National Bank Holdings Corporation (NYSE: NYSE:NBHC) reported a robust financial performance in its third quarter earnings call on October 25, 2024. The company announced a solid increase in earnings, net interest income, and non-interest income, coupled with a healthy capital position. National Bank Holdings Corporation's CEO, Timothy Laney, discussed the bank's ongoing initiatives, including the upcoming 2UniFi project, and the bank's strategic focus on capital growth and potential market expansion.
Key Takeaways
- National Bank Holdings Corporation reported Q3 earnings of $33.1 million, or $0.86 per diluted share.
- The bank saw a 20% annualized increase in net interest income and an 11 basis point rise in net interest margin.
- Deposit balances grew by $120 million, and non-interest income reached $18.4 million.
- A decrease in nonperforming loan ratio and charge-offs was noted, with a tangible common equity ratio of 9.8%.
- CEO Timothy Laney emphasized the strategic importance of the 2UniFi initiative and the bank's focus on capital growth and strategic partnerships.
- The bank is eyeing expansion in Utah and Texas, prioritizing markets with growth above national averages.
Company Outlook
- Non-interest income for Q4 is projected to be between $16 million and $18 million.
- Non-interest expenses for Q4 are anticipated to be between $64 million and $66 million.
- The bank is preparing to begin live client testing of the 2UniFi initiative in November 2024.
- Full-year noninterest income projections are on track, with effective tax rate expected to be between 18% and 19%.
Bearish Highlights
- The bank is not currently pursuing buybacks due to fair pricing.
- Management expressed caution ahead of potential interest rate cuts by the Federal Reserve.
Bullish Highlights
- CEO Timothy Laney highlighted the bank's proactive approach to managing deposit costs and loan pricing.
- The bank's loan pipeline is diversified across various regions and sectors, with an average loan yield of 8.5% for Q3.
- Management has successfully reduced deposit rates with minimal client pushback.
Misses
- Specific details on the investment plans for 2UniFi are to be provided in next year's guidance.
Q&A highlights
- Timothy Laney discussed the bank's interest in pursuing M&A opportunities in growing markets, with a focus on cultural and strategic alignment.
- Nicole Van Denabeele confirmed that seasonality in mortgage banking and bank cards primarily influence noninterest income projections.
- The bank remains committed to expanding its digital banking platform and investing in technology.
National Bank Holdings Corporation's third quarter earnings call demonstrated the company's strong financial health and strategic focus on growth and innovation. The upcoming 2UniFi project and potential market expansions in Utah and Texas highlight the bank's proactive approach to business development. With solid capital ratios and a disciplined management of deposit costs and loan pricing, National Bank Holdings Corporation remains poised to navigate the dynamic financial landscape.
InvestingPro Insights
National Bank Holdings Corporation's (NYSE: NBHC) strong financial performance in Q3 2024 is further supported by data from InvestingPro. The company's P/E ratio of 13.76 indicates that it's trading at a relatively attractive valuation compared to its earnings. This is particularly noteworthy given the bank's robust financial results and growth prospects.
InvestingPro Tips highlight that NBHC has raised its dividend for 8 consecutive years, demonstrating a commitment to returning value to shareholders. This aligns with the company's reported strong capital position and could be attractive to income-focused investors. The current dividend yield stands at 2.67%, providing a steady income stream.
The company's revenue growth of 8.57% over the last twelve months supports the positive narrative presented in the earnings call. Additionally, NBHC's operating income margin of 41.87% suggests efficient operations, which is crucial in the banking sector.
It's worth noting that NBHC is trading near its 52-week high, with the current price at 96.73% of its 52-week high. This could indicate investor confidence in the company's performance and future prospects, including its expansion plans in Utah and Texas.
For investors seeking more comprehensive analysis, InvestingPro offers additional tips and insights on NBHC's financial health and market position. There are 6 more InvestingPro Tips available for NBHC, providing a deeper understanding of the company's strengths and potential challenges.
Full transcript - National Bank Holdings Corporation (NBHC) Q3 2024:
Operator: Good morning, everyone, and welcome to the National Bank Holdings Corporation 2024 Third 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. As a reminder, this conference is being recorded for replay purposes. I will now turn the call over to Emily Gooden, Chief Accounting Officer and Director of Investor Relations.
Emily Gooden: Thank you, Anna and good morning. We will begin today's call with prepared remarks followed by a question-and-answer session. 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 and CEO, Mr. Tim Laney.
Timothy Laney: Well, thanks Emily. Good morning and thank you for joining us as we discuss National Bank Holdings' third quarter 2024 financial results. I'm pleased to be joined by Aldis Birkans and his newly appointed role as President of our company as well as Nicole Van Denabeele, our newly appointed Chief Financial Officer. You are all familiar with Aldis and while Nicole is new to many of you, she has been with our company for over six years. She began her career with She began her career with Deloitte and has 21 years of experience in the industry. Most recently, Nicole served as our Chief Accounting Officer. Moving on, we delivered solid earnings for the quarter on the back of disciplined deposit and loan pricing as well as strong fee income generation. Aldis is going to provide color on loans and deposits, but I do want to recognize our bankers disciplined approach to deposit and loan pricing. Finally, we believe the loan portfolio remains very strong and on that note, I'll turn the call over to Nicole for her first earnings call.
Nicole Van Denabeele: Thank you, Tim and good morning. I'm pleased to have this opportunity and to join the call today. During today's call I will cover the quarter's financial highlights as well as our guidance for the remainder of the year which does not include any future interest rate policy decisions by the Fed. For the third quarter we delivered earnings of $33.1 million or $0.86 of earnings per diluted share. This resulted in a return on average tangible assets of 1.4% and a return on average tangible common equity of 14.8%. On a linked quarter basis we grew our fully taxable equivalent pre-provision net revenue by 20.6%. The quarter's strong financial performance was highlighted by an increase in our fully taxable equivalent net interest income of 20% annualized driven by average earning asset growth and net interest margin expansion. Fully taxable equivalent net interest margin was 3.87%, expanding 11 basis points during the third quarter. We expect that our bankers disciplined proactive efforts to manage deposit pricing will continue through the cycle and as a result we project our fourth quarter's net interest margin to remain in the mid-38. Deposit balances during the quarter grew $120 million on a spot basis and grew $21 million in average balances. Turning to credit quality, we continued to bring down our nonperforming loan ratio during the quarter to the lowest level since early 2023. We resolved one previously reserved credit during the quarter, resulting in 18 basis points of annualized net charge-offs for the quarter or just 13 basis points for the year. The quarter's provision expense of $2 million was primarily driven by changes in the CECL model's underlying forecast, specifically the unemployment rate outlook. The allowance to total loans ratio ended the quarter at 1.23%. We continue to hold $24 million of marks against our acquired loan portfolio, which adds an additional 32 basis points of loan loss coverage if applied across the entire loan portfolio. Non-interest income for the third quarter was a strong $18.4 million, an increase of $4.4 million over the prior quarter. Our teams are generating nice growth in treasury management fees and within a number of our fee based businesses, which Aldis will cover in more detail Looking ahead to the fourth quarter of 2024, we project non-interest income to be in the range of $16 million to $18 million, which is expected to decline slightly from the third quarter as a result of seasonality. Non-interest expense for the third quarter totaled $64.2 million, increasing over the second quarter as a result of our continued investments in technology and one additional payroll day in the third quarter. The linked quarter 2UniFi related expenses increased approximately $0.7 million and we will continue to grow our investment in 2UniFi in future quarters. We project fourth quarter's non-interest expense to be in the range of $64 million to $66 million. In terms of capital, we continue to grow our excess capital with a TCE ratio ending the quarter at 9.8%, Q1 leverage ratio at 10.4%, and CET1 capital ratio at 12.9%. Tangible book value per share grew 5%, ending the quarter at $24.91. With that, I will turn it over to Aldis to provide more detail around the performance of our lines of business.
Aldis Birkans: Thank you, Nicole and good morning. In terms of loan growth, loan fundings totaled $359 million with a weighted average rate of 8.5%, driving a 12 basis point increase in total loan portfolio yield. That, combined with average loan balance growth during the quarter contributed nicely to both net interest income growth and NIM expansion. On a spot basis, our loan portfolio ended the quarter fairly flat as many of our clients decided to push their funding needs in anticipation of a lower rate environment. We entered the fourth quarter with robust pipelines that are quite granular and diversified across most of our lines of business, and as I mentioned during last quarter's call, we are seeing a modest rebound in our line utilization, pointing to a solid fourth quarter. As Nicole already touched on this, during the quarter, we made good progress in addressing our nonperforming assets, with nonperforming loans decreasing by 3 basis points on a linked quarter basis and 13 basis points since the last year's third quarter. Our total criticized loans decreased $18 million during the quarter. Having said that, there are several threads that impacted our 30-day passed due bucket. Our teams are working closely with their respective clients and we expect to make meaningful progress during the fourth quarter. Our strategy with respect to pricing on both loans and deposits is showing signs of success in what we are seeing in margin improvement. While the Fed rate cut did not come until late in the quarter, we were proactively addressing certain deposit categories well in advance of the Fed meeting, driving a decrease in our transaction deposit costs. We also project the cost of our CDS to peak within next quarter or two. We entered the fourth quarter with a significantly lower deposit run rate, which will provide an offset to any impact from the short-term rate decrease on our variable rate loans. I'm also delighted to highlight the progress our teams have made in growing core banking fees. During the quarter we increased our service charges by 14% through both new client additions as well as rationalization of various treasury management products. We believe there's more upside to this line item over the course of next few quarters.
Cambr fees: Tim, with that I'll turn it back to you.
Timothy Laney: Thank you, Aldis. We continue to build capital at an accelerated pace which provides us with meaningful strategic options. We believe that the strength of our capital liquidity and credit positions leave us well positioned to execute on the right strategic opportunities and the development of 2UniFi ranks high among those opportunities, and we remain convicted that 2UniFi has the potential to change the way small and medium sized businesses access the U.S. banking system. In fact, speaking of 2UniFi, we begin live client testing next month here in November. On that note, let's open up the lines for questions.
Operator: Thank you. [Operator Instructions] We'll take our first question from Jeff Rulis with D.A. Davidson.
Jeff Rulis: Thanks. Good morning.
Timothy Laney: Good morning.
Jeff Rulis: Just a question on the margin. Maybe Nicole, do you have the quarterly average, excuse me, the September margin average versus the quarterly?
Nicole Van Denabeele: Yes. Good morning, Jeff. September's monthly margin did come in higher than our Q3 margin. Our Q3 margin was 3.8%. We did see benefit to September's monthly margin as a result of our bankers proactive efforts to bring down our cost of deposits and we saw an improvement in our cost of deposit rate in September.
Jeff Rulis: Okay and that outlook of kind of a mid, I think you said mid-3.8ths. Could you -- maybe we could just walk into, I know that forward look doesn't assume additional cuts, but kind of where you're positioned from a margin perspective into 2025, the puts and takes there? It sounds like a proactive deposit costs approach. But also, should we see additional cuts, what's the expectation there?
Aldis Birkans: Yes, Jeff, this is Aldis, good morning. As you know, we are fairly asset neutral or liability neutral in this instance. So we don't expect huge benefits or decreases in margin from near-term rate cuts. Therefore, our guidance of 3.8 kind of mid-3.8ths is good for now and stepping into next year.
Timothy Laney: And as we always do from the fourth quarter earnings call, we'll be providing more robust guidance for the next year.
Aldis Birkans: And I think it's reasonable to assume that both the loan yields as well as deposit costs are probably up again before any further rate cuts are trending about 10 basis points better than what you saw in the third quarter.
Jeff Rulis: Okay, thank you.
Aldis Birkans: Okay.
Jeff Rulis: Tim on the capital front, seeing the dividend increases here, capital continues to build. If you could just touch on the priorities from here as we look forward? I know that optionality is a big one with you, but I just want to check in on all tools from the capital side.
Timothy Laney: Well, we are certainly prepared to partner with the right institution where the culture fits, where the strategy makes sense and again we feel well positioned to execute on that front. So that's exciting. We'll continue, as I mentioned in my prepared comments. We'll continue to invest in 2UniFi. And my expectation is that when we do provide next year's guidance, we'll clearly delineate the investment we'll be making throughout the year into 2UniFi. So you can begin to look at the way I think about it is what is the core efficiency of the bank and then what is this investment for the future in the second bank, which is really to 2UniFi. Beyond that, candidly, we're not in the buyback market at these prices. We think we're fairly traded and our attitude is we like to buy when things are on sale. So that probably would not be on the radar screen right now.
Jeff Rulis: Okay, thanks. I'll step back.
Operator: We'll now take our next question from Kate Ashley with KBW.
Kathleen Ashley: Hi, good morning. This is Kate on for Kelly Motta. Yes, so I was just wondering the best opportunities that you guys are seeing for loan growth both by type and region.
Aldis Birkans: I think as I mentioned, our pipelines are quite diversified, so it really spans across our footprint geographically as well as the middle market to our specialty lines. So nothing stands out at the moment as if one driving force, there's certainly credit is most important today and it's being viewed very carefully. And how much of that pipeline pulls through will depend on that. But it is well diversified portfolio pipeline right now.
Kathleen Ashley: That's it from me. I'll step back. Thanks.
Operator: We'll now take our next question from Andrew Terrell with Stephens.
Andrew Terrell: Hey, good morning.
Timothy Laney: Good morning.
Andrew Terrell: Maybe just to start, Aldis or Nicole, anything unique in terms of the originated loan yields this quarter up 16 basis points. It was a little bit more than I expected, just anything unique we should appreciate, whether it's elevated fees or a recovery or anything in there?
Nicole Van Denabeele: We continue to be very disciplined with our loan rates, and we did have originated loan rates with a weighted average yield of 8.5% for the third quarter.
Aldis Birkans: There are no prepays or anything else that is impacting those. There's no one-offs, if that's what you're trying to ask Andrew.
Andrew Terrell: Yes, okay. So maybe just reflective of the strong new origination yields?
Aldis Birkans: That's right.
Andrew Terrell: Got it, okay. And then, you know, I'd be curious to hear kind of your perspective on, you know, you were preemptive in lowering some of these deposit rates prior to the Fed cutting rates. I'm just curious, in your conversations with clients, what if any, type of pushback you've received throughout that process and how that influences, if we are to get a couple of incremental rate cuts throughout the fourth quarter, how that influences any type of strategy change, and how you're looking to manage costs around those future cuts?
Timothy Laney: Look, we're continuing to have conversations with clients around lowering deposit rates. And as a practical matter, we work with our clients as rates moved up, and they understand it's got to be a win-win situation. They weren't working with us as we moved down and we've had very little pushback, frankly, to the point of surprising us. But we knew it was the right thing to do. Our clients have worked with us, and again, very little pushback. So I'll say again, it gives me the opportunity to really share my appreciation for our bankers and their discipline. And while they may have been pushed to get out there, they had to have the courage to have those conversations in the relationships they have and they've done a nice job.
Andrew Terrell:
Cambr:
Aldis Birkans: They are, I would call them managed rate deposits. There is no contractual linkage for most of them. There is exceptions, of course, but for most part, these are managed rates, just like our other client deposits. And they were part of that conversation, as Tim mentioned, in terms of having to reach out and they were beneficiaries on the way up, and they're working with us on the way down.
Andrew Terrell: Okay, understood. Aldis, congrats on the promotion. Nicole, congrats on the promotion and the first earnings call. I'll step back. Thanks.
Aldis Birkans: Hey, thanks.
Nicole Van Denabeele: Thank you.
Timothy Laney: Thank you.
Operator: We'll move to our next question from Andrew Liesch with Piper Sandler.
Andrew Liesch: Hey, good morning, everyone. Yes, Aldis and Nicole, I'd like to extend my congratulations as well. Tim, you know, you got a footprint that covers several states. If you look at the potential M&A opportunities out there, are there locations that you want to be in? Are there locations you want to be deeper in? I'm just kind of trying to get a sense of, when you look at the franchise today, what are the sort of, what targets you might find interesting?
Timothy Laney: Sure. We would love to do more in Utah. We would love to do more in Texas. Our overreaching focus, as it has always been, is only moving into markets that are growing faster than the national averages and that's across a broad set of metrics. Frankly, that principle has served us well since the founding of the company, and we will continue to adhere to it. And then beyond that, it really does become more about the precision around the matching of cultures and the strategies. We feel very strongly that mindsets around credit risk management have to be similar, and there are just a few non negotiables, and that would be one that's at the top of the list.
Andrew Liesch: Got it. Makes sense. And then just a couple of follow up questions on the noninterest income, the seasonality that you discussed, Nicole, is that largely in the mortgage banking line or are there other seasonality that we should be aware of?
Nicole Van Denabeele: You're correct. That is largely within the mortgage banking line. I do want to point out that we are on track to meet our full year projection for noninterest income, excluding Q2's one-time charge. As you mentioned, that seasonality is related to mortgage and there is some seasonality there as well for bank cards.
Andrew Liesch: Got it. All right. Helpful. And then what tax rate should we be using going forward?
Nicole Van Denabeele: Yes. The best indicator for our tax rate is the year-to-date rate through 09/30, which was 18% and we are projecting a full-year effective tax rate in the range of 18% to 19%.
Andrew Liesch: Great. That's perfect. Thank you for taking the questions. I'll step back.
Timothy Laney: Thank you very much.
Operator: Thank you. And I am showing we have no further questions at this time. I will now turn the call back to Mr. Laney for his closing remarks.
Timothy Laney: Very good. I'll simply say thank you for joining us today. Have a good day and the rest of the week. Take care.
Operator: And this concludes today's conference call. If you would like to listen to the telephone replay of this call, it will be available in approximately 24 hours and the link will be on the company's website on the Investor Relations page. Thank you very much and have a great day. You may now disconnect.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.