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National Bank Holdings Corporation (NYSE:NBHC) Q1 2024 Earnings Call Transcript

National Bank Holdings Corporation (NYSE:NBHC) Q1 2024 Earnings Call Transcript April 25, 2024

National Bank Holdings Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning, everyone, and welcome to the National Bank Holdings Corporation 2024 First Quarter Earnings Conference Call. My name is Shelly, and I will be your conference operator for today. [Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Emily Gooden, Director of Investor Relations. Please go ahead.

Emily Gooden: Thank you, Shelly 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 Investor Relations section of It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation’s Chairman, President and CEO, Mr. Tim Laney.

Tim Laney: Thanks, Emily. Good morning and thank you for joining us as we discuss National Bank Holdings’ first quarter results. I’m joined by our Chief Financial Officer, Aldis Birkans. We delivered quarterly earnings of $0.82 per diluted share and a return on tangible common equity of 15.14%. Credit remains strong with 0 basis points of annualized charge-offs. We experienced a slow start with loan production early in the quarter with business clients deferring action in anticipation of the Federal Reserve lowering interest rates. Once it became clear that rates were not coming down in the near future, client activity picked up, and we have a very strong pipeline for the second quarter. We grew our core deposits 6.8% over the first quarter of 2023 while preserving our low deposit beta across this entire rate cycle.

Expenses were well managed, especially in light of the fact that this year, we are incurring over $18 million of expense related to the amortization of our investments today in 2UniFi, and I’ll cover a more detailed update on 2UniFi after Aldis takes us through the quarter. Aldis?

A businessperson looking at a computer while signing a commercial loan agreement.
A businessperson looking at a computer while signing a commercial loan agreement.

Aldis Birkans: Alright. Thanks, Tim, and good morning. During this call, I will cover the financial highlights for the first quarter as well as touch on our guidance for 2024. And just as a reminder, our guidance does not include any future interest rate policy changes by the Fed. Turning to the financial results. For the first quarter, we reported net income of $31.4 million or $0.82 of earnings per diluted share. The first quarter’s return on tangible assets was 1.4%, and the return on tangible equity was 15.1%. During the quarter, our loan balances decreased $130 million or 1.7%. And as Tim already discussed, the feedback we have received from our commercial clients is that many projects and funding needs were delayed with the hope of achieving lower funding costs.

This was especially evident early in the year when the interest rate cut expectations are still quite high. Similarly, our commercial lines of credit utilization ended the quarter at historically low levels. As we enter the second quarter, our pipelines are quite strong and we expect to meet our full year loan portfolio growth guidance of mid-single digits. Fully taxable equivalent net interest income for the quarter came in at $85.7 million. The linked-quarter decrease was primarily driven by accelerated loan fee income of $2.9 million recognized in Q4 and 1 less day in the first quarter. Net interest margin in the first quarter was 3.78%. Our new loan originations during the quarter were at an average rate of 8.8% and continue to favorably benefit our earning asset yields.

Our overall deposit beta this rate cycle to date is 37.5%, and the pressure on deposit pricing is abating. Looking ahead for the rest of 2024, we project our NIM to settle in the mid-3 7s. Deposit balances during the quarter grew $327 million on a spot basis and $90 million on an average balance basis. This quarter, we benefited from seasonal tax inflows in the Cambr platform deposits. As such, we paid off all of our FHLB borrowings as these deposits are more favorable to our funding costs. In terms of our asset quality, it remains strong. During the quarter, we incurred 0 basis points in net charge-offs and recorded no provision expense. We increased our overall allowance to total loan ratio to 1.29% and have built sufficient reserves to support any non-accrual loans.

Additionally, we still hold $26.2 million in marks against our acquired loan portfolio, which equates to approximately 35 basis points of loan loss coverage if applied across the whole loan portfolio. Total non-interest income for the first quarter was a strong $17.7 million or a $1.6 million increase from the prior quarter. And while we saw a seasonal slowdown in service charges and bank card fees, we are gaining momentum from our fee diversification efforts, driven by SBA loan gains on sale, trust income and Cambr fees. This quarter, we also benefited from a $600,000 gain on the sale of a banking center building. For the rest of 2024, we project to meet our full year guidance for the fee income of $67 million to $72 million. Non-interest expense for the quarter totaled $62.8 million and included elevated payroll taxes.

The related expense this quarter was approximately $3 million, and we continue to be on budget and on plan with our targeted rollout dates. Looking ahead for the rest of 2024, we see our non-interest expenses trending towards our original full year guidance of $253 million to $258 million. In terms of capital, we continue to grow our excess capital with a TCE ratio ending the quarter at 9.2% and a Tier 1 leverage ratio coming in at 10%. Tangible book value per share grew 2.4%, ending the quarter at $23.32. Tim, with that, I will turn back to you.

Tim Laney: Thanks, Aldis. Well, solid earnings resulted in tangible book value per share increasing $0.55 during the quarter, and our common equity Tier 1 capital ratio totaled 12.35% at quarter end. Now turning to 2UniFi, we remain highly enthusiastic about the progress being made in the build-out of a platform, a banking platform that we believe can change the way small and medium-sized businesses access U.S. banking. Additionally, we’re building tools within 2UniFi for these businesses that simply do not exist today. We believe 2UniFi will save business owners time and money and meaningfully reduce stress in their lives. All project work is tracking to target and we expect to be in release 1 user testing by the fourth quarter of this year. Shelly, on that note, let’s open up the call for questions and discussion.

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