National Bank Holdings Corporation Announces Second Quarter 2020 Financial Results

DENVER, July 21, 2020 (GLOBE NEWSWIRE) -- National Bank Holdings Corporation (NYSE: NBHC) reported:

In announcing these results, Chief Executive Officer Tim Laney shared, “My teammates continue to tackle the challenges presented by the COVID-19 pandemic head on. We remain focused on our priorities to 1) protect the health of our associates and clients, 2) ensure the safety and soundness of our bank, and 3) act on every opportunity to prudently support our clients and the communities where we do business. While executing on these priorities during the second quarter, we delivered adjusted net income of $0.62 per diluted share, $0.12 per share higher than the first quarter. We maintained excellent credit quality with low annualized net charge-offs of just 0.05% during the second quarter, and our non-performing loan ratio decreased five basis points from the prior quarter to 0.42% of total loans.” 

Mr. Laney added, “We continue to hold high levels of capital with a strong Common Equity Tier 1 capital ratio of 13.2% and grew our tangible book value per share by $0.40 during the quarter to $21.67. The pandemic has created operating stress for many businesses, and our teams are working with great intensity to monitor the financial health of our clients and manage the increased risk presented by the pandemic. Our strong capital and liquidity are allowing us to prudently navigate a challenging economy, and we are well positioned to support our clients and communities.” 

Second Quarter 2020 Results
(All comparisons refer to the first quarter of 2020, except as noted)

Net income totaled $17.7 million during the second quarter of 2020, or $0.57 per diluted share, compared to $15.8 million during the first quarter, or $0.50 per diluted share. Adjusting for banking center consolidation-related expenses incurred during the second quarter, net income totaled $19.0 million, or $0.62 per diluted share, an increase of $0.12 per diluted share over the first quarter. The return on average tangible assets was 1.16%, compared to 1.12% in the prior quarter, and the return on average tangible common equity was 10.98%, compared to 9.79%, in the prior quarter. The adjusted return on average tangible assets was 1.25%, and the adjusted return on average tangible common equity was 11.78% during the second quarter.

Net Interest Income
Fully taxable equivalent net interest income totaled $48.6 million, decreasing $3.0 million from the prior quarter, driven by lower earning asset yields due to the decline in short-term interest rates as a result of monetary policy actions by the Federal Reserve in March 2020. Partially offsetting this decrease was strong earning asset growth of $408.3 million, or 30.6% annualized, which included average Paycheck Protection Program (“PPP”) loans totaling $282.5 million. The fully taxable equivalent net interest margin narrowed 48 basis points from the prior quarter to 3.39% and included a six basis point decrease due to the lower yielding PPP loans originated during the second quarter and a nine basis point decrease due to the accelerated accretion benefits recognized in the prior quarter. The yield on earning assets decreased 66 basis points due to the decline in short-term interest rates, and the cost of funds decreased 23 basis points to 0.65%.

Loans
Total loans ended the quarter at $4.8 billion, increasing $276.6 million, or 24.7% annualized, due to $348.7 million of PPP loans. Total second quarter loan originations were $461.6 million, led by PPP loan originations of $358.8 million and commercial loan originations of $52.6 million. We maintain a granular and well diversified loan portfolio with self-imposed concentration limits. In light of the strain placed on industries by the COVID-19 pandemic, we have carefully evaluated and continue to closely monitor our entire loan portfolio. We have highlighted our current higher impacted industries and COVID-19 related loan modifications within the accompanying Supplemental Disclosure.

Asset Quality and Provision for Loan Losses
Provision for loan losses of $10.3 million was recorded during the quarter under the CECL model and included a $0.1 million provision for unfunded loan commitment reserves. The quarter’s provision expense was primarily driven by further declines in the macro-economic forecast within the CECL model as a result of COVID-19. Annualized net charge-offs on loans totaled 0.05% of total loans, compared to 0.03% in the prior quarter. Non-performing loans (comprised of non-accrual loans and non-accrual TDRs) improved to 0.42% of total loans, decreasing 0.05% from 0.47% at March 31, 2020. The allowance for credit losses as a percentage of total loans increased 13 basis points to 1.26% at June 30, 2020. Excluding PPP loans, non-performing loans improved to 0.45% of total loans and the allowance for credit losses as a percentage of totals loans increased 23 basis points to 1.36% at June 30, 2020.

Deposits
Average transaction deposits (defined as total deposits less time deposits) increased $521.7 million, or 57.7% annualized, and average total deposits increased $513.8 million, or 44.0% annualized, to $5.2 billion as of June 30, 2020. Average non-interest bearing demand deposits increased $299.4 million and average interest-bearing demand, savings and money market deposits increased $222.3 million. The mix of transaction deposits to total deposits improved 280 basis points to 80.6% at June 30, 2020, compared to 77.8% at March 31, 2020. The loan to deposit ratio totaled 88.3% at June 30, 2020, compared to 95.0% at March 31, 2020.

The cost of transaction deposits decreased 13 basis points from the prior quarter to 0.19%. The cost of total deposits decreased 16 basis point from the prior quarter to 0.47%.

Non-Interest Income
Non-interest income totaled $38.8 million during the second quarter, representing an increase of $15.3 million, or 65.0%. Mortgage banking income reached a quarterly record of $30.6 million, an increase of $17.0 million from the prior quarter. Service charges and bank card fees decreased a combined $0.9 million and were impacted by changes in consumer behavior due to COVID-19. Other non-interest income decreased $0.7 million from the prior quarter, primarily due to decreased swap-fee income.

Non-Interest Expense
Non-interest expense totaled $53.8 million during the second quarter, representing an increase of $5.1 million, largely due to higher mortgage banking commissions of $3.3 million. A fair value impairment charge of $1.7 million was recorded during the second quarter related to the consolidation of 12 banking center locations throughout the Community Banks of Colorado, Bank Midwest and Hillcrest Bank markets. The fully taxable equivalent efficiency ratio improved to 61.1% at June 30, 2020, compared to 64.4% at March 31, 2020. Adjusting for banking center consolidation-related expense, the fully taxable equivalent efficiency ratio improved to 59.2% at June 30, 2020.

Income tax expense totaled $4.4 million during the second quarter, compared to $3.2 million during the prior quarter. The effective tax rate was 20.0% and 16.9% for the second and first quarter, respectively. 

Capital
Capital ratios continue to be strong and in excess of federal bank regulatory agency “well capitalized” thresholds. The Tier 1 leverage ratio at June 30, 2020 for the consolidated company and NBH Bank was 10.53% and 9.14%, respectively. Shareholders’ equity totaled $777.0 million at June 30, 2020 and increased $13.5 million from the prior quarter due to higher retained earnings.

Common book value per share increased $0.38 to $25.42 at June 30, 2020. The tangible common book value per share increased $0.40 to $21.67 at June 30, 2020 as the quarter’s earnings outpaced the quarterly dividend. Excluding accumulated other comprehensive income, the tangible book value per share increased $0.40 to $21.27 at June 30, 2020.

Recent Events
The COVID-19 pandemic has caused substantial disruption to the communities we serve and has changed the way we live and work.  We continue to remain committed to ensuring our associates, clients, and communities are receiving the support they need during these challenging times. All of our banking centers remain operational through our drive-thru services and on an appointment-only basis in the lobbies. We have leveraged our digital banking platform with our clients, and we have implemented a four-phase return to office plan for our associates. Our teams have been working diligently to support our clients who are experiencing financial hardship due to COVID-19 through participation in the SBA’s Paycheck Protection Program and loan modifications, as needed. The length of the pandemic and the efficacy of the extraordinary government-mandated measures that have been put into place to address it are unknown, but have already had, and are likely to continue to have, a significantly negative impact to the U.S. labor market, consumer spending and business operations.

Year-Over-Year Review
(All comparisons refer to the first six month of 2019, except as noted)

Fully taxable equivalent net interest income totaled $100.2 million, decreasing $5.9 million, or 5.6%. Average earning assets increased $244.9 million, or 4.6%, primarily driven by average loan growth of $356.6 million, including average PPP loans of $141.2 million, partially offset by a decrease in average investment securities of $179.2 million. The fully taxable equivalent net interest margin narrowed 41 basis points to 3.62% due to lower earning asset yields. The yield on earning assets decreased 55 basis points, led by a 74 basis point decrease in the originated loan portfolio yields due to fed funds rate cuts. The cost of funds decreased 18 basis points to 0.76%.

Loans outstanding totaled $4.8 billion and increased $452.1 million, or 10.4%, led by PPP loans of $348.7 million and commercial loan growth of $160.6 million, or 5.6%. New loan originations over the trailing 12 months totaled $1.3 billion, led by commercial loan originations of $585.9 million and PPP loan originations of $358.8 million.

Average non-interest bearing demand deposits increased $154.9 million, or 13.7%. Average transaction deposits increased $343.3 million, or 9.7%, and average total deposits increased $314.7 million, or 6.8%, to $4.9 billion as of June 30, 2020. Spot transaction deposits increased $756.0 million to $4.4 billion at June 30, 2020, improving the mix of transaction deposits to total deposits by 370 basis points to 80.6% at June 30, 2020. The mix of non-interest bearing demand deposits to total deposits improved 290 basis points to 27.8% at June 30, 2020.

A CECL model driven provision for loan losses of $16.4 million was recorded during the first six months of 2020, net of a $0.1 million reduction in unfunded loan commitment reserves to provide coverage for the impact of deteriorating economic conditions as a result of COVID-19. Annualized net charge-offs on loans totaled 0.04% of total loans, compared to 0.02% last year. Non-performing loans to total loans decreased 36 basis points to 0.42%, compared to 0.78% at June 30, 2019. The allowance for credit losses totaled 1.26% of total loans, compared to 0.93% at June 30, 2019 and included a CECL adoption day 1 increase of $5.8 million. Excluding PPP loans, the allowance for credit losses as a percentage of total loans increased 43 basis points to 1.36% at June 30, 2020, compared to the same period last year.

Non-interest income totaled $62.4 million, representing an increase of $24.7 million, or 65.4%, from the prior year, primarily driven by an increase of $27.0 million, or 155.6%, in mortgage banking income. Service charges and bank card fees decreased a combined $1.7 million and other non-interest income decreased $0.5 million from the prior year.

Non-interest expense totaled $102.4 million, representing an increase of $11.6 million, or 12.8%, from the prior year. Mortgage banking commissions increased by $11.1 million and banking center consolidation-related expense totaled $1.7 million during 2020. Other non-interest expense decreased by $1.3 million largely due to a decrease in FDIC deposit insurance fees and marketing and development expense.

Income tax expense totaled $7.7 million, compared to $6.5 million during the first six months of 2019, an increase of $1.2 million. Included in income tax expense was $0.1 million of expense and $2.1 million of benefit from stock compensation activity during the first six months of 2020 and 2019, respectively. Adjusting for stock compensation activity, the effective tax rate for the first six months of 2020 was 18.3%, compared to 19.0% in the prior period. The lower rate compared to the statutory rate reflects the continued success of our tax strategies and tax exempt income.

Conference Call
Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Wednesday, July 22, 2020. Interested parties may listen to this call by dialing (877) 272-6762 / (615) 800-6832 (International) using the Conference ID of 8919639 and asking for the NBHC Second Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately four hours after the call’s completion through August 5, 2020, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 8919639. The earnings release and an on-line replay of the call will also be available on the Company’s website at www.nationalbankholdings.com by visiting the investor relations area.

About Non-GAAP Financial Measures
Certain of the financial measures and ratios we present, including “tangible assets,” “return on average tangible assets,” “tangible common equity,” “return on average tangible common equity,” “tangible common book value per share,” “tangible common book value, excluding accumulated other comprehensive loss, net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “tangible common equity to tangible assets,” “adjusted efficiency ratio,” “adjusted non-interest expense,” “adjusted non-interest expense to average assets,” “adjusted net income,” “adjusted earnings per share - diluted,” “adjusted return on average tangible assets,” “adjusted return on average tangible common equity,” and “fully taxable equivalent” metrics, are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our performance by excluding certain expenditures or assets that we believe are not indicative of our primary business operating results or by presenting certain metrics on a fully taxable equivalent basis. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance.

A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.

About National Bank Holdings Corporation
National Bank Holdings Corporation is a bank holding company created to build a leading community bank franchise delivering high quality client service and committed to shareholder results. Through its bank subsidiary, NBH Bank, National Bank Holdings Corporation operates a network of 101 banking centers, serving individual consumers, small, medium and large businesses, and government and non-profit entities. The bank’s core geographic footprint consists of Colorado, the greater Kansas City region, New Mexico, Texas and Utah. NBH Bank operates under the following brand names: Community Banks of Colorado in Colorado, Bank Midwest in Kansas and Missouri and Hillcrest Bank in New Mexico, Texas and Utah. It also operates as Community Banks Mortgage, a division of NBH Bank, in Colorado. Additional information about National Bank Holdings Corporation can be found at www.nationalbankholdings.com.

For more information visit: cobnks.com, bankmw.com, hillcrestbank.com or nbhbank.com. Or, follow us on any of our social media sites:
Community Banks of Colorado: facebook.com/cobnks, twitter.com/cobnks, instagram.com/cobnks;
Bank Midwest: facebook.com/bankmw, twitter.com/bank_mw, instagram.com/bankmw;
Hillcrest Bank: facebook.com/hillcrestbank, twitter.com/hillcrest_bank;
NBH Bank: twitter.com/nbhbank;
or connect with any of our brands on LinkedIn.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain words such as “anticipate,” “believe,” “can,” “would,” “should,” “could,” “may,” “predict,” “seek,” “potential,” “will,” “estimate,” “target,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “intend” or similar expressions that relate to the Company’s strategy, plans or intentions. Forward-looking statements involve certain important risks, uncertainties and other factors, any of which could cause actual results to differ materially from those in such statements. Such factors include, without limitation, the “Risk Factors” referenced in our most recent Form 10-K filed with the Securities and Exchange Commission (SEC), other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, and the following factors: ability to execute our business strategy; business and economic conditions; effects of a prolonged government shutdown; economic, market, operational, liquidity, credit and interest rate risks associated with the Company’s business; effects of any changes in trade, monetary and fiscal policies and laws; changes imposed by regulatory agencies to increase capital standards; effects of inflation, as well as, interest rate, securities market and monetary supply fluctuations; changes in the economy or supply-demand imbalances affecting local real estate values; changes in consumer spending, borrowings and savings habits; with respect to our mortgage business, the inability to negotiate fees with investors for the purchase or our loans or our obligation to indemnify purchasers or repurchase related loans; the Company’s ability to identify potential candidates for, consummate, integrate and realize operating efficiencies from, acquisitions, consolidations and other expansion opportunities; the Company's ability to realize anticipated benefits from enhancements or updates to its core operating systems from time to time without significant change in client service or risk to the Company's control environment; the Company's dependence on information technology and telecommunications systems of third party service providers and the risk of systems failures, interruptions or breaches of security; the Company’s ability to achieve organic loan and deposit growth and the composition of such growth; changes in sources and uses of funds; increased competition in the financial services industry; the effect of changes in accounting policies and practices; the share price of the Company’s stock; the Company's ability to realize deferred tax assets or the need for a valuation allowance; continued consolidation in the financial services industry; ability to maintain or increase market share and control expenses; costs and effects of changes in laws and regulations and of other legal and regulatory developments; technological changes; the timely development and acceptance of new products and services; the Company’s continued ability to attract, hire and maintain qualified personnel; ability to implement and/or improve operational management and other internal risk controls and processes and reporting system and procedures; regulatory limitations on dividends from the Company's bank subsidiary; changes in estimates of future loan reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; widespread natural and other disasters, pandemics such as the outbreak of the novel Coronavirus Disease 2019 (COVID-19), dislocations, political instability, acts of war or terrorist activities, cyberattacks or international hostilities; adverse effects due to COVID-19 on the Company and its clients, counterparties, employees, and third-party service providers, and the adverse impacts on our business, financial position, results of operations, and prospects; impact of reputational risk; and success at managing the risks involved in the foregoing items. The Company can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking statements are made as of the date of this press release, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

Contact:
Analysts/Institutional Investors: Aldis Birkans, Chief Financial Officer, (720) 554-6640, [email protected]
Media: Whitney Bartelli, Chief Marketing Officer, (816) 298-2203, [email protected]

NATIONAL BANK HOLDINGS CORPORATION
FINANCIAL SUMMARY
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