National Bank Holdings Corp Q3 FY2024 earnings call

Introductions

• Tim Laney, Chairman and CEO, introduced Aldis Birkans (President) and Nicole Van Denabeele (newly appointed CFO).

Financial Performance

• Solid earnings due to disciplined deposit and loan pricing and strong fee income generation.

Loan and Deposit Management

• Loan fundings totaled $359 million with a weighted average rate of 8.5%, contributing to net interest income growth and NIM expansion. Deposit balances showed growth, and teams are proactively managing deposit pricing.

Credit Quality

• Made progress in addressing nonperforming assets, with nonperforming loans decreasing and criticized loans down $18 million.

Technology Investment

• Continued investment in 2UniFi, with live client testing set to begin next month.

Pipeline

• Entered Q4 with robust and diversified loan pipelines, seeing a modest rebound in line utilization.

For the third quarter, National Bank Holdings Corporation delivered earnings of $33.1 million or $0.86 of earnings per diluted share. The fully taxable equivalent net interest income increased 20% annualized, with the fully taxable equivalent net interest margin at 3.87%, expanding 11 basis points during the quarter. Deposit balances grew $120 million on a spot basis and $21 million in average balances. Non-interest income for Q3 was $18.4 million, an increase of $4.4 million over the prior quarter. Loan fundings totaled $359 million with a weighted average rate of 8.5%, driving a 12 basis point increase in total loan portfolio yield. Nonperforming loans decreased, with criticized loans down $18 million during the quarter. The allowance to total loans ratio ended the quarter at 1.23%.

Q4 Expectations

• Non-interest income projected to be in the range of $16 million to $18 million.
• Non-interest expense expected to be in the range of $64 million to $66 million.
• Q4 net interest margin expected to remain in the mid-3.8% range. Next year, expects loan yields and deposit costs to be about 10 basis points better than Q3.

Capital

• TCE ratio ended the quarter at 9.8%, Q1 leverage ratio at 10.4%, and CET1 capital ratio at 12.9%; tangible book value per share grew 5%.

• Uncertainty around future interest rate cuts and their impact on margins.
• Impact of certain threads on the 30-day passed due bucket, though teams are working to address it.

Q: Jeff Rulis asked about the margin outlook and capital priorities.

A: Nicole Van Denabeele said September's monthly margin was higher than Q3 margin. Aldis Birkans stated they are fairly asset/liability neutral to near-term rate cuts. Tim Laney mentioned priorities include partnering with the right institution, investing in 2UniFi, and not in buybacks at current prices.

Q: Kathleen Ashley inquired about loan growth opportunities.

A: Aldis Birkans said pipelines are diversified across lines of business and geographies, with credit being a key focus.

Q: Andrew Terrell asked about loan yields and deposit rate pushback.

A: Nicole Van Denabeele noted disciplined loan rates, and Tim Laney said there was very little pushback on lowering deposit rates as clients understand the win-win. Aldis Birkans mentioned managed rate deposits with no contractual linkage for most.

Q: Andrew Liesch asked about M&A locations, noninterest income seasonality, and tax rate.

A: Tim Laney said they want to do more in Utah and Texas, focusing on markets growing faster than national averages. Nicole Van Denabeele stated noninterest income seasonality is largely in mortgage banking, and the full-year effective tax rate is projected to be in the range of 18% to 19%.