National Bank Holdings Corporation Q2 FY2025 earnings call

• Loan production: $323 million in loan fundings during the quarter, a 26% increase from the first quarter.
• Net interest margin: Expanded to 3.95% due to deposit and loan pricing discipline.
• Risk reduction: Reduced exposure in higher-risk sectors such as trucking (now at $100 million or 1.5% of total portfolio), agriculture, and commercial real estate.
• Credit metrics: Solid with 5 basis points in annualized net charge-offs and nonperforming loans (NPLs) continuing to decline, with an NPL ratio of 0.45%.
• Unify launch: Successfully launched Release 1 on the Apple App Store, with Android set to go live on July 30, and positive user feedback.

In the second quarter, National Bank Holdings reported net income of $34 million or $0.88 per diluted share. The return on tangible equity was 14.2% and return on assets was 1.5%. The net interest margin was 3.95%. Loan fundings totaled $323 million. Nonperforming loans decreased to $33.3 million. Noninterest income was $17.1 million, 11% higher than the first quarter and 22% higher than the second quarter of the prior year. Noninterest expense was $62.9 million, with core bank annualized personnel expense run rate reduced by 10%. Loan balances declined due to reductions in higher-risk industries like trucking, agriculture, and commercial real estate.

• Net interest margin: Projected to remain in the mid 3.9% for the rest of 2025.
• Noninterest income: Projected to be in the range of $34 million to $36 million for the second half of 2025.
• Noninterest expense: Projected to be in the range of $126 million to $128 million for the second half of 2025, inclusive of $16 million to $17 million for Unify expenses.
• Loan growth: Projecting annualized mid-single-digit loan growth for the second half of the year.

• Economic uncertainty: Could impact financial results.
• Regulatory changes: May affect operations and profitability.
• Credit quality risks: In certain higher-risk sectors could lead to potential issues.
• Competition: May impact loan pricing and market share.

Q: On the loan side, how about the higher-risk sectors and growth guide?

A: G. Timothy Laney stated there's no management to stay under the $10 billion asset mark, and they've largely taken action on higher-risk relationships, with a strong pipeline for mid-single-digit loan growth in the second half. Aldis Birkans added the pipeline for the second half is the strongest in 12 months.

Q: About Unify launch and partnership benefits?

A: G. Timothy Laney compared the launch to a soft opening, mentioned positive user feedback on the intuitive interface, discussed the partnership to help community banks access lending opportunities, and noted Unify is expected to be fee-based with membership models.

Q: M&A environment and criteria?

A: G. Timothy Laney said they focus on culture, strategy, strong growth markets, and strong earnings accretion, but couldn't comment on specific details currently.

Q: Deposits and loan growth?

A: Aldis Birkans noted the outrelationship Bank model has deposits and loans moving in tandem, and they expect core funding to increase in the second half through relationship opportunities.

Q: Expense reduction details?

A: Nicole Van Denabeele said it was a bank-wide effort, eliminating positions and focusing on streamlining processes and automation, with core bank personnel expense reduced by 10%.

Q: Competitive environment and loan terms?

A: G. Timothy Laney mentioned a lower hit rate on term offerings currently, and they won't renegotiate credit risk structure or pricing, requiring time and patience.