National Bank Holdings Corporation

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2021 First Quarter Earnings Call. My name is Mariama, and I will be your conference operator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session following the prepared remarks. As a reminder, this conference is being recorded for replay purposes. 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. 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, President and CEO, Mr. Tim Laney.

Thank you, Miriyama. Good morning and thank you for joining National Bank Holdings first quarter 2021 earnings call. I'm joined by our Chief Financial Officer, Aldis Berkins. I'm pleased to report quarterly earnings of 86 cents per diluted share and a return of 15.2% on tangible equity. This is particularly noteworthy given our substantial capital position. Credit quality is exceptionally strong with charge-alls at a record low of only one basis point annualized of total loans. Our Paycheck Protection Program has been well managed and has not represented a distraction as we turned our attention to new market share growth. In fact, I am very pleased with what I'm seeing in the pipeline for second quarter with regard to new business development. All this is going to speak to our strong liquidity position, so I'll simply point out that beyond benefiting from stimulus-related account balance increases, we remain very focused on growing new client relationships. And on that note, Aldous, I'll turn the meeting over to you. Thanks, Tim, and good morning, everyone.

In my remarks, I will present the results for this quarter's financial performance, as well as give an update on our guidance for the rest of 2021. For the first quarter, NBH earned a net income of $26.8 million, or $0.86 of earnings by diluted share, and our return on average tangible assets remained strong at 1.65%. Our strategically built built diverse revenue stream, expense control, and excellent credit trends this quarter resulted in solid shareholder returns with a return on average tangible equity of 15.2%. As we have discussed throughout the pandemic, we had taken very careful approach with regard to credit management and new loan originations. And while we started this quarter with a similar posture, the speed of the COVID vaccination rollout combined with the economic recovery on our footprint have allowed us to begin rebuilding our commercial and small business pipelines. For the first quarter, total loan fundings were $294 million, of which $173 million were non-PPP loans. Furthermore, we finished the quarter on a strong note with March representing the second highest non-PPP loan funding month in the past 12 months. Toll loans outstanding this quarter decreased $50.5 million, but as I previously mentioned, we are gaining momentum and we expect to deliver solid organic loan growth in the second quarter. Turning to deposits, this quarter we added $166.6 million in average transaction deposits. Our non-interest bearing deposits now represent 38.3% of total deposits, and the cost of our total deposits decreased another five basis points this quarter. The strong deposit growth allowed us to increase our average earning asset base by $129.4 million. And given the steepening of the yield curve this quarter, we deployed a portion of the excess funding into the investment portfolio, which grew by $148.2 million. The resulting fully taxable equivalent net interest margin was 3.02%, and the fully taxable equivalent net interest income was $46.5 million. This quarter's net interest income included $2.6 million from PPP loan fees, which was $2.6 million lower than in the fourth quarter, and is the primary reason for the net interest income decrease on the linked quarter basis. The rest of the decrease is due to fewer calendar days this quarter. The remaining unamortized PPP loan fee balance is $6.2 million, and $5.2 million of that relates to PPP 2.0 loans. Additionally, our excess cash position this quarter increased over $600 million, and this excess liquidity had an approximately 32 basis point dilutive impact on our margin calculation. At this time, we expect to maintain a significant portion of cash balances in our balance sheet for most of 2021 to support our organic loan growth. In terms of our asset quality, it remains strong with positive trends. As Tim noted, the first quarter's net charge-offs were just one basis point annualized. Non-accruals decreased 20% on the linked quarter basis and now stand at just $16.4 million. Non-performing assets decreased 12%, and both criticized and classified loans declined on the linked quarter basis. These excellent credit trends, combined with the continuously improving economic forecast projections from Moody's resulted in a CECL model provision release of $3.6 million this quarter. The resulting allowance to toll loans, excluding Paycheck Protection Program loans, at the quarter end was 1.35%. Total first quarter's non-interested income was $33.4 million. This quarter's seasonal decrease in bank card and service charge fees was more than offset by a $1.6 million gain realized on the disposition of several banking center buildings from our previously consolidated locations. Looking ahead for the full year 2021, we are increasing our non-mortgage fee income guidance to $40 to $42 million. With regard to the residential mortgage business, we are off to a good start this year. And while the rise in the long-term rates is impacting both the mortgage volume and margins, the activity has been consistent with our expectations. And at this time, we are reaffirming our full-year mortgage banking revenue guidance of $60 to $80 million. Turning to expenses. Non-interest expense this quarter was $49.7 million, which included a $1.3 million impairment charge related to the banking center consolidations announced during our January earnings call. Excluding this one-time charge, our non-interest expense this quarter was consistent with the prior quarter. The increase in the compensation line on a link quarter basis was driven by slightly high mortgage-related compensation. For full year 2021, we are reaffirming our guidance for non-interest expense to be in the range of $182 to $192 million. And as a reminder, the range provides for the mortgage-related commission adjustments consistent with our fee income guidance. We continue to build capital driven by strong earnings. We finished the quarter with a tangible book value of $23.41 per share. And our CET one ratio was 15.2%. Finally, we have no change in the expected effective tax rate guidance of around 18%. Tim, with that, I will turn it back to you.