National Bank Q1 2025 Earnings Call Transcript

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April 23, 2025
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Operator

Good morning, everyone, and welcome to the National Bank Holdings Corporation twenty twenty five First Quarter Earnings Call. My name is Danielle, and I'll be your operator today.

Operator

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

Operator

Relations.

Emily Gooden
Emily Gooden
Senior VP, Chief Accounting Officer & Investor Relations Director at National Bank

Thank you, Danielle, 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.

Emily Gooden
Emily Gooden
Senior VP, Chief Accounting Officer & Investor Relations Director at National Bank

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 provides useful information for investors.

Emily Gooden
Emily Gooden
Senior VP, Chief Accounting Officer & Investor Relations Director at National Bank

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 Holding Corporation's Chairman and CEO, Mr. Tim Laney.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Thank you, Emily. Good morning, and thank you for joining us as we discuss National Bank Holdings first quarter results. I'm joined by our president, Aldis Perkins, as well as our chief financial officer, Nicole Van Denneville. We delivered earnings of 63¢ per diluted share during the first quarter, which was negatively impacted by a loan that involves suspected fraudulent activity by a borrower. The matter was discussed and fully addressed.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

I wanna emphasize fully addressed during the quarter. The charge off is related to a Colorado based Del Taco franchise and the matter is now in the hands of all appropriate authorities. We delivered a 1.1% return on tangible assets despite this charge off. Clients remain cautious during the quarter as did our company. Our business clients are generally reluctant to engage in capital projects or m and a until there's more certainty around the economic environment.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Likewise, our current posture can best be described as being in a risk off mode. We've seen clients holding on to higher levels of cash, which is benefiting our deposit balances. Finally, in light of the current environment, we're intensely focused on credit quality as well as expense control. Two areas where, as you know, we have a solid track record. Nicole, I'll now turn the call over to you for greater detail on the quarter.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Thank you, Tim, and good morning. During today's call, I will cover the financial results for the first quarter as well as touch on our guidance for the rest of 2025, which does not include any future interest rate policy changes by the Fed. For the first quarter, we reported net income of $24,200,000 or 63¢ of earnings per diluted share. As Tim shared, the first quarter's results were impacted by elevated provision expense resulting from a $9,000,000 charge off on one credit as a result of suspected fraud by the borrower. Even in light of this, the first quarter's return on average tangible assets was a solid 1.1%.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

We grew our fully taxable equivalent pre provision net revenue by 3.4% over the first quarter of last year. Like much of the industry, we experienced a slower than expected start to the year. And as a result, our loan balances decreased a hundred and $5,000,000. The elevated levels of economic uncertainty have resulted in our clients delaying their funding needs while they wait for more clarity. We are now operating with a risk off posture.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

And having said this, our bankers remain committed to growing client relationships, and we continue to build our pipeline. While we aim to achieve our full year loan growth guidance of mid single digits, we acknowledge that geopolitical and economic factors have the potential to affect our growth trajectory. Fully taxable equivalent net interest margin totaled 3.93%. Fully taxable equivalent net interest income totaled $88,600,000. The linked quarter decrease was primarily driven by two fewer business days and $38,000,000 of lower earning asset balances during the first quarter.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Compared to the first quarter last year, SCE net interest income grew by 3.4 as a result of our disciplined loan and deposit pricing over the last year as the Fed lowered rates. First quarter new loan originations came on at a weighted average yield of 7.3%. As we continue to originate loans, these new loan yields will be accretive to our net interest margin. As I mentioned earlier, we do not incorporate future interest rate changes in our projections. With that in mind, for the remainder of 2025, we project fully taxable equivalent net interest margin to be in the mid three nine.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Turning to deposits. Spot deposit balances grew a hundred $86,000,000 during the quarter and benefited from seasonal tax inflows, including the Camber platform deposits. Cost of deposits improved nine basis points during the first quarter to 2.03%. Turning to credit quality. Our nonperforming loan ratio remained below peer averages and ended the quarter at 45 basis points of total loans, down from both year end and the same quarter last year.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Past due loans decreased 25 basis points during the first quarter to 24 basis points of total loans and now sits at its lowest level over the last twelve months. First quarter's net charge offs were elevated at 20 basis points for the quarter, primarily driven by suspected fraudulent activity by one borrower that materialized during the quarter. We moved quickly to fully charge off this credit during the quarter. And as Tim shared, the fraud is now being investigated by the appropriate authorities. The quarter's provision expense of $10,200,000 was booked primarily to cover this charge off.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

The allowance to total loans ratio ended the quarter at 1.2%. Additionally, we continue to hold 22,000,000 of marks against our acquired loan portfolio, which adds an additional 28 basis points of loan loss coverage if applied across the entire loan portfolio. In regard to our CECL modeling approach, our modeling weights a downside scenario in addition to the Moody's baseline scenario. The forecast underlying the economic scenarios remained largely unchanged during the first quarter of twenty twenty five. Total non interest income for the first quarter was $15,400,000.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Mortgage banking income increased $1,000,000 over the linked quarter. Service charges and bank card fees were seasonably lower during the first quarter. SBA gain on sale and swap fee income are highly correlated to loan production, and as a result, were slower during the first quarter. For 2025, we continue to project our total noninterest income to be in the range of $72,000,000 to $77,000,000 We remain committed to disciplined expense management in all environments. Noninterest expense for the first quarter was well managed and totaled $62,000,000.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

This included the benefit of $2,000,000 of payroll tax credits realized during the first quarter. Our two unified development remains on track, and we are preparing to provide revenue guidance with 2025 year end results. Two unified expenses totaled $3,400,000 for the first quarter and are expected to meet our full year guidance for 2025. We have previously demonstrated our ability to manage expenses in tough environments. As such, looking ahead to the remainder of 2025, we are confident that we will deliver total expenses at the low end of our previously guided range of 272 to $278,000,000.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

We maintain strong levels of liquidity and continue to grow our excess capital. We ended the quarter with a strong TCE ratio of 10.1%, tier one leverage ratio of 10.9%, and a common equity tier one ratio of 13.6%. Tangible book value per share grew 2.6% in the first quarter to $25.94. With that, I will turn the call over to Albert.

Aldis Birkans
Aldis Birkans
President at National Bank

Alright. Well, thank you, Nicole, and good morning. I will briefly cover the balance sheet trends and give an update on the business environment. As Nicole has shared, we had a slower start to the year than expected. The first quarter's loan fundings totaled $256,000,000 with an average funded rate of 7.3%.

Aldis Birkans
Aldis Birkans
President at National Bank

Increased levels of volatility due to concerns about inflation, higher interest rates, supply chain stress and tariffs caused a large number of businesses to pause their activity. Small businesses in our markets have become more cautious in their plans for CapEx investments and m and a. Having said that, we still have an upside in our geographies to take market share and improve our pipeline's pull through, and we aim to achieve our full year loan growth guidance. On the credit front, of course, we are disappointed by the large charge off that impacted this quarter's results. Tim has covered that in as much detail as we can at this time.

Aldis Birkans
Aldis Birkans
President at National Bank

However, looking at the rest of the loan portfolio, we see improving trends with NPAs down seven basis points from a year ago and one basis point on a linked quarter basis. Ninety days past due loans are down to just a one basis point from 'nineteen last quarter. On the deposit side of the balance sheet, our relationship based banking model continues to pay dividends. Our deposit balances grew by $186,000,000 during the quarter and in the process we lowered our cost of deposits by another nine basis points. Some of the linked quarter growth was driven by tax seasonality that occurred later in the quarter.

Aldis Birkans
Aldis Birkans
President at National Bank

And like the loan pipelines, we continue to see productive banker engagement, which is resulting in client deposit balance growth. Lastly, let me touch on the expenses. As our long term shareholders know, historically, we've had a strong track record of improving our operating leverage through both revenue growth and intense focus on our expense management. We have accomplished that by finding efficiency efficiencies through investments in technology and improving process flows. Given the current uncertain macroeconomic environment, we have already paved the path to delivering our total expenses at the low end of our full year guidance.

Aldis Birkans
Aldis Birkans
President at National Bank

Turning to that, I'll turn it back to you.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Thanks, Aldis. We believe we've built a fortress balance sheet, and we're well positioned to navigate volatile markets. We also benefit from operating in attractive geographic markets, and I commit to you that our teams remain focused on building relationships with our clients while also taking very targeted market share. And on that note, Danielle, I'll ask you to open up the line for questions.

Operator

Thank you. Your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. And we'll take our first question from the line of Jeff Lewis with D.

Operator

A. Davidson. Please go ahead.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Thanks. Good morning.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Hey, Jeff. Good morning.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

A question on the the fraud item.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

I know that Tim, you said you shared what what you could, I I guess, as that goes into the investigation stage. You know, is there any comment on expectation for recoveries at this point?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Yeah. Look. It's it's a question I would love to answer.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

But at this point, as we've said, we've turned it over to appropriate authorities and are not in a position to comment on on the matter any further.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

But, I mean, what you could say is is that it's a nonsystemic kind of a one off, not not related to other Clearly, it's not It's not it's one centered in one client.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

There are no systemic issues here. Thank you. Yeah.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

That that's I'm glad to I'll be very glad to clarify that point.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Gotcha. And I guess as it relates to maybe moving to the margin, was there the reported, I guess, March, was that impacted at all with I mean, I don't know if that's just removed from earning assets or was there interest loss that impacted I I got your guide of the mid three ninety from here, which suggests a little higher. But I guess just checking on that piece with that, does that impact the margin at all in the quarter?

Aldis Birkans
Aldis Birkans
President at National Bank

It it did slightly.

Aldis Birkans
Aldis Birkans
President at National Bank

I I I'd say at at most two basis points because, obviously, it kind of surprised us in the in the quarter, there's some interest accrual that have to be reversed along the way. So that and I'd say that's about two basis points of margin impact.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Gotcha.

Aldis Birkans
Aldis Birkans
President at National Bank

And I would say the other one, the margin that that we we did do the investment security purchases. At minimum, we reinvested the stuff to be sold late last year in order to keep below $10,000,000,000 in balance sheet.

Aldis Birkans
Aldis Birkans
President at National Bank

And given that that we didn't grow loans as much as we expected, that certainly had a asset yield mix impact as well on margin calculation.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Okay. Thank you.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Hey, Jeff. Just coming back this is Tim.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Just coming back to your earlier question, I do wanna make it clear that as it relates to the specific borrowing situation, the specific loan that that we fully addressed it in the quarter. To be very clear, there's no additional downside exposure to this this client or former client.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Got it. Thanks. And maybe a last one just on on the charge offs.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

I think you said of the net charge offs, 9,000,000 was associated with this loan. But after that, I mean, you you had another lump of charge offs in there. Where where did the rest of the charge offs come from from a sector standpoint?

Aldis Birkans
Aldis Birkans
President at National Bank

Yeah. It it was there's nothing specific as Tim mentioned back to his remarks.

Aldis Birkans
Aldis Birkans
President at National Bank

There's nothing, call it, systemic or industry specific. It was several others that we charged off, and most of them are actually reserved for us as to our CECL allowance modeling. So therefore, the provision expense didn't reflect that component.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Okay. Got it.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

I guess based on your other comments about broad based credit, pretty solid. So your expectations ahead for for charge off activity would expect to revert towards more historical levels. Is that is that fair to say?

Aldis Birkans
Aldis Birkans
President at National Bank

Absolutely. Yes.

Aldis Birkans
Aldis Birkans
President at National Bank

Yep. And, if you look at our credit trends, NPAs down, NPLs down, delinquency down, it's down. We, you know, we we find ourselves in in in improving credit environment up from already, I would say, better than, call it, industry averages on NPAs at least.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Okay. Thanks.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

I'll step back.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Thank you, Jeff.

Operator

We'll take our next question from the line of Kelly Amato with KBW.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

This

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

is Charlie on for Kelly. Maybe from a macro perspective, how are you guys thinking about your tariff exposure? Have you run any analysis there trying to size up direct exposure? And just how are thinking about the portfolio from that perspective? Thank you.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

We thank you, Charlie. We we certainly have seen clients working to assess potential impact in their businesses. It's too late too early for us to make a a a macro call, quite frankly, just given the movement around what potential tariffs might be, where they might land makes that a bit difficult at at this point in time. I'll use the most overused word in the English vocabulary and say what we have seen is that the uncertainty has led to our clients, I think, thoughtfully holding back on capital investments and and, for example, m and a. And and yet, you know, the good news is we're still seeing they're still seeing demand.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

So, you know, revenues are there, and we think that that's going to translate into the need to return to borrowing. So sorry. I can't give you a better answer on macro tariff impact at this point, but I think if anyone can, I'd love to hear from them.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

No. Thank you.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

And yes, it seems like pipelines are still holding in. And I know you reiterated the mid single digit loan growth for the year. But what could cause you to maybe miss or beat that from here? Just like some detail or color there would be great.

Aldis Birkans
Aldis Birkans
President at National Bank

All right.

Aldis Birkans
Aldis Birkans
President at National Bank

Again, think what we like is where the markets we operate continuously outperform national averages. So we feel like we have a bit of a sale in our lands from that perspective. It is a the uncertainty, what Tim is mentioning, is maybe the component that will continue to we'll watch very carefully, and our clients are watching, our prospects are watching carefully. To that point, really, if you look at page nine of the earnings release and look at the our asset class, it wasn't, again, it wasn't a specific group or geography where a slowdown occurred. The slowdown occurred across the whole book.

Aldis Birkans
Aldis Birkans
President at National Bank

If you look at on on that table, virtually every asset class for us was down.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

So That's great. Thank you. And then maybe one more for me. Just what are your thoughts on capital here?

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

You guys are at healthy levels and historically purchased repurchased shares pretty consistently. And with the volatility in prices at these levels, just, like, how are you viewing the buyback going forward? Thanks.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

We are giving, as you might imagine, buyback more attention than we have in some time, and I'll leave it at that.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

Okay.

Charlie Driscoll
Equity Research Analyst at Keefe, Bruyette & Woods (KBW)

Thank you, guys. I'll step back.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Thank you, Charlie.

Operator

We'll take our next question from the line of Andrew Terrell with Stephens. Please go ahead. Your line is now open.

Andrew Terrell
Managing Director at Stephens Inc

Hey. Good morning.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Good morning.

Andrew Terrell
Managing Director at Stephens Inc

Hey.

Andrew Terrell
Managing Director at Stephens Inc

I just wanted to maybe maybe starting back on the growth. I mean, outside of the fraud issue this quarter, credit seem pretty good and you obviously highlight some of the reductions in NPAs and everything. And forward kind of commentary around credit sounded good. And I also view you guys generally as relatively risked off. But I picked up on the comment on the, I think it was Nicole, your prepared remarks around operating in more of a risk off posture right now.

Andrew Terrell
Managing Director at Stephens Inc

I'm just trying to, you know, juxtapose those two points and specifically, you know, wanna understand maybe a little more of what operating in a risk off posture means.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Yeah. I'll I'll I'll I'll take that. We do believe we operate with a generally conservative conservative posture on credit, and, you know, we tend to adjust that posture based on different emerging risk or potential emerging risk in the marketplace. And, certainly, as all this suggested, you know, when we think about potential volatility around interest rates, Charlie was just asking about impact of of tariffs, ultimate macro impact, downside impact on the economy, we do tend to add additional levels of rigor not only around underwriting of new clients. We we, with no apologies, ratchet up our scrutiny around taking market share in an environment like this.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

We think it's incredibly important to be almost excessively thoughtful in the way we bring new clients into the bank in this environment. And and, you know, it's it's our responsibility to be closer than ever to our existing clients as we help them deal with these uncertainties. So those those would be examples of where we think we're being accountable and and and appropriately add or adding more risk controls in in our credit underwriting process.

Andrew Terrell
Managing Director at Stephens Inc

That's very helpful. I I appreciate them. You bet. If I could just just ask on the expenses, I mean, obviously, you guys are tracking very well relative to the guide. Do have a dollar amount just of the payroll tax credit this quarter?

Andrew Terrell
Managing Director at Stephens Inc

Just trying to get a sense of what would be kind of clean operating expense.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Yes. Good morning, Andrew. The dollar amount for the payroll tax credits that we realized in the first quarter was 2,000,000.

Andrew Terrell
Managing Director at Stephens Inc

Got it. Okay. Perfect. And then back on just some of the capital discussion, sounds like maybe some interest in buyback from here. But, Tim, was hoping you could talk about M and A in this environment.

Andrew Terrell
Managing Director at Stephens Inc

I'd imagine it's, you know, maybe a bit challenging to to get a deal together. But, know, can you just compare, contrast interest and M and A relative to the buyback?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Well, you know, candidly, as we sit here this morning, the best acquisition I could make would be of our own shares. So that tells you a little bit about where our heads are at in terms of priorities. In terms of of market acquisitions, I I would tell you that it has been a difficult market. I think, you know, there there are a lot of institutions and leaders of institutions that are rightfully in a wait and see mode, and, you know, I understand that. Of course, we we can't announce a broad hit like we took this first quarter and see the impact that it's had on our stock and and be in as great a position to make acquisitions.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

So, you know, we just have to prove to the market that this was in fact an anomaly going back to Jeff's question. And and, you know, I'll I'll add on that my focus is on delivering our all in targeted income growth for the year. We we will if that means exceeding the low end, you know, or doing better than the low end on expenses that we've guided, we will do that. We will our commitment is to do everything we can to get to our bottom line profitability guidance. So I guess that's you know, and look, we're we're we should point, you know, we built capital, obviously, in in the quarter.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

It's not as though we're not building capital. And and and, again, we continue to believe that that optionality is incredibly critical in this business. I'll also say we're building capital while also investing continuing to invest into Unifi, and no one in that has asked. But, you know, we are still pleased to report that we expect to launch here at the end of this quarter. So we're really excited about the future of two unified.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

And, we're doing all of that within the kind of operating guidance that we provided at the onset of the year.

Andrew Terrell
Managing Director at Stephens Inc

Great. Thank you very much for all the color there, Tim.

Andrew Terrell
Managing Director at Stephens Inc

I'll step back.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Thanks. Yeah. Thanks for the questions.

Operator

We'll take our next question from the line of Andrew Liesch with Piper Sandler. Please go ahead. Your line is open.

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Just some follow ups on expenses in the fee income guide. So back in or adding back in that the payroll tax benefit, I mean, you're tracking well below that, those low end of that range. I guess, where should we see, expenses increase over the course of this year? Is it more investments into Unify? Is it more on compensation costs?

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Where should we see expenses rise from from here on out?

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Yes. Good morning, Andrew. Good question. I will point out once we adjust for that 2,000,000 payroll tax benefit for this quarter, This quarter's expenses are very much in line with where we were a year ago. So to your point, we continue to do a very good job of managing our expenses and being very disciplined with our expense run rate.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Part of what you will see increase throughout the year is our investment into Unify. So that that has a few different components. One, once as Tim mentioned, once we go live with two Unify, we will see an uptick in our expense run rate from the amortization of that capitalized investment that we've made. We also continue to invest in developers to support that build out. And then as we go live, we will be spending with marketing related to two unified.

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

So that is some of the ramp up that that we're projecting for the remainder of the year. But you you are correct, though. We are coming in at or below that low end of where we guided.

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Got it. Okay. So right now, maybe for the second quarter, a little bit higher than than the first and then step a step up in the third quarter once season high goes by. Is that the right way to think about it?

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Yes, it is.

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Got it. Okay. And then on the noninterest income side, similar commentary or similar question there. In the first quarter tracking below the the end of the range. Where should we see fee income ramp up?

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Is it is it from the swap fees or SBA loan sale gains? I mean, if that's driven by loan production, can that get to your target?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Yes. Yes. You got it.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

So that's probably the most obvious one. If you look at the other non interest income line item, that's unusually low for us this quarter. And I'd say, rather than about a couple of million dollars there between at least those two line items that we just again, given this lower loan production did not materialize as much on SBA and and swaps. But we do expect it to for that that line item to recover. And then, obviously, can see and for service charges was was lower than last quarter we have to.

Andrew Liesch
Andrew Liesch
Managing Director at Piper Sandler Companies

Right. Right. Okay. Thank you for the clarity. I'll step back.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Alright. Thank you.

Operator

We'll take our next question from the line of Brett Rabatin with Health Group. Please go ahead. Your line is now open.

Brett Rabatin
Director of Research at Hovde Group

Hey. Good morning, everyone. Wanted to start off, Tim, the last time we talked, indicating that the market had gotten a lot more competitive from a pricing perspective. And I think you mentioned a seven point three percent origination rate during the quarter. Just wanted to see how that's trended in terms of what you're seeing competitively and then how that might factor into growth this year.

Brett Rabatin
Director of Research at Hovde Group

If pricing is too competitive, do you just do you just sit or do you get more competitive with with the competition to drive some loan growth?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

And I believe what I've covered was we were seeing some pressures on both pricing and credit structure. And back to some comments around our risk off position in the first quarter, we are not going to follow those trends down market. I simply would rather sit on sidelines, which I don't think we have to do altogether with targeted marketing. But, you know, we have seen some competitors constructing transactions that we simply would not be interested in.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

As it relates more specifically to your your question on pricing, Brett, you know, we we feel very good about the depth of the relationships we have with existing clients. They value the relationships, the all in relationships, and we think we're able to protect, maintain solid pricing as as I think certainly, all of the analysts on the call know, you know, for years, we've operated with a a relationship profitability model that values every element of what a client does with our bank. Think of it as an income statement for every client. We're looking at the return on capital from that client, and we're looking at the bottom line net contribution of that client. It does give our bankers some flexibility to deal with to address loan pricing of the clients, for example, keeping enough other balances or enough other services because ultimately we're interested in the all in return.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

So I'll throw this to Aldis for maybe a direct view. But from my perspective, pricing isn't proving to be the real challenge. I would just say we have to be very cautious with where we see some of the market going on credit structure.

Aldis Birkans
Aldis Birkans
President at National Bank

And and I think Tim covered it really well. I mean, back to the proof of that is 7.3% in in the first quarter in loan originations.

Aldis Birkans
Aldis Birkans
President at National Bank

We feel very good about that. It's very accretive to our margin and rest of the loan book that is really at six point

Aldis Birkans
Aldis Birkans
President at National Bank

Six point four.

Aldis Birkans
Aldis Birkans
President at National Bank

Six point four percent. So the pricing really is back in relationship basis is something that we can and know how to adjust for. Credit, on the other hand, we will not yield on.

Brett Rabatin
Director of Research at Hovde Group

Okay. That's great color.

Brett Rabatin
Director of Research at Hovde Group

And then on the deposit side, I noticed average balances were kind of flattish at the end of period savings and money market was up quarter over quarter quite a bit. And just wanted to see if if you think those deposits I know you mentioned your customers were being more conservative, you know, if that was excess liquidity or you think that's core growth? And, you know, just any any thoughts on those balances and deposits from here?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Yeah. So there's a couple of things to go go through that.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

One is it's somewhat dimension is a little bit of excess liquidity of the clients that did not necessarily deploy it in in in their business growth. We also saw a little bit of a tax seasonality that's primarily in the camber flows that help the spot balances later in the quarter. So those are somewhat sticking around for a period of time as those monies are spent. So again, we ended the quarter at 90 ish loan deposit ratio. We like that.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

See a lot of upside in engagement. That's the relationship approach that we take with every client. We view and demand operating accounts from all of our relationships. So therefore, we feel like we can grow their deposit balances along the line, but but it won't go.

Brett Rabatin
Director of Research at Hovde Group

Okay.

Brett Rabatin
Director of Research at Hovde Group

And then maybe just last one for me. The securities purchases during the quarter, just curious what you what you bought and if if you might put it in to buy more, you know, any any thoughts on that that portfolio and yields from here?

Nicole Van Denabeele
Nicole Van Denabeele
Executive VP & CFO at National Bank

Yes. So we did we did redeploy all of the cash from our investment security sale that we did in the fourth quarter. In January, we purchased 240,000,000 of investment securities, high quality investment securities, short duration, very consistent with what we historically have held in our book. We were we purchased those right around a 5% yield, which improved our net interest income because what we sold was about a 2.65%. Aldis, anything you would add?

Aldis Birkans
Aldis Birkans
President at National Bank

No. I think the guidance on that was that we will maintain cash in the investment portfolio. Boca, that's about 15% of the total assets and and we intend to to deliver that this year. And as a reminder, again, for us, investment portfolio is liquidity portfolio. So back to Nicole's comment, it's highly liquid, short duration, conservative investments, and we don't view that as a sort of, call it, deploying capital, for example.

Aldis Birkans
Aldis Birkans
President at National Bank

So we view we measure it the adjusted enough amount of money that we need for liquidity purposes to be stored on balance sheet, and that's how we came up with that 15 ish percent guide.

Brett Rabatin
Director of Research at Hovde Group

Okay. Great. Appreciate all the color.

Operator

We'll take our next question from the line of Jeffrey Hoopis with D. A. Davidson. Please go ahead.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Thanks. Sorry. I tried to get out of the queue and couldn't pull it off. But I guess, one of the questions it was Nicole answered it with the expense side. Just to clarify, to get to that low end of the guidance, you probably have to average close to 70,000,000 non interest expense the rest of the year.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

And I guess that's coming from the back out the the payroll benefit as well as a step up into Unify, and I guess you get to that low end. Maybe just the one question I have is is checking back up to TUnify yeah. Go ahead.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

I have to compliment you. Your math is always very good.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

I appreciate it, Tim.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

They're they're all sitting here smiling and going, yes, nodding our heads.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Alright. Well, that's rare. Let's see.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Just on the two unified the two unified front, I think you mentioned the revenue contribution reveal, I guess. Was was that end of the year or would that be within in January with the q four results?

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Yeah. It's consistent. Yeah.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

That to clarify, it will be released with fourth quarter results and guidance for next year.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Okay. Great.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

And our expectation is to be our expectation, in fact, is to begin to build toward a multiyear outlook for two Unify.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

That's great.

Jeffrey Rulis
MD & Senior Research Analyst at D.A. Davidson

Thanks. Appreciate it.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

You bet. You bet.

Operator

Thank you. And that is all the time we have for questions. I will now turn the call back to mister Laney for his closing remarks.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Alright. Well, look, thank you very much for your thoughtful questions this morning. We're focused on protecting our company. We're disappointed with this fraud hit that we took in the quarter. We do not in any way believe it's a systemic issue.

Timothy Laney
Timothy Laney
Chairman, President and Chief Executive Officer at National Bank

Again, we've turned it over to appropriate authorities and believe it'll be addressed appropriately. What we're focused on is taking care of our clients, taking care of our teammates, and and growing this company. So again, thank you for your questions this morning. Have a good day.

Operator

And this concludes today's call. If you would like to listen to the telephone replay of this call, it will be available twenty four hours, and 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.

Executives
    • Emily Gooden
      Emily Gooden
      Senior VP, Chief Accounting Officer & Investor Relations Director
    • Timothy Laney
      Timothy Laney
      Chairman, President and Chief Executive Officer
    • Nicole Van Denabeele
      Nicole Van Denabeele
      Executive VP & CFO
    • Aldis Birkans
      Aldis Birkans
      President
Analysts
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Key Takeaways

  • Earnings of 63¢ per diluted share included a $9 million fraud-related charge-off on a Colorado Del Taco franchise, yet still delivered a 1.1% return on tangible assets.
  • Loan balances decreased by $105 million as business clients adopted a risk-off posture amid economic uncertainty, though the bank maintains mid-single-digit loan growth guidance and continues to build its pipeline.
  • Net interest income grew 3.4% year-over-year to $88.6 million with a 3.93% net interest margin, and new loan originations at a 7.3% yield are expected to be accretive to margins.
  • Spot deposits rose by $186 million, aided by seasonal tax inflows, lowering the cost of deposits to 2.03% and supporting a roughly 90% loan-to-deposit ratio.
  • Credit quality remained strong with nonperforming loans at 45 basis points of total loans, an allowance covering 1.2% of loans plus an extra 28 basis points of acquired-loan marks, and management expects charge-offs to normalize toward historical levels.
AI Generated. May Contain Errors.
Earnings Conference Call
National Bank Q1 2025
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