NBHC - Earnings call transcript Q3 2020 | National Bank Holdings Corporation

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Operator

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2020 Third 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. capital, remind including, this statements and but Company’s loans, to contain call regarding non-interest like non-interest strategy, statements, income, forward-looking not deposits, expense. would you allowance, conference that will the income, I margins, interest taxes net limited to, Actual could from today. those results discussed materially differ subject risks, the and detail most filings with other the forward-looking in which are These Company’s to statements factors U.S. are more uncertainties disclosed in recent Securities Commission. and Exchange and the these These Holdings National statements call, as of to Bank revise of undertakes or date speak statements. obligation no Corporation this only update

on In non-GAAP to believes measures is addition, Investor www.nationalbankholdings.com. Laney. Bank Mr. of the provides the the of Holdings National call turn to which Corporation financial today CEO, posted non-GAAP the now pleasure will GAAP Reconciliations reference Holdings over Chairman, section investors. It and call introduce Tim Corporation’s these measures, certain Bank measures useful Relations news are the and my for President information in National provided release

Tim Laney

Thank fee with Officer. income. Good record-breaking quarter with I Chief Rick Management Bank our call. National to XXXX the pleased pandemic-related Financial earnings you earnings Holdings of have thank you, strength Newfield, for the you record morning, third our Aldis Birkans; that during third Chief Risk Officer, and we Mariama. share despite challenges, I’m me joining and delivered quarter on

goal produce basis our of of The we occur. to than credit the points. annualized operating to continued net they X clearly of risk-off well-prepared charge-offs diversity granularity are solid our that balance a better being maintain from with We performing the country. any markets with of benefit position results in this, downturns portfolio further continues sheet to address just and said most Having should economic on

improvement continued set during quarter. metrics the experienced of have broad across a credit we fact, In

experienced. has in a these treasury management practically in given the we’ve growth times, relationships While new pleased particularly been with balances during growth deposit I’m

to to Bank continue And support named to off communities. we’re and the proud Job we Creation Rick, that the on Finally, hand Small Administration. of I’ll And by been recently XXXX you. prudently the call have Year clients note, our Colorado’s Business

Rick Newfield

Thank good I’ll comments. cover my areas and three in you, morning, everyone. Tim,

quarter summarize third and performance. I’ll First, credit briefly metrics our

I’ll of COVID-related during showing describe Protection the we our And our Second, on third, asset balance to to ratios credit modifications. sheet discuss to asset to the respect a status well thereby prudently quality clients. metrics, while reduce about trends to the that our take conservative Program held I’m working I’ll loans, view more our Paycheck note actions continue With risk the exclude up the of I’ll quarter. cover quality. support

loan our in remaining decreased quarter, during non-accrual the While loans balances at a non-accrual X.XX%. decrease led to ratio flat our corresponding

quarter. the decreased loans during criticized also Our

portfolio June to trends credit X the points. net and stress points economic our our quarter reflect Our past non-accrual total had non-performing in basis only The continue. in X.X% from enhanced were plus asset $XXX,XXX underwriting at stable at remained meaningful the XX annualized. management XX-day as pandemic X.XX% or And ratio but for loans we experienced XX, conservative OREO not only improved charge-offs the quarter. as basis and low decrease in loan very dues reductions standards a

are loan our unemployment better national in the averages with also Tim fared impacting favorably book levels As and clients. underlying which generally than believe is said, being lower I have by pandemic markets evidenced

restrictive reserve With full service any excluding our interest those at modifications payments total It’s $XXX respect loans, During we still clients, equity to PPP accounts, or point second the cover and XX% to covenants. loan cash that million monthly debt these million third vast build levels receiving deferrals. X.X% The revenue contractual been sufficient payment have our stabilized quarter, and modifications to loan expenses infusions out more important clients of to on to versus declined predicated to exposure. of to levels. of majority $XXX considerations have modifications generally extended loan have pricing require

we of In X% loans. less COVID modifications outside than our have fact, hotel in for loans, our place of

of represent agree As of began operating terms. our XX%. back conservatively on successfully each and payments, daily are was from working portfolio further in To underwriting by a majority required equity we’ve in path on our forecasted with clients rates any conservative June, to loan interest-only cash our this We reminder, agreements loan date, ongoing and to deficits to an infuse we the additional additional with benefit negotiated hotel such a and protected average occupancy clients. sufficient certain Based of client loan-to-value to hotel restabilization. average

To Given believe from management the pandemic. stress additional during clients high-risk hotel robust are other equity this on structures, enhancements larger credit currently. the continued to commercial a and quarter sectors. reviewing to our either infusions basis, portfolio clients weather banking with or put perspective, the business maintaining vigilance banking and in our our exposures our and loan intensified banking and third teams well-positioned specialty is weekly exposure the this protracted I myself, Tim, all we’re effort and within

weekly the expenses status currently During payments. mandated pandemic deterioration We trends. approach driven clients’ to by assess jurisdiction impacted a reviews, to needed cover full extent these continue restrictions as action as weekly where versus we debt to we and loan to take This and our proactively each revenue enables revenue the and required quickly portfolio. to risk-off as contractual operating credit discuss client’s well detect X-week us trailing levels

Given direct energy centers we funds. hedge casinos and malls, the and exposure, have services, where it’s gaming, lines, continuing no cruise convention noteworthy aviation, impact, pandemic’s

the tests plan, those was conducted of no auto, credit tests a stress believe very indirect June recovery, L-shaped strength. over loan completed loan consumer most the Also, on granular We which modeled, portfolio leasing and car our In exposure. recovery dealer commercial stress a capitalized. diverse most to coming by COVID-XX we’ve with well years. no floor path no focus an a we elongated maintaining have and party no outside in The the twice-a-year remain I assumes impact weak on scenario an card a book. recent pandemic is lingering severe from and

particularly metrics. will Given is loan-to-cost, real of XX% Furthermore, the is excluding pressure, also estate, non-owner-occupied experience further only estate and capital. what only risk And total point is portfolio, that retail, we loan it relative conservatively our I’ll XX% real other key loan-to-value office underwritten commercial risk-based PPP have and loans. out to that commercial of our

most our with self-imposed X% well to and Aldis. turn that, the levels below limits. remain sectors at call concentration We’re with or I’ll total loans, industry And well-diversified industry concentrations across less all over of

Aldis Birkans

performance, financial the for once Rick, strength again deal the are of that uncertainty. the to morning. provide you, and of a the our will I recognition economic Also, during bank. highlights good rest Thank and limited my review this remarks, of resiliency I tend year this we great guidance In which quarter’s facing call, with still

shared from announced EPS the the quarterly million was or third with reported $X.XX $X.XX net previously record increase After the consolidation for third diluted for center you, As quarter, $X.XX the results. quarter’s expense, income adjusting share. banking adjusted we quarter’s Tim adjusted per or prior of $XX.X

zero took than offset $XX.X from a revenue rate net which favorable pre-provision headwinds totaled we pretax FTE the resulting quarter’s as million environment. the more record of advantage mortgage This conditions, market

production careful risk. to new on and The third quarter’s approach our new evaluating loan taking reflects credit

quarter. in we resulted risk-off in new were a credit fundings quarter yield, million, the $XXX.X to and total with in careful loan to management operate balance As which of continue a regards this loan decrease the mode, during combined $XXX.X million client

to Moving deposits.

see to strong both, our as clients accounts. newly as existing opened continue inflows We well from deposit

Our Total And grew a increase X million total a deposit average contributed basis deposit cost XX.X% to basis continued annualized. average this transaction assets. or very or quarter. strong $XXX.X XX.X% in deposit our solid growth annualized XX.X% balances annualized. to earning points XX $XXX.X grew The points deposits million decreased

cash However, the approximately the cash contraction decreasing was in securities, and fully excess resulted mix detailed trends. taxable XXXX. Rick of estimate to summary towards of a the due end investment least cash expect equivalent given at we the X.XX%. the quarter asset to yielding credit which through quarter We the lack interest XX this investment provided basis already net of position this balances. to attractive the our elevated margin points And of earning alternatives, moved lower remain

on provision and just the quarter. allowance expense touch I will this So,

requirement. As result model the did a allowance CECL of the changes incorporates reminder, our Moody’s forecast, impact macroeconomic quarter forecast this the in material in and changes not

loan existing the and to coverage it provision against loss excluding unfunded quarter’s $X.X commitment this the We quarter’s takes to total such, of expense provision Factoring $XXX,XXX. X.XX%. an PPP our million $XXX,XXX ratio, charge-offs quarter expense and loans acquired of previously coverage included with just net totaled of X.XX%. As in loan ACL loan loans, finished for marks loan

Turning to fees.

originations elevated on group Our residential had loan and both mortgage quarter strong another gain sales strong spreads. with

quarter, was respect to year’s prior high all-time production core are the higher mortgage quarter realized loan for mortgage another strong the Company During $XXX bank X.X%. this charges was quarter, pandemic recovery, grew third of the activity, as $XX.X quarter. loan also Well, with by exceeded report million same $XXX local or card income this million the fees fees or production was it origination card being and third record after pleased to economies. in market and of purchase of on revenue XX.X% linked-quarter that fees banking an With benefit million, service the benefited basis, bank in this than from from we the in a operating last non-interest slowdown. economic strong quarter million the while increase from our the which signs related significantly continued And to market XX% quarter’s year. XX.X% $X.X we we prior of showing by or I’m impacted quarter

both, also During as the and margins were to on secondary elevated remain quarter, we primary wide. sale able gain maintain spreads

that Going given we expect the the decline, quarter, fourth winter to the some as the down come of seasonal months. margin lines during slowdown typical purchase into

are that smoothly, last the banking happy by announced to to our and of last discussed expenses. And efforts the centers quarter. taking XX successfully manage we network all quarter’s expect virtually the end center report banking rest I’m this of are we we during As consolidation actions within year progressing several the quarter call, absorbed fourth to be

$X.X to of consolidation-related compared quarter, the expense As we part second Total in of prior quarter driven the from of this in linked $XX.X expense to during increase an quarter. million the mortgage activity. such was quarter. variable this million quarter compensation million $XXX,XXX realized banking related strong center banking or expenses, consolidations, non-interest the primarily Adjusting the the expense was the increase for $X.X transition, by

and once improved quarter, positions. we Finally, during the again liquidity regulatory our capital

basis increased book ratio XX.XX%, and grew to we to CETX $XX.X. points tangible value XXX Our our

quarter end any We at approximately Our in loan-to-deposit ratio very-well-positioned with are position to $XXX we and the to our million. was further it weather back will to improved this, XX.X% I downturns you. Tim, cash excess believe turn economy.

Tim Laney

Aldis. Thank you,

very practices we’re efforts policies clients equity out, common an book. X deliver opportunistic and our equity. my position with this while believe focus our the Aldis our Mariama, questions. Tier tangible challenging desirable teammates’ of that communities and XX.XX% banking delivering and while solid the of results be growing I’m business our up and Risk open remain navigate support strength. As are pointed bank to to strong our our against continues a proud for We to lower we enables delivering and to hedge value yields flexible common effective solid from producing a return dividend a residential call tangible investors. on on the management ready for economy working to book ratio results, on loan of

Operator

Jeff with Thank you. Your Rulis from Davidson. [Operator Instructions] question D.A. comes first

is open. Your line

Tim Laney

Good Jeff. morning,

Jeff Rulis

mostly Good on wildfires, morning, with the those question I’ll potential just also of Tim. while Maybe for the north that. increase for an or Denver, footprint, a or cases, in at Colorado and certainly sort slowing looking on some of reopening are of of you COVID pause sort local so start maybe the the a

you assign over could run, in, it quarters? have long-term out the favorable headwinds, demographic impact those layer that those obviously any short trend it, pressures might think But, the -- if as west. any you call you next Just several a

Tim Laney

important. in terms Not most flow states and observation is and rise what’s of United unlike States, rates. fall of your seen broader COVID the we’ve I of think And an ebb

in seeing we’re week-by-week We’re into inflow, of basis very seeing core same the net only the not and a thing where seeing in thing one but our Colorado, Dallas a positive operating. markets, month-by-month, we’re we’re on Austin the Utah, markets same

the week-to-week, United be what infection in positive certainly So, opened fundamental not States. the ready you we while let’s operate markets markets speak coastal may more where, than I reported tell in up I’m the say, that is to can that impact to COVID rates is

more back benefiting time, COVID to inflow benefited attitude we’ve new At powerful. been and there. continues manageable, with we’re certainly that business rates So, same the the to residents be this very have of from

Jeff Rulis

the Right. of you cautious -- approach you’ve of commentary. last risk-off your And as type terms a couple pretty quarters Tim, in taken

on As out. to of of we triggers that and But kind a transition growth sense lot risk a how terms in appealed the risk get triggers keeled just on towards a a your thoughts or ‘XX, you even just neutral more play to into that? kind nudge what landscape, -- the what it even obviously of returns

Tim Laney

I’ll XXXX? I’m it. like white return like feels but not to does that that tell that these we’re And we, once be It’s I’ll rates, continues answer it’s in to larger, layoffs, call it, celebrate I’ll I that on we’ll have balance reminded know be do with topic want have on is someone that question. to while the explain sheet. said, growth see most optimistic where it you, way. can feel macro some impact really to if a is a protect to the solid I’m collar to cautious. ultimately you We it, going corporate broader And that’s question they cautious. and sure and job, our it the great continue but gave that what do doesn’t people, question. business of very when the markets job America tell announce I it we’re much And in, where And economy we And

Now, here’s the good news.

into in, we bankers say will end I -- to are of added of the we’re new clients question simply Given market, filters opportunity. seeing that in end it year? the first bank at in And nice a relates is this the place of back a put we’re out greater. filters, in active, can’t answer the are our bankers quarter just at fourth the that to operating and bringing close our today. would that markets we’ve the I the growth the are come the next quarter as really year,

I know, good way think, we’ll more it. here. question. And us, as that’s will the But very all think of time know we of us all about goes by

Jeff Rulis

one and kind the branch and But, I variable to the two-part, had mortgage margins do rate of about do specific. lot filtered done maybe expense the I run I’m outlook Got thoughts for it’s not kind the that into quarter. side, with on we don’t last units, the But, fourth you’ve specific. the guess, your commentary it. what have of mesh I it’s appreciate trying Maybe the super has extend consolidations inputs mortgage fee if in from just you know ‘XX, got you’ve Aldis, obviously, to and think of that. your for income a what expenses, and in.

environment. given side fee think pulled anything helpful. to kind of the back would specifics and those point you you’ve But, on expense us be the could of guidance I

Aldis Birkans

given Clearly, I’ll this Well, compensation expense on the earnings. and day that’s start We’ll variable elevated Yes. take with -- the that expense. mortgage along. the all record component quarter, based

well. very by are spreads much in We the that as market benefiting increased

disordered revenue in a helping our that on ratio. or So helping efficiency that relationship -- bit to the mortgage is compensation variable our

you’ll for And though all in last line we’ve in to been year. banking on salaries we will on release, banking see management line and quarter. to that’s items, our them the line benefit the as -- will you able of go-forward versus The that. that just continue kick and example, of compare them to -- basis, If third third And consolidation prime date. in focus hold a table quarter and expense continued other do the look except we’ll close will benefits XX earnings check. center and here, the this next this that year centers items this is these consolidate That at in quarter the year, benefit starting will

how salary that benefit every that line. that and that XX% I thinking increased mortgage and would would $X salaries of for of sale fills we into on report, terms relationship been flown had about for say, of kind typically, compensation of about -- that gain In that have into expense,

elevated the Given margins, kind dropped XX%. it’s to of

So, that should a give at how in we that. you a guidance little bit terms of of look

I understandable fees, the Now, is still more Very, charges, our deposit core line to returning that’s moving banking underperforming service but item normalized to very overdraft elevated while on analysis the given balances. excited are levels, about is fees that not fees. growing, think fee these fees

So, third -- in hedge to margin, continue that. Bank at the card we fees quarter that. about mortgage, benefited to It’s certainly it’s quarter, fourth here and going the been quarter. strong we’re for expect worried slowdown very regards too certainly certain fourth showed great the not winter from into least a here. With look months, a to

that say. see of than fourth this It’s -- We’re what already. to kind says, our XX% How is or October guidepost in say starting last. MBA and volumes they is here hard to quarter about much? higher XX%, guidance But,

good that guide think probably I line on So, for that item. you be would a

Tim Laney

come expenses in on to continue that to our to and got say reduction back we’re going realize work just Company. I’ve additional to expense

of room continue relates believe We deposit have will costs at cost experiencing. they well, grow the as to down rates at continue our on particularly XX bring to as points got we’re basis we’ve a a to deposits And it to That’s it margin, still our record a be focus, and pandemic for not. focus. doing continue to I that, track or as

Operator

Andrew Piper Your next question with comes Sandler. Liesch from

is open. line Your

Andrew Liesch

line. at Just the mortgage looking

have some the the the it the folks continue mean, through refi until we now refis how could this stands do next if and And first right volumes pipeline are quarter? like Just employees? and the kind pipeline and are? having how big stands, to I curious and approved out to into guys see the where that mean, push your production busy to are you If move look maybe of pipeline delay the I year? of purchases. going like capacity you stressed your where at you

Tim Laney

business, to extent I business. the will, just refi, and the to not that is influx new we’re believe acquisition people just going we available, given homeowner we into new of see the product do but and there continue to markets

yes, couldn’t marathon more our be question of answer in been has So, to I running They area. your up. marathon, strong. proud candidly, Leadership teammates been have this stepping after

teammates -- I Our I’m And so people and that have is. how dream just the in talking been think work, I But, really certainly our particular get ask couldn’t realize teams we’re of what bankers. focused, helping we look more certainly all almost be this homeownership. of -- the you on powerful at And behind more doing mortgage when more. for to our make couldn’t scenes are proud

and at make to as those we different We’re understand for up goes, They’re the those while have ways of teammates, strong. sun challenge. hay they’re we old saying teammates, the is shining. And looking rewarding recognizing the

mindset. So, that’s the

Andrew Liesch

credit along can you But, a is until lot to by have provisioning with do declining, I the you to this of of and the where CECL. trends on stance? provision and also maybe back supports Understood, non-performers of with there charge-offs. -- come good expectations a -- loans And makes risk-neutral I this also guess, sense. reserves and the the And But lower that in start obviously then, provision mentality. kind front, on risk-off go on know with kind where any driven

Aldis Birkans

too. say we currently, will where is adequately the be. Aldis. And answer showed is, loans is actually expense the That’s ACL. of you path, have W will future the could to will if the very be economic outlook quite really loan model that certainly the pressure not driven this drive and a bit, be reserved. that type Moody’s The of growth record another the certainly I’ll for and/or because right, build did quarter. difficult it see huge to secondly, that’s provision start. two given This by where to points, I’ll mix one. It outlook further where there to goes And the future development

Tim Laney

XXX, loan high in previously to performance of around not, take the factor where try answered or would I add, certainly in would a when acquired high. the rather [ph] maintaining while loan release be more be level you And we create argue, I just early against any given was to form, model that’s again, But, something of later position releases. existing loans, model our to to of coverage shape in wait the be game these marks it some a us of than prematurely. way, the a not does reserve in And might telling portfolio, to do just on we’re to and questions economy going plan. to pressing our position That’s have

Rick Newfield

is quickly, about I’ve mentioned diligence And Andrew, our to economy, maintaining loan uncertainty this comments you’ve of in book that add. is proactive. the this just -- Rick. But again, heard be and I’d our existing Maybe around level times. of we’re of the because view a couple why the of

so I with we’ll forecast, said think again have do that around And we the lot with what to awful Moody’s CECL. conjunction see an where Aldis in

Operator

question with Chris KBW. from next comes McGratty Your

Kelly Motta

this to Chris. for on Motta Kelly actually on is ask Hi. hoping I question was This capital.

of high problem all built equal. that to and in obviously else you quarter. continue lot kind build, this capital You of will a And cost probably a

speaking up market and As capital you about it would you to your if comment kind deploying clearer, what also look to you be how perhaps get next great. of that becomes and again, issue as are And year could that M&A the going would base? and take strong on

Rick Newfield

interesting. expect our is the now tangible capital pandemic value think year $XX.XX built that like we’ve it’s and build challenged didn’t book pace And have pretty experienced. you, share a we You to Well, bet. Thank Kelly. certainly we at at to

So, let me try to it break down.

our able that’s dividend First, during we fully these to protect and expect a to priority. be times,

be mark throw market to those confident when months really -- we reserves that think, would feel we do in can of we a market our the that absolutely within expect there may acquiring our in kind maintain we to to us. ability will the respect consistent the And dilution With our sheet we get could markets would history balance of handle back we’re would with ensure the appropriately. maintaining that any be some earn opportunities again, core construct the that have credit risk Second, tactical and we acquisitions, to the in to impacts a the around the strong book pursue M&A, portfolios on be fortified simply those -- we of win-win to in that fill And at hands be tangible in. position where interesting transactions next we kind XX the and portfolios that reasonable. support any obviously,

Finally, see we stock we prices, to dip with authorized have should in buyback. another including acquisitions, bank respect own, an our

acquisition I can’t better issues shares. shares And We in of to allowing of regulators certain if own could make think us hit a no buy have we our we prices. with than

And the so, well, on certainly as as relates capital to table use. it that’s

Operator

Liesch comes from Sandler. Piper Your next question with Andrew

Your line open. is

Andrew Liesch

taking fees, [indiscernible] for you fees forgiveness any have through expectations the PPP and Thanks the please? timing Hey. margin, on yet follow-up the if -- to flow of of that have the Just

Tim Laney

other loans as as maintaining working balances reasons The that’s our to of driving loans detailed a those sheet. been return or off position good there means we’re in optical don’t you our with as their Rick. operating where ourselves those of balance interesting. PPP on if is balance balances at news is and then many hand or of clients. for clear to off It’s on reasons. We’ve to as stats But, banks are that. with carrying I’ll of Obviously, all on that those rapidly some give of know it start progress. we’re possible. And position that idea this yield those about our is our feeling approach as high sheet heard I Yes. Rick mindset good with on the possible some to

details. with So, level, you high I’ll some turn it that Rick, to for

Rick Newfield

Sure, Yes. Tim.

of So, additional facts Andrew, maybe couple there. a

said, execute So, get SBA banking portal. been on and the clients as our which diligently working with Tim forgiveness, all teams the that applications to have our loading ultimately in means into very the

day of about we In of sort PPP end stand total as balances. daily and loans of is forgiveness XX% terms our million us. a total of PPP had last That’s of progress of of uploaded a Friday, applications. where We $XXX for this

just those focus for $XXX,XXX. loans, been XX% processing loan the on potential larger of than the Our and given in the greater processed changes $XXX,XXX loans has under we’ve

So we’ve you I’m of given particularly the for several good forgiveness weeks, that made last some over we’ve out the as here really progress sure couple that, in had know, laid only weeks. the rules last

start. we a we’re solid like to feel So, off

Operator

you. Mr. will Thank closing at no to we call back Laney showing for his I’m have questions further remarks. this time. I now turn the

Tim Laney

just you day. you. thank wish your interest all a you will good Mariama. you, and Thank I for Thank

Operator

concludes call. this conference And today’s

X, like the and and will listen release telephone approximately would the it on replay call, and online call website you November a two run will Thank Company’s hours you XXXXXXX. to to much. this If an also XXX-XXX-XXXX conference XXX-XXX-XXXX, in XXXX, this day. great be be available will dialing Investor or available earnings of referencing by ID the very beginning replay on page. Relations And The have of of the through

disconnect. now may You

National Bank (NBHC) 21 Oct 202020 Q3 Earnings call transcript