Northpointe Bancshares Q2 2025 Earnings Report

Northpointe Bancshares EPS Results

• Actual EPS: $0.51
• Consensus EPS: $0.51
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Northpointe Bancshares Revenue Results

• Actual Revenue: $58.96 million
• Expected Revenue: $56.92 million
• Beat/Miss: Beat by +$2.04 million
• YoY Revenue Growth: N/A

Northpointe Bancshares Announcement Details

• Quarter: Q2 2025
• Date: 7/22/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, July 23, 2025
• Conference Call Time: 10:00AM ET

Northpointe Bancshares (NYSE:NPB) operates as a bank holding company. It offers a nationwide mortgage purchase program, residential mortgage loans, digital deposit banking to retail customers and custodial deposit services. The company was founded by Charles A. Williams in 1998 and is headquartered in Grand Rapids, MI.

Northpointe Bancshares Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: NorthPoint reported $18 million net income (or $0.51 per diluted share) in Q2, drove a 1.34% ROA, 14.49% ROE and boosted tangible book value per share by over 14% annualized.
• Positive Sentiment: The Mortgage Purchase Program (MPP) grew period-end balances by $423 million and funded a record $9 billion in Q2, staying ahead of IPO targets and prompting raised year-end MPP guidance.
• Positive Sentiment: Retail lending remained strong with $665.5 million in mortgage originations, 12% annualized growth in first-lien home equity loans and a new $250 million custodial deposit agreement to bolster core funding.
• Positive Sentiment: Asset quality stayed pristine with nonperforming assets down, net charge-offs at just four basis points and a robust ACL of $12.4 million reflecting disciplined underwriting.
• Neutral Sentiment: NorthPoint reiterated Q3/Q4 net interest margin guidance of 2.45%–2.55% while noting potential headwinds from deposit mix and brokered CD costs, and raised full-year non-interest expense estimates to $128–132 million.

Presentation

[Operator]

Greetings. Welcome to NorthPoint Bancshares, Inc. Q2 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. The question and answer session will follow the formal presentation.

[Operator]

Please note this conference is being recorded. I will now turn the conference over to Brad House, Chief Financial Officer. Thank you. You may begin.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Thank you, Daryl. Good morning, and welcome to Northpoint's second quarter twenty twenty five earnings call. My name is Brad Howes, and I am the Chief Financial Officer. With me today are Chuck Williams, our Chairman and CEO and Kevin Comps, our President. Additional earnings materials, including the presentation slides that we will refer to on today's call, are available on Northpoint's Investor Relations website at ir.northpoint.com.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

As a reminder, during today's call, we may make forward looking statements, which are subject to risks and uncertainties and are intended to be covered by the Safe Harbor provisions of federal securities law. For a list of factors that may cause actual results to differ materially from expectations, please refer to the disclosures contained within our SEC filings. We will also reference non GAAP financial measures and encourage you to review the non GAAP reconciliations provided in both our earnings release and presentation slides. The agenda for today's call will include prepared remarks, followed by a question and answer session and then closing remarks. With that, I'll turn the call over to Chuck.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Thank you, Brad. Good morning, everyone, and thanks for joining. Before I begin, I'd like to thank our NorthPoint team for their incredible dedication to our bank and their unwavering commitment to our clients and customers. This is now our second quarter end since the IPO in January, and I'm very pleased with the momentum we've gained and how we have continued to execute on our strategic plan. Before I turn the call over to Kevin and Brad to dive into the details, I'd like to take a moment and share some highlights from our financial and operating performance.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

On Slide four, we lay out our performance for the second quarter of twenty twenty five. For the quarter, we earned $18,000,000 or $0.51 per diluted shares. As you can see, all of our performance ratios improved from the first quarter level, highlighted by a 1.34% return on assets and 14.49% return on average common equity. We also increased tangible book value per share by over 14% annualized, which reflects the strong financial performance in organic capital we generated during the quarter. Let me start with an update on the mortgage purchase program or MPP, which is our distinctive alternative to the traditional warehouse lending model. We saw another quarter of exceptional performance in the MPP business with period ending balance growth of $423,000,000 and average balance growth of $759,000,000 over the prior quarter. We funded over $9,000,000,000 in loans through the channel in the second quarter, which is the highest quarterly level ever for Northpoint. Overall, we're very pleased with the success and growth trajectory of the MPP business. Through two quarters, we are slightly ahead of the balance sheet growth we outlined during the IPO and have also outpaced our initial projections in terms of facility commitment, which positions us well nicely for continued success. Total period ending balances were $2,900,000,000 as of 06/30/2025. With the recent success and commitment growth I've just outlined, we believe we're in good position to exceed our original growth forecast. Brad will provide additional guidance during his remarks. Our first lien home equity loan business, which is tied seamlessly to a demand sweep account through our proprietary technology, continued to grow as well.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

For the quarter, these loans increased by just shy of $20,000,000 which is a 12% annualized growth rate. Our retail lending channel closed over $665,000,000 in residential mortgages during the quarter, which was in line with our forecast. Our retail origination staff continues to excel even in the current rate environment, which has remained within a tightly relatively tightly band during 2025. Regardless of what happens to rates going forward, we will continue to take our share of the industry mortgage business and we are well positioned to quickly capitalize on mortgage volumes should rates decline. Lastly, we recently completed an agreement to bring in approximately $250,000,000 in new custodial deposits, which is expected to occur during the third quarter of twenty twenty five.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

This is an important part of our overall funding strategy as these types of agreements help bolster our core deposits and reduce the reliance on wholesale funding. During the IPO, we said that we would look for ways to grow our non broker deposits with the mortgage verticals we operate in. This transaction helps that and we will continue to explore similar types of relationships and opportunities to add core deposits. With that, I'd like to now turn it over to Kevin to talk about our business lines. Kevin?

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Thanks, Chuck, and good morning, everyone. On Slide five, we highlight our MPP business, which is our version of mortgage warehouse lending. We utilize our proprietary state of the art technology stack to offer our purchase program to mortgage bankers nationwide. As Chuck highlighted, we've built up the success in the first quarter and have carried that momentum into the second quarter. Period end balances increased by $423,000,000 or 69% annualized.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Let me break that growth down a little further for you. First, the increased facility size for five existing clients, which totaled $215,000,000 in additional capacity. Second, there were three clients, new clients brought in, which totaled $500,000,000 in additional capacity. And third, we saw a slight increase in the overall utilization of our existing clients. During the second quarter, we had average participations of $8,000,000 Participations remain an important component of our overall strategy as they help expand net interest margin and manage the balance sheet within our capital framework.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

On a year to date basis, period end NPP balances have increased by $1,200,000,000 which is slightly above our plan. Average balances will vary a bit more due to the timing of fundings and payoffs, but are largely in line with expectations. We continue to generate strong returns on the business with average yield of 7.07% during the quarter. If you include fees, these yields increased to 7.23%. This quarter, we funded the majority of that growth with brokered CDs.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Average funding costs have remained in the mid-4s, giving us a fee adjusted spread of close to 2.75%. I'd expect this trend to continue or improve slightly for the remainder of 2025. Now turning to Retail Banking on Slide six, I'd like to highlight the results of the three main businesses within that segment. Starting with residential lending, which includes both our traditional retail and our consumer direct channels, we continue to perform well and take our share of industry volume. We originated $665,500,000 in mortgages during the second quarter, of which we sold $589,600,000 This represents approximately 89% of the total production in the quarter which is similar to last quarter.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Of that 78% was in our traditional retail channel and 22% was in consumer direct. In the second quarter, we sold approximately 80% of our saleable mortgages service release, which is consistent with the prior quarter percentage. Additionally, 72% of our overall production was purchased business in the second quarter, flat from the first quarter level. Within our held for investment portfolio, we continue to originate and retain the first lien home equity lines tied seamlessly to demand deposit sweep accounts, including what we commonly refer to as AIO loans. For the quarter, we earned $19,600,000 in net gain on sale of loans.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

That amount includes fair value increases on the held for investment loan portfolio and the lender risk account, which Brad will cover in more detail. We continue to look for opportunities to create additional efficiencies using technology and hire new talented lenders within the channel. In the second quarter, we hired three new mortgage originating professionals to help us continue our growth within the retail lending channel. In the middle of Slide six, we highlight our digital deposit banking channel where we feature our direct to customer platform and competitive product suite. Our funding strategy and deposit franchise are much different than those of a typical community bank and we believe our strategy is quite simple but very effective.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

We ended the second quarter twenty twenty five with $4,500,000,000 in total deposits. The breakdown of these deposits is detailed in the appendix on Slide 12. The majority of our deposit growth compared to the prior quarter was from brokered CDs, which reduced to fund the strong growth in MPP. The remainder of our deposit products were down slightly from the prior quarter. Non interest bearing demand deposits include custodial deposits and deposit balances from our MVP client.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

On the custodial side, there tends to be a little more variability in the quarter end deposit balances, which drove the linked quarter decrease. Custodial deposits remain a critical piece of our funding strategy and a key benefit of our servicing business. As Chuck mentioned, we will be bringing over $250,000,000 of new custodial deposits during the third quarter of twenty twenty five. A portion of these balances have already come over in July. We do not anticipate any significant changes to the overall cost of funds, but these deposits will help lower our wholesale funding ratio in the third quarter and beyond.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

On the right side of Slide six, we highlight our specialty mortgage servicing channel where we focus on servicing first lien home equity lines tied seamlessly to demand deposit sweep accounts, including what we commonly refer to as AIO loans. On the last quarterly earnings call, I highlighted our strategy to private label outsource the non specialized mortgage servicing to a scale sub servicer. That work has been completed and we are now realizing those cost savings. Excluding the $300,000 negative adjustment on the change in fair value to MSR, we earned $1,800,000 in loan servicing fees for Q2, which is up slightly over the prior quarter level. Including loans we outsourced to a sub servicer, we serviced 12,700 loans for others with a total UPB of $4,000,000,000 as compared to second quarter twenty twenty five.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

We also started servicing for two additional new investors, the first lien home equity line, time to see one sweep demand deposit sweep account type of products during the quarter. Turning lastly to asset quality on Slide seven, which remains one of the largest risks for any bank and one we continue to monitor very closely. Similar to what you are likely hearing from peers, our asset quality metrics remain solid. We are not seeing any systemic credit quality of borrower issues with the small amount of charge offs we are taking coming from isolated circumstances. Last quarter, I discussed the increase in delinquent loans, which were partially attributable to the transfer of loans to a scaled subservicer during the quarter.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

The majority of these have since been made current, paid off or converted to permanent financing and sold, which helped drive the decrease in non performing assets and loans past due thirty one to eighty nine days from the prior quarter. Now I'll provide some additional details on our asset quality. We have a very sophisticated and granular allowance for credit loss process and we spend a great deal of time analyzing the various risks. Our allowance for credit losses was $12,400,000 in the second quarter of twenty twenty five, which reflects our disciplined underwriting, diligent risk control and low levels of loss history. As you can see at the bottom of Slide seven, our net charge offs remained historically low.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

For the second quarter of twenty twenty five, our net charge offs were $488,000 or four basis points of average loans held for investment. Virtually all of our loan portfolio is backed by residential real estate, which typically carries much lower average loss rates than other asset classes. At 06/30/2025, MPP represented 49.6% of all loans and we've continued to experience pristine credit quality in that portfolio. Our residential mortgage portfolio is also high quality, seasoned and geographically diverse. At 06/30/2025, our average FICO was seven fifty one and our average LTV when you factor in mortgage insurance was 72%.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

I'd now like to turn the call over to Brad to cover the financials.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

All right. Thank you, Kevin. As I go through today's slide presentation, I'll be incorporating full year 2025 guidance into my commentary. Let's begin on Slide eight. Reported second quarter twenty twenty five net income of $18,000,000 or $0.51 per diluted share.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

This is up from $15,000,000 in the 2025 and $11,400,000 in the second quarter of twenty twenty four. Our performance ratios all improved for the second straight quarter with a 1.34% ROA, a 14.49% return on average tangible common equity and a 53.8% efficiency ratio. As a reminder, our non GAAP reconciliation on Slide 14 provides the details of the calculations and a reconciliation to the comparable GAAP measure for all our non GAAP metrics. Net interest income increased by $6,100,000 over the prior quarter level. This reflected the significant growth in MVP average balances along with a nine basis point improvement in net interest margin from the prior quarter.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Our yield on interest earning assets benefited from the continued improvement in the mix of loans within the held for investment portfolio. We continue to experience strong growth in MVP and AIO loans, both of which carry higher average yields than the remainder of the loan portfolio. Our cost of funds also decreased by three basis points from the prior quarter. This improvement reflects lower costs on our money market savings and retail CDs, partially offset by the lower average balance of non interest bearing deposits that Kevin highlighted. Our net interest margin was 2.44% for the second quarter. I'd expect us to stay in the 2.45% to 2.55% range for the full year of 2025, but likely at the lower end of the range.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

My guidance is predicated on some recent trends that we were seeing including slightly lower NPP yields, slightly higher brokered CD costs and lower balances of non interest bearing deposits. I would expect some of these trends will improve over the remainder of 2025, but if they do not, we would likely fall in the lower range of my margin guidance. Average interest earning assets increased by $766,000,000 from the prior quarter, given the strong growth in MPP loans and continued runoff of the residential mortgage and construction loan portfolios. With all the positive momentum in that business that Chuck outlined, we are increasing our overall MPP guidance for 2025. I'd expect our MPP loan balances to increase to between $3,100,000,000 and $3,300,000,000 for Q3 twenty twenty five and that increased between 3,300,000,000 and $3,500,000,000 for Q4 twenty twenty five.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

I would also expect a similar growth rate for average balances. We are not making any changes to our AIO loan balance guidance for the year end 2025, which I'd expect to increase by between 711% from the 06/30/2025 level. Excluding MPP and AIO loans, I'd expect the rest of the loan portfolio to continue to decrease by between 58% from their 06/30/2025 level. We had a provision for credit losses of $583,000 in the second quarter of twenty twenty five, which is down from $1,300,000 in the prior quarter. Let me break that down for you.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

The largest driver was the decrease in total delinquent and non performing loans Kevin discussed. We also saw the continued runoff of residential mortgage and construction loans, both of which carry higher average loss rates than MPP or AIO loans, which is where all our new growth is coming from. These improvements were partially offset by a worsening of the macroeconomic forecast, including the impact of tariffs, home prices, unemployment and interest rates. We continue to experience a relatively low level of charge offs and I'd expect that trend to continue with any additional provision being driven by loan growth, credit migration trends and changes in the economic forecast. Our non interest income decreased by $435,000 from the prior quarter, which was driven primarily by a lower level of fair value gains and a decrease in other income reflecting the gain of $2,000,000 on the extinguishment of FHLB borrowings in the first quarter of twenty twenty five.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

We've added a new chart to the appendix on Slide 13, which breaks out three of our fair value assets and their associated quarterly increases and decreases. These assets tend to move up or down with interest rates and are not part of my revenue guidance each quarter. Net gain on the sale of loans was $19,400,000 for the 2025 and it includes capitalization of new MSRs, changes in fair value of loans and gains on the sale of those loans. For the second quarter, this included a $1,300,000 increase in the fair value of loans held for investment and a $497,000 increase in the fair value of our lender risk account with the Federal Home Loan Bank. The change in fair value of loans held for investment included an increase of $1,400,000 which is related to the agreement to sell $40,300,000 of non AIO home equity loans during the quarter.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Excluding all these items, net gain on the sale of loans would have been $17,500,000 which is up from $14,900,000 on a comparable basis in the first quarter of twenty twenty five. Remainder of the fair value changes within the net gain on sale of loans line item relate to regular hedging and capital markets activities within our mortgage banking business, including any changes in fair value of the lot pipeline. For 2025, we are forecasting total saleable mortgage originations of $2,100,000,000 to $2,300,000,000 This estimate assumes no significant movement in mortgage rates over the remainder of the year. Based on the volume trends we are seeing today, I expect that we will be towards the lower end of the saleable mortgage origination range. Consistent with last quarter's call, I'd expect to earn an all in margin of $2.75 to $3.25 on those saleable mortgages.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

This guidance is a blend of our traditional retail and consumer direct channels as well as loans sold servicing released or servicing retained. It also includes the benefit of any new lender risk account receivable created by selling loans to the Federal Home Loan Bank. It does not however include any fair value changes on our loans held for investment portfolio or any fair value changes on the FHLB lender risk account. For the second quarter, our gain on sale margin exceeded the 2.75% to 3.25% range and I'd expect our full year margin will come in towards the upper end of that range. MPP fees increased by $214,000 from the prior quarter driven by the strong level of purchases.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

As of any change in our participation balances, I'd expect MBT fees to continue to increase from their current run rate and range to level of between 5,000,000 to $6,000,000 for the year. Loan servicing fees were $1,500,000 for the 2025 and included a fair value decrease of $302,000 on the MSR asset. Excluding that decrease, loan servicing fees were $1,800,000 for the quarter. I expect that quarterly run rate to increase slightly over the remainder of 2025 as we continue to modestly increase the size of the servicing portfolio. Non interest expense was up $2,400,000 from the prior quarter driven primarily by higher salaries and benefits and professional fees.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Salaries and benefits expense increased $1,900,000 over the prior quarter driven primarily by the $1,700,000 increase in variable mortgage compensation, which was consistent with the linked quarter increase in mortgage production. Professional fees increased by $565,000 on a linked quarter basis, driven primarily by higher public company compliance costs. For 2025, I'd expect total annual non interest expense in the range of $128,000,000 to $132,000,000 This increase from our prior guidance reflects higher variable MPP compensation, which is related to the stronger expected performance in that business, along with higher expected salaries and benefits and professional fees from being a public company. Our effective tax rate was flat at 23.67% for the second quarter of twenty twenty five, which I would expect to be consistent for the remainder of the year. Turning to the balance sheet on Slide nine, our total assets increased to $6,400,000,000 for the second quarter of twenty twenty five. This was driven primarily by the increase in FPP and AIL loans and a higher level of cash and loans held for sale, partially offset by runoff from the remainder of the loans held for investment portfolio. Kevin provided details on our funding and deposits this quarter. Our wholesale funding ratio was 70.7% at 06/30/2025, up from the prior quarter level. Looking forward, we'd expect to continue to fund MPP loan growth through a combination of brokered CDs, retail deposits and other sources of non brokered deposits where possible. Lastly, on Slide 10, we outline our regulatory capital ratios, which are estimates pending completion of regulatory reports.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Our capital levels remain strong both at the bank and the consolidated entity level. I'd expect that existing capital plus the additional capital we organically generate through earnings will continue to be sufficient to support the forecasted growth we have in our plan. With that, we're happy to now take any questions. Daryl, can you please open the line for Q and A?

[Operator]

Thank you. We will now be conducting a question and answer session. Our first questions come from the line of Crispin Love with Piper Sandler. Please proceed with your questions.

[Crispin Love, Director at Piper Sandler Companies]

Thank you. Good morning. First, can you just discuss some of the drivers of the MPP growth in the quarter? How you were able to do as much as you did? Was that partly due to some of the capital from the IPO or did that not have an impact in the second quarter?

[Crispin Love, Director at Piper Sandler Companies]

And then just on what type of capacity you have to fund on a quarterly basis for MVP going forward?

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Yes. So I can take that and Brad and Kevin can follow-up. So it's we brought a fair amount in the first quarter. After the IPO with the additional capital, we brought as indicated in the IPO approximately 200 to $400,000,000 that we were participating out. So that was added to the balance sheet along with some pent up demand that was really the driver of the IPO last fall.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

So we were able to execute on those new commitments. So there was some demand, like I said, dating back to last fall. There were some outstanding balances that we brought back. All of this, again, was covered during the presentations in the IPO. And frankly, we've just had tremendous success developing some new accounts.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Managers have done a great job not only increasing our existing clients, but also adding a lot a fair amount of new clients that we did not even anticipate. So and we're looking for that growth to continue to be in third quarter and beyond for the balance of the year. So does that answer your question?

[Crispin Love, Director at Piper Sandler Companies]

Yes, does. Appreciate that, Chuck.

[Crispin Love, Director at Piper Sandler Companies]

And then second question for me, just on the NIM trajectory, Brad, I heard that you reiterated the 2.45% to 2.55% margin guide, but likely be near the lower end of that. Halfway through the year, you're slightly below that level. As we look at the second half, can you just discuss the cadence a little bit? Are you expecting sequentially higher margins through the rest of the year in the third quarter and fourth quarter? And could those levels even be in excess of that $250,000,002 55,000,000 level in order to get to the full year level of around $245,000,000 to $250,000,000 if that makes sense?

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Yes, that's Kristen. And you're right. In order to achieve in that range, we would have to average 10 to 20 basis points higher than we are right now and higher than our full year guidance projected. And I think what I'd say about the margin guidance is that we were a little off of where we thought we were going to be for the reasons I kind of outlined with NTT deals coming in a little bit lighter. The brokered CD market picked up a little bit in the second quarter more than we thought by five basis points or so.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

And then our non interest bearing deposits, we saw a decrease which was timing related. So I suspect that hopefully all of those go back in our original favor. We're already seeing some favorable trends in the brokered CDs. Our yields on NTP were stronger towards the second half of the quarter. I've got some good visibility and decent level of confidence that we will fall within our original projection of the guidance range.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

But if those things don't materialize like we think, I just wanted to be conservative and give you guys an indication that we would fall towards the lower end of the range. The biggest driver I'd say of what's going to change in our margin as you look forward is that we continue to increase the percentage of over MPP and NIO loans, both of which carry very strong yields relative to our residential mortgage portfolio, which has average yields of 4% to 5% typically. So as we replace and improve the mix of the overall margin, that drives an improvement in that margin in the third and fourth quarters.

[Crispin Love, Director at Piper Sandler Companies]

Perfect. Thank you. And if I could just squeeze one more in on the AIO loan product. Can you just share a little bit of color on recent trends there? How has the demand been in the AIO loan product? I know there wasn't any change in the guide, but just curious on trends and what you expect in the current environment?

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Yes. This is Kevin.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

So I'll answer it two ways, guess. So with our own book, continuing to see strong demand there. That is the product we're putting in our HFI book. Brad provided the guidance there, so we would still continue to see net increase in AI alone throughout the rest of the year also. And then from our specialized servicing and subservicing business unit, the product in general is also continuing to increase in this particular rate environment. Still strong demand across the board.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Chris, if I could just add one thing too. Think about these loans, they amortize quicker than a typical mortgage. So you do have some pretty good pay downs during the quarter. We've been able to outrun those and still grow balances, which is a testament, I think, the strong growth Kevin was talking about.

[Crispin Love, Director at Piper Sandler Companies]

Perfect. Thank you. Appreciate you all taking my questions.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Thanks, Christopher. Thanks. Thanks, Christopher.

[Operator]

Thank you. Our next questions come from the line of Damon DelMonte with KBW. Please proceed with your questions.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Hey, good morning, guys. Thanks for taking my question. Just looking to get a little bit more color on the custodial account agreement for the $250,000,000 Could you just kind of give a little bit of color, I guess, kind of behind the process there of getting those on and the prospect for adding more of those types of relationships? And then also kind of how does the funding work on that? I think the commentary was that, it's not going to be materially lower than the wholesale funding with the brokered CDs.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

So just kind of curious about some of those dynamics. Thanks.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Sure. This is Kevin. I can start. Yes, we got you directly with the holders of those custodial funds is the way we do it.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

We laid this strategy out during the IPO process. Also, this would be a way we try and diversify a little bit away from our typical just wholesale funding sources. So we're able to negotiate this, with current party.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Their agency could go legal funds. So typically, we have those here already for various relationships we have. From a rate perspective, slightly better than the broker deposit rates. We did negotiate in the field with floating rates. So once again, fits well with our outcome strategy of funding in the short end of the curve with our assets that also float in the short end of the curve. And then also the benefit of this is twofold. One, reduces our overall wholesale funding concentration And second, less FDIC insurance premiums are required on balances that are non brokered funding. So a trio of benefits coming through this and we are working with other counterparties similar, I'd say, types of custodial funds to bring in, in the future.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay. Appreciate that color. And then on the capital front, just kind of the comment I think was made earlier that you feel adequate with your capital levels, kind of given the growth. Just do you have any targets on capital ratios as to where you feel comfortable going down to? Or do you feel that, just given the growing profitability and the internal capital generation plus the excess capital just puts you in a favorable position to kind of keep stride and not have to take the pedal off the gas at all?

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Yes. I think short answer is yes to your question, David. We have a capital plan and we've got minimum capital ratios that we're required to maintain internally. Our plan does not have us go any below those. We still maintain a buffer to all of those capital ratios. We look across all eight capital ratios as well as our TCE ratio. And we forecast out the balance growth. I think our guidance was that NPP balances would grow an additional 100,000,000 to $200,000,000 over the original plan.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

You have the capital to support that still. And this capital that we have, when you think about it, it's self serving because we generate retained earnings, which also increase our capital and we pay a nominal dividend. All of that capital we generate goes towards growth. As we perform well and we have good income expectations out the remainder of the year and into next year, we can generate organically the capital we need to continue to grow that business within our capital framework.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Great. Okay.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Jamie, as I mentioned in part of the prepared remarks, we also would leverage our participation program further. We're overly successful beyond what we projected from a NPV perspective.

[Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)]

Got it. Okay, great. Well, thank you very much for taking my questions.

[Kevin Comps, President & Secretary at Northpointe Bancshares]

Thank you, David. Thanks, David.

[Operator]

Thank you. Our next questions come from the line of Christopher Marinac with Janney Montgomery Scott. Please proceed with your questions.

[Christopher Marinac, Director - Research at Janney Montgomery Scott]

Hey, thanks. Good morning. Chuck, I wanted to ask you about the big picture. And as NPP grows, do you see anything in terms of other players who are either total lag or perhaps the macro is not as popular that allows you to kind of position yourself now where if rates change on the road, you've kind of made more even more inroads?

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Thanks for the question, Christopher. I'm a little confused by it.

[Christopher Marinac, Director - Research at Janney Montgomery Scott]

If you look at the macro in terms of the as you're growing your MPP program, do you see changes externally in terms of players exiting the business that allows you to continue to accelerate there? Do you see other consolidation impacts that can drive the business further than what you've done here in this last two quarters?

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Okay. Are you talking about our competitors in the warehouse space or our mortgage company partners? So It's really it's competition.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Yes, the competition. We haven't seen the consolidation like we did last year. So really, our organic growth or the I should say the additional facilities that we gained have been quite frankly because of the sales team that we have, the tech stack that we operate under the ease. And frankly, you know, we we focus on it as as a one of our primary business lines is I think our competition, you know, is, you know, certainly worthy, but I'm not sure that anybody focuses on it like what we do. And, you know, I think it's, again, a combination of factors that, you know, puts us in a in a great position to not only, get the share that we want from our existing clients and just regular new business, but I think word continues to go around. Like I said, the ease of our tech stack and some other competitive things that kind of go I think that you can't really put on paper and that we listen to our clients. And so I think that's there's some of these intangibles, again, that you can't just read on financials that puts us in a great position, not only for the growth that we've put together so far in the first half, but we're going to continue that momentum in the second half of the year. So yes, so I guess to kind of sum it up, no matter what our competition does that we have a program that I think is second to none and I think it's going to continue to shine. Now that we have the strong capital base that we've developed with the IPO And I think the continued success is there for the taking for us.

[Christopher Marinac, Director - Research at Janney Montgomery Scott]

Great. That's very helpful, Chuck. And then I just had a quick question on how the fair value marks could play out in the next couple of quarters. Is there a one rate that we should be watching to just kind of gauge how that moves quarter to quarter?

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Yes, Chris. I'd say generally, we kind of watch your two indices that I would look at would be the ten year. The better indices would probably be to look at some kind of mortgage rate index, whether it's I think Fannie has a kind of conventional thirty year index. If you follow along with what happens with mortgage rates, that will give you a good indication of the changes with the increase or decrease in fair value that we have each quarter on those three assets.

[Christopher Marinac, Director - Research at Janney Montgomery Scott]

Great. That's helpful. Thank you very much.

[Brad Howes, EVP & CFO at Northpointe Bancshares]

Yes. Thanks, Chris.

[Operator]

Thank you. This now concludes our question and answer session. I would now like to turn the floor back over to Chuck Williams, Chief Executive Officer, for closing comments.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

Great. I want to thank all of you for joining today's call. In closing, I'm very proud to be leading an outstanding NorthPoint team and I'm pleased with our success so far this year. Our momentum remains strong as we continue to be nimble, opportunistic and lead with an entrepreneurial spirit. We will continue to deliver on our strategic plan for the remainder of 2025 and beyond.

[Charles Williams, Founder, Chairman & CEO at Northpointe Bancshares]

We're excited to share more with you in the upcoming quarters and look forward to seeing many of you at some upcoming investor conferences that we have in 2025. With that, again, thank you all, and have a great rest of your week.

[Operator]

Thank you, ladies and gentlemen, for your participation. This does conclude today's teleconference. Please disconnect your lines at this time, and enjoy the rest of your day.

Participants

Executives

• Brad Howes, EVP & CFO
• Charles Williams, Founder, Chairman & CEO
• Kevin Comps, President & Secretary

Analysts

• Crispin Love, Director at Piper Sandler Companies
• Damon Delmonte, Managing Director at Keefe, Bruyette & Woods (KBW)
• Christopher Marinac, Director - Research at Janney Montgomery Scott