NBHC - Earnings call transcript Q3 2018 | National Bank Holdings Corporation

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Operator

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2018 Third Quarter Earnings Call. My name is Emily, 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 presentation.

As a reminder, this conference is being recorded for replay purposes. potential remind including this loans statements growth, strategic to contain call and like margin, deposits, statements, gross forward-looking regarding capital, would you non-interest conference that will loan taxes I and streams, expense. income the company's differ could discussed those from today. materially results Actual are most These forward-looking recent the which filings to more detail and other risks, with statements in uncertainties in are factors, subject disclosed the company’s U.S. Exchange and Commission. Securities undertakes only speak National of the obligation this revise of or and Corporation as date Bank call, these Holdings These no update to statements statements. introduce turn It and Corporation’s Bank my CEO, pleasure is President now the to call Chairman, over and National Mr. Holdings Tim Laney.

Tim Laney

Chief Thanks focus relationship to our begin for Officer. for earnings Financial joining Birkans; want Emily. and third Chief you their teammates And continued with quarter I disciplined management and of call. model. XXXX Good the thank National I Risk Bank our me Management Officer, by Rick morning our Aldis Newfield; my execution Holdings have on thanking morning this

While by such it's share, XX.X% more a loan across fun even across our and about industries our non-interest-bearing of am I $X.XX result talk excited earnings clients. growth to of focused annualized direct relationship underlying We record growth of delivered per drivers diversified growth. was solid a our in deposits an our lot of a expansion with

this carry the into and that year. will to momentum have believe reason We every fourth quarter next

most diversified approach business. a and with believe very loan build strong underwriting this We granular a base to solid prudent and to the portfolio coupled continue that building is of we

believe can know but management, expense do with all job nice a did better I and will. team we we Our we

now so come determined to company better to young on and every and more front throw get Aldis. We’re it we’re to I’ll a

Aldis Birkans

Thank and morning everyone. good you, Tim

going with of pleased results, XXXX. pointed team built well has momentum third very quarter Tim out we the as into final as are the our our As stretch

diluted fully $X.XX record on earnings a share tangible per return share X.XX%. third assets per quarter record reported we the of and For of a

XXX-XX third book and quarter base XX-month to loans The the and loan XX.X% originated $X.X loan new fully third excludes annualized puts XXXX continue which a new balances a the quarter at increase million to which X.X% growth The the was originations at yield loan yields of compared over X.X%. at trailing $XXX.X grew equivalent came Our prior loan fundings accretive quarter. of our originated to taxable is loan loan in billion. quarter's solid our and be X.X% acquired yields in new by driven in loan as

production loan increased commercial fundings originated annualized. our This million balances strong on $XXX.X quarter was with acquired loan continue of XX% new adding attractive growth linked bankers million a relationships. Commercial loan and XX.X% by see we and and and third the fundings the $XXX.X In new our expanding commercial total were loans. of to represents variable-rate basis the an quarter loan were XX.X% quarter

achieve team the to projected of $XX mark. our our for strong a full-year at XXX-XX bankers given strong to economies we footprint loans. balances year to by XXX-XX fourth XX% around end have local and the prior of great growth driven loan million We for are the excluding across The XX% expect quarter pipeline guidance the

annualized our in our third checking very quarter and the over momentum Turning balances of XXXX. X.X% to average important, XX.X% second deposits, More our account deposits about of XXXX. over quarter non-interest grew checking growth. good prior non-intersecting the the deposit over grew We total annualized transaction quarter we feel XX.X%

on In has third basis client general, exhibit pricing growth. relationship-based capturing our by of We model of to continued relationships rational XXXX. quarter points over have are with third markets very account deposit increase checking also focus of pleased the as banking cost our our to and five full non-interest-bearing deposits the quarter exhibited allowed just us

three For of a linked with margin the three are Adjusting low our five single The in growth fully benefited taxable prior and XXX-XX forecasting second third widened income taxable net net flat accretion underlying quarter quarters for basis basis. guidance. equivalent point points on fully and year, digits X.XX% loans the the consistent transaction of with equivalent acquired by down. deposits our margin in respectively. items, from early to paydowns interest one these the we Both interest and to accelerated is on loans slightly the widened basis points. This rest time deposits basis

net are forecasting quarter, quarter fourth of area a second expansion equivalent the is after adjusting benefit. from which to For be accelerated the our taxable point margin few fully we interest accretion for the X.XX% in the basis

As by $X.X offset This assume decrease more of income be yields usual, and Fed. deposit any further quarter. will rate the loans the decrease low originated by forecasting or this than interest million XXX-XX does a increases not are to we of and $X Furthermore million third loan accretion higher guidance betas. a

accelerated As with lower to higher timing. be accretion $X.X at prior guidance earnings our always we’re assets the accretion for cash estimate changes Consistent or XXX-XX flow in to year billion. income due the projecting can end our the estimated

points. quarter charged to end improved strong the recoveries and the credit, originated X.XX%. previously that basis has to four loan in quarter on portfolio a realized book during large an recovery basis loan off exhibiting performance. net points of linked nonaccrual energy annualized our our on loan Furthermore, on resulting $X.X we acquired million third To one ratio Moving loans eight been

would charge-offs points. basis net this quarter for three the Excluding underlying only recovery, have been the

net the quarter $XX.X our at was XXXX, primarily growth quarter million interest and net sold loan fee With $X.X million. totaled on of linked X% decreased partially strong well lower continue income loss expense points by by coverage, prior the as decrease loan by to recoveries. offset the charge-offs million from to was as of $X.X book basis banking annualized. originated $X.X gains driven income quarter's the XX about quarter's quarter's million loan decreased we driven loan expense expected fourth quarter. The mortgage to respect which provision originated about provision Net book cover growth expect This of

quarter's and was high sale mortgage to This X.X%. industry mortgage lower by the rates on down volumes gains been due Clearly have margin total production volume impacted compression.

However, we feel good purchase XX% is mortgages key that volume. our represent driver mortgage to continues total which of

basis. In fact, manage banking expect important the that forma gains third any is year-over-year in X.X% with fourth are to also decline fourth million note on the in in expenses. given pro quarter we reduction purchase non-interest production grew seasonality mortgage a Adjusting quarter to banking It forecasting of to level $XX be quarter $XX income million and our lower range. the to mortgage a usual production, for mortgage we

decrease million in a third in expenses of quarters We are pleased very a this total expense of resulting to $X.X quarter’s $XX.X report million.

banking a nonrecurring of lower This efficiencies Peoples mortgage as quarter’s quarter some is the expense from as accrual adjustments. full from acquisition, expenses, well benefited

forecasting from better January Peoples full-year of the are costs than We quarter. This range half the in provided guidance our the acquisition incurred the prior fourth expenses million. around million quarter $XXX to would first Adjusted come to for at in of than much during in $XX level. our our put is $XXX and better the million guidance this expense XXXX

We future gains to the result contracts which in to Our excludes had in continue that executed expense fourth close nice to any gains be are expected which guidance OREO will quarter. quarter. lumpy quarter

would we next OREO be some not see However, surprised into those gains year. of to pushed

XX.X% This as quarter’s and quarter’s well. effective fourth tax XX% was be around tax projected effective rate we rate to

our on that comments. we FTE interest the As fourth adjustment projected that going saying momentum close that by and XXXX. my Tim, income. into good rate we momentum always about excludes feel believe this the I’ll just will quarter concludes carry in And we

Tim Laney

Emily tangible saying end Board a excess close you common intention to take November our our capital by our Thanks up semiannual ask will rhythm good dividend we’re simply that for review and I'll recommendation generating that through the line open increase return On also feel a that point, November. retained equity. the with XX.X% dividend I'll We for To that to of to Aldis. consistent moving early almost to of be questions. earnings we it's our a And that. building move while about in the like on

Operator

question our Davidson. from comes from And the line first D.A. of Jeff Rulis Instructions] [Operator

line open. Your is

Jeff Rulis

just on I going cost quarter. side little in bit one you guess non-time quarter that a forward? increase accelerated the you increase up deposit see that following that the that Yes, was catch-up is the the think of deposit of Do a costs piece or bit a

Aldis Birkans

it year implies really look, beta might the over on component. of basis full all, first hit increase point X that Yes, X% just

moving some has we into relationships. moved to guidance about we deposits and on do of ability some of fourth that see margin very that rate good migration. include So but to The quarter cost so the up environment the feel here manage our the

the and balance feel So we good managing profitability at do we of about the sheet. where are

Tim Laney

And Jeff, be just to focus helpful we've talk we built Company what it the and how might on. about again

And common had that These focus in If banks you analysts probably spend were won't time that building the of loan And typically the two and surprise started on when opportunity a at was real on denominators reliance troubled on in when deposits, other heartbeat. in asset deposits any concentration I at consistent about the looking was time think anyone. particular a we much Company, an country over Last line. CRE banks. one was where this to move were were One or as or would I course. there money issue time these you looking the other class. that largely and as filled non-relationship

deposits, going in you even out our quarter about a comfortable every But clients, relationship and of attracting we to with we're I bearing of we high second you look Our model I into real there the see in fourth rates the in executing take part activity at covering high we'll be markets year. into our to to not day focus tell first management good fair as be for just we where I'll a will treasury of money excited coming us care ahead beta, getting next as But powerful non-interest feel and full strong as or everyday clients, predicted the and of where into I growth when that expensive what running matter inexpensive in we're feel or this terms quarter said that move and that. is the we quarter increase and relationship it's need of CD's. were just doing perfectly the existing third better

Jeff Rulis

cost in check have been in. sequential just just low as certainly funding change a Your

thanks So for that.

Tim Laney

question. it’s No, Thank a good you.

Jeff Rulis

in wanted is that correct? zero that confirm the third quarter, costs were there I merger to

Aldis Birkans

That's basically correct, yes.

Jeff Rulis

in of year guidance the XXX an kind from expenses. And kind year? run that through early for to end Any on of XXX if thanks for this rate XXXX on on thoughts the expense you're

Aldis Birkans

Yes, it's our we're process but through now. planning right going momentarily

So going you to ratio. I'm business the ratio can efficiency not going about we that guide points which at the look do to be efficiency percentage and this we tell where our necessarily mortgage two add and manage for adjusted to does right I on but

get we're it. Our goal or remains to that XX going do And at below.

Jeff Rulis

And of the that by end below XXXX?

Tim Laney

We're next what into enter can but excited XXXX do we we'll XXXX in get about we year. to guidance as

Operator

And from our line from the KBW. question Chris of comes McGratty next

Your is line open.

Chris McGratty

a Tim on comments. your question, capital quick Just

the come the the and might weak. previously Can just still kind have us is in had about dividend have and pretty good stocks of about talked but bank if remind thoughts been You where support obviously you broadly levels you stock? authorization you

Tim Laney

very that kind terms our reminder of than at Because our I'm of buybacks. in never math look we've I approach can around an growth methodology words prices say eat saying, our stock earnings. on own model. the never. we acquisition buybacks tangible with knowledge proven bank associated dilution the I We our book - almost in the And my the and earn another would This ask how has table. and approach you we back institution. that I'm have are way, myself based me of executing clear another of Said in guess certainly a off past to going on discipline buybacks no that quickly differently just be our in made drop going acquiring that about I'll it's stock to

shares it's with not we a that better price will have acquisition outside but of share I'm use a acquisition price you whether of market So capital believe or with to own going that's that the an any the with come our a discipline.

Chris McGratty

out an have you authorization still has or there that Do expired?

Aldis Birkans

we stock. do If since we with would the left No, new certainly in back the given some been but previous there have that a over discuss authorization view Board. bought was a we it's while that

Tim Laney

early around earlier with of meeting consistent corner. that's referenced is And what which terms the right November I've in

Chris McGratty

Okay.

both discussed? So be will fair to assume

Tim Laney

- just we on the reality still there's I than this because we're where in young our I we're is no can at, because on That's going there's means the crazy better acquisition stock where big better. think companies that of better. that Look, We're say mark very know would given own I'll ever no we're just we're six of make cylinders. a company actually like it of we could running because I only this. only at, say only get eight company. to

practical to But able what do, still this we're as to knowing So to buy in matter shares. again, I a opportunistic. more position can a be love Company going would be be to

Operator

O’Brien Sandler line the of And O’Neill. our comes from next Tim question from

line open. Your is

Tim Laney

you was never that me think it on Tim, told say buybacks. never I

right. market were you knew would Who the do this. So,

Tim O’Brien

that active going good and Quick forward. talk Every and think this consider that and couple you thing. there? your a little mentioned give if it. were you of so one for in That's glad follow-up bank I quarter, I'm about me hear expense correctly color view about items on is all positive a should that non-recurring an time that this question did discussion could that a

Aldis Birkans

about clean benefited peoples up accrual quarter million from non-recurring this Yes, it's the items. contract a $X.X

Tim O’Brien

comp So, obviously? and of that out came cost

Aldis Birkans

$X.X Across multiple million. but line it items has

Tim O’Brien

guys then say the And on did you too? line Rick's

Tim Laney

the third he's Yes, musketeer.

Tim O’Brien

markets, credit it's that don't give west anything how's that landscape are views on if that potentially about that little a and the doing tougher anecdotally we're your coast so there you some know, just in hearing What could housing the a in - Could lot showing affect how? about - up and bank, anymore color the is I your numbers.

Rick Newfield

really based underwriting really you position we've in or of where And a principles. and not good managing think One Tim. the sort have the Sure, since the do two significant quarters for been the second when to fences is is day back. diversify. a change pull very our I swinging in very concentrations, or on long-term times are then we historical one, know past on be Look, to sure is, as focused making

we As Tim about said, we diversification. of good composition very feel this loans, - in our the all the feel overall

lower has million banking activities as at Our under about we've average commercial funding our loan past. this $XXX,XXX and been trended the driven year has in business $X Tim mentioned particularly which

portfolio, in look CRE will decreased our you both in loan-to-value residential in of loan and it see concentrations past year. we this the our FICO this hold we is for You'll that our size high quality. in at our mortgage Average average brought as very what And tell terms I that quarter I XX% originations when residential under and is XXX,XXX XXX, portfolio.

or fundamentally That's time particular a also talk the eliminate if first for But the that of to issue. think the about we There tell and prudent. ballot the monitor like biggest very, we're remaining I sectors. supply issues business the availability you one front looking in factors in So, are looking kind which increase ultimately costs of business simply We course energy staying a with issues of in general, you the very in loans. much that range energy the were would front course at affect Colorado energy And of and could the couple one certain that being could you affect on we're and range look, of those remaining of is continue housing the potentially Colorado. business and issues markets market. growth just any of

goes is and kind a past. player just be believe XXX to Overland equivalent is it pleased as exited energy, in and market you watch baseball but In be Kansas more City, couldn't she a space really to that exposure think ballot our that Park as fact - something of the will know in I if it’s doubles in there. not I a steady we We’re a singles be

We’re is company. and our and to getting done good Austin we’re be Texas very just across said all frankly markets more fortunate our in and markets and when traction

Tim O’Brien

opportunities question affect there in the color your and terms the what's and then stuff. M&A and with more sector valuations you but with with we see thinking your well, for as deals deal affected your thinking happened reset that do and think see of and obviously and here prospects down on deals fewer been might Thanks currencies or a deals? last on on Does pricing

Tim Laney

This not continue Peoples. I'm answer approach question moving has great to and to that’s been it. way we say we're shift ready so it's we unlike Tim I a sure quickly think the price fair not

but long-term to be going going institutions very We our continue disappointed with will to in going deal. we’re for dilution a got to the as do come construct discussions our a crossover to focused benefit and Tim what tangible maintain and that structure primarily book we’re is very to sellers, held some back what earn that a be a to on a privately how be we’re frankly table to of we holders short on perspective basis willing they've some looking as be And partner shares. understanding

Operator

last line comes from the Matt Stephens. from of our And Olney question

Your is open. line

Brandon Steverson

for Tim, Matt this Steverson Brandon Good this morning. morning, is on

Tim Laney

you Well upgraded.

Brandon Steverson

to couple. sale think I have the you mortgage business? a quick I metrics the the back on originations Do in really in and this quarter then gave handy just versus margin wanted on quarter third you your last the circle gain quarter mortgage

Aldis Birkans

$XXX we what all million held on about sold. in we that's were what portfolio about originations and the that's Yes, have

margin half X% of the at dipped don't when about sale, way. have I that, some we can along the because disclose point compression in X%, below of about. but collect were you talked this that year, fees In we first gains mortgage we of necessarily terms you the consider In the the on

Tim Laney

that worth think way we as appreciate look our that the month-by-month. of you residential and ultimately week-by-week, really noting have we do it's at the line this business appreciates. as mortgage business to we monitor And on I profitability But everyone

where You money calendar in we in week always that breakeven that We year. profitability the But months other with course Spring or have make going we from selling we and to at we the going surround business. early of focus business that look what hay know season. to over break - the love that summer the follows to out. realize full returns we’re team know incredible make stand business in of that a when that and into week kind is in

Brandon Steverson

just the on it's then from seeing And we’re the forward quarter-to-quarter more million million been me one it expect past XX looks and expectation like that Is that million that XX between level? XX loans, and couple of quarters. acquired runoff to reasonable going over a XX million the it’s between

Aldis Birkans

we Yes, XXXX don't here certainly it itself. off repeat feel going it's next necessarily in into I run that the that portfolio like slow guidance give looking it’s to down that year. do of Again terms quarter, going is in fourth looks to for but to

Tim Laney

Just not left. that much

Brandon Steverson

taking lot a Thanks Understood. my questions guys. for

Tim Laney

Emily, else? anyone

Operator

from more Zabora have from do one we Hovde. question Yes, Brian

line open. is Your

Brian Zabora

Just a question work on the trying out you've OREO like about to expense a side. In the gains talked past match cost.

sizeable coming you two year the those this there far may as as again be those could think first then match up up XXXX, some quarter highlighted you into as but we’ll of quarter gains leak the I and have to are categories? in some

Aldis Birkans

gains are we we that would on those net for least that year-to-date the items. line more have expense million offset the cost. $X.X fourth mean I quarter contract The at Yes, than on

contracts and what first through logistically timing there Rick happy the could in to can out go into but be I push Now, it found is on we should quarter. let those of jump to

Rick Newfield

a We We and - continue terms bit point sometimes acquisition I there Timing mean, but team. OREO new, are in continue deep themselves expand to this of case at just track have is maybe those close delay present some some is comments. expenses we profit these very often our point, special a before, of gap and in run little pleased was your to XXXX. pursue. which through the to all certainly with said record that a the of on in discounts this view are factors acquired more took workout in XXXX have are acquisition we all assets bank overall other as that's OREO through is position could than our Brian beyond we anyone a on all other while time this to into we buyer in in these our we'll can the again and some opportunities contract But committed, we center. that

Tim Laney

that seeing expense. about be on still saying that I'm the our warrior. net, of coming I everything based net gains talking above carried that I'm And out believe gains of we'll sale

of profit So just the Rick I that still returns feel very coming economic good about center. as mentioned out

Operator

I'm questions call And turn for you Thank the have is all we back for this time showing, further and we remarks. now the at Laney that time. his questions. have closing no I'll to Mr.

Tim Laney

Yes, thanks morning. joining for I'll just this say, simply

frankly those said the and could earlier, all be carry very the quarter. As expanding I fourth from carry teammates momentum realizing the relationships. working to here model management the we client I are and how proud more of our And benefits not we're XXXX, I'm relationship my about execute into growing momentum excited we into

a and have you again, thank good day. So,

Operator

call. And this today's conference concludes

also like in November available this XXXX, and Xst Company's it replay XXX-XXXX. be and will Investor Thank call, of to of Relations by XXX-XXX-XXXX If beginning conference on much, to replay available would have listen earnings or release you of will telephone dialing great day. the referencing The the very XXX-XXX-XXXX ID a on this you approximately, be call Page. website and online the

You disconnect. may now

National Bank (NBHC) 24 Oct 182018 Q3 Earnings call transcript