Q1 2024 National Bank Holdings Corp Earnings Call
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Shelley: Good morning everyone, and welcome to the National Bank Holdings Corporation 2024 First Quarter Earnings Conference Call. My name is Shelley, 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. Please go ahead.
Good morning, everyone and welcome to the National Bank Holdings Corporation, 'twenty 'twenty four first quarter earnings conference call.
Emily Gooden: My name is Shelly and I will be your conference operator for today.
Shelley: At this time all participants are in a listen only mode.
Shelley: As a reminder, this conference is being recorded for replay purposes.
Shelley: Now I'll turn the call over to Emily Gooden Director of Investor Relations. Please go ahead.
Emily Gooden: Thank you, Shelly, and good morning. We will begin today's call with prepared remarks followed by a question-and-answer session. I would like to remind you that this conference call will contain forward-looking statements, including but not limited to statements regarding the company's strategy, loans, deposits, capital, net interest income, non-interest income, margins, allowance, taxes, and non-interest expense. Actual results could differ materially from those discussed today
Emily Gooden: Thank you Kelly and good morning, we will begin today's call with prepared remarks, followed by a question and answer session.
Emily Gooden: 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 margin allowance.
Emily Gooden: Texas and non interest expense.
Emily Gooden: Actual results could differ materially from those discussed today.
Emily Gooden: These forward-looking statements are subject to risk, 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.
Emily Gooden: These forward looking statements are subject to risks and.
Emily Gooden: Certainties and other factors, which are disclosed in more detail in the company's most recent filings with the U S Securities and Exchange Commission.
Emily Gooden: 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 Gooden: 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: 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 Chairman, President, and CEO, Mr. Tim Laney.
Emily Gooden: Reconciliations of these non-GAAP financial measure 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 infra.
Tim Laney: National Bank Holdings Corporation.
Emily Gooden: Chairman President and CEO, Mr. Tim Laney, Thanks, Tim Lee Good morning, and thank you for joining us as we discuss National Bank Holdings first quarter results I'm joined by our Chief Financial Officer all of this FERC.
Tim Laney: Thanks, Emily. Good morning, and thank you for joining us as we discuss National Bank Holdings' first quarter results. I'm joined by our Chief Financial Officer, Aldis Birkans. We delivered quarterly earnings of $0.82 per diluted share and a return on tangible common equity of 15.14%. Credit remains strong with zero basis points of annualized charge-offs.
Tim Laney: We delivered quarterly earnings of 82 cents per diluted share and our return on tangible common equity of 15, 4%.
Tim Laney: Credit remains strong with zero basis points of annualized charge offs.
Tim Laney: We experienced a slow start with loan production early in the quarter with business clients delaying action in anticipation of the Federal Reserve lowering interest rates. However, once it became clear that rates were not coming down in the near future, client activity picked up, and we have a very strong pipeline for the second quarter. We grew our core deposit by 6.8% over the first quarter of 2023 while preserving our low deposit beta across this entire rate cycle.
Tim Laney: We experienced a slow start with more production early in the quarter with business clients deferring match and in anticipation of the federal reserve lowering interest rates. Once it became clear that rates were not coming down in the near future client activity picked up and we have a very strong pipeline.
Tim Laney: For the second quarter.
Tim Laney: We grew our core deposit six 8% over the first quarter of 2023, while preserving our low deposit beta across this entire rate cycle.
Tim Laney: Expenses were well-managed, especially in light of the fact that this year we are incurring over $18 million of expenses related to the amortization of our investments to date in 2Unify. And I'll cover a more detailed update on 2Unify after Aldis takes us through the quarter.
Tim Laney: Expenses were well managed especially in light of the fact that this year, we are incurring over $18 million of expense related to the amortization of our investment today.
Aldis: Unify and I'll cover a more detailed update on to unify after all of this takes us through the quarter oldest alright, thanks, Tim and good morning.
Aldis Birkans: Aldis. All right, thanks Tim, and good morning. During this call, I will cover the financial highlights for the first quarter, as well as touch on our guidance for 2024. And, just as a reminder, our guidance does not include any future interest rate policy changes by the Fed. Turning to the financial results, for the first quarter, we reported net income of $31.4 million, or $0.82 of earnings per diluted share. The first quarter's return on tangible assets was 1.4%, and the return on tangible equity was 15.1%.
Aldis Birkans: During this call I will cover the financial highlights for the first quarter as well as touch on our guidance for 2024 and just as a reminder, our guidance does not include any future interest rate policy changes by the fed.
Aldis Birkans: Turning to the financial results for the first quarter, we reported net income of $31 4 million or <unk> 82 of earnings per diluted share. The first quarter's return on tangible assets was one 4% and a return on tangible equity was 15, 1%.
Aldis Birkans: During the quarter, our loan balance decreased by $130 million, or 1.7%. And, as Tim already discussed, the feedback we have received from our commercial clients is that many projects and funding needs were delayed with the hope of achieving lower funding costs.
Aldis Birkans: During the quarter, our loan balances decreased $130 million or one 7% and as Tim already discussed the feedback we have received from our commercial clients is.
Aldis Birkans: Is it many projects and funding needs for delay with the hope of achieving lower funding costs. This was especially evident early in the year when the interest rate cut expectations are still quite high.
Aldis Birkans: This was especially evident early in the year when the interest rate cut expectations were still quite high. Similarly, our commercial lines of credit utilization entered the quarter at historically low levels. As we enter the second quarter, our pipelines are quite strong, and we expect to meet our full year-long portfolio growth guidance of mid-single digit. Fully taxable equivalent net interest income for the quarter came in at $85.7 million. The link order decrease was primarily driven by accelerated loan fee income of $2.9 million recognized in Q4 and one less day in the first quarter.
Aldis Birkans: Similarly, our commercial lines of credit utilization ended the quarter to quarter at historically low levels.
Aldis Birkans: As we entered the second quarter, our pipelines are quite strong and we expect to meet our full year loan portfolio growth guidance of mid single digits.
Aldis Birkans: Fully taxable equivalent net interest income for the quarter came in at $85 7 million.
Aldis Birkans: The linked quarter decrease was primarily driven by accelerated loan fee income up $2 9 million recognized in Q4, and one less day in the first quarter.
Aldis Birkans: And that the interest margin in the first quarter was 3.78%. Our new loan originations during the quarter were at an average rate of 8.8% and continued to favorably benefit our earning asset yield. Our overall deposit beta for this rate cycle to date is 37.5%, and the pressure on deposit pricing is abating. Looking ahead for the rest of 2024, we project it to settle in the mid-three-sevenths.
Aldis Birkans: Net interest margin in the first quarter was 378%.
Aldis Birkans: New loan originations.
Aldis Birkans: During the quarter at an average rate of eight 8% and continued to favorably benefit out earning asset yields are.
Aldis Birkans: Our overall deposit beta this rate cycle to date is 37, 5% and the pressure on deposit pricing is abating.
Aldis Birkans: Looking ahead for the rest of 2024, we project on them to settle in the mid three seven.
Aldis Birkans: Deposit balances during the quarter grew $327 million on a spot basis and $90 million on an average balance basis. This quarter, we benefited from seasonal tax inflows into the Canberra platform deposits. As such, we paid off all of our FHLB borrowings, as these deposits are more favorable to our funding. In terms of our asset quality, it remains strong. During the quarter, we incurred zero basis points in net charge-offs and recorded no provision expense.
Aldis Birkans: Deposit balances during the quarter.
Aldis Birkans: $327 million on a spot basis and $90 million on an average balance basis.
Aldis Birkans: This quarter, we benefited from seasonal tax inflows in the camber platform deposits.
Aldis Birkans: Such we paid off all of our <unk> borrowings as these deposits are more favorable to our funding costs.
Aldis Birkans: In terms of our asset quality has remained strong during the quarter.
Aldis Birkans: Encourage zero basis points, and net charge offs for the quarter and recorded no provision expense.
Aldis Birkans: We increased our overall allowance-to-toll loan ratio to 1.29% and have built sufficient reserves to support any non-accrual loan. Additionally, we still hold $26.2 million in marks against our acquired loan portfolio, which equates to approximately 35 basis points of loan loss coverage if applied across the whole loan portfolio. Total non-income for the first quarter was a strong $17.7 million, or a $1.6 million increase from the prior quarter. And while we saw a seasonal slowdown in service charges and bank RFDs, we are gaining momentum from our fee diversification efforts, driven by SBA loan gains on sale, trust income, and Canberra fees.
Aldis Birkans: We increased our overall allowance to total loan ratio to 129% and it had been.
Aldis Birkans: <unk>.
Aldis Birkans: <unk> reserves to support any nonaccrual laws.
Aldis Birkans: Additionally, we still hold $26 2 million and marks against the acquired loan portfolio, which equates to approximately 35 basis points of loan loss coverage, if applied across the whole loan portfolio.
Aldis Birkans: Total noninterest income for the first quarter was a strong $17 $7 million or a $1 6 million increase from the prior quarter.
Aldis Birkans: And while we saw a seasonal slowdown in service charges and bankcard fees, we are gaining momentum from our fee diversification efforts.
Aldis Birkans: Driven by SBA loan gain long gains on sale trust income and camber fees.
Aldis Birkans: This quarter, we also benefited from a $600,000 gain on the sale of a banking center building. For the rest of 2024, we project to meet our full year guidance for fee income of $67 to $72 million. Non-interest expense for the quarter totaled $62.8 million and included elevated payroll taxes. The U-related expense this quarter was approximately $3 million, and we continue to be on budget and on plan with our targeted rollout date.
Aldis Birkans: This quarter, we also benefited from a $600000 gain on the sale of our banking Center building.
Aldis Birkans: For the rest of 2020 for the project to meet our full year guidance for the fee income up 67% to $72 million.
Aldis Birkans: Noninterest expense for the quarter totaled $62 8 million and included elevated payroll taxes.
Aldis Birkans: The related expense this quarter was approximately $3 million and we.
Aldis Birkans: To be on budget and on plan with our targeted rollout dates.
Aldis Birkans: Looking ahead for the rest of 2024, we see our non-interest expenses trending towards our original full-year guidance of $253 to $258 million. In terms of capital, we continue to grow our excess capital with a TCE ratio ending the quarter at 9.2% and a Tier 1 leverage ratio coming in at 10%. Tangible book value per share grew 2.4% ending the quarter at $23.32.
Aldis Birkans: Looking ahead for the rest of 2024, we see our noninterest expense is trending towards our original full year guidance of $253 million to $258 million.
Aldis Birkans: In terms of capital, we continue to grow our excess capital with the TCE or TCE ratio ending the quarter at nine 2% and a tier one leverage ratio coming in at 10%.
Aldis Birkans: Tangible book value per share grew two 4% ending the quarter at $23 32.
Aldis Birkans: Tim, with that, I'm going to turn it back to you.
Speaker Change: And with that I will turn back to you.
Tim Laney: Thanks, Aldis. Well, solid earnings resulted in a tangible book value per share increasing 55 cents during the quarter, and our common equity tier one capital ratio totaled 12.35% at quarter end. Now, turning to 2Unify, we remain highly enthusiastic about the progress being made in the buildout of a platform, a banking platform, that we believe can change the way small and medium-sized businesses access U.S. banking. Additionally, we're building tools to unify for these businesses that simply do not exist today.
Tim Laney: All of this while solid earnings resulted in tangible book value per share increasing 55 cents during the quarter and our common equity tier one capital ratio totaled $12 three 5% at quarter end.
Tim Laney: Now turning to to unify we remain highly enthusiastic about the progress being made in the build out of our platform. Our banking platform that we believe can change the way small and medium sized businesses access U S. Banking. Additionally, we're building tools within to unify for these businesses simply.
Tim Laney: We do not exist today, we believe to unify will say business owner's time and money and meaningfully reduce stress in their lives. All project work is tracking the target and we expect to be in release, one user testing by the fourth quarter of this year Shelley on that note let.
Tim Laney: We believe 2Unify will save business owners time and money and meaningfully reduce stress in their lives. All project work is tracking to target, and we expect to be in Release 1 user testing by the fourth quarter of this year. Shelly, on that note, let's open up the call for questions and discussion. Thank you, and if you would like to ask a question, please signal by pressing star 1 on your telephone keypad.
Speaker Change: <unk> open up the call for questions and discussion.
Shelly: 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 retry equipment again press star one to ask a question, we'll pause for a brief moment to allow everyone an opportunity.
Shelley: 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.
Shelley: The signal for questions.
Shelley: Yes.
Shelley: Again, press star one to ask a question. We'll pause for a brief moment to allow everyone an opportunity to signal for questions. Thank you. And our first question is coming from Jeff Rulis with D.A. Davidson. Your line is open.
Jeffrey Allen Rulis: And our first question is coming from Jeff Lewis with D. A Davidson your line is open.
Jeffrey Allen Rulis: Good morning, good morning.
Jeffrey Allen Rulis: I guess on the influx of deposits from from Camber and the related <unk>.
Jeffrey Allen Rulis: Good morning. I guess on the influx of deposits from Canberra and the related pay down of FHLB, I guess there's no expectation that those flow out. It sounded tax related, but just wanted to kind of get a sense for the stickiness of those staying on balance sheets.
Jeffrey Allen Rulis: Down at <unk>.
Jeffrey Allen Rulis: <unk>.
Jeffrey Allen Rulis: I guess, there's no expectation that those hello out it sounded tax related but just wanted to kind of get a sense for the stickiness of.
Jeffrey Allen Rulis: Yes.
Jeffrey Allen Rulis: Staying on our balance sheet.
Aldis Birkans: This is Aldis. Jeff, hey, good morning.
Jeffrey Allen Rulis: Yeah.
Jeffrey Allen Rulis: This is all of this is Jeff Hey, good morning.
Aldis Birkans: Obviously, we've looked at their seasonal patterns in the years before and do expect some of this to come out in the rest of the April and coming months here in the second quarter. But there is certainly a certain level of that will be sticky as well. The growing average balances across that platform are pretty impressive. So we expect that trend to continue.
Aldis Birkans: Obviously, we've looked at their seasonal patterns in the years before and do expect some of this to come out.
Aldis Birkans: And the rest of the April in coming months here in the second quarter, but there is a.
Aldis Birkans: Certainly at a certain level of debt will be sticky as well.
Aldis Birkans: The growing average balances across that platform is pretty impressive. So we expect that trend to continue.
Speaker Change: Got it okay.
Aldis Birkans: Okay, and then kind of turning to the margin then, got the MID 370 guide. You know, I guess given that a pretty big FHLB, you know, drop off, if you look at kind of average interest-bearing rates there, would you think about in a building loan pipeline, I guess, you know, looking more towards the back half of the year? What do you lean on in terms of the direction of the margin? It sounds like there are some pretty good tailwinds for that. Just wanted to kind of check in on my kind of full-year expectations.
Aldis Birkans: Then.
Aldis Birkans: Turning to the margin.
Aldis Birkans:
Aldis Birkans: Got to be $3 70.
Aldis Birkans: Guide.
Aldis Birkans: I guess given that a pretty big.
Aldis Birkans: Drop off if you look at kind of average interest bearing rates there.
Aldis Birkans: Would you.
Aldis Birkans: Think about building loan pipeline I guess.
Aldis Birkans: Looking more towards the back half of the year.
Aldis Birkans: Where do you lean on in terms of direction of margin it sounded like some pretty good tailwind to that just wanted to kind of check in on kind of full year expectations.
Aldis Birkans: Yeah, I mean, I think as we go, it's hard to give quarter to quarter. There might be fluctuations, as you mentioned, given where Canberra or DDAs flow. It certainly will come down to the timing of the loan growth as well. As I mentioned, we are adding loans at a high 8 percent. That is margin accretive, regardless of how you fund it. So the timing of that will matter, too. So there certainly is – we set up hotel rents for margin to maybe shift up in Q4, but we don't want to get ahead of our expectations here either.
Aldis Birkans: Yes, I mean, I think as we.
Aldis Birkans: There is hard to give quarter to quarter.
Aldis Birkans: There might be fluctuations as you mentioned, given where camber ordered BDA is slow.
Aldis Birkans: Certainly it will come down to the timing of the loan growth as well as I mentioned.
Aldis Birkans: We are adding loans to high 8% that is margin accretive regardless, how you fund it.
Aldis Birkans: So timing of that will matter too. So there is certainly we set up a hotel then for margin to maybe shift up in Q4.
Aldis Birkans: Don't want to get ahead of our expectations here either.
Aldis Birkans: And on the.
Aldis Birkans: And on the related front on the NII, I think you had a guide last quarter. Are you kind of at this point kind of reassessing or should we think about that level or maybe the margin? you know, coming in. Any thoughts on the NII levels? And can those... I guess, recover before maybe the margin.
Aldis Birkans: Related front on that.
Aldis Birkans: I think you had a guide.
Aldis Birkans: Last quarter.
Aldis Birkans: Got it at this point kind of reassessing our.
Aldis Birkans: Should we think about that level or.
Aldis Birkans: Maybe to the margin.
Aldis Birkans: Coming in any any thoughts on the NII levels.
Speaker Change: Ken knows.
Aldis Birkans: I guess recover before maybe the margin.
Aldis Birkans: Rebounds.
Aldis Birkans: Yeah, well, I think certainly again, the earning asset and I will be driven by earning asset growth that's driven by long growth. The first quarter suddenly came in a bit lower than we expected given the lighter loan performance. So, whether we make that up in going forward the rest of the year is hard to tell towards the full NII guidance, but again, if you look at the loan growth from here, what that does to earnings asset growth, and holding margin in the mid-three-sevenths, it will give you a pretty good estimate for the NII. I would add that...
Speaker Change: Yes, I think so.
Aldis Birkans: Certainly again, the earning asset NII will be driven by earning asset growth that's driven.
Aldis Birkans: Driven by loan growth.
Aldis Birkans: The first quarter, certainly came in a bit lower than we expected given the liar loan performance.
Aldis Birkans: So whether we make that up and going into the rest of the year, it's hard to tell towards the full NII guidance, but again, if you look at the.
Aldis Birkans: Loan growth from here.
Aldis Birkans: Is that due to earning asset growth holding margin in the mid <unk>. It.
Aldis Birkans: It will give you a pretty good estimate for the for the NII I would add that.
Aldis Birkans: I would add that the current pipeline would suggest that by quarter end, if our teams deliver like I think they can, that will be back on plan as it relates to loan balances and then working hard to cover any NII gap from the first quarter. Got it. Okay. Thank you.
Aldis Birkans: Current pipeline would suggest that by quarter end.
Aldis Birkans: Our teams deliver like I think they can.
Aldis Birkans: That will be back on plan as it relates to loan balances and then working hard to cover any.
Aldis Birkans: Gap from the first quarter.
Speaker Change: Got it okay. Thank you I'll step back.
Jeffrey Allen Rulis: Got it. Okay. Thank you all.
Speaker Change: Yes. Thanks.
Jeffrey Allen Rulis: Okay.
Kelly Ann Motta: Our next question is coming from Kelly Motta with KBW. Your line is open. Hi, Kelly. Thanks for the question. I apologize.
Jeffrey Allen Rulis: Our next question is coming from Kelly Motta with K B W. Your line is open.
Kelly Ann Motta: Hey, Kelly Thanks for that.
Kelly Ann Motta: Thanks for the question.
Kelly Ann Motta: I apologize I dropped off for a minute or two during the prepared remarks, and you just alluded to.
Kelly Ann Motta: I dropped off for a minute or two during the prepared remarks, and you just alluded to the loan pipeline. I was just wondering if you could share where you're seeing the best opportunities. I appreciate the color on where new loan yields are coming on. Just any sort of color as to how pipelines are shaping up now versus this time last quarter and the mix of that pipeline.
Kelly Ann Motta: The loan pipeline I was just wondering if you could share where you're seeing the best opportunities I appreciate the color on where new loan yields are coming on.
Kelly Ann Motta: Just just any sort of color as to how pipelines are shaping up now versus this time last quarter.
Kelly Ann Motta: And that's.
Kelly Ann Motta: The mix of that pipeline.
Tim Laney: Yeah, you know, it's largely C&I, so middle market businesses across our geography. We're not, We're seeing a nice buildup in all of our major markets, and, you know, it probably is important to point out that part of what was going on in the first quarter was, in addition to line usage being down, which, you know, frankly, we're still analyzing that, talking to clients, trying to understand the drivers there, we were also selectively pruning the loan portfolio.
Kelly Ann Motta: Yes.
Kelly Ann Motta: It's largely seen in C&I.
Tim Laney: So the middle market businesses across our geography, we're not we're seeing nice buildup and all of our major markets and.
Tim Laney: It probably is important to point out that part of what was going on in the first quarter is in addition to line usage being down which.
Tim Laney: Frankly, we're still analyzing that talking to clients trying to understand the drivers there.
Tim Laney: We're also selectively pruning the loan portfolio. So there are targeted industries, where we are proactively reducing exposure.
Tim Laney: So there are targeted industries where we are proactively reducing exposure, and so you can imagine, you know, an area like transportation that represents about 3% of our total book where, you know, we're actually reducing that exposure just given the state of that industry, so we're certainly not adding new clients in that space. So, you know, core manufacturing is strong, service-related businesses are strong, and I can't really speak to a lot of activity in commercial real estate because that's just not a focus in this market. So Kelly, I hope that it helps with a little color.
Tim Laney: And so you can imagine.
Tim Laney: An area like transportation that represents about 3% of our total book.
Tim Laney: Sure.
Tim Laney: We're actually reducing that exposure just given the state of that industry. So we're certainly not adding new clients in that space. So.
Tim Laney: Core manufacturing is.
Tim Laney: <unk> service related businesses are strong.
Tim Laney: I can't really speak to a lot of activity in commercial real estate, because that's just not a focus in this market. So Kelly I hope that helps with a little color.
Kelly Ann Motta: Yes, certainly. That's very helpful.
Kelly: Yeah certainly.
Kelly: That's that's very helpful.
Tim Laney: And maybe, I love the color that unifies, you have version one ready for testing in Q4. I know, you know, it's going to take some time for that to really shine through the results, but as we start to think about what this platform could do, you know, are you thinking about this as more of a fee opportunity? Will it add to, you know, balance sheet growth? the type of impact it could have on NBHC, even if we're not ready to quantify that yet? Yeah,
Kelly Ann Motta: And maybe I.
Tim Laney: <unk>.
Tim Laney: Color that to unify you you have version one ready for testing.
Tim Laney: In Q4, I know, it's going to take some time for that to really shine through results, but as we start to think about what this platform could do you know.
Speaker Change: Are you.
Tim Laney: This is more of a fee opportunity will it add to.
Tim Laney: Balance sheet growth, just wondering kind of how to frame.
Tim Laney: The type of impact.
Tim Laney: It could have to MB HD, even if we're not ready to quantify that yet.
Tim Laney: Yeah, strategically, it's a great question. Strategically, I would tell you that we should think about 2Unify as building a completely new business, not just a B income generator, not a product, but a new business, a new way of banking. You know, for our investors, we'll preserve the optionality to run the core bank and run 2Unify. But there could very well be a time when 2Unify becomes such a force in that it's doing business in such a different way that, you know, it moves out and lives its own life.
Tim Laney: Yes.
Tim Laney: Strategically it's a great question strategically I would tell you that we should think about to unify as building a completely new business not just the fee income generator, not a product, but a new business a new way of banking.
Tim Laney: Our investors will preserve the optionality to run core bank and run to unify.
Tim Laney: But there very well could be a time, where the reality is that to unify become such a force in that it's doing business in such a different way that.
Tim Laney: It moves out and lives it's on life.
Tim Laney: I've got to say The beauty of building it in conjunction with the rest of the bank is we are already seeing really interesting technical crossover that is benefiting and will benefit the bank in terms of better client experience, saving us money, and probably the most important example in this environment is just the level of security features that are being built into 2Unify that are largely transferable over to the core bank. Then, you know, everybody is talking about artificial intelligence and so on and so forth.
Tim Laney: I've got to say.
Tim Laney: The beauty of building it in conjunction with the rest of the bank as we are already seeing really interesting technical crossover.
Tim Laney: That is benefiting and will benefit the bank in terms of better client experience.
Tim Laney: Saving us money and probably the most important example, and this environment is just the level of security features that are being built into to unify that are largely transferable over to the core bank.
Tim Laney: Hi.
Tim Laney: And then everybody is talking about artificial intelligence.
Tim Laney: And so on and so forth.
Tim Laney: What I would suggest is that AI is only as good as its data sources and I couldnt be more impressed with the data lakes that hour.
Tim Laney: And what I would suggest is that AI is only as good as its data sources, and I couldn't be more impressed with the data lakes that our teams are building. In terms of functionality, this is an API-first architecture. So the beauty of being able to adjust, with that flexibility, is unlike anything you really find in the vast majority of the banking industry today. It will allow us to be more nimble and responsive to clients and, again, do business in ways that haven't previously been done.
Tim Laney: Our teams are building.
Tim Laney: In terms of functionality.
Tim Laney: This is an API first architecture, so the beauty of being able to adjust with that flexibility is unlike anything you really find.
Tim Laney: And the vast majority of the banking industry today will allow us to be more nimble and responsive declines and and.
Tim Laney: And again do business in ways that haven't previously been done.
Kelly Ann Motta: Awesome. Thank you so much for the call, Tim. I will stop back.
Speaker Change: Awesome. Thank you so much for the color, Tim I will step back alright.
Tim Laney: All right. Thanks, Kelly.
Tim Laney: Alright, Thanks Kelly.
Andrew Brian Liesch: Our next question is coming from Andrew Liesch with Piper Sandler. Your line is open.
Tim Laney: Our next question is coming from Andrew Liesch with Piper Sandler Your line is open.
Andrew Brian Liesch: Good morning. Good morning, guys.
Andrew Brian Liesch: Good morning, Good morning, guys. Thanks for taking the questions.
Andrew Brian Liesch: Thanks for taking the questions. You know, just a question on the Canberra deposits that came in during the quarter. I'm just curious what the funding difference might be between those and the FHLB borrowings that you paid off.
Andrew Brian Liesch: Just a question on the Cambria deposits that came in in the quarter just curious what the funding difference Mike between might be between those and the <unk> borrowings that you paid off.
Aldis Birkans: Yeah, again, we don't necessarily talk about specific pricing, but I'll just say that if the balance is persisted at the same cost versus what we pay to FHLB, it would be a couple million dollar benefit annualized to our bottom line.
Andrew Brian Liesch: Yes.
Speaker Change: Again, we don't necessarily talk to specific pricing, but I will just say that if these.
Aldis Birkans: Deposit.
Aldis Birkans: Balances persisted at the same cost versus what we paid <unk>.
Aldis Birkans: Would be the difference would be couple of million dollar benefit to an annualized two to our bottom line.
Andrew Brian Liesch: Got it. All right. That's helpful.
Speaker Change: Got it alright, that's helpful.
Tim Laney: And then, Tim, what's your thought process on additional M&A right now? How are conversations with prospective targets going? I interviewed you on the Canberra deal last year, and the other deals, not too far in the distant past. But I was curious about your outlook on additional M&A right now.
Tim Laney: Then Tim.
Tim Laney: Thought process on it.
Speaker Change: Michelle M&A right now.
Tim Laney: All conversations with prospective targets going.
Tim Laney: The camera deal last year the other deals.
Tim Laney: Not too far in the distant past, but I'm just curious on your outlook for traditional M&A right now.
Tim Laney: Well, activity has certainly been high. [inaudible] We've been clear in what we're targeting, which would be institutions in that one to three billion dollar range in growth markets, ideally in growth markets that we know and understand, and that's where we've been spending our time.
Tim Laney: While activity has certainly been high.
Tim Laney: And.
Tim Laney: We have been clear in what we're.
Tim Laney: We're targeting which would be institutions in that 1% to $3 billion range in growth markets ideally in growth markets that we know and understand and that's where we've been spending our time.
Andrew Brian Liesch: Got it. All right. Thanks for taking the questions. I'll step back. You bet. Thanks.
Speaker Change: Got it alright, thanks for taking the questions I'll step back.
Andrew Brian Liesch: You bet. Thanks.
Andrew Brian Liesch: Okay.
Jeffrey Allen Rulis: And our next question is coming from Jeff Rulis with D.A. Davidson.
Andrew Brian Liesch: And our next question is coming from Jeff <unk> with D. A Davidson.
Jeffrey Allen Rulis: Thanks, I was hoping to get a little more color on the flows of nonperforming loans linked quarter, what what kind of came in and and the characteristics of it.
Jeffrey Allen Rulis: Thanks. I was hoping to get a little more color on the flows of non-performing loans, in link order, what kind came in, and the characteristics of those loans.
Jeffrey Allen Rulis: Those loans.
Tim Laney: Yeah, you know, thanks for asking, because I do want to make the point that we don't believe this increase in NPAs over the quarter represents anything like a negative trend. In fact, we believe NPAs will be down below 50 basis points by year-end. There were just a couple of, I'll call them stagnant non-performers, that our special assets group has not moved out of the bank as quickly as, quite frankly, we expected, and they are receiving an intense amount of focus. I'll also point out that we believe that these NPAs are very well preserved for, and there is no concern about that.
Jeffrey Allen Rulis: Yes.
Tim Laney: Thanks for asking because I do want to make the point that we don't believe this increase in NPA is over the quarter represents anything like a negative trend in fact.
Tim Laney: We believe <unk> will be down below 50 basis points by year end.
Tim Laney: There were just a couple of hours.
Tim Laney: I'll call them stagnant non performers that.
Tim Laney: Our special assets group has not moved out of the bank as quickly as quite frankly, we expected and they are receiving and intense.
Tim Laney: Out of focus I'll also point out that we believe that these <unk> are very well preserved for and no concern on that front.
Tim Laney: And that's a percent of loans, Tim, that is 50 basis points. Yes, yes. Okay, great. And then I will do one more follow-up. You touched on it briefly, but... The service and card revenues, link order down at, you know, the card makes some sense, but just wanted to see what it could potentially be. That had been kind of a hard charging line item, and I just wanted to see what those within those two, if there were any changes or seasonality impacts that I hope to see come back.
Tim Laney: And thats a percent of loans.
Tim Laney: Tim.
Tim Laney: The 50 basis points.
Speaker Change: Yes, yes.
Speaker Change: Okay great.
Tim Laney: Then one more follow up just to the.
Tim Laney: You touched on it briefly but.
Tim Laney: The service.
Tim Laney: <unk>.
Tim Laney: Card revenues linked quarter down at card makes some sense, but just wanted to see what was potentially.
Tim Laney: That's been a kind of a hard charging line items just wanted to see what those within those two if there were any changes or seasonality impacts that I hope to see those come back.
Tim Laney: That first quarter is all seasonality for us for both of those line items. So, yeah, I suspect if you compare...
Tim Laney: First quarter is all seasonality for us for both of those line items.
Tim Laney: So yes, we are actually a few compared quarter.
Tim Laney: See that dip? We've seen it for years.
Tim Laney: First quarter last year to first quarter of this year.
Tim Laney: Right, so we do expect that to come back here in the second quarter and are already seeing good activity in Bancard starting around March and here in April. It prompts another
Tim Laney: See that that dip we've seen it for years right. So we do expect that to come back in the here in the second quarter and already good seeing good activity in bank card.
Tim Laney: Starting month March into here in April.
Tim Laney: It prompts another thought we should share because a lot of our card activity relates to personal banking relationships and another encouraging point around deposits as we started to see nice positive movement.
Tim Laney: It prompts another thought we should share because a lot of our CARD activity relates to personal banking relationships. And another encouraging point about deposits is that we started to see a nice positive movement in personal banking deposits as we closed out the quarter and moved into the second. So that was certainly refreshing to see, and that will contribute to additional fee income over time as well.
Tim Laney: Personal banking deposits as we closed out the quarter and moved into the second so.
Tim Laney: That was certainly refreshing to see and that will contribute to additional fee income over time as well.
Tim Laney: I guess, while we're in the weeds.
Jeffrey Allen Rulis: I guess while we're in the weeds, mortgage banking had a nice sequential uptick. I don't know if you want to give an update on the sort of outlook for the year in that line.
Speaker Change: The mortgage banking.
Jeffrey Allen Rulis: Had a nice sequential uptick I don't know if you have sort of the outlook for the year in that.
Jeffrey Allen Rulis: Line item.
Aldis Birkans: Not specifically, again, it's embedded in our toll fee guidance, but I'll say that you know, and markets changed, right, even this morning. The rates are up quite a bit given the GDP numbers.
Jeffrey Allen Rulis: Not specifically again, it's embedded in.
Aldis Birkans: Total fee guidance, but I will say that.
Aldis Birkans: Market's changed right even this morning.
Aldis Birkans: Rates are up quite a bit given the GDP GDP numbers Budd.
Aldis Birkans: I would say that what we guided, what we embedded in our plan for gain-on-sale for the mortgage business has been... somewhat conservative. We have been at or better each month this year to our plan numbers. And, you know, if again, the market doesn't really change that dramatically, we should be able to meet our plan numbers in that line.
Speaker Change: I would say that what we guided what we embedded in our plan for gain on sale for mortgage business has been.
Aldis Birkans: Somewhat conservative have been.
Aldis Birkans: At or better each month.
Aldis Birkans: This year to our planned numbers and.
Aldis Birkans: Again.
Aldis Birkans: The market has done really changed dramatically, we should be able to meet our planned numbers in that line item.
Speaker Change: Yes, the full year noninterest income guidance.
Jeffrey Allen Rulis: The full-year non-interest income guy is great, so I appreciate it. Yeah, of course.
Speaker Change: Great I appreciate it.
Jeffrey Allen Rulis: Yeah, of course. Thank you.
Speaker Change: Yes of course, thank you.
Kelly Ann Motta: Our next question is coming from Kelly Motta with KBW.
Jeffrey Allen Rulis: Our next question is coming from Kelly Motta with K B W.
Kelly Ann Motta: Hey, thank you so much for letting me jump back into the queue. I appreciate the color on M&A and understanding that maybe you want to keep some dry powder for that as well as some of the other initiatives you're working on. I did see that capital did build very nicely, and you guys have been active on the buyback in the past. Just wondering how you are approaching that method of capital deployment.
Kelly Ann Motta: Hey, Thank you so much for letting me jump back into the queue.
Kelly Ann Motta: I appreciate the color on.
Kelly Ann Motta: M&A and understanding that maybe you want to keep some dry powder for that as well as some of the other initiatives you're working on I did see that capital did build.
Kelly Ann Motta: Very nicely and you.
Kelly Ann Motta: Do you guys have been active on the buyback in the past just wondering how.
Kelly Ann Motta: How you guys are.
Kelly Ann Motta: Approaching that that method of capital capital deployment.
Speaker Change: We're probably discussing.
Tim Laney: We're probably discussing buyback, and action at as high a frequency as I can recall. We do believe there could be some interesting opportunities there. We have an authorized buyback, and, you know, we'll watch the market and pull the trigger if we think we're in the right place. I'll also point out that, with the kind of capital growth that we're realizing, it gives us confidence that we will continue to increase our dividend twice each year. And, you know, we're also frankly talking about whether or not a higher dividend at this point might be appropriate. So, you know, that's another consideration. It was awesome.
Tim Laney: Buyback action.
Tim Laney: At as high a frequent frequency as I can recall.
Tim Laney: We do believe there could be some interesting opportunity there we have an authorized buyback and.
Tim Laney: We'll watch the market and pull the trigger if we think we are.
Tim Laney: Sure.
Tim Laney: Sure.
Tim Laney: And in the right place.
Tim Laney: I'll also point out that.
Tim Laney: The kind of capital growth that were realizing it gives us confidence that we will continue to increase our dividend twice each year end.
Tim Laney: We're also frankly talking about whether or not a higher dividend at this point might be appropriate so.
Tim Laney: That's another consideration.
Speaker Change: Awesome. Thanks, so much for that color good to hear thanks for the question.
Kelly Ann Motta: Awesome. Thanks so much for the color. Good to hear. I will step back. Thanks for the question.
Mr. Laney: 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.
Shelley: 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. Thank you, Shelly.
Laney: Thank you Shelly.
Tim Laney: Thank you, Shelly. I'll just thank those of you that asked thoughtful questions and wish you all a good day.
Shelley: Just.
Laney: Thank those of you that.
Laney: Thoughtful questions and wish you all a good day.
Speaker Change: Thank you.
Shelley: 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.
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.
Shelley: We'll be on the company's website on the Investor Relations page.
Shelley: Thank you very much and have a great day you may now disconnect.
Shelley: Okay.
Shelley: [music].
Shelley: Okay.
Shelley: [music].