National Bank (NYSE:NBHC) said it remains on track to deliver 10% full-year loan growth in 2026, even as third-quarter results were affected by elevated charge-offs tied primarily to two commercial credit events in its specialty banking business.
Chief Financial Officer Nicole Van Denabeele said the company recorded $40.6 million of provision expense during the quarter to cover $46.3 million in net charge-offs. The losses followed adverse developments in commercial loans, which also increased nonperforming assets by $15 million, or 15 basis points.
President Aldis Birkans characterized the quarter as disappointing from a credit perspective but said the issues were concentrated in franchise and healthcare lending portfolios. The company has updated specialty banking leadership, conducted additional portfolio reviews and enhanced its credit-risk governance processes, he said.
Credit issues centered on two loans
During the question-and-answer session, CEO Tim Laney said the credit event was primarily tied to two loans: one franchise credit and one healthcare credit. Van Denabeele said the company addressed loans with a combined principal balance of about $65 million and took approximately $47 million in net charge-offs, leaving an $18 million balance supported by collateral and borrower personal guarantees.
Laney said the franchise-related issue involved a Qdoba and Dave’s Hot Chicken franchise borrower. He said the bank identified issues in July, later encountered changes in the sale of collateral intended to cover its loan exposure, and filed suspicious activity reports related to what it believes was client fraud.
The healthcare-related loan had previously been restructured in the fourth quarter of the prior year, Laney said. The company brought in a third-party consultant and had expected management to advance one of the borrower’s divisions, but the process “ran out of steam,” leading the bank to work with the borrower to take the company into bankruptcy.
Birkans said healthcare and franchise loans each accounted for approximately 45% of the $65 million in credits addressed during the quarter. The company does not view the events as evidence of systemic problems, Laney said, adding that the bankers involved did not follow established policies and are no longer with the company.
Management said it expects charge-offs to return to normalized levels going forward. The bank has reduced exposure in both specialty portfolios during the year, exiting roughly $150 million in franchise loans and about $150 million in healthcare loans. Franchise exposure is now approximately 5% of total loans, while healthcare finance represents about 3%, according to Birkans.
Criticized assets were 3.4% at the end of September, compared with 3.05% at the end of June, while classified assets were unchanged sequentially at 1.38%, Van Denabeele said.
Loan growth and deposit costs
Loans grew at a 5% annualized rate during the third quarter, bringing year-to-date growth to 8.1%. Birkans said the bank expects total loans outstanding to exceed $10.1 billion by year-end if it achieves its 10% annual growth target.
The company completed its Vista core-system integration early in the quarter, an effort Birkans said leaves the organization operating on a unified platform and better positioned to focus on customer growth. He said lending pipelines continued to build entering the fourth quarter.
Average deposits increased at a 3.7% annualized rate, including 4.6% annualized growth in average transaction deposits. Van Denabeele said the company held deposit-cost growth to 1 basis point during the quarter, ending September with a 1.96% cost of deposits. Total funding costs rose 2 basis points to 2.03%.
The loan-to-deposit ratio ended the quarter at 93.8%. Management said the deposit mix and balance-sheet discipline supported a 4% net interest margin. Van Denabeele said the bank exited September at that margin level and expects to maintain it in the fourth quarter.
Expense reductions and fee-income outlook
Third-quarter noninterest income totaled $13.5 million and included a $4 million impairment on a third-party fintech investment. The company expects fourth-quarter fee income of $17 million to $18 million.
Birkans said recurring service-charge and bank-card fee revenue increased at a 12% annualized rate during the quarter, while the company continued to receive contributions from its Cambr, trust and wealth businesses. However, he said residential mortgage gain-on-sale income has become more challenging as conventional mortgage rates moved to about 7%, particularly heading into the seasonally slower fourth quarter.
Noninterest expense totaled $97.8 million, including $15.2 million in acquisition and restructuring expenses. Excluding those items, core expense was $82.6 million, down $1.1 million from the preceding quarter.
The bank expects fourth-quarter core noninterest expense of $75 million to $77 million. Birkans said a revised small-business operating model, which places greater emphasis on banking centers and deposit gathering, is expected to reduce annual operating costs by about $4 million, with those savings included in the fourth-quarter guidance.
National Bank also plans to sell its Palm Beach location next year. Management said the transaction involves about $200 million of loans and deposits and is expected to remove roughly $2 million of annual operating expense, while having a nominal effect on earnings per share.
Capital levels remained above well-capitalized regulatory thresholds, with a common equity tier 1 ratio of 11.7%, a total capital ratio of 14.7% and a tangible common equity ratio of 9.2%. Tangible book value per share was $25.37 after the quarterly dividend and $12 million in share repurchases. Van Denabeele said the company continues to target quarterly earnings above $1 per share in the fourth quarter.
About National Bank (NYSE:NBHC)
National Bank Holdings Corporation (NYSE: NBHC) is a bank holding company that operates through its principal subsidiary, NBH Bank. The company provides community banking services to businesses, individuals and institutions, with a focus on relationship-based banking and local market expertise.
NBH Bank offers a range of financial products and services, including commercial and small-business loans, consumer lending, residential real estate financing, business and personal deposit accounts, treasury management, online and mobile banking, and wealth management services.
