Good morning, everyone, and welcome to the National Bank Holdings Corporation 2016 First Quarter Earnings Call. My name is Amy 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 margins, 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 US 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 and introduce National Bank Holdings Corporation’s Chairman, President and CEO, Mr. Tim Laney. You may begin.

Thanks, Amy. Good morning and thank you for joining National Bank Holdings’ first quarter earnings call. I have with me our Chief Financial Officer, Brian Lilly; and Rick Newfield, our Chief Risk Officer. We continued to make progress during the quarter in building an attractive community bank franchise, and we remain confident in our ability to grow core earnings and realize our goal of delivering a 1% plus return on assets and $2 plus of earnings per share. Having said this, I suspect that you are very interested in the actions we took during the first quarter to address our energy exposure. We believe these actions were prudent and I would remind you that the vast majority of our loan portfolio continues to exhibit excellent credit quality. On that point, I’ll turn the call over to Rick Newfield. And with that, Rick, the floor is yours.

Thank you, Tim, and good morning. There are three key points I’ll cover this morning. First, as I guided during our fourth quarter earnings call, credit quality of our $2.4 billion non-energy portfolio remains strong and trends continue to be very positive with a continued reduction in total classified loans. Second, our energy portfolio remains stressed by industry conditions. However, deterioration in credit quality remains centered in four loans that I identified and discussed during our last earnings call. Third, I’ll provide guidance for provision expense for the remainder of 2016. Let me start by discussing overall credit metrics and trends during the first quarter. Including energy loans, the ratio of classified loans to total non 310-30 loans is relatively flat. However, excluding energy loans, the classified loan level improved meaningfully, with the ratio of classified loans to non 310-30 loans decreasing from 2.1% as of December 31, 2015 to 1.4% as of March 31, 2016. Total non-accrual loans increased during the quarter. However, the increase was entirely composed of energy loans. Excluding energy loans, non-accruals continued to decrease, improving from 0.61% of non 310-30 loans to 0.52%. For the first quarter, net charge offs were only 10 basis points annualized, in line with our performance over the last few years. Past dues in our non 310-30 portfolio remained low and past dues of 90 days or greater remained immaterial at about 1 basis point. Overall, we maintained excellent credit quality across our $2.4 billion non 310-30 loan portfolio and I expect our trends to continue. Now, let me turn to our energy loan portfolio. As a whole, energy sector loans were $132 million as of March 31, 2016, and represent 5.1% of total loans, 3.1% of earning assets, and only 25% of our company’s risk based capital. We saw…

Thank you, Rick, and good morning everyone. As you saw in our release last night, the largest impact to our results this quarter was the building of the allowance for loan losses against the energy sector loans. Rick did an excellent job walking you through our banking and probably more important going forward the credit profile of the non-energy portfolio or 95% of our loans outstanding is excellent. One metric that the industry utilizes to understand the underlying [pre-credit] trends of a bank is the return on tangible assets before provision for loan losses and taxes. On this basis, we delivered 1.18%, which represents an increase from last year’s adjusted first quarter of 1.0%. Additionally, without the large energy sector provision for loan losses, we delivered a first quarter return on tangible assets of 68 basis points and $0.23 earnings per share, both of which compare favorably to last year’s first quarter adjusted and reported results. We believe that these adjusted metrics are helpful in demonstrating the progress we’re making towards our goals. We covered a lot in last night’s earnings release, so I will limit my comments and focus on the update to our outlook for 2016. Let me start by pointing out that inherent within our guidance, our economic assumptions consistent with the current outlook of leading economists where our markets continue to perform better than the national averages and we look for 2016 to continue to provide good growth opportunities. Please note that we have not included any interest rate increases in our guidance. Given our asset sensitive position, we would benefit nicely from increasing interest rates, but we decided to be more conservative. Total loans ended the quarter at $2.6 billion and grew slightly from year end as new fundings were offset by higher levels of…

Thanks, Brian. Brian and Rick have done a nice job covering the quarter. So I’ll simply reiterate that we feel very good about the strategic path our company is taking on our journey to surpassing $2 of earnings per share and achieving a 1% plus return on assets. To that end, you should expect us to continue to buying our shares at attractive prices when presented with the opportunity. And on that note, we will stop and open up the lines for your questions. Amy?

[Operator Instructions] You do have your first question coming from the line of Chris McGratty of Keefe, Bruyette & Woods.

A question on the buyback, you’ve got roughly $27 million, $28 million left, it sounds like with where the stock is at, that’s priority number one. But Brian with your comment about over $100 million of excess, I mean, should we be thinking about, if your stock stays in this $19 to $21 range that you would just come back to the board in re-up it once you’re done?

I think Chris as we look at it, it’d be too early just to project that, but certainly you’ve seen by our practice what we’ve done in the past where it’s hard to pass up an investment at these prices, but our share price is clearly, as we move forward and deliver on our quarterly results, getting that share price into the mid $20s seems very realistic also for us and being able to use that in transactions is even more attractive to create value.

Maybe Rick a question for you on the energy book, a lot of great color. If I’m doing the math, it looks like you’ve got roughly a 35% reserve on the four credits and again 3.5 on the stuff that’s not impaired question, I guess first question is, was part of the review, we’re hearing other banks talk about the Shared National Credit review in the quarter, was a lot of the actions you take in response to that? And also maybe can you give us a little bit of help on the confidence level, whether it’s redetermination season that the rest of the [$100 million] there won’t need to be a meaningful catch up on the reserve?

Let me start on the Shared National Credit piece. We were certainly subject to the Shared National Credit exam in February and just for reference about 60% of our energy loans are in SNCs. However, our downgrades to non-accrual on our reserve calculations were done completely on our own volition. There was no impact, in fact from the SNC exam. And just maybe for additional color because I’ve seen this in a couple other reports, let me add that we have no second lien or subordinated loans of any kind within the portfolio, including E&P, and that will get to your question about borrowing base redeterminations. So one of the – we’ve had some redeterminations already, but there are some pending. I will tell you that as a matter of practice, we roll forward on a monthly basis. The last redetermination based on reserves and depletion rates, we also adjust our price tag [ph] monthly, so our objective is to stay ahead. In addition to the borrowing base, I’ll also remind you that we have covenants and other controls that are also important. As of March 31, our weighted average utilization on our borrowing based credits was only 34%. We’ve been working very proactively with clients. And the outlook at this point, while there certainly will be some reduction in commitments we think in the 15% to 20% range, we don’t see pressure on those performing clients.

And Chris, I would remind you, Rick and his teams credit, these four credits were discussed in the fourth quarter earnings call, there is a focus going back as far as the third quarter as the energy market continued to deteriorate. And again, I would reiterate no negative impact as it relates to these actions from the SNC review.

If I could ask one more, in your prepared remarks you talked about recent multiples in the market, you’ve seen a couple of banks get sold in your core markets, but kind of where you’re at today with your multiple and really can’t participate in M&A, are we sensing -- and correct me if I’m wrong, are we sensing any more potentially a pull forward on when you guys might potentially consider a partnership given the headwinds that we’re dealing with today?

If I’ve said it, once I’ve said it a hundred times, I don’t know how to build a quality company and talk about and think about selling it at the same time. But Brian candidly did allude to the multiples and we think about that in terms of ultimate valuation. Brian talked about it in terms of multiple of tangible book, but what I get excited about is with our confidence in getting to $2 of earnings per share, you put a 14 times multiple on that and that’s a $28 stock. And I think 14 times you would agree is pretty conservative. So what we’re focused on is getting to $2 plus of earnings per share. And I think as the year unfolds, it’s fair to say we’re very excited about revealing some strategic initiatives that will accelerate us on that path to getting there.

And may be Chris if I can just add some, in bringing up the pricing for the transactions that have happened in the marketplace is not – we’re not alluding to our intent to put ourselves in a market anytime soon, but it certainly becomes a great floor, a great – from an investor’s – through investor’s eyes, when you think about 1.3 times and that’s $24, $25 at today’s level [indiscernible] that’s out there for an investor. That’s why I brought that up, just to put that in context.

Your next question comes from the line of Gary Tenner of DA Davidson & Company.

I had two questions. One, regarding the expenses and Brian you kind of laid out or I think reiterated your guidance for the full-year on your expense line, but as part of the strategic thinking on the company down the road, I mean, it seems like there would be maybe some more room on the expense side with the move to the community banking bucket from a regulator perspective and what you talked about a couple quarters ago and things along those lines. So can you talk about maybe how much the expense side of things could work towards driving down the efficiency ratio relative to the revenue side?

Gary, as we mentioned as recently as the last call, look, we took very seriously that movement from the OTC to the state. And as we looked at our shop, it’s in a number of places. So we decided to step back and actually bring in an orderly process. So we’re working with an outside group and walking through gearing ratios and expense levels and processes across our company to identify where those can be. We’re not prepared to give you any additional guidance right now. We like the $140 million-ish, low $140 million that we’ve given you. And as we said before, look, there are opportunities for us to lean into the revenue side and that is first and foremost. And the strategic decisions we’re making is if we do, if we’re ever able to lean into the revenue side with some meaningful lift, we’re going to need some of that infrastructure that we had built. So it’s – as we manage the relationships of revenue and expenses, we see opportunities to grow the revenues at an accelerated pace from where we are today that can support that expense base. And absent that, we’re prepared and looking at getting more efficient on the expense side. But all that said, make no mistake about it, we have a very expense-conscious culture in our teammates and it is a constant review of where can we be better, smarter, faster every day.

Gary, Brian is probably going to punch me, but I will be very disappointed if we don’t beat our guidance on expense management. I would suggest as I know you have to take a hard look at where we were fourth quarter on core expenses, where we are on first and with the effort underway that Brian alluded to, I’m frankly very excited about the prospects here. I think it’s prudent and not the one any further than Brian’s, but you hit on the key driver which is we have this opportunity to appropriately adjust our infrastructure to a community bank operation which we are and you’ll see the results of that over the coming quarters.

And I don’t know if you had hit on this, if Rick had hit on it during his comments, but the interest reversals in the quarter from the two energy credits that moved to non-accrual, could you tell us what that impact was?

It’s a couple of basis points on the loan yield and I think it dilutes up to – no, I think it’s actually a couple of basis points. If you look at our earning asset yield in total, it’s about a couple of basis points on that. So we went down about 4 basis points, but after that was the interest reversal.

It’s a very good question, Gary. That’s often overlooked.

It’s a reminder of why when some folks ask us why we don’t go heavier into specific industries or subsectors and drive higher growth. My response and the best response in the current environment is, look, I’m very pleased that we only have 5.1% of our loans in energy. I don’t want to have 20%, 30% of our loans in any category. Today, it’s energy. What if tomorrow it was multifamily? We really are big believers in the benefit of diversification because as we know when an industry turns bad, not only do you have the impact of charge offs, but then suddenly you have the loss of that revenue stream that you were dependent upon. And so you’re going to see us continue do it here to, with our board’s strong support of an approach of building a loan portfolio that’s very diverse in its nature.

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

I want to focus on the loan growth outlook, I wrote down in my notes here 15% to 20% in 2016. Can you confirm that’s kind of what the outlook is for 2016? And if so, that seems like quite an uphill climb from current levels, can you get us more comfortable with that outlook for the rest of the year?

Look, I can confirm the specifics of the 15% to 20%, yes. Matt, that’s the same that we said back in January also for our full-year outlook.

Maybe the additional color you’re looking for, Matt, is we did have a fair amount of business slide from first quarter to second quarter. I think we’ll learn a lot about ourselves here in the second quarter. And then I alluded to other strategic initiatives. We have a number of, we think, very interesting lift out opportunities. Again, the beauty of that is no capital allocation, but just additional opportunities to build additional muscle in our businesses and this continues to be a story of building, taking market share in attractive markets. And we’re fortunate in that our core markets do both continue to outperform the national averages and we’re even fortunate in that where we have offices in Texas, they are only in Dallas and Austin. And as you know, that’s very different than being in say a Houston or a West Texas. So you think about the Denver front range market is very exciting, very vibrant; Kansas city, very steady, as she goes, but performing, outperforming the national averages almost on every metric; and again, Dallas and Austin, very attractive markets. So this is the story we’ve told for three or four years now. We’re going – and we’ve done it, we’re going to continue to build our organically grown balance sheet both with solid loans, low cost deposits, reliable fee income and we’re going to do that while continuing to really focus on getting our expenses to where we think they should be.

And then as far as the whole lift out discussion, is that lift out discussion, is it new for you guys or is it just the opportunity that seems to be presenting itself today?

We’ve done a number of lift outs. It’s really how we seeded our core asset based lending operations; it’s how we really developed our government and not-for-profit business; I could go on and on. But in the absence of having the currency to make acquisitions, except in very unique situations, we’ve viewed the focus on lift outs as a key to growing the business. And I remind you given our history, four or five years ago, when we acquired these banks, they were failed, or near failure, that meant replacing the vast majority of the talent in our company and so we’ve, I think, developed pretty strong capability in being able to attract teams and individuals that have helped us get to where we’re at today. So I would tell you it’s a continuation of what we’ve been doing, but we’re pretty excited with some work we have in the queue right now that could be very meaningful.

And your last question for today comes from the line of Tim O’Brien of Sandler O’Neill. Tim O’Brien: Two quick quantitative questions, first for Rick. The three points you mentioned, you said you had provision guidance for us for the remainder of the year. I didn’t catch that number?

What I said is that we will obviously cover growth and Brian talked about the 15% to 20%, so that’s one input. I also mentioned that we still have confidence in sort of the non-energy related staying in that 10 basis points to 15 basis points that we’ve guided really over the last several years. And then with respect to energy, we have taken significant specific reserve and I simply mentioned while I do expect charge offs, we do have significant reserves. Tim O’Brien: And so as far as the ratio is concerned, is the outlook, you maintain that at a static level relative to the size of your loan book?

I think, Tim, what we’re trying to broadcast is there is a – the energy, we expect it will have charge offs, the energy that will move the allowance number. But what Rick [indiscernible] give you the provision for loan losses. Tim O’Brien: Yeah, but more broadly, the provision feeds into ALLL, so you have your reserve ratio, so will you provision generally speaking at a level that holds that ALLL ratio static relative to loan growth?

Tim, what we’re trying to say is no. And the way that we build, if you think about supporting the allowance for new loan growth around that 1%, then plus covering charge offs on the non-energy portfolio is what Rick is guiding to, what we’re guiding to. Tim O’Brien: And then as far as the provision that you took this quarter, the $10 million, so I think I caught this, you said that was entirely related to energy?

Not technically. There was – look, there is two components that come through our provision line. One that most people don’t see real clearly, but it’s that recoupment on a 310-30, so there is about $800,000 there. So our total provision was around $11.7 million or $11.5 million. Tim O’Brien: Yes, I saw that.

Of which, $10.7 million of that was in the energy sector and the other was just for the general. Tim O’Brien: And as far as – so 11% of $132 million in energy loans, so that’s about $14.5 million in related reserves, how much of that is allocated to specific credits versus unallocated? I think you suggested 3.4% of – you have a 3.4% reserve on performing credits.

And Matt actually referenced this, we have $11 million specifically against the non-accruals and call it just under 3.5%, or 3.4% against all other performing loans. Tim O’Brien: And then as far as workout strategy on the non-accruals, can you give some color on how you’re going to treat those loans here going forward and what your expectation is on resolution? Any sense of that at all, any color you can give? I know it’s early, but how do you plan to approach this just to give us a little color there?

Tim, here’s what I’d say. As Tim Laney said just a few minutes ago, I mean, all four of these have certainly been on our list and loans that we’re working very closely. Given the uncertainty and just the nature of the oil and gas markets at this point, I’m really avoiding any speculation, but we’re laser focused on each of the four and ultimately having the very best resolution regardless of where oil and gas prices do go. Tim O’Brien: Are any still current or I mean are still paying or are they all – have they all stopped paying?

I really just can’t really answer that for you, Tim, I’m afraid. I mean, well, I’ll say, we have one that is current of the four. Tim O’Brien: And then last question, in the release, just looking at the originations table, C&I originations had been tracking in the trailing four quarters at call it $123 million to $136 million in C&I originations. That declined to $59 million. Tim, can you give a little color on what’s up with that?

I think you’ll see a big make up here in the second quarter. Tim O’Brien: Was it just timing, Tim?

We saw a fair amount of business slide into the second quarter and we’re benefiting from that in the early stages of this quarter. Tim O’Brien: And then one last question, you alluded to higher pay downs, can you give a little more color about what precipitated that? And again, you guys aren’t alone in terms of seeing slowing loan growth in your markets. We’ve seen it with other banks as well. So maybe it’s something market driven?

Tim, I actually feel very good about the prospects for our loan growth. Again, a lot of what we’ve done has been related to taking market share, earning new relationships. And so as we look at our pipeline, our queue of opportunities, I think our bankers are getting more traction every quarter. I want to go back and just – you asked a very good question about the resolution of these four specific energy credits, I’ll remind you that – I don’t really have to remind, you all know, our special assets teams work through roughly $2.5 billion of acquired very troubled loans and we have a – and they did so very successfully and we don’t think the outcome with these four specific credits will be any different in terms of their ability to successfully resolve these situations. So I think that’s important context. Tim O’Brien: That’s great context. That is a great reminder.

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

All right. Thank you, Amy. And as always, to those of you that had questions for us this morning, thank you for taking the time to research our business, very thoughtful questions and we answered them adequately and certainly invite any follow up. Have a good day. Thank you.

This concludes today’s conference call. If you would like to listen to the telephone replay of this call, it will be available beginning in approximately two hours and will run through May 6, 2016, by dialing 855-859-2056 or 404-537-3406, and referencing the CID number of 79920801. The earnings release and an online replay of this call will also be available on the company’s website on the Investor Relations page. Thank you very much, and have a great day. You may now disconnect.