Q2 2025 National Bank Holdings Corp Earnings Call
Good morning everyone and welcome to the National Bank holding Corporation 2025, second quarter earnings call. My name is Rachel 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.
We will begin today's call with prepared remarks, followed by a question and answer session.
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 and certainties 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 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 provides useful information for investors
Reconciliations of these non-gaap Financial measures to the Gap. Measures are provided in the news, release posted on the investor relations section of www.nationalbank.com.
It is now my pleasure to turn the call over and introduce National Bank holdings, corporations, chairman and CEO Mr. Tim Laney.
Tim Laney: Thanks Rachel. Good morning, and thank you for joining us as we discuss. National Bank holdings. Second quarter results.
Speaker Change: I'm joined by our president Aldis burkhan, as well as our Chief Financial Officer. Nicole vandenilio
Aldis Burkhan: we delivered earnings of 88 cents during the second quarter with a 14.2%, return on tangible equity, and a 1, and a half return on assets.
Aldis Burkhan: We delivered a strong, net interest, margin of 395, resulting from deposit and Loan pricing discipline.
Speaker Change: During the quarter, our teams produced 323 million of loan funding 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.
Speaker Change: During the quarter, we also took action to reduce our core Bank annualized Personnel expense run rate by a full 10%.
Speaker Change: Finally we are pleased to share that we've successfully launched release 1 of 2 UniFi in the Apple App Store and expect to go live on Android July 30th.
Speaker Change: Activity has been solid particularly in light of the fact that we have not even launched our marketing campaigns.
Speaker Change: Further user feedback has been quite positive. And on that note, I'll turn the call over to Nicole. Nicole. Thank you.
Nicole Vandenilio: 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 88 cents of earnings per diluted share.
Nicole Vandenilio: This resulted in a strong return on average tangible assets of 1.5%, in return, on average tangible, common Equity of 14.2%.
Nicole Vandenilio: 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.
Nicole Vandenilio: With Tim shared our team's generated 323 million of loan funding during the second quarter.
Nicole Vandenilio: Elevated loan, pay Downs, coupled with strategic, portfolio, reductions within targeted. Industries, led to a decline in loan balances during the quarter.
Nicole Vandenilio: Our Bankers remain committed to Growing client relationships.
Nicole Vandenilio: We continue to build our pipelines and are projecting annualized. Mid single-digit, loan growth for the second half of the year.
Nicole Vandenilio: Fully taxable equivalent net, interest margin expanded to basis points. During the quarter to 3.95% fully taxable equivalent net. Interest income increased 0.7 million during the quarter to 8, 89.3 million and grew by 4.7% compared to the second quarter of last year.
Nicole Vandenilio: 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.
Nicole Vandenilio: Second quarter's, new loan. Originations came on at a weighted average yield of 7.4%
Nicole Vandenilio: And as I mentioned earlier, this does not incorporate any future interest rate, Decisions by the Fed.
Nicole Vandenilio: Turning to deposits.
Nicole Vandenilio: Seasonal tax, outflows resulted in a decline. In average deposit. Balances of 58.8 million during the quarter.
Nicole Vandenilio: Pasta, deposits totaled, 2.05%. And our total cost of funds was 2.09%.
Nicole Vandenilio: Turning to credit quality non-performing loans, decreased during the quarter to 30% dollars.
Nicole Vandenilio: Our non-performing loan ratio remains below pure averages of 45 basis, points of total loans.
Nicole Vandenilio: Annualized. Net charge offs for the quarter were just 5 basis points.
Nicole Vandenilio: the allowance to Total loans ratio remained consistent at 1.2%, additionally, we continue to hold 20 million dollars 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,
Nicole Vandenilio: 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.
Nicole Vandenilio: For the second half of 2025. We project, our total amount interest income to be in the range of 34 to 36 million.
Nicole Vandenilio: 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
Nicole Vandenilio: 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.
Nicole Vandenilio: 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, an estimate, the actions taken. At the end of the second quarter will reduce our annual. Core Bank Personnel expense by approximately 15 million dollars.
Nicole Vandenilio: As a result, we are lowering our projection for non-interest expense.
Nicole Vandenilio: We now project our non-interest expense for the second half of the year to be in the range of 126 to 128 million.
As you have heard, we are pleased to have launched 2 UniFi last week.
Nicole Vandenilio: As a reminder, we are preparing to provide 2, uniform Guidance with 2025 year end results.
Nicole Vandenilio: for the second quarter, 2 unifix, expenses totaled, 4.6 million
Nicole Vandenilio: We project to unify expense for the second half of the year to be in the range of 16 to 17 million increasing primarily. As a result of amortization, expense on the capitalized development Assets. Now, that 2 unify is live.
Nicole Vandenilio: 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 2 unexpected in the second half of 2025.
Nicole Vandenilio: We maintain strong levels of liquidity and continue 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
Nicole Vandenilio: With that, I will turn the call over to Aldis.
Aldis Burkhan: All right. Well thank you Nicole and good morning as Tim and Nicole already mentioned Loan, Production activities started picking up in the second quarter with healthy loan funding. So 323 million which was an increase of 26% over the first quarter slower start.
And while we still see some clients being somewhat cautious, in this economic environment, uh, loan pipelines for the second half of the year are building nicely.
Enter the third quarter of the good level of energy and optimism.
Aldis Burkhan: As always, we have not and will not compromise on credit.
Aldis Burkhan: Our Bankers, F, focus on food, relationship Banking, and do not Chase deals just to show growth.
Aldis Burkhan: I think the best evidence of this is our loan pricing discipline.
With new loan rates coming on at a strong 7.4%.
Aldis Burkhan: A loan and deposit pricing discipline. During the quarter allowed us to expand our net interest margin by 2 basis points to 3.95%
Aldis Burkhan: 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.
Aldis Burkhan: In a while. Since we have originated loans in this space and this quarter, we saw an opportunity to decrease our Trucking portfolio exposure.
Aldis Burkhan: Now sits at just about 100 million dollars or just 1.5% of the total portfolio.
Aldis Burkhan: Additionally, we decreased our exposures within the Agricultural and within the commercial real estate, sectors.
Aldis Burkhan: In aggregate, these 3 asset classes ended up driving the portfolio decline. The score
Aldis Burkhan: We continue to see solid credit metrics, there's just 5 basis points in the annualized, net charge offs and npas. Continuing, the research, the recent downward Trend with another 1.6 million defects this quarter,
Aldis Burkhan: The NPA ratio and the the quarter 1 basis point better than the first quarter at 0.45%.
Aldis Burkhan: This quarter, we also saw a nice growth in our fee, income on both linked quarter bases. And as compared to the prior Year's second quarter,
Aldis Burkhan: And while this quarter was held by 1.3 million, gain on the disposition of Consolidated Banking Center buildings. We did see sees no Rebound in in our bank card income, as well as an increase in SBA gain on selling them.
Aldis Burkhan: Loan volumes continue to pick up, but the second half of the year, we project higher fee income related to SBA gain on sale as well as derivative fees.
Ta will turn it back to you. Thank you Alice. Well, we had an active second quarter. We generated 323 million in new Loan Production.
Aldis Burkhan: We successfully reduced loan, exposure in targeted Industries with higher risk profiles.
Aldis Burkhan: We maintain pricing discipline resulting in a 3.95% net. Interest margin.
Aldis Burkhan: We took action to reduce our core Banks. Annualized Personnel expense run rate by 10%, we successfully launched release 1 of 2 UniFi
Aldis Burkhan: And we grew our tangible Book value to 2. 6. 6, 6 4.
Aldis Burkhan: Thank you.
If you would like to ask a question, please signal by pressing star 1 on your telephone keypad,
Aldis Burkhan: If you are using a speaker-phone, please make sure your mute function is turned off to allow your signal to reach our equipment.
Again please press star 1 to ask a question we will pause for just a moment to allow everyone an opportunity to signal for questions.
and we will take our first question from Jeff, realis with da Davidson
Jeff: Thanks, good morning.
Aldis Burkhan: Hey Jeff. Good morning.
Aldis Burkhan: Uh, on the loan side, um, again sounds sounds fairly cautious and and just want to kind of check in on.
You know, the amount of, you know, those higher risk, uh, Trucking a CRA is that I mean given the the guide of of resuming towards a mid single digit Pace. Sounds like the the bulk of that is, is what you wanted to clean up is is kind of done I guess that's question. 1 and then 2 just wanted to see if there's any management of growth, peed to kind of the 10 billion asset, Mark, if that's if that's still a
Aldis Burkhan: an area that that may
Aldis Burkhan: um, be keeping growth levels, somewhat subdued
Aldis Burkhan: Yeah, I I'll, uh, I'll answer both together if that's all right, Jeff because I to to begin with the latter question, I, I would, uh, tell you that there's been no management at this point to stay under the 10 billion dollar threshold. Um, again, we've been operating for years as though and and we were regulated as though we were at 10 plus billion dollar Banks, so that expense has been embedded in our run rate for years. No issue there. We've outlined what Durban?
Aldis Burkhan: Would be, which is in the grand scheme of things nominal. This, this this um, um, growth matters going to be reconciled in the second half of this year. Because to answer your question, we've largely taken action against, uh, the bulk of the relationships and loans that we felt we need to now. Are are there others were watching closely? And and would would would the right opportunity to take them down? ABS. Absolutely. But you know, I'll also remind you that we operate.
Aldis Burkhan: Really an active caution and being proactive. And as I said in my prepared remarks, I really believe it. It's the kind of action you have to take um, that translates into uh, more productive results, down the road.
I'll, I'll, I'll add to that. In terms of the second, the, the optimism on the second. Half growth pipeline is strong as I mentioned, and I would actually characterize it. Probably the strongest we've seen in the last 12 months, uh, as we enter the third quarter. So there is um, um, you know, there is a activity and and and
Aldis Burkhan: A pipeline to, to grow our guided mid single digits for second half.
Aldis Burkhan: Subject to what Tim mentioned. If there's other opportunities, we'll certainly jump on those.
Speaker Change: Okay, I appreciate it. Have a good question. Questions questions Jeff. Yeah no that was. That was great. I appreciate the. That was pretty detailed. So thank you. And if I hoped to the to the margin, um you know got the steady sort of guide from here. I I you know from our prior discussions of of sounded like you had some pretty good opportunities and and based on those new loan yields uh some pretty good reinvestment, not only in loans but but on Securities and and that was pretty positive, I guess.
Speaker Change: If I could just sort of frame up, you know, an environment that you see, maybe margin expansion, what would um, what would have to occur to kind of see it, sort of break more towards 4% than than steady.
Speaker Change: Well, but first I'll say we are very proud of 395 margin. I think that
Speaker Change: puts us in very good company. In terms of peer Banks,
Speaker Change: Um, but in terms of the Outlook, I think, what would really have to to, to, to move forward, what would really move our margin and positive way is, is really DDA growth at the end of the day, that's math or not bringing in zero costing deposit and, and lending it out at 7.4%. It's obviously extremely marginal or creative. So, I think the deposit
Speaker Change: A mix.
Speaker Change: Will will drive the out, outlook for the margin.
Speaker Change: Okay. Uh, great. I'll I'll step back. Thank you.
Speaker Change: Thanks Joe.
Speaker Change: Thank you. We will take our next question from Kelly Moto with KBW.
Hi. This is Charlie on for Kelly. Good morning.
Speaker Change: Hello Charlie.
Speaker Change: Um, it was exciting to see the T uniform. Um, the platform and the partnership with nav, can you speak about how the launch went and how the market is receiving to unify and provide some color on? Um, the partnership and
Speaker Change: How it came about and what benefits you think it can bring to the platform.
Speaker Change: Yeah, I I would compare our launch to the soft opening of a restaurant. We, we had done prior friends and family tested in testing in a in a uh lockdown in environment. So now to be in a position where uh, anyone can access the app and begin the process, what you'll find is if you get to the point to sign up unless you're a small business or medium-sized business and have an eim, it's going to be, you know, 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 at all of the attempts to penetrate there. And we, we're really proud of the walls that have been built here, to protect both the bank and, and our uh, future clients of 2 UniFi. Um, the feedback has been very positive in terms of how familiar the user interfaces.
Speaker Change: Well, it's intuitive. You know, we we, um,
Speaker Change: I mean the beginning as we've said before, is building this full ecosystem, where you're essentially as a small business owner able to do 1-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 this shoot there, you're going to see an SBA offering, uh, that will be introduced. We're also working with uh, Merchant payments company on a fairly creative approach, to helping small businesses. Uh, um, realize the the lowest possible rate on their merchant transactions here in the United States and we think that can be a huge driver, ultimately,
Speaker Change: I will tell you that I think given the data links, we've built, we've invested millions and millions of dollars in Information Management that to unify is going to be more of an information company than a bank. You know, we built it. Not to be reliant on with all due. Respect the big, the big core suppliers like FIS and Fiserv were more Nimble. Uh, we have more control of our client's 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 and then, finally, I would tell you that we ultimately see this as being, uh, a, a membership fee, based business. You know, if if if a business owner wants to transact and work within the the, to unify ecosystem, they're going to pay a monthly membership fee, no different than than, uh, 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, um, looking for. But I hope that helps
Speaker Change: That's great. And just to clarify, this is mainly coming through fee income, or do you expect this to be some like a balance sheet play where you're aiming to get, like loans and deposits it? It it's a great question. Um we're not focused on this as a big balance sheet play we really aren't, I mean again think about on the credit front we may be a partner and originating loans but the reality is what we want to do is make it
Speaker Change: Uh, easy for a plethora of United States Banks, mostly Community Banks.
Speaker Change: To access lending opportunities to small and medium-sized business and for that, we would uh, collect a fee or a scrape. The deposits were able to think about how we leverage camber to take those deposits and then sweep them as broker deposits to other financial institutions. And and so again, not a heavy, balance sheet play, high Roe, big on information and uh, membership fees.
Speaker Change: That's great. Thank you.
Charlie: Um, thanks Charlie. And then last 1 just Switching gears.
Charlie: The m&a environment is seen a little bit of a pickup, just wondering. Um if you're seeing the pace of conversations um pick up. And if you could remind us like what you're looking for in a partner size-wise and
Charlie: Other characteristics.
Charlie: Uh,
Charlie: We're very consistent, you know, we start with culture and strategy.
Charlie: We uh, only consider institutions that are in strong growth markets.
Charlie: And we've got to be in a position where when we announced the transaction for the sake of both parties.
Charlie: The market reacts positively and so that, that certainly means we have strong earnings accretion expectations. Uh, we have, uh, a real focus on how quickly we can earn back any tangible book dilution and and will not stray from those criteria as to specific. So I'm going to Simply say, I can't comment right now.
Speaker Change: Okay. Great. Thank you. I'll step back.
Speaker Change: Thank you.
Speaker Change: We will take our next question from Andrew tarot with Stevens.
Andrew Tarot: Hey, good morning.
Speaker Change: Good morning.
Speaker Change: With the decline in loans we saw, I'm just curious was was any of the deposit decline, this quarter reflective of uh, or tied to the the de-risking that's gone on in the loan portfolio or just any color. You can provide on on the 2q deposit flows and then, you know, kind of tying that into I it sounds like loan growth, expectations in the back, half of the year for an improvement. Would you expect core funding to to increase sequentially?
Speaker Change: And Andrew, I'm going to begin and quickly hand the soft to to, uh, uh, all the, you know that. Yeah. I mean, obviously, we're, we're moving the entire relationships when we move credit exposure and, and, uh, you know, that that's largely the matter. And then, um, all of us all through it to you, you would answer the question. So, so yeah, for a more detail for me to detail. As as we've always talked to the odd relationship Bank, uh, uh, model, and
Speaker Change: The size of the balance sheet, do.
Tend to move in.
Speaker Change: Tandem.
Speaker Change: Uh 1 thing that we haven't done is is go out and buy expensive deposits just to show again growth.
Speaker Change: As evidenced really, if you look at our uh, deposit data, this uh this last cycle is about 30 30%, so that shows through the cost of funds, but to kind of come back. Uh, the pipeline is their treasury management opportunities are there. As we look into, um, uh, the second half of it, second half of the Year through relationship, uh, opportunities to be able
Speaker Change: Looking to take market share and and we look to grow the uh, deposits in the second half as well.
Speaker Change: Understood, um, thank you. I appreciate it. Um,
Speaker Change: If I could ask just on on, on the expense side, I don't know if you're able to, but could you share any more color kind of around the, the expense reduction that happened during the second quarter?
Speaker Change: Uh specifically that it sounds like you know, compensation costs coming down. I'm I'm wondering if that's, you know, focused on any specific uh Avenues within the bank or just you know more broad-based
Speaker Change: Good morning Andrew. I'll be happy to take that 1. Um, and touch on our expense reduction plan that we wrapped up in June. Um, I will start by saying, we do not take these decisions lightly, but in light of the economic uncertainty, we knew it was proactive to be, we knew it was prudent. To be proactive in this area. It was a bank-wide effort. And there's 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 as an implementing automation.
Speaker Change: Okay. Uh thanks for calling Nicole. Um I'll step back thanks.
Speaker Change: Thank you.
Speaker Change: Thank you, we will take our next question, from Brett rabbitin with Hefty grip.
Right, good morning. Hey, good morning everybody.
Um, wanted to wanted to stick with expenses for a second and just make sure um, on the guidance for the 126 to 128, for the back, half of the year that's that is that, you know, when I think about the math, that's inclusive of 2 UniFi 16 to 17 million, or is that on top of the 126 to 128.
Speaker Change: you're, you're
Speaker Change: 17 million guide.
Speaker Change: Okay.
Speaker Change: Um, and, and then, so it sounds like you guys did a really good job. Um, you know, with, with finding some expenses to pull out, uh, with without, you know impacting.
Speaker Change: The need for a restructuring charge. Um,
Speaker Change: And and you haven't, I didn't quite catch the color on the detail other than you, you know.
Speaker Change: Took some actions. Would that would any of that, be contract for things like that, because it doesn't seem like it was, you know, a Personnel related, uh, and change.
Speaker Change: Lean into opportunities to leverage emerging tools to bring down our core operational expense, run rates.
Speaker Change: I'll just
Speaker Change: sorry if I could what we call touched on is is a operational efficiency automation. So what what makes us excited about this round of of, of kind of efficiencies is also that it's going to be will be able to leverage that as we grow the company. Our expense Ron is not going to have to um Pace that growth
Speaker Change: Okay. That's, um, that's all really helpful. Um, and then, you know, Tim in the past, you know, just back on the the loans. Um, you know, it sounds like this quarter was was almost entirely related to, you know, reducing some risk exposure. But in the past, you've kind of indicated that maybe some banks or non-bank competitors were being too aggressive with with rate, or or terms and so, I just just wanted to hear what you guys were seeing in terms of the the environment competitively. And if if that, you know, was any any factor in the second quarter?
Speaker Change: Yeah. Look look. I I'm I'm going to Simply say and I, I was reviewing this with our head of portfolio management last week, um, our hit rate on term rate on term offerings right now is lower than our historical. Uh, uh, uh, rate. I mean, we're, 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 and what we're not going to do is renegotiate on credit risk structure or pricing and uh, you know, so that requires time and patience. And and I'll answer your question that way versus talking about uh competition.
Speaker Change: Okay, that that's helpful. Um, thanks for all the callers Tim
Speaker Change: You bet you bet?
Speaker Change: Thank you.
Speaker Change: Showing we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks,
Tim Laney: Uh, thank you Rachel and and 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 and we wish you a good day.
Speaker Change: 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.
Speaker Change: Thank you very much and have a great day. You may now disconnect