Good morning, everyone, and welcome to the National Bank Holdings Corporation 2021 Third Quarter Earnings Call. My name is Nick, and I will be your conference operator for today. As a reminder, this conference is being recorded for replay purposes. I would like to remind you that this conference 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, I will provide allowance, taxes and non interest expense. Actual results could differ materially from those discussed today.
I believe 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 am with the Securities and Exchange Commission. These statements speak only as of the date of this call and National Bank Holding Corporation undertakes no obligation to update or revise these statements. In addition, the call today will reference certain non GAAP measures, which National Bank Holdings Corporation believes provide useful information for investors.
Reconciliations of these non GAAP financial measures to the GAAP measures are provided in the news release posted on the Investor Relations section of www.nationalbank I'm holdings.com. It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's Chairman, President and CEO, Mr. Tim Laney.
Thank will Thank you, Nick. Good morning and thanks for joining National Bank Holdings' 3rd Quarter 2021 Earnings Call. I'm joined by our Chief Financial Officer, Our focus on growing share in attractive markets is translating into strong top and I will now turn the call over to Nick. I believe the quality of our new business pipeline will translate into attractive results I will now turn the call over to Nick. Thank you, Nick.
Thank you, Nick. With our small and medium sized business clients and prospects, and I view this work as a differentiating driver of the momentum we're building in our business. I will now turn the call over to Aldis to cover the quarter in more detail. Will turn the call over to Aldis to cover the quarter in more detail. Aldis?
All right. Thank you, Tim, and good morning, everyone. Thank you for joining our earnings call this quarter. We are pleased to report 3rd quarter's earnings of $19,800,000 or $0.64 per diluted share. I will discuss the financial results as well as stock repurchases.
During the quarter, we also thoughtfully improve the company's balance sheet through the sale of the will cover these items in more detail later, but first, let's address our loan growth. Will be at 45% annualized. The loan growth was broad based with all asset classes and geographies contributing to the loan balance growth. Will now turn the call over to Mr. President.
Furthermore, we continue to be very pleased with our Bankers business development efforts, which are generating strong pipelines across all of our markets. I will now turn the call over to Nick. At this time, we project to exceed our original guidance for loan growth from the prior quarter and expect a near double digit annualized growth for the Q4 of I will now turn the call over to the patient protection program loans, we have $76,800,000 outstanding as of September 30, will be conducting a few questions. The remaining PPP loan deferred revenue balance is $2,400,000 and we expect most of this fee to be recognized in the 4th quarter as will give us efforts to continue. Turning to deposits.
This quarter, we continued the strong growth in deposits with average transaction I will now turn the call over to Mr. President. Strong deposit growth benefited our average earning asset base, which similarly grew $62,500,000
will now turn the
call over to Mr. President. And as we discussed during the last earnings call, we have started deploying cash into higher yielding loan balances. The resulting Fully taxable equivalent net interest margin during the 3rd quarter expanded 11 basis points to 2.93 percent and I will now turn the call over to Nick. And the excess liquidity still had a 36 basis point diluted impact on our margin.
This quarter's fully taxable equivalent net interest income was $48,900,000 I will now turn the call over to Nick. Thank you, Nick. Thank you, Nick. Thank you, Nick. I will now turn the call over to Nick.
NPAs decreased 9.6% this quarter and are 27% lower than 1 year ago. Net I will take a look at the
chart results for the quarter were just 2 basis points annualized.
These excellent credit trends combined with improving economic forecast projections from Moody's resulted in a reduced calculated reserve and was sufficient to support the new loan growth and therefore required no provision expense this quarter. Will now turn the call over to the operator. The resulting AECL for toll loans excluding PPP was 1.13% at quarter end. Total third quarter's non interest income was $28,500,000 Our client engagement for both consumer spending and business account activity continued to expand I will now turn the call over to Nick. We also continue to execute on our banking center efficiency initiatives, which resulted in a sale of an additional banking center will be conducting the quarter.
As a result, other non interest income benefited from an $800,000 deposit premium gain this quarter. Will now turn the call over to Mr. President. Additionally, this quarter we sold approximately $1,300,000,000 of our mortgage servicing portfolio. With the high mortgage production volumes, will now turn the
call over to Nick. This portfolio
had more than tripled since the beginning of the pandemic and this was a strategic move to reduce the mortgage servicing asset risk. As a result of this sale, we reduced our intangible assets by approximately $11,000,000 and realized a $1,300,000 gain. Will now turn the call over to Eric. The other key driver for this quarter is better mortgage revenue, was the margin recovery as compared to the Q2 of 2021. Will now begin the question and answer session.
For the remainder of the year, we project our total non interest income to be in the range of $19,000,000 to $21,000,000 will now turn the call over to Eric.
As always,
large swings in long term interest rates could impact both our mortgage production and this projection. Will now turn the call over to Eric. Turning to expenses. This quarter's non interest expense totaled $51,300,000 and was elevated due to a couple of non recurring items. During the quarter, we incurred $2,400,000 in transaction related expenses for the Fencer investment as well as an will provide an $800,000 write down on 1 OREO property related to a prior bank acquisition.
For will now turn the call over to
the Q4. For the Q4, we expect
non interest expense to return to the range of $45,000,000 to $46,500,000 consistent with our core run rate. Will now begin the call. With regards to capital, this quarter we invested $20,000,000 in Finstro Global Holdings as part of our previously announced will now begin the call with our Chief Financial Officer. This investment resulted in BH owning a 33% non controlling interest in the company. Will now turn the call over to Nick.
Additionally, during the quarter, we repurchased $19,400,000 of our stock. As a result of the stock buyback activity, the fully diluted share count for the 4th quarter is projected to decrease to around 30,800,000 shares. Our capital ratios continue to remain strong at 10.43 percent Tier 1 leverage I will now turn the call over to Nick. And finally, despite the stock buyback activity, our tangible book value per I will now turn the call over to the operator for
questions. Thank you, Aldis. I want to thank I will now turn the call over to our Q3.
Thank you, Nick. Thank you, Nick.
Thank you, Nick.
Thank you, Nick.
Thank you, Nick. Thank you, Nick. Thank you, Nick.
Thank you, Nick. Thank you, Nick.
Thank you, Nick. Thank you, Nick. I'm pleased to report that we are pleased with growth and loan production and our team delivered. As we look ahead, we feel very good about the high level of business activity in our markets and I will now turn the call over to Nick and I'm a comprehensive digital financial ecosystem capable of providing small and medium sized businesses We're building a digital marketplace of financial services within the bank regulatory framework that we believe can be a game changer for small and have a few questions. You can be certain that we'll be sharing more along the way.
And on that point, Nick, let's will open up the line for questions.
Thank will pause for just a moment to allow everyone an opportunity to signal. And our first question comes from Brett Rabatin with Hovde Group. Please go ahead.
Hey, good morning, everyone.
Hey, good morning. Good morning.
I want to
first ask Tim on your last point about the ecosystem in the FinTech space. Can you maybe give us I If possible, any thoughts on revenue and how you see that playing out either in the near term or over a multiyear period? And I will take your questions. Is it more accruiting any of our system to add new clients or do you expect this to be more of a banking as a service I will take the kind of platform that is driving specific fee revenues in particular.
Yes. I'll begin with
I will take the last question you touched on there. To be clear, we are not looking at playing in the banking I Ultimately, our view is that the banking as a service play will be commoditized. And I We're, on the other hand, very focused on the development of comprehensive relationships with small and medium sized business operators. And to be I will now turn the call over to I will now begin the question and answer session. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you.
Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Thank you. Thank you. Thank you. Thank you. Thank you.
Our next I will take the business owners in particular in a way that will give them access to the business or the bank regulated system that they've not experienced today. So I would tell you as we talk about this ecosystem, I'm We think about it not necessarily on a proprietary basis. We think about it again more as a marketplace where we'll be working with best in class partners I to deliver through this ecosystem a full range of banking services. And so if you really think about it, I will take your questions. The way we think about it, there are 4 legs to that business.
The first is obviously digital lending capabilities. We tend to think about those lending capabilities in 3 arenas, addressing trade finance or working capital needs, and that's a key role I will now turn the call over to Mr. I'm in Australia and they've brought their company to the United States. I suspect we'll be working to deliver SBA related products to address I will now turn the call over to Eric. Commercial real estate owner occupied commercial real estate where small business owners, medium sized business owners want to own and I will be discussing their factories and their business places.
And I And then we'll be talking about the addition to digital equipment finance and other capabilities that basically start to check I think a real differentiator between non bank players and doing this within the regulatory framework is obviously the ability want to deliver these services on an FDIC insured basis, which we think is huge. The 3rd leg is about delivering comprehensive Information dashboards when we think about real problems to be solved, one for many business owners that don't have the benefit I Having a CFO or a finance office is that ability to understand where they are on a cash on a day to day basis, and we believe we're working with the right partners to deliver that kind of information I'm in this ecosystem to these businesses and reduce anxiety in these business operators' lives. And I And really the 4th leg is about leveraging blockchain to reduce cost of payments, while I'm not going to go much deeper, that may be even more than you expected. But if you start Put those four legs together and think about where this can take us on a literally coast to coast basis. I think it's I'm premature to be talking about incremental earnings for the Q1 of 2022.
Having said that, I believe there will be elements I will now begin to deliver incremental profitability next year. I will take your questions.
That's very helpful, Tim. That's a lot of detail and it was really interesting Dynamic that you've got. I guess the other big question I wanted to ask was just around I The loan growth dynamic versus the margin and I'm just curious it would seem like if you can continue this growth and I'm And deploy liquidity, uses liquidity to fund loan growth, the margin should keep going up. So I was curious if it would seem I to you like the margin can continue to have an upward tenor. And then I just wanted to ask Tim on the loan growth side, is this I A lot of new clients driving this growth or is it more existing clients drawing on lines of credit?
I will take the margin first. So you're absolutely right. We deployed the cash into loans that will only will be Accretive to the margin, one item that is benefiting all banks these days, notwithstanding, which is the PPP loan fees. So if you take I'll start out on linked quarter basis, we grew $2,200,000 almost 20% annualized in terms of net interest income and that is driving the margin I will take a question, but again the PPP loan fees is a short lived benefit which we obviously take, but I'm counting on. I Sorry, you need to adjust for that in that calculation, but the core margin is absolutely expanding.
On the long birth prospects, I Look, I could not be more proud of our teams and their engagement with both existing clients and prospects. I tend to follow in that camp of people who believe that you may be able to maintain relationships I'm over the telephone and Zoom and other capabilities, but it's difficult to develop new relationships without being face I I Banking Center teammates never left their offices, but I think the fact that we have our I Business Banking and Commercial Banking officers out in the marketplace engaging I will now turn the call
over to Eric. Thank you, Nick.
Thank you. Thank
you. Thank you. Thank you. Thank you. Thank you.
Our next question comes from the line of New perspective business in the pipeline as we move through the first half of this year. We're really watching I will now turn the call over to Nick. The business and the balance sheets of those businesses through the Q1 as they began to deliver their annual balance sheets and income statements to ensure that we liked What we were seeing and that the businesses have resumed operations accordingly. And we've had great success in winning new relationships. And I will now turn the call over to Eric.
And as I also suggested in my earlier comments, we feel very good about the pipeline as I We look to the Q4 and into 'twenty two. Okay.
That's very helpful. Thanks, Charlie. Congrats on the results.
I
will Thank you. And our next question comes from Andrew Liesch with Piper Sandler. Please go ahead. I'm Andrew, your line is live, perhaps you're muted on your end.
Sorry about that. I apologize. I don't know what happened. I will now turn the call over to Eric.
Thank you for the detail
on the FinTech partnerships, very helpful. Just a couple of questions here or one question here on the guidance on the non interest income or the mortgage banking premium I Increased, but if you expected the total amount, if you think I'm going to drop this quarter, is that just from I will be seeing more volume here in the store months.
That's right. So within that is certainly seasonal slowdown that we expect this quarter to take place in the I from the $800,000 benefit from deposit premium on the sale of the banking center. So that obviously is not accretive either. So if you're looking at the linked quarter I'll discuss the guidance.
Right. Got it. Then on the I Loan yields, just curious on the new production where those were being added relative to, I guess, the core portfolio yield excluding the PPP loan?
I will All right.
So if you look at our NIM table and look at the first item, which is originated loan FTE, 4.01 I have a question and answer session. That includes the benefit of the PPP. If you exclude that, our I've originated loans are yielding about 3.87 percent this last quarter, which is fairly flat to the prior quarter. And our new loan originations came on at 3 point 9 percent, so at or slightly accretive to the originated bulk book as it exists.
Got it. And with a lot of the growth being C and I or these variable rate loans?
It's a lot of variable rate loans. I'd say it's about fifty-fifty type of mix remain variable to the fixed rate.
Got you. I want to ask you one more question related to the mortgage business and expenses. I will take your questions. It's easy to parse out. How much of the salaries and benefits line was related to the uptick in mortgage banking revenue in
am not going to give you exact answer, but I'll give you the guideposts that I typically talk to. So if you I will take the gain on sale this quarter back out the $1,300,000 MSR sale benefit and then about 30% to 35% of the remaining gain I will now turn the call over to the operator. And Andrew, I
would add on that I will take your questions. To that last question, I think it's an important one is that I give our residential banking team leadership and Aldis and I will take a look at this team a lot of credit for being very focused on bringing those variable expenses down I will now turn
the call over to Eric. As we see revenue coming down in
the mortgage banking business and it's one thing to understand how commissions I naturally come down as closings go down. The real art is bringing those other variable expenses down I And they've just done a remarkable job of managing those expenses accordingly, and you should expect that to continue.
I Okay,
got it. Very helpful. Thank you for taking the questions. I'll get back to you.
You bet.
Thank you. And our next question will come from Kelly Motta with KBW. Please go ahead.
Hi, thanks for the question. And I will take your questions. Thanks, Tim, for all the color on the FinTechs. There's a lot more in there than I thought there would. And I'm definitely going to have to go back to the transcript for a second read.
I wanted to ask a bit about deposits. You rolled off the time deposits and kind of that I want to make sure that the balance sheet increased balance sheet leverage has helped support some NIM expansion. Just wondering I will take your questions. How we should be thinking about the trajectory of deposits and if there's more kind of higher cost I will take some of the types of accounts that are left to be rolled off or if we should kind of expect an inflection and growth here or in the
I So that's the primary driver for us as we manage internally, strategically our deposit I will now turn the call over to Eric. Naturally, some of that were there are higher price time deposits that might be in one off that are rolling off from I But for us, it's really building and expanding the relationship base behind it. In terms of I Your question, where does that lead to the cost of funds and cost of deposits? At the end of the quarter, 21 basis points total deposit cost, I I believe you can get below 20 by end of the year as the business to remix continues.
Thank you. And I And then if I could supplement on capital, you were buying back stock this quarter, just wondering on thoughts for continued opportunity We got color to just spending on capital on some of the Fintech investments that you I had alluded to in past quarters. Just wondering any updated thoughts on capital deployment. I mean, I do still have quite a bit of flexibility where you are right now. Thanks.
Kelly, I think you I You hit on the right mindset there, which is we are 1st and foremost going to be I'm opportunistic and we do think the flexibility we have enables us to really will continue to look at our options. When we think about the investments I will present both Finstro Global Holdings and FIGR Technologies. It was really about I will take our belief that these two partners represented key pieces to this puzzle we're putting together to I will create the ecosystem and I will share with you that this business will be known as 2 UNIFY and I will take your questions. And more to come on that, but so as I referenced to Unifi, that is the ecosystem business we're building. You can expect I will now turn the call over to I will become a part of this, where opportunities to invest will do so because we believe in the upside of what we're doing here.
I We believe in the upside in these partnerships. And so you will probably see us less focused I will take a look at the investment in the smaller community bank and I'm focused on what we believe is the future. Having said that, we'll maintain optionality. And should we actually discover I The right opportunity in the coming months in the traditional bank space will do that. But we are in I will be conducting a few questions.
We have ongoing discussions with a lot of very smart people and partners that we think I will take a look at the numbers that we have in place. I think we're going to continue to see I'm going to ask for small and medium sized business. So again, I think you hit the nail on the head. We'll be opportunistic and we'll maintain optionality.
I Great. Thank you so much, Tim. Very helpful.
You
bet. Thank you. And our next question comes from Andrew Terrell with Stephens. Please go ahead.
Will open it.
Hey, good morning.
Hey, good morning. Good morning.
And maybe back on the margin really quickly, it was good to So you leverage some of the liquidity this quarter. I guess with the cash position still, I think around $700,000,000 $800,000,000 I I know the growth outlook feels like it's improved, but is it fair to think that you would still kind of build the securities portfolio from here or any kind of update to the strategy there?
Yes. In the Investment Securities portfolio, we added maybe $100,000,000 on On a quarter basis, I think it is where I'd like it to be unless some outlooks for loan growth or something else changes. For now, I would like to preserve the optionality on the balance sheet as well and not lock into a long duration or other type of high risk I will take the cash and deploy it in the loan.
I will now turn the call over to Eric.
Yes, understood. It looks like with the 0 provision taken this quarter as well as just the strong balance sheet growth, I You're fairly you're back, I guess, fairly close to day 1 CECL levels. I guess moving forward, should we expect the provision line to I will now turn the call over to Eric. I will now turn the call over to Eric. I will now turn the call over to Eric.
Thank
you. I will now
turn the call over to Mr. President. As of today, we are fully reserved as the current conditions would indicate and for the total books. So it's hard to predict where I will take your questions. It will depend on where the outlook goes and where the credit trends.
Certainly, we always will have to cover the new loan growth as well as I will take a look at the numbers. If there is any deterioration in the credit book, but right now I'm just not there to predict where this I go from here, because the Moody's projections are driving this quite a bit. And I will take a look at some of those forecasts today, some of them are indicating getting back to I'm going to take a look at the 3% unemployment rate in not too distant future. And so any of those step I will come from there to drive the model change.
Okay. That's good color. I appreciate all this. All right. Thanks for taking my questions.
And Tim, I appreciate the color on I The ecosystem and the partnerships.
You bet. You bet. Have a good day.
Thank you. And our next question comes from Jeff Rulis with D. A. Davidson. Please go ahead.
Thanks. Good morning, Tim and Aldis.
I Hi, Jeff. Hi, Jeff.
Yes, just really just a follow-up on a few of those topics, the first being on the FinTech I will take your questions. I mean, not to simplify, but if we're looking for kind of ROI on I That investment, that's maybe the wrong way to look at it in the near term. It's kind of the staying relevant or being a leader in the business, I Kind of cost of doing business and maybe those revenue synergies occur down the road. And as we get into that partnership I Investment, is that what you had kind of largely expectations in the short run here?
I will take your questions. I think that's a reasonable summary. I think about companies like Amazon when they started and they didn't have the I'm Having a core engine like we have to continue to drive revenue and profitability and we certainly I will now turn the call over to Andrew. Our core bank has a tremendous amount of upside and runway and will not be taking our eyes off it. On the other hand, I get just as excited about the I will take the next question from the line of Nick.
I think the way we think about the I'm saying it couldn't be done. I think the way we think about the technology is we will I strive with great discipline to avoid being drawn to the bright shiny objects and investing in technology just for the sake I will take a look at the problems I will now turn the call over to Nick. Thank you, Nick. Thank you, Nick. Thank you, Nick.
Thank you, Nick. Thank you, Nick. I will take the tools, many of them happen to be technology, but we can use tools to put together a business I will be happy to take questions. And I think what's really also interesting about this is we think I will take a look at the numbers versus thinking about this business model and waiting for it to come together I will take a look at the future. Over a 5 year period or something like that, the architecture is such that we believe that there can be Incremental contribution to earnings beginning as early as next year.
And that doesn't mean that the entire I will now turn the call over to Eric. The business model will be up and running, but there will be incremental elements of the model that we'll already be taking to market and benefiting from.
I will
now turn the call over to Paul. Okay. Appreciate it. Aldis, did I miss a margin guide? Or I may have in your prepared remarks, I will Did you mention where you think core margin is headed?
No, I did not will be speaking specifically on the percentage terms, but really to kind of come back to driving impacts to the margin today that are one dilutive, one I will The PPP loan fees $2,600,000 this quarter as well as the excess cash and earning asset base, diluting the earning asset yield. I will take your questions. So if you back those out, the core margin is currently around 3.15% to 3.20% type of percent margin, and I will look to build on that.
Got it. Thanks. And then I Back to the loan growth. And expectations sort of uptick in the obviously in the 3rd quarter and then as you're guiding for 4th I wanted to kind of ask that a different way. Is it you think that's a little bit of a pent up catch up to where I will take a look at the numbers.
A strong second half, but then we entered 'twenty two and you're back to sort of more normalized or is that I This uptick is sustainable and you really feel good about maybe a high single digit sort of path in 'twenty two and I I I don't mean
to front run kind of
forecast there, but just is this catch up in the second half or is it real emergence I will take a look at the growth that could carry into the New Year, sorry, long winded.
No, no, it's an important question. And I would just ask you to get back and read the transcripts at year end, at the end of Q1, at the end of Q2. I will now turn the call over to Nick. We did talk about the fact that we had our feet on the brakes, certainly coming into 'twenty one and waiting until the end of the Q1 and until we receive the financial information from both prospects and clients, I We started to lean in, in the second quarter. We've seen the benefit from a hyper focus on
I will
take a look at the market development on business development in each of our respective markets. And I believe that hyper focus and engagement, I'm Nick, as I said in my prepared remarks, will carry us strongly into 2022. I will take your questions. We are very energized around what we're seeing in our markets. And again, we're fortunate and it's making a difference.
Thanks. I have one more. I'm sorry. The mortgage I will take your questions. Just a quick one.
Just for 'twenty two, is it safe to assume sort of I will take your question. NBA forecast for 'twenty two versus 'twenty one, would you expect to largely mirror that?
I will now turn the call over to Tim's comments. I think the
answer is yes,
that's our starting point now. You have to come back and look at the again back to Tim's comment of that we are operating in the in the markets that are growing faster and certainly Colorado, Utah, Texas markets have demographically Greater population inflow than some other parts of the country, so we're benefiting from that, one. And secondly, the other component I Our volumes these days are back to 60, call it 65% purchase market, so which is our driving core behind that mortgage business
I will now turn the call back to Mr. Laney for his closing I will now turn the call back to Mr. Laney for his closing remarks.
All right. Thank you, Nick, and I want to thank everyone who attended this morning for your I particularly thank those who are investors in National Bank Holdings. We continue to be focused on creating have strong total shareholder returns and our commitment is to do everything that's prudent to continue a track record
I'm you would like to listen to the telephone replay of this call. It will be available beginning in approximately 4 hours and will run through October 25, 2021, I will be conducting 888-203-1112 and referencing passcode 7,577,774. The earnings release and online replay of this call will also be available on the company's website on the Investor Relations page. Thank you very much and have a great day. You may now disconnect.