NBHC - National Bank Holdings Corporation (NBHC) Q1 2023 Earnings Call Transcript
2023-04-20 13:59:16 ET
National Bank Holdings Corporation (NBHC)
Q1 2023 Earnings Conference Call
April 20, 2023 11:00 AM ET
Company Participants
Tim Laney - Chairman, President & CEO
Aldis Birkans - CFO
Conference Call Participants
Clark Wright - D.A. Davidson
Kelly Motta - KBW
Andrew Terrell - Stephens
Andrew Liesch - Piper Sandler
Brett Rabatin - Hovde Group
Presentation
Operator
Good morning, everyone, and welcome to the National Bank Holdings Corporation 2023 First 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. We will conduct a question-and-answer session following the prepared remarks. 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, but not limited to, statements regarding the company's strategy, loans, deposits, capital, net interest income, non-interest income, margins, allowance, access 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 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 [Technical Difficulty] National Bank Holdings Corporation's Chairman, President and CEO, Mr. Tim Laney.
Tim Laney
Thank you, Anna. Good morning, and welcome to National Bank Holdings first quarter 2023 earnings call. I'm joined by Aldis Birkans, our Chief Financial Officer. We delivered record net income during the quarter and a record return on tangible common equity of 20.86%. We maintained a net interest margin of 4.39% as a result of loan pricing discipline, offsetting the rise in cost of deposits. We benefit from a granular and well-diversified deposit base with a cost of funds coming in at 90 basis points.
The loan portfolio performed extremely well during the quarter with annualized charge-offs of just 1 basis point and non-performing loans of just 13 basis points. We continue to build capital during the quarter, with CET1 of 11.32%. After the quarter, on April 3, we acquired Cambr Solutions. Cambr diversifies our funding and fee income while giving us the ability to grow FDIC insured deposits with very little incremental overhead. We look forward to discussing Cambr in greater detail during Q&A.
And now I'll turn the call over to Aldis for more detail on the quarter. Aldis?
Aldis Birkans
All right. Well thank you, Tim, and good morning. As we reported yesterday afternoon, we delivered another strong quarter of financial performance, while also completing the strategically important acquisition of Cambr. The optionality provided by Cambr will diversify our sources of liquidity with FDIC-insured deposits and will provide us with an additional source of fee income. In fact, this acquisition is already contributing nicely to our financials, and we project our loan-to-deposit ratio to be at or below 90% by the end of the second quarter of 2023.
Before I summarize our quarter's financial results, I would like to provide a few headlines with regard to our balance sheet. As reported on Q4 call reports, approximately 70% of our deposits are FDIC insure. Our deposit balances are granular, and we have no industry geography or single relationship concentrations. In fact, the average deposit balance on a full relationship basis is just $53,000 per relationship and $29,000 per account. This is before the incremental granularity benefit from the Cambr acquisition.
Approximately 50% of our deposit balances are consumer deposits, which are nicely disbursed throughout our banking center network. For larger deposit relationships, we have been utilizing the ICS of [indiscernible] FDIC Sweep program already in place since 2019. As you know, we maintain a high quality and short duration loan book for loans with the average life longer than five years, we have been using fair value balance sheet hedges.
Additionally, approximately 23% of the loan book was mark-to-market for the higher rate environment in the fourth quarter of 2022 in conjunction with the purchase accounting for our two acquisitions last year. Lastly, we consistently run various stress test scenarios as part of our capital management process. To that end, we ended the first quarter with a CET ratio of 11.3%. And if we were to adjust the CET ratio for the unrealized losses residing in our investment securities book, it still would be a very healthy 9.6%.
Now turning to the financial results. For the first quarter, we reported director (ph) net income of $40.3 million or $1.06 of earnings per diluted share. The first quarter's return on tangible assets was a record 1.8% and the return on tangible equity was a record 20.9%. We continued to be pleased with the organic loan growth and our teammates continued focus on building robust new client relationships.
During the first quarter, our loan balances grew $124.8 million or 7% annualized. New loan originations were $394 million, and given the higher rate environment, we also experienced a slight slowdown in prepaid activity. Having said that, we operate within markets with strong economies that are holding up nicely. Fully tax equivalent net interest income for the quarter came in at $96.3 million, fairly consistent with the prior quarter despite two fewer calendar days.
Net interest margin was 4.39% and remained unchanged from the prior quarter. We continue to benefit from the earning asset yields moving higher, which was aided by the continued Fed funds rate increases in Q1, as well as the loan pricing discipline by our bankers. Our new loan originations during the first quarter were at an average rate of 7.5%, which was clearly accretive to the existing originated loan book yields of mid-5s.
The deposit balances during the quarter decreased $291 million on a spot basis as we expensed deposit outflows due to clients moving towards higher-yielding products. The cost of deposits increased just 25 basis points for the first quarter of 2023. Our total deposit beta this rate cycle to date has been less than 10%.
Admittedly and by design, we were slow at raising our deposit product rates. And our belief is that in order to grow core deposit balances for the rest of the year, we will have to become more competitive with our deposit rate offerings. Our projections point to hitting a 4% margin by the third quarter of 2023. This does not assume any future interest rate hikes or cuts by the Fed.
In terms of our asset quality, it remains strong. Our non-accrual loan ratio improved another 10 basis points to 0.13%, and our non-performing asset ratio improved to 0.18%. The first quarter's net charge-offs were just 1 basis point annualized. Given the improving credit metrics, provision expense this quarter was $900,000, primarily driven by new loan originations.
Total non-interest income for the first quarter was $14.7 million or a $500,000 increase from the prior quarter. Core banking service charges and bankcard income typically have a seasonal slowdown in the first quarter. But when compared to the first quarter of 2022, both line items showed a nice double-digit growth.
Non-interest expense for the first quarter totaled $58.3 million, which was lower than the fourth quarter's expense of $60.9 million when adjusted for M&A costs. The decrease in expenses this quarter was primarily due to $2.5 million of non-recurring payroll tax credits realized during the quarter.
Looking ahead for the rest of 2023, we see our non-interest expenses trending towards our original full year guidance of $243 million to $247 million. The additional operating expenses related to the Cambr acquisition on a full year basis are expected to offset the first quarter's payroll tax benefit.
And with that, I'll turn it back to you.
Tim Laney
Great. Thank you, Aldis. While we're pleased to have delivered a solid performance during the first quarter, we'll continue to remain focused on the management of our capital and liquidity positions and remain highly vigilant with respect to our loan portfolio in light of the current economic environment.
On that note, Anna, I would ask you to open up the line for any questions.
Question-and-Answer Session
Operator
Yes, sir. Thank you. [Operator Instructions] And we'll take our first question from Jeff Rulis with D.A. Davidson.
Tim Laney
Good morning, Jeff.
Clark Wright
Hi. This is Clark Wright (ph) on for Jeff. Good morning. Maybe if you could just talk quickly on Cambr. Great acquisition just in terms of funding. Maybe you could just talk about the pricing of those deposits and how we can estimate total deposits going forward, from both a non-expense and a deposit expense, basically non-interest expense and deposit expense standpoint?
Tim Laney
Great question. Thanks for asking. Yeah. I think Aldis and I can tag team on this. I'll begin by saying that my Board and I have been focused on creating options around gathering liquidity for well over the last year. I'll review that in light of the Fed's posture on raising rates as well as contracting the balance sheet and the rundown in stimulus dollars that the industry was, in fact, going to see pressure on liquidity, which obviously has come to fruition. And we wanted options beyond our traditional banking center network and commercial banking platform to develop those depository relationships.
So at its essence, what we're really doing with Cambr technology is supporting banks of record. To be clear, we are not operating as a bank of record. We operate more in a custodial position, but working with banks of record to support their relationships with embedded finance companies. People have asked, well, what do you mean by embedded finance company?
Imagine a company like Credit Karma that opens up checking accounts for their clients, and of course they need a bank partner to handle that. When that bank partner, which becomes the bank of record takes on that relationship, oftentimes the level of deposits, while very granular, the cumulative total of those deposits exceed what that bank can hold from a capital perspective. Those banks of record then look to Cambr to help them distribute those excess balances. There's obviously fee income for the bank of record. Cambr is paid for its services.
And a multitude of banks across the country then benefit from the deposits that are distributed to them in the form of brokered deposits. One interesting distinction is that as a custodial bank, we sit in the middle of that process in any balances that we choose to keep on our balance sheet are, in fact, treated as core deposits versus brokered deposits.
But we also look at this, while that's the business today, with just a little bit of imagination, you can begin to think about ways that Cambr technology could be used to serve a wide range of other business sectors and interest, and perhaps even provide some interesting solutions for a broader set of, let's say, community banks across the country.
So that's how I would describe the business and why we felt it was strategically important. Aldis, do you want to talk a little bit about how we think about the cost of those deposits? And I will say because I think it's an important part of the business model. When we talk about the cost of the deposits, it's not just the cost, the embedded cost and what the rate may be on those deposits. The other way to think about it is this is a highly efficient deposit-gathering machine.
Less than 10 people, really just a handful of people, running this technology that today is gathering between $1.5 billion, $1.7 billion deposits. So when you strip away the cost of your typical branch or banking center network, et cetera., and then begin to compare that historical or traditional cost to something like Cambr, that's where it gets pretty interesting as well. Aldis, I'll throw it to you.
Aldis Birkans
Yeah. And I'll just say that in terms of the actual cost of deposit in our balance sheet, for obvious competitive reasons, we will not talk about directly what it cost to Salt Lake (ph) direction – sorry, directionally. Certainly, these deposits are at much lower cost than what our next best wholesale alternative would be, which makes it more attractive, certainly for us. We'll continue to embed in forward guidance on a go-forward basis in terms of overall deposit cost movement and the fee income in terms of how we expect the fees tend to do, from that perspective. Love to live with this for a couple of quarters before we settle in the caidance.
Tim Laney
I'd be remiss if I didn't also point out that, we bought this from StoneCastle. StoneCastle could not have been a better partner through this transition. You may or may not know, StoneCastle develops platforms like Cambr. This wasn't their first, it won't be their last. And again, we found them just to be a great partner as we work with them, really with first conversations beginning over a year ago and then working through the early part of the first quarter to reach terms and move this business ahead. So again, our thanks to the StoneCastle team as well.
Clark Wright
Appreciate that color. Maybe if I could squeeze one more in real quick. Just in terms, of course, the guide that you have 4% NIM by year-end. Now in terms of strong Q1 and the addition of this deal. Is that still where you're expecting to end the year at?
Aldis Birkans
Yeah. No, I think, in my remarks, I said that we -- now we -- I expect that though, given the conditions in the marketplace and the competitive nature for liquidity that is, really has been increased there, if you even look at the events that had taken place in March. I do expect we'll hit the 4% probably sooner than fourth quarter, so what I said was third quarter.
Clark Wright
Got it. Thank you.
Aldis Birkans
Having said that, the good news is, our loan book is yielding mid-5s, as I reported in Q1. Our new loan originations came out at 7.5. In March, it was almost 8%. So the -- I do expect significant continued pricing up of earning assets. It's just the funding component of the balance sheet, the competitive nature has changed dramatically since the beginning of the first quarter.
Operator
Caller, did you have anything further?
Clark Wright
No. I’m good. Thank you.
Operator
Great. Thank you. We'll now take our next question from Kelly Motta with KBW.
Kelly Motta
Hi. Thanks so much for the question. I apologize, I may have missed kind of your phrasing around the opportunity. I know you don't want to give specific numbers until you have a couple of quarters under belt. But I'm just wondering like how the dynamics work, like what generates the fee opportunity? Is there any possibility you can explain that or will that be more of a later events?
Tim Laney
No. We can explain that.
Aldis Birkans
We can explain that. So I think in terms of before -- or after we -- whatever the balance, and that's why part of that I would like to stay away from providing more detail in terms of how much. But in terms of dynamics, after us keeping a certain amount of deposits for our own balance sheet purposes, there is going to be volume of deposits, the evident that is going to be sold in the broker market, right, what Cambr's technology really does today before we acquired them. That creates fee income.
And that, I'll say that on a total company basis, certainly, this was a positive EBITDA or positive net income business that we acquired. So there's no negative carry that comes along with that. It's -- as Tim mentioned, it's extremely efficient operationally. So the operating leverage from here as this business grows and we grow this business is going to be -- it's extremely powerful in terms of the operating leverage benefit to the company, just how much will settle in the next few quarters.
Tim Laney
And Kelly, what's interesting is the model is time tested. I mean, StoneCastle ran this through virtually a zero-rate market. Obviously, the world's changed during the last couple of quarters. But that operational efficiency made this an effective business, both in a low rate environment and certainly a high rate environment, and where there's a demand for liquidity by other banks.
Kelly Motta
Got it. That's helpful. And with the borrowings, the approximate $600 million of FHLB advances you took on, I know you disclosed you took on a similar amount of deposits from Cambr. Should the assumption be that you pay down the borrowings with the incremental deposit funding that you got from this acquisition or are you going to continue to operate with that level of borrowing? Just trying to better understand the balance sheet dynamics on a go-forward basis.
Aldis Birkans
Yeah. No. Great question. So really, on a spot basis, if not -- if you look at we were $1 billion at the quarter end. Now I'll say, first of all that to be conservative through as events took place in March, we brought on approximately $300 million of excess cash and balance sheet just to be prudent and safe. So the $1 billion mark on FHLB on stock basis is, call it, exaggerated by $300 million to what we typically, normal environment would have.
Now in terms of Cambr, yes, we brought on about $500 million to date and do expect to continue to work at FHLB balance down over the course of this quarter and the rest of the year. And really to us, it comes down to the most efficient one. Secondly, most liquidity prudent way of funding the balance sheet. But directionally, we will look to pay off all of the FHLB borrowings.
Tim Laney
And needless to say, back to your question on profitability, meaningfully less expensive liquidity coming out of Cambr than what you would pay FHLB.
Kelly Motta
Okay. That makes a lot of sense. Just looking ahead, you guys have a pretty granular loan portfolio and a really good diversification. Are there any like categories that you're watching more closely? Can you provide some color on what your office may -- exposure may be? Any commentary around that would be helpful, given the [Multiple Speakers]
Tim Laney
Yeah. Why don't we begin with office, which certainly seems to be a subject of the year. We operate with less than 1.5% of office exposure to our total loan book. I think what's equally important to that low level of exposure is, we operate with an average loan to value in that office exposure of 48%. So it's in keeping with our position on all commercial real estate. We still operate with a low level of commercial real estate to total risk-based capital, certainly relative to most other banks of our size. We have retail exposure of right around 2% of total loans that average loan-to-value runs around 56%.
Multi-family, which hasn't really been the subject of much focus is around 3.8% of total loans with an average loan to value of 52%. So those are probably three of the categories of real estate that folks may be most focused on. And yes, you're exactly right. I mean we continue to operate with a very granular portfolio. In fact, our average funded commercial or business banking loan was $1.3 million year-to-date.
So -- and obviously, our underwriting, as I suggested in our opening comments is, as vigilant and we're holding our underwriting standards to double-digit kind of assumptions on interest rates and looking at global cash flow coverage, looking at loan to value, given rising rates, particularly with real estate impact on values and we are preparing. We believe it's prudent to be preparing for some kind of faults in the industry just given where the economy appears to be headed. So -- but I think we're well positioned for it. And hopefully, some of those stats help support that view.
Kelly Motta
Really helpful. Just one last question, if I could seek in before stepping back. Given the pullback in the market and your shares, can you refresh us on any thoughts on the buyback here?
Aldis Birkans
Yeah. Well, I will say that three (ph), we have about $39 million of authorized, Board-authorized buyback capacity. We're certainly watching the markets very closely and we'll be opportunistic if it pulls back to the levels that makes sense.
Kelly Motta
Understood. Thanks so much for the questions. I’ll step back.
Tim Laney
Thank you.
Operator
We'll now take our next question from Andrew Terrell with Stephens.
Andrew Terrell
Hey, Tim. Hey, Aldis.
Tim Laney
Good morning.
Aldis Birkans
Good morning.
Andrew Terrell
Good morning. Maybe just to start on Cambr. Number one, congrats on the acquisition. And I might have just totally missed this, but did you guys disclose the purchase pricing? Can you disclose that?
Tim Laney
We did not. It was, again, a transaction with a private company, StoneCastle, and we mutually agreed that we would not be disclosing the acquisition price. What I can tell you is that if you look at this conventionally, in terms of the deposit premium that might be paid for a bank, this acquisition would be very, very attractive relative to kind of traditional run rates on deposit premiums.
Andrew Terrell
Okay. Got it. That's helpful. I appreciate it. And then maybe just going back to -- I'm trying to understand from a modeling perspective, hold beyond balance sheet or what you can bring on the balance sheet aside and just thinking about this from a non-interest income and expense standpoint. What's kind of the efficiency ratio before you start contemplating the balance sheet and spread type impacts here?
Aldis Birkans
For this business specifically, Andrew or…
Andrew Terrell
Yeah. For this business specifically, the efficiency ratio would come on up.
Tim Laney
It's ridiculous.
Aldis Birkans
Yeah. No, it's probably -- it's accretive to our overall efficiency ratio, and we were at 53% this quarter, which again is $4 long-term balance sheet management purposes at very good levels. So it's very accretive. And to Tim's point of opportunities that we see for this business and the opportunity to use this technology, it becomes exponentially so.
Andrew Terrell
Yeah. Understood. Okay. And then I also wanted to maybe appreciate just kind of the embedded growth here. So I think $1.7 billion of deposits under administration. What's that look like over the past couple of years? Like what's the growth rate been for Cambr? And then how do you see growth trending moving forward? Do you feel like you have opportunities to accelerate it?
And then my second part of that question is, you've brought on $500 million of core funding to date on your balance sheet. Do you have capacity to bring all $1.7 billion on, if you would like, understanding that there'll be a trade-off there?
Tim Laney
Right. Yeah. Very good questions. The answer to your first question is that Cambr has some -- our experience, a very nice steady growth since its inception. I mean it clearly is addressing the need in the marketplace and the unique technology that it brings to the table has made it an attractive offering. In terms of growth rates, we haven't actually provided guidance on what we would expect or how we would expect these deposits to grow at this point. I suspect it's something we'll do as we roll into 2024.
As Aldis said, we really want to continue to live with the business a bit more. We see a broad range of expansion opportunities for this technology. I think coming at this with the banking experience we have, we just believe that this capability could be leveraged in amazing ways. And then just one other way to think about the cost dynamic of this business. I mentioned before, it's essentially run by five people today, all right? Five people responsible for between $1.5 billion to $1.7 billion in deposits. Imagine in your typical bank how many people across how many traditional brick-and-mortar branches would it take to generate $1.5 billion to $1.7 billion in deposits.
Andrew Terrell
Yeah. No, I bet the numbers are more than five.
Aldis Birkans
For the expense, so back to your original question, therefore, it is extremely efficient and low efficiency ratio type of business. To answer your question in terms of whether we can bring on the full $1.7 billion, the answer is absolutely, yes. We could do that today, tomorrow. Not our intent. So it's not in our tent. And part of that intent or part of that consideration that we want -- so from on-demand liquidity, it's there. But certainly, there's partners involved that we would not want to upset.
And again, living with that, which is why we want to live with the business and make sure that we learn how they've been operating, how the interactions have gone, what the dependence for the partners have been. How quickly, how slowly we, what our balance sheet, what we forecast our balance sheet needs, we can incorporate this and again, as we all know, you can all do a lot of things, but doing it with in a way that upsets partners is not always the way.
Tim Laney
And it's just not the way we're going to operate. Number one, we're going to be focused on providing tremendous service to the banks of record. And then certainly in a tight liquidity environment, what we're not going to do is step in and pull broker deposits away from banks that have been relying on those deposits. And so part of living with this is seeing how we grow it determining, again, as Aldis said, how do we ensure that we're seriously satisfying both the banks of record and the recipients of these deposits over time.
Andrew Terrell
Yeah. Understood. I really appreciate all the color there, guys. If I could sneak one more in. I wanted to ask on just the loan growth. Obviously, still pretty strong this quarter. And essentially in line with that mid to high-single digit kind of expectation you gave us last quarter. But it does feel like growth is really kind of slowing down across the industry. I was curious if you felt there was any need to recast growth expectations? Are you still seeing growth or still seeing new deals coming into the pipeline? Do you still feel good about mid to high-single digits? I just wanted to get an update on just overall kind of loan growth thoughts from you guys?
Aldis Birkans
Yeah. Well, we entered the second quarter was still pretty strong pipelines that all else equal, will indicate that we are on track to meeting our previous guidance. Now having said that, the world has changed quite a bit over the last month. So the unpredictability worthy of maybe the potential probability of recession and the depth of that recession is the wildcard (ph) has increased from when we provided the original guidance. But right now, the pipelines are strong.
Tim Laney
What I would add is that with all of the concerns around liquidity and loan-to-deposit ratios, we found it interesting that we saw a range of banks from very large to small, really pull back on their lending during the quarter. And to the degree there are opportunities to take market share with attractive targets that we’ve been interested in for some period of time, that’s where we’ll be focused.
Andrew Terrell
Yeah. Understood. Okay. Well, thank you for taking the questions.
Tim Laney
You bet. Great. Thank you.
Operator
We'll now take our next question from Andrew Liesch with Piper Sandler.
Andrew Liesch
Hey. Good morning, guys.
Tim Laney
Hey. Good morning.
Andrew Liesch
Congrats on the Cambr deal here.
Tim Laney
Thank you.
Andrew Liesch
So just wanted to -- the fee income outside of Cambr. Is this sub-$15 million level, is that a good run rate going forward?
Aldis Birkans
So a couple of things there. Certainly, it was [indiscernible] a bit positive. Mortgage was a $0.5 million on a linked quarter basis up, which was actually right on target where internally our plan and budget was. The service and bank card fees are seasonally low. Actually, for us, it's always the lowest quarter in the year. And -- but as I mentioned in my remarks, they were both up double-digits on year-over-year basis. So I do expect that to be improving. And again, just taking the last year's run rate and adding double-digit growth will get you some run rate component there.
And then all other non-interest income probably is at cadence where it will be. Again, it's $2.7 million this first quarter. There will -- it will benefit from Cambr. The item that I'm hesitating a little bit is that we've seen, but lower what we originally thought, it continues to be SBA activity, which through Rock Canyon Bank acquisition, we were accounting on some SBA. And we did both about $400,000 gains in the first quarter, how that evolves. That market seems to be still a bit soft. So those are kind of the [indiscernible].
Andrew Liesch
Okay. Helpful there. And then just -- and I recognize you're not comfortable and not ready to give full guidance on Cambr yet. But is the fee rate -- I mean my experience in these businesses, it's based on changes in interest rates. So with rates being higher, it's much more attractive business. But when the Fed cuts rates, the fee rate that you guys get would then trend a bit lower? I mean, is that the right way to think about modeling this, going forward?
Aldis Birkans
Actually, I would keep it consistent the regardless. I mean, unless we will go back to the absolute zero rate environment, call it, 200 basis point, 250 range. I don't feel like there's going to be sensitivity to that fee component other than volume. Again, how much is on versus off balance sheet.
Andrew Liesch
Got you. Thanks. You’ve covered all other questions.
Aldis Birkans
Great.
Tim Laney
Thank you.
Operator
We'll now take our next question from Brett Rabatin with Hovde Group.
Brett Rabatin
Hey, guys. Good morning.
Tim Laney
Good morning.
Brett Rabatin
Wanted to just go back to the margin guidance and just talking about -- when I look at your deposit costs versus peers, you've obviously managed the rates really well. And so when I think about the multibank platform, this would seem to be an environment where that would certainly be an advantage of being able to maybe have higher rates at one subsidiary bank versus the others. And so just wanted to get some more color, Aldis, on the 4% margin by 3Q, what betas you're assuming for that? And then just what you're seeing are the ability to manage the funding costs with the different subsidiary banks?
Aldis Birkans
Yeah. I'll say that in terms of the geographic component, probably that ability to manage differently has abated quite a bit this quarter. There is still a bit of a difference in terms of rural markets versus more of urban populated places and depending on the competition. So it really comes down to the competition, that clients and our other bank competitors are showing. That's kind of a competitive place. I do see that the beta, historical beta was very much driven for us or more so driven then, and it's not unique in other banks by consumer deposits, right?
And I do believe that there is a component of consumer population that's been exposed to higher rates and ability to earn higher, and we are seeing that component being more rate sensitive now than really ever in this company's history. So that's the component that's changed in Q1, which is why I'm pulling back, pulling forward a little bit that 4% -- hitting the 4% margin guidance. I will say that from the balance perspective, again, approximately 50% of our balances are true transaction deposits. So those are in non-interest-bearing checking and interest-bearing checking.
On a spot basis, if you were to look at those two lines combined, you'll see that we are almost flat on [indiscernible]. So what has happened is a move of those excess balances that were driven through the zero rate environment and maybe pandemic inflows moving out a zero rate into some interest-bearing checking rate deposits. And that's -- again, that's another component that's changed and really accelerated, I would say, in March. And again, it has nothing to do with safety and soundness of NBH. In those discussions, it's more people reading newspapers and looking headlines and being reactive to a higher rate environment.
Brett Rabatin
Okay. [Technical Difficulty], what's the assumption for the beta by the 3Q or 4Q? And then are you doing different promotions at the different subsidiary banks?
Aldis Birkans
We are, we are doing different promotions and being smart about how we compete. In terms of the beta, directionally, I will say, so year -- cycle-to-date beta is 8.5%. Last time, we went through the rate cycle, our all-in beta was -- deposit beta was 21%. I'll say that our assumption that it is higher beta by the end of this year. And it's not by a couple of percentage points. It's probably, I'll say, closer to 30%, 35% beta, but without giving precise number. Because again, it's -- I will say that we are being reactive to macroeconomic environment conditions that have been changing quite rapidly over the last, really the last 30 days.
Tim Laney
I would also add, just to be clear, that not only do we have the flexibility to price differently across our different bank brands. The reality is, we take our approach to pricing down to the market level. So there are going to be differences between metropolitan markets. There are going to be difference between smaller community markets, resort markets. And our focus is on being tuned into where we can be competitive, what that inflection rate is and how sensitive we need to be based on those market dynamics.
Brett Rabatin
Okay. That's helpful. And then, Tim, you're obviously really excited about this transaction, Cambr. Would -- I'm just trying to think about the future from here. Is there a compliance piece that you have to add to your own operation as a function of this? And would this transaction possibly tilt to your interest to you in becoming one of the banks that's got more of a BaaS deal to it and you're looking at other, maybe potential other products, both in lending and deposits?
Tim Laney
Yeah. I mean, look, we're all about managing operational risk. And we have strong standing with our regulators. We're proud of the work we do on BSA/AML front, the compliance front, et cetera. And we're certainly not going to jeopardize our standing in that regard. So I would just say we feel very comfortable with the teams that we have in place that we can manage those operational risk and move ahead. I mean this technology is so interesting in terms of other uses.
I mean, just imagine a scenario where -- given what's transpired over the last 4 to 8 weeks, being able to take Cambr technology to a state and to a group of community banks and say, look, we're going to help you and your state support your state by keeping deposits in your market and help each other by distributing excess deposits above whatever the FDIC threshold might be. And I think it's a win from a political standpoint for the state. It's a win because it's real and that it's not moving deposits to New York or some other money market center.
It's keeping those deposits in that state, and it's helping each of those community banks flourish. So that would be just one example that we get excited about in terms of thinking about leveraging this in different ways. And then I’m sure you thought about this. While we haven’t talked about it on this call, we continue to build out 2UniFi. And with what we’re learning with this technology, we think it actually will be easily leveraged into the way we think about servicing deposits in 2UniFi. So more to come on that front, but hopefully, that’s helpful.
Brett Rabatin
Yeah. Appreciate it. Thanks so much guys.
Tim Laney
You bet. Thank you.
Operator
Thank you. And 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.
Tim Laney
Thank you, Anna, and I'll be brief. Just thank you for your time and your interest this morning. Do not hesitate to follow-up with us directly should you have other questions. Wish you all a good day. Thank you.
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.
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National Bank Holdings Corporation (NBHC) Q1 2023 Earnings Call Transcript