National Bank Holdings Corporation

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2023 second 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. 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 four 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. Please go ahead, sir.

Thank you, Anna. Good morning and welcome to National Bank Holding's second quarter 2023 earnings call. I'm joined by Aldous Berkins, our Chief Financial Officer. We delivered solid earnings for the quarter, representing a year-to-date increase of $34.1 million, or 88% over prior year seven-period earnings. Our core earnings engine remains strong and adjusting for the impact of investment valuations met our expectations. Our credit quality is excellent and our core deposits grew 29% annualized during the second quarter. With a common equity tier one ratio of 11.08% and ample liquidity, we continue to serve as a source of strength in our markets. And on that note, I'll turn the call over to Aldous.

Aldous? All right. Well, thank you, Tim, and good morning. Thank you for joining our earnings call this quarter. For the second quarter, 2023, we reported net earnings of $32.6 million, or $0.85 per diluted share. The closing and integration of the Canberra acquisition has gone extremely well, and it already is contributing nicely to our financial results. with core deposits growing $539 million this quarter, or 29% annualized. On a year-over-year basis, we have grown our quarterly pre-provision net revenue by $14.5 million, or 49%, driven by strong organic balance sheet growth, well-executed acquisitions, and, as always, strong discipline on expenses. We continue to be pleased with the organic loan growth our teams have generated. During the second quarter, our loan balances grew 3.8% annualized, And on a year-to-date basis, our loan growth has been 5.4% annualized. Entering the second half of 2023, our loan pipelines are strong, which should allow us to achieve our full-year loan growth guidance of mid to high single digits. As I previously mentioned, our core deposit balances grew $539 million during the quarter, which allowed us to pay down the more expensive FHLB debt and bring our loan-to-deposit ratio down to 91%. During our first quarter earnings call, we mentioned that market conditions were demanding more aggressive deposit pricing, and that is reflected in this quarter's cost of deposits. Nevertheless, our total deposit beta to date through this cycle remains quite low at 22%. Fully taxable equivalent net interest income for the quarter came in at $91.2 million, down $5.1 million from the prior quarter, driven by higher cost of deposits. The second quarter's new loan originations of $362 million came in at an average weighted yield of 8.2%, which resulted in our loan book yield increasing 24 basis points to 6.15%. The resulting net interest margin was 4.07%, and we project NIM to dip slightly below 4% for the second half of 2023. In terms of our asset quality, it remains strong, with just two basis points of annualized net charge-outs, and 1.25% allowance to total loans. This quarter's provision expense covered new loan growth, nominal charge-offs, and supported the slight increase in the reserve requirements based on the CECL model for macroeconomic outlook changes. Total non-interest income for the second quarter was $13.8 million. Included in this quarter's results was $4.1 million in impairments related to our venture capital investments. This was as a result of our quarterly equity investment assessment process, where we review the financial performance and market dynamics underlying our investments. Excluding this impact, our core banking fees grew $3.3 million versus the prior quarter, with an impressive 89% annualized. Service and bank card income increased $797,000 on linked quarter basis and $1 million over the same quarter last year. Other banking income increased $2.5 million on the quarter basis, mainly driven by camber fees and pickup in our mortgage banking income. Looking ahead for the second half of 2023, we project non-interest income to be in the range of $34 to $36 million. Non-interest expense for the second quarter totaled $61 million, which was effectively flat with the prior quarter, excluding the first quarter's one-time $2.5 million payroll tax credit benefit. Expenses continue to be well-controlled, and for the second half of 2023, we are projecting non-interest expense to be in the range of $123 to $125 million. Finally, our capital ratios remain strong at 11.08% common equity tier 1 ratio and 9.15% tier 1 leverage ratio, and we maintain sufficient excess capital to provide for various strategic options. And with that, I'll turn it back to you.