National Bank Holdings Corporation

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2025 Second Quarter Earnings Call. My name is Rachel, 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. 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 later and 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. 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.

Thanks, Rachel. Good morning, and thank you for joining us as we discuss National Bank Holdings' second quarter results. I'm joined by our president, Aldous Burkhans, as well as our chief financial officer, Nicole Van Denneville. We delivered earnings of 88 cents during the second quarter with a 14.2% return on tangible equity and a 1.5% return on assets. We delivered a strong net interest margin of $3.95, resulting from deposit and loan pricing disciplines. During the quarter, our teams produced $323 million of loan fundings while also remaining focused on reducing exposure within certain higher-risk industries, which Nicole and all of us will speak to later. We believe these actions will result in more responsible profits in the future. During the quarter, we also took action to reduce our core bank annualized personnel expense run rate by a full 10%. Finally, we are pleased to share that we successfully launched release one of 2Unify in the Apple App Store and expect to go live on Android July 30th. Activity has been solid, particularly in light of the fact that we have not even launched our marketing campaigns. Further, user feedback has been quite positive. And on that note, I'll turn the call over to Nicole. Nicole?

Thank you, Tim, and good morning. During today's call, I will cover the financial results for the second quarter, as well as touch on our guidance for the rest of the year, which does not include any future interest rate policy changes by the Fed. For the second quarter, we reported net income of $34 million, or 88 cents, of earnings per diluted share. This resulted in a strong return on average tangible assets of 1.5%, in return on average tangible common equity of 14.2%. We grew our fully taxable equivalent pre-provision net revenue by 19.9% over the second quarter last year, maintained a strong net interest margin, and built additional excess capital. As Tim shared, our teams generated $323 million of loan funding during the second quarter. Elevated loan paydowns coupled with strategic portfolio reductions within targeted industries led to a decline in loan balances during the quarter. Our bankers remain committed to growing client relationships. We continue to build our pipelines and are projecting annualized mid-single-digit loan growth for the second half of the year. Fully taxable equivalent net interest margin expanded two basis points during the quarter to 3.95%. Fully taxable equivalent net interest income increased $0.7 million during the quarter to $89.3 million and grew by 4.7% compared to the second quarter of last year. The year-over-year increase in net interest income is a direct result of our disciplined loan and deposit pricing over the last 12 months, which has resulted in solid margin expansion. Second quarter's new loan originations came on at a weighted average yield of 7.4%. For the remainder of 2025, we project fully taxable equivalent net interest margins to remain in the mid 3.9. And as I mentioned earlier, this does not incorporate any future interest rate decisions by the Fed. Turning to deposits. Seasonal tax outflows resulted in a decline in average deposit balances of $58.8 million during the quarter. Cost of deposits totaled 2.05%, and our total cost of funds was 2.09%. Turning to credit quality, non-performing loans decreased during the quarter to $33.3 million. Our non-performing loan ratio remains below peer averages of 45 basis points of total loans. Annualized net charge-offs for the quarter were just five basis points. The allowance to total loans ratio remained consistent at 1.2%. Additionally, we continue to hold $20 million of marks against our acquired loan portfolio, which adds an additional 26 basis points of loan loss coverage if applied across the entire loan portfolio. Non-interest income for the second quarter totaled $17.1 million, 11% higher than the first quarter and 22% higher than the second quarter of last year. For the second half of 2025, we project our total non-interest income to be in the range of $34 to $36 million. Non-interest expense totaled $62.9 million a $0.9 million increase over the first quarter as a result of $1.9 million of payroll tax credits, which lowered the first quarter's expenses. Excluding the payroll tax credits benefiting the first quarter, non-interest expense decreased $1 million on a linked quarter basis as a direct result of intentional efforts to lower our operating expenses. In light of the ongoing economic uncertainty, we took action during the second quarter and executed on an expense reduction plan. We incurred nominal restructuring expenses during the quarter and estimate the actions taken at the end of the second quarter will reduce our annual core bank personnel expense by approximately $15 million. As a result, we are lowering our projection for non-interest expense. We now project our non-interest expense for the second half of the year to be in the range of $126 to $128 million. As you have heard, we are pleased to have launched 2Unify last week. As a reminder, we are preparing to provide 2Unify revenue guidance with 2025 year-end results. For the second quarter, 2Unify expenses totaled $4.6 million. We project 2Unify expense for the second half of the year to be in the range of $16 to $17 million, increasing primarily as a result of amortization expense on the capitalized development asset now that 2Unify is live. With the expense reduction actions taken in the second quarter, we project to continue to grow quarterly pre-provision net revenue. even with the increase in the two unified expense expected in the second half of 2025. We maintain strong levels of liquidity and continue to build excess capital. We ended the quarter with a strong TCE ratio of 10.5%, Tier 1 leverage ratio of 11.2%, and a common equity Tier 1 ratio of 14.2%. Year-to-date, our tangible book value grew by 10.7% annualized to $26.64. With that, I will turn the call over to Alder.