National Bank Holdings Corp Q4 FY2024 earnings call

• Delivered solid earnings of $0.86 per diluted share in the fourth quarter with a 14.4% return on tangible common equity adjusted for security sales. - Achieved 11.3% annualized net interest income growth in the fourth quarter with a net interest margin of 3.99%. - Tangible book value grew 11% in 2024, and the company exited the year with a common equity Tier 1 capital ratio of 13.2%. - Strategically sold approximately $130 million of investment securities in the fourth quarter, resulting in a $5 million after-tax loss, with proceeds reinvested in higher-yielding securities. - Maintained strong credit quality with a non-performing loan ratio below peer averages at 46 basis points. - Bankers are committed to growing client relationships, and the company entered 2025 with solid loan pipelines. - The 2UniFi team is progressing on time and within budget, with user testing conducted in the fourth quarter and expecting revenue in the second half of 2025.

In the fourth quarter of 2024, National Bank Holdings reported net income of $28.2 million or $0.73 per diluted share. Adjusting for the strategic sale of investment securities, net income was $33.2 million or $0.86 per diluted share. For the full year 2024, net income totaled $118.8 million or $3.08 per diluted share, with adjustments for security sales bringing it to $123.9 million or $3.22 per diluted share. Net interest income grew 11.3% annualized in the fourth quarter with a net interest margin of 3.99%. Average deposit growth was 4.7% in 2024. The non-performing loan ratio was 46 basis points. Total non-interest income for the fourth quarter was $11.1 million, and non-interest expense was $64.5 million. For 2025, guidance includes a projected fully taxable equivalent net interest margin around 3.9%, non-interest income in the range of $72 million to $77 million, non-interest expense in the range of $272 million to $278 million (including $27 million to $29 million for 2UniFi), an effective tax rate around 19%, a share count projection of around 38.6 million diluted shares, and loan growth in the mid-single-digits with core bank non-interest expense projected to increase 3% excluding 2UniFi impacts.

• Projected fully taxable equivalent net interest margin to remain in the 3.9% range for 2025. - Total non-interest income expected to be between $72 million and $77 million in 2025. - Non-interest expense projected to be between $272 million and $278 million in 2025, including $27 million to $29 million for 2UniFi. - Effective tax rate projected to be around 19% in 2025. - Share count expected to remain around 38.6 million diluted shares outstanding in 2025. - Anticipates 2025 loan growth to be in the mid-single-digits. - Excluding 2UniFi related expenses, core bank non-interest expense is projected to increase 3% in 2025.

• Competitive environment could impact loan generation. - Weakness in the transportation segment represented a source of concern for non-performing assets, with transportation exposure less than 2% of total outstandings. - Durbin impact on expenses, though managed through organic growth, is a consideration. - Uncertainties related to M&A activities and their impact on absorbing Durbin drag.

Q: On the loan front, are you seeing any changes in the competitive environment there? And any particular areas you're targeting this year?

A: Aldis Birkans stated the competitive environment has been competitive, with active paydowns and payoffs, and Tim Laney added competitors are more rational around credit, with weakness in the transportation segment.

Q: On the credit front, was there a certain relationship that caused the rise in NPAs there or segment?

A: Timothy Laney mentioned weakness in the transportation segment as a source of concern, with transportation exposure less than 2% of total outstandings.

Q: On the planned 2UniFi expenses for this year, did I hear, is this $27 million, was that right?

A: Nicole Van Denabeele confirmed the range of $27 million to $29 million for 2UniFi expenses in 2025.

Q: 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?

A: Aldis Birkans talked about core deposit growth and deposit beta at 44%, and Timothy Laney mentioned deposit pricing discipline.

Q: Can you remind us of what the expense impact is from Durbin? And then any other considerations around the $10 billion threshold?

A: Timothy Laney said the company avoided roughly a $10 million charge over two years, expects to quickly move beyond $10 billion in assets, with Durbin impact manageable due to low consumer exposure.

Q: An acquisition could be a fast way to get scale on one possible strategy to absorb the Durbin hit. I was just wondering if you could provide any update on pace of conversations there and how you're approaching your capital priority?

A: Timothy Laney said there are constructive conversations on M&A, focused on strategic partners with similar cultures, and capital priority is maintained.

Q: Nicole, the margin guide, I missed it, just say near in the 3.90s. Is that correct?

A: Nicole Van Denabeele confirmed the net interest margin projection around 3.9%.

Q: 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 some maybe some asset catching up? I guess, how is the balance sheet positioned right now for rate changes?

A: Nicole Van Denabeele said the balance sheet is asset neutral, and future rate movements should not impact the margin.

Q: And then, oh, just on the expense growth, did you say it was at 3% excluding Cambr for this year?

A: Nicole Van Denabeele confirmed core bank expense increase held to 3% excluding 2UniFi impact.

Q: How is the 2UniFi friends and family launch progressing? And when do you think we can start seeing some revenue fall to the bottom line here?

A: Timothy Laney said user testing is going well, expecting revenue in the second half of 2025.