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DATE
Wednesday, July 23, 2025 at 11 a.m. ET
CALL PARTICIPANTS
Chairman, President, and Chief Executive Officer — Tim Laney
President — Aldis Birkans
Chief Financial Officer — Nicole Van Denabeele
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TAKEAWAYS
Earnings per Diluted Share: $0.88 for the second quarter of 2025, resulting in net income of $34 million.
Return Metrics: Return on tangible common equity was 14.2%. Return on average tangible assets was 1.5%.
Net Interest Margin: Fully taxable equivalent net interest margin was 3.95% for the second quarter, representing a two basis point increase from the prior quarter.
Loan Fundings: $323 million funded in Q2 2025, an increase of 26% over the first quarter.
Loan Portfolio Strategy: Loan balances declined due to elevated paydowns and targeted reductions in trucking, agriculture, and commercial real estate exposures.
Loan Origination Yield: Weighted average yield on new originations was 7.4%.
Net Interest Income: $88.93 million in fully taxable equivalent net interest income for the second quarter, increased $700,000 from the first quarter to the second quarter, 4.7% year-over-year growth in fully taxable equivalent net interest income.
Deposit Trends: Average deposit balances fell $58.8 million. attributed to seasonal tax outflows and movement of entire client relationships tied to loan reductions.
Cost of Funds: Total cost of funds was 2.09%.
Credit Quality: Nonperforming loans decreased to $33.3 million. with a nonperforming loan ratio of 0.45%. annualized net charge-offs of 5 basis points.
Allowance Coverage: Allowance to total loans ratio held steady at 1.2%. with an additional $20 million of acquired loan marks contributing 26 basis points of extra loss coverage if applied to the entire portfolio.
Noninterest Income: $17.1 million in noninterest income. 11% higher than the first quarter. Noninterest income was 22% higher than the second quarter of 2024 including a $1.3 million gain on building sales.
Noninterest Expense: Noninterest expense totaled $62.9 million. a $900,000 sequential increase in noninterest expense due to prior quarter payroll tax credits Excluding payroll tax credits, noninterest expense decreased by $1 million on a linked-quarter basis.
Expense Reduction Actions: Annualized core bank personnel expense run rate lowered by 10%, targeting $15 million in annual savings.
Expense Guidance: Second-half 2025 projected noninterest expense of $126 million to $128 million including expected Two Unify expenses of $16 million to $17 million.
Capital Levels: Ended the second quarter with tangible common equity at 10.5% tier one leverage ratio of 11.2% CET1 ratio of 14.2%.
Tangible Book Value: Tangible book value grew by 10.7% annualized year-to-date to $26.64 per share
Two Unify Platform: Release one launched on Apple App Store; Android launch scheduled for July 30, with positive feedback and no marketing spend to date.
Two Unify Financials and Strategy: $4.6 million in related expenses, with a business model focused on fee and membership income rather than balance sheet growth.
Loan and Deposit Pipeline: Management projects annualized mid-single-digit loan growth and deposit growth in the second half, citing strong relationship pipelines.
SUMMARY
National Bank Holdings Corporation (NBHC 2.78%) demonstrated a data-driven focus on risk-adjusted growth through second quarter actions, including proactive reductions in higher-risk loan segments and comprehensive cost management. Management provided precise noninterest expense and Two Unify guidance for the second half, pointing to sustained profitability despite projected increases in technology-related amortization. Executives articulated a disciplined approach to both credit quality and loan pricing, signaling that future margin movement hinges on shifting deposit mix rather than balance sheet expansion. The Two Unify platform is positioned for incremental contribution with strategic emphasis on scalable fee and membership revenues, rather than asset accumulation.
Chairman and CEO Laney said, "we have not and will not compromise on credit" when asked about growth prospects amid competitive lending.
Management confirmed there is "no management at this point to stay under the $10 billion threshold." directly addressing asset size concerns.
Van Denabeele noted that expense reductions were a "bank-wide effort" with "positions across our organization." aimed at long-term operational efficiency gains.
The company disclosed a 27%-30% hit rate on term loan offerings as of the second quarter, attributed to disciplined credit and pricing standards.
Van Denabeele stated, "we continue to hold $20 million of marks against our acquired loan portfolio," clarifying additional loss-absorbing capacity.
INDUSTRY GLOSSARY
Two Unify: NBHC’s newly launched digital platform targeting small and medium-sized businesses with a bundled depository solution, fee-based services, and future ecosystem expansion.
Pasta Deposits: [Unexplained in transcript; likely a typographical error or company-specific internal term for deposit mix—requires company clarification.]
Full Conference Call Transcript
Tim Laney: Good morning, and thank you for joining us as we discuss National Bank Holdings second quarter results. I'm joined by our President, Aldis Birkans, as well as our Chief Financial Officer, Nicole Van Denabeele. We delivered earnings of 88¢ during the second quarter with a 14.2% return on tangible equity and a 1.5% return on assets. We delivered a strong net interest margin of $3.95 resulting from deposit and loan pricing discipline. During the quarter, our teams produced $323 million of loan fundings 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.
During the quarter, we also took action to reduce our core bank annualized personnel expense run rate by a full 10%. Finally, we are pleased to share that we've successfully launched release one of Two Unify in the Apple App Store and expect to go live on Android July 30. Activity has been solid, particularly in light of the fact that we have not even launched our marketing campaigns. Further, user feedback has been quite positive. And on that note, I'll turn the call over to Nicole. Nicole?
Nicole Van Denabeele: Thank you, Tim, and good morning. During today's call, 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 $0.88 of earnings per diluted share. This resulted in a strong return on average tangible assets of 1.5% and return on average tangible common equity of 14.2%. 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.
As Tim shared, our teams generated $323 million of loan funding during the second quarter. Elevated loan paydowns coupled with strategic portfolio reductions within targeted industries led to a decline in loan balances during the quarter. Our bankers remain committed to growing client relationships. We continue to build our pipelines and are projecting annualized mid-single-digit loan growth for the second half of the year. Fully taxable equivalent net interest margin expanded two basis points during the quarter to 3.95%. Fully taxable equivalent net interest income increased $700,000 during the quarter to $889.3 million and grew by 4.7% compared to the second quarter of last year.
The year-over-year increase in net interest income is a direct result of our disciplined loan and deposit price over the last twelve months, which has resulted in solid margin expansion. Second quarter's new loan originations came on at a weighted average yield of 7.4%. For the remainder of 2025, we project fully taxable equivalent net interest margin to remain in the mid-three-point-nines. And as I mentioned earlier, this does not incorporate any future interest rate decisions by the Fed. Turning to deposits, seasonal tax outflows resulted in a decline in average deposit balances of $58.8 million during the quarter. Pasta deposits totaled 2.05% and our total cost of funds was 2.09%.
Turning to credit quality, nonperforming loans decreased during the quarter to $33.3 million. Our nonperforming loan ratio remains below peer averages at 45 basis points of total loans. Annualized net charge-offs for the quarter were just five basis points. The allowance to total loans ratio remained consistent at 1.2%. Additionally, we continue to hold $20 million 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. Noninterest 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.
For the second half of 2025, we project our total noninterest income to be in the range of $34 to $30 million. Noninterest expense totaled $62.9 million, a $900,000 increase over the first quarter as a result of $1.9 million of payroll tax credits which lowered the first quarter's expenses. Excluding the payroll tax credits benefiting the first quarter, noninterest expense decreased $1 million on a linked quarter basis as a direct result of intentional efforts to lower our operating. 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 and estimate the actions taken at the end of the second quarter will reduce our annual core bank personnel expense by approximately $15 million. As a result, we are lowering our projection for noninterest expense. We now project our noninterest 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 Two Unify last week. As a reminder, we are preparing to provide Two Unify revenue guidance with 2025 year-end results. For the second quarter, Two Unify expenses totaled $4.6 million.
We project Two Unify expense for the second half of the year to be in the range of $16 million to $17 million, increasing primarily as a result of amortization expense on the capitalized development asset now that Two Unify is live. 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 Two Unify expense expected in the second half of 2025. We maintain strong levels of liquidity and continue to build excess capital. We ended the quarter with a strong TCE of 10.5%, tier one leverage ratio of 11.2%, and a common equity tier one ratio of 14.2%.
Year to date, our tangible book value grew by 10.7% annualized to $26.64. With that, I will turn the call over to Aldis.
Aldis Birkans: Well, thank you, Nicole, and good morning. As Tim and Nicole already mentioned, loan production activity started picking up in the second quarter with healthy loan fundings of $323 million, which was an increase of 26% over the first quarter's slower start. And while we still see some clients being somewhat cautious in this economic environment, our loan pipelines for the second half of the year are building nicely. Enter the third quarter with a good level of energy and optimism. As always, we have not and will not compromise on credit. Our bankers focus on full relationship banking and do not chase deals just to show growth.
I think the best evidence of this is our loan pricing discipline, with new loan rates coming on at a strong 7.4%. Our loan and deposit pricing discipline during the quarter allowed us to expand our net interest margin by two basis points to 3.95%. In terms of the overall loan 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. Been a while since we have originated loans in this space. And this quarter, we saw an opportunity to decrease our trucking portfolio exposure which now sits at just above $100 million or just 1.5% of the total portfolio.
Additionally, we decreased our exposures within the agricultural and within the commercial real estate sectors. In aggregate, these three asset classes ended up driving the portfolio decline this quarter. We continue to see solid credit metrics. There's just five basis points in annualized net charge-offs. And NPAs continuing the recent downward trend another $1.6 million decrease this quarter. The NPA ratio ended the quarter one basis point better than the first quarter at 0.45%. This quarter, we also saw nice growth in our fee income on both linked quarter basis and as compared to the prior year second quarter.
And while this quarter was helped by a $1.3 million gain on the disposition of consolidated banking center buildings, we did see seasonal rebound in our bank card income as well as an increase in SBA gain on sale income. As loan volumes continue to pick up for the second half of the year, we project higher fee income related to SBA gain on sale as well as derivative fees. Then with that, I'll turn it back to you. Thank you, Aldis. Well, we had an active second quarter. We generated $323 million in new loan production, we successfully reduced loan exposure in targeted with higher risk profiles, we maintain pricing discipline resulting in a 3.95% net interest margin.
We took action to reduce our core bank annualized personnel expense run rate by 10%, we successfully launched release one of Two Unify and we grew our tangible book value to $26.64 per share. On that note, Rachel, let's open up the call for questions.
Rachel: Thank you. 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. Again, please press star when 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 Rulis with D.A. Davidson.
Jeff Rulis: Hey, Jeff. Good morning. On the loan side, again, it sounds fairly cautious, and just want to kind of check-in on the amount of those higher-risk trucking ag, CRE, is that I mean, given the guide of resuming towards a mid-single-digit pace, sounds like the bulk of that is what you wanted to clean up is kind of done. I guess that's question one. And then two, just wanted to see if there's any management of growth tied to kind of the $10 billion asset mark, if that's still an area that may be keeping growth levels somewhat subdued. Thanks. Yeah.
I'll answer both together if that's alright, Jeff, because to begin with the latter question, I would tell you that there's been no management at this point to stay under the $10 billion threshold. Again, we've been operating for years as though and we were regulated as though we were at 10 plus billion dollar bank. So that expense has been embedded in our run rate for years. No issue there. We've outlined what Durbin would be, which is in grand scheme of things, nominal.
This growth matter is going to be reconciled in the second half of this year because to answer your question, we've largely taken action against a bulk of the relationships and loans that we felt we need to. Now are there others we're watching closely and would the right opportunity to take them down? Absolutely. But, you know, I'll also remind you that we operate well under all regulatory limits house with our own house limits, and none of these areas we've talked about had even approached our house limits. This was just really an act of caution and being proactive.
And as I've said in my prepared remarks, I really believe it's the kind of action you have to take that translates into more productive results down the road. I'll add to that in terms of the second the optimism on second half's growth. Pipeline is strong as I mentioned, and I would actually characterize it probably the strongest we've seen in the last twelve months as we entered the third quarter. So there is activity and a pipeline to grow our guided mid-single digits for second half subject to what Tim mentioned. If there's other opportunities, we'll certainly jump on those.
Jeff Rulis: Okay, appreciate it. That's a Jeff. Questions, Jeff?
Jeff Rulis: Yeah. No. That was great. I appreciate the that was pretty detailed, so thank you. And if I hop to the margin, you know, got the steady sort of guide from here. I you know, from our prior discussions of like you had some pretty good opportunities. And based on those new loan yields, some pretty good reinvestment not only in loans, but on securities, and that was pretty positive. I guess, if I could just sort of frame up an environment that you see maybe margin expansion, what would have to occur to kind of see it sort of break more towards 4% than steady?
Aldis Birkans: Well, first, I'll say that. I mean, we are very proud of three ninety five margin. I think that puts us in a very good company in terms of peer banks. But in terms of the outlook, I think what would really have to move or what would really move our margin in a positive way is really DDA growth. At the end of the day, that's math on that. If bringing in zero costing deposit and lending it out at 7.4%. It's obviously extremely margin accretive. So I think the deposit mix will drive the outlook for the margin.
Jeff Rulis: Okay. Great. I'll step back. Thank you.
Rachel: Thanks, Jeff. Thank you. We will take our next question from Kelly Motta with KBW.
Charlie Driscoll: Hi, this is Charlie on for Kelly. Good morning.
Aldis Birkans: Hello, Charlie.
Charlie Driscoll: It's exciting to see the Two Unify launch this month. The platform, and the partnership with NAV. Can you speak about how launch went and how the market is receiving Two Unify and provide some color on the partnership and how it came about what benefits you think? It can bring to the platform? Yeah. I would compare our launch to the soft opening of a restaurant. We had done prior friends and family tested in testing in a lockdown environment. So now to be in a position where anyone can access the app and begin the process.
What you'll find is you get to the point to sign up unless you're a small business or medium-sized business and have an EIM, it's gonna 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 app, all of the attempts to penetrate there. And we're really proud of the walls that been built here to protect both the bank and our future clients to unify. The feedback has been very positive in terms of how familiar the user interface is. It's intuitive.
You know, we take no shame in saying that, you know, we were inspired by companies like Apple who we think over the years have developed a very intuitive way of doing business in the digital world. And, look, we'll be getting our advertising here in the near future. You'll see more on our landing pages that begin to tell the story.
And candidly, there's a big element there that going to be coming soon because as we had told the market, you know, we're starting with a fundamental simple product that's absolutely incredible for a small business owner, which is a depository suite product that allows these interest owners to access attractive interest rates on their deposits while maintaining their operating accounts with Two Unify. But that's just the beginning. 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 one-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, that will be introduced. We're also working with a merchant payment company on a fairly creative approach to helping small businesses, realize the lowest possible rate on their merchant transactions here in The United States, and we think that can be a huge driver. Ultimately, I will tell you that I think given the data lakes we've built, we've invested millions and millions of dollars in information management. That Two 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 core suppliers like FIS and Fiserv were more nimble. 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 then finally, I would tell you that we ultimately see this as being a membership fee-based business. You know, if a business owner wants to transact and work within the Two Unify ecosystem.
They're gonna pay a monthly membership fee no different than 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 for, but I hope that helps.
Charlie Driscoll: That's great. And just to clarify, this is mainly coming through fee income do you expect this to be some like a balance sheet play where you're aiming to get, like, loans and deposits? It's a great question. 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 in originating law but the reality is what we want to do is make it easy for a plethora of United States banks mostly community banks, to access lending opportunities to small and medium-sized business. And for that, we would collect a fee or a scrape.
The deposits, we're able to think about how we leverage Camber. To take those deposits and then sweep them as broker deposits to other financial institutions. And so, again, not a heavy balance sheet play. High ROE, big on information, and membership fees.
Charlie Driscoll: That's great. Thank you.
Aldis Birkans: Thanks, Charlie. And then last one, just switching gears. The M&A environment has seen a little bit of a pickup just wondering if you're seeing the pace of conversations. Pick up and if you could remind us, like, what you're looking for in a partner size-wise and other characteristics.
Tim Laney: We're very consistent. You know, we start with culture and strategy. We only consider institutions that are in strong growth markets. And we've got to be in a position where when we announce the transaction for the sake of both parties, the market reacts positively. And so that certainly means we have strong earnings accretion expectations. We have a real focus on how quickly we can earn back any tangible book dilution, and we'll not stray from those criteria. As to specifics, I'm gonna simply say I can't comment. Right now. Okay. Great. Thank you. I'll step back.
Rachel: Thank you. We will take our next question from Andrew Terrell with Stephens.
Andrew Terrell: Hey. Good morning. Good morning. Hey. Wanted to ask on just deposits this quarter. Down sequentially in the period, kind of in line with the decline in loans we saw. I'm just curious, was any of the deposit decline this quarter reflective of or tied to the derisking that's gone on in the loan portfolio? Just any color you can provide on the 2Q deposit flows and then you know, kind of tying that into, right, sounds like loan growth expectations in the back half of the year for an improvement. Would you expect core funding to increase sequentially?
Tim Laney: And, Andrew, I'm gonna begin and quickly hand this off to Aldis, but you nailed it. I mean, obviously, we're moving entire relationships when we move credit exposure. And, you know, that's largely the matter. And then, Aldis, I'll throw it to you.
Aldis Birkans: You answered the question. So yeah. For more detail. For more detail. As we've always talked, the auto bank model and both sides of the balance sheet do tend to move in tandem. One thing that we haven't done is go out and buy expensive deposits just to show again growth as evidence really, if you look at our deposit beta this last cycle, it's about 30%, so that shows through the cost of funds. But to kind of come back, the pipeline is there. Trading management opportunity are there as we look into the second half of the year through relationship.
Opportunities that we are looking to take market share, and we look to grow the deposit in the second half as well.
Andrew Terrell: Understood. Thank you. I appreciate it. If I could ask just on the expense side, don't know if you're able to, but could you share any more color kind of around the expense reduction that happened during the second quarter specifically that it sounds like, you know, compensation costs coming down. I'm wondering if that's focused on any specific avenues within the bank or just, you know, more broad-based.
Nicole Van Denabeele: Good morning, Andrew. I'll be happy to take that one and touch on our expense reduction plan that we wrapped up in June. I will start by saying we do not take these decisions lightly. But in light of the economic uncertainty, we knew it was prudent to be proactive in this area. Was a bank-wide effort, and as a result of the actions that we took, we did eliminate positions across our organization. We had a heavy focus on streamlining our processes and implementing automation.
Andrew Terrell: Okay. Thanks for calling, Nicole. I'll step back. Thanks.
Aldis Birkans: Thank you.
Rachel: Thank you. We will take our next question from Brett Rabatin with Hovde Group.
Brett Rabatin: Great. Good morning, Brett. Good morning, everybody. Wanted to just wanted to stick with expenses for a second and just make sure 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?
Nicole Van Denabeele: You're right. It is inclusive. Of the Two Unify 16 to 17 million guide.
Brett Rabatin: Okay. And then so it sounds like you guys did a really good job you know, with finding some expenses to pull out without, you know, impacting the need for a restructuring charge. And you have I didn't quite catch the color on the detail other than you, you know, took some actions. Would that would any of that be contract or things like that? Because it doesn't seem like it was you know, a personnel-related change.
Tim Laney: No. I mean, it was a hard reduction in our personnel count. And it was really while we talk about executing in the second quarter, to give the teams credit, this is work we've been building to for some time. And literally, looking at opportunities where you would have natural retirement, attrition, etcetera. To really achieve these. That's in large part why and how we were able to keep our expenses down in the process I think, Nicole, they, you know, literally came in under $400,000 in total. Related expense. Is that right? Right. It's about 300,000. Yeah. Actually, three.
And I you know, we will continue to lean into opportunities to leverage emerging tools to bring down our core operational expense run rates.
Aldis Birkans: I mean, now I'll just add in. Sorry. If I could what we No. Go ahead. I'm sorry. Nicole touched on is operational efficiency automation. So what makes us excited about this round of kind of efficiencies is also the gonna be we'll be able to leverage that as we grow the company power expense run rate is not gonna have to pace that growth.
Brett Rabatin: Okay. That's all really helpful. And then, you know, Tim, in the past, know, just back on the loans, you know, it sounds like this quarter 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 nonbank competitors were being too aggressive with rate or terms. And so I just wanted to hear what you guys were seeing in terms of the environment competitively and if that, you know, was any factor the second quarter.
Tim Laney: Yeah. Look. I'm gonna simply say, and I was reviewing this with our head portfolio management last week. Our hit rate on term rate on term offerings right now is lower than our historical rate. I mean, 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, you know, so that requires time and patience. And I'll answer your question that way versus talking about competition.
Brett Rabatin: Okay. That's helpful. Thanks for all the color, Sam.
Aldis Birkans: You bet. You bet.
Rachel: Thank you. And I am 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: Thank you, Rachel, and thank you for joining us today. We appreciate time and attention. If you have follow-on questions, do not hesitate to reach out to us, and we wish you a good day.
Rachel: 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 twenty-four hours. 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.