National Bank Holdings (NBHC) Q3 2026 Earnings Call: Credit Losses Drive Net Loss, Q4 Target Maintained

National Bank Holdings Corporation (NYSE: NBHC) reported a third-quarter 2026 net loss as elevated charge-offs on a small number of franchise and healthcare loans weighed on results. Core lending, deposits and net interest margin remained resilient, while management maintained its fourth-quarter earnings target.

Key Takeaways

• NBHC reported a net loss of $8.8 million, or $0.20 per diluted share. Adjusted net income was $2.9 million, or $0.06 per diluted share, excluding acquisition and restructuring expenses.
• Net charge-offs reached $46.3 million, primarily related to two commercial credits in the franchise and healthcare sectors. The company recorded $40.6 million of provision expense.
• Quarterly loan originations totaled $819 million. Year-to-date annualized loan growth was 8.1%, and management maintained its full-year loan growth target of 10%.
• Fully taxable equivalent net interest income rose at a 13% annualized rate during the quarter to $115.2 million. Net interest margin was 4.0%.
• Core non-interest expense declined to $82.6 million. Management expects a clean fourth-quarter core expense run rate of $75 million to $77 million.
• Management continues to target fourth-quarter earnings above $1 per share, supported by lower expenses, continued loan growth and a net interest margin near 4%.

Key Financial Data

Business and Operating Performance

NBHC completed the Vista Bank core systems integration during the quarter and executed its remaining expense-reduction actions. Management said the unified platform allows its teams to focus more fully on client growth.

Loan growth remained positive despite deliberate reductions in higher-risk specialty portfolios. Loans grew at a 5% annualized rate during the quarter, while year-to-date annualized growth reached 8.1%. Management said pipelines remained strong heading into the fourth quarter.

Core deposits continued to fund loan expansion. Average deposits increased 3.7% annualized, led by 4.6% annualized growth in transaction deposits. Deposit costs increased by only 1 basis point to 1.96%, helping support the 4.0% net interest margin.

Combined service charges and bank card fees grew at a 12% annualized rate. Management also cited contributions from the Cambr and Trust & Wealth businesses. Residential mortgage gain-on-sale activity remained pressured by higher rates and normal fourth-quarter seasonality, although residential mortgage loans held on the balance sheet grew.

The company also adopted a new model for serving small businesses, with greater use of its banking center network and a stronger focus on deposit gathering. Management expects the organizational changes to reduce annual operating expenses by approximately $4 million.

Management Guidance

• Full-year loan growth: Management maintained its 10% target for 2026, which would take total loans above $10.1 billion at year-end.
• Net interest margin: Expected to remain near 4% for the rest of the year, excluding any future Federal Reserve policy changes.
• Fourth-quarter fee income: Expected to be between $17 million and $18 million.
• Fourth-quarter core non-interest expense: Expected to be between $75 million and $77 million. The approximately $4 million annual benefit from the small-business reorganization is included in this outlook.
• Fourth-quarter earnings: Management continues to target earnings above $1 per share.
• Palm Beach operation sale: The expected transaction would remove approximately $2 million of annual operating expenses. Management expects the overall earnings-per-share impact to be nominal after accounting for forgone revenue.

Risks and Areas to Watch

Credit losses were concentrated in two primary relationships: one franchise credit and one healthcare credit. Management said the franchise exposure involved a QDOBA and Dave’s Hot Chicken operator, with potential client fraud prompting suspicious activity reports. The healthcare borrower is being taken through bankruptcy after a prior restructuring failed to stabilize the business.

The company addressed approximately $65 million of principal balances and recorded roughly $47 million of net charge-offs on those credits. About 45% of the balances were healthcare-related and 45% were franchise-related. The remaining $18 million is supported by collateral and borrower personal guarantees, according to management.

Non-performing assets increased by 15 basis points, or $15 million. Criticized assets rose to 3.4% at the end of September, while classified assets were approximately flat from the prior quarter at 1.38%.

Current franchise exposure represents approximately 5% of total loans, while healthcare finance accounts for about 3%. During 2026, NBHC exited approximately $150 million of franchise exposure and a similar amount in healthcare. The healthcare portfolio was down $100 million year to date.

Management said the losses did not indicate a systemic issue. However, it acknowledged failures to execute existing credit policies and removed the bankers and senior credit officers involved. The company also strengthened specialty banking leadership, credit risk governance and portfolio review processes.

Analyst Q&A Highlights

• Charge-off outlook: Management said it believes the necessary credit actions were completed in the third quarter and expects net charge-offs to return to normalized levels.
• Credit portfolio review: Internal loan review, special assets and credit teams conducted detailed reviews, particularly of loans originated by the bankers involved. The company did not describe a third-party portfolio review.
• Interest margin sensitivity: Interest reversals on non-accrual loans were largely offset by accelerated purchase accounting accretion. Management described the reported 4.0% margin as the core margin and noted that its deposit beta remained below 40% during the previous rising-rate cycle.
• Cost reductions: Acquisition and restructuring expenses were concentrated mainly in compensation and benefits, with additional effects in occupancy, equipment, processing and professional fees.
• Palm Beach sale: Management expects several hundred million dollars of loans and deposits to leave with the operation, but said the net effect on earnings per share should be nominal.

Full Earnings Call Transcript

Complete Earnings Call Transcript

Management Remarks

Operator

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2026 Third Quarter Earnings Call. My name is Jess, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations.

Emily Gooden

Thank you, Jess, 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. 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. Reconciliations of these non-GAAP financial measures to the GAAP measures are provided in the news release posted on the Financials 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.

Tim Laney

Thank you, Emily. Good morning and thank you for joining us as we discuss National Bank Holdings' third quarter 2026 financial performance. I'm joined by our President, Aldis Birkans; and our Chief Financial Officer, Nicole Van Denabeele. We made progress this quarter on important priorities, serving clients, building durable relationships, and advancing the Vista integrations. We also faced significant credit challenges in a small number of commercial loan relationships, primarily in the franchise and the healthcare industries. We want to be direct about those events and their impact.

We've taken a measured hands-on approach, completing our collateral assessment, recognizing the credit impact, and applying what we learned. These events are serious, but they are concentrated in specific relationships. Our broader focus remains on serving clients well, growing with discipline, and maintaining the strength and flexibility of the company. We enter the next phase with a committed team, strong client relationships, and clear priorities. We'll discuss the quarter's results, credit performance, and outlook in more detail today, and I want to thank you for your continued interest in National Bank Holdings.

With that, I'll turn the call to Nicole to walk us through the financial results. Nicole?

Nicole Van Denabeele

Thank you, Tim, and good morning. For the third quarter, we reported a net loss of $8.8 million or $0.20 per diluted share. On an adjusted basis, removing the impact of acquisition and restructuring expenses in the quarter, we reported net income of $2.9 million or $0.06 of earnings per diluted share. As we shared earlier this month, the third quarter's results were impacted by elevated provision expense related to a handful of specifically identified credits addressed during the quarter as well as an impairment on one third-party fintech investment.

Core banking activities remained strong with an increase in year-to-date pre-provision net revenue of 8% annualized. During the quarter, loan production was solid, and we grew average deposits by 3.7% annualized while maintaining a top quartile net interest margin. Also we successfully completed our Vista Bank core systems integration during the quarter and executed the remaining expense reduction actions.

Turning to the balance sheet. Client activity was strong during the quarter. Our teams generated quarterly loan originations of $819 million, driving year-to-date annualized loan growth of 8.1%. Pipelines remain strong, and we expect to achieve full year loan portfolio growth of 10%. Fully taxable equivalent net interest income increased 13% annualized for the quarter to $115.2 million. Net interest margin during the third quarter was a strong 4%. We expect a net interest margin near 4% for the remainder of the year, which does not include any future interest rate policy changes by the Fed.

We continue to fund our loan growth with core deposits. Average total deposits grew $96 million or 3.7% annualized during the quarter, and average transaction deposits grew $103 million or 4.6% annualized. 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 to $18 million. Non-interest expense totaled $97.8 million for the quarter and included $15.2 million of acquisition and restructuring expenses. Excluding these onetime items, non-interest expense was $82.6 million, a decrease of $1.1 million from the prior quarter. The third quarter included 1 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. And 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 to $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.

Aldis Birkans

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. So over the past 12 months, we have top-graded 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 targeted 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 fully -- and focus fully -- excuse me, focused fully on serving clients. This was an -- 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.

And 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 & Wealth teams.

On the strength of our core franchise, improving operating discipline and growing client pipelines, we entered the fourth quarter with confidence in our ability to build on this momentum.

Tim, with that, I will turn it back to you.

Tim Laney

Thanks, Aldis. Well, we've covered a lot of detail in our opening comments. So why don't I go ahead and open up the call for questions.

Operator

[Operator Instructions] And we'll go first to Jeff Rulis with D.A. Davidson.

Question-and-Answer Session

Jeff Rulis

Just, I guess, the first bit on credit. Just to kind of, if you could, could you itemize the size of those credits, both in the franchise and healthcare, the resolution path ahead? And then lastly, expectation for net charge-off levels going forward? Or is this sort of in the rearview?

Tim Laney

You go ahead.

Nicole Van Denabeele

Yes, Jeff, good morning, this is Nicole. So related to your charge-off question on the credits that we addressed in the third quarter, we addressed the principal balance credits totaling about $65 million, and we took net charge-offs on those credits of about $47 million. That leaves a remaining balance of $18 million on our books related to those credits, and those are supported by collateral and personal guarantees of the borrowers.

Jeff Rulis

Just the makeup of the $65 million in credits, what was franchise and what was healthcare? Or what's left?

Tim Laney

Yes. Jeff, I'll start with high level and then perhaps Aldis can fill in with a bit more detail. But when you size this up and we talk about a handful of credits, the reality is this was an event primarily centered in 2 credits: One franchise, one healthcare. The franchise, of course, was this QDOBA Dave's Hot Chicken franchise that we have dealt with that where the first issues, frankly, came to light in July. By August, we were in a process of seeing some retrading on really the sale of the collateral involved to cover our loan exposure and found ourselves with a deficit and, quite frankly, found ourselves in that situation in a position where we believe it was merited to file suspicious activity reports and address what we believe is client fraud.

In the other situation, it was a healthcare-related event that we had dealt with in the fourth quarter of last year, had conducted a full restructure with the client, brought in a third-party consultant, believed management was in a position to move the company forward with one of its other divisions. And frankly, that the process ran out of steam and left us in a position of working with the borrower to take the company into bankruptcy. So those are the 2 big drivers. I don't know if you want to discuss the breakdown as it relates to the rest of the franchise.

And by the way, we do not view these as some indication of systemic problems. As a practical matter, when we review our credit policies and practices, our risk management policies and practices over the life of our company, they've served us well. These were cases where, frankly, the bankers involved did not execute on our policies and practices, and those bankers are no longer with us.

Aldis Birkans

Yes. Jeff, of that $65 million that Nicole mentioned, approximately 45% is healthcare, 45% is franchise.

Jeff Rulis

And the net charge-off question was, going forward, we guided in the release what you charged off. But the expectation for just the overall bank ahead and the charge-off expectations, is there any further cleanup or we revert to sort of historical levels Q4 and beyond?

Nicole Van Denabeele

Yes. Our expectation is that we've addressed what needed to be addressed this quarter such that we expect normalized levels going forward.

Jeff Rulis

And then Aldis, if I could hop to the margin, or Nicole, sorry. Was there any impact on the margin in terms of loans placed on non-accrual in terms of lost interest or -- and then on the outlook, it sounds like around 4%. If you could outline, should we have another rate hike, what the impact of that would be?

Nicole Van Denabeele

Yes. Yes, I'll take that one, Jeff. So yes, you're hitting on a few good points. Consistently, there will be puts and takes to our margin. We did have some interest reversals in margin for the quarter. We also had some pickup from accelerated accretion. I will say those 2 kind of washed in the quarter. We exited September with a 4% margin. And our expectation is that we'll be able to hold that for Q4.

Regarding your question of what do we expect the impact to margin will be with future rate changes. I will take us back to the last time that we were in a rates up environment. We were very -- we were successful at maintaining our deposit costs. And through that rates up cycle, we held a deposit beta of under 40%. So we believe we'll continue to be able to be disciplined on our deposit pricing.

Jeff Rulis

If I could squeeze one more in there. On the merger costs, any chance you can map those in terms of did a lot of that come in the comp or other? Just trying to back that out of the current quarter.

Nicole Van Denabeele

Yes. I'll say, it's largely been concentrated within the compensation and benefits line. There are really impacts hitting in all lines, occupancy and equipment, processing fees and professional fees, but the bulk of what hit the third quarter, and frankly, for the year has been in personnel expense.

Operator

We will go next to Kelly Motta with KBW.

Kelly Motta

On your core expense side of $75 million to $77 million for Q4, you also noted there was about $4 million annual benefit from some of the changes you've made in the business. I know you have the benefit of the post-conversion expense run rate. Just wondering what of the $4 million benefit might be already baked into that Q4 number?

Aldis Birkans

It is, Kelly. So that $4 million that I talked about in terms of the reorganization and how we go to market for business banking or small business is embedded. And along to what Nicole was saying, it will show up mostly in the benefits and salaries line.

Kelly Motta

And then with the credit, it was obviously a disappointing quarter. You've noted you've made some changes, some changes in personnel and exposure is fairly limited at this point. Just wondering if as part of the identified issues and changes, if you've done a third-party review of these books or if there's -- what gives you comfort that this is now behind you?

Aldis Birkans

No. As I mentioned in my prepared remarks, we delved in quite closely to the full portfolio with a very much closer eye to the portfolio originated by the bankers that Tim mentioned. Our loan review team, our SAG team, our credit officers have gone through it, and we feel very comfortable where we are today with our portfolio looking forward. I will say also that throughout the year, we've worked very hard on turning that book away from either brands or operators that have -- that we didn't like to put it bluntly. And $150 million of the franchise book has been turned over year-to-date.

Tim Laney

And I think that's an important point, Kelly, is we haven't -- this isn't a process that just began in the third quarter. We've been working this franchise exposure since the fourth quarter of last year and, again, have methodically exited over $150 million of exposure that we felt was not originated against the standards that we're comfortable with.

Kelly Motta

And then your release noted the expected sale of the Palm Beach location. Just wondering, I think you gave the loans and I believe the deposits associated with this action expected to take place next year, but wondering overall financial impact, if there's maybe some additional expenses that come out.

Nicole Van Denabeele

Yes, I'll take that. There -- it will end up having minimal impact to our earnings per share. There will be some expenses that come out. I think it should be right around $0.5 million -- no, it's $2 million.

Aldis Birkans

It's $2 million. $0.5 million, you think in terms of because of the timing of this. But on an annualized basis, about $2 million of operating expense that comes out the books, again, on an annualized basis. As we mentioned in the release, about a few hundred million dollars of loans and deposits, you apply 4% margin, you can see what the revenue is given up. So to Nicole's point, once you net that out, it's really nominal EPS impact.

Tim Laney

And I would just add, strategically, look, it's a fine operation, a solid smaller team. And what we believe is we can generate greater returns focusing on our core markets and continuing to build those core markets. And so we were able to really create a win-win transaction here with the team that has run that bank, and we think we've ended up in a very transaction for both parties. So that's where I would leave that.

Kelly Motta

I guess last question for me. It looks like the fee guidance is a bit lighter than maybe what was implied for the full year. I imagine maybe some weakness in mortgage, obviously, has something to do with that. Just wondering if you could kind of break down the changes in the outlook here today versus what you may have been expecting a quarter or 2 ago.

Aldis Birkans

Kelly, this is Aldis. You picked up on the main driver in the change and that one is the mortgage is residential mortgage business, certainly has been impacted by the steeper and higher rate environment, conventional mortgages being about 7%. The gain on sale is -- or secondary market is quite tough. Having said that, we have seen a more volume growth on the portfolio. You can see that in our loan tables. We had a nice portfolio growth in residential mortgage. But in terms of gain on sale, it is tougher going -- especially going in the fourth quarter, the seasonally low quarter.

Operator

We will go next to Matthew Clark with Piper Sandler.

Matthew Clark

Just on the -- you mentioned turning over -- churning about $150 million on the franchise side. How much did you churn or derisk within the healthcare portfolio? I guess that's my first question.

Aldis Birkans

Yes, Matthew, actually, a similar dollar amount, $150 million exit in healthcare throughout the year. The portfolio is down on healthcare $100 million year-to-date. So back to getting 10% loan growth. That's something that we consciously have been working behind the scenes to derisk the portfolio in general, but continue to meet our loan growth targets.

Matthew Clark

And then just around the series of personnel changes. Did that include a new chief credit officer? And if so, has he had a kind of had a look at the overall portfolio and blessed it? Or is that process still underway?

Tim Laney

We have brought in a new chief credit officer over the last 1.5 years, and he is certainly engaged unlike ever before in all of the detailed reviews that have been conducted. We did exit a number of senior credit officers that were involved and, frankly, the oversight of the bankers that have also moved on. And obviously, those are painful actions, but actions we felt necessary to ensure that our policies and practices when it comes to risk management are respected and well executed.

Matthew Clark

And then just criticized loans or assets, where they stood at the end of September? I think they were, according to the cue, $298 million or 3.05% at the end of June?

Aldis Birkans

Yes. Criticized assets at the end of September were 3.4%, so a slight uptick. But classified, I'll say, we're about flat to prior quarter at 1.38%.

Matthew Clark

And then just the purchase accounting accretion impact to dollars this quarter?

Nicole Van Denabeele

Yes. Good morning, Matthew, I'll touch on that one. So as I mentioned previously, we did have some puts and takes to margin this quarter. We had some impact of accelerated loan accretion that impacted the quarter, but that was largely offset by some non-accrual interest reversals. So the NIM that you're seeing is the core NIM.

Matthew Clark

Right. But in terms of dollars, so we can model the yield and the accretion. So interest reversals, how much was that in dollars and how much in accretion in dollars even though they offset?

Aldis Birkans

We haven't historically provided that. And the reason is it's never been really material to our margin or loan yields. So we'd like to keep it that way until -- unless we do an acquisition that it's so material that it makes a difference. We certainly will disclose at that time, but historically, it has not been, and we'll keep it that way.

Operator

And I'm showing we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.

Tim Laney

Well, again, thank you for your continued interest in National Bank Holdings, and I wish you all a good day.

Operator

Thank you, sir. And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours, and the link will be on the company's website on the Events & Presentations page. Thank you very much, and have a great day. You may now disconnect.