Q4 2021 National Bank Holdings Corp Earnings Call
Please standby we're about to begin.
Good morning, everyone and welcome to the National Bank Holdings Corporation, 2021 fourth quarter earnings call. My name is April 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 call is being recorded for replay purposes.
I would now like to remind you that this conference call will contain forward looking statements, including but not limited to the statements regarding the company's strategy loans dip.
Pause its capital net interest income non.
Non interest income margins allowance.
Taxes and non interest expenses.
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.
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, we 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 Dot and National Bank Holdings Dotcom.
It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman, President and CEO , Mr. Tim Laney. Please go ahead.
Thank you April good morning, and thanks for joining National Bank Holdings fourth quarter and full year 2021 earnings call I'm joined by our Chief Financial Officer oldest bourbons.
We finished 2021 with record earnings and strong momentum as we entered the new year. Our team is delivering record levels of loan growth record levels of low cost deposits and pristine credit quality we.
We benefit from operating in very attractive markets and our focus is on earning the full banking relationship with our clients. We continue to realize tremendous opportunity to grow our base of small and medium sized business relationships and we have a pipeline that continues to expand at an impressive.
Right.
We're well positioned to benefit from rising rates and I'm pleased to share that outside of our investments and to unify we believe we can hold core expenses flat to 2021 levels on that note I'll turn the call over to all of this for more detail on our fourth quarter financial performance and 2020.
Two expectations oldest alright, thank you Tim and good morning, everyone.
As always during my comments I will cover covered the financial highlights for both the fourth quarter.
Full year as well as share our guidance for 2022.
Consistent with our past practice our guidance does not include any future interest rate policy changes by the fed nor does it include any large yield curve changes in general.
As we reported in last night's release, we had an excellent fourth quarter that'd be delivered net income of $22 $8 million or 74 cents of earnings per diluted share for.
For the full year 2021, Vida reported a record net income of $93 $6 million or $3.01 per diluted share.
And although we carried an average excess cash balance of approximately $715 million throughout the year the four years.
Return on tangible assets was 137%.
Despite the higher levels of excess capital the return on tangible common equity was $12 87 per cent.
Tim already discussed we are very pleased with the strong loan growth during the second half of 2021 and the continued performance of our teammates and building go to Boston New client relationships.
During the fourth quarter are not PPP loan balances grew a strong 13, 4% on an annualized basis.
The fourth quarter's lumpy loan fundings were $475 $4 million.
Which was our second consecutive quarter of record loan production.
The loan growth was broad based with most asset classes and geographies contributing to the loan balances.
And just as important the entered the new year with strong prospects for continued loan growth.
Do you expect to sustain this current momentum and delivered 10% to 12% loan growth for the full year 2022.
With regard to PPP loans.
We ended the year with $21 $7 million and outstanding balances and approximately $600000 in unrealized P. P. P fees.
We expect most of this to clear our balance sheet during the first part of 2022.
Turning to deposits.
During the fourth quarter, our total average transaction deposits grew six 1% annualized compared to the prior quarter.
In core transaction deposits grew 14, 2% as compared to the average balances during the fourth quarter of 2020.
The total cost of deposits decreased another three basis points to 18 basis points this quarter.
It would be projected cost of deposits to settle at the 17 to 18 basis point level for 2022.
Again this projection does not include any interest rate increases.
The fourth quarter's fully taxable equivalent net interest margin was 3.03% an increase of 10 basis points from the prior quarter. This.
This quarters net interest income benefited from $1 $8 million in PPP fees, and an $800000 of accelerated Mark accretion tomorrow, our acquired loan portfolio.
Looking ahead, our balance sheet is well positioned to profit nicely from any interest rate increases by the fed.
Our balance sheet is asset sensitive and our annualized net interest income is expected to grow five 4%.
100 basis point rate increase scenario.
Our asset quality remains strong with another quarter.
A solid reductions in nonperforming loans, and just two basis points of annualized net charge offs.
Full year 2021, our net charge offs were just three basis points during the year, we introduced Npls and N V as 47% and 29% respectively.
The fourth quarter's provision expense of just $132000 was the result of the reserve requirements for all loan growth being partially offset by our strong asset quality.
An improved economic outlook and the Moody's forecast in our seasonal model.
As a result, our year end ACL to total loans, excluding PPP was 1.11%.
Total noninterest income for the fourth quarter was $22 million or a $5 3 million dollar decrease from the prior quarter.
As expected residential banking revenues decreased $6 $2 million.
Driven by a seasonal slowdown during the fourth quarter we.
We do continue to see strong purchase market activity in all geographies and expect that to carry into the new year.
During the quarter, we also realized $8 million gain from the continued disposition of our consolidated banking center buildings as.
As well as a $2 million pickup in our equity method investment funds.
For 2022, we project our total noninterest income to be in the range of $92 million to $98 million.
Core banking fees are projected to continue to grow in the low single digits.
However, we do expect a slight more mortgage margin compression given the recent increase in mortgage rates.
Mortgage volume projections are in line with the mortgage bankers Association outlook.
Total noninterest expense this quarter was $44 5 million a decrease of $6 $8 million from the prior quarter.
The decrease was driven by lower mortgage related compensation and <unk> $700000 gain realized through Oreo property resolutions.
Also as a reminder, during the third quarter of 2021, B incurred $2 $4 million in transaction expenses related to defense drove better figure investments. This.
This was part of water to unify initiative.
Looking ahead for 2022, we project approximately $4 million to $5 million in expenses related to the unified ecosystem build out.
Inclusive of this investment.
The total non interest expense is projected to be in the range of 189 $293 million.
As Tim already covered our investment and to unify and despite the inflationary pressures on our core expenses are expected to remain flat to the prior year.
We're projecting that 2022, the effective tax rate and we expect it to remain around 19% as always this projected rate excludes the FTE adjustment on interest income.
In terms of capital management during the quarter, we repurchased another $17 million of <unk> stock and as a result of the fully diluted share count for 2022 and is projected to decrease to around 35 million shares.
Our capital ratios remain strong at 10.39% tier one leverage ratio and 14.26% common equity tier one ratio and <unk>.
Finally, even with our stock buyback activity, our tangible book value per share increased 13 cents this quarter to $24 33.
With that I will turn it back to you. Thank you all of this I also wanted to thank my teammates across our company for their focus on caring for our clients and for their focus on taking care of each other.
Thoughtful actions of my teammates for making our company stronger and producing record results.
In 2022, we expect our core banking enterprise to continue to grow earnings both organically and through disciplined acquisitions.
We've also challenged ourselves to further diversify and grow our core bank earnings stream with an expectation that we'll begin delivering incremental results. Later this year now turning to to unify our vision is to create a national platform. That's the equivalent of an Amazon marketplace for financials.
Services, we're focused on providing small and medium sized businesses or smbs with alternative digital access to a robust array of financial services. These services will address borrowing.
<unk> cash management needs, while also providing world class information management and access to blockchain payment tools. We believe we are positioning to unify to provide smbs with unparalleled digital access to financial services real time information.
In block chain solutions that in turn will reduce stress and save business owners and operators precious time and money earlier. This week. It was announced at N V. H completed a first of its kind transaction over the provenance blockchain. We believe that this work in partnership with the <unk>.
<unk> of other banks will begin to usher in a range of lower cost payment and information management solutions that can be game changers for many small and medium sized businesses and this is just one example of how we believe to unify will provide ground breaking for Nash.
<unk> and information management solutions for business.
Really do want to thank you for your interest in our company and we look forward to your questions. This morning April .
Thank you if you would like to ask a question simply press the star key followed by the digit one on your telephone keypad also if youre using a speakerphone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment. Once again press star one at this time, we will pause for a moment.
And we'll first hear from Jeff <unk> of D. A Davidson.
Hi, good morning.
Hello.
Uh huh.
Tim just a question on the pen stroke figure impact.
This outlines the build out costs.
Don't know if it's too early to say what the revenue impact could be on 22, <unk> 23, if you ranked up anything.
Initially.
We've not framed in anything up that where were prepared to share publicly at this point.
I am <unk>.
Very optimistic about the pace at which we're seeing in particular at this point the pin stripe partnership evolve and I I would certainly put it in the category of examples that where we're very focused on when we talk about delivering incremental results and those are incremental to.
Do you know anything that.
All of this is shared with with everyone. This morning.
You know we're also looking at some really interesting SBA related market opportunities and then you know frankly as a result of this work around two unified where we're beginning to recognize use cases related to available technology that we believe can boast.
Reduced core expense and deliver incremental revenue so more to come.
No, we're not ready to put explicit numbers around those.
Those expectations, but it is a.
Intense focus and something we're quite optimistic about.
Got it I appreciate it just jump in.
To another topic.
All of this.
In the release.
Talk about the the cash deployment into loans and you look at sort of cash on the balance sheet quarter over quarter, you still got to.
A big balance there.
Are we supposed to read into that.
What you did spin off of the securities portfolio in the quarter was.
Words, the cash build would have been greater but do not put it into loans is question one.
And then two could you remind us I think.
You've framed up what are if you were to return to normal cash levels, what would be the impact to the margin.
Thanks.
Right.
So taking the first question first really if you look at the margin table you can see that actually on the average basis, we did deploy about $100 million into loans on the cash. So the year end balance sheet clearly you got a benefit from.
Right.
Late in the year cash movements in deposit movements. So that's that's one in terms of how much that excess cash today is weighing on the margin calculation itself its about 30 basis points.
And that would return I mean is there a what's the comfortable cash balance.
Yes.
We typically run our cash balance in terms of free available cash between 25 and $50 million of deferred you out and the kind of the cash letters in <unk>.
Well money in an ATM money, it's about $100 million to $125 million on our balance sheet.
We can see on the top of the house is worth a lot of cash typically would be.
Okay.
And then last one if I could.
Just the rotation of.
What you saw out of nonperforming.
Oh is that could that just be one credit or any shift within that total NPA is pretty flat, but the.
Within that any color.
You got it it's the one credit and it's actually an SBA related loans.
Working through the process moving from Npls into Oreo.
In addition to the SBA coverage, obviously, it's extremely low LTV type of thing we expect no loss.
As in many cases and frankly this last quarter being the.
Another one of those where things go through Oreo.
Almost more often than not they end up with a recovery on those so.
This is just 111 loan going through the process.
Got it okay. Thank you I'll step back.
Thank you Jeff.
Yeah.
Okay.
And next we'll hear from Andrew Liesch with Piper Sandler.
Andrew Good morning, Good morning, guys. Good morning.
Question on the NII guide on the 100 basis point rate scenario, clearly a nice benefit there, but you guys are also in growth mode and are doing some interesting things on the Fintech front. So my question is how much of that boost do you think falls to the bottom line or maybe accelerate the other investments into the franchise.
Yes.
Well I think in terms of how I had guided for this year all of that falls to the bottom line, because the investment and to unify.
What we've circled up and as part of the expense guidance already he is $4 million to $5 million. So unless there is.
Accelerated investment or change of.
The strategy.
An additional things we can see we can develop right now all of that would be accretive to us and Andrew it's such an important question and I think it offers us this opportunity to clarify.
We're going to manage with great discipline, and the pace of our investment to unify and should we find a need to accelerate investment we will find opportunities in the company to bring down expense.
And in other areas and.
I just want to be very black and white about that we'll continue to look at for example, our brick and mortar distribution network for opportunities to create greater efficiencies. So we.
We feel we feel like our estimates around investing in to unify our very tight but again our commitment is should we for some reason discover the need to accelerate our pace of investment our discipline will be around offsetting that investment through.
Action on other opportunities.
Got it that's really helpful.
And then just at this level with the stock here, what what's the appetite for more repurchase activity.
I'm pointing at all of a sudden he's pointing at me.
I think.
I think what we would say is all continue to be opportunistic and and you know we are we have a threshold.
And discipline around in our mind.
The pace at which it would take to earn back any tangible book dilution, we've adhered to that obviously.
We've benefited from that discipline, and we will just have to watch what happens in the market.
Because we obviously are very optimistic about.
Where this company can continue to go with it its earnings and I guess I'll leave it at that.
That's a non answer answer sorry, Andrew.
That's still helpful.
Alright, I will step back thanks for taking the question.
Beth.
And next we'll hear from Kelly Motta of <unk>.
Good morning.
Good morning.
I would like to turn to loan growth.
You know you guys.
So nice to hear about the to unify stuff, but you also put up some really nice growth this quarter.
Leave in your prepared remarks, you had said.
And it was pretty broad based.
Across geographies as well I was just wondering if you could give us a bit more color on you know how much of this is maybe winning new business first is economic growth in your markets.
Maybe a line drive.
Normalizing just any any help there and kind of how that deal with your outlook would be great.
Yeah, Great question, and I think you really hit all of the key categories. There at the end I mean, you know we're excited about what our teams are doing around taking market share we feel like in certain tranches of the small and medium sized business arena.
Those businesses are not getting the attention by some of the larger institutions in the country that perhaps they once did that's translating into opportunity for firms like ours to really focus on that business I am really pleased with the discipline. Our teams are showing we were back in.
Our offices, if you think about it in July and in no later than labor day of 2020.
We've been engaging we've done it with sensitivity we've been careful but frankly a lot of those prospects that are now clients are in the pipeline to become clients are folks that we have engaged with face to face and you know when a business is making an important decision around move.
Their banking relationship we found that it does make a difference to be able to engage directly and and work through that transition and demonstrate.
We understand and know and understand their business. So.
Again, I couldn't be more pleased with our team's focus on taking market share and then finally, we certainly have to acknowledge that strategically.
We put ourselves in some of the absolute best markets in the United States I mean, but they continue by virtually any economic met metric to outperform U S national averages and so that represents wind at our back and we're grateful for it but it was by design.
Sign and we will continue to work.
Work very hard to expand in these markets because.
They continue to grow and show promise.
Okay.
The way in and by the way in both all of this and I alluded to this all of that translates into coming into 2022 with a very very solid momentum.
That's that's a what is really encouraging.
We are very very pleased with the momentum we're seeing as we come into this year.
Great and maybe if I could slip in a last one you also mentioned a potential.
M&A in your prepared remarks.
I believe on the traditional side just wondering what.
And what the appetite is there and kind of how the pace of conversations with them.
Yeah. So.
We.
Where we are.
Constantly in a state of working to develop relationships.
With groups that we think would be powerful partners and.
And.
You know, we're going to maintain our discipline around ensuring that anything we might do on that front would be well met by all of our investors we hold ourselves to a high standard there our fundamental belief is that should any company consider selling themselves to us and becoming part of our comes.
That is investors that's in their best interest to construct.
Transaction, that's going to be well received in the marketplace and we're not going to do anything unless we believe cultures mesh well and unless we believe that there are incremental.
Opportunities to create revenue.
I can tell you what's as important as we've made our AR.
Very clear decision that what we're not going to do is play in that space, where youre simply making an acquisition and are only looking for expense takeout, if if the target doesn't bring incremental capability and incremental opportunity to the table, it's not something.
We will focus on.
And Kelly I stopped I'm not sure. If you have any other questions, but thats, where I would leave it.
And she may have dropped we will move on to <unk>.
Rabbits team of.
Husky group.
Hello.
Okay.
Joined a few minutes late so you may or may have covered some of this but wanted to I guess first just talk about your assumption on deposits and you guys like many of your deposits.
Increased about a third.
Post the pandemic or through the pandemic and I'm just curious as you look out on the horizon. What's your assumption is for the <unk>.
Posit base.
If it is sticky and kind of how you how you think.
Liquidity could drain from from customers as you as you think about the economy going forward.
Great question I'll begin and then turn it to all of this for more detail but.
We've talked about this on prior calls and what I would tell you is I do think that.
Banks could be lowered in two complacency around these excess deposit balances that.
Industry has experienced we fight against that fundamentally by also really leaning into.
Accountability around the development of new relationships. So it's one thing to see this what could be obviously, a temporary increase our flex and balances what we get excited about is the expansion and growth of new new relationships, which speaks to our focus on <unk>.
Taking market share in growing markets now, having said that to come back to your.
The details around your question I'll throw it to all of this and that's why we didn't necessarily provide explicit guidance on deposit growth itself.
As we are.
Building that relationship and client base behind it but throughout over the last year fourth quarter to fourth quarter transaction deposits did grow 14% I think it's.
That pace.
Likely we'll slow down into mid single digits in my opinion, but again some of the how the liquidity withdrawal by the fed and maybe a quantitative tightening.
Double play out its hard to put up very hard estimates on it.
Okay.
Fair enough and then again you may have covered this but.
Line utilization I am curious how that trended.
During the fourth quarter and kind of how you see that playing out over the next next few quarters.
Yes, so part of that.
Loan growth. This quarter was also the line utilization did pick up and I'd say our lines returned to kind of long term averages at the moment.
End of the fourth quarter.
It is it isn't a long tables you can see.
How the quarter to quarter.
Line utilization benefit or take off the <unk>.
Loan growth, but this last quarter was about the good line utilization it seemed like clients up.
We're starting to draw down.
Okay, Great I appreciate the color.
You bet. Thank you.
Next we'll hear from Andrew Terrell of Stephens.
Hey, guys, if I understand well hey, guys. This is John the author on for Andrew Congrats on the great quarter.
Thank you John .
All of this I guess a quick question on the deposit base again, I guess, how should we be thinking about deposit betas and BHP in a rising rate environment and is there any reason to think that your beta in this cycle will be dissimilar to last cycle and can you remind us.
Like what you assume in your disclosed NII sensitivity for a deposit beta.
Yep Yep.
Bob.
Yes, so first of all I'll start you know look if you look at our deposit.
Construction for us 40% of our deposits in non interest bearing deposits. So.
That bodes well for Ford any rising rate environment to begin with in India at five 4% 100 basis points rate shock scenario that I talked in my prepared remarks embedded there is about 30% deposit beta on total deposits.
But again once you kind of if you back into what does that mean for interest bearing bearing deposits, that's actually 50% deposit beta.
And then to kind of get to your just your question I think it is quite conservative because if you go back in the last tightening cycle.
Our deposit beta beta was between 10% to 25%.
Ending on periods when you measured it.
No.
We are quite conservative in the way, we modeled and projected us all.
For the benefit of.
Folks that have joined us on the call today translate that five 4% at a 100 basis point rate shock roughly $2.
Ultimately it would be $12 million annualized pickup if give a 100 basis points after higher based upon increase in fed fund rates.
Got you that's helpful. I appreciate the color and one last one.
Can you remind us of the.
Repricing dynamics of the loan portfolio, how much is floating rate adjustable fixed and do you guys have loan floors in place on any of those floating rate.
Yeah.
So as in past, but our loan book is approximately 40 call it 40% to 42%.
Variable rate debt is variable index, either prime or LIBOR.
We're so far these days.
Of that just only 15% of that only use with rate floors that would not lift call. It for the first 50 to 75 basis points. So the vast majority of our.
LIBOR Prime linked loans will have an immediate benefit the rates move up.
Awesome I appreciate the color that's all I had I'll step back.
Thank you John .
April .
And I am showing we have no further questions at this time I would now like to turn the call back over to Mr. Laney for any closing remarks alright.
Alright. Thank you April now as always I would just thank you for your interest in our company. We certainly are open to any follow on questions should should anyone have them. After this meeting.
Again, thank you and.
Have a good day bye.
Speaker 1: This concludes today's conference call. If you would like to listen to the telephone replay for this call, it will be available beginning in approximately four hours and will run through January 26, 2022 by dialing 888-203-1112 and referencing passcode 245-4367.
And this concludes today's conference call.
If you would like to listen to the telephone replay for this call. It will be available beginning in approximately four hours and will run through January 26, 2022 by dialing 888.
031112.
And referencing passcode 2454367.
Speaker 1: The earnings release and an online replay of this call will also be available on the company's website on the New Investor Relations page. Thank you very much and have a great day. You may now disconnect.
The earnings release, and an online replay of this call will also be available on the company's website and the new Investor Relations page. Thank you very much and have a great day you may now disconnect.
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Okay.
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