National Bank Q4 2024 Earnings Report

National Bank EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.79
• Beat/Miss: Beat by +$0.07
• One Year Ago EPS: N/A

National Bank Revenue Results

• Actual Revenue: $106.04 million
• Expected Revenue: $107.38 million
• Beat/Miss: Missed by -$1.34 million
• YoY Revenue Growth: N/A

National Bank Announcement Details

• Quarter: Q4 2024
• Date: 1/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 2:00AM ET

National Bank (NYSE:NBHC) (NYSE: NBHC) is a bank holding company headquartered in Greenwood Village, Colorado. Through its principal subsidiary, NBH Bank, the company provides community banking services to businesses, individuals and organizations.

NBH Bank offers commercial and small-business lending, personal and business deposit accounts, mortgage and consumer loans, treasury management, digital banking and wealth management services. Its products are designed to support commercial clients, professionals, entrepreneurs and retail customers.

The company serves customers through a network of banking locations and digital channels in several markets across the central and western United States, including Colorado, Kansas, Missouri, New Mexico, Texas and Wyoming. National Bank Holdings was founded in 2009 and became a publicly traded company in 2012. Tim Laney serves as the company’s president and chief executive officer.

National Bank Q4 2024 Earnings Call Transcript

Key Takeaways

• National Bank Holdings reported Q4 net income of $28.2 million (or $0.73 per diluted share), with an adjusted EPS of $0.86 and a full-year 2024 adjusted EPS of $3.22, while tangible book value grew 11% and the CET1 ratio stood at 13.2%.
• Net interest income grew an annualized 11.3% in Q4, driven by a strong net interest margin of 3.99% and a 22 basis-point reduction in deposit costs, and 2025 NIM is guided to remain around 3.9%.
• Credit quality remains solid with non-performing loans at 46 bps of total loans, annualized net charge-offs of 11 bps, and an allowance covering 1.22% of loans plus an additional 29 bps of acquired loan marks.
• For 2025, the bank projects mid-single-digit loan growth, non-interest income of $72 million–$77 million, non-interest expense of $272 million–$278 million (including $27 million–$29 million for the 2Unify platform), and an effective tax rate around 19%.
• Strategic initiatives include reinvesting proceeds from a $130 million securities sale into higher-yielding assets, advancing the on-track 2Unify digital banking marketplace with user testing under way, and maintaining M&A optionality to support future growth.

Presentation

[Operator]

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2024 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. I will now turn the call over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations.

[Emily Gooden, Chief Accounting Officer and Director of Investor Relations at National Bank Holdings Corporation]

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, 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. In addition, the call today will reference certain non-GAAP measures, which National Bank Holdings Corporation believes provide useful information for investors.

[Emily Gooden, Chief Accounting Officer and Director of Investor Relations at National Bank Holdings Corporation]

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. It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman and CEO, Mr. Tim Laney.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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 Dennee. We delivered solid earnings of $0.86 per diluted share during the quarter and a 14.4% return on tangible common equity when adjusted for the impact of the securities sales. We delivered 11.3% annualized net interest income growth during the quarter with a strong net interest margin of 3.99%. 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%. Nicole?

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Thank you, Tim.

[Operator]

To our telephone audience, please stand by. It looks like we lost the connection for our presenters.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Thank you, Tim. 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 $0.73 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. As a result of our strategic balance sheet management, our total assets ended the year at $9.8 billion.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

As Tim shared with you, adjusting for the one-time security sale loss, our net income increased to $33.2 million or $0.86 of earnings per diluted share. This resulted in an adjusted return on average tangible assets of 1.4% 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, 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. 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%.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

We continue to be pleased with our banker's 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 digits. Fully taxable equivalent net interest margin expanded 12 basis points during the quarter to a strong 3.99%. Our banker's 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 3.9s.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Turning to credit quality, our non-performing loan ratio remains below peer averages at 46 basis points of total loans outstanding. 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%, 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. 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.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

For 2025, we project our total non-interest income to be in the range of $72-$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 centers. Excluding the impairment, non-interest expense decreased $0.9 million on a linked quarter basis. 2024's full year non-interest expenses were well managed and totaled $254 million and included $13 million of 2UniFi related expenses. Non-interest expense for 2025 is projected to be in the range of $272-$278 million and includes approximately $27-$29 million of investment in 2UniFi. In an effort to provide additional visibility, my future remarks will break out the investment in 2UniFi from the core bank's expense run rate. The year-over-year increase in 2UniFi expense includes the onboarding of additional developers and the amortization of the capitalized assets.

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Excluding the increase in 2UniFi related expenses, core 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% and benefited from research and development tax credits related to the 2UniFi 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%, Tier 1 leverage ratio of 10.7%, and a Common Equity Tier 1 ratio of 13.2%. We project our share count to remain around 38.6 million in diluted shares outstanding during 2025. With that, I will turn it over to Aldis.

[Aldis Birkans, President at National Bank Holdings Corporation]

Thanks, Nicole, and good morning. Our strong results this quarter were driven 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 allowed us to utilize Cambr deposits to reposition our investment portfolio and keep the total balance sheet below the $10 billion mark, thus postponing the Durbin 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 increases. Nicole 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.

[Aldis Birkans, President at National Bank Holdings Corporation]

In terms of the fourth quarter's 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 payoffs and paydowns, which I think reflects the vibrant economic activity in our footprint markets and is a good sign for 2025. Line utilizations increased during the quarter and are showing signs of returning to their historical averages. New loan production during the quarter had a weighted average rate of 7.9%, which combined with a decrease in total cost of deposits of 22 basis points drove the net margin expansion to 3.99% for the quarter. We are highly confident in the proactive execution of our deposit strategy.

[Aldis Birkans, President at National Bank Holdings Corporation]

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 the rates were increasing. Overall, as we look ahead to 2025, we remain confident in our ability to deliver strong results driven by robust loan growth and the continued expansion of our core deposit franchise. Our disciplined approach to credit remains at the heart of our strategy, ensuring we balance growth with sound risk management. We believe our focus on relationship banking continues to differentiate us and allows us to deepen our client engagement and create long-term value for our shareholders. Tim, with that, I'll turn it back to you.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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 2UniFi 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. 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, and on that note, I'll ask our operator to open up the line for questions.

[Operator]

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 1 if you would like to ask a question. We'll now take a question from Ryan Payne with D.A. Davidson.

[Ryan Payne, Equity Research Associate at DA Davidson]

Hello, Ryan. Ryan 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?

[Aldis Birkans, President at National Bank Holdings Corporation]

No, I think the competitive environment has been competitive going into late 2024 already. So we're not seeing necessarily or projecting any changes in going into next year. We do see quite a bit of activity. As I mentioned, in terms of paydowns, payoffs are quite active. So we do feel like there's a good economic environment that is allowing for credit generation and people looking to do business.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Yeah, if I were to add anything, I would say from a competitor 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. So I think that's what we've got for you, Ryan.

[Ryan Payne, Equity Research Associate at DA Davidson]

Got it. Okay. And on the credit front, was there a certain relationship that caused the rise in NPAs there or segment?

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Maybe the way to, I think I follow your question. 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 originated in one of our previous acquisitions. And frankly, we're working to clean that up.

[Ryan Payne, Equity Research Associate at DA Davidson]

Got it. Okay. And last thing for me, on the plan to unify expenses for this year, did I hear it was $27 million? Was that right?

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Yes, that's correct. I gave a range of $27-$29 million.

[Ryan Payne, Equity Research Associate at DA Davidson]

Got it. Okay. Thank you. I'll step back.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Thank you, Ryan.

[Operator]

We'll now take our next question from Charlie Driscoll with KBW.

[Aldis Birkans, President at National Bank Holdings Corporation]

Good morning.

[Charlie Driscoll, Equity Research Associate at KBW]

Good morning. This is Charlie on for Kelly Motta. On the funding side, deposits saw some nice relief. Any update on how you're thinking about deposit competition and those betas as we look through 2025?

[Aldis Birkans, President at National Bank Holdings Corporation]

Yeah, I'll just mention on the deposits. Again, we have the luxury on having the Cambr and move that balance on balance sheet component on and off. And we proactively took down our Cambr deposits in an effort to accommodate the investment portfolio sale paydown for the year-end. If we were to exclude on average basis, actually core deposits grew about $40 million. And you can see that $20 million of that wasn't DDA. So we feel good about our core deposit activity and growth there. And that continues going here in 2025.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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.

[Charlie Driscoll, Equity Research Associate at KBW]

Makes sense. Thank you. And then you said your plan for 2025 was to grow through $10 billion. 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? Thank you.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Look, we've avoided roughly a $10 million charge over the course of two years, $5 million this year, $5 million next year as a result of simply pushing it into 2025. 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 Durbin expense is. We're fortunate in that we do not have high consumer exposure in the Durbin area. And so we're frankly just managing through that impact with organic growth.

[Charlie Driscoll, Equity Research Associate at KBW]

Awesome. Thank you. And then maybe my last question. I know you mentioned organic growth, but an acquisition could be a fast way to get scale and one possible strategy to absorb 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 Driscoll, Equity Research Associate at KBW]

Yeah, Charlie, your question is important because I think one thing we would point out is that 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. 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. Could an acquisition help dilute the Durbin impact? Yes, but it's so insignificant. I mean, we wouldn't let that drive M&A activity.

[Charlie Driscoll, Equity Research Associate at KBW]

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 front.

[Charlie Driscoll, Equity Research Associate at KBW]

Awesome. Thank you, guys. I'll step back.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Thank you, Charlie.

[Operator]

As a final reminder, that is Star 1 if you would like to ask a question. We'll now take our next question from Andrew Liesch with Piper Sandler.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Good morning, everyone. Good morning. Thanks for taking the questions here. Nicole, the margin guide, I missed it. Just say year in the 390s, is that correct?

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Yes, that is correct, Andrew.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. I guess we had some nice improvement on funding costs there. Why wouldn't the full quarter effect of the last 25 basis point rate hikes and even the one in November help push the margin a little bit higher here in the first quarter?

[Aldis Birkans, President at National Bank Holdings Corporation]

Yeah. I'll take that. 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 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 kind of overall balance sheet or sorry, the overall NIM in that call it 39s.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. Okay. That makes sense. 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 maybe some asset catching up? I guess, how is the balance sheet positioned right now for rate changes?

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Yes, so adjusting for the impact of our security sale, we know our balance sheet to be, we're very close to asset neutral, and we believe that any future interest rate movement up or down should not impact our margin.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. Okay. That's very helpful. And let's see. And then, oh, just on the expense growth, did you say it was at 3% excluding Cambr for this year?

[Nicole Van Dennee, CFO at National Bank Holdings Corporation]

Yes. The 2025 guidance I provided for non-interest income, if you strip out the 2UniFi impact, we're holding the core bank expense increase to 3%.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Gotcha. Okay. 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?

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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's 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. 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.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. Very helpful. Good to hear the progress. Thanks for taking the questions. I'll step back.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Hey, Andrew, before you go, we're all dog lovers here. Why don't you introduce your dog?

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

He's joined your conference call a few times over the years.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

All right. Thank you.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Thank you.

[Operator]

Thank you. And I'm sure we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Well, thank you. 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 2UniFi, Jeff Rulis of D.A. Davidson provided what I believe was a very solid 2UniFi 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.

[Operator]

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. 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.

Participants

Executives

• Emily Gooden, Chief Accounting Officer and Director of Investor Relations
• Tim Laney, Chairman and CEO
• Nicole Van Dennee, CFO
• Aldis Birkans, President

Analysts

• Ryan Payne, Equity Research Associate at DA Davidson
• Charlie Driscoll, Equity Research Associate at KBW
• Andrew Liesch, Senior Equity Research Analyst at Piper Sandler