National Bank Holdings Corporation

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2023 Third Quarter Earnings Call. My name is Marjorie, and I'll 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 to statements regarding the company's strategy, loans, deposits, capital, net interest, income, non-interest income, margins, allowance, tax, 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. Please go ahead, sir.

Thanks, Marjorie. Good morning, and thank you for joining us as we discuss National Bank Holdings' third quarter 2023 financial results. I'm joined by Aldous Berkins, our chief financial officer. We delivered a 10.8% increase in earnings for the quarter. with year-over-year pre-provision revenues growing 54.6% while doubling net income during the same period. We continue to build capital, ending the quarter with a CET1 ratio of 11.61% and delivering a healthy 18.38% return on tangible common equity. I'll add that we continue to be pleased with our asset quality with just one basis point of charge-offs for the quarter. Further, we expect to reduce non-accruals during the fourth quarter, having already experienced a nice reduction during the first three weeks of the fourth quarter. And on that note, I'll turn the call over to Aldis.

All right. Well, thank you, Tim. Good morning. Thank you for joining our earnings call this quarter. For the third quarter of 2023, we delivered another quarter of strong financial performance with earnings of $36.1 million, or $0.94 per diluted share. Overall, this resulted in a return on average tangible assets of 1.58% and a return on tangible common equity of 18.38%. On a linked quarter basis, we grew our pre-provision net revenue by $4 million, and On a year-to-date basis, adjusting for acquisition expenses incurred in the prior year, our pre-provision net revenue increased by $51.2 million, or 55%, driven by organic balance sheet growth, well-executed acquisitions, and, as always, strong discipline on expenses. We continue to be pleased with the loan growth our teams have generated. New loan originations during the third quarter were $324.1 million, at a weighted average yield of 8.6%. And on a year-to-date basis, we have funded $1.1 billion in new loans, bringing our total loan balance growth to 4.8% rate annualized. Federal loan fundings pushed into the fourth quarter, and combined with the remaining loan pipeline for the fourth quarter, we expect to achieve our full-year loan growth guidance. Our core deposit balances grew $28 million on a spot basis and $116 million or 5.8% annualized on average balance basis. Deposit pricing has continued to reflect the higher rates paid by the banking industry. Yet our cycle to date total deposit beta remains quite low at 28%. The third quarter's total deposit cost was 1.64% and we do expect that to continue to drift higher. Fully taxable equivalent net interest income for the quarter came in at $89.4 million, a slight decrease to the second quarter, and an $18.9 million increase over the last year's third quarter. The resulting net interest margin for the quarter was 3.92%, and we project NEM to be in the range of 3.8 to 3.85% for the fourth quarter of 2023. In terms of asset quality, our loan portfolio continues to perform nicely, with only one basis point annualized net charge-offs in the quarter. This quarter's provision expense was primarily driven by new loan growth. The portfolio trends remain well-behaved on an overall basis, and consequently, our allowance total loan loss coverage remained at 1.25% during the quarter. Both NPA and NPL ratios improved over the prior quarter, as did our classified loan ratio. Total non-interest income for the third quarter was strong $19.4 million, an increase of $5.5 million on a link quarter basis. The core banking fees showed strong performance, resulting in 12.9% annualized growth in bank card and service charges combined. Other banking income benefited from a $1.1 million gain on sale of mortgage servicing rights this quarter. and showed solid performance from our diversified fee generation businesses, such as Trust and Wealth Management, SBA Loan Sale Gains, and Canberra. Looking ahead for the fourth quarter of 2023, we project non-interest income to be around $16 million, a link quarter decrease, mostly driven by the seasonal slowdown in mortgage-related income. Non-interest expense for the third quarter totaled $60.6 million, a decrease of $0.4 million from the prior quarter. Expenses continue to be well-controlled, and we continue to find efficiencies that allow us to fund our investment in 2U and other technologies. The third quarter's 2U expenses were approximately $2 million, and we expect them to grow to close to $3 million in the fourth. The fourth quarter's total non-interest expenses are projected to be in the range of $60 to $62 million, which will bring the full year 2023 expenses to be below the low end of our guidance. Finally, we continue to build our capital with TCE ratio increasing to 8.5% and Tier 1 leverage ratio increasing to 9.56%. Our tangible book value per share grew 9.2% annualized to $21.43, more than upsetting dividends paid in any increases in AOCI loss due to higher long-term interest rates. Tim, with that, I will turn it back to you.