National Bank Q3 2024 Earnings Report

National Bank EPS Results

• Actual EPS: $0.86
• Consensus EPS: $0.76
• Beat/Miss: Beat by +$0.10
• One Year Ago EPS: $0.94

National Bank Revenue Results

• Actual Revenue: $156.39 million
• Expected Revenue: $102.32 million
• Beat/Miss: Beat by +$54.07 million
• YoY Revenue Growth: N/A

National Bank Announcement Details

• Quarter: Q3 2024
• Date: 10/22/2024
• Time: After Market Closes
• Conference Call Date: Wednesday, October 23, 2024
• Conference Call Time: 3:00AM ET

National Bank (NYSE:NBHC) (NYSE: NBHC) is a bank holding company headquartered in Greenwood Village, Colorado. Through its principal subsidiary, NBH Bank, the company provides community banking services to businesses, individuals and organizations.

NBH Bank offers commercial and small-business lending, personal and business deposit accounts, mortgage and consumer loans, treasury management, digital banking and wealth management services. Its products are designed to support commercial clients, professionals, entrepreneurs and retail customers.

The company serves customers through a network of banking locations and digital channels in several markets across the central and western United States, including Colorado, Kansas, Missouri, New Mexico, Texas and Wyoming. National Bank Holdings was founded in 2009 and became a publicly traded company in 2012. Tim Laney serves as the company’s president and chief executive officer.

National Bank Q3 2024 Earnings Call Transcript

Key Takeaways

• Delivered Q3 earnings of $33.1 million ($0.86 per diluted share) with a 1.4% return on average tangible assets and 14.8% return on average tangible common equity, while linked-quarter fully taxable equivalent pre-provision net revenue rose 20.6%.
• Net interest income grew 20% annualized, driving net interest margin to 3.87% (up 11 bps), with Q4 margin expected to remain in the mid-3.8% range through disciplined deposit and loan pricing.
• Credit quality improved as non-performing loans fell to their lowest level since early 2023, net charge-offs ran at 18 bps annualized, provision expense totaled $2 million largely due to CECL model updates, and allowance to total loans stood at 1.23%.
• Non-interest income reached $18.4 million (up $4.4 million QoQ) driven by treasury management and other fee businesses, with Q4 non-interest income guidance of $16–18 million despite seasonal headwinds in mortgage banking.
• Capital remained strong (TCE 9.8%, Tier 1 leverage 10.4%, CET1 12.9%) and tangible book value per share rose 5% to $24.91, as the company prepares to begin live client testing of its 2Unify platform in November.

Presentation

[Operator]

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 Gooden, Chief Accounting Officer and Director of Investor Relations.

[Emily Gooden, CAO and Director of Investor Relations at National Bank Holdings Corporation]

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. 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 provides useful information for investors.

[Emily Gooden, CAO and Director of Investor Relations at National Bank Holdings Corporation]

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 and CEO, Mr. Tim Laney.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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 Aldis Birkans in his newly appointed role as President of our company, as well as Nicole Van Denabeele, our newly appointed Chief Financial Officer. You're all familiar with Aldis, and while Nicole is new to many of you, she's been with our company for over six years. She began her career with Deloitte and has twenty-one years of experience in the industry. Most recently, Nicole served as our Chief Accounting Officer. Moving on, we delivered solid earnings for the quarter on the back of disciplined deposit and loan pricing, as well as strong fee income generation.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Aldis is going to provide color on loans and 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 Van Denabeele, CFO at National Bank Holdings Corporation]

Thank you, Tim, and good morning. I'm pleased to have this opportunity and to join 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 decisions by the Fed. For the third quarter, we delivered earnings of $33.1 million or $0.86 of earnings per diluted share. This resulted in a return on average tangible assets of 1.4% and a return on average tangible common equity of 14.8%. On a linked quarter basis, we grew our fully taxable equivalent pre-provision net revenue by 20.6%.

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

The quarter's strong financial performance was highlighted by an increase in our fully taxable equivalent net interest income of 20% annualized, driven by average earning asset growth and net interest margin expansion. Fully taxable equivalent net interest margin was 3.87%, expanding 11 basis points during the third quarter. We expect that our bankers' disciplined, proactive efforts to manage deposit pricing will continue through the cycle, and as a result, we project our fourth quarter's net interest margin to remain in the mid 3/8. Deposit balances during the quarter grew $120 million on a spot basis and grew $21 million in average balances. Turning to credit quality, we continued to bring down our non-performing loan ratio during the quarter to the lowest level since early 2023.

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

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. The quarter's provision expense of $2 million was primarily driven by changes in the CECL model's underlying forecast, specifically the unemployment rate outlook. The allowance to total loans ratio ended the quarter at 1.23%. We continue to hold $24 million of marks against our acquired loan portfolio, which adds an additional 32 basis points of loan loss coverage if applied across the entire loan portfolio. Non-interest income for the third quarter was a strong $18.4 million, an increase of $4.4 million over the prior quarter.

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

Our teams are generating nice growth in treasury management fees and within a number of our fee-based businesses, which Aldis will cover in more detail. Looking ahead to the fourth quarter of 2024, we project non-interest income to be in the range of $16 million-$18 million, which is expected to decline slightly from the third quarter as a result of seasonality. Non-interest 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. The linked quarter 2UniFi related expenses increased approximately $0.7 million and we will continue to grow our investment in 2UniFi in future quarters. We project fourth quarter's non-interest expense to be in the range of $64 million-$66 million.

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

In terms of capital, we continue to grow our excess capital with a TCE ratio ending the quarter at 9.8%, Tier 1 leverage ratio at 10.4%, and CET1 capital ratio at 12.9%. Tangible book value per share grew 5%, ending the quarter at $24.91. With that, I will turn it over to Aldis to provide more detail around the performance of our lines of business.

[Aldis Birkans, President at National Bank Holdings Corporation]

Thank you, Nicole, and good morning. In terms of loan growth, loan fundings totaled $359 million with a weighted average rate of 8.5%, driving a 12 basis point increase in total loan portfolio yield. That, combined with average loan balance growth during the quarter, contributed nicely to both net interest income growth and NIM expansion. 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. We 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.

[Aldis Birkans, President at National Bank Holdings Corporation]

As Nicole already touched on this, during the quarter, we made good progress in addressing our non-performing assets, with non-performing loans decreasing by three basis points on a linked quarter basis and 13 basis points since the last year's third quarter. Our total criticized loans decreased $18 million during the quarter. Having said that, there are several credits that impacted our thirty-day past due bucket. Our teams are working closely with their respective clients, and we expect to make meaningful progress during the fourth quarter. Our strategy with respect to pricing on both loans and deposits is showing signs of success in what we are seeing in margin improvement. 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.

[Aldis Birkans, President at National Bank Holdings Corporation]

We also project the cost of our CDs to peak within the next quarter or two. We entered 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 our variable rate loans. I'm also delighted to highlight the progress our teams have made in growing core banking fees. During the quarter, we increased our service charges by 14% through both new client additions as well as rationalization of various treasury management products. We believe there is 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 non-interest income growth since the third quarter of 2023.

[Aldis Birkans, President at National Bank Holdings Corporation]

We entered the fourth with our balance sheet well-positioned to provide for great flexibility with respect to supporting near-term loan portfolio growth as well as other strategic initiatives. Tim, with that, I'll turn it back to you.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Thank you, Aldis. 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 leave us well positioned to execute on the right strategic opportunities, and the development of 2UniFi ranks high among those opportunities, and we remain convicted that 2UniFi has the potential to change the way small and medium-sized businesses access the U.S. banking system. In fact, speaking of 2UniFi, we begin live client testing next month here in November. On that note, let's open up the lines for questions.

[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. Once again, that is star one if you would like to ask a question. We'll take our first question from Jeff Rulis with D.A. Davidson.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Thanks. Good morning.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Good morning.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Just a question on the margin. Maybe Nicole, do you have the quarterly average, well, excuse me, the September margin average versus the quarterly?

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

Yes, good morning, Jeff. September's monthly margin did come in higher than our Q3 margin. Our Q3 margin was 3.8%. We did see benefit to September's monthly margin as a result of our bankers' proactive efforts to bring down our cost of deposits, and we saw an improvement in our cost of deposit rate in September.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Okay, and that outlook of kind of a mid, I think you said mid 3/8. Could we maybe just walk into. I know that that forward look doesn't assume additional cuts, but kind of where are your position from a margin perspective into 2025, the puts and takes there? Sounds like a proactive deposit costs approach, but also, you know, should we see additional cuts, what what's the expectation there?

[Aldis Birkans, President at National Bank Holdings Corporation]

Yeah, Jeff, this is Aldis. Good morning. As you know, we are fairly asset neutral or liability neutral in this instance. So we don't expect huge benefits or decreases in margin from near-term rate cuts. Therefore our guidance of three point, kind of mid 3/8 is good for now and stepping into next year.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

As we always do, on the fourth quarter earnings call, we'll be providing more robust guidance for the next year.

[Aldis Birkans, President at National Bank Holdings Corporation]

I think it's reasonable to assume that both the loan yields as well as deposit costs are probably, again before any further rate cuts, trending about 10 basis points better than what you saw in the third quarter.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Mm-hmm. Okay. Thank you.

[Aldis Birkans, President at National Bank Holdings Corporation]

You're welcome.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Tim, on the capital front, you know, seeing the dividend increases here, you know, capital continues to build. If you could just touch on the priorities from here as we look forward. I know that optionality is a big one with you, but, just wanna check in on all tools, from the capital side.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

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, that's exciting. We'll continue, as I've mentioned, in my prepared comments, we'll continue to invest in 2UniFi. And my expectation is that when we do provide next year's guidance, we'll clearly delineate the investment we'll be making throughout the year in 2UniFi. So you can 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 in the second bank, which is really 2UniFi. Beyond that, you know, candidly, we're not in the buyback market at these prices.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

We think we're fairly traded, and our attitude is we like to buy when things are on sale. So, that probably would not be on the radar screen right now.

[Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson]

Okay. Thanks. So I'll step back.

[Operator]

We'll now take our next question from Kate Ashley with KBW.

[Kate Ashley, VP and Equity Research Analyst at KBW]

Hi, Good morning.

[Aldis Birkans, President at National Bank Holdings Corporation]

Good morning.

[Kate Ashley, VP and Equity Research Analyst at KBW]

This is Kate on for Kelly Motta. Yeah, so I was just wondering, the best opportunities that you guys are seeing for loan growth, both by type and region?

[Aldis Birkans, President at National Bank Holdings Corporation]

I think, as I mentioned, our pipelines are quite diversified, so it really spans across our footprint, geographically, as well as the middle market to our specialty lines. So nothing stands out at the moment as the one driving force. There's certainly credit is up front, most important today, and it's being viewed very carefully, and how much of that pipeline pulls through will depend on that, but it is well-diversified portfolio, pipeline right now.

[Kate Ashley, VP and Equity Research Analyst at KBW]

Great. That's it for me. I'll step back. Thanks.

[Operator]

We'll now take our next question from Andrew Terrell with Stephens.

[Andrew Terrell, Managing Director at Stephens]

Hey, good morning.

[Aldis Birkans, President at National Bank Holdings Corporation]

Good morning.

[Andrew Terrell, Managing Director at Stephens]

Maybe just to start, Aldis or Nicole, anything unique in terms of the originated loan yields this quarter, up 16 basis points? It was a little bit more than I expected. Just anything unique we should appreciate, whether it's elevated fees or a recovery or anything in there?

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

We continue to be very disciplined with our loan rates, and we did have originated loan rates with a weighted average yield of 8.5% for the third quarter.

[Aldis Birkans, President at National Bank Holdings Corporation]

There are no prepays or anything else that is impacting those. There's no one-offs, if that's what you're trying to ask, Andrew.

[Andrew Terrell, Managing Director at Stephens]

Yep. Okay. So mainly just reflective of the strong new origination yields?

[Aldis Birkans, President at National Bank Holdings Corporation]

That's right.

[Andrew Terrell, Managing Director at Stephens]

Got it. Okay. And then, you know, I'd be curious to hear kind of y'all's perspective on, you know, you were preemptive in lowering some of these deposit rates prior to the Fed cutting rates. 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 in how you're looking to manage costs around those future cuts?

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Look, we're continuing to have conversations with clients around lowering deposit rates, 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, 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 and the relationships they have, and they've done a nice job.

[Andrew Terrell, Managing Director at Stephens]

Yep. Understood. Okay. Thank you. And if I could ask just one more on the Camber deposits. Can you just remind us or provide any kind of color around the contractual kind of repricing opportunity here? Is there any term to these deposits, or should we effectively just be viewing Camber-sourced deposits as essentially a floating rate?

[Aldis Birkans, President at National Bank Holdings Corporation]

They are, I would call them managed rate deposits. There is no contractual linkage for most of them. There is exceptions, of course, but for the most part, these are managed rates, just like our other client deposits. And they were part of that conversation, as Tim mentioned, in terms of having three children, and they were beneficiaries on the way up and they're working with us on the way down.

[Andrew Terrell, Managing Director at Stephens]

Okay, understood. Aldis, congrats on the promotion. Nicole, congrats on the promotion, the first earnings call. I'll step back. Thanks.

[Aldis Birkans, President at National Bank Holdings Corporation]

Hey, thank you.

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

Thank you.

[Aldis Birkans, President at National Bank Holdings Corporation]

Thank you.

[Operator]

We'll move to our next question from Andrew Liesch with Piper Sandler.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Hey, good morning, everyone. Yeah, Aldis and Nicole, I'd like to extend my congratulations as well. Tim, you know, you've got a footprint that covers several states. If you look at the potential M&A opportunities out there, are there locations that you want to be in, other locations you want to be deeper in? I'm just kind of trying to get a sense of, when you look at the franchise today, what other sort of, what targets you might find interesting.

[Tim Laney, Chairman and CEO at National Bank Holdings Corporation]

Sure. We would love to do more in Utah. We would love to do more in Texas. Our overarching 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 has served us well since the founding of the company, and we will continue to adhere to it. 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 mindsets around credit risk management have to be similar and there are just a few non-negotiables, and that would be one that's at the top of the list.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. Makes sense. And then just a couple follow-up questions on the non-interest income, the seasonality that you discussed, Nicole. Is that largely in the mortgage banking line, or are there other seasonality that we should be aware of?

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

You're correct. That is largely within the mortgage banking line. I do want to point out that we are on track to meet our full year projection for non-interest 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.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Got it. All right. Helpful. And then, what tax rate should we be using going forward?

[Nicole Van Denabeele, CFO at National Bank Holdings Corporation]

Yes. The best indicator for our tax rate is the year-to-date rate through September 30, which was 18%, and we are projecting a full year effective tax rate in the range of 18%-19%.

[Andrew Liesch, Senior Equity Research Analyst at Piper Sandler]

Great! That's perfect. Thank you for taking the questions. I'll step back.

[Aldis Birkans, President at National Bank Holdings Corporation]

Thank you very much.

[Operator]

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, Chairman and CEO at National Bank Holdings Corporation]

Very good. I'll simply say thank you for joining us today. Have a good day and the rest of the week. Take care.

[Operator]

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 twenty-four 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.

Participants

Executives

• Tim Laney, Chairman and CEO
• Emily Gooden, CAO and Director of Investor Relations
• Aldis Birkans, President
• Nicole Van Denabeele, CFO

Analysts

• Andrew Terrell, Managing Director at Stephens
• Kate Ashley, VP and Equity Research Analyst at KBW
• Jeff Rulis, Managing Director, Senior Research Analyst at D.A. Davidson
• Andrew Liesch, Senior Equity Research Analyst at Piper Sandler