capital. We ended the quarter with a strong TCE ratio of 10.5%, Tier 1 leverage ratio of 11.2%, and a common equity Tier 1 ratio of 14.2%. Year to date, our tangible book value grew by 10.7% annualized to $26.64.

With that, I will turn the call over to Aldis.

All right. Well, thank you, Nicole. Good morning.

As Tim and Nicole already mentioned, loan production activity started picking up in the second quarter, with healthy loan fundings of $323 million, which was an increase of 26% over the first quarter's slower start.

While we still see some clients being somewhat cautious in this economic environment, our loan pipelines for the second half of the year are building nicely. We entered the third quarter with a good level of energy and optimism.

As always, we have not and will not compromise on credit. Our bankers focus on full relationship banking and do not chase deals just to show growth. I think the best evidence of this is our loan pricing discipline, with new loan rates coming on at a strong 7.4%.

Our loan and deposit pricing discipline during the quarter allowed us to expand our net interest margin by 2 basis points to 3.95%. In terms of the overall loan portfolio, the decrease this quarter was primarily driven by declines in certain higher-risk asset classes. For

a while, we have expressed concerns with the trucking industry. It's been a while since we have originated loans in this space. This quarter, we saw an opportunity to decrease our trucking portfolio exposure, which now sits at just about $100 million or just 1.5% of the total portfolio.

Additionally, we decreased our exposures within the agricultural and within the commercial real estate sectors.

In aggregate, these three asset classes ended up driving the portfolio decline this quarter.

We continue to see solid credit metrics. There's just 5 basis points in annualized net charge-offs. And NPAs continuing the recent downward trend with another $1.6 million decrease this quarter. The NPA ratio ended the quarter-one basis point better than the first quarter at 0.45%.

This quarter, we also saw a nice growth in our fee income on both linked-quarter basis and as compared to the prior year second quarter.

While this quarter was helped by a $1.3 million gain on the disposition of consolidated banking center buildings, we did see seasonal rebound in our bank card income as well as an increase in SBA gain on sale income.

As loan volumes continue to pick up for the second half of the year, we project higher fee income related to SBA gain on sale as well as derivative fees.

Tim, with that, I'll turn it back to you.

Thank you, Aldis.

Well, we had an active second quarter. We generated $323 million in new loan production. We successfully reduced loan exposure in targeted industries with higher risk profiles. We maintained pricing discipline, resulting in a 3.95% net interest margin. We took action to reduce our core bank's annualized personnel expense run rate by 10%. We successfully launched release 1 of 2UniFi. And we grew our tangible book value to $26.64 per share.

On that note, Rachel, let's open up the call for questions.

(Operator Instructions)

Jeff Rulis, D.A. Davidson.

On the loan side, again, it sounds fairly cautious. Just want to check in on the amount of those higher-risk trucking, ag, CRE. Given the guide of resuming towards a mid-single-digit pace, it sounds like the bulk of that -- what you wanted to clean up -- is done. That's question one.

And then, two, just wanted to see if there's any management of growth tied to the $10 billion asset mark, if that's still an area that may be keeping growth levels somewhat subdued.

Yeah. I'll answer both together, if that's alright, Jeff. Because to begin with the latter question, I would tell you that there's been no management at this point to stay under the $10 billion threshold. Again, we've been operating for years and we were regulated as though we were a $10-plus billion bank. So that expense has been embedded in our run rate for years, no issue there. We've outlined what Durbin would be, which is in the grand scheme of things, nominal.

This growth matter is going to be reconciled in the second half of this year because to answer your question, we've largely taken action against the bulk of the relationships and loans that we felt we need to.

Now, are there -- others we're watching closely and would -- with the right opportunity to take them down? Absolutely.

But I'll also remind you that we operate well under all regulatory limits with our own house limits. And none of these areas we've talked about had even approached our house limits. This was just really an act of caution and being proactive.

As I said in my prepared remarks, I really believe it's the action you have to take that translates into more productive results down the road.

I'll add to that in terms of the second -- the optimism on second-half growth. Pipeline is strong, as I mentioned. I would actually characterize it as probably the strongest we've seen in the last 12 months as we entered the third quarter.

So there is activity and a pipeline to grow our guided mid-single digits for second half. Subject to what Tim mentioned, if there's other opportunities, we'll certainly jump on those.

Does that answer your questions, Jeff?

Yeah. No. That was great. I appreciate that. That was pretty detailed.

If I hop to the margin, got the steady guide from here. From our prior discussions, sounded like you had some pretty good opportunities and based on those new loan yields, some pretty good reinvestment, not only in loans but on securities. That was pretty positive.

If I could just frame up an environment that you see maybe margin expansion, what would have to occur to see it break more towards 4% than steady?

Well, first, I'll say, we are very proud of 3.95% margin. I think that puts us in a very good company in terms of peer banks.

But in terms of the outlook, I think what would really have to move or what would really move our margin in a positive way is, really, DDA growth. At the end of the day, that's math on that, bringing in zero costing deposit and lending it out at 7.4%. It's obviously extremely margin-accretive.

So I think the deposit mix will drive the outlook for the margin.

Kelly Motta, KBW.

This is Charlie, on for Kelly.

It was exciting to see the 2UniFi launch this month on the platform and the partnership with Nav. Can you speak about how the launch went and how the market is receiving 2UniFi and provide some color on the partnership and how it came about and what benefits you think it can bring to the platform?

Yeah. I would compare our launch to the soft opening of a restaurant. We had done prior friends and family testing in a lockdown environment. So now, to be in a position where anyone can access the app and begin the process, what you'll find is you get to the point to sign up -- unless you're a small business or medium-sized business and have an EIM, you won't be able to go too far.

But what I would tell you is that all of our security and fraud detection systems have worked beautifully. We've certainly seen, as what happens with any financial app, all of the attempts to penetrate there. And we're really proud of the walls that have been built here to protect both the bank and our future clients of 2UniFi.

The feedback has been very positive in terms of how familiar the user interface is. It's intuitive. We take no shame in saying that we were inspired by companies like Apple, who we think over the years have developed a very intuitive way of doing business in the digital world.

Look, we'll be getting our advertising here in the near future. You'll see more on our landing pages that begin to tell the story. And candidly, there's a big element there that's going to be coming soon because as we had told the market, we're starting with a fundamental, simple product that's absolutely incredible for a small business owner, which is a depository sweep product that allows these interest owners to access attractive interest rates on their deposits while maintaining their operating accounts with 2UniFi.

But that's just the beginning. The beginning, as we've said before, is building this full ecosystem where you're essentially, as a small business owner, able to do one-stop shopping anywhere in the United States for your business needs.

We'll be working with both private, credit, and other banks to offer alternatives on credit. First, out of the chute there, you're going to see an SBA offering that will be introduced. We're also working with a merchant payments company on a fairly creative approach to helping small businesses realize the lowest possible rate on their merchant transactions here in the United States. We think that can be a huge driver.

Ultimately, I will tell you that I think given the data lakes we've built, we've invested millions and millions of dollars in information management that 2UniFi is going to be more of an information company than a bank.

We built it not to be reliant on, with all due respect, the big core suppliers like FIS and Fiserv. We're more nimble. We have more control of our clients' information. That allows us to give more information back to our clients. And it also certainly helps us as we look at how we'll be able to manage risk by having all of that information contained.

And then, finally, I would tell you that we ultimately see this as being a membership fee-based business. If a business owner wants to transact and work within the 2UniFi ecosystem, they're going to pay a monthly membership fee, no different than what you would see or what you would pay today with an Amazon for your Amazon Prime membership.

So that's maybe, Charlie, even more color than you were looking for. But I hope that helps.

That's great. Just to clarify, this is mainly coming through fee income? Or do you expect this to be, like, a balance sheet play, where you're aiming to get, like, loans and deposits?

It's a great question. We're not focused on this as a big balance sheet play. We really aren't.

Again, think about on the credit front, we may be a partner in originating loans. But the reality is what we want to do is make it easy for a plethora of United States banks, mostly community banks, to access lending opportunities to small- and medium-sized business. And for that, we would collect a fee or a scrap.

The deposits, we're able to think about how we leverage Cambr to take those deposits and then, sweep them as broker deposits to other financial institutions. And so again, not a heavy balance sheet play; high ROE, big on information, and membership fees.

And then, last one, just switching gears. The M&A environment has seen a little bit of a pick-up. Just wondering if you're seeing the pace of conversations pick up? And if you could remind us, like, what you're looking for in a partner, size-wise and other characteristics.

We're very consistent. We start with culture and strategy. We only consider institutions that are in strong growth markets. And we've got to be in a position where when we announced the transaction for the sake of both parties, the market reacts positively.

And so that certainly means we have strong earnings accretion expectations. We have a real focus on how quickly we can earn back any tangible book dilution. And we'll not stray from those criteria.

As to specifics, I'm going to simply say I can't comment, right now.

Andrew Terrell, Stephens.

I wanted to ask on just deposits this quarter, down sequentially in the period, in line with the decline in loans we saw. I'm just curious, was any of the deposit decline this quarter reflective of or tied to the derisking that's gone on in the loan portfolio? Or just any color you can provide on the 2Q deposit flows and then, tying that into -- it sounds like loan growth expectations in the back half of the year for an improvement. Would you expect core funding to increase sequentially?

Andrew, I'm going to begin and quickly hand this off to Aldis. But you nailed it. Yeah.

Obviously, we're moving entire relationships when we move credit exposure. That's largely the matter.

And then, Aldis, I'll throw it to you.

You answered the question.

For more detail.

As we've always talked, we are a relationship bank model. And both sides of the balance sheet do tend to move in tandem.

One thing that we haven't done is go out and buy expensive deposits just to show, again, growth; as evidenced, really, if you look at our deposit beta this last cycle, it's about 30%. So that shows through the cost of funds.

But to come back, the pipeline is there. Treasury management opportunities are there as we look into second half of the year through relationship opportunities that we are looking to take market share. And we look to grow the deposits in the second half, as well.

Understood. I appreciate it.

If I could ask just on the expense side, I don't know if you're able to but could you share any more color around the expense reduction that happened during the second quarter, specifically that it sounds like compensation costs are coming down.

I'm wondering if that's focused on any specific avenues within the bank or just more broad-based?

Good morning, Andrew. I'll be happy to take that one and touch on our expense reduction plan that we wrapped up in June.

I will start by saying we do not take these decisions lightly. But in light of the economic uncertainty, we knew it was prudent to be proactive in this area. It was a bank-wide effort.

And as a result of the actions that we took, we did eliminate positions across our organization and we had a heavy focus on streamlining our processes and implementing automation.

Brett Rabatin, Hovde Group.

I wanted to stick with expenses for a second and just make sure on the guidance for the $126 million to $128 million for the back half of the year, that's -- is that -- when I think about the math, that's inclusive of 2UniFi $16 million to $17 million? Or is that on top of the $126 million to $128 million?

You're right. It is inclusive of the 2UniFi $16 million to $17 million guide.

Okay. And then, it sounds like you guys did a really good job with finding some expenses to pull out without impacting the need for a restructuring charge. And you have -- I didn't quite catch the color on the detail other than you took some actions.

Would any of that be contracts or things like that? Because it doesn't seem like it was a personnel-related change.

No. It was a hard reduction in our personnel count. It was really -- while we talk about executing in the second quarter, to give the teams credit, this is work we've been building to for some time: literally, looking at opportunities where you would have natural retirement attrition, et cetera, to really achieve these.

That's in large part why and how we were able to keep our expenses down in the process.

I think, Nicole, they literally came in under $400,000 in total related expense. Is that right?

Right. It's about $300,000.

Yeah. Actually, $300,000.

We will continue to lean into opportunities to leverage emerging tools to bring down our core operational expense run rates.

(inaudible) I'll just --

(multiple speakers) --

Sorry, if I could. What the release 1 of 2UniFi Nicole touched on is operational efficiency automation. So what makes us excited about this round of efficiencies is also there's going to be -- we'll be able to leverage that as we grow the company.

Our expense run rate is not going to have to pace that growth.

Okay. That's all really helpful.

And then, Tim, in the past -- just back on the loans, it sounds like this quarter was almost entirely related to reducing some risk exposure. But in the past, you've indicated that maybe some banks or non-bank competitors were being too aggressive with rate or terms.

And so I just wanted to hear what you guys are seeing in terms of the environment competitively and if that was any factor in the second quarter?

Yeah. Look, I'm going to simply say -- and I was reviewing this with our Head of Portfolio Management last week -- our hit rate on term rate on term offerings, right now, is lower than our historical rate.

We're coming in around 27% to 30%, right now. Typically, by the time we get to putting a term sheet on the table, we're seeing a much higher hit rate.

What we're not going to do is renegotiate on credit risk structure or pricing. And so that requires time and patience.

I'll answer your question that way versus talking about competition.

Okay. That's helpful. Thanks for the color, Tim.

You bet. You bet.

I am showing we have no further questions at this time.

I will now turn the call back to Mr. Laney for his closing remarks.

Thank you, Rachel. Thank you for joining us today. We appreciate your time and attention.

If you have follow-on questions, do not hesitate to reach out to us.

We wish you a good day.

This concludes today's conference call.

If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours. The link will be on the company's website on the Investor Relations page.

Thank you very much. Have a great day. You may now disconnect.