National Bank Holdings Corporation Announces Record Third Quarter 2019 Financial Results

DENVER, Oct. 22, 2019 (GLOBE NEWSWIRE) -- National Bank Holdings Corporation NBHC reported: 

In announcing these results, Chief Executive Officer Tim Laney shared, "Our team delivered another record quarter with earnings of $0.69 per share. Annualized year to date loans grew 10.7% and average non-interest bearing demand deposits grew 12.9% annualized during the quarter. We realized record fee income with strong performance from our residential banking and consumer banking groups. We also remain very focused on expense management, and we believe we are setting ourselves up to realize additional efficiencies as we look ahead to 2020."

Mr. Laney added, "We have entered the fourth quarter with momentum and strong capital that positions us well for future growth. We have a proven track record of executing on our strategies, and we will continue to prudently deploy our capital in order to create value for our clients and shareholders."

Third Quarter 2019 Results
(All comparisons refer to the second quarter of 2019, except as noted)

Net income totaled a record $21.6 million during the third quarter of 2019, or $0.69 per diluted share, compared to $20.3 million during the last quarter, or $0.64 per diluted share. The return on average tangible assets increased seven basis points to 1.51% and the return on average tangible common equity increased 23 basis points to 13.68%.

Net Interest Income
Fully taxable equivalent net interest income totaled $53.0 million and decreased $0.7 million, or 5.4% annualized, driven by lower earning asset yields. Fully taxable equivalent net interest margin narrowed nine basis points from the prior quarter to 3.91%, entirely driven by the two 25 basis point fed funds rate cuts. The yield on earnings assets decreased 12 basis points and was slightly offset by a one basis point decrease in the cost of funds.

Loans
Originated loans and acquired loans not accounted for under 310-30 ("acquired loans") ended the quarter at $4.3 billion, increasing $75.0 million, or 7.0% annualized, led by originated and acquired commercial loan growth of $69.1 million, or 9.6% annualized. Total third quarter loan originations were $319.2 million, led by commercial loan originations of $187.3 million.

Acquired loans accounted for under 310-30 totaled $57.2 million at September 30, 2019 and decreased $3.4 million from the second quarter of 2019.

Asset Quality and Provision for Loan Losses
Provision for loan losses of $5.7 million was recorded during the quarter to support originated loan growth and net charge-offs, and included $4.2 million for one previously identified acquired commercial loan that was placed on non-accrual last quarter. Net charge-offs for the quarter totaled $7.1 million, of which $6.6 million was related to the loan described above. Annualized net charge-offs on originated and acquired loans totaled 0.66%, increasing from 0.02% in the prior quarter, driven by the acquired commercial loan charge-off. Non-performing originated and acquired loans (comprised of non-accrual loans and non-accrual TDRs) improved to 0.58% of total originated and acquired loans, compared to 0.79% at June 30, 2019. The originated and acquired allowance for loan losses was 0.89% of originated and acquired loans, compared to 0.93% in the prior quarter.

Deposits
Average non-interest bearing demand deposits increased $37.6 million, or 12.9% annualized. Average transaction deposits (defined as total deposits less time deposits) increased $46.4 million, or 5.1% annualized, and average total deposits increased $35.5 million to $4.7 billion, or 3.0% annualized. The cost of transaction deposits totaled 0.39%, a decrease of one basis point from the prior quarter. The cost of total deposits totaled 0.67%, an increase of one basis point from the prior quarter and 20 basis points over the third quarter of last year. The mix of transaction deposits to total deposits improved to 77.5% compared to 76.9% at June 30, 2019, and the mix of non-interest bearing demand deposits to total deposits improved to 26.1% compared to 24.9% at June 30, 2019.

Non-Interest Income
Non-interest income totaled $24.8 million and increased $4.1 million primarily due to higher mortgage banking income of $4.3 million, driven by higher levels of 1-4 family mortgage loans sold in the secondary market. Service charges and bank card fees remained consistent and other non-interest income decreased $0.2 million.

Non-Interest Expense
Non-interest expense totaled $43.8 million and decreased $2.7 million from the prior quarter, primarily driven by gains on the sale of OREO properties totaling $6.5 million, partially offset by higher residential banking commissions.

As part of our continued focus on improving operating efficiencies and investing in digital solutions for our clients, we will consolidate four banking centers in our Colorado and Kansas City markets during the fourth quarter of 2019. A fair value impairment charge of $0.9 million was recorded to other non-interest expense during the third quarter of 2019 related to the planned consolidations, with an expected earn back of less than one year.

Income tax expense totaled $5.4 million during the third quarter of 2019, compared to $3.2 million during the prior quarter. Included in income tax expense during the second quarter of 2019 was $1.3 million of tax benefit from stock compensation activity. The effective tax rate for the third quarter of 2019 was 20.0%, compared to 19.4% during the second quarter of 2019, adjusting for the stock compensation activity. The lower rate compared to the statutory rate reflects the continued success of our tax strategies and tax exempt income.

Capital
Capital ratios continue to be strong and in excess of federal bank regulatory agency "well capitalized" thresholds. The leverage ratio at September 30, 2019 for the consolidated company and NBH Bank was 10.89% and 8.84%, respectively. Shareholders' equity totaled $753.3 million at September 30, 2019 and increased $19.4 million from the prior quarter. The increase in shareholders' equity was primarily due to higher retained earnings and accumulated other comprehensive income, driven by the fair market value fluctuations of the available-for-sale investment securities portfolio.

Common book value per share increased $0.60 to $24.17 at September 30, 2019. The tangible common book value per share was $20.45 at September 30, 2019 and increased $0.62 due to the higher retained earnings and accumulated other comprehensive income. Excluding accumulated other comprehensive income, the tangible book value was $20.35.

Year-Over-Year Review
(All comparisons refer to the first nine months of 2018, except as noted)

Fully taxable equivalent net interest income totaled $159.2 million and increased $9.1 million, or 6.1%. Average earning assets increased $220.0 million, or 4.3%, primarily driven by originated loan growth of $698.5 million. The fully taxable equivalent net interest margin widened six basis points to 3.98%. The yield on earning assets increased 32 basis points, led by a 41 basis point increase in the originated loan portfolio yields due to higher new loan yields, and was partially offset by an increase in the cost of funds of 37 basis points from 0.59% to 0.96%.

Originated and acquired loans outstanding totaled $4.3 billion and increased $514.3 million, or 13.4%, led by originated and acquired commercial loan growth of $512.4 million, or 21.2%. New loan originations over the trailing 12 months totaled $1.3 billion, led by commercial loan originations of $869.0 million. The 310-30 loan portfolio declined $17.7 million, or 23.7%, to $57.2 million at September 30, 2019.

Average non-interest bearing demand deposits increased $78.1 million, or 7.3%. Average transaction deposits increased $85.0 million, or 2.4%, and average total deposits increased $19.5 million, or 0.4%, to $4.7 billion. Spot transaction deposits increased $172.2 million to $3.7 billion at September 30, 2019, improving the mix of transaction deposits to total deposits to 77.5% from 75.7% at September 30, 2018. The mix of non-interest bearing demand deposits to total deposits improved to 26.1% from 23.6% at September 30, 2018.

Provision for loan loss expense was $10.5 million, compared to $2.7 million during the first nine months of 2018. Provision for loan loss expense during the first nine months of 2019 included $6.6 million related to one previously acquired commercial loan. Annualized net charge-offs on originated and acquired loans totaled 0.24%, compared to 0.00% during the first nine months of 2018, increasing due to the acquired commercial loan charge-off. Non-performing originated and acquired loans decreased to 0.58% from 0.64% at September 30, 2018. The originated and acquired allowance for loan losses totaled 0.89% of originated and acquired loans compared to 0.88% at September 30, 2018.

Non-interest income totaled $62.5 million during the first nine months of 2019, representing an increase of $7.0 million, or 12.6%, from last year. Mortgage banking income increased $7.3 million, or 29.7%, service charges and bank card fees increased a combined $0.2 million and other non-interest income increased $0.2 million. These increases were partially offset by a $0.8 million decrease in income on OREO properties during the period.

Non-interest expense totaled $134.6 million during the first nine months of 2019, representing a decrease of $11.8 million, driven by $7.2 million of net gains on the sale of OREO properties recorded during the period and efficiencies gained from the integration of the Peoples acquisition. Additionally, included in the prior period were $8.0 million of non-recurring acquisition costs. Other non-interest expense during the first nine months of 2019 included $0.9 million of expense related to the consolidations of four banking centers.

Income tax expense totaled $12.0 million during the first nine months of 2019, compared to $8.8 million last year, an increase of $3.2 million. Included in income tax expense was $2.2 million and $1.3 million of tax benefit from stock compensation activity during the first nine months of 2019 and 2018, respectively. Adjusting for the stock compensation activity, the effective tax rate for the first nine months of 2019 was 19.4%, compared to 19.1% in the prior period.

Conference Call
Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Wednesday, October 23, 2019. Interested parties may listen to this call by dialing (877) 272-6762 / (615) 800-6832 (International) using the Conference ID of 6784839 and asking for the NBHC Third Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately five hours after the call's completion through November 5, 2019, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 6784839. 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 105 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; 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, dislocations, political instability, acts of war or terrorist activities, cyberattacks or international hostilities; 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, Treasurer, (720) 529-3314, ir@nationalbankholdings.com
Media: Whitney Bartelli, Chief Marketing Officer, (816) 298-2203, media@nbhbank.com

NATIONAL BANK HOLDINGS CORPORATION
FINANCIAL SUMMARY
Consolidated Statements of Operations (Unaudited)
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Allowance for Loan Losses Analysis

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