NORTHPOINTE BANCSHARES INC Q4 FY2025 earnings call

Management Statement and Operational Highlights

• Chuck Williams highlighted growth since IPO, with total assets growing to over $7 billion, earnings per diluted share up 15% to $2.11, strong loan growth in MPP and All In One loans, and noninterest income increase.
• Kevin Comps detailed MPP growth, including increases in facility size for clients, new clients, and utilization. He also discussed Retail Banking segments, including residential lending performance, digital deposit growth, and specialty mortgage servicing results.
• Brad Howes discussed financials, noting net income to common stockholders of $18.4 million or $0.52 per diluted share, net interest income increase, provision expense guidance, noninterest income/expense details, balance sheet updates, and regulatory capital ratios.

Segment Performance

• Mortgage Purchase Program (MPP): Average balances increased by over $410.2 million from the prior quarter, with period ending balances up $60.1 million. Participations in MPP balances to partner banks increased to $457.0 million from $37.5 million in the prior quarter. Average yields during the quarter were 6.98%, increasing to 7.22% including fees. Average yields were down 12 basis points from the prior quarter.
• Retail Banking:
  • Residential Lending: Closed $762.0 million in mortgages in the fourth quarter, up from $636.6 million in the prior quarter. Mortgage rate lock commitments and applications slightly decreased due to seasonality, offset by refinance activity.
  • Digital Deposit Banking: Total deposits reached $4.9 billion in the fourth quarter, up from $4.8 billion in the prior quarter, driven by a new digital deposit relationship.
  • Specialty Mortgage Servicing: Earned $2.2 million in loan servicing fees in the fourth quarter, up from $2.0 million in the prior quarter. Serviced 15,200 loans with a total UPB of $4.9 billion.
• Asset Quality: Net charge-offs were $1.2 million in the fourth quarter, up from $977,000 in the prior quarter. Total nonperforming assets increased, but early-stage delinquent loans improved. The residential mortgage portfolio is high-quality, seasoned, and geographically diverse with an average FICO of 747, average LTV 71%, and average debt-to-income ratio 35%.

Guidance

• Net Interest Margin: Expected 2.45% to 2.55% for 2026, assuming continued mix improvement in loans and 2 additional 25 basis point Fed funds rate cuts.
• MPP Loans: Expected to increase between $4.1 billion and $4.3 billion by year-end 2026, with participations averaging $300 million to $500 million in 2026.
• AIO Loans: Period ending balances expected to increase between $900 million and $1.0 billion by year-end 2026.
• Provision Expense: Expected $3 million to $4 million for 2026 related to replenishment of net charge-offs and growth in MPP and AIO loans.
• Saleable Mortgage Originations: Forecasted $2.2 billion to $2.4 billion for 2026 with all-in margins 2.75% to 3.25%.
• MPP Fees: Expected to increase to between $9 million and $11 million for 2026.
• Loan Servicing Fees: Quarterly run rate expected to increase in 2026, with full year revenue between $9 million and $11 million.

Risks

• Asset Quality: Monitoring credit trends closely as a key risk.
• FDIC Insurance Charges: Impacted by capital levels and wholesale funding percentage.
• Mortgage Rate Fluctuations: Competition and rate changes could impact origination volumes and margins.

Question and Answer

Q: So just first, it's very fluid mortgage environment right now. But can you just discuss how the last several weeks impacted your guidance for 2026, if at all, mortgage rates down to their lowest level in 7 years -- several years. It seems like the administration is supportive. So curious on just how the recent landscape has impacted your 2026 view or at least near term for saleable mortgage originations and MPP loan balances?

A: Sure. Crispin, this is Brad. I'll start and then Kevin and Chuck can certainly add to my comments. But I would say, pretty minimal impact from the last couple of weeks. When we do our forecasting, we're always looking at kind of a blend of all of the economic forecasts out there. If you look at Fannie [indiscernible] or Moody's, they do have rates coming down towards the tail end of next year to sub-6, I think. We were very encouraged, I think, to see the decline in rates, although it could be short-lived. We don't know what's going to happen in the next few weeks. Kevin highlighted kind of volume trends, we saw a nice pickup starting in September in refinance activity that helped drive some higher volume for us, and we were encouraged by that. But I'd say where we sit right now today, we need to see kind of a more sustained decline to really see a significant benefit to our P&L.

Q: Just wanted to start off with the outlook on the provision. I think, Brad, you had said that it would be kind of in the $3 million to $4 million range for the year. And when you kind of factor in growth, it doesn't really move the reserve much. So just was wondering if you could provide a little color around your comfort with the reserve level kind of slowly declining during the course of 2025 and kind of where you feel like a good, targeted level is for you guys?

A: Yes. Happy to start there, and Chuck and Kevin could join too. When I think about the provision guidance, that's going to be just nominal growth in MPP and AIO. So as you indicated, not a ton of extra provisions was there. But if you look at the last couple of quarters of charge-offs, we've seen a little bit of elevation, although still well below long-term historical averages. So my guidance was just based on some higher charge-offs that may or may not come through next year, but that's just for conservatism, that's kind of what we're seeing right now. What I'd say about the decline in reserve, if you look throughout the course of the year, there's a lot of different things that go into that reserve. We have a very granular allowance methodology where we're running all of our loans at a loan level, forecasting out a lot of different economic scenarios and a lot of different model assumptions that go into it. What I'd say is if you look at our reserve, if you exclude MPP, which is pristine credit quality and you take out our fair value loans, we're probably about 37 basis points of coverage to the HFI book. When you think about our book, keep in mind, as Kevin indicated, it's a very seasoned book. Most of it was originated in 2022 or earlier. We're continuing to improve the mix with growth in MPP and AIO loans, which are much stronger asset quality than the remainder of the portfolio, carry much lower loss rates. So that improves the overall mix, and it reduces the allowance as we go forward. The biggest decrease this quarter, I'd say, would be from our economic forecast. As we look out -- and this tends to change quarter-to-quarter, right, as the economic forecasts are updated in Moody's. But when you see an improvement in economic forecast, really [ HPI ] will be the big one. Our allowance can change up or down based on that. Last quarter, we had the opposite impact where home prices were expected to come down relative to the prior forecast. So that tends to ebb and flow throughout the year. I'd also say when you look at our nonperforming loans, as Kevin indicated, the majority of the loans that we see go into the nonperforming bucket, we have little or no loss because there's sufficient collateral coverage. We have a 71% average LTV on our portfolio, a decent chunk of it has MI if it's above 80% and 99% of it is backed by residential real estate collateral. So I think our actual losses even at this quarter and the last quarter have been below what the model would indicate for charge-offs. So we're not seeing any detrimental updates to loss rates or anything in our allowance model. And I think it gives us a lot of comfort with where we stand today from an allowance to loans held for investment perspective.

Q: Could you elaborate a little bit more on the digital deposit relationship that you mentioned in the press release and how many more opportunities like that are out there for this new year?

A: Yes, this is Kevin. So we did partner with an online platform where we gather these digital deposits direct to the customer through that platform. As I said, it's a little over $230 million that we brought in, in the past quarter. We're continuing to look for opportunities like that, as we've mentioned on a couple of these calls, we've had some decent sized relationships we were able to acquire during 2025. Nothing specific additionally to add for 2026 at this point, but we continue to explore all those different sources.