Q2 2021 National Bank Holdings Corp Earnings Call

Please stand by we're about to begin. Good morning everyone, welcome to the National Bank Holdings. Corporation 2021, second quarter earnings call. My name is Alan, I'll be your conference operator for today at this time. All participants are in a listen-only mode. We will conduct a question 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.

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 US Securities. And Exchange Commission you statements speak only as of the date of this call and National Bank Holdings Corporation.

Ryan 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 www.nasa.gov Bank holdings.com.

It's now my pleasure to turn the call over and introduce National Bank holding Corporation as chairman president and CEO mr. Tim Laney, please go ahead, sir. Good morning and thanks for joining National Bank holdings. Second quarter 2021 earnings. Call, I'm joined by our Chief Financial Officer Aldis birkans with a renewed focus on growing market. Share, we realize Daniel eyes long growth of 8.4% during the quarter equally important, we entered the third quarter,

With a very strong pipeline of new relationships. We're realizing new relationship growth across our personal business and Commercial Banking, segments, credit quality continues to be near pristine and we operate in markets that have largely recovered from the pandemic. As a result, I believe we are very well positioned for strong growth. During the second half of the year and on that note Aldis I'll hand it off to you. All right, thank you. Tim. I love the morning.

Thank you for joining.

Well the second quarter 2021, we reported net earnings of twenty 4 point 2 million dollars or 77.77 cents per diluted. Share outer turn on average tangible assets was 1.41 percent and outer turn on average tangible Equity was 13.4.1% Also earlier in the quarter. Be announced a second dividend increase for this calendar year and our quarterly dividend now stands at 22 cents per share.

As we discussed during the last quarter's earnings call, we are excited about about our long pipe lines and a long production. This quarter did not disappoint. The second quarter is loan funding so we are 3 hundred sixty 2 point 1 million dollars which was our second highest non-ppp long production quarter in history. As a result we grew our core loan book during the quarter is solid..8.4 percent annualized. We continue to be very pleased with the business development efforts of our bankers and a long pipe.

Building nicely across all of our markets at this time we projected to grow or not PVP long book in the mid to high single digits. Annualized. What a second half of 2021.

With regards to the patient Protection Program loans we had we had a hundred twenty 9 point 6 million dollars outstanding as of June 30th 2021. A few extra details on ptpp efforts to date. We have received payments and forgiveness on 99% of this office. I found 1 ptpp loans and more than a third of the round 2 loans had also been forgiven. And at this pace, we expect most of the remaining ptpp loan balances to be off our books. By the end of

The remaining paycheck Protection Program long, deferred revenue, balance is 5 million dollars and accordingly. We expect most of this fee to be recognized over the next 2 quarters going to deposits this quarter. We continued this strong growth in deposits that average transaction deposits increasing 347 Point..1 million dollars for twenty 8 point 9 percent annualized,

The second quarter also marked. The first time I told average deposits crossed, this 6 billion dollar Mark more importantly the cost of our total deposits decreased and other Ford basis points this quarter and it has decreased a total of 9 basis points during 2021.

The strong deposit, good all benefited. Our average earning acid-base, which group 320.3.1 million dollars or 20.8 percent annualized.

The resulting fully taxable equivalent net, interest margin was 2 point, 8, 2 percent in the second quarter in the excess. Cash we are holding had a 40.1 basis, point diluted impact on our margin

Even the return of strong loan pipelines. In the coming quarters, we expect to start seeing out earning acid. Next shift, back from cash to hide yielding loan balances.

This quarter's fully taxable equivalent net interest income was forty..6 point 1 million dollars and included 2 million dollars of PPP Long Beach.

PPP long for you. So I'll link order. Core net interest income grew 2 hundred thousand dollars. And as out earning acid, mix normalizes be projecting that interest income to grow in the coming quarters.

Howard asset quality 2, main strong with solid deductions and not performing, criticized and classified loans. From the prior quarter. Net charge is for the quarter were just 7 base points. Non-performing assets, decreased 14 percent this quarter in our 28 percent lower than a year ago. Out of mpac to toe long ratio excluding PPP loans is now down to 0.46%.

These excellent credit Trends combined, with the improving economic forecast, projections from Moody's, resulted in a Cecil model provision, the release of 5 point, 9 million dollars, this quarter, there's ulting ACL to toe loans. Excluding ptpp was 1 point 1.8 percent. Lastly, as a reminder, in addition to the allowance for credit losses, we continue to benefit from 8 point, 8 million dollars dollars. A fair value discounts from prior to our positions.

But all second quarters, non-interest income was twenty, 5 point, 3 million dollars. Our client engagement for both consumer, spending and business account. Activity was strong. And we were able to deliver deliver solid growth and our core banking trees bottle service charges through 10.9 percent annualized on the link water basis and 15.3% over the second quarter of 2020. While total Bank are the revenues grew, 53.3% annualized, only quarter basis and

Percent over the second quarter of last year.

The other non-interest income line benefited from $800,000 gain this quarter from the sale of real estate associated with Consolidated banking center consolidations which compared to 1.5 million dollars of such gains realized during the first quarter 20.21,

Looking ahead with the second half of 2021, we are projecting out non-mortgage feet income to be in the 20 to 21 million dollar range.

With regard to the Residential Mortgage business, the increase in longer-term rates during the first half of the second quarter, impacted both mortgage volume, as well as gain on sale. Margins Mortgage Banking income total 14 million dollars, this quarter, which was an 8 point, 4 million dollar, decrease from the first quarter. The gain on sale, margin came in from 3 and a half points. In the first quarter of down to high tuzun II. This compression explain approximately 40% of this quarter's lower mortgage Revenue.

Having said that we are encouraged to see some margin recovery about 3 points. So far in July the other contributing factor for the link ordered Revenue. Drop was introduced volumes from refinancing activity.

Looking ahead and given the current market conditions. We would projected mortgage or later than you could be trending in the range of 20 to 25 million dollars for the second half of 2021.

Earnings are expenses non-interest, non-interest expenses totaled. Forty 6 point, 3 million dollars on the link quarter basis. Expenses, decrease 3.3 million dollars driven driven by lowered, mortgage-related commissions and lower banking center, consolidation costs. We've also seen a decrease in our occupancy and Equipment. Expense run the right as the banking center consolidation efforts are starting to materialize and these line items.

but the second half of 2021, we are

Non interest expense to be in the range of 89 to 91 million dollars.

Finally, our Capital ratios remain strong and provide to our many options as we consider how to strategically deploy or excess capital in the future are tangible book, value per share and that the quarter at $24 on 1 cent and has a good own and 8 percent annualized for first half of 2021 Timber that double turn it back to you. Thanks Aldis. Look we like what we're seeing in our markets and our Bankers continue to be well positioned to take market share, I believe we have the potential to

New relationship growth in Long production. During the second half of this year. On that note, I'll say thanks and ask Alan, ask you to open up the line for questions.

Certainly sir, if you'd like to ask a question, please signal This Time by pressing star 1 on your telephone keypad. If you're using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment once again, that is star 1. If you'd like to ask a question, we'll take our first question from Brett Robinson with the whole group.

Hey, good morning everyone. If I heard correctly, the guidance for the mortgage, for the back, half of the Year 2025 million. And if I was writing down my notes correctly, it sounded like you were feeling a little better about the gain, on the sale margin in 3Q, maybe versus to Q. Can you just maybe go back over that and just talk, maybe about what you're seeing and in the pipeline? And if I've got this correct, sounds like you're expecting mortgage too.

Your crease, a little more from to 2 levels despite maybe a little better gain on sale. Margin certainly have to take into account the queue for seasonality there that typically takes place although you know last year fourth quarter and first quarter of this year but it were unusually profitable quarters for the industry. But in terms of the volumes the the big impact at that we saw was

new financing activity, that certainly

Was was down on link water basis, almost 550 percent during by the higher rate environment, and that 1, we not necessarily seeing the recovery just yet. So the ball the margins are discovering the volume size. That's somewhat steady going on from from from second quarter into third quarter, although she may want to speak. Alternatively to what we've seen in new home financing. Yeah, I know certainly Tim and so the good news for us as and we've always focused and Bobby black.

Business for us, has been mentioned that our Bankers, spend on the purchase market. And that market, she who link or Derby group, what do you want percent? The volume on purchases and 46 percent over the same quarter last year. So we certainly see what what the activities are markets are providing an opportunity, so you're probably but the markets have provided for our for our Market bankers and I think that's the most encouraging Point bread is that these markets

We operate in continue to be very attractive and grow. And so this, you know, the real challenges we've discussed before is simply finding the housing, the demand remains strong

Yeah, that's definitely the case in many markets across the country. The other thing I wanted to ask was, you know, you guys were a bit unique this quarter with the strong senile, own growth, and just wanted to maybe dive a little deeper into that and see if that's, you know, increase the on utilization, new client ads. You know, existing clients doing more things. You know what, kind of what's driving that

I would say whether it was our badminton teams or our our weightlifting teams, they're bringing home metals and and and and the reality of it is, you know, I feel like we're close to running on all cylinders in that regard. And so I fully expect to see

Performance and our small business or business banking group through the the remainder of the year. You know, if you look at our combined, business banking and Commercial Banking efforts in the second quarter as Aldis pointed out, we were just shy of breaking, an all-time record in new Loan Production. And again, we come into the third quarter with pipelines as strong as we've ever seen them in. And I think, you know, that's to be attributed to a lot of folks.

Curtis on really continuing to touch base with but clients and Prospects over the course of the last year. And and so, you know, as soon as we took our foot off the brake on credit, we started to realize the opportunities that these strong markets, bring us that the other thing I would point out is that we've been hyper focused in the personal banking Arena.

On new relationship growth. I think it would be very easy for a bank. To become complacent sitting on all of these deposit, balances in the consumer Arena, and not focus on taking market share, and I couldn't be more proud of our team's focus on growing new court relationships in the personal banking space as well. And and that's 1 of the reasons.

Aldis and I believe that we're going to see really nice stickiness, as it relates to this liquidity beyond. What? What might be stimulus related? So, summarizing all of that, I would say very solid performance across all of our lines of business,

Okay, great for Shell the color. Thanks for questions.

Okay, and the next question will take will come from Andrew liesch with Piper Sandler.

Good morning, kind of sticking with the longo theme here to mention. You could think you have record production in the second half a year, based on what you just did that seems reasonable to me. But then the gross guide for non PDP is mid to high single digits. I mean what, what could keep that from being at that high end and do you think you could eat could even surpass that guidance

I think you know we have a track record of being somewhat conservative in our guidance and and you know look I think we we've all learned what the unexpected can bring to the table but I believe based on where we're at in the markets were in that there's a should be a reasonably strong expectation that we're performing.

Say toward the higher end of that guidance. And then we're always going to in sorry Aldis. And then obviously, we're going to always strive to to beat that. Go ahead Aldis and what 1 just piece of color in terms of what is unknown, and the last several quarters Heaven, we've seen quite elevated, pay Downs, payoffs. So that's part of the part of the, maybe hedge in the guidance. And to be clear there, when we talk about padian's payoffs, it's not

Losing relationships, largely. It's really about an amazing amount of liquidity that resides on our clients balance sheet. So that's why we've been frankly. So hyper-focused on new market, share game, that's where we're going to see the growth. It's literally all about taking care of existing clients and their about knowing that they're borrowing, needs will come back to a greater level.

But but just as important being hyper focused on growing market share, and we feel good about where we stand on that front, got it. That's that that's helpful. And then just looking at where the reserve ratio stands right here, obviously it's model-driven. But what do you think is the right level for you guys to operate? I know there's, you got the

The benefit in there from the purchase accounting discount. But where do you see the your reserve ratio is like what's most appropriate for you guys?

Yeah. II don't know what it was appropriate because the the micro economic and environmental dictate that but I can say that the best reference point for us on for seasonal model in a way was when we entered on day, 1 allowance ride and we entered the the 2020 with right around..1% ACL the total loan so that in my mind is kind of the reference point. They were you start with

But certainly where we go from here.

Will be dictated by the macroeconomic Outlook. And and you know if we step away from the Cecil model and they're certainly not entirely disconnected, but I'll remind you in the other listeners that beyond our home loan review team stress. Testing we do bring in a third party. Once a year to stress test our our, our loan portfolio to pretty granular level. And look at how that portfolio would perform in, you know, the

Most dire of economic situations and in the work coming out of that analysis, continues to suggest that, you know the granularity and diversity of our portfolio is is extremely beneficial. Having said that and could make the argument for lower than 1% having said that our bias is certainly going to be to hold on to that 1 percent and and frankly fight for it. And and again

Recognizing the, I guess objectivity is Cecil. There's always going to be a bit of tension there. I suspect, and that we're going to want to hold onto as much Reserve as we can, it's as simple as that.

All right, so I'll move on to Andrew Terrell with Stevens.

Hey, thanks. Good morning. Good morning.

It's a maybe on the on the margin really quickly. I think several months ago, we talked about new kind of origination yields and and kind of the 4 percent ballpark. Clearly the production pictures stepped up since then just 1 of the in a sense of where kind of Blended new production yields were coming on the balance sheet today and then how that compares to, what's may be rolling off the balance sheet. Yeah, great question. Yeah. Certainly so the second quarter, new loan origination volume for the 360.

Production of was, right at 4 percent.

Kent. He and if you look at our Nim table and look at the first line item, what is United? Loans FTE, certainly, there's a benefit of the PPP loan fee acceleration in there, but if you strip out DPP loan benefit out, of course, originated loan. Yields were 385. I think in fourth quarter of last year 387 last or first quarter of this year and 388

So, those 4 percent new origination loan yield certainly seemed to be a creative and they're displacing something lower. That's rolling off. And it is a creative to and we building our original own book, on a Creator basis for letting your imaginations and keep in mind, that's virtually all of the variable loan book. I mean, we're not we're not taking tenured risked to get those rates which I think, is important.

Thanks and then just to make sure I've got the the messaging right on on kind of liquidity to pull him in it. It sounds like just given where you think wrote the shaping up for the next several quarters. The, the kind of plan for the excess cash on the balance sheet is just to hold it and it may be deployed into the loan book over the next several quarters, or should we expect out of material Securities purchases from here? I don't think you'll see material Securities purchases from here again. Be, you know, last quarter, we added some of the backup in the yield curve and you can see that but

Again it's all Kylie cash flowing in and be able to stop that and benefit the cash flow or redirecting casual. And then you loan origination zip needed, but not nothing material to be looking to identify in the Securities. And now that loan growth is back on table, the expect some of that cash being absorbed and, you know, 10 days, wandering acid being displaced with a as we just talked about for, but the 4 percent. That's, that's quite powerful benefit to our net interest income growing and in the coming quarters very powerful math.

Moss.

Thanks for that. And then just if I can speak 1 more and apologies, if I missed it. But were there any share repurchases made during the quarter? And then I know there's a 75 million authorization out there, is it fair to thing with the valuation coming in a little bit over the past quarter, you might be a little more opportunity opportunity to come to buy back.

Yes.

First part of your question, nothing nothing done in Africa in the second quarter, but okay, great. Thank you, thank you.

All right, and your next question will come from the line of Kelly Motta with KBW. Hi, good morning. Thanks for the question. I just, I wanted to Circle back on loan growth and the market share gains was just wondering if there's any pattern to where you're getting those games. If it's you know, the Front Range or maybe your newer utah-based,

Expansion. Or if it's more broad-based than that, just any color around, that would be helpful. It really is broad-based. I mean, we we feel very good about the momentum we're seeing in all of our Geographic markets and our specialty businesses and and you know, felt felt good about the second quarter and feel very good about what we're seeing in the pipeline across the boards.

So, you know, I'll remind everyone. I mean, you know, these are pretty incredible markets. We operate in whether you're talking about the Front Range of Colorado. Dallas, Austin, Salt Lake City Kansas City. We clearly benefit from operating in markets that have recovered much faster than a lot of the rest of the country. And, and then our specialty,

Isn't teams there.

Yeah, I have really done a stellar job of stepping up and delivering new relationships to the bank. So I'm really pleased Kelly to report that it's it's Diversified and across the board.

Great know. That's you certainly have great market and then just switching back to expenses things like the guidance. And please correct me if I'm wrong, but is sort of more inclined towards the low end of what was last quarter is that just related to mortgage and, and coming in a bit this quarter or, you know, it was really nice to see the benefits of the branch can pull through.

If there's any kind of changes and better more - of your expense run, right? Thank you, yeah. No, it is. You got the 2 main drivers will be the banc of banking center and efficiencies beginning there that's taking now. Holden and certainly loading our run rate as well as some of the mortgage commission's. Against talking specifically to the fourth quarter, we do expect

I'm seasonal, slow down there so that will benefit. So those are 2 main ones, you know, I'll say that we are taking some of the some of these savings to be are realising. And by the way if you looked at stripped out the commission related expenses from last year and this year's full-year guidance, we are guiding about 8 million dollars in Lower Court around rate or full year this year than last year. So that is the result of all of the cost efficiencies to believe.

The implemented. But we are taking some of the efficiencies and redeploying goes into technology to make sure that we staying up there and that's embedded in the guidance. So that 89 to 90 million in 91 million dollar guidances is in reflective, all that Kelly. What's what's even more inspiring? Is that while we're realizing those savings from the brick-and-mortar consolidations, the teams have done continue to

Do an incredible job of retaining, the clients and those Consolidated locations, and it's somewhat ties daughter's this point on the investment in technology. This this you know Trend we're seeing in the industry of converting more and more clients to a digital platform and doing it. Doing so successfully is is really encouraging. And we'll continue to look at our strategy around the mix of brick and mortar and

And by the way, I think it's it's an appropriate time to share with this audience that investors and others should expect to see an even greater commitment to our digital offerings and ecosystems around the small and medium-sized business. Space more to come on that front, but we're very excited about where we think we can take this company.

And provide alternatives to call it a traditional banking system for small and medium-sized businesses here. As we look ahead. But but again, what's really creepy, I think critical around your expense question on brick-and-mortar sayst is the fact that we're retaining the revenue while accomplishing that? Great. Well, thank you so much. Both of you for all the color. I will step back now.

Thank you, Kelly Thanksgiving.

Alright, our next question will be from Levi's posing with da Davidson companies.

Mornington morning Aldis hinted to maybe a little bit earlier but I was wondering what the the timing this quarter of the security that that you did at when those maybe came on the yeah they came on actually this was pretty even purchased throughout the throughout the quarter with a little heavier lift and and and April and May.

Then than June, for example.

The little earlier when they raise, when the rates really backed up and the early part of the quarterly, we did take out on some securities.

Okay and so is it fair to say that you know movement in the yield curve, positive movement, as it as it works interior your margin calculations would potentially increase your appetite to deploy into both loans and securities.

Certainly certainly would love to deploy of all of that in in the loans Securities again. It I think where we are 1.3 billion dollars. Right now, long-term Target for us is about 15% of earning assets being insecurities, but we certainly have about, you know, if you took out 2 of today's earning assets that we are about 300 million dollars over that. So, that's where I'm saying I'm not necessarily seeing Us increasing that portfolio much

From here.

Okay, great. And then just 1 last 1 for me on the, the capital me and a side of things, now that you return to growth and seems the the confidence in the economic environment is back. Any updated, thoughts on like a couple of quarters ago, you mentioned there were sort of 3 types of m&a transactions. You guys were, considering are all 3 of those still on the table, or, is that been there or down at all?

It's an important question you know will continue to be opportunistic around traditional banking. I will tell you that we've actually looked at a number of opportunities and and you know on an exclusive basis and frankly of not felt like ultimately they were the right fit for our company for 1 reason or another where we are hyper focused is on creating an alternative.

Of ecosystem for medium and small business. We think there are a lot of problems for small businesses that can be and medium-sized businesses, that can be solved using some of the emerging technology and that we see out there today and we believe we understand small and medium-sized businesses as well as any Bank in the country regardless of our of their size just given our

And and focuses it.

We're we are very focused on looking at bringing together and working to bring together. Some very interesting alternatives to traditional banking in that space. So more to come but I will, I will tell you in the spirit of full transparency, that that's where we are spending a lot of our time and energy and hope to be coming back to you soon with more more.

Information on that front.

Under said, thank you. I'll step back.

We have no further questions at this time. So I'll now turn the call back to mr. Laney for his closing remarks of the individuals that ask questions today for your thoughtful questions and time, it's thank you all for joining our second quarter earnings call and we look forward to reporting before we know it on what we think will be a strong third. So again, thanks everyone.

Have a good day.

And this will conclude today's conference call. If you'd like to listen to the telephone replay of this call, it will be available in approximately 4 hours and will run through August 1st 2021. Bye darling, 8, 8.8, 2 zero, 3.1, 1, 1, 2, and referencing the passcode 8, 4.2, 4.7, 7.6, 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