National Bank Holdings Corp (NBHC) 2025 Q3 法說會逐字稿

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2025 third quarter earnings call. My name is Shelly, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations. Please go ahead.

Thank you, Shelly, and good morning. We will begin today’s call with prepared remarks followed by a 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 risk, uncertainties, and other factors, which are disclosed in more detail in the company’s most recent filings with the U.S. Securities and Exchange Commission. These statements speak only as of the date of this call, and 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 provide 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.

Thank you, Emily. That’s one of the more enthusiastic readouts of disclaimers I’ve heard in a while. That was great. Thank you. Good morning all, and thanks for joining us as we discuss National Bank Holdings Corporation’s third quarter earnings results. I’m joined by our President, Aldis Birkans, as well as our Chief Financial Officer, Nicole van Dennebil. We’re pleased to have delivered $0.96 of earnings per diluted share and a return on tangible common equity of 14.72%. It should be noted that this return was achieved while maintaining a high level of capital. We were able to deliver these results despite continued headwinds related to a heavy volume of payoffs coming primarily out of our CRE portfolio. Having said this, I’m proud of our team’s new loan production during the quarter, and the quality of the new relationships is very strong.

We’re pleased to announce our merger with Vista Bankshares or to have announced our merger with Vista Bankshares during the quarter. I have to say, the more we learn about the quality of our new teammates, the more excited we become about future possibilities. We believe we’re set up for a nice fourth quarter. New relationship activity is strong. Credit quality trends continue to be positive. We have additional productivity initiatives in the work, and we believe we have some very positive possibilities for 2Unify. On that note, I’ll turn the call over to Nicole to cover the quarter in greater detail. Nicole?

Thank you, Tim. Good morning. During today’s call, I will cover the financial results for the third quarter, as well as touch on our guidance for the remainder of the year, which does not include any future interest rate policy changes by the Fed. For the third quarter, we reported net income of $35.3 million or $0.92 of earnings per diluted share. We recently announced our planned merger with Vista Bankshares, and we remain on track to close in the first quarter. In conjunction with the acquisition work, we incurred approximately $1.7 million in deal-related expenses during the quarter. Excluding the acquisition expenses, adjusted net income increased 30% annualized over the prior quarter to $36.6 million or $0.96 of earnings per diluted share.

This resulted in a strong adjusted return on average tangible assets of 1.6% and an adjusted return on average tangible common equity of 14.7% on an elevated equity base. During the third quarter, we grew our fully taxable equivalent adjusted pre-provision net revenue by 17.5% annualized over the prior quarter, maintained a top quartile net interest margin, and built additional excess capital. Also during the quarter, our teams generated $421 million of loan fundings, bringing total year-to-date loan fundings to $1 billion. Quarterly loan fundings have increased each quarter of 2023, and our bankers continue to build loan pipelines. Aldis will touch on the loan paydown headwinds we’ve been experiencing in his comments. Our disciplined approach to loan and deposit pricing over the last 12 months has resulted in solid margin expansion.

Fully taxable equivalent net interest margin expanded three basis points during the third quarter to 3.98%, which is 11 basis points of margin expansion over the same quarter last year. For the remainder of 2023, we project fully taxable equivalent net interest margin to remain in the mid-three nines, and as I mentioned earlier, this does not incorporate any future interest rate decisions by the Fed. Credit quality improved during the quarter with a 20% reduction in non-performing loans, which now stand at just $27 million. Our non-performing loan ratio improved 9 basis points during the quarter to 36 basis points, which is 10 basis points lower than year-end levels. As a result of proactive efforts to resolve problem loans, we realized net recoveries of 5 basis points annualized during the quarter. The allowance to total loans ratio remained consistent at 1.2%.

Additionally, we continue to hold $18 million of marks against our acquired loan portfolio, which adds an additional 24 basis points of loan loss coverage if applied across the entire loan portfolio. Turning to deposits, total deposits ended the quarter $202 million higher than the prior quarter end, and average deposits held steady at $8.2 billion. Cost of deposits totaled 2.08%, and our total cost of funds was 2.1%. Non-interest income for the third quarter totaled $20.7 million, 21% higher than the second quarter and 13% higher than the third quarter of last year. The quarter benefited from $3.5 million of unrealized gains on partnership investments, as well as higher service charges and mortgage banking income over the prior quarter. For the remainder of 2025, we project our total non-interest income to be in the range of $15 to $17 million.

We are pleased to have launched 2Unify during the quarter, and we plan to provide 2Unify revenue guidance during our next quarterly earnings call. Non-interest expense totaled $67.2 million and included $1.7 million of acquisition expenses and $6.2 million of 2Unify expense. Now that we are live with 2Unify, our linked quarter 2Unify expense increased as expected with the amortization of the associated capitalized development assets. When adjusting for the acquisition expenses and increased 2Unify expense impacting the quarter, we remain on track to deliver the results expected from the expense reduction actions taken during the second quarter. As a result, we project core non-interest expense for the remainder of the year to be in the range of $64 to $66 million before the impact of acquisition-related expenses. We maintain strong levels of liquidity and continue to build excess capital.

We ended the quarter with a strong TCE ratio of 10.6%, Tier 1 leverage ratio of 11.5%, and a common equity Tier 1 ratio of 14.7%. We repurchased 240,000 shares during the quarter, totaling $8.9 million, bringing total shares repurchased year to date to 359,000 shares. During the third quarter, our tangible book value per share grew 12% annualized to $27.45. With that, I will turn the call over to Aldis.

Thank you, Nicole, and good morning. Let me start by saying that our preparations for the Vista Bankshares merger are progressing well and remain on track. Vista Bankshares reported strong financial results for the third quarter, which further validates the strategic value of this transaction, and we continue to be very excited about what this partnership will bring to our combined organization. For National Bank Holdings Corporation this quarter, we saw loan production return to more normalized levels with total loan fundings of $421 million. Fundings were led by commercial banking, particularly in our C&I portfolio, which expanded at an annualized rate of 8.7%. This reflects a healthy rebound in client activity and continued progress in building our relationship-driven commercial franchise.

While we are encouraged by this growth, overall loan portfolio outstandings were tempered by continued loan paydowns, particularly in certain CRE categories where stabilized properties have moved to permanent financing. At quarter end, our total non-owner-occupied CRE to total risk-based capital ratio stood at a low 132%, reflecting a well-balanced risk profile. On a pro forma basis, incorporating the pending Vista Bankshares transaction, we expect to remain comfortably below the 200% level. Credit metrics continue to demonstrate a stable loan portfolio with improving trends. Both classified and criticized assets declined during the third quarter. Non-performing assets decreased by another $6.3 million, with the NPA ratio improving by 8 basis points from the prior quarter and by 10 basis points on a year-to-date basis.

Overall, we are pleased with the return to normalized loan production, the strength in our C&I portfolio, and the disciplined management of our CRE exposure, all of which position us well for sustainable high-quality growth going forward. A good example of our relationship banking success this quarter was in core deposits, which grew approximately $200 million on a linked quarter spot balance basis, with nearly half of that growth coming from non-interest-bearing transaction deposits. Regarding deposit costs, we expect to see a decrease in the fourth quarter as a result of actions taken in late September following the most recent Fed rate cut. We are also prepared to take additional measures should the Fed continue on its rate-cutting path. One final note on deposits.

In the fourth quarter, we plan to use the flexibility provided by our Canberra deposits to manage our balance sheet and remain below the $10 billion threshold. Lastly, I’d like to highlight the strong performance from our long-standing fintech partnership investments, which delivered $3.5 million in gains included in this quarter’s financials. While the results from these initiatives may not always move in a straight line, we continue to expect positive financial and strategic outcomes over the long term. Tim, I’ll turn it back to you.

Thanks, Aldis. We had an active third quarter. We generated $421 million in loan fundings. We had solid deposit growth. We maintained pricing discipline resulting in a net interest margin of 3.98%. We experienced a decline in classified and criticized assets, accompanied by a nice decrease in non-performing assets. We grew our tangible book value per share 12% annualized during the quarter, and we announced the meaningful acquisition of Vista Bankshares. On that note, Shelly, I would ask you to open up the call for questions.

(Operator instruction)

Jeff Rulis with D.A. Davidson.

Thanks, good morning. Hey, good morning.

I wanted to dig into the margin in a little more detail. You know, the mid 3.90% guide, you know, talking about entering the quarter with some lower deposit costs. Just kind of engage with that a little bit more on what looks like rate cuts that are a near certainty, the impact of which, and maybe the push and pull of why at 3.98%, you’re kind of pulling it back down, I suppose, absent cuts. Maybe you could touch on the expected impact there.

Yes, good morning, Jeff, this is Nicole.

I'll mention that, the 3rd quarter's margin, it was positively impacted by about $50 million of interest and fees recovered on the, large recovery that we had in the quarter that was about 2 basis points of margin impact so we still feel good. Solid, mid 3 9s margin for the quarter, looking ahead to the potential for rate cuts in Q4, the, very likely outcome of a rate cut next week, our teams have started teeing up action to take down deposit rates in line with the Fed. We have a history of being very disciplined both on rates up and rates down cycles of managing our rates on both sides of the balance sheet, and we are prepared to take those actions next week, and we do believe for that rate cut that that, deposit actions that we have planned will offset the impact of the pricing on our variable loan portfolio.

Okay, really helpful. I appreciate it, and then on the expense side, can the two unfi step up is that, can we do that as, kind of will now be in the run rate, do you see a a leg up higher again in in coming quarters or just trying to get a little more color on the expense bill if any.

Regarding that piece before we get kind of the revenue.

Potential visibility in in the 4th quarter call.

Yeah on the on the topic of to you expenses that step up this quarter was expected in line with with launching to unify. We were expecting a step up in depreciation expense of that capitalized development asset we will continue to invest in marketing for to unify and then as we on board to unify clients there's a component of some variable expense that will come online as well.

I guess, Nicole, if we were to zoom out a little bit and think about 2026 overall expenses, I don’t want to front-run as you pull budgets, but trying to think about an overall with 2Unify included, you know, I know you’ve had some actions to reduce costs as well. I don’t know if you could speak to overall growth of expenses expected in 2026 or just maybe frame up the push and pull of what, from a jump-off point of what you kind of framed up of, call it $65 million core in fourth quarter.

Jeff, this is Tim. We we're in the middle of some pretty interesting partnership discussions, as it relates to to Unfi right now, and we're really not in a position to speak in more detail to, what might happen there in 26. We'll, we will.

Maintain our commitment as Nicole mentioned earlier to address to unify one way or the other in our fourth quarter earnings call. I would tell you even with a step up in if everything was status quo, even with a step up in amortization depreciation next year on to unify, we will work to keep those expenses relatively flat. But that's assuming status quo and and and at this point we just can't speak any more detail on to you.

Yeah, I appreciate the, going to take a little time to kind of pull that together, so thanks for the thoughts. I'll step back.

Thanks Joe.

Kelly Mota with KBW.

Hey, good morning, thanks for the question.

Maybe turning back to loan growth it was nice to see I think you called out a step up in production I I see balances were down. Can you speak to if any of the pay downs here? I know in prior quarters you had been managing the book for credit was there any kind of puts and pulls related to that and if you could provide an outlook for given what sounds like. Strengthen the pipelines, what the expectations are ahead? What do you expect to reverse this trend now in Q4?

Thank you.

Thanks Kelly. I'll, this is Tim. I'll begin and then turn it to all of this. I would tell you that the 3rd quarter reduction volume was not driven by directive pay downs. We really think we've moved through addressing any risk in the portfolio that we felt we needed to address given the macroeconomic environment.

What we've seen in the 3rd quarter was largely heavy volume of. Payoffs as as temporary or construction funding was going to perm with very attractive perm financing by alternative lenders and and quite frankly we have seen private credit continue to step into the market lending money on credit terms and at pricing that you know I've done this or call it for decades and I just don't understand. And what they're doing because we've just simply seen price and and credit term competition from private credit that we're not going to compete with so you know I'll turn it to all this to talk about how we believe we're positioned to overcome that because we are feeling very good about our pipeline and where we now stand with our in particular CRE portfolio.

Yeah. Thanks, Tim. I’ll just add on the page 10 of the investor deck on the loan summary table, it actually kind of is visible. If you look at our commercial real estate production itself, it was pretty healthy this quarter. Embedded, we kind of had, I’ll call it, between $100 million, $150 million headwind from those paydowns that Tim was mentioning and those out on the table above that you can see on between our originated and acquired books. Looking at the fourth quarter, our pipelines, just like Hinze Rink, this quarter look very healthy, very good. We are optimistic that the return to growth is subject to this behavior that we just discussed. Other than that, I’m very optimistic about fourth quarter.

Got it. That’s helpful. Just on the expenses, you announced the cost save plan last July. Wondering, did we get the full benefit of that this quarter? One, and then two, I apologize if I missed it, but how much 2Unify expenses were in Q3 as well as what’s baked into that $64 to $66 million for Q4?

Yeah. Good morning, Kelly. I’ll take that one. We’ve been closely monitoring our progress on the expense reduction actions that we announced last quarter, and we are delivering on those commitments. You’re right. Q3 was a little noisy. It was impacted by $1.7 million of acquisition expenses, $6.2 million of 2Unify expenses. The third quarter was impacted by higher mortgage commissions. We view that as a positive because it was driven by higher mortgage revenues. There were a couple of other timing impacts in the third quarter.

Got it thanks. I think the the last thing was how much to unify in the Q4 run right?

Yeah. In the Q4 run rate, we’re expecting 2Unify expenses somewhere in the range of $7 million to $9 million. That does account for some step up in marketing spend and variable costs associated with user increases.

Got it, that's.

That's helpful. Last question for me you guys announced a really exciting acquisition last month, it, and it's on track to close next quarter. Wondering if you found the pace of discussion, clearly you're in the market, given your announcement, so wondering if you. Could provide us Tim with kind of if you've seen any flurry of inbound on the back of that announcement, thanks.

Kelly, I think I've slept in my own bed 4 nights in over the last 3 weeks.

There have been a lot of discussions and we remain focused across our existing footprint. We would love to do more in Texas and build on what John and his team at VISA have built. And we're seeing other interesting opportunities that we think could create, meaningful market share step ups in markets that we already do business with, so the short answer to your question is yes, we're very active.

Great thank you I will step back.

Thank you Kelly.

Andrew Pikul with Stephens.

Hey, good morning.

Hey, good morning.

Tim, I want to ask a question around just to unify and I also don't want to, front run any conversation we'll have in January, and I get that.

Maybe not too much to share here, but I guess I'm just curious from a big picture standpoint you guys have been pretty clear on on some of the expense recently associated with that and.

It sounds like marketing spin could ramp and then there's also maybe a variable, component as you begin onboarding clients from an expense standpoint. I'm just curious, when you look, near to medium term, how long do you think it takes to generate positive operating leverage and do you feel like you have near term visibility to positive operating leverage in that business?

I applaud you for asking the question and I'll simply say again we'll be providing all of that detail on our 4th quarter earnings call. I think I would also, and I mentioned this earlier, repeat that we're in the end and we're literally in the middle of a very important partnership discussion that. We believe could have a powerful impact on the way to unify moves forward, and it's just inappropriate to be talking about to unify anymore this morning.

Understood. I appreciate it, yeah, I had to give it a shot there.

Thank you.

I was also, interested just on your discussion around private credit and the competition you guys are experiencing there, and I'm curious to if you could share any more.

Specifically around where you're seeing that either geographically from from product type, just any more color on where you're seeing private credit be most competitive.

Yeah, it, I mean really primarily in the commercial real estate sectors and it, I would, I would tell you that's, the vast majority of the action we're seeing there.

Yeah, okay, and then last one for me just.

I saw you guys bought back a little bit of stock this quarter. Your your capital still built very nicely. You'll close Vista but still have a pretty strong capital position, and I know it sounds like interested in future M&A, but, any interest in, further capital deployment in the buyback?

Yeah, Andrew, this is all this.

So as you mentioned, we did buy $8 million or so in capital. We still have $35 to $36 million dollar authorization left. We'll be optimistic with it along the, in in light of the discussions that we're having with potential M&A targets as well, but also, it'd be.

Remiss if I didn't mention the 12% tangible book value growth this quarter that we built on top of that $8 million buyback. So we feel very good about our capital build over the last 12 months set very strong excess capital levels, and we are looking at potential.

Strategic options there.

Perfect, thank you guys for taking the questions.

Brett Rabiton with Hovey Group.

Hey, good morning, everybody. I won't ask about to unify.

Wanted to go back just to the payoffs. I know we kind of beat that to death here a little bit too, but just wanted to make sure, it sounds like you're expecting better trends in the fourth quarter, private credit aside, does the shape of the curve and the longer end, coming in here, how does that impact maybe the commercial real estate portfolio and do you have any line of sight into. The CRE book, Spain or what, what's any just any thoughts on the yo curve from here relative to that portfolio.

Not at this moment. I don't think we've seen. I, I'll say I have not heard from our bankers that we've seen a pay down of pre-pay, so to say, based on the refinancing opportunities and lower lower yields. Now that's not to say that that doesn't come through at some time, but to date, shape of the yield curve has not impacted our pay down activity.

Okay.

And then the other question I had was just around the Vista deal and Tim, it sounds like you've been on the road quite a bit. Just was hoping to hear I know one of the aspects of the transaction that you're excited about is treasury management, wealth wealth and and trust, any thoughts, relative to the deal call on fee income and and those things specifically?

We lost you at the end. You said any thoughts related to what?

Oh, I'm I'm sorry, any thoughts related to wealth, treasury management trusts, those opportunities for the pro forma franchise.

Well, look.

First and foremost what I'm excited about is the caliber of leadership and the quality of the new teammates coming in from Vista Bank shares. I think they've done a remarkable job taking market share in a in an important market like Dallas, Texas. And and I don't have any reason to expect that to to do anything but other other than grow I think the combination of these teams. Is going to make us incredibly strong, and we're going to be leveraging key talent out of VISA across our entire organization. We've remained committed to taking best practices whether they come from NBH or VISA and and running with those best practices and and we are going to be delivering a. Frankly, a much broader suite of treasury management capabilities in Texas and Vista with with NBH's arsenal of Treasury capabilities.

We're super excited about what we can do in the trust and wealth management arena as a practical matter, Vista had been outsourcing that. To a third port party given what we're able to do with our Wyoming-based trust business in particular and bringing those opportunities to clients in the state of Texas just as we're doing around the rest of the franchise, I think can be monumental. I mean, I am genuinely that excited about it. I continue to say that. We're able to do in Wyoming for clients who are really concerned about privacy that are concerned about controlling their trust, etc. Is unfortunately one of the better kept secrets, but as we work to get that message out, I think we're going to continue to see exceptional growth there. Now was there one other I hit treasury I hit trust management and really I'll say with Vista they've had they've built a solid private banking business and again have been outsourcing that trust and wealth management piece and so for the op. The opportunity to bring that in-house is is exciting and and all of a sudden I'd ask you to.

Just say that we're not waiting until first quarter when we come together to to start working on these partnerships. John and I have weekly calls and we bring our teams together and. To the extent that they already are handing off those opportunities someplace else, we'd rather be there in the 4th quarter already picking up those those opportunities. So that work is under way, and those synergies should be, hopefully start showing their benefits here in the 4th quarter.

Okay, that's all really helpful thanks so much guys.

Alright, thank you.

Kelly Molla with KBW.

Hey, thanks for letting me jump on, I figured kind of while we have you, MBH has been great at managing credit you did have that, one idiosyncratic loan I think it, 12, but otherwise it's been really strong, Tim, all this, I'm just wondering, given the, focus on NDFI lending doesn't look like NBA has much exposure here wondering if you have some high level thoughts as to. Potential risks and any anything else that you might be, direct analyst to more carefully watch, thank you.

Yeah, we really don't have any thoughts because we really don't have much of that. It's well below 1%, so we have total loans, so.

Maybe that's indicative of our fault.

Yeah.

But that's that's the answer.

But in terms of other in terms of other sectors, that, I just think we have to continue to be watching, closely in the ag space it's commodity row crops and and the vulnerability there and that you know it's it's again a space we have limited exposure to but. I mean, cattle operations are probably at some of the best performance levels in history. On the other hand, commodity exposure, that would be a tough place to be exposed to. We've talked about it before, but another space that continues to just face tragic headwinds is transportation. And you know we worked aggressively to reduce the exposure that we were concerned about there and you know think that that that's a forgive the pun but a long road back for those truckers so those those would be a couple of areas that you know we.

I guess if we were on the investor side we would be keeping an eye on.

Got it thank you so much.

You bet Kelly thanks for the question.

Thank you and I'm 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 Shelly I'll be brief just thank you so much for your time and attention this morning please feel free to reach out to us if you have any additional questions and and we will respond promptly have a great day.

And 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, and the link will be on the company's website on the investor relations page.

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