NATIONAL BANK HOLDINGS CORP. 2026 Q3 Earnings Call

We remain disciplined in managing deposit costs with only 1 basis point of deposit cost increase for the quarter and ended September with a low cost of deposits of 1.96%. Total cost of funds increased 2 basis points to 2.03% for the quarter. The loan-to-deposit ratio ended the quarter at 93.8%. Turning to asset quality. We recorded $40.6 million of provision expense to cover the quarter's elevated net charge-offs. As previously disclosed, third quarter net charge-offs totaled $46.3 million, reflecting actions taken on specific commercial loans following adverse credit events during the quarter. These credits also resulted in non-performing assets increasing by 15 basis points or $15 million.

Additionally, we hold $14.3 million of marks against our acquired loan portfolio, which provides an additional 15 basis points of loan loss coverage if applied across the entire loan book. Turning to fee income. Non-interest income totaled $13.5 million, and as previously disclosed, was impacted by a $4 million impairment on one third-party fintech investment. Aldis will share more on fee income momentarily. We expect fourth quarter fee income to be in the range of $17 million-$18 million. Non-interest expense totaled $97.8 million for the quarter and included $15.2 million of acquisition and restructuring expenses. Excluding these one-time items, non-interest expense was $82.6 million, a decrease of $1.1 million from the prior quarter.

The third quarter included one additional payroll day compared to the second quarter and included elevated problem loan expense of $1.4 million for the quarter. We have fully executed on our cost-saving strategies. As a result of our strong execution, we expect a clean expense run rate in the fourth quarter, with core non-interest expense in the range of $75 million-$77 million. Our capital levels remain well in excess of well-capitalized regulatory thresholds. Common equity tier 1 ratio ended the quarter at 11.7%, and our total capital ratio was 14.7%. The tangible common equity ratio ended the quarter at 9.2%. Tangible book value per share was $25.37, reflecting the quarterly dividend payout and $12 million of share repurchases during the quarter. Importantly, we continue to target quarterly earnings in excess of $1 per share in the fourth quarter.

With that, I will turn the call over to Aldis.

Thank you, Nicole. Let me begin with credit. As Tim shared, this was a disappointing quarter for us, and we recognize the importance of addressing both the immediate issues and their underlying causes. This quarter's loan losses were concentrated in the franchise and healthcare verticals within our specialty banking group. Over the past 12 months, we have upgraded our specialty banking team leadership, and during the third quarter, we conducted additional in-depth reviews and implemented further enhancements across our credit risk governance. These steps are intended to strengthen accountability and improve consistency on how risk is identified, escalated, and managed. Throughout the year, we also have diversified these portfolios, and our current exposure is limited to approximately 5% of total loans in franchise and approximately 3% in healthcare finance. During the quarter, we also executed on a new model for serving small business clients.

Under the new model, we will lean more heavily into our banking center network with an increased focus on deposit gathering. The objective is to create a more consistent client experience and align resources more closely with the needs and economics of this segment. We expect these organizational changes to reduce our operating expenses by approximately $4 million annually. Turning to the loan book. On an annualized basis, loans grew 5% during the quarter, bringing year-to-date growth to 8.1%. Early in the quarter, our team successfully completed the Vista core system integration, an important milestone that positions us to operate on a unified platform and focus fully on serving clients. With this achievement behind us, our teams are focused on growth and our pipelines continue to build heading into the fourth quarter. We remain on track to deliver 10% loan growth for full year 2026.

Achieving that level of growth would take our total loans outstanding to above $10.1 billion by year-end. Average deposits grew a solid 3.7% annualized during the quarter, led by 4.6% annualized growth in average transaction deposits, reflecting continued strength in our core deposit franchise and our focus on growing high-quality relationship-based funding. This favorable deposit mix, combined with disciplined balance sheet management, contributed to a strong 4% net interest margin for the quarter. Finally, turning to the fee income, the underlying performance of our core banking business remains solid. During the quarter, combined service charges and bank card fees grew at an annualized rate of 12%, reflecting continued momentum from these recurring revenue streams. Additionally, we continue to see solid contributions from our Cambr and trust and wealth teams.

On the strength of our core franchise, improving operating discipline, and growing client pipelines, we enter the fourth quarter with the confidence in our ability to build on this momentum. Tim, with that, I will turn it back to you.

Thanks, Aldis. We have covered a lot of detail in our opening comments, so why don't I go ahead and open up the call for questions?

Thanks. You bet. Yeah. Jeff, good morning.