Q4 2023 National Bank Holdings Corp Earnings Call

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2023 Fourth Quarter Earnings Call. My name is Anna, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. 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.

Good morning, everyone and welcome to the National Bank Holdings Corporation 2023 fourth quarter earnings call. My name is Anna and I will be your conference operator for today at this time all participants are in a listen only mode.

As a reminder, this conference is being recorded for replay purposes.

I'll now turn the call over to Emily.

Emily: Richard at the Investor Relations.

Emily: Thank you Anna 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.

Emily Gooden: Thank you, Anna, 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.

Emily: Net interest income noninterest income margins allowance taxes, and noninterest expense actual results could differ materially from those discussed today.

Emily Gooden: 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.

Emily: 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.

Emily: These statements. In addition, the call today will reference certain non-GAAP measures, which National Bank Holdings Corporation believes it provides useful information for investors.

Emily Gooden: 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.nationalbankholdings.com. It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman, President, and CEO, Mr. Tim Laney.

Installations 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 is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman President.

Emily: And CEO, Mr. Tim Laney.

Tim Laney: Thanks, Emily. Good morning and thank you for joining us as we discuss the National Bank Holdings fourth quarter and full year 2023 financial results. I'm joined by Aldis Birkans, our Chief Financial Officer.

Thanks, Emily good morning, and thank you for joining us as we discuss the National Bank Holdings fourth quarter and full year 2023 financial results I'm joined by oldest Perkins, our Chief Financial Officer.

Aldis Birkans: Solid fourth quarter results contributed to a record full year earnings of $3.72 per share. We generated a return on average tangible common equity of 18.23%. We focused on growing capital during the year, and in fact, our CET1 capital ratio totaled 11.89% at year end.

Oldest Perkins: Fourth quarter results contributed to a record full year earnings of $3.72 per share.

Oldest Perkins: We generated a return on tangible average tangible common equity of 18.23% we focused on growing capital during the year and in fact, our CET one capital ratio totaled 11.89% at year end.

Aldis Birkans: We enter 2024 from a position of strength. Credit quality remains strong with just two basis points of net charge-offs for all of 2023.

Oldest Perkins: We enter 2024 from a position of strength.

Oldest Perkins: Credit quality remains strong with just two basis points of net charge offs for all of 2023 Wheeler.

Aldis Birkans: We like what we're seeing in client activity, and we continue to benefit from operating in strong markets. We remain focused on earning the full relationship of our clients, and we're prepared to navigate any economic environment that we may face. Aldis, on that note, I'll turn the call over to you. All right. Well, thank you, Tim, and good morning. During this call, I will cover the financial highlights for both the fourth quarter and the full year, as well as share our guidance for 2024.

Speaker Change: We like what we're seeing in client activity and we continue to benefit from operating in strong markets. We remain focused on earning the full relationship with our clients and we're prepared to navigate any economic environment that we may face oldest so on that note I'll turn the call over to you alright, well. Thank you Tim and good morning.

Speaker Change: During this call I will cover the financial highlights for both the fourth quarter and the full year as well as shadow guidance for 2024.

Aldis Birkans: Consistent with our past practice, our guidance does not include any future interest rate policy changes by the Fed.

Speaker Change: Consistent with our past practice our guidance does not include any future interest rate policy changes by the fed.

Aldis Birkans: We are cautiously optimistic about the economic outlook in our footprint markets, and our projections do not reflect the recessionary environment either.

We are cautiously optimistic about the economic households in our footprint markets and our projections do not reflect the recessionary environment either.

Aldis Birkans: As we reported in last night's release, we delivered another strong quarter of financial performance and finished the year with record net revenues and record net income.

Speaker Change: As we reported in last night's release, we delivered another strong quarter financial performance and finished the year with record net revenues and record net income.

Aldis Birkans: For the fourth quarter, we reported net income of $33.1 million or earnings for diluted share of 87 cents.

Speaker Change: For the fourth quarter, we reported net income of $33 $1 million or earnings per diluted share of <unk> 87.

Aldis Birkans: With a full year 2023, our net income was a record $142 million and we reported a solid 18.2% return on our tangible common equity.

Speaker Change: For the full year 2023, our net income was a record $142 million and we reported a solid 18, 2% return on tangible common equity.

Aldis Birkans: During 2023, we grew our loan book by 6.6%, improved our core deposit base and liquidity by completing the strategically important Canberra acquisition

Speaker Change: During 2023, we grew our loan book by six 6%.

Speaker Change: Proved our core deposit base and liquidity by completing the strategically important camera acquisition and.

Speaker Change: Proved our core deposit base and liquidity by completing the strategically important camera acquisition and.

Aldis Birkans: and grew our tangible common book value per share by 10.4%.

Speaker Change: We grew our tangible common book value per share by 10, 4%.

Aldis Birkans: We continue to be pleased with our bankers' continued focus on building robust new client relationships.

Speaker Change: We continue to be pleased with our bankers continued focus on building a robust new client relationships.

Aldis Birkans: During the quarter, our loan balances grew $220.3 million, or 11.7% annually.

Speaker Change: During the quarter loan balances grew $223 million or 11, 7% annualized.

Speaker Change: We operate in markets that are outperforming the broad national economic indicators on many fronts. However.

Aldis Birkans: We operate in markets that are outperforming the broad national economic indicators on many fronts.

Aldis Birkans: However, our outlook for 2024 cannot ignore the possibility for a slowing economy.

Speaker Change: Our outlook for 2024 cannot ignore the possibility for a slowing economy.

Aldis Birkans: For 2024, we project net loan balance growth in the mid-single digits.

Speaker Change: For 2024, we project net loan balance growth in the mid single digits.

Aldis Birkans: Fully taxable equivalent net interest margin for the quarter was 3.95% and was held by the receipt of a $2.9 million loan prepayment.

Speaker Change: Fully taxable equivalent net interest margin for the quarter was 395% and was helped by the receipt of a $2 9 million dollar loan prepayment fee.

Aldis Birkans: Excluding this additional loan fee income, our net interest margin was still a strong 3.83%.

Speaker Change: Excluding this additional loan fee income, our net interest margin, but still a strong 383%.

Aldis Birkans: are total deposit beta. This rate cycle to date has been 34%.

Speaker Change: Our total deposit beta this rate cycle to date has been 34%.

Aldis Birkans: And as I already mentioned, we are not incorporating any interest rate changes in our projections, and with that in mind, for 2024, we project NBH's fully taxable equivalent net interest income to be in the $357 to $362 million range.

Speaker Change: And as I already mentioned, we are not incorporating any interest rate changes in our projections and with that in mind for 2024, B project NBA <unk> fully taxable equivalent net interest income to be in the $357 million to $362 million range.

Aldis Birkans: In terms of asset quality, it remains strong. Our non-accrual loan ratio improved seven basis points to 0.37%, and our non-performing asset ratio also improved seven basis points to 0.42%.

Speaker Change: In terms of asset quality to remain strong our nonaccrual loan ratio improved seven basis points to 0.37%.

Speaker Change: And our nonperforming asset ratio also improved seven basis points to 0.42%.

Aldis Birkans: The fourth quarter's net charge outs are just two basis points annualized, and they finish the full year also with just two basis points off the net charges.

Speaker Change: The fourth quarter, the fourth quarter's net charge offs were just two basis points annualized.

Speaker Change: The full year also with just two basis points of net charge offs.

Aldis Birkans: During the quarter, we recorded a provision expense of $4.6 million and increased our allowance for occurrences to 1.27% of our total loss.

Speaker Change: During the quarter, we recorded a provision expense of $4 6 million and increased our allowance for credit losses to 127% of our total loans.

Aldis Birkans: Most of the ACL increase was to reserve for an existing non-performing loan.

Speaker Change: Most of the ACL increase most of the reserve for an existing nonperforming loan.

Aldis Birkans: We expect to work this loan out over the coming quarters, and we believe the specific reserve taken this quarter will be sufficient to cover the associated loan charges.

Speaker Change: We expect to work this loan out over the coming quarters, and we believe the specific reserve taken this quarter will be sufficient to cover the associated loan charge offs.

Aldis Birkans: Total non-interest income for the fourth quarter was $16.1 million, and for 2024, we project our total non-interest income to be in the range of $67 to $72 million.

Speaker Change: Total noninterest income for the fourth quarter was $16 1 million for 2024, we project our total noninterest income to be in the range of $67 million to $72 million.

Aldis Birkans: Non-interest expense for the fourth quarter totaled $62.1 million and was slightly elevated due to various non-occurring items totaling approximately $1 million.

Speaker Change: Noninterest expense for the fourth quarter totaled $62 1 million and was slightly elevated due to various nonrecurring items totaling approximately $1 million.

Aldis Birkans: Looking ahead for 2024, we project our total non-interest expense to be in the range of $253 to $258 million.

Looking ahead for 2024, we project our total noninterest expense to be in the range of $253 million to $258 million.

Aldis Birkans: Most of the lengthier interest expense, sorry, non-interest expense increase is driven by the continued investment into Unify.

Speaker Change: Most of the link to your interest expense non interest expense increase is driven by the continued investment into unified.

Aldis Birkans: which is projected to contribute approximately $10 million of the income.

Speaker Change: Which is projected to contribute approximately $10 million of the increase.

Aldis Birkans: The fourth quarter's 14.9% effective tax rate was lower than the prior quarter due to an additional $2 million of research and development tax credit.

Speaker Change: The fourth quarter was 14, 9% effective tax rate was lower than the prior quarter due to an additional $2 million somebody search and development tax credits.

Aldis Birkans: These tax credits are related to Unify build-out, and we expect to realize a similar amount in 2024.

Speaker Change: Stocks credits related to the to unify buildout and we expect to realize a similar amount in 2024.

Aldis Birkans: As such, we project 2024's effective tax rate to be in the 19 to 19.5% range.

Speaker Change: As such we project, 2024% effective tax rate to be in the 19 to 19, 5% range.

Aldis Birkans: As always, this projected tax rate excludes the FTE adjustment on entry.

Speaker Change: As always this projected tax rate excludes the FTE adjustment on interest income.

Aldis Birkans: In terms of capital management, we ended the quarter with a strong 8.96% TCE ratio and a 9.74% Tier 1 leverage ratio.

Speaker Change: In terms of capital management, we ended the quarter with a strong 896% TCE ratio and a 974% tier one leverage ratio.

Aldis Birkans: As I already mentioned, tangible book value per share grew 10.4% during 2023 to $22.77.

Speaker Change: As I already mentioned tangible book value per share grew 10, 4% during 2023 to $22 77.

Aldis Birkans: In terms of the share count, we project diluted shares outstanding to the main around $38.1 million.

Speaker Change: In terms of.

Speaker Change: The share count we project diluted shares outstanding to remain around $38 1 million shares.

Speaker Change: And with that, I will turn it back to you. Thank you, Aldis. Well, we believe we're well positioned to deliver solid results during 2024 while also making meaningful investments that we believe will future-proof our company. As previously discussed, we had a focus on building capital during 2023. We now believe we're well positioned to support organic growth, M&A activity, and buybacks should the opportunity present themselves.

Speaker Change: And with that I will turn it back to you. Thank you all of this while we believe we are well positioned to deliver solid results. During 2024, while also making meaningful investments that we believe will future proof our company as previously discussed we had a focus on building capital during 2023.

Speaker Change: We now believe we're well positioned to support organic growth M&A activity and buyback should the opportunity present themselves.

Speaker Change: Having said this, I want to be clear that we'll prudently manage capital and liquidity as we prepare for a broad range of economic environments. On that note, Ana, I'll ask you to open up the call for questions.

Speaker Change: Having said this I want to be clear that we will prudently manage capital and liquidity as we prepare for a broad range of economic environments on that note I'll ask you to open up the call for questions.

Ana: Yes, sir. Thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Speaker Change: Yes, Sir Thank you and if you would like to ask a question. Please signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.

Ana: Once again, that is star one if you would like to ask a question.

Speaker Change: And once again that is star one if you would like to ask a question.

Ana: and we'll pause for just a moment.

Speaker Change: Well pause for just a moment.

Speaker Change: Thank you.

Speaker Change: All right, and we'll now take our first question from Jeff Rulis with D.A. Davidson.

Speaker Change: And we will now take our first question from Jeff <unk> with D. A Davidson.

Jeffrey Allen Rulis: Thanks. Good morning.

Jeff: Thanks, Good morning, Tim.

Jeffrey Allen Rulis: Wanted to circle back to your sort of last comment there on capital and loop in.

Jeff: Wanted to circle back to your sort of last comment there on capital Lupin.

Jeffrey Allen Rulis: All this is kind of flattish share count. I guess on the...

Jeff: All of this is kind of flattish share count I guess on that.

Speaker Change: Tim, you mentioned the focus this year has been building capital and you kind of talked about you can support a number of options in 24. Did that flattish share count?

Speaker Change: Tim You mentioned the focus this year has been building capital.

Speaker Change: Talked about you can support.

Speaker Change: Number of options in 'twenty Ford did that flattish share count.

Speaker Change: I just wanted to clarify what that means.

Speaker Change: Assume that you think you'll be active on the buyback front I just wanted to clarify what that meant.

Tim Laney: No, not necessarily. Actually, it seems that we will not be active. We don't really issue that many shares throughout the year, so it feels like the fully diluted share count is going to be staying.

Speaker Change: No not necessarily actually assumes that we will not be active.

Speaker Change: We don't really issue that many shares throughout the year. So it feels like the fully diluted share count is going to be staying.

Tim Laney: Unchanged, and it does not incorporate any M&A and or buyback activity. Said another way, obviously, flat unless we do have the opportunity to buy back at the right price.

Speaker Change: Unchanged and it does not incorporate any M&A and order buyback activity set another way, obviously flat flat unless we do have the opportunity to buy back at the right price.

Speaker Change: Okay. And Tim, just on the kind of M&A, I don't know if that.

Speaker Change: Okay.

Speaker Change: Tim just on the kind of M&A I don't know if that's any.

Speaker Change: Any more attractive pullback in rates? I guess some assumption that deals can come together if fair value is less of a headwind. But any thoughts in your conversations about kind of M&A appetite?

Speaker Change: Any more attractive.

Speaker Change: The pullback in rates and I guess, some assumption that.

Speaker Change: Deals can come together at fair values less of a headwind, but any any thoughts in your conversations about kind of M&A appetite.

Speaker Change: Well, I think you hit the nail on the head. You know, it's all about getting to fair value. And, you know, we were purposeful in really not working the pipeline in 2023. As we closed out 23, we began to resume conversations. And I would describe our M&A focus as being very targeted. And maybe I should leave it at that.

Speaker Change: Well I think you hit the nail on the head, it's all about getting to fair value and we were purposeful in really.

Speaker Change: Not working the pipeline in 2023 as we closed out 2003, we began to resume conversations.

Speaker Change: And I.

Speaker Change: I would I would describe our M&A focus has been very targeted.

Speaker Change: And maybe I should leave it at that.

Speaker Change: Fair enough.

Speaker Change: And then, you know, kind of to the past, the deals that you have acquired and looking at that loan growth outlook, how have some of those kind of newer acquired markets performed from a growth standpoint? And maybe if you could just touch on the growth broad base in the footprint, if there are some areas of particular strength.

Speaker Change: And then kind of to the past the deals that you have acquired and looking at that loan growth outlook I will have some of those newer acquired markets.

Speaker Change: Performed from a growth standpoint, and and maybe if you could just touch on the growth broad based in the footprint there are some areas.

Speaker Change: Of particular strength.

Speaker Change: Yes.

Speaker Change: uh

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Speaker Change: As it relates to the last two acquisitions, we remain very pleased with the Utah-based Rock Canyon acquisition and the Wyoming Jackson Hole-based Bank of Jackson Hole. I will say as it relates to the Bank of Jackson Hole, because we do have more conservative house limits on how much commercial real estate will hold, it created a lot of work for our teams as we balanced our other commercial real estate production in the company with what we do in Bank of Jackson Hole. And I'm pleased to say that the teams hit their objectives in terms of not only reducing exposure, but getting us to a point where we have capacity for our best clients as we enter 2024. So I think we're in a good position there.

As it relates to the last two acquisitions, we remain very pleased with the Utah based fraud Canyon acquisition and the Wyoming Jackson hole based bank of Jackson hole.

We will say as it relates to the bank of Jackson hole, because we do have more conservative house limit on how much commercial real estate will hold.

Speaker Change: It created a lot of work for our teams as we balanced our other commercial real estate production and the company with what.

Speaker Change: We do it and bank of Jackson hole, and I'm pleased to say that the teams hit their objectives in terms of.

Speaker Change: Not only reducing exposure, but getting us to a point, where we have capacity for our best clients as we enter 2024. So I think we're in a good position there as it relates to rock Canyon, a lot of the learnings coming out of rock Canyon are being applied to the rest of our organization is it.

Speaker Change: as it relates to Rock Canyon. A lot of the learnings coming out of Rock Canyon are being applied to the rest of our organization as it relates to the generation of SBA business. While SBA loan sales right now are not exactly top of market, we believe that that timing may be okay and that it's giving us the opportunity to really build out that capability throughout our franchise. And I think that could be a very nice growth contributor for us as we look down the road. In fact, we're on the verge of making some pretty serious organizational changes as that next step or as the next step in supporting that particular growth. In terms of markets, I'm really proud of our team in the Midwest based out of Kansas City. We've seen really nice growth coming out of that market. You know, we've historically described that market as kind of a middle-of-the-road solid player. But, you know, that's a market that's really stepped up.

Speaker Change: Relates to the generation of SBA business, while SBA loan sales right now are not exactly top of market. We believe that that timing may be okay. In that it's giving us the opportunity to really build out that capability throughout our franchise and I think that could be a very nice growth contributor for.

Speaker Change: As we look down the road and in fact, we're on the verge of making some pretty serious organizational changes is that next step as the next step in supporting that.

Speaker Change: That particular growth.

Speaker Change: In terms of of market I'm really proud of our our team in the Midwest based out of Kansas City, we've seen really nice growth coming out of that market. We've historically described that market as kind of middle of the road solid player but.

Speaker Change: That's a market that's really stepped up.

Speaker Change: I'll jokingly say I think it's got something to do with Taylor Swift and the Chiefs, but there is momentum in that market that we're benefiting from. The front range of Colorado is pretty obvious. Utah is pretty obvious. We like what we're seeing in terms of potential in Idaho now as we've entered that market through the Bank of Jackson Hole acquisition. We would like to do more in Texas, whether that's through acquisitions or organic growth or both.

Speaker Change: Jokingly say I think it's got something to do with Taylor Swift achieved but there is momentum in that market that we're benefiting from the front range of Colorado was pretty obvious Utah's pretty obvious.

Speaker Change: We like what we're seeing in terms of potential.

Speaker Change: Idaho now as we enter that market through the bank of Jackson hole acquisition and.

Speaker Change: We would like to do more in Texas, whether thats through acquisitions or organic growth.

Speaker Change: Or both.

Speaker Change: Thanks, Tim. And one last one, if I could squeeze it in there for all this. Just on the margin, if you could just remind us, I know that the outlook didn't incorporate Fed moves, but just up, down, sideways on impact of maybe no cuts, three cuts, six cuts this year, just to kind of frame up what you think the impact and margin in a vacuum would be. Yeah. Well, in a vacuum, I'll say that the way we model and will be part of our K disclosure that we are rate neutral. So, we've closed out all of our asset sensitivity that we had over the last several years in that theoretical model.

Speaker Change: Thanks, Tim and one last one if I could squeeze it in there for all of this just on the margin if you could just remind us.

Speaker Change: I know that the outlook didn't didn't incorporate.

Speaker Change: Fed moves, but just up down sideways odd impact of maybe no cuts re cut six cuts. This year just to kind of frame up what you think the impact to margin.

Speaker Change: Q would be yes.

Speaker Change: I will say that.

Speaker Change: The way, we model and will be part of our K disclosure that we are right neutral. So we've closed out of all of our asset sensitivity.

Speaker Change: We had over the last several years.

Speaker Change: And in that theoretical model.

Speaker Change: We would not benefit or be hurt by rate movements up or down for that matter, but the reality as we all know, we'll see how the deposit pricing moves and loan volumes come on obviously because the ability to grow the earning asset is a big contributor to maintaining the margin where it is today as well.

Speaker Change: Worldview.

Speaker Change: Not benefit or be hurt by rate movements up or down for that matter.

Anna: Good morning, everyone, and welcome to the National Bank Holdings Corporation 2023 Fourth Quarter Earnings Call. My name is Anna, and I will be your conference operator for today. At this time, all participants are in a listen-only mode.

Speaker Change: But the reality is we all know we'll see how the deposit pricing moves in.

Speaker Change: Low volumes come on obviously, because the ability to grow the earning asset is big contributor to maintaining margin where it is today as well.

Operator: 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. Thank you, Anna, and good morning.

Speaker Change: Okay, but a good jump off point would just be that 383, is that what you'd point to core kind of going into 2015?

Speaker Change: Okay.

Speaker Change: Good jump off point would just be that that 383 is that would you point to core.

Speaker Change: Kind of going into 'twenty.

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. The actual results could differ materially from those discussed today.

Speaker Change: That is correct. 383 is where we're jumping off into 2024. One thing I will say that we did purposefully ran off our investment portfolio during the second half of 2023 in order to maintain the less than $10 billion asset size by December 31. I do expect to rebuild that investment portfolio by about $200 million in addition to where we sit today. That clearly is a lower yielding asset that's coming on. So that might impact that.

Speaker Change: That is correct 383 years will be jumping off into 2020 for one thing I will say that we did purposefully.

Speaker Change: Our investment portfolio during the second half of 2023.

Speaker Change: In order to maintain the less than $10 billion asset size by December 31, I do expect to rebuild that investment portfolio by about $200 million. In addition to where we sit today that clearly is a lower yielding asset that's coming on.

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 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.nationalbankholdings.com. It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman, President, and CEO, Mr. Tim Laney. Thanks, Emily.

Speaker Change: So that might impact that.

Speaker Change: Calculation of percentage calculation for margin, which is why it really geared towards the giving the net interest income.

Speaker Change: calculation of percentage calculation for margin, which is why I really geared towards the giving the net interest income as the guidance for this year.

Speaker Change: Is the guidance for this year.

Speaker Change: Perfect. Thanks, Seth. Thanks, Seth. I'm Justin.

Speaker Change: Perfect.

Speaker Change: Alright.

Speaker Change: Yep, I got you. Thank you.

Speaker Change: I gotcha. Thank you.

Speaker Change: Okay.

Speaker Change: We will now take our next question from Matt <unk> with J B W.

Matt: Hey, guys good morning.

Matt: Hey, Good morning, I know you are a little bit limited.

Matt: What youll disclose about Cambridge, but I was wondering if you could give any color on maybe how you are using it.

Matt: It was able to be used to help.

Matt: And some of that strong loan growth that we saw this quarter.

Speaker Change: It has certainly been a contributor to liquidity. Canberra is performing within expectations. We're making additional investment in Canberra that will give us even more flexibility with Canberra as we march through 2024. And that will translate into not only continuing to be a source of liquidity, but actually enhancing the income for the bank as we develop out those capabilities. Aldis, what would you add? I think you summarized it well. I'll say that in the fourth quarter, if you look at our deposit growth, that was not good.

Matt: It has certainly been a contributor to the liquidity camber is.

Tim Laney: Good morning, and thank you for joining us as we discuss the National Bank Holdings fourth quarter and full year 2023 financial results. I'm joined by Aldis Birkans, our Chief Financial Officer. Solid fourth quarter results contributed to a record full year earnings of $3.72 per share.

Matt: Forming within expectations, we're making additional investment and camber that will give us even more flexibility.

Matt: With.

Matt: Camber as we March through 2024 and.

Speaker Change: And that will translate into not only continuing to be a source of liquidity, but actually enhancing fee income for the bank as as we develop out those capabilities. All this what would you add I think you summarized it well I'll say that in the fourth quarter. If you look at our deposit growth that was.

Tim Laney: We generated a return on average tangible common equity of 18.23%. We focused on growing capital during the year, and in fact, our CET1 capital ratio totaled 11.89% at year end. We enter 2024 from a position of strength. Credit quality remains strong, with just two basis points of net charge-offs for all of 2023.

Speaker Change: Not.

Aldis Birkans: generated on balance sheet. It was not generated from Canberra. That was our organic growth in the market footprints that we are in, but you summarized developing

Speaker Change: Hi generated on balance sheet. It was not generated from camber that was.

Speaker Change: Organic organic growth in our market footprint that we are in.

Speaker Change: But yes.

Speaker Change: To summarize the Belgium.

Speaker Change: Great. Thanks for that. I'm wondering if we could touch on maybe non-interest-bearing deposits. I know we've seen a lot of banks here seeing some outflows. Has this slowed down at all towards the end of the year and into January at all? Are you seeing the pace of decline slow down at all?

Tim Laney: We like what we're seeing in client activity, and we continue to benefit from operating in strong markets. We remain focused on earning the full relationship of our clients, and we're prepared to navigate any economic environment that we may face. Aldis, on that note, I'll turn the call over to you. All right. Well, thank you, Tim, and good morning.

Speaker Change: Great Thanks for that.

Speaker Change: Wondering if we could touch on maybe non interest bearing deposits I know, we've seen a lot of.

Speaker Change: Other banks are seeing some outflows as this.

Speaker Change: It slowed down at all towards the end of the year and into January at all or are you seeing the pace of decline slowed down at all.

Speaker Change: We've definitely seen a slowdown in the pace of outflows, if you call that. Whether it's stabilizing here or not, it's almost a daily adventure as you come in and see how the accounts are being utilized from the night before and the ACH files in the morning. So whether we call it bottom here, I don't know, but we've certainly seen a significant slowdown in the flows out.

Speaker Change: Okay.

Speaker Change: We've definitely seen a slowdown in the pace of outflows if you call that.

During this call, I will cover the financial highlights for both the fourth quarter and the full year, as well as share our guidance for 2024. Consistent with our past practice, our guidance does not include any future interest rate policy changes by the Fed. We are cautiously optimistic about the economic outlook in our footprint markets, and our projections do not reflect the recessionary environment either. As we reported in last night's release, we delivered another strong quarter of financial performance and finished the year with record net revenues and record net income. For the fourth quarter, we reported net income of $33.1 million, or earnings per diluted share of 87 cents.

Speaker Change: Whether it's stabilizing here or not.

Speaker Change: Almost daily adventure as you come in and see how.

Speaker Change: How the accounts are being.

Speaker Change: Utilized from.

Speaker Change: From the <unk> 94 in ACI trials in the morning. So.

Speaker Change: Whether we call it bottom here I don't know, but we certainly seen a significant slowdown in the flows out.

Speaker Change: Okay, great. And if I could just sneak one more in here on credit, obviously everything

Speaker Change: Okay, Great and then if I could just sneak one more in here on credit obviously everything's.

Speaker Change: Looking great. And you guys had a great year in credit. Just wondering if, I know you're not assuming a recession, but if we do get some more problems here in 2024, what will you be watching more closely?

Speaker Change: Great and you guys have had a great year in credit just wondering.

Speaker Change: If I know youre, not assuming a recession, but if we do get some more problems here in 'twenty 'twenty four what will you be watching more closely.

With a full year 2023, our net income was a record $142 million, and we reported a solid 18.2% return on our tangible common equity. During 2023, we grew our loan book by 6.6%, improved our core deposit base and liquidity by completing the strategically important Canberra acquisition, and grew our tangible common book value per share by 10.4%. We continue to be pleased with our bankers' continued focus on building robust new client relationships. During the quarter, our loan balances grew $220.3 million, or 11.7% annually.

Speaker Change: Well, as a reminder, we do stress test our portfolio twice a year with our internal team once a year with an external team the second. And, you know, it helps us because it's a very granular review. It helps us proactively identify emerging issues. And so our our position has always been to take these issues and deal with them as as rapidly as possible with the fundamental belief that problems in banking don't tend to age well. So as we stress test into different recession or economic downturns, I can tell you, even in the worst of scenarios, and that's where we're talking about a scenario worse than the Great Recession. But. The company still comes out on the other side of that well capitalized, so we feel we feel like we're well positioned and the teams are vigilant. I would make the case.

Speaker Change: Yes.

Speaker Change: As a reminder, we do stress test our portfolio twice a year.

Speaker Change: With our internal team once a year with an external team.

Speaker Change: The second and.

Speaker Change: It helps us because it is a very granular review it helps us to proactively identify.

Speaker Change: Emerging issues and so our our position has always been to take these issues and deal with them as rapidly as possible.

Speaker Change: With the fundamental belief that problems in banking don't tender age well so.

We operate in markets that are outperforming the broad national economic indicators on many fronts. However, our outlook for 2024 cannot ignore the possibility of a slowing economy. For 2024, we project net loan balance growth in the mid-single digits. Fully taxable equivalent net interest margin for the quarter was 3.95% and was held by the receipt of a $2.9 million loan prepayment.

Speaker Change: As we stress tested the different recession or economic downturns.

Speaker Change: I can tell you even in the worst of scenarios and that's where we're talking about a scenario worse than the great recession. The company still comes out on the other side of that well capitalized. So we feel we feel like we're well positioned.

Speaker Change: And the teams are vigilant I would make the case.

Speaker Change: that a fair amount of the business that's being underwritten in the current environment will end up being some of the strongest business in the portfolio because it is being underwritten to more conservative standards than even in the past. It's being underwritten with an expectation that rates could go even higher. And so I'm particularly pleased with what I'm seeing in terms of coming on new business and certainly the age portfolio, as you can determine from the credit metrics, is performing quite well.

Excluding this additional loan fee income, our net interest margin was still a strong 3.83%, and our total deposit beta for this rate cycle to date has been 34%. And as I already mentioned, we are not incorporating any interest rate changes in our projections, and with that in mind, for 2024, we project NBH's fully taxable equivalent net interest income to be in the $357 to $362 million range. As for asset quality, it remains strong. Our non-accrual loan ratio improved seven basis points to 0.37%, and our non-performing asset ratio also improved seven basis points to 0.42%. The fourth quarter's net charge-outs are just two basis points annualized, and they finish the full year also with just two basis points off the net charges. During the quarter, we recorded a provision expense of $4.6 million and increased our allowance for occurrences to 1.27% of our total losses.

Speaker Change: That a fair amount of the business that's been underwritten in the current environment will end up being some of the strongest business in the portfolio because it has been underwritten to more conservative standards than even in the past.

Speaker Change: It's.

Speaker Change: Being underwritten with <unk>.

Speaker Change: Expectations that rates could go even higher.

And so.

Speaker Change: Im, particularly pleased with what I'm seeing in terms of coming on new business and certainly.

Speaker Change: The AG portfolio as you as you can determine from the credit metrics is performing quite well.

Speaker Change: Awesome well, thank you fragile questions.

Speaker Change: Awesome. Well, thank you for answering all the questions.

Speaker Change: You bet. Thank you, Matt. Thanks, Matt.

You bet, Thank you, Matt and thanks, Matt.

Speaker Change: And once again that is star one if you would like to ask a question. We will take our next caller, who is Andrew <unk> with Stephens.

Speaker Change: And once again, that is star one. If you would like to ask a question, we'll take our next caller, who is Andrew Terrell with Stephen.

Speaker Change: Okay.

Andrew Brian Liesch: Hey, good morning.

Andrew: Hey, good morning.

Andrew Brian Liesch: Good morning.

Andrew: Good morning.

Andrew Brian Liesch: Um, maybe just to start, Tim, on, um, to unify, wanted to get a sense here on whether or not, I guess, one, are there any expectations baked in the fee income guide you provide or the expense guide you provide? Are there any expectations of incremental revenue or expenses from

Andrew: Maybe just to start Tim on.

Andrew: To unify and wanted to get a sense here on whether or not I guess, one are there any expectations baked in the fee income guide you provided the expense guidance. You provided is there any expectations of incremental revenue or expense saves from.

Andrew Brian Liesch: from 2Unify within that guidance. And then I think if I recall correctly that you would be in friends and family testing in 2024. Can you just talk about kind of your expectations in 2024 for 2Unify? Kind of what are you working towards or hoping to accomplish throughout this year?

Andrew: From to unify within that guidance.

Andrew: I think if I recall correctly that you would be in friends and family testing in 2024 can you just talk about kind of your expectations in 2024 four to unify kind of what are you working towards are hoping to accomplish throughout this year.

Most of the ACL increase was to reserve for an existing non-performing loan. We expect to work this loan out over the coming quarters, and we believe the specific reserve taken this quarter will be sufficient to cover the associated loan charges. Total non-interest income for the fourth quarter was $16.1 million, and for 2024, we project our total non-interest income to be in the range of $67 to $72 million. Non-interest expense for the fourth quarter totaled $62.1 million and was slightly elevated due to various non-occurring items totaling approximately $1 million.

Speaker Change: Andrew, your memory serves you well. That's exactly right. We're targeted to go into friends and family testing in the second half of this year. I'm pleased to report that all of the work around 2Unify is on budget and on time, and we grow increasingly encouraged by what we're seeing in terms of the unique capabilities that are being built.

Speaker Change: Andrew Your memory serves you well that's exactly right were targeted to go into friends and family testing in the second half of this year I'm pleased to report that all of the work around to unify is on budget and on time and we grow increasingly encouraged by what we're seeing.

Speaker Change: And in terms of the unique capabilities that are being built.

Speaker Change: Hi.

Speaker Change: I uh

Speaker Change: I suspect a number of my two Unified teammates are listening in, and so I'll just make this public statement that it's our intention to be out sometime in the second half of this year in something that might simulate a roadshow where we'll be going very deep on to Unified. I can tell you we're excited to share more at the right time. Again, the expenses have been embedded. What I'm pleased with there is that we continue to manage overall company expense while not only making investment into Unified, but as I referenced earlier, continuing to invest in Canberra, as well as continuing to invest in particular in security-based technology. If you ask me what I think the industry should be worrying about in 24, I would put four. Fraud and the increasing activity around fraud on the list first with credit below that. We are just hyper-focused on fraud management, protecting our clients, and protecting the bank.

Speaker Change: I suspect a number of my two unified teammates are listening in and so I'll just make this public statements that it's our intention to be out sometime in the second half of this year and something that might stimulate a road show where we were.

Looking ahead for 2024, we project our total non-interest expense to be in the range of $253 to $258 million. Most of the lengthier interest expense, sorry, non-interest expense increase is driven by the continued investment into Unify, which is projected to contribute approximately $10 million of the income. The fourth quarter's 14.9% effective tax rate was lower than the prior quarter due to an additional $2 million of research and development tax credit.

Speaker Change: We'll be going very deep bond to unify.

Speaker Change: I can tell you we're excited to share more at the right time.

Speaker Change: Again, the expenses have been embedded what I'm pleased with there is that we continue to manage overall company expense, while not only making investment into unified but as I referenced earlier, continuing to invest and camber as well as continuing to invest in particular.

In security based technology.

If you asked me what I think the industry should be worrying about 24.

These tax credits are related to Unify build-out, and we expect to realize a similar amount in 2024. As such, we project 2024's effective tax rate to be in the 19 to 19.5% range. As always, this projected tax rate excludes the FTE adjustment on entry.

Speaker Change: I would put fraud and the increasing activity around fraud.

Speaker Change: On the list first with credit below that so we are just hyper focused on fraud management protecting our clients and protecting the bank.

Speaker Change: That's very helpful, Tim. I really appreciate all the color there. If I got to ask maybe another on just the mortgage business, can you remind us, just as volumes have kind of come down over the past couple of years, have there been any changes you've made within your mortgage business? And I'm really just trying to get a sense of how you think about kind of potential upside there should rates come down and mortgage rates come down as well.

Speaker Change: That's very helpful. Tim I really appreciate all the color there.

Speaker Change: If I kind of ask maybe another on just.

Tim Laney: The mortgage business can you remind us just as volumes have kind of come down over the past couple of years have there been any changes you've made.

In terms of capital management, we ended the quarter with a strong 8.96% TCE ratio and a 9.74% Tier 1 leverage ratio. As I already mentioned, tangible book value per share grew 10.4% during 2023 to $22.77. In terms of the share count, we project diluted shares outstanding to be mainly around $38.1 million.

Tim Laney: Within your mortgage business and I'm really just trying to get a sense of how you think about kind of potential upside there.

Tim Laney: Should rates come down and mortgage rates come down as well.

Tim Laney: Yes.

Tim Laney: We in fact have I'm proud of the.

Tim Laney: Mortgage banking leadership team.

Tim Laney: Probably do some of the more difficult work in times like these and that they have made a commitment to never losing money in that business and the only way you can.

Tim Laney: And with that, I will turn it back to you. Thank you, Aldis. Well, we believe we're well positioned to deliver solid results during 2024 while also making meaningful investments that we believe will future-proof our company. As previously discussed, we had a focus on building capital during 2023. We now believe we're well positioned to support organic growth, M&A activity, and buybacks should the opportunity present itself. Having said this, I want to be clear that we'll prudently manage capital and liquidity as we prepare for a broad range of economic environments. On that note, Ana, I'll ask you to open up the call for questions. Yes, sir.

Tim Laney: Port that commitment is during slow times is bring down your staff and so they methodically brought down staffing over the course of 2023.

Tim Laney: And.

Tim Laney: In fact, we're a positive, albeit smaller than we've seen historically, but in fact were a positive contributor during the year. So.

Tim Laney: That leads to the second part of your question, which is.

Tim Laney: They also and again I think this is why their jobs are interesting and challenging at the same time, our continually recruiting and looking at building a pipeline to bring the right mortgage bankers back online at the right time. So I don't know almost anything you would add to that yeah, well I'll tell you in terms of my fee.

Tim Laney: The guidance for the 2024 embedded in there is mortgage.

<unk> or mortgage income that is similar to what we recognized in 2023.

Tim Laney: So I'll, let you kind of make judgment calls from there are other how the economy evolves and what the upside potential could be there and Andrew is exactly right. I mean, the reality of it is if rates drop we'll see greater activity. We're in we're certainly in markets that support the business and we we.

Operator: Thank you. And if you would like to ask a question, please signal by pressing star one on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment.

Tim Laney: We need to see we need to see downward rate movement.

Operator: Once again, that is star number one if you would like to ask a question, and we'll pause for just a moment. Thank you. All right, and we'll now take our first question from Jeff Rulis with D.A. Davidson. Thanks. Good morning.

Really realize that full potential.

Okay.

Speaker Change: Okay, got it. That's really helpful. And Aldis, you said in the 24 fee income guidance, a pretty stable level to this, call it $12 million or so.

Speaker Change: Got it that's really helpful and as.

Speaker Change: You said.

Speaker Change: And the 24 fee income guidance, I'm pretty stable level call it $12 million or so.

Aldis Birkans: of Mortgage Banking at 23.

Jeffrey Allen Rulis: Wanted to circle back to your sort of last comment there on capital and loop in. All this is kind of a flattish share count. I guess on the... Tim, you mentioned the focus this year has been building capital and you kind of talked about you can support a number of options in 24. Did that flattish share count? I just wanted to clarify what that means. No, not necessarily.

Speaker Change: Mortgage banking was 23.

Aldis Birkans: That's correct. Perfect. Well, thank you for taking the questions.

Speaker Change: That's correct.

Speaker Change: Perfect. Thank you for taking the questions.

Speaker Change: Yep, thanks so much.

Speaker Change: Thanks, so much.

Speaker Change: We'll now take a question from Andrew Liesch with Piper Sandler.

Speaker Change: Well now take a question from Andrew Liesch with Piper Sandler.

Andrew Brian Liesch: Hey, good morning everyone. All this on the rebuild of the securities book, how do you plan to fund those repurchases? Is it going to be just some of the cash you have on hand or are you going to go raise the pilots to complete that?

Andrew Brian Liesch: Hey, good morning, everyone.

Andrew Brian Liesch: Good morning, Oliver on these on the rebuild of the Securities book.

Speaker Change: How do you plan to fund those repurchases or is it going to be some of the cash you have on hand or are you going to.

Speaker Change: Got ready to pilots to complete that.

Speaker Change: It's going to be combination of I think we'd be sitting a little too much cash.

Andrew Brian Liesch: It's going to be a combination of, I think we're sitting a little too much cash.

Tim Laney: Actually, it seems that we will not be active. We don't really issue that many shares throughout the year, so it feels like the fully diluted share count is going to be staying. Unchanged, and it does not incorporate any M&A and or buyback activity. Said another way, obviously, flat unless we do have the opportunity to buy back at the right price. Okay. And Tim, just on the kind of M&A, I don't know if that's it.

Andrew Brian Liesch: you know still from March of last year type of perspective so it does not need to be as much cash on day-to-day so we'll probably repurpose some of that into an investment portfolio and then we'll go ahead and raise additional deposits to fund for increase in balance sheet there and again for us we use investment portfolio just a reminder I know everybody here knows on that on this front but we don't look for incremental necessarily yield due to credit or structure or whatever on an investment portfolio we look for liquidity and as a store of liquidity for us and therefore maintaining short duration and highly liquid asset is what we do and from how we manage liquidity and model liquidity is just implies that we need you know call it another two hundred million for the rest of this year in growth in this book to to

Speaker Change: Still from March of last year.

Perspective, so it does not need to be as much cash on day today. So we'll probably repurpose some of that into investment portfolio and then we'll go ahead and raise additional deposits to fund four increase in balance sheet, there and again for US we use investment portfolio, just a minor I know everybody here knows that.

Speaker Change: On this front, but.

Speaker Change: We don't look for incremental necessarily yield due to credit or structure or whatever on investment portfolio, we look for liquidity and as a store of liquidity for us and therefore, maintaining short duration.

Tim Laney: Any more attractive pullback in rates? I guess some assumption that deals can come together if fair value is less of a headwind. But any thoughts in your conversations about the kind of M&A appetite? Well, I think you hit the nail on the head. You know, it's all about getting to fair value. And, you know, we were purposeful in not working the pipeline in 2023. As we closed out 23, we began to resume conversations, and I would describe our M&A focus as being very targeted. And maybe I should leave it at that.

Speaker Change: And highly liquid asset is what we do and how we manage liquidity and model liquidity is just implies that we need.

Speaker Change: Another 200 million for rest of this year and growth in this book to two.

Andrew Brian Liesch: maintain a liquidity threshold.

Speaker Change: <unk> maintained our liquidity thresholds.

Speaker Change: Got it. That's helpful. And then is there any detail you can provide on the reserve that you set aside for that non-accrual loan? I guess maybe how long it's been you've identified it and what drove the increased provision this quarter as far as like just monitoring collateral or any update in their business?

Speaker Change: Got it.

Speaker Change: That's helpful. And then is there any detail you can provide on the on the reserve that you set aside for that non accrual loan I guess, how long it's been.

You've identified it and what sort of what drove the increase provision this quarter as far as like.

Tim Laney: And then, you know, kind of to the past, the deals that you have acquired and, looking at that loan growth outlook, how have some of those newer acquired markets performed from a growth standpoint? And maybe if you could just touch on the broad base in the footprint, if there are some areas of particular strength, uh, As it relates to the last two acquisitions, we remain very pleased with the Utah-based Rock Canyon acquisition and the Wyoming Jackson Hole-based Bank of Jackson Hole. I will say as it relates to the Bank of Jackson Hole, because we do have more conservative house limits on how much commercial real estate will hold, it created a lot of work for our teams as we balanced our other commercial real estate production in the company with what we do in Jackson Hole.

Speaker Change: <unk> collateral or any.

Speaker Change: A bit in their business.

Speaker Change: Yeah, maybe I'll start at a high level. And I'll reference a cooperative loan that we were discussing at the end of the third quarter. That has been resolved. We've had one other operating entity that you're referring to that we're dealing with now. I will say we're dealing with it in partnership with another bank, and it's moving a little more slowly than we would typically like. But I fully expect it to be resolved in the first half of this year. Strong collateral, strong operating potential, and again, believe we can have it resolved in the first half of this year. Aldis, you want to cover any more detail? Yeah, I'll just say of the provision expense of $4.6 million and better than there was approximately $2.5 million. So, that's a specific reserve related to this credit.

Speaker Change: Yes, maybe I'll.

Speaker Change: I'll start at a high level.

I'll reference.

Speaker Change: Cooperative long that we were discussing at the end of the third quarter that has been resolved.

Speaker Change: Had one other operating entity.

Speaker Change: That you're referring to that we're dealing with now I will say, we're dealing with it in partnership with another bank and it's moving a little more slowly than we would typically like but I fully expect it to be resolved.

Speaker Change: The.

Speaker Change: First half of this year strong collateral.

Speaker Change: Strong operating potential.

Speaker Change: And.

Speaker Change: Again believe we can we can have it resolved.

In the first half of this year all of this you want to cover any more detail I will just say of the provision expense of $4 6 million embedded in there was approximately $2 5 million specific reserve related to this credit.

Tim Laney: And I'm pleased to say that the teams hit their objectives in terms of not only reducing exposure but getting us to a point where we have capacity for our best clients as we enter 2024. So I think we're in a good position there, as it relates to Rock Canyon. A lot of the learnings coming out of Rock Canyon are being applied to the rest of our organization as it relates to the generation of SBA business.

Speaker Change: and, you know, come time that credit is being worked out, that certainly would become a charge-off, but our ACL total loans accordingly would drop by that percentage point, too,

Speaker Change: <unk>.

Speaker Change: Sometimes that credit is being worked out and that certainly would.

Speaker Change: From a charge off but our ACL to total loans accordingly would drop by that percentage 0.2 basis points to that.

Speaker Change: So we feel we are fully reserved for it. The ACL to toll loans is a little inflated because of that additional specific reserve.

Speaker Change: So we feel about it.

We are fully reserved for it.

Speaker Change: <unk> to total loans is a little inflated because of the additional specific reserve.

Speaker Change: Got it but it still seems like a decent portion of the allowance. This quarter was also for for growth is that right.

Speaker Change: Got it. So it still seems like a decent portion of the allowance quarter was also for growth. Is that right?

Tim Laney: While SBA loan sales right now are not exactly top of the market, we believe that the timing may be okay and that it's giving us the opportunity to really build out that capability throughout our franchise. And I think that could be a very nice growth contributor for us as we look down the road. In fact, we're on the verge of making some pretty serious organizational changes as that next step or as the next step in supporting that particular growth. In terms of markets, I'm really proud of our team in the Midwest, based out of Kansas City.

Speaker Change: Absolutely, yes.

Speaker Change: Absolutely yes.

Speaker Change: Okay, nothing else that you're seeing in the portfolio?

Speaker Change: Okay.

Speaker Change: Nothing else that youre seeing in the portfolio.

Speaker Change: I mean, look, the

Speaker Change: No I mean look.

Speaker Change: <unk>.

Speaker Change: As evidenced by performance in 2023, as well as all of our credit metrics, the portfolio on the whole remains very strong. And our vigilance around portfolio monitoring is at an all-time high given uncertainty around economic outcomes. So I feel like we've got a good handle on it.

Speaker Change: As evidenced by performance in 2023, as well as all of our credit metrics the portfolio on the whole remains very strong and.

Speaker Change: And our vigilance around portfolio monitoring is at an all time high given uncertainty around economic outcomes. So I feel like we've got a good handle on it.

Speaker Change: Hey, that's really helpful. Thanks for taking the questions here. I'll step back.

Speaker Change: Got it.

Speaker Change: Really helpful. Thanks for taking the questions here I'll step back.

Speaker Change: All right, thank you much.

Tim Laney: We've seen really nice growth coming out of that market. You know, we've historically described that market as kind of a middle-of-the-road solid player. But, you know, that's a market that's really stepped up. I'll jokingly say it's got something to do with Taylor Swift and the Chiefs, but there is momentum in that market that we're benefiting from. The front range of Colorado is pretty obvious.

Speaker Change: Alright, thank you much.

Speaker Change: Thank you and I am showing we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.

Speaker Change: Thank you and I am showing we have no further questions. At this time I will now turn the call back to Mr. Laney for his closing remarks.

Tim Laney: Thank you, Anna. And just quickly, we'll say thanks to everyone for joining today and for your interest in National Bank Holdings. Have a good day.

Tim Laney: Thank you Anna and just quicker.

Tim Laney: Quickly, we will say thanks.

Tim Laney: To everyone for joining today and for your interest and National Bank Holdings have a good day.

Speaker Change: Thank you.

Tim Laney: Sure.

Speaker Change: And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours, and the link will be on the company's website on the Investor Relations page.

Tim Laney: This concludes today's conference call, if you would like to listen to the telephone replay of this call will be available in approximately 24 hours.

Tim Laney: <unk> will be on the company's website on the Investor Relations page. Thank you very much and have a great day you may now disconnect.

Speaker Change: Thank you very much and have a great day. You may now disconnect.

Tim Laney: Utah is pretty obvious. We like what we're seeing in terms of potential in Idaho now that we've entered that market through the Bank of Jackson Hole acquisition. We would like to do more in Texas, whether that's through acquisitions or organic growth or both. Thanks, Tim.

Speaker Change: © transcript Emily Beynon

Speaker Change: © transcript Emily Beynon

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Tim Laney: Okay.

Speaker Change: ¶¶

Tim Laney: Sure.

Tim Laney: [music].

Just on the margin, if you could just remind us, I know that the outlook didn't incorporate Fed moves, but just up, down, sideways on the impact of maybe no cuts, three cuts, six cuts this year, just to kind of frame up what you think the impact and margin in a vacuum would be. Yeah. Well, in a vacuum, I'll say that the way we model and will be part of our K disclosure that we are rate neutral. So, we've closed out all of our asset sensitivity that we had over the last several years in that theoretical model. We would not benefit or be hurt by rate movements up or down for that matter, but the reality, as we all know, we'll see how the deposit pricing moves and loan volumes come on, obviously because the ability to grow the earning asset is a big contributor to maintaining the margin where it is today as well.

Speaker Change: ¶¶

Speaker Change: Thank you for watching!

Tim Laney: Okay.

Tim Laney: [music].

Speaker Change: Thank you. Thank you.

Tim Laney: Yes.

Tim Laney: [music].

Tim Laney: Yeah.

Okay, but a good jumping off point would just be 383. Is that what you'd point to as the core kind of going into 2015? That is correct. 383 is where we're jumping off into 2024.

One thing I will say that we purposefully ran off our investment portfolio during the second half of 2023 in order to maintain the less than $10 billion asset size by December 31. I do expect to rebuild that investment portfolio by about $200 million in addition to where we sit today. That clearly is a lower yielding asset that's coming on, so that might impact that calculation of the percentage calculation for margin, which is why I really geared towards giving the net interest income as the guidance for this year. Perfect. Thanks, Seth. Thanks, Seth. I'm Justin.

Tim Laney: Yep, I got you. Thank you. It has certainly been a contributor to liquidity. Canberra is performing within expectations.

We're making additional investment in Canberra that will give us even more flexibility with Canberra as we march through 2024. And that will translate into not only continuing to be a source of liquidity but actually enhancing the income for the bank as we develop those capabilities. Aldis, what would you add?

I think you summarized it well. I'll say that in the fourth quarter, if you look at our deposit growth, that was not good, generated on the balance sheet. It was not generated from Canberra.

That was our organic growth in the market footprints that we are in, but you summarized developing, Great. Thanks for that. I'm wondering if we could touch on maybe non-interest-bearing deposits.

I know we've seen a lot of banks here seeing some outflows. Has this slowed down at all towards the end of the year and into January at all? Are you seeing the pace of decline slow down at all?

We've definitely seen a slowdown in the pace of outflows, if you call that that. Whether it's stabilizing here or not, it's almost a daily adventure as you come in and see how the accounts are being utilized from the night before and the ACH files in the morning. So whether we call it bottom here, I don't know, but we've certainly seen a significant slowdown in the flows out.

Okay, great. And if I could just sneak one more in here on credit, obviously, everything is looking great. And you guys had a great year on credit.

Tim Laney: Just wondering if, I know you're not assuming a recession, but if we do get some more problems here in 2024, what will you be watching more closely? Well, as a reminder, we do stress test our portfolio twice a year with our internal team and once a year with an external team the second. And, you know, it helps us because it's a very granular review.

Tim Laney: It helps us proactively identify emerging issues, and so our position has always been to take these issues and deal with them as rapidly as possible, with the fundamental belief that problems in banking don't tend to age well. So as we stress test against different recessions or economic downturns, I can tell you, even in the worst of scenarios, and that's where we're talking about a scenario worse than the Great Recession.

Tim Laney: The company still comes out on the other side of that well capitalized, so we feel like we're well positioned and the teams are vigilant. I would make the case that a fair amount of the business that's being underwritten in the current environment will end up being some of the strongest business in the portfolio because it is being underwritten to more conservative standards than even in the past. It's being underwritten with an expectation that rates could go even higher.

Tim Laney: And so I'm particularly pleased with what I'm seeing in terms of coming on new business, and certainly, the age portfolio, as you can determine from the credit metrics, is performing quite well. Awesome. Well, thank you for answering all the questions. You bet. Thank you, Matt. Thank you, Matt. And once again, that is star number one.

Operator: If you would like to ask a question, we'll take our next caller, who is Andrew Terrell with Stephen. Hey, good morning. Good morning.

Um, maybe just to start, Tim, on, um, to unify. Wanted to get a sense here on whether or not, I guess, one, are there any expectations baked into the fee income guide you provide or the expense guide you provide? Are there any expectations of incremental revenue or expenses from 2Unify within that guidance? And then I think, if I recall correctly, that you would be in friends and family testing in 2024. Can you just talk about your expectations for 2Unify in 2024? Kind of what are you working towards or hoping to accomplish throughout this year? Andrew, your memory serves you well.

Tim Laney: That's exactly right. We're targeted to go into friends and family testing in the second half of this year. I'm pleased to report that all of the work around 2Unify is on budget and on time, and we are increasingly encouraged by what we're seeing in terms of the unique capabilities that are being built. I, uh, I suspect a number of my two Unified teammates are listening in, and so I'll just make this public statement that it's our intention to be out sometime in the second half of this year in something that might simulate a road I can tell you we're excited to share more at the right time.

Tim Laney: Again, the expenses have been embedded. What I'm pleased with there is that we continue to manage overall company expenses while not only making investment in Unified but, as I referenced earlier, continuing to invest in Canberra, as well as continuing to invest, in particular, in security-based technology. If you ask me what I think the industry should be worrying about in 24, I would put four.

Tim Laney: Fraud and the increasing activity around fraud are on the list first, with credit below that. We are just hyper-focused on fraud management, protecting our clients, and protecting the bank. That's very helpful, Tim. I really appreciate all the color there.

If I had to ask maybe another question on just the mortgage business, can you remind us, just as volumes have kind of come down over the past couple of years, have there been any changes you've made within your mortgage business? And I'm really just trying to get a sense of how you think about the kind of potential upside there should rates come down and mortgage rates come down as well. Okay, I got it. That's really helpful. And Aldis, you said in the 24 fee income guidance, a pretty stable level to this, call it $12 million or so, of Mortgage Banking at 23. That's correct.

Perfect. Well, thank you for taking the questions. Yep, thanks so much. We'll now take a question from Andrew Liesch with Piper Sandler. Hey, good morning everyone.

Andrew Brian Liesch: All this on the rebuild of the securities book, how do you plan to fund those repurchases? Is it going to be just some of the cash you have on hand or are you going to go raise the pilots to complete that? It's going to be a combination of, I think we're sitting a little too much cash, you know still from March of last year type of perspective so it does not need to be as much cash on day-to-day so we'll probably repurpose some of that into an investment portfolio and then we'll go ahead and raise additional deposits to fund for increase in balance sheet there and again for us we use investment portfolio just a reminder I know everybody here knows on that on this front but we don't look for incremental necessarily yield due to credit or structure or whatever on an investment portfolio we look for liquidity and as a store of liquidity for us and therefore maintaining short duration and highly liquid asset is what we do and from how we manage liquidity and model liquidity is just implies that we need you know call it another two hundred million for the rest of this year in growth in this book to to maintain a liquidity threshold.

Andrew Brian Liesch: Got it. That's helpful. And then is there any detail you can provide on the reserve that you set aside for that non-accrual loan? I guess maybe how long it's been since you identified it and what drove the increased provision this quarter as far as just monitoring collateral or any update in their business? Yeah, maybe I'll start at a high level.

Tim Laney: And I'll reference a cooperative loan that we were discussing at the end of the third quarter. That has been resolved. We've had one other operating entity that you're referring to that we're dealing with now. I will say we're dealing with it in partnership with another bank, and it's moving a little more slowly than we would typically like. But I fully expect it to be resolved in the first half of this year. With strong collateral, strong operating potential, and again, I believe we can have it resolved in the first half of this year. Aldis, you want to cover any more detail? Yeah, I'll just say about the provision expense of $4.6 million, and better than there was approximately $2.5 million. So, that's a specific reserve related to this credit, and, you know, come the time that credit is being worked out, that certainly would become a charge-off, but our ACL total loans accordingly would drop by that percentage point, too. So we feel we are fully reserved for it. The ACL to toll loans is a little inflated because of that additional specific reserve. Got it. So it still seems like a decent portion of the allowance quarter was also for growth.

Is that right? Absolutely yes. Okay, anything else that you're seeing in the portfolio? I mean, look, the As evidenced by performance in 2023, as well as all of our credit metrics, the portfolio, on the whole, remains very strong. And our vigilance around portfolio monitoring is at an all-time high given the uncertainty around economic outcomes.

Tim Laney: So I feel like we've got a good handle on it. Hey, that's really helpful. Thanks for taking the questions here. I'll step back. All right, thank you very much. Thank you, and I am showing that we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.

Unnamed Speaker: As we all know, we'll see how the deposit pricing moves and loan volumes come on, obviously, because the ability to grow the earning asset is a big contributor to maintaining margin where it is today as well. Okay, but a good jump-off point would just be 383, is that what you'd point to CORE kind of going into 2015? That is correct. 383 is where we're jumping off into 2024.

Anna: Thank you, Anna. And just quickly, we'll say thanks to everyone for joining us today and for your interest in National Bank Holdings. Have a good day. Thank you. And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours, and the link will be on the company's website on the Investor Relations page. Thank you very much and have a great day. You may now disconnect. Transcript Emily Beynon, Thank you for watching! Thank you. Thank you.

Unnamed Speaker: One thing I will say that we purposefully ran off our investment portfolio during the second half of 2023 in order to maintain the less than $10 billion asset size by December 31. I do expect to rebuild that investment portfolio by about $200 million in addition to where we sit today. That clearly is a lower-yielding asset that's coming on, so that might impact that calculation of the percentage calculation for margin, which is why I really geared towards giving the net interest income as the guidance for this year. Thanks for your time, Jeff. Yep, I got you.

Thank you. We'll now take our next question from Matt Sideraka with KBW. Hey guys, good morning. Good morning.

Unnamed Speaker: I know you're a little bit limited on what you'll disclose about Canberra, but I was wondering if you could give any color on maybe how you're using it and if it was able to be used to help fund some of the strong loan growth that we saw this quarter. It has certainly been a contributor to liquidity. Canberra is performing within expectations.

Unnamed Speaker: We're making additional investment in Canberra that will give us even more flexibility with Canberra as we march through 2024. And that will translate into not only continuing to be a source of liquidity but actually enhancing the income for the bank as we develop those capabilities. Aldis, what would you add?

Unnamed Speaker: I think you summarized it well. I'll say that in the fourth quarter, if you look at our deposit growth, that was not generated on the balance sheet. It was not generated from Canberra.

Unnamed Speaker: That was our organic growth in the market footprints that we are in. Great, thanks for that. I'm wondering if we could touch on maybe non-interest bearing deposits. I know we've seen a lot of banks here seeing some outflows. Has this slowed down at all towards the end of the year and into January at all?

Unnamed Speaker: Are you seeing the pace of decline slow down at all? We've definitely seen a slowdown in the pace of outflows, if you call that that. Whether it's stabilizing here or not, it's an almost daily adventure as you come in and see how the accounts are being utilized from the night before and ACH files in the morning. So whether we call it a bottom here, I don't know, but we've certainly seen a significant slowdown in the flows out.

Unnamed Speaker: Okay, great. And if I could just sneak one more in here on credit, obviously everything is looking great, and you guys had a great year on credit. Just wondering if, I know you're not assuming a recession, but if we do get some more problems here in 2024, what will you be watching more closely? Well, as a reminder, we do stress test our portfolio twice a year with our internal team and once a year with an external team the second. And it helps us because it's a very granular review and it helps us proactively identify emerging issues. And so our position has always been to take these issues and deal with them as rapidly as possible, with the fundamental belief that problems in banking don't tend to age well.

Unnamed Speaker: So as we stress test into different recessions or economic downturns, I can tell you even in the worst of scenarios, and that's where we're talking about a scenario worse than the Great Recession, the company still comes out on the other side of that well capitalized. So we feel we feel like we're well positioned, and the teams are vigilant. I would make the case that a fair amount of the business that's being underwritten in the current environment will end up being some of the strongest business in the portfolio because it is being underwritten to more conservative standards than even in the past. It's been underwritten with an expectation that rates could go even higher. And so I'm particularly pleased with what I'm seeing in terms of coming on new business, and certainly the age portfolio, as you can determine from the credit metrics, is performing quite well. Well, thank you for answering all the questions.

Andrew Brian Liesch: You bet. Thank you, Matt. Thanks, Matt. And once again, that is star number one. If you would like to ask a question, we'll take our next caller, who is Andrew Terrell with Stephen. Hey, good morning. Good morning.

Unnamed Speaker: Maybe just to start, Tim, on to UNIFI. I wanted to get a sense here on whether or not, I guess, one, are there any expectations baked into the fee income guide you provide or the expense guide you provide? Are there any expectations of incremental revenue or expense saves from, from to unify within that guidance? And then I think, if I recall correctly, that you would be in friends and family testing in 2024; can you just talk about kind of your expectations for 2024 to unify kind of what are you working towards or hoping to accomplish throughout this year? Andrew, your memory serves you well.

Unnamed Speaker: That's exactly right. We're targeted to go into friends and family testing in the second half of this year. I'm pleased to report that all of the work around 2Unify is on budget and on time, and we are increasingly encouraged by what we're seeing in terms of the unique capabilities that are being built. I, um, I suspect a number of my two UNIFI teammates are listening in, and so I'll just make this public statement that it's our intention to be out sometime in the second half of this year in something that might simulate a road show Again, the expenses have been embedded.

Unnamed Speaker: What I'm pleased with there is that we continue to manage overall company expenses while not only making investment in UNIFI but, as I referenced earlier, continuing to invest in Canberra as well as continuing to invest, in particular, in security-based technology. If you ask me what the industry should be worrying about in N24, I would put fraud and the increasing activity around fraud on the list first, with credit below that.

Unnamed Speaker: We are just hyper-focused on fraud management, protecting our clients, and protecting the bank. That's very helpful, Tim. I really appreciate all the color there.

Unnamed Speaker: If I could ask maybe another question on just the mortgage business. Can you remind us, just as volumes have kind of come down over the past couple of years, have there been any changes you've made within your mortgage business? And I'm really just trying to get a sense of how you think about the kind of potential upside there should rates come down and mortgage rates come down as well. Yeah, we actually have.

Unnamed Speaker: I'm proud of the mortgage banking leadership team. They probably do some of the more difficult work in times like these in that they've made a commitment to never losing money in that business. And the only way you can support that commitment during slow times is to bring down your staff. And so they methodically brought down staffing over the course of 2023.

Aldis Birkans: And in fact, we're a positive, albeit smaller than we've seen historically, but in fact, we're a positive contributor during the year. So that leads to the second part of your question, which is they also, and again, I think this is why their jobs are interesting and challenging at the same time, are continually recruiting and looking at building a pipeline to bring the right mortgage bankers back online at the right time. So I don't know Aldis. Anything you would add to that?

Aldis Birkans: Yeah, well, in terms of my fee guidance for 2024, embedded in there is mortgage benefit or mortgage income that is similar to what we recognized in 2023. So I'll let you kind of make judgment calls from there, whether you know how the economy evolves and what the upside potentially could be there. And Andrew's exactly right.

Unnamed Speaker: I mean, the reality of it is if rates drop, we'll see greater activity. We're certainly in markets that support the business, and we need to see a downward rate movement to really realize that full potential. Okay.

Unnamed Speaker: That's really helpful. And as you said, in the 24 fee income guidance, a pretty stable level to this, call it 12 million or so, from Mortgage Bank 123. Okay, perfect. Well, thank you for taking the question. Yeah, thanks so much. We'll now take a question from Andrew Liesch with Piper Sandler. Hey, good morning, everyone.

Andrew Brian Liesch: All this on these, on the rebuild of the securities book. How how do you plan to fund those repurchases? Is it going to be just some of the cash you have on hand?

Unnamed Speaker: Or are you going to go raise deposits to complete that? It's going to be a combination of, I think we're sitting on a little too much cash. You know, still from March of last year type of perspective, so it does not need to be as much cash on hand day-to-day.

Aldis Birkans: So we'll probably repurpose some of that into an investment portfolio, and then we'll go ahead and raise additional deposits to fund an increase in the balance sheet there. And again, for us, we use the investment portfolio just as a reminder. I know everybody here knows on this front, but we don't necessarily look for incremental yield due to credit or structure or whatever on an investment portfolio. We look for liquidity, and that's a store of liquidity for us, and therefore, maintaining short duration and highly liquid assets is what we do.

Unnamed Speaker: And from how we manage liquidity and model liquidity, it just implies that we need, you know, call it another $200 million for the rest of this year in growth and this bulk to maintain a liquidity threshold. Got it. That's helpful. And then, is there any detail you can provide on the reserve that you set aside for that non-accrual loan? I guess maybe how long it's been since you identified it and what what's all the increased provision this quarter, as far as just monitoring collateral or any update in their business? Yeah, maybe I'll start at a high level.

Aldis Birkans: And I'll reference a cooperative loan that we were discussing at the end of the third quarter that has been resolved. We've had one other operating entity that you're referring to that we're dealing with now, I will say, we're dealing with it in partnership with another bank, and it's moving a little more slowly than we would typically like. But I fully expect it to be resolved in the first half of this year, with strong collateral and strong operating potential. And, again, believe we can. We can have it resolved in the first half of this year. Aldis, you want to cover any more detail? Yeah, I'll just say that of the provision expense of $4.6 million, embedded in there was approximately $2.5 million of specific reserve related to discredit.

Aldis Birkans: And come the time that credit is being worked out, that certainly would become a charge-off, but our ACL to toll loans accordingly would drop by that percentage point, too, or basically. So we are fully reserved for it. The AC El Pato loans are a little inflated because of that additional specific reserve. Okay. But it still seems like a decent portion of the allowance square was also for growth.

Unnamed Speaker: Is that right? Absolutely. Okay, anything else that you're seeing in the portfolio? Now, I mean, look. As evidenced by performance in 2023, as well as all of our credit metrics, the portfolio on the whole remains very strong, and our vigilance around portfolio monitoring is at an all-time high given uncertainty around economic outcomes.

Unnamed Speaker: So I feel like we've got a good handle on it. Hey, that's really helpful. Thanks for taking the questions here. I'll step back. All right.

Thank you, Mark. Thank you, and I am showing that we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.

Operator: Thank you, Anna. And just quickly, we'll say thanks to everyone for joining us today and for your interest in National Bank Holdings. Have a good day. Thank you. And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours, and the link will be on the company's website on the Investor Relations page. Thank you very much and have a great day. You may now disconnect, and Matt Olney.

Unnamed Speaker: Thank you.... Thanks for watching and till next week! and and and and and and and and and and and