Good morning, everyone, and welcome to the National Bank Holdings Corporation 2018 First Quarter Earnings Call. My name is Lisa 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. I would like to remind you that this conference call will contain forward-looking statements, including statements regarding the company's loans and loan growth, deposits, strategic capital, potential income streams, gross margin, taxes and noninterest 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. It is now my pleasure to turn the call over to and introduce National Bank Holdings Corporation's Chairman, President and CEO, Mr. Tim Laney. Please go ahead.

Thanks, Lisa, and good morning, and thank you for joining National Bank Holdings First Quarter 2018 Earnings Call. I have with me, as usual, our Chief Financial Officer, Brian Lilly; and Rick Newfield, our Chief Risk Management Officer. And we're pleased to report that after adjusting for the Peoples Bank onetime acquisition expenses, our company delivered over a 1% return on tangible assets, and a double-digit return on tangible equity for the first time in the short life of our company. I'm also pleased to report that the integration of Peoples, including the conversion of all systems has been near perfect. I couldn't be happier with the quality of our new teammates, and how well our cultures are coming together. In particular, I'm excited about practices we are adopting across our company that historically helped Peoples attract and retain very attractive low-cost deposits. I also want to recognize our business banking team. We are recognizing record growth in our relationships with small businesses. Finally, while solid growth is always expected in our Colorado market, I'm particularly pleased with the consumer and small business growth that we're now experiencing in the Kansas City and surrounding markets. All right, now, I'll turn the call over to Rick and Brian to cover the first quarter in more detail. Rick?

Hey, thank you, Tim, and good morning, everyone. I'll jump right into covering our credit metrics and trends during the first quarter. Our classified loans and nonaccrual loans, as we acquired Peoples remained very good, with our classified ratio of 1.36% of total originated and acquired loans, excluding 310-30 loans. And nonaccrual loans at only 0.66%, which compares favorably to a 0.69% nonaccrual ratio at year-end. With respect to our pre-acquisition baseline as of December 31, 2017, our credit trends were even stronger with classified loans and nonaccrual loans decreasing from year-end 2017 levels, continuing a trend we experienced throughout last year. Net charge-offs for the quarter were only $619,000 or 7 basis points annualized. With more than half of those net charge-offs against specific reserves set aside in prior quarters. We're off to a great start relative to provision for loan loss expense, with originated and acquired loans relatively flat to December 31, 2017, improved credit metrics and loan net charge-offs, we took minimal provision expense in the first quarter. I expect this favorability to carry for the full year, with net charge-offs for the remainder of 2018 expected to be around 15 basis points annualized each quarter. Brian will cover the full year impact and guidance for our provision expense during his remarks. We delivered $208 million of loan originations during the traditionally slower first quarter, driven by commercial loan originations, which increased 27% over the same quarter last year. As Tim mentioned, we're particularly pleased with our small business activity, which set a record for loan originations, again, in the traditionally slower first quarter. Overall, our loan originations remain granular and diverse relative to industry sector, commercial real estate, property type and geography. Our outlook for asset quality remains favorable, driven by a discipline adherence to our…

Thank you, Rick, and good morning, everyone. As Tim mentioned, we're very pleased and proud to have achieved our stated goals of 1% return on average tangible assets and a double-digit return on average tangible equity. With an adjusted return on tangible assets of 1.11%, and a return on average tangible equity of 11.63%. We exceeded our first quarter plans driven by a wider net interest margin and low credit costs. We are reaffirming our 2018 guidance that we've provided last quarter with a few adjustments for a wider net interest margin and lower noninterest income. Starting with total originated and acquired loans, which excludes 310-30 loans and adding Peoples to the year-end 2017 balances, we were flat on the quarter-end comparison, which was consistent with our plans. Originated commercial loans had good growth of 13.2% annualized and was offset by expected pay downs in our nonowner-occupied commercial real estate and energy loan portfolios. These pay downs impacted the total loan growth comparison by $57 million in outstandings or 6% in annualized growth. We're very pleased with the momentum of our commercial banking business as evidenced by year-over-year originations growth of 27.4%. Fully taxable equivalent new loan yields came in at 4.4% with 72% variable. The new loan yields continue to be new accretive to our originated loan book yield of 4.3%. Supported by our pipelines in strong local economies, we are reiterating the full year loan growth target of 10% to 11%, excluding 310-30 balances. As well as confirming our year-end guidance for 310-30 loans and total loans outstanding that we shared last quarter. We are mindful of the trends in early payoffs but feel that our new business generation can more than offset. As a reminder, the 10% to 11% full-year growth assumes that Peoples' loan balances were…

Thanks, Brian. Needless to say, we continue to feel very good about the foundation we've build and our additional run rate for growth. Equally, if not more important, while its not required by the regulators, we do stress test our loan portfolio twice a year. And I'm very pleased with our outlook on credit quality. We're going to continue to focus on building full banking relationships with our clients, while certainly benefiting from operating in some of the best markets in the United States. And on that note, Lisa, I'll ask you to open up the call for questions.

[Operator Instructions]. Our first question comes from the line of Jeff Rulis from D.A. Davidson. Your line is open.

Just a question on a cost saves that you've achieved so far with the conversion. I don't know if you've got a percent that you've acquired? Or those are approaching all-in cost saves, just kind of a check in on that number?

What we had done, announce was approximately about $6 million pretax on the cost saves out of the bank. And we've achieved that and fully expect to actually do better than that.

Okay, so complete, if not, over what you had targeted?

That's right. Right. And Jeff, just to be clear, it's not all in the first quarter as we carried some other staff for the chunk of the quarter and converted during quarters. So that's our projection on a full year run-rate basis.

Okay, so -- right. You're still on track for it but you've -- as of 3/31, you hadn't -- it wasn't in the kind of the full run rate as well?

Not fully realized, that's right.

Okay, and then on the credit side, it looks like about a net $4 million increase in nonperformers sequentially. Could any color on the added loans and were those brought on for Peoples?

Sure, Jeff, this is Rick. That's absolutely right. Approximately $7 million of nonperforming assets from Peoples, very granular and well handled. Net of that we actually reduced nonperformers, $3 million.

And by the way, Jeff, no surprises. The team had a complete understanding of where there were concerns prior to the acquisition down during our due diligence. And Rick is at fair to say, the team feels good about managing their way through those loans.

Absolutely.

Great. And then maybe one last one, if I could. Just to -- I may have missed Brian's comment on the gains from OREO that the balance of the year you're expecting that to be sort of a neutral event, or incrementally positive as it had been prior to this quarter?

Well, we -- certainly we're within the whole $900,000 as I mentioned and we guide to realizing flat for the year. But it wouldn't be a surprise if its better.

I would say this. As we've always said, it's lumpy and if the team wants to realize their full performance pay potential, there will be a gain there.

And maybe just to clarify, just one point. There will be OREO gains. What Brian saying is, they will at least offset the problem loan and OREO expenses. But to Tim's point, we hold that team accountable for effectively being a profit center.

Yes, I understand the cost versus the gains and that's clear. So thank you very much.

You bet, Jeff.

Our next session comes from the line of Chris McGratty from KBW. Your line is open.

Brian, just want to catch on the revised fee income guide. Is it fair to assume it's all mortgage, is the change?

Let's say, most of it is. But we did bring down into little bit our swap as we looked at our first quarter. Pipeline's building nicely for swap base. But the clients are -- with this rate environment questioning that. So we've kind of adjusted a couple of things as we looked at it but most of it was the mortgage, yes.

And if I just reconcile that with the expense low end, perhaps, even better given the cost consciousness. Is that kind of a push? Can you get to a push on the -- from the P&L, from those efforts?

Yes. Certainly not with the swaps but in the residential banking or mortgage banking expected to be a push.

Okay. And then Tim, or Brian, you keep referencing the granularity and the quality of the deposit base that you're picking up. As you kind of sit in the integration, how is Peoples impacting your overall rate sensitivity? Right, you can get rate sensitivity on both sides of the balance sheet. I'm just wondering how this may have added to the embedded legacy rate sensitivity?

Did you say deposits or loans?

Their deposit base. Their deposit base is very strong, right. And your asset yield, so I think you said, 20 basis points originated when up. I was just wondering, put the two together how did you rate profile change with the combined company?

So it -- as we continue to add over these quarters since the announcement, that's 70% variable rates with the mortgage portfolio. They were a little less asset sensitive than we were. And I would tell you that we're at the same place and continuing to build that variability. The loan portfolio still in that 50% and adding to that. On the deposit side, we still model out, Chris, that 40 deposit beta -- 40% deposit beta on the interest-bearing deposits, but of course, as you know, that's not what the market is requiring at this point. So we're not going to lead our markets in deposit pricing, and we'll certainly counterpunch with the best of them. But that's what we model out when we think about the net interest margin going forward.

I would add, Chris that tactically we've moved with discipline to adopt some best practices from Peoples Bank, where they had great success in not only attracting but retaining low-cost deposits. And I'm not going to go into a lot of detail, but I couldn't be more pleased with the opportunity we have as we deploy those practices.

That's right, thanks for that, Tim. If I could seek one more, Tim, on the capital. Given that the -- you're very pleased with the conversion and the integration, you still had a lot of capital. I missed in your comments, now that we're through the tax impacts? And whether future M&A might be a consideration in timing? Thanks.

I would say first, our Board meets next week. And I would be very surprised if we were not talking about a dividend increase and announcing that secant. Look, we -- from day one, as said we believe in the importance of optionality. What we've also said is if we're going to partner with someone, the only way that works is if we believe we would get a very positive solid reaction on day one of the announcement. And I think that's where certainly in the short run, that's where the quality of the transaction is tested. What does that mean? We certainly have operated with Peoples acquisition on the inside of a three-year call server tangible book earn back as Brian shared earlier. We're going to do better than what we reported at the announcement of that merger. And I'll finish where I began. We are big believers in optionality.

Our next question comes from the line of Brian Zabora from Hovde Group. Your line is open.

I have just a question may be starting on originations of $208 million. Are you starting to see some originations in Peoples -- from Peoples in that number? Or is that -- could that pipeline build kind of future quarters?

We definitely are seeing it and feel good about where we stand in the second quarter to date, thanks for asking the question. We, as Brian said, we built a plan expecting to come out of the first quarter somewhat flat given expected payoffs. We are very pleased with what we've seen, not just with the former Peoples' markets. But really across the board in originations. And again, I'll have to take my hat off and tip it to our business banking team, the growth we're seeing in the small business arena is very, very exciting.

That's great. Has the yields on the small business higher than your portfolio yield? Is that -- could that be accretive to the margin?

Yes.

Okay. Maybe just following up on that. You had loan yields of 20 bps in the quarter on the originated book. Were there any increase in fees? Or is this purely a function of the assets -- since the benefit of LIBOR as well as higher origination yields? Or new origination tied in the portfolio yield?

It's a very -- it's very simple when you compared the fourth and first quarter that it's all driven by the yield. There's not a lot of bumps coming out of anything else. And when you think about the sensitivity we have in the rate moves in the LIBOR, that's really what's move that. And we should be picking up some more as we go forward here.

Great. Just lastly from me. More -- you said mortgage gain on sales was -- yields are, rates are a bit lower. Do you assume that's kind of flat going forward? Or are you assuming kind of additional pressure on your guidance?

We took a look at the first quarter. And although, in total the first quarter looked reasonable, margins came in quite a bit. And that's what we've carried out for the year. And so, it's not something that we want to be bouncing around a lot so we brought down the guidance to what where we think we're realizing now.

Our next question comes from the line of Tim O'Brien from Sandler O'Neill and Partners. Your line is open.

Rick, a question on the mortgage business from Peoples. There's a little bit of retention, I don't know $11 million that Brian described in the quarter, was that just due to lateness of origination? Is all of that product being sold or do you plan to retain some of it for investment?

No. Good question. We do plan on retaining some of it for investment. As we structured our balance sheet expectations for this year, Tim, we're looking for residential mortgages to stay relatively flat to just slightly down. So there's some nice product that gets originated that we'll put into our portfolio to meet that objective.

Are you finding, given moves and rates, any demand for -- are you, particularly, interested in offering products that will fit a certain profile from a structure standpoint, mortgage products that are going to portfolio well and benefit the bottom line on a long-term basis that you want to originate? Is there demand out there, I don't know, 51, 71 arms, something like that, [31 arms], what do you going to trying to sell and retain?

Well, there's -- certainly the vast majority is being sold. And it's not a portfolio that we're looking to build. But it is exciting that as we talk with the mortgage team that types of products that we could add to their mix that allows us for our -- with our balance sheet to take advantage of our balance sheets. So a lot of that's in the stages of design and as rewarded for. But that -- from a big picture of standpoint on our balance sheet, that's what make sense to us for this year.

And Jim, I appreciate your questions and...

Jump on the guy, I'm Tim.

I was going to suggest that we've contemplated bringing on the leader of our residential banking team into one of these earnings call to really provide an even more detailed update on that piece of the business. So --

I think that's a great idea.

Okay, well your questions are inspiring me to move in that direction. So...

Maybe they -- maybe they have some expertise on staff there that you guys have retained that have underwritten those kinds of products, booked those kinds of loans before they're attracted for attention for banks like yours. So maybe we can get some clarity on what he aspires to do now that he's got a bigger platform?

And not only that but the juice we're able to see out of the expertise that they have on the capital markets, the secondary marketing side. There's just a lot of very tangible benefits that we're seeing in bringing the businesses together and staying focused on our core markets.

Tim, maybe one more comment, this is Rick. When I looked at and again, it's not a long number as you know that we'll retain on our balance sheet. But what we put in our portfolio to date this year because I've been very hi-fi, sorry, I said it. Very, very low LCBs, very high FICOs and granular. So that's the quality of the product that the team is originating is very good.

And one last question. Can you give any market color, any concerns seen in the market, job creation rate? Are they still holding up and strong? And along the front range and any color like that? Any concerns around outside of multi, which we all have been watching for a long time? Any other concerns out there that you're focused on?

No, I think in the state of Colorado, it's a national issue within the state of Colorado. We certainly need to continue to work with us, our legislature to create an environment where, call it, first-time homes, lower end housing can be build where contractor can still make a reasonable profit and create more availability for that entry level housing. That would be probably the greatest concern I see when I think about the markets. And other than that, just still a lot of positive momentum and it often gets several looked but I'll suggest that Kansas City, Overland Park market is, in fact, a jewel and we continue to build very good about it and as I mentioned in my comments. In fact, had a record quarter and both consumer and small business banking in that region. So I would specifically point to this issue of the void of entry-level homes in Colorado.

Between that and water, those are the two biggest constraints on economic growth for you guys and for us here in California.

Yes.

Our next question comes from the line of Matt Olney from Stephens. Your line is open.

This is actually Brandon Steverson on for Matt. I want to follow up on the margin discussion from earlier. The new guidance in the mid-370s. I want to make sure I'm understanding this right. Is that -- so does that imply a little bit lower from the 383, is that just lower accretion? Or are there some other moving parts there?

We had 384 order for the first quarter and as I shared 10 basis points of that, was directly related to the accelerated accretion, Brandon. And we don't provide guidance assuming we're going to be picking up accelerated accretion, but it usually is part of our story coming in and out on quarters. And so, it's simple as the 10 basis points there plus we do -- we're picking up a little bit here carryforward from the February -- excuse me, the March rate increase. So that's what gets you to the mid-370s.

Got it, okay. Thanks for the clarification there. And then also I wanted to ask on the profitability. The goals or the targets that previously you guys had stated, you now have reached in the first quarter on an adjusted basis. So is there any update there that you all are willing to provide at this point?

Well, we're going to -- we're definitely going to run it at the level here in the short term. And we'll take a look at that as we go forward. But I think as Tim mentioned last quarter, we fully expect that we'll exceed 1% and well into the double digits of ROE as we go forward over time, given this environment that we're in. But now that we've achieved it once on a suggested basis, let's try that a few more times and keep going. I think as you got to know is, Brandon, we're not satisfied.

Our next question comes from the line of Chris McGratty from KBW. Your line is open.

Brian, I just wanted to make sure I got the loan growth guide right. I think as at year-end you had $3.2 billion, you added $0.5 million from Peoples. And you're saying take that number, assume it was in December 31, and grow it at 10%, 11%, which would suggest $4.1 million by the end of the year? Is that right? Or are there other non-310 adjustments?

Actually, it sounds a little heavy at the end of the year. First off, only exclude 310-30 from our guidance. I purposely try to make that very clear. And that was a $100-plus million at the end of the year. And then once you get that 1,217 number, add then, of course, the $500 million from Peoples and increase that 10%, 11%. That's the way we think about it, Chris.

So perhaps, we'll run for a $4 billion total?

Yes, we need to get to that 10%, 11%. I don't have that perfectly.

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