Under-the-Radar Stocks: National Bank Holdings CFO Aldis Birkans on strong Q3 earnings, Utah expansion and more

If you have been following our Under-The-Radar section, you have probably come across some interesting small-cap stocks with long-term value. This time, we have a regional bank that has consistently delivered solid performance over the past few quarters and is a worthy inclusion into your watchlist.

Denver, Colorado-based National Bank Holdings Corp (NYSE: NBHC), which operates through its wholly-owned subsidiary NBH Bank, boasts of high institutional holdings of around 98%. The company operates through a network of banks across Colorado, Kansas City, New Mexico, Texas and Utah.

In the most recent quarter, the company reported strong top and bottom-line results, which were ahead of what the analysts were looking at. The company also has a history of regularly hiking its dividends and the current yield stands at around 2.17%. 

In an interview with AlphaStreet, National Bank Holdings CFO Aldis Birkans spoke about its performance and growth strategy.

On the strong earnings performance

In Q3, the company delivered earnings of 69 cents per share, which was three cents higher than the average analysts’ projection. NBH has a noteworthy history of surpassing bottom-line estimates.

Aldis attributes this success to two factors – the regions where the company operates fared economically better than the US average, which in turn helped dodge brief periods of weaknesses. Apart from this, he feels diversification of revenue streams has led to an improvement in its fee income.

The CFO also expressed confidence in the banking landscape in 2020, now that the concerns surrounding a global recession are gradually receding.

On the momentum in residential and commercial banking units

Aldis said, while these units benefited from the financing boom in 2019 driven by the fallen-rate scenario, the company’s long-term revenue stream is not built upon such a component.  “Our business is built mostly on the purchase market. So we don’t count on this financing for our core residential business,” he said.

LISTEN TO: National Bank Holdings Corp Q3 2019 earnings conference call

However, strength in the local markets gives the firm enough confidence in seeing continued growth in these businesses. Citing the strong activity, Aldis alluded to a positive outlook for the commercial banking unit as well.

On Utah expansion

The company’s strong performance in all its existing markets in 2018 pushed the management to go ahead with the Utah expansion, the CFO said, adding that the region is extremely fast-growing. However, the firm might not be hitting a break-even from this region within one year of making the investments, as originally expected.   

“We are still investing and we are still in the expansion mode. So, the expense is still larger so to say than the contribution. The fee income is already there coming from that market,” Aldis had said during the Q3 earnings conference call.

On higher net charge-offs from Peoples Bank acquisition

National Bank Holdings reported higher annualized net charge-offs in Q3, due to an acquired problem loan associated with the purchase of Colorado-based Peoples, Inc., which was closed early last year.

READ MORE: Q&A segment of National Bank Holdings Q3 2019 earnings call

Though annualized net charge-offs came in at 66 basis points in Q3, excluding this particular credit, it was low at 3 basis points. Aldis admitted to not plugging it fast enough but pointed out the strength in the credit book adjusted for this one-off item.

On jump in gains from OREO sales

For the third quarter, National Bank Holdings recorded a gain on OREO sales of $6.5 million, which was a jump from $450,000 in the same quarter last year. Aldis stated that Q3 was clearly an excellent quarter in that respect as the management had been diligently working on getting these properties off the books for many years.

He added that he was happy with the value they have achieved from these transactions, which has also certainly helped third-quarter results.  

On net interest margin outlook

Aldis declined from commenting on net interest margin guidance for next year, stating it would be too premature to comment at this point in time.

“We will be giving the guidance for 2020 including for margins after we report fourth-quarter earnings in late January, so I will wait until then,” he said.  

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