Good morning, everyone, and welcome to the National Bank Holdings Corporation 2016 Second Quarter Earnings Call. My name is Heidi 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 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 and introduce National Bank Holdings Corporation's Chairman, President and CEO, Mr. Tim Laney.

Thank you, Heidi, and good morning and thanks for joining National Bank Holdings' second quarter earnings call. Of course, I have with me our Chief Financial Officer, Brian Lilly, and Rick Newfield, our Chief Risk Officer. I'm pleased to report that during the second quarter, we had a record level of new loan originations, a record level of earnings, despite taking additional earnings against our energy portfolio, and continued progress in reducing our expense run-rate. I'd also point out that outside of the drag from our energy exposure, our originated loan portfolio continued to exhibit excellent credit quality with second quarter net charge-offs of only 2 basis points. We have a lot to cover this morning, so I'll go ahead and turn the call over to Rick to provide more detail on our loan portfolio. Rick?

Thank you, Tim, and good morning, everyone. There are four key points I will cover this morning. First, credit quality of our $2.6 billion non-energy portfolio remained strong and trends continue to be very positive. Second, our energy portfolio remained stressed by industry conditions. However, problems remained centered in our four previously identified non-accrual loans. Third, I'll provide guidance for provision expense for the remainder of 2016. And fourth, I'll give some color on our record loan originations during the quarter. Let me start by discussing overall credit metrics and trends during the second quarter. Including energy loans, the ratio of classified loans to total non 310-30 loans improved from 2.9% at March 31 to 2.3% at June 30. Excluding energy loans, the classified loan level also improved for the third consecutive quarter with the ratio of classified loans to non 310-30 loans decreasing from 1.4% as of March 31 to 1.3% as of June 30. Total non-accrual loans decreased during the quarter from 1.87% at March 31 to 1.46%, with the decrease primarily driven by the payoff and partial charge-off of one of our energy non-accrual loans that have been fully reserved in prior quarters. Excluding energy loans, non-accruals continued to decrease, improving from 0.57% of non 310-30 loans to 0.47%. For the second quarter, net charge-offs were 58 basis points annualized, driven by the one energy loan charge-off, which as I said was fully reserved in prior quarters. The resolution of this loan leaves three remaining non-accrual energy loans. Outside of energy, net charge-offs were just $102,000 for the quarter or just 2 basis points annualized, as Tim said. For the first six months of 2016, annualized net charge-offs were 32 basis points, and excluding energy, just 6 basis points annualized. Overall, past dues in our non 310-30…

Thank you, Rick, and good morning, everyone. There's a lot to like in last night's release, while at the same time aggressively working through a few challenging energy credits. Excellent loan growth, non-energy credit performance and expense management provide great building blocks, but were partially offset by a decrease in the acquired problem loan accretion income. I will touch on these topics as well as update our guidance for the remainder of 2016. Total loans ended the quarter at $2.7 billion, and it was fun to deliver a record amount of originations in the second quarter, realizing the promise we saw in our new business pipelines. For the first six months, loan originations totalled $480 million, and over $500 million if we adjust for the $42 million paydowns in the energy lines of credit. The strength of the loan originations driving the second quarter annualized total loan growth of 22.7% and a continued strong loan pipeline has put us back on track for our 2016 goals of over $1 billion originations and 15% to 20% annual loan growth. Turning to deposits, average deposits and client repurchase agreements grew $169 million, or 4.3%, and benefitted from one energy client parking large deposits with us during the quarter. The temporary deposit added $176 million to the second quarter average, accounting for the linked quarter average change. Led by commercial compliance, demand deposits continued their strong growth with 14.6% annualized and 8.4% over the second quarter last year. For the remainder of 2016 and given our lack of incremental funding needs, we expect total average deposit growth in the low single digits. In terms of earning assets, we expect to continue to fund the loan growth with cash flow from the investment portfolio and acquired problem loan paydowns in addition to deposit growth.…

Thank you, Brian. Well, Brian and Rick have done a nice job of covering the quarter, so why don't we go ahead and open up the line for questions.

[Operator Instructions] Your first question comes from Chris McGratty from KBW. Please go ahead.

A quick question on the growth, last quarter you sounded optimistic about some left out. I guess what's the latest there?

We have just announced a new leader for a Dallas-based team. We have been doing some work in the restaurant and beverage franchise space and we'll continue to pursue opportunities on other fronts. But make no mistake, our primary focus has been on growing commercial business in our core markets.

So this leader in Dallas, is that what you guys have been talking about or is there something more material that might be coming?

There is more material and we're just at a stage, Chris, where I'm reluctant to say much more.

Okay.

I will say this, and Brian alluded to it, our pipeline as we enter the third quarter set a new record high and we've had the best start to a quarter in our young Company's history as it relates to new commercial clients and new loan production here at the start of the third quarter. So, we feel pretty good about the progress our teams are making.

Understood. Thank you. Brian, on the margin outlook, certainly it bumps around but you guys still have a decent amount of accretible that will run through, my guess, over the next couple of years. I guess, what's the longer-term high level of thought on the margin, given what you're doing with the mix of the balance sheet, putting securities in the loans but also battling that headwind, I mean I guess, what's the long-term trajectory of rates here?

As we modelled it out, Chris, we certainly get to that level in the mid, maybe just shy of the mid-3s, but the depressed lower interest rates and some of the market pricing, we'd have to see loans in the higher 3s and we are seeing a lot of that happening, but it would be nice to get a little bump out of the interest-rate environment to ensure that. But longer-term, that's where we see it settling out with the pluses and minuses and the remixing of the earning assets.

So, a little over 3.5, is that correct?

Yes.

Okay. Thanks for taking the questions.

Your next question comes from Matt Olney from Stephens. Please go ahead.

Going back to Chris' last question, can you talk more about the industry outlook, and if we are here lower for longer on rates, what does this mean for your strategy, is there anything that you can tweak in respect to your securities book or deposits or the type of loans that you are looking for, did anything change at all?

I would suggest that the entire management team and Board are looking forward to transitioning the remaining low yielding investment portfolio into quality client loans. So that's an opportunity that's somewhat unique for us given the size of our current securities book. And we do, as we talk about, we've allowed ourselves to begin to do a little bit of CRE, although it's within very constrained house limits. So we'll see better spreads there. Some of the specialty businesses that we're getting ourselves up to offer better spreads, to the very point of your question. But I think, first and foremost, transitioning the remaining investment portfolio and the quality client loans is a big, big driver for us. Brian, what would you add?

Matt, I think Tim carried it well. I would only add that probably like many others, we think about the variable versus fixed rates and taking maybe some additional interest-rate risk. But quite frankly, we've concluded on the side of, given our makeup and some of the fixed rates we already have in a number of the purchased portfolios, that we still feel pretty good. This quarter we threw up another 70% of variable rate in our loan pricing. All-in, it was 3.6%. If we were to go out longer, we could get more. But I think in this uncertainty, we are playing it smart by shifting out the investment portfolio into loans for the short period of time, and maybe we'll look at it. Lower for longer has been talked about for the last decade, right? So we'll see what comes around the corner.

The challenge is, the reward for going fixed just isn't there today. I mean, so if that shifts, obviously it's a different consideration, but we don't see the reward for the risk at this point.

And that securities book, I believe right now is about 34% of the earning assets. Is there a target level or what level do you think will start to bottom out on that securities book?

I think around 15%, and even lower. Really, you build it from the bottom up based on your liquidity needs and any kind of secured positions that you're putting out there in deposits, and that just hasn't been a big driver for us. So I could see 10% to 15% as where the eventual is, and it takes us a while to get there.

And on the loan growth front, you guys noted what a strong quarter it was even despite some of the energy headwinds. How many more quarters are we going to see the energy headwinds as it relates to loan growth for you guys?

The leader of our team really believes we've begun to stabilize and with some of our better credits we could actually see some expansion. So we're somewhat cautious in responding to again a very good question but we would like to believe that that portfolio has now stabilized in terms of balances. Rick spoke to the quality of the remaining clients in that portfolio and that's probably the best answer we can give you right now.

And in that energy reserve that you guys mentioned earlier, do you have the amount that's allocated towards specific credits versus just a general energy reserve?

Sure, Matt. This is Rick. On the $25.8 million, it's roughly 50% covered. So right in that range, the balance being general provision or general allocation.

And I think the general is still around [39%] [ph] on the 70 plus million, good credits, past credits.

Okay guys, thank you very much.

Your next question comes from Tim O'Brien from Sandler O'Neill. Please go ahead.

So most of my questions were actually asked, but did you guys purchased any loans this quarter?

We participated in it. I don't know about purchasing.

No portfolios purchased or anything of that nature.

How much was – and did you lead on the participations or were you second?

It's always a mix with what we do, right. It's reciprocal.

Absolutely.

We win some, we participate in some. But it's dominated by our own originations, Tim, and the participations are a minority of that.

And then I didn't see a utilization rate on your book of operating lines. It might be in there but I missed it, but did you guys give that number?

We didn't, Tim. This is Rick. I mean we've stayed other than energy pretty consistent in the mid to upper 40%. On the energy side, utilizations have come down much lower than that.

And then as far as loan pricing is concerned, the market price, I know occasionally when there is low rates or something or coming in towards year-end, second half of the year, some of the big banks will run pricing specials and such and try to fill some buckets. Are you guys seeing any of that kind of activity and particularly aggressive pricing in any of the areas that you guys are trying to generate business in?

Interestingly enough, while we felt, started to feel that some pressure on pricing this time last year, we've actually seen pricing work back a bit more favorably on the lending front. Of course, what we are cautiously aware of is the large banks getting to a point where they do begin to price up their deposit products for greater liquidity. But that's why we're incredibly focused on landing the transaction accounts, the operating accounts of our clients, that stickier deposit business.

Thanks for answering my questions.

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

I just would like to thank everyone that's attended the call this morning, I thank the analysts for your questions and wish everybody a good day and a good weekend. Bye now.

And 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 August 5, 2016 by dialing 855-859-2056 or 404-537-3406 and referencing the conference ID of 92236155. The earnings release and an online replay of this call will also be available on the Company's Web-site on the Investor Relations page. Thank you very much and have a great day. You may now disconnect.