Q4 2024 National Bank Holdings Corp Earnings Call

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Speaker Change: Thank you for calling me.

David Brown: Thank you for calling me. Have your conference ID. Yes, I have the public access code, is that it? Yeah, most likely. Let's try that. OK, it is. 937-0973.

Speaker Change: Conference I D.

Speaker Change: Yeah, most likely let's try that.

David Brown: May I have the spelling of your first and last name? Yes, this is David, D-A-V-I-D, Brown, B-R-O-W.

Speaker Change: May I have the spelling of your first and last name.

David Brown: What is your company name? It's Aira, A-I-E-R-A Thank you, I will join you to the NBHC fourth quarter 2024 earnings.

Speaker Change: What is your company name.

Speaker Change: Thank you I will join you to the N V H C fourth quarter 'twenty 'twenty four earnings call.

Operator: Thank you.

Speaker Change: [music].

Anna: Good morning, everyone, and welcome to the National Bank Holdings Corporation 2024 fourth quarter earnings call.

Anna: Good morning, everyone and welcome to the National Bank Holdings Corporation 2020 for fourth quarter earnings call. My name is Anna 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.

Anna: My name is Anna 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.

Emily Gooden: I will now turn the call over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations. Thank you, Anna, and good morning. We will begin today's call with prepared remarks, followed by a question and answer session.

Speaker Change: I will now turn the call over to Emily Gooden, Chief Accounting Officer, and director of Investor Relations.

Emily Gooden: Thank you Anna 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 noninterest income margins allowance taxes and.

Emily Gooden: 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 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.

Emily Gooden: Noninterest 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 U S Securities and Exchange Commission. These statements speak only as of the date of this call and National Bank Holdings Corporation undertakes no.

<unk> 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 Dot.

Emily Gooden: 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.

Emily Gooden: National Bank Holdings Dot Com. It is now my pleasure to turn the call over and introduce National Bank Holdings corporations, Chairman and CEO, Mr. Tim Laney. Thank you Emily good morning, and thanks for joining us as we discuss National Bank Holdings fourth quarter and full year 2002.

Tim Laney: It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation Chairman and CEO, Mr. Tim Laney. Thank you, Emily. Good morning and thanks for joining us as we discuss National Bank Holdings' fourth quarter and full year 2024 results. I'm pleased to be joined by NBH President Aldis Birkans as well as our Chief Financial Officer, Nicole Van Den Abel. We delivered solid earnings of 86 cents per diluted share during the quarter and a 14.4% return on tangible common equity when adjusted for the impact of the security sales. We delivered 11.3% annualized net interest income growth during the quarter with a strong net interest margin of 3.99%.

Emily Gooden: 24 results I am pleased to be joined by <unk>, President and oldest pecans as well as our Chief Financial Officer, Nicole <unk> Bill.

Emily Gooden: We delivered solid earnings of 86 cents per diluted share during the quarter and a 14.4% return on tangible common equity when adjusted for the impact of the security sales.

Emily Gooden: We delivered 11.3% annualized net interest income growth during the quarter with a strong net interest margin of 399% before handing off the call to Nicole I will point out the tangible book value grew 11% during 2024.

Tim Laney: Before handing off the call to Nicole, I will point out that tangible book value grew 11% during 2024, and we exited the year with common equity tier one capital ratio of 13.2%.

Emily Gooden: We exited the year with common equity tier one capital ratio of 13, 2% Nicole Thank you Tim.

Nicole Van Den Abel: Nicole? Thank you, Tim.

Operator: And to our telephone audience, please stand by. It looks like we lost the connection for our presenter.

Speaker Change: And to our telephone audience, please standby and it looks like we lost the connection for our presenters.

Tim Laney: Well, we apologize, not sure what happened on the line, but I was just introducing Nicole, and Nicole, I'll ask you to take it from here.

Speaker Change: Yes.

Well, we apologize I'm not sure what happened on the line, but I was just introducing Nicole and Nicole I'll ask you to take it from here. Thank you Tim and good morning.

Nicole Van Den Abel: Thank you, Tim.

Nicole Van Den Abel: Good morning. During today's call, I will cover the financial highlights for the fourth quarter and full year 2024 and share our guidance for 2025. Consistent with our prior practice, our guidance does not include any future interest rate policy decisions by the Fed. For the fourth quarter, we reported net income of $28.2 million, or 73 cents of earnings per diluted share. During the fourth quarter, we announced a strategic sale of investment securities of approximately $130 million, which resulted in an after-tax loss of $5 million. The proceeds from the security sale will be reinvested in higher yielding securities during the first quarter of 2025.

Nicole: During today's call I will cover the financial highlights for the fourth quarter and full year 2024 and share our guidance for 2025.

Nicole: Consistent with our prior practice our guidance does not include any future interest rate policy decisions by the fed.

Nicole: For the fourth quarter, we reported net income of $28 2 million or <unk> 73 cents of earnings per diluted share.

During the fourth quarter, we announced the strategic sale of investment securities of approximately $130 million, which resulted in an after tax loss of $5 million. The proceeds from the security sale will be reinvested in higher yielding securities during the first quarter of 2025.

Nicole: Yeah.

Nicole Van Den Abel: As a result of our strategic balance sheet management, our total assets ended the year at $9.8 billion. As Tim shared with you, adjusting for the one-time security sale loss, our net income increased to $33.2 million, or 86 cents, of earnings per diluted share. This resulted in an adjusted return on average tangible assets of $1.4 billion. and an adjusted return on average tangible common equity of 14.4%. On a linked quarter basis, we grew our fully taxable equivalent pre-provisioned net revenue by 13.5% annualized, again, after adjusting for the one-time impact of the security sale. For the full year 2024, our net income totaled $118.8 million, or $3.08 of earnings per diluted share.

Nicole: As a result of our strategic balance sheet management, our total assets ended the year at nine 8 billion.

Nicole: As Chen at Tim shared with you adjusting for the one time securities sale loss, our net income increased to $33 $2 million or <unk> 86 cents of earnings per diluted share.

Nicole: This resulted in an adjusted return on average tangible assets of one 4% and an adjusted return on average tangible common equity of 14, 4% on a linked quarter basis. We grew our fully taxable equivalent pre provision net revenue by 13, 5% annualized.

Nicole: Again after adjusting for the onetime impact of the security sale.

Nicole: For the full year 2024, our net income totaled $118 8 million or $3.08 of earnings per diluted share.

Nicole Van Den Abel: Adjusting for the impact of the security sales, net income was $123.9 million or $3.22 of earnings per diluted share. During 2024, we maintained a strong net interest margin, generated average deposit growth of 4.7%, and grew our tangible book value per share by 11%. We continue to be pleased with our bankers' commitment to growing client relationships, and we entered the new year with solid loan pipelines. We anticipate higher levels of loan demand in 2025 and are projecting 2025's loan growth to be in the mid-single digit. Fully taxable equivalent net interest margin expanded 12 basis points during the quarter to a strong 3.99%.

Nicole: Adjusting for the impact of the security sales net income was $123 9 million or $3.22 of earnings per diluted share.

Nicole: During 2024, we maintained a strong net interest margin generated average deposit growth of four 7% and grew our tangible book value per share by 11%.

Nicole: We continue to be pleased with our bankers' commitment to growing client relationships and we entered the new year with solid loan pipeline.

Nicole: We anticipate higher levels of loan demand in 2025 and are projecting 2025 loan growth to be in the mid single digits.

Nicole: Fully taxable equivalent net interest margin expanded 12 basis points during the quarter to a strong $3, 99%, our bakers disciplined efforts and repricing deposits resulted in a 22 basis point reduction in our cost of deposits, which more than offset a seven basis point decline in.

Nicole Van Den Abel: Our bankers' disciplined efforts in repricing deposits resulted in a 22-basis point reduction in our cost of deposits, which more than offset the 7-basis point decline in earning asset yields during the quarter. As a result, fully taxable equivalent net interest income grew 11.3% annualized during the quarter to $92 million. As I mentioned earlier, we do not incorporate future interest rate changes in our projections. And with that in mind, for 2025, we project fully taxable equivalent net interest margin to remain in the 3.9. Our non-performing loan ratio remains below peer averages at 46 basis points of total loans outstanding.

Nicole: Earning asset yields during the quarter.

Nicole: As a result fully taxable equivalent net interest income grew 11, 3% annualized during the quarter to $92 million.

Nicole: As I mentioned earlier, we do not incorporate future interest rate changes in our projections and with that in mind for 2025, we project fully taxable equivalent net interest margin to remain in the $3 90.

Nicole: Turning to credit quality, our nonperforming loan ratio remains below peer average is about 46 basis points of total loans outstanding.

Nicole Van Den Abel: We charged down one previously reserved credit during the quarter, resulting in 11 basis points of annualized net charge-offs for the quarter, or just 13 basis points for the year. The quarter's provision expense of $2 million was primarily driven by the quarter's loan growth and an increase in reserve requirements as a result of our CECL modeling approach. The allowance-to-total-loans ratio ended the quarter at 1.22 percent, consistent with the prior quarter. We continue to hold $23 million of marks against our acquired loan portfolio, which adds an additional 29 basis points of loan loss coverage if applied across the entire loan portfolio.

Nicole: We charged down one previously reserved credit during the quarter, resulting in 11 basis points of annualized net charge offs for the quarter or just 13 basis points for the year.

Nicole: The quarters provision expense of $2 million was primarily driven by the quarters loan growth and an increase in reserve requirements as a result of our seasonal modeling approach.

Nicole: The allowance to total loans ratio ended the quarter at one point to 2% consistent with the prior quarter.

Nicole: We continue to hold $23 million of marks against our acquired loan portfolio, which adds an additional 29 basis points of loan loss coverage if applied across the entire loan portfolio.

Nicole Van Den Abel: Total non-interest income for the fourth quarter was $11.1 million and included $6.6 million of pre-tax losses on the investment security sales. For 2025, we project our total non-interest income to be in the range of $72 to $77 million. Non-interest expense for the fourth quarter totaled $64.5 million and included $1.2 million of impairment from the consolidation of three banking. Excluding the impairment, non-interest expense decreased $0.9 million on a linked quarter 2024's full-year non-interest expenses were well-managed and totaled $254 million and included $13 million of two UNIFI-related expenses. Non-interest expense for 2025 is projected to be in the range of $272 to $278 million dollars and includes approximately $27 to $29 million dollars of investment in two uniforms. In an effort to provide additional visibility, my future remarks will break out the investment in QUnify from the CorpBank's expense run rate.

Nicole: Total noninterest income for the fourth quarter was $11 1 million and included $6 6 million of pre tax losses on the investment security sales.

Nicole: For 2025, we project our total noninterest income to be in the range of $72 million to $77 million.

Nicole: Noninterest expense for the fourth quarter totaled $64 5 million and included $1 $2 million of impairment from the consolidation of three banking centers.

Nicole: Excluding the impairment noninterest expense decreased zero point $9 million on a linked quarter basis.

Nicole: 2024th full year noninterest expenses were well managed and totaled $254 million and included $13 million of to unify related expenses.

Nicole: Noninterest expense for 2025 is projected to be in the range of $272 million to $278 million and includes approximately $27 million to $29 million of investment into unifi.

Nicole: In an effort to provide additional visibility and my future remarks, we'll break out the investment and to unify from the core bank <unk> expense run rate.

Nicole Van Den Abel: The year-over-year increase in two UNIFI expense includes the onboarding of additional developers and the amortization of the capitalized debt. Excluding the increase in two UNIFI-related expenses, Corp Bank non-interest expense is projected to increase 3% in 2025. The full-year effective tax rate for 2024, excluding excess tax benefits, was 18.5 percent and benefited from research and development tax credits related to the two unified build-outs. We project 2025's effective tax rate to be around 19%. In terms of capital management, we continue to grow our excess capital and ended the quarter with a strong TCE ratio of 10.2 percent, Tier 1 leverage ratio of 10.7 percent, and a common equity Tier 1 ratio of 13.2 percent.

Nicole: The year over year increase in to unify expense includes the onboarding of additional developers and the amortization of the capitalized assets.

Nicole: Excluding the increase in to unify related expenses core bank noninterest expense is projected to increase 3% in 2025.

Nicole: The full year effective tax rate for 2024, excluding excess tax benefits with 18.5% and benefited from research and development tax credits related to the to unify buildout.

Nicole: We project 2025 effective tax rate to be around 19%.

Nicole: In terms of capital management, we continue to grow our excess capital and ended the quarter with a strong TCE ratio of 10.2% tier one leverage ratio of 10, 7% and a common equity tier one ratio of 13, 2% we project our.

Nicole Van Den Abel: We project our share count to remain around 38.6 million in diluted shares outstanding during 2025.

Nicole: Share count to remain around $38 6 million in diluted shares outstanding during 2025 with that I will turn it over to Amit well, thanks, Nicole and good morning.

Aldis Birkans: With that, I will turn it over to Aldis. Well, thanks, Nicole, and good morning. Our strong results this quarter were given by our focus on funding the loan growth with low-cost deposits, proactively managing credit, diversifying our fee income, and creating positive operating leverage through disciplined expense management. As Nicole already mentioned, our strong liquidity and capital levels allow us to utilize Canberra deposits to reposition our investment portfolio and keep the total balance sheet below $10 billion mark, thus postponing the Durban impact by another year. Having said that, our goal for 2025 is to grow beyond $10 billion in total assets driven by both solid loan and investment portfolio income.

Amit: Our strong results this quarter were driven by our focus on funding the loan growth with low cost deposits proactively managing credit and diversifying our fee income and creating positive operating leverage through disciplined expense management.

Speaker Change: As Nicole already mentioned, our strong liquidity and capital levels allows us to utilize camera deposits to reposition our investment portfolio and keep the total balance sheet below $10 billion, Mark thus postponing the durbin impact by another year.

Speaker Change: Having said that our goal for 2025 is to grow beyond $10 billion in total assets driven by both solid loan and investment portfolio increases.

Aldis Birkans: Nicole already provided guidance for the loan growth, and I'll just add that we project a combined cash and investment security balances to settle around 15% of the total balance sheet in 2025. In terms of the fourth quarter, as a recap, loan fundings during the quarter totaled a strong $480 million, which was among the highest loan production quarters in the company's history. However, we also experienced elevated levels of payouts and paydowns, which I think reflects the vibrant economy, excuse me, vibrant economic activity in our footprint markets and is a good time for 2025. Outline utilizations increased during the quarter and are showing signs of returning to their historical average.

Speaker Change: <unk> already provided guidance for the loan growth and I'll, just add that we projected combined cash and investment security balances to settle around 15% of the total balance sheet in 2025.

Speaker Change: In terms of the fourth quarter, so to recap loan fundings during the quarter totaled a strong $480 million, which was among the highest loan production quarters in the Companys history.

Speaker Change: However, we also expect elevated levels of payoffs and pay downs, which I think reflects the vibrant economy.

Speaker Change: He was named vibrant economic activity in our footprint markets and is a good start for 2025.

Speaker Change: While utilization has increased during the quarter and are showing signs of returning to their historical averages.

Aldis Birkans: New loan production during the quarter had a weighted average rate of 7.9 percent, which combined with a decrease in total cost of deposits of 22 basis drove the net margin expansion to 3.99% for the quarter. We are highly confident in the proactive execution of a deposit strategy. The fourth quarter's total deposit data was 44 percent as measured against the Fed target rate data. which is in line with the deposit data when the rates were increased. Overall, as we look ahead to 2025, we remain confident in our ability to deliver strong results driven by robust long growth and the continued expansion of our core deposit franchise.

Speaker Change: New loan production during the quarter had a weighted average rate of seven 9%.

Speaker Change: Combined with a decrease in total cost of deposits of 22 basis points drove the net margin expansion to $3, 99% for the quarter.

Speaker Change: We are highly confident in the proactive execution, our deposit strategy. The fourth quarter's total deposit beta was 44% as measured against the fed target rate decrease which is in line with the deposit beta when rates were increasing.

Speaker Change: Overall as we look ahead to 2025, we remain confident in our ability to deliver strong results.

Speaker Change: Given by robust loan growth and mix.

Speaker Change: Continued expansion of our core deposit franchise.

Aldis Birkans: Our disciplined approach to credit remains at the heart of our strategy, ensuring we balance growth with sound risk. We believe our focus on the relationship banking continues to differentiate us and allows us to deepen our client engagement and creates long-term value for our shareholders.

Speaker Change: A disciplined approach to credit remains at the heart of our strategy, ensuring that balances growth with solid risk management.

Speaker Change: We believe our focus on relationship banking continues to differentiate us and allows us to deepen our client engagement and creates long term value for our shareholders.

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

With that I'll turn it back to you. Thank you all and as well as Nicole in order. So sure. We entered 2025 on solid footings were pleased with the level of business activity, we're seeing in our markets and we believe we're set up to have a nice year. Our two unified team continues to build the banking marketplace of the future.

Tim Laney: Thank you, Aldis. Well, as Nicole and Aldis have shared, we entered 2025 on solid footings. We're pleased with the level of business activity we're seeing in our markets, and we believe we're set up to have a nice year. Our 2Unify team continues to build the banking marketplace of the future, and the team is progressing on time and operating within budget. We began user testing in the fourth quarter, and we like what we're seeing.

Speaker Change: <unk> and the team is progressing on time and operating within budget, we began user testing in the fourth quarter and we like what we're seeing.

Tim Laney: Finally, we continue to place a premium on maintaining optionality. We remain focused on M&A and strategic markets, and with a solid base of capital, we believe we're well-positioned to take advantage of a range of shareholder-friendly actions, should they come to fruition.

Speaker Change: Finally, we continue to place a premium on maintaining Optionality, we remain focused on M&A and strategic markets and with a solid base of capital. We believe we are well positioned to take advantage of a range of shareholder friendly actions should they come to fruition and.

Operator: And on that note, I'll ask our operator to open up the line for questions. And if you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you would like to ask a question.

Speaker Change: On that note I'll.

Speaker Change: Ask our operator to open up the lines for questions.

Speaker Change: And if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to align our signal to reach our equipment.

Speaker Change: Once again that is star one if you would like to ask a question.

Ryan Payne: We'll now take a question from Ryan Payne with D.A. Davidson.

Speaker Change: We'll now take a question from Ryan pain with D. A Davidson.

Ryan Payne: Hello, Brian. Brian Payne on for Jeff Rulis today. On the loan front, are you seeing any changes in the competitive environment there? And any particular areas you're targeting this year? No, I think the comparative environment has been comparative going into late 2024 already, so we're not seeing necessarily or projecting any changes. And going into next year, we do see quite a bit of activity, as I mentioned, in terms of paydowns, payouts are quite active. So we do feel like there is a good economic environment that is allowing for credit generation and people looking to do business.

Ryan: Hello, Brian.

Speaker Change: Brian paying on for Jeff Rural list today.

Ryan: On the loan front.

Speaker Change: Are you seeing any changes in the competitive environment there.

Speaker Change: And any particular areas you're targeting this year.

Speaker Change: No I think the competitive environment has been competitive.

Speaker Change: Going into late 2020 quarter already so we're not seeing necessarily we're projecting any changes.

Speaker Change: And going into next year, we do see quite a bit of activity.

Speaker Change: As I mentioned in terms of pay downs payoffs were quite active so we do feel like there is a.

Speaker Change: Good economics.

Speaker Change: The environment that is allowing for.

Speaker Change: Credit generation and people looking to do business.

Ryan Payne: If I were to add anything, I would say from a competitor's standpoint, we are seeing what we would deem as even more—we pride ourselves on putting ourselves in markets with pretty rational competitors. And I would just say, given the stress and uncertainty of the last 18 months, we've seen the market become even more rational around credit.

Speaker Change: First Howard add anything I would say from a competitor standpoint, we are seeing what we would deem as is even more we proud ourselves on putting ourselves in markets with pretty rational competitors and I would just say given the stress and uncertainty over the last 18 months, we've seen the market become even more.

Speaker Change: <unk> around.

Speaker Change: Credit service.

Ryan Payne: I think that's what we've got for you right now. Got it.

Speaker Change: I think that's what we've got for you Ryan.

Speaker Change: Got it okay and.

Ryan Payne: Okay. And on the credit front. Is there a certain relationship that caused... The rise in NPAs there, or segments. Well, maybe the way to... I think I follow your question.

Speaker Change: On the credit front.

Speaker Change: Is there a certain relationship that caused the rise in npa's, there or segment.

Speaker Change: Well.

Speaker Change: Maybe maybe the waived.

Speaker Change: I think I follow your question the way to address it as if I think about industry segments in exposure as we've previously noted we continue to see weakness in the transportation space. In particular, that's that's been if I were to point to one area. That's represented represented a <unk>.

Ryan Payne: The way to address it is if I think about industry segments and exposures, we've previously noted, we continue to see weakness in the transportation space in particular. That's been, if I were to point to one area that's represented a source of concern, it would be that. Now, I'll also point out that, having said that, transportation exposure represents less than 2% of our total outstandings. And then I would tell you that the other activity we've seen in that space as of recent is actually small dollar exposure that was originated in one of our previous acquisitions. And frankly, we're working to clean that up.

Speaker Change: <unk> of concern it would be that and I'll also point out that having said that our transportation exposure represents less than 2% of our our total Outstandings and then I would I would tell you that the other <unk>.

Speaker Change: The activity we've seen in that space as of recent is actually small dollar exposure that was originated in one of our previous acquisitions and frankly were working to clean that up.

Ryan Payne: Got it.

Speaker Change: Got it Okay and last thing for me.

Ryan Payne: Okay.

Ryan Payne: And last thing for me, on the plan to unify expenses for this year, did I hear it was $27 million? Was that right? Yes, that's correct. I gave a range of $27 to $29 million.

Speaker Change: On the plan to unify expenses for this year did I hear this $27 million was that right.

Speaker Change: Yes, that's correct I gave a range of $27 million to $29 million.

Ryan Payne: Got it.

Speaker Change: Got it okay. Thank you I'll step back.

Ryan Payne: OK, thank you.

Ryan Payne: I'll step back. Thank you, Ryan.

Emily Gooden: Thank you Ryan.

Charlie Driscoll: And we'll now take our next question from Charlie Driscoll with KBW. Good morning, this is Charlie on for Kelly Motta.

Speaker Change: And we will now take our next question from Charlie Driscoll with K B W.

Charlie: Good morning. This is good morning. This is Charlie on for Kelly Motta.

Charlie Driscoll: On the funding side, deposit saw some nice relief.

Speaker Change: On the funding side deposit saw some nice relief.

Charlie Driscoll: Any update on how you're thinking about deposit competition and those betas as we look through 2025? Yeah, I'll just mention on the deposits, again, we have the luxury on having the Canberra and move that balance, on balance sheet component on and off, and we proactively took down our Canberra deposits in an effort to accommodate the investment portfolio sale pay down for the year end. If we were to exclude on an average basis, actually core deposits grew about $40 million, and you can see the $20 million of that wasn't half, it wasn't DDA, so we feel good about our core deposit activity and growth there, and that continues going here in 2025.

Speaker Change: Update on how you're thinking about deposit competition in those betas as we looked at 125.

Speaker Change: Yes ill just mention on the deposits again.

Speaker Change: Have the luxury of young on having the camber and moved out balance on balance sheet component on and off and.

And we proactively.

Speaker Change: <unk> took down a camera deposits in an effort to accommodate the investment portfolio sale paydown for the for the quarter and for the year end.

Speaker Change: If we were to exclude on average basis are actually core deposits grew about $40 million and you can see the $20 million of that wasn't a half it wasn't DDA. So we feel good about our.

Speaker Change: Core deposit.

Speaker Change: Activity on growth there.

Charlie: And that continues growing here in 2025, Charlie I would add we feel very good about our level of Treasury management activity with our business clients and I'm proud of our team in terms of the deposit pricing discipline and the courage. It took to act on on that deposit pricing.

Charlie Driscoll: Yeah, Charlie, I would add, we feel very good about our level of treasury management activity with our business clients, and I'm proud of our team in terms of the deposit pricing discipline and the courage it took to act on that deposit pricing discipline over the last quarter or so. It obviously is making a difference. Makes sense.

Discipline and over the last.

Charlie: Quarter Verso.

Charlie: It obviously is making a difference.

Charlie: Makes sense. Thank you.

Charlie Driscoll: Thank you. And then you said your plan for 2025 was to go to grow through $10 billion.

Speaker Change: And then you said you plan for 2025 was to go to grow through 10 billion.

Charlie Driscoll: Can you remind us of what the expense impact is from Durbin and then any other considerations around the $10 billion threshold? And maybe what size do you guys think you could be at to absorb the drag as well? Thanks. Look, we've avoided roughly a $10 million charge over the course of two years, five this year, five next year, as a result of simply pushing it into 25. We frankly managed our way through that process and we would expect to quickly move beyond $10 billion in assets. I've talked about the $5 million a year impact. Ultimately, the Durban expense, we're fortunate in that we do not have high consumer exposure in the Durban area, and so we're frankly just managing through that impact with organic growth.

Speaker Change: Can you remind us of what the expense impact is from Durban and then any other considerations around.

Speaker Change: Around the 10 billion threshold and maybe what side, yes. Thank you could be at to absorb the drag as well okay.

Speaker Change: Look we.

Speaker Change: We've avoided roughly $10 million charge over the course of two years side. This year five next year by as a result of sounds like pushing it into.

Speaker Change: 25.

Speaker Change: When we frankly managed our way through that process and we'll we'll we would expect to quickly move beyond $10 billion in assets I've talked about the five.

Speaker Change: On a year impact ultimately.

Speaker Change: <unk> expense is as we're fortunate in that we do not have high consumer exposure and the Durbin area.

Speaker Change: And so we're frankly, just managing through that impact with organic growth.

Charlie Driscoll: Awesome, thank you.

Awesome. Thank you and then maybe.

Charlie Driscoll: And then maybe my last question, I know you mentioned organic growth, but an acquisition could be a fast way to like get scale on one possible strategy to absorb the Durbin hit. I was just wondering if you could provide any update on pace of conversations there and how you're approaching your capital priorities. Yeah, Charlie, your question is important, because I think one thing we would point out is that, you know, obviously, we can't provide details, but we've been examined as a regional bank now as though we were over 10 billion for the last two years.

Speaker Change: My last question I know, you mentioned organic growth, but an acquisition could be a fast way to like get scale one possible strategy.

Speaker Change: So it was over the Durbin hit I was just wondering if you could provide any update on the pace of conversations there and how you're approaching your capital priorities Charlie.

Speaker Change: Your question is important because I think one thing we would point out is that.

Speaker Change: Obviously, we can't provide details, but we've been examined as a regional bank now is where we were over $10 billion for the last two years.

Charlie Driscoll: We When we received our initial charter, when we started the company, our initial regulator, the OCC, required us to begin building out processes as though we were $10 billion in assets day one. While that was a pain, that legacy was painful, as we've approached $10 billion, it's actually made that crossover very manageable. And we don't expect, there's no indication that we should expect any other major expenses related to that crossover, given that we've got that infrastructure in place.

Speaker Change: We.

Speaker Change: When we received our initial charter when we started the company our initial regulator the FCC required us to begin building out processes is that we were $10 billion in assets day, one while that was a pain that legacy was painful as we've approached $10 billion, it's actually made that.

Speaker Change: Crossover.

Speaker Change: Very manageable and we don't expect there's no indication that we should expect any other major expenses related to that crossover given that we've got that infrastructure in place.

Speaker Change: What could.

Charlie Driscoll: Could acquisition help dilute the Durban impact? Yes, but it's so insignificant. I mean, we wouldn't let that drive M&A activity. We're still focused on strategic partners that share similar cultures and views toward relationship banking. And we are having very constructive conversations on that. Awesome.

Speaker Change: Got it.

Speaker Change: Acquisition help dilute the Durbin impact, yes, but it's so insignificant I mean, we wouldn't let that drive M&A activity, where we're still focused on strategic partners that share similar cultures and views toward relationship banking and.

Speaker Change: We are having very constructive conversations on that front.

Speaker Change: Awesome. Thank you guys I'll step back.

Charlie Driscoll: Thank you guys.

Charlie Driscoll: I'll step back.

Operator: Thank you, Charlie. And as a final reminder, that is star one if you would like to ask a question.

Charlie Durbin: Thank you Charlie.

Speaker Change: Yes.

Speaker Change: And as a final reminder, that is star one if you would like to ask a question.

Andrew Liesch: We'll now take our next question from Andrew Liesch with Piper Sandler. Good morning, everyone. Good morning. Thanks for taking the questions here.

Speaker Change: We'll now take our next question from Andrew Liesch with Piper Sandler.

Andrew Liesch: Good morning, everyone. Good morning, Thanks for taking the questions here.

Nicole Van Den Abel: Nicole, the margin guide, I missed it, near in the 390s, is that correct? Yes, that is correct, Andrew.

Speaker Change: Nicole.

Speaker Change: The margin guide I I missed it just hype near in the 393 90 is that is that correct.

Speaker Change: Yes that is correct Andrew.

Andrew Liesch: Got it.

Speaker Change: Got it.

Aldis Birkans: I guess we had some nice improvement on funding costs there. Why wouldn't the full quarter effect of the last 25 great hikes, and even the one in November, help push the margin a little bit higher here in the first quarter?

Speaker Change: I guess you had some nice improvement on funding cost there what why wouldn't the full quarter effect of the last 25 rate hikes and even yeah, they've known in November right.

Speaker Change: Pushed the margin a little bit higher here in the first quarter.

Aldis Birkans: I'll take that.

Speaker Change: Yeah.

Aldis Birkans: This is Aldis Andrew. That's a good question and that's kind of the natural tendency here in terms of thinking. Remember the other component that we are, are we repositioning and adding back the investment portfolio, which certainly comes on at a lower yield in relation to the funding cost than a typical loan would. And so that denominator increase, while we are adding numerator in terms of earning more money, the denominator increase is overcoming it and keeping an overall balance sheet, or sorry, the overall NIM in that, let's call it 3-9. Got it. Okay, that makes sense.

Speaker Change: I'll take that this is all the center that's a good question in that.

Speaker Change: And that's a natural.

Speaker Change: Tendency here in terms of banking.

Speaker Change: The other component would be our RV repositioning and adding back the investment portfolio.

Speaker Change: But it certainly comes on at their earnings.

Speaker Change: Sure yield.

Speaker Change: In relation to the funding cost than typical longwood and solve that denominator increase while we are adding numerator in terms of earning earning more money.

Speaker Change: The denominator increases overcoming it then keeping kind of overall balance sheet I'm, sorry, overall NIM in that mid call. It 30 nines.

Speaker Change: Got it okay that makes sense.

Aldis Birkans: Even so, if we do get any more rate cuts from the Fed, I mean, how do you expect the margin would react? Would it be a slight benefit at first before there's some asset catching up? I guess, how is the balance sheet positioned right now for rates? Yes, so adjusting for the impact of our security sale, we model our balance sheet to be, we're very close to asset neutral, and we believe that any future interest rate movements up or down should not impact our market. Got it. Okay, that's very helpful.

Even so.

Speaker Change: If we do get any more rate cuts from the fed I mean, how do you expect the margin would react.

Speaker Change: Might benefit at first before there is some.

Speaker Change: Ladies and some asset catching up.

Speaker Change: I guess, how is the balance sheet positioned right now for rate changes.

Speaker Change: Yes, so adjusting for the impact of our security sale.

Speaker Change: Our balance sheet.

Speaker Change: We're very close to asset neutral and we believe that any future interest rate movement up or down should not impact our margin.

Speaker Change: Got it okay.

Speaker Change: That's very helpful.

Andrew Liesch: And let's see, the...

Speaker Change: And let's see the.

Andrew Liesch: And then, oh, just on the expense growth, did you say it was at 3% excluding Canberra for this year? Yes. The 2025 guidance I provided for non-interest income, if you strip out the two-unify impact, we're holding the core bank expense increase to 3%.

Speaker Change: And then just on the expense growth could you say it was at 3% excluding camber.

Speaker Change: For this year.

Speaker Change: Okay 25 guidance I provided for noninterest income if you strip out the to unify impact we're holding the core bank expense increased to 3%.

Andrew Liesch: Gotcha. Okay.

Speaker Change: Gotcha Okay.

Andrew Liesch: And then I know you had the Friends and Family launch here recently. How did that progress? And when do you think we can start seeing some revenue fall to the bottom line here?

Speaker Change: And then I know you had the.

Speaker Change: Our friends and family wants here recently, how is that how did that progress and.

Speaker Change: When do you think we can start seeing some revenue fall to the bottom line here.

Andrew Liesch: Yeah, look, user testing is going well. A key focus has been on the quality of the integrations, and I'm pleased to report that we encountered really only one partner issue, and the team and the partner believe that that issue can be resolved by month end. We expect to be adding additional users here by the end of this month, and we're entering phase three with Apple and Android for all of our application certifications.

Speaker Change: Yeah look user testing is going well.

Speaker Change: Key focus has been on the quality of the integrations and I'm pleased to report that we encountered really only one partner issue and the team and the partner believes that that issue can be resolved by March then we expect to be adding additional users here by the end of this month and we're entering phase three with Apple and <unk>.

Speaker Change: Droid for all of our applications certifications, we are still not forecasting revenue for the year we're in.

Andrew Liesch: We are still not forecasting revenue for the year. I mean, I should suggest we expect revenue, but we're not publicly forecasting revenue for the year, which would begin to occur in the second half of this year. Got it. Very helpful. Good to hear the progress. Thanks for taking the questions.

Speaker Change: Should suggest we expect revenue, but we're not publicly forecasting revenue for the year.

Speaker Change: Which would begin to occur in the second half of this year.

Speaker Change: Got it.

Speaker Change: Very helpful.

Speaker Change: Good to hear the progress thanks.

Andrew Liesch: I'll send back. Thank you.

Speaker Change: Thanks for taking the questions I'll come back.

Aldis Birkans: Hey, Andrew, before you go, we're all dog lovers here. Why don't you introduce your dog? He's joined your conference call a few times over the years. All right.

Hey, Andrew before you go World Dog lovers here why don't you introduce yourself.

Speaker Change: He is joining our conference call a few times over the years.

Speaker Change: [laughter] alright, thank you.

Speaker Change: Thank you.

Operator: Thank you and I'm sure we have no further questions at this time.

Speaker Change: Thank you and I'm sorry, we have no further questions at this time I will now turn the call back to Mr. Laney for his closing remarks.

Tim Laney: I will now turn the call back to Mr. Laney for his closing remarks. Well, thank you.

Speaker Change: Well. Thank you wouldn't do this if he was actually on the line because I wouldn't want a flatter them that much but but since he's not I will point out as it relates to to unify Jeff Rollouts of D. A Davidson provided what I believe was a very solid to unify update that was published on January 3rd.

Tim Laney: I wouldn't do this if he was actually on the line because I wouldn't want to flatter him that much, but since he's not, I will point out as it relates to 2Unify, Jeff Rulis of DA Davidson provided what I believe was a very solid 2Unify update that was published on January 3rd and I believe it's worth a read. So I'll call that out and with that say thank you everyone for joining today. Have a good day.

Speaker Change: And believe its worth a read so.

Speaker Change: I will call that out and with that safe. Thank you everyone for joining today have a good day.

Operator: 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.

This concludes today's conference call, if you'd like to listen to the telephone replay of this call. It will be available in approximately 24 hours and a link will be on the company's website on the Investor Relations page.

Speaker Change: Thank you very much and have a great day you may now disconnect.

Operator: You may now disconnect.

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