Q1 2021 National Bank Holdings Corp Earnings Call
Good morning, everyone and welcome to the National Bank Holdings Corp. At 2021 first quarter earnings call. My name is Marianna and I will be your conference operator for today.
At this time all participants are in a listen only mode. We will conduct a question and answer session. Following the prepared remarks as a reminder, this conference is being recorded for replay purposes.
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.
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 fees.
These statements speak only as of the date of this call and National Bank Holdings Corp 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 provide 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 Dot National Bank Holdings Dot.
Com it.
It is now my pleasure to turn the call over and introduce National Bank Holdings Corp, Corporation's Chairman, President and CEO, Mr. Tim Laney. Thank.
Thank you Mary Alma and good morning, and thank you for joining National Bank Holdings first quarter 2021 earnings call I'm joined by our Chief Financial Officer oldest burkins.
I'm pleased to report quarterly earnings of 86 cents per diluted share and a return of 15, 2% on tangible equity.
This is particularly noteworthy given our substantial capital position.
Credit quality is exceptionally strong with charge offs at a record low of only one basis point annualized of total watch.
Our paycheck protection program has been well managed and is not represented a distraction as we turned our attention to new market share growth in fact, I am very pleased with what I'm seeing in the pipeline for second quarter with regard to new business development.
All of this is going to speak to our strong liquidity position. So I'll simply point out that beyond benefitting from stimulus related account balance increases we remain very focused on growing new client relationships and on that note. All this I'll turn the meeting over to you.
Thanks, Tim and good morning, everyone.
In my remarks, I will present the results for this quarters financial performance as well as give an update in our guidance for the rest of 2021 for.
For the first quarter and B O earned net income of 26 from $26 $8 million for 86 cents of earnings per diluted share and our return on average tangible assets remained strong at 1.65 per cent.
Strategically built a diverse revenue stream expense control and excellent credit trends. This quarter resulted in solid shareholder returns with a return on average tangible equity of $15 two per cent.
As we have discussed through other than through the throughout the pandemic.
And very careful approach with regard to credit management and your loan originations.
And what we started this quarter with a similar posture the speed of the COVID-19 vaccination the rollout combined with the economic recovery on our footprint have allowed us to begin rebuilding our commercial and small business pipelines.
For the first quarter total loan fundings were $294 million of which $173 million were non PPP loans. Furthermore, they finished the quarter on a strong note with March representing the second highest non PPP loan funding months in the past 12 months.
Total loans outstanding this quarter decreased $55 million, but as I. Previously mentioned, we are gaining momentum and we expect to deliver solid organic loan growth in the second quarter.
Turning to deposits.
This quarter, we added $166 $6 million for an average transaction deposits are noninterest bearing deposits now represent 38, 3% of total deposits and the cost of our total deposits decreased another five basis points this quarter.
The strong deposit growth allowed us to increase our average, earning asset base by $129 $4 million.
And given the steepening of the yield curve. This quarter, we deployed a portion of the excess funding into the investment portfolio, which grew by $148 $2 million.
The resulting fully taxable equivalent net interest margin was 3.0% to 2% and a fully taxable equivalent net interest income was $46 $5 million.
This quarters net interest income included $2 $6 million from PPP loan fees, which was $2 $6 million lower than in the fourth quarter and is the primary reason for the net interest income decrease on a linked quarter basis.
The rest of the decrease is due to a fewer calendar days this quarter.
The remaining unamortized PPP loan fee balance is $6 $2 million and $5 $2 million of that relates to the P. P. P. Two point all loans.
Additionally, our excess cash position this quarter increased to over $600 million and this excess liquidity had an approximately 32 basis point dilutive impact on our margin calculation.
At this time, we expect to maintain a significant portion of cash balances and our balance sheet for most of 2021 to support the organic loan growth.
In terms of us.
Asset quality remains strong with positive trends as Tim noted the first quarter's net charge offs for just one basis point annualized.
Non accruals decreased 20% on a linked quarter basis, and I'll, just stand just $16 $4 million non.
Nonperforming assets decreased 12% in both criticized and classified loans declined on a linked quarter basis.
These excellent credit trends combined with a continuously improving economic for.
Forecast projections from Moody's resulted in a seasonal model provision release of $3 $6 million this quarter.
The resulting allowance to total loans, excluding paycheck protection program loans other quota and was 1.35 per cent.
Total first quarter non interest income was $33 $4 million this quarter seasonal decrease in bank card and service charge fees.
It was more than a more more than offset by a $1.6 million gain realized on the disposition of several banking center buildings from a previously consolidated locations.
Looking ahead for the full year 2021 we are increasing our non mortgage fee income guidance to $40 million to $42 million.
With regard to the other.
So our mortgage business, we are off to a good start this year and while the rise in the long term rates is impacting both the mortgage.
I am on margins the activity has been consistent with our expectations and at this time.
Reaffirming our full year mortgage banking revenue guidance of $60 million to $80 million.
Turning to expenses noninterest expense this quarter was $49 $7 million, which included a $1 $3 million impairment charge related to the banking center consolidations announced doing our January earnings call.
Including this onetime charge non interest expense this quarter was consistent with the prior quarter. The increase in the compensation line on a linked quarter basis was driven by slightly higher mortgage related compensation.
For full year 2021, we are reaffirming our guidance for non interest expense to be in the range of $180 million to $292 million.
Other reminder, the range provides for the mortgage related commission adjustments.
Consistent with our fee income guidance.
We continue to build capital driven by strong earnings. They finished the quarter for the tangible book value of $23 41 per share and our CET one ratio was 15, 2%.
Finally, we have no change in the expected effective tax rate guidance of around 18%.
With that I will turn it back to you. Thank you all of this look I believe we are well positioned to deliver excellent results here in 2021, you have strong teams in great markets.
We built a fortress balance sheet, and we're well prepared to support both organic and acquisition related growth. We continue to focus on delivering attractive total shareholder returns, while maintaining the safety and soundness of our company and marry them. All net note I'd like to open up the call for questions.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question press the pound key please standby, while we compile the Q&A roster.
Your first question comes from Levi Posen with D. A Davidson your line is open.
Hey, good morning, Tim and good morning, all this.
Good morning.
Aye.
I hear the.
Loan growth outlook going forward it is.
Is optimistic but in trying to play attribution on this quarter's run off.
What of that is market demand versus caution on the lending side.
As you can imagine.
We use the market we believe the market's there and in fact, we benefit we know the markets. There we benefit from operating in markets that have largely opened up at this point. The reality is we were holding both feet on the brakes as we entered the first quarter of this year, we actually.
As we started to see and get comfortable with the balance sheets of of of companies coming out of calendar year into 'twenty. We made the decision to lift those are feed off the brakes and our teams are back in the markets and in fact, if you dissect the first quarter, we saw a very nice ramp up all the.
<unk> can speak to it in detail, but we saw a very nice ramp up in March and what I'm excited about is the pipeline the pipeline as we referred to at all.
New business here in the second quarter and I actually believe we're going to build through.
Not only the second quarter, but we're going to see that continue to grow as we move through the year. So you know.
Furthermore.
You know as we talk about the second quarter, what's been amazing to see as the bank card fee income and other category has really taken off here in the month of April.
We're excited about the activity we're seeing on that front. We're excited about the activity we're seeing in what we call the business banking or the small business front. So this small and mid size business market, particularly given the great markets. We operate in has demand against very strong balance sheets and that's.
Reflected in some of the best credit metrics that we've ever seen so we're actually increasingly optimistic about what can be done here in 2021.
Understood. Okay. Thank you.
Got it.
As you assess your footprint would you say we're in the later innings of branch closures and maybe that Mark.
Does that have the potential debt to shift if M&A comes into play look it certainly will always be a consideration in an M&A, where we're talking about what we naturally focus on which as you know acquisitions in our existing footprint. So that that's a certainty what I would tell you is as.
As we go forward on banking center consolidation and we've really moved out of the closure business now we think about it as either.
Consolidating into other.
Reasonably convenient locations and frankly, the biggest driver is a.
Watching the continued transition to digital and as we expand our digital capabilities working through our acquisitions.
Acquisitions or partnerships in the digital arena.
We've got to keep an open mind to how we.
We serve our our client base in that regard a lot of it is going to be driven by what they how they want to bank as we go forward.
Okay, and just one more for me.
With.
Some of the.
Fee income guide going up here in the loan growth outlook.
Being attractive going forward.
What are your most recent thoughts on the buyback.
It's all about our target pricing, where we think we can create really solid value for all of US who are shareholders and so we have a price and you know should should the markets lose confidence in financials and should we see a price hit that.
Point, we're gonna be a buyer.
And that's what we do have $75 million board authorized.
For the purchase program in place. So we are standing by for sure should it should the opportunity present itself.
Great. Thank you I'll step back now great questions. Thank you.
Your next question comes from Andrew Liesch with Piper Sandler Your line is open.
Good morning, guys, Hey, good morning, Hi.
Nice to hear the optimism surrounding the loan growth you know.
I'll get to that in a second but just a clarification on the fee income guidance for $40 million to $42 million.
If I look at this quarter and take out the mortgage and non recurring gain.
That's about a $9.4 million.
So run rate a little below your guidance range beyond bank card fees, where else do you have optimism that you'll see fee income increase.
Yeah no.
Our Treasury management service charges.
Clearly a big focus for us.
Tim mentioned business banking or small businesses.
Acquiring the relationships and building on that so that's a big driver behind there. The one that is somewhat unknown and then there's a drag if you look at it year over year basis as overdraft fees are about 33, 35% lower than last year. So that's that's the ones that are.
Harder to put your finger on how that will evolve but.
The really the Treasury management business is what's driving the other service charges and oldest won't standard I will land are the reality is we're always going to slightly under promise and over deliver and all other categories. So you know.
I just think it's comfortable that if even.
Work back to some of the other categories.
We have a long history of over performing and what we laid out.
Got it.
That's helpful.
Moving back to loan growth seems pretty optimistic there.
Got it for liquidity to remain elevated our cash levels remain elevated as you hold on to that until loan growth continue comes back on the balance sheet.
<unk>.
So then how should we roll all that together and think about the margin maybe more PV P fees get recognized this quarter do you think it's reached a low point at the three 2%.
Yeah, it's hard to put a finger on the on the percentage calculation given the excess liquidity so the way.
The way we look at it really is taking net interest income and looking for components, what's driving that right.
And if you the other.
Other component on that that would be what I would back out as the P. P. P. Right. Then we identified there was $6 2 million of unamortized PPP fees that will come through our margin.
At some point, depending on the forgiveness speed, but if you back out the $2 $6 million.
It would be close to.
$44 million net interest income and B look the longer average loan growth returning debt.
We will grow from here on out.
Still have some base to go on deposit cost decreases on income decreasing non interest expense I think we can reduce debt by two basis points on a per quarter for the remainder of the year, so that theres a benefit under that.
Well as the interest.
Non portfolio. If you look at total yield there certainly has been impacted by by the lower rate environment, where our portfolio was but with the backup in rates here I think we can maintain that portfolio yield.
Current levels as well so sales from here on out the net interest income should grow and then you layer on layer on the timing of that PPP fee recognition.
Hi.
So basic to what we do but sitting on this low cost liquidity with growing optimism of it being able to deploy a lot of that liquidity into loans for our clients small and midsized businesses supported by the large capital base. We have we get very excited about that Matt.
And I will point out since I'll, just mentioned that debt with regard to PPP. If you look at our stats on PPP one phase one we're just at 98% of those swarms having been submitted.
To the SBA for forgiveness with about 94% of those loans already having been paid it.
It's remarkable.
Of course, our mindset with these programs going in was the faster we can help our clients receive forgiveness the better of the yield on those programs would be but equally important it was about moving that administration of our teams. So that we could focus get return our focus to new busy.
This development, taking care of existing clients of course, but taking market share because we're frankly very excited about our.
Some of the disruption that occurred over the last year and the opportunity for our teams to take advantage of it so.
I would say the fundamental answer to your question. Your question is look this is about taking that low cost liquidity, coupled with our capital position and redeploying it into new relationship opportunities through lending money.
Got it for you guys have highlighted market share gains as being the.
The main driver of loan growth going forward is that still the case or is there new bought or is there a borrowing opportunities from your existing clients.
Well all of this can all this can share the details with you but.
Important question, because and I think this is probably pretty tremendous industry wide, but but.
If you look at out where we're at on line drops on the use of lines of credit revolvers.
Work time, we're running all the skew of the numbers in front of me. It we're running at kind of historical lows now again, we look we're looking at these clients and they are sitting there for a number of reasons with a lot of excess cash on their balance sheet. So you would expect debt, but the upside not just for us, but I think for the industry is that there is.
As long as youre holding onto those clients and serving them well there's going to be.
Over time, a nice return to historical average is there and so that's all upside.
Right Andrew.
To Tim's point.
Line utilization for the all time historic low of 54% of our typical line draws between 61, 62%.
So there is about 62 call it $70 million of upside in loan Outstandings and windows draw those lines get drawn back just in that one small category.
Okay great.
Thank you for the color I'll step back thanks, Thanks for the questions Andrew.
Your next question comes from Andrew <unk> with Stephens. Your line is open.
Hey, good morning, Hey, good morning, good morning.
Tim maybe kind of in the same vein of market share takeaway I was hoping you could share just any success you've had this year in kind of a new hire front and then maybe just discuss kind of what areas you're focused on hiring and and just the overall kind of hiring pipeline is shaping.
For 2021.
Yes.
The message I would send to any interesting interest it teams and bankers is if youre looking for a home.
Come and talk to us if youre in the footprints.
And you've got a track record of performance and want to be well rewarded we're interested in talking to you and frankly, if it's a team versus an individual that's even better.
So I hope that message is delivered.
Loud and clear the debt.
Look I do think the reality that we have to grapple with as an industry is that there is.
Just wanted to be a growing war for talent so to speak that's an overused phrase, but I think.
Attracting and retaining.
Strong bankers with proven track records in the small and mid size.
Commercial markets in particular is as it is.
It's going to be a challenge and so we're spending more and more of our time developing our own bankers. We think that's important for the culture. We think it's important in terms of creating runway for young bankers and giving them opportunity for growth.
We're certainly more than happy for example, too.
Talk to.
Teams talk to bankers, particularly coming out of some of the.
Larger financial institutions as they tend to migrate up and size of company They bank and almost a band in the lower mid and smaller sized companies that's a market.
We are firmly focused on recovering.
Okay.
And then just from I guess as you.
Lean back into your ease back into the market.
Throughout this year, just what have you seen so far from kind of a competition perspective from from your peers and specifically as it relates to kind of just kind of pricing and how that's affecting new origination yields, but also any kind of compromise on structure Youre, saying yeah.
I think an advantage we had coming into 2021 as you know.
Operated with.
Very low level of exposure to commercial real estate.
As a percentage of risk based capital.
And I think early on in this year, you've seen a lot of banks for various reasons.
Backing off.
From that space and while we're certainly not going to.
Lean in to areas like retail or office right now we have been seeing some pretty interesting opportunities to pick up reasonable returns with very strong.
Sure.
Guarantors or sponsors in the commercial real estate space lot of strong equity and that's been an area we've been willing to.
Increase our exposure on.
We feel good about that but what's also interesting.
As you know.
And a lot of this just.
As a direct result of our bankers getting back out into the marketplace continuing to call on prospective clients.
The reality is we're just seeing traction across a broad set of industries.
All of our markets.
All of our markets always believe they can be doing better than they are but.
I just got to say, we're fortunate to be operating in very very good markets that that are for.
For the most part meaningfully open at this point.
Okay, Great I appreciate you guys, taking my questions. Thank you.
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, well. Thank you Mary Alma and I do want to thank those that asked questions again, I think it was a very straightforward.
First quarter again.
Noted the optimism we have about non.
Not only the second quarter, but the ramp up we see as we move through 2021.
So we will be focused on delivering against that and look forward to talking to you next quarter. Thank you.
And this concludes today's conference call if he would like to listen to the telephone replay of this call will be available beginning in approximately two hours and will run through May six 2021 by dialing 855859205 or four year old for.
For 5373 for zero thick and referencing the conference I'd of 90 588935, the earnings release and an online replay of this call will also be available on the company's website on the Investor Relations page. Thank you very much and have a great day you may now disconnect.
Okay.
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