Q3 2024 National Bank Holdings Corp Earnings Call
You are currently on hold for today's conference call at this time, where someone today's audience and plan to be underway. Shortly we appreciate your patience I'm question Ben on the line.
[music].
Anna: Good morning, everyone and welcome to the National Bank Holdings Corporation 2024 third 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.
Anna: Chief Accounting officer, and director of 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.
Emily: But not limited to statements regarding the company's strategy loans deposits capital net interest income noninterest income margins allowance taxes, and noninterest expense actual results could differ materially from those discussed today. These forward looking statements are subject to risks uncertainties and other factors, which are disclosed in more detail in the company's most.
Emily: 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 it provides useful information for investors.
Speaker Change: Reconciliations of these non-GAAP financial measures to the GAAP measures I 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 corporations, Chairman and CEO Mr. Tim.
Tim Laney: Laney well thanks, Emily good morning, and thank you for joining us as we discuss National Bank Holdings third quarter 2024 financial results I'm pleased to be joined by oldest bourke on in his newly appointed role as president of our company as well as Nicole ban denim Bill our newly appointed Chief Financial Officer.
Tim Laney: You're all familiar with all of this enrollment coal is new to many of you. She has been with our company for over six years. She began her career with Deloitte and has 21 years of experience in the industry. Most recently Nicole served as our Chief Accounting Officer.
Tim Laney: Moving on we delivered solid earnings for the quarter on the back of the disciplined deposit and loan pricing.
Tim Laney: As well as strong fee income generation all of this is going to provide color on once in deposits, but I do want to recognize our bankers disciplined approach to deposit and loan pricing. Finally, we believe the loan portfolio remains very strong and on that note I'll turn the call over to Nicole for her first earnings call.
Nicole: Thank you Pam and good morning, I'm pleased to have this opportunity and have joined the call today.
During today's call I will cover the quarter's financial highlights as well as our guidance for the remainder of the year, which does not include any future interest rate policy decision by the fed.
Nicole: For the third quarter, we delivered earnings of $33 $1 million or <unk> 86 cents of earnings per diluted share. This resulted in a return on average tangible assets of one 4%.
And our return on average tangible common equity of 14, 8%.
Nicole: On a linked quarter basis, we grew our fully taxable equivalent pre provision net revenue by 26%.
Nicole: The quarters strong financial performance was highlighted by an increase in our fully taxable equivalent net interest income of 20% annualized.
Nicole: Driven by average, earning asset growth and net interest margin expansion.
Nicole: Taxable equivalent net interest margin was 387% expanding 11 basis points during the third quarter.
We expect that our discipline that our bakers disciplined proactive efforts to manage deposit pricing will continue through the cycle and as a result, we project our fourth quarters net interest margin to remain in the mid 38.
Deposit balances during the quarter grew $120 million on a spot basis and grew $21 million in average balances.
Turning to credit quality, we continue to bring down our nonperforming loan ratio during the quarter to the lowest level since early 2023.
Nicole: We resolved one previously reserved credit during the quarter, resulting in 18 basis points of annualized net charge offs for the quarter or just 13 basis points for the year.
Nicole: The quarters provision expense of $2 million was primarily driven by changes in the seesaw models underlying forecast.
Nicole: Typically the unemployment rate outlook.
Nicole: The allowance to total loans ratio ended the quarter at one point to 3%, we continue to hold $24 million of marks against our acquired loan portfolio.
Nicole: Which adds an additional 32 basis points of loan loss coverage, if applied across the entire loan portfolio.
Nicole: Noninterest income for the third quarter with a strong $18 $4 million, an increase of $4 $4 million over the prior quarter or.
Nicole: Our teams are generating nice growth in Treasury management fees and within a number of our fee based businesses, which all of this will cover in more detail.
Nicole: Looking ahead to the fourth quarter of 2024, we project noninterest income to be in the range of $16 million to $18 million, which is expected to decline slightly from the third quarter as a result of seasonality.
Nicole: Noninterest expense for the third quarter totaled $64 $2 million, increasing over the second quarter. As a result of our continued investments in technology and one additional payroll day in the third quarter.
Nicole: The linked quarter to unify related expenses increased approximately zero point $7 million and we will continue to grow our investment into unified in future quarters.
Nicole: We project fourth quarter's noninterest expense to be in the range of $64 million to $66 million.
Nicole: In terms of capital, we continue to grow our excess capital with the TCE ratio ending the quarter at nine 8%.
Nicole: Your one leverage ratio at 10, 4% and CET, one capital ratio at 12, 9%.
Nicole: Tangible book value per share grew 5% ending the quarter at $24 91.
Speaker Change: With that I will turn it over to <unk> to provide more detail around the performance of our lines of business.
Thank you Nicole and good morning.
Speaker Change: In terms of loan growth loan fundings totaled $359 million.
Speaker Change: With a weighted average rate of eight 5% driving a 12 basis point increase in total loan portfolio yield.
Speaker Change: That combined with the average loan balance could also during the quarter contributed nicely to both net interest income growth and NIM expansion.
Speaker Change: On a spot basis, our loan portfolio ended the quarter fairly flat as many of our clients decided to push their funding needs in anticipation of a lower rate environment.
Speaker Change: Entered the fourth quarter with robust pipelines that are quite granular and diversified across most of our lines of business and as I mentioned during last quarter's call. We are seeing a modest rebound in our line utilization pointing to a solid fourth quarter.
Speaker Change: As Nicole already touched on this during the quarter, we made good progress in addressing our nonperforming assets with nonperforming loans decreasing by 30 basis points on a linked quarter basis, and 13 basis points since the last year's third quarter.
Speaker Change: Total criticized loans decreased $18 million during the quarter, having said that there are several drivers that impacted our 30 day past due bucket. Our teams are working closely with the respective clients and we expect to make meaningful progress during the fourth quarter.
Speaker Change: Our strategy with respect to pricing on both loans and deposits is showing signs of success and what we are seeing in margin improvement.
Speaker Change: While the fed rate cut did not come until late in the quarter, we were proactively addressing certain deposit categories well in advance of the fed meeting driving a decrease in our transaction deposit costs.
Speaker Change: We also projected cost of our Cds to peak within next quarter or two.
Speaker Change: We ended the fourth quarter with a significantly lower deposit run rate, which will provide an offset to any impact from the short term rate decrease on out there.
Speaker Change: Variable rate loans.
Speaker Change: I'm also delighted to highlight the progress our teams have made in growing core banking fees.
Speaker Change: During the quarter, we entered or excuse me increased our service charges by 14% through both new client additions as well as the rationalization of various treasury management products.
Speaker Change: We believe there's more upside to this line item over the course of next few quarters. Similarly, our efforts to grow trust in both business camber fees SBA and swap fees are paying off nicely. As these line items have added 31% within the other noninterest income growth since the third quarter of 2023.
Speaker Change: We entered the fourth quarter, but our balance sheet well positioned to provide for greater flexibility with respect to supporting near term loan portfolio growth as well as other strategic initiatives, Tim I'll turn it back to you. Thank you. All this we continue to build capital at an accelerated pace, which provides us with meaningful strategic options.
We believe that the strength of our capital liquidity and credit positions.
Tim Laney: US well position to execute on the right strategic opportunities and the development of to unify our ranks high among those opportunities and we remain convicted that to unify has the potential to change the way small and medium sized businesses accessed the U S banking system in fact speaking up to unify.
Tim Laney: We've again large client testing next month here in November.
Tim Laney: Note lets open up the lines for questions.
Speaker Change: 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 lawyers did not reach our equipment.
Speaker Change: Again that is star one if you would like to ask a question.
Speaker Change: We'll take our first question from Jeff <unk> with D. A Davidson.
Jeff <unk>: Thanks, Good morning.
Speaker Change: Good morning.
Speaker Change: Just a question on the on the margin.
Speaker Change: Maybe Nicole do you have the quarterly average.
Speaker Change: Excuse me the September margin average versus the quarterly.
Speaker Change: Yes, good morning, Jeff and September as monthly margin did come in higher than our Q3 margin. Our Q3 margin was three 8%. We did see benefit to September monthly margin as a result of our bankers proactive efforts to bring down our cost of deposits than we thought.
An improvement in our cost of deposit rate in September.
Speaker Change: Okay and then in that.
Speaker Change: Outlook of kind of a bit I think you said mid three eighths.
Speaker Change: Maybe you could just walk it too.
Speaker Change: That forward look doesn't assume additional cuts, but kind of where you are positioned from a margin perspective at the end.
Speaker Change: Into 'twenty five the puts and takes there it sounds like a proactive deposit costs approach, but also should.
Speaker Change: Should we see additional cuts what what's the expectation there.
Speaker Change: Yes, Jeff this is al good morning.
Speaker Change: As you know we are fairly.
Speaker Change: Asset neutral or liability neutral in this instance.
Speaker Change: So, we don't expect huge benefits or or or decreases in margin from near term rate cuts are therefore, our guidance of three point kind of mid <unk> is good for now and stepping into the next year.
Speaker Change: We always do it from the fourth quarter earnings call, we will be providing more robust guidance for the next year.
Speaker Change: I think it's reasonable to assume that both both on the loan yields as well as the <unk>.
Speaker Change: All of the costs are probably again before any further rate cuts.
Speaker Change: Training about 10 basis points better than what you saw in the third quarter.
Speaker Change: Okay.
Speaker Change: Thank you.
Speaker Change: Yeah.
Speaker Change: Tim on the capital Brian.
Speaker Change: Seeing the dividend increases here capital continues to build if you could just touch on the priorities from here as we as we look forward I know that Optionality is a big one with you, but just wanted to check in on all tools.
Speaker Change: From the capital side.
Speaker Change: We are certainly prepared to partner with the right institution, where the culture fits where the strategy makes sense.
And we again feel well positioned to execute on that front. So.
Speaker Change: Thats exciting will continue as I've mentioned in my prepared comments, we will continue to invest and to unify and my expectation is that when we do provide next year's guidance will clearly delineate the investment we'll be making throughout the year and to unify so you can.
Speaker Change: We begin to look at the way I think about it is what is the core efficiency of the bank and then what is this investment for the future.
Speaker Change: Second bank, which is really to unify.
Speaker Change: Beyond that.
Candidly, we're not in the buyback market at these prices.
We think we are fairly traded and our attitude is we'd like to buy when things are on sale. So.
Speaker Change: That probably would not be on the radar screen right now.
Speaker Change: Okay. Thanks, I'll step back.
Speaker Change: We will now take our next question from Kate nationally with K B W.
Kay: Hi, Good morning, this Kay on for Kelly Motta.
Speaker Change: Yes, So I was just wondering.
Speaker Change: The best opportunities that you guys are seeing for loan growth.
Speaker Change: Type and region.
Speaker Change: Thanks.
Speaker Change: As I mentioned.
Speaker Change: Pipelines are quite diversified so it really spans across our footprint.
Speaker Change: The geography geographically as well as the bill.
Speaker Change: Middle market to our specialty lines. So nothing stands out at the moment is it one driving force.
Speaker Change: <unk>.
Speaker Change: Credit is most important today and thats being viewed very carefully and how much of that pipeline pull through will depend on that but it is well diversified portfolio a pipeline right now.
Speaker Change: Great. That's it for me I'll step back thanks.
Speaker Change: Yes.
Speaker Change: I will now take our next question from Andrew <unk> with Stephens.
Yeah.
Speaker Change: Hey, good morning.
Speaker Change: Good morning.
Andrew: Maybe just to start.
Speaker Change: To a certain to call anything.
Speaker Change: Unique in terms of the originated loan yields this quarter up 16 basis points.
Speaker Change: As a little bit more than I expected.
Speaker Change: Just anything unique we should appreciate whether it's elevated fees or recovery or anything in there.
Speaker Change: We continue to be very disciplined with our loan rates and we did.
Speaker Change: <unk> originated loan rates with a weighted average yield of eight 5% for the third quarter.
Speaker Change: There are no prepays or anything else that is impacting goes there is no one offs.
Operator: There's no one else if that's what you're trying to ask, Andrew.
Speaker Change: What you're trying to ask Andrew.
Emily Gooden: So, Emily, just reflective of the strong new origination yields.
Speaker Change: Yeah, Okay. So mainly just reflective of the strong new origination yields.
Speaker Change: That's right.
Speaker Change: Got it okay.
Andrew Liesch: And then, you know, I'd be curious to hear kind of y'all's perspective on, you were preemptive and lowering some of these deposit rates prior to the Fed cutting rate. I'm just curious, you know, like in your conversations with clients, what if any type of pushback you've received throughout that process and, you know, how that influences, you know, if we are to get a couple of incremental rate cuts throughout the fourth quarter, how that influences, you know, any type of strategy change and how you're looking to manage costs around those future cuts.
Speaker Change: And then I'd be curious to hear kind of your all's perspective.
Speaker Change: Were preemptive in.
Speaker Change: Lowering some of these deposit rates prior to the fed cutting cutting rates I'm. Just curious you know like in your conversations with clients.
Speaker Change: What if any type of pushback, you've you've received throughout that process and you know how that influences.
Speaker Change: If we are to get a couple of incremental rate cuts throughout the fourth quarter how that influences.
Speaker Change: Any type of strategy change in how youre looking to manage costs around those future cuts.
Operator: Look, we're continuing to have conversations with clients around lowering deposit rates. And as a practical matter, we work with our clients as rates moved up, and they understand it's got to be a win-win situation. They're working with us as we move down, and we've had very little pushback.
Speaker Change: Look we get were continuing to have conversations with clients around lowering.
Speaker Change: Deposit rates.
Speaker Change: And as a practical matter, we worked with our clients as rates moved up and they understand it's got to be a win win situation, they're working with us as we move down and we've had very little pushback frankly to the point of surprising us.
Operator: Frankly, to the point of surprising us, but we knew it was the right thing to do. Our clients have worked with us and, again, very little pushback. So I'll say again, it gives me the opportunity to really share my appreciation for our bankers and their discipline. And while they may have been pushed to get out there, they had to have the courage to have those conversations in the relationships they have, and they've done a nice job.
Speaker Change: But we knew it was the right thing to do our clients.
Speaker Change: They have worked with us and again very little pushback.
Speaker Change: I'll say again it gives me the opportunity to really share my appreciation for our bankers and their discipline and while they may have been pushed to get out there. They had to have the courage to have those conversations and the relationships they have and they've done a nice job.
Operator: Yep, understood. Okay, thank you.
Speaker Change: Yeah understood Okay.
Operator: And if I could ask just one more on the camber deposits, could you use your mind to provide any kind of color around the contractual kind of repricing opportunity here. Is there any terms these deposits, or should we effectively just be doing camber source deposits, is essentially floating rate.
Speaker Change: Thank you and if I could ask just one more.
Speaker Change: The camber deposits could you just remind us or provide any kind of color around the contractual kind of repricing opportunity here.
Speaker Change: Is there is there any term to these deposits are should we effectively just be viewing.
Speaker Change: <unk> deposits is essentially floating rate.
Operator: They are, I would call them managed rate deposits. There is no contractual linkage for most of them. There are exceptions, of course, but for the most part these are managed rates just like our other client deposits.
They are I would call them managed rate deposits there is no contractual.
Speaker Change: Linkage for most of them, there's exceptions of course, but for most part D. SOG managed rates just like our other client deposits.
Operator: And they were part of that conversation, as I mentioned, in terms of having three children. They were beneficiaries in a way up, and they're working with us on the way down.
Speaker Change: They were part of that conversation that as Tim mentioned in terms of having them having to reach out and.
Speaker Change: They ever beneficiaries in a way up and they are working with us on the way down.
Operator: Okay, understood. All the skin grads on the promotion, Nicole, congrats on the promotion of first earnings call.
Speaker Change: Okay understood I'll, just congrats on the promotion Nicole congrats on the.
Operator: All set back, thanks.
Speaker Change: Promotion in the first earnings call I'll step back thanks.
Operator: Hey, thank you. Thank you.
Speaker Change: Hey, Thanks. Thank you. Thank you.
Andrew Liesch: Well, move to our next question from Andrew Leach with Piper Handler.
Speaker Change: Okay.
Speaker Change: We will move to our next question from Andrew Liesch with Piper Sandler.
Andrew Liesch: Hey, good morning, everyone. Yeah, all of us in the call like to extend my congratulations as well.
Hey, good morning, everyone, Yeah oldest.
Speaker Change: All of a sudden nicole like to extend my congratulations as well.
Speaker Change: Yes.
Andrew Liesch: You know, you've got to put print that covers several states.
Speaker Change: Tim.
Speaker Change: Got a footprint that covers several states if you look at the potential.
Andrew Liesch: If you look at the potential M&A opportunities out there, there are locations that you want to be in.
Speaker Change: Potential M&A opportunities out there.
Speaker Change: There are locations that you wanted to be in other locations you Wanna be deeper than it was kind of getting trying to get a sense of.
Andrew Liesch: Other locations you want to be deeper in.
Andrew Liesch: I'm just kind of trying to get a sense of when you look at the franchise today, what other sort of targets you might find it.
Speaker Change: When you look at the franchise today, what other sort of what targets you might find interesting.
Operator: Sure, we would love to do more in Utah. We would love to do more in Texas.
Speaker Change: Sure we would love to do more in Utah, We would love to do more in Texas.
Operator: Our overreaching focus, as it has always been, is only moving into markets that are growing faster than the national averages. And that's across a broad set of metrics. Frankly, that principle is served as well since the founding of the company, and we will continue to adhere to it.
Speaker Change: Our over reaching.
Speaker Change: Focus as it has always been is only moving in two markets that are growing faster than the national averages and that's across a broad set of metrics frankly that principle has served us well since the founding of the company.
Speaker Change: And we will continue to adhere to it and then beyond that it really does become.
Operator: And then beyond that, it really does become more about the precision around the matching of cultures and the strategies. We feel very strongly that mine sets around credit risk management have to be similar. And there are just a few non-negotiables, and that would be one that set the top of the list.
Speaker Change: More about the precision around the matching of cultures and the strategies.
Speaker Change: We feel very strongly that mindsets around credit risk management has to be similar.
Speaker Change: And there are just a few non negotiable.
Speaker Change: <unk> would be one that's at the top of the list.
Speaker Change: Got it makes sense.
Operator: And then just a couple of follow-up questions on the nine interest income. The seasonality that you discussed in the call is that largely in the mortgage banks and line, or are there other seasonality that we should be aware of? You're correct; that is largely within the mortgage banking line.
Speaker Change: And then just a couple of follow up questions on the noninterest income the seasonality that you discussed on the call is that largely in the in the mortgage banking line or is there other seasonality that we should be aware of.
Speaker Change: You are correct that is largely within the mortgage banking line.
Operator: I do want to point out that we are on track to meet our full-year projection for a non-interesting income, excluding Q2's one-time charge. As you mentioned, the seasonality is related to mortgage, and there is some seasonality there as well for bank cards.
Speaker Change: Do you want to point out that we are on track to meet our full year projection for non interest income, excluding Q2's onetime charge and as you mentioned the seasonality as it related to mortgage and there is some seasonality there as well as our bank card.
Operator: And then what tax rates should we be using going forward? Yes, the best indicator for our tax rate is the year-to-date rate through 930, which is 18%, and we are projecting a full-year effective tax rate in the range of 18 to 19%.
Speaker Change: Got it alright helpful and then.
Speaker Change: What what tax rate should we be using going forward.
Speaker Change: Yes, the best indicator for our tax rate is the year to date rate through 930, which was 18% and we are projecting a full year effective tax rate in the range of 18% to 19%.
Speaker Change: Great. That's perfect. Thank you for taking the questions I'll step back.
Operator: Thank you for taking the questions. All step back.
Operator: Thank you very much. Thank you.
Speaker Change: Thank you very much.
Operator: And I am showing we have no further questions at this time.
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.
Operator: I will now turn the call back to Mr. Laney for his closing remarks.
Operator: Very good.
Operator: I'll simply say thank you for joining us today. Have a good day in the rest of the week. Take care.
Tim Laney: Very good I'll simply say, thank you for joining us today have a good day and the rest of the week. Thank you.
Operator: And that 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.
Speaker Change: And that concludes today's conference call, if you'd 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.
Operator: You may now best kind of act.
Tim Laney: Okay.
Tim Laney: Okay.
Tim Laney: Yeah.
Tim Laney: Okay.
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Operator: Andrew Liesch, Jeffrey Motta, Robert Terrell, Aldis Birkans, Emily Gooden