National Bank Holdings Corporation Announces Fourth Quarter and Record Full Year 2019 Financial Results

DENVER, Jan. 23, 2020 (GLOBE NEWSWIRE) -- National Bank Holdings Corporation NBHC reported:

(1)  See non-GAAP reconciliations below.
(2)  Quarterly ratios are annualized.

Full Year 2019 Highlights

• Record full year earnings of $2.55 per diluted share, 18.1% growth over 2018.
• Fourth quarter 2019 average earning assets increased 5.5% over the fourth quarter 2018.
• Grew loan balances 8.5% driven by $1.2 billion in new loan originations.
• Grew fourth quarter average non-interest bearing deposits 6.7% compared to the prior year.
• Increased non-interest income $12.0 million, or 16.9%, over last year.

In announcing these results, Chief Executive Officer Tim Laney shared, "We are proud to finish 2019 with record full-year earnings of $2.55 per share. Our teams delivered record-breaking fee income and full year loan growth of 8.5%, fueled by a second consecutive year of $1.2 billion of new loan originations. We built upon our relationship-based banking model with fourth quarter average non-interest bearing deposit growth of 6.7% compared to the prior year. We remain very focused on strong credit quality and expense management."

Mr. Laney added, "Completing 2019 marks the 10th year in our Company's exciting history. During our first decade, we completed six acquisitions and built a bank with a balance sheet and capital position that we believe will withstand any economic environment. We are proud of our industry-leading credit quality metrics and our high-quality client relationships. We have positioned ourselves in strong markets and created meaningful value for our clients, associates, communities and shareholders. We begin the next decade with a solid foundation, strong capital and momentum for future growth."

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

Net income totaled $19.5 million during the fourth quarter of 2019, or $0.62 per diluted share, compared to $21.6 million during the last quarter, or $0.69 per diluted share. The decrease from the prior quarter is primarily driven by $6.5 million of OREO gains recorded during the third quarter of 2019. The return on average tangible assets was 1.35% compared to 1.51% last quarter and the return on average tangible common equity was 12.07% compared to 13.68% last quarter.

Net Interest Income
Fully taxable equivalent net interest income totaled $51.7 million and decreased $1.4 million, or 10.3% annualized, driven by lower earning asset yields. Fully taxable equivalent net interest margin narrowed 14 basis points from the prior quarter to 3.77%, entirely driven by the two 25 basis point fed funds rate cuts in September and October. The yield on earnings assets decreased 17 basis points and was partially offset by a five 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 $4.4 billion, increasing $16.6 million, or 1.5% annualized, led by originated and acquired commercial loan growth of $44.8 million, or 6.1% annualized. Total fourth quarter loan originations were $269.5 million, led by commercial loan originations of $182.5 million.

Acquired loans accounted for under 310-30 totaled $54.1 million at December 31, 2019 and decreased $3.1 million from the third quarter of 2019.

Asset Quality and Provision for Loan Losses
Provision for loan losses of $1.2 million was recorded during the quarter to support originated loan growth and net charge-offs. Annualized net charge-offs on originated and acquired loans totaled 0.08%, decreasing 58 basis points from the prior quarter. Non-performing originated and acquired loans (comprised of non-accrual loans and non-accrual TDRs) improved to 0.50% of total originated and acquired loans, compared to 0.58% at September 30, 2019. The originated and acquired allowance for loan losses remained consistent with the prior quarter at 0.89%.

Deposits
Average non-interest bearing demand deposits decreased $15.4 million, or 5.1% annualized. Average transaction deposits (defined as total deposits less time deposits) decreased $24.4 million, or 2.7% annualized, and average total deposits decreased $35.0 million to $4.7 billion, or 3.0% annualized. Spot transaction deposits increased $12.4 million to $3.7 billion at December 31, 2019, improving the mix of transaction deposits to total deposits to 77.7% compared to 77.5% at September 30, 2019.

The cost of transaction deposits decreased five basis points from the prior quarter to 0.34%. The cost of total deposits decreased three basis points from the prior quarter to 0.64%.

Non-Interest Income
Non-interest income totaled $20.3 million and decreased $4.5 million primarily due to seasonally lower mortgage banking income of $4.4 million. Service charges and bank card fees decreased a combined $0.3 million, and OREO-related income increased $0.1 million.

Non-Interest Expense
Non-interest expense totaled $46.1 million and increased $2.3 million from the prior quarter due to gains on the sale of OREO properties totaling $6.5 million during the prior quarter. Salaries and benefits decreased $2.9 million primarily due to lower mortgage banking commissions. Other non-interest expense decreased $1.5 million due to positive swap fair value adjustments of $1.1 million and a $0.9 million fair value impairment charge recorded in the third quarter of 2019, related to the consolidation of four banking centers in our Colorado and Kansas City markets.

Income tax expense totaled $3.9 million during the fourth quarter of 2019, compared to $5.4 million during the prior quarter. The effective tax rate for the fourth quarter of 2019 was 16.5%, compared to 20.0% during the third quarter of 2019.

Capital
Capital ratios continue to be strong and in excess of federal bank regulatory agency "well capitalized" thresholds. The leverage ratio at December 31, 2019 for the consolidated company and NBH Bank was 11.04% and 9.12%, respectively. Shareholders' equity totaled $766.9 million at December 31, 2019 and increased $13.6 million from the prior quarter, primarily due to higher retained earnings.

Common book value per share increased $0.43 to $24.60 at December 31, 2019. The tangible common book value per share was $20.89 at December 31, 2019 and increased $0.44 due to higher retained earnings. Excluding accumulated other comprehensive income, the tangible book value was $20.83.

Year-Over-Year Review
(All comparisons refer to the full year 2018, except as noted)

Net income totaled a record $80.4 million during 2019, or $2.55 per diluted share, compared to $61.5 million during 2018, or $1.95 per diluted share. Adjusting for the Peoples acquisition, net income totaled $67.8 million, or $2.16 per diluted share during 2018. The return on average tangible assets was 1.42% compared to 1.15% last year, and the return on average tangible common equity was 13.07% compared to 11.60% last year. Adjusting for the Peoples acquisition, the return on average tangible assets was 1.26% and the return on average tangible common equity was 12.76% last year.

Fully taxable equivalent net interest income totaled $210.9 million and increased $9.0 million, or 4.4%. Average earning assets increased $236.4 million, or 4.6%, primarily driven by average originated and acquired loan growth of $492.2 million, partially offset by a decrease in average investment securities of $221.1 million. The fully taxable equivalent net interest margin remained consistent at 3.93% as the increase in average earning assets and earning asset yields were offset by an increase in the cost of funds. The yield on earning assets increased 21 basis points, led by a 28 basis point increase in the originated loan portfolio yields due to higher new loan yields. The cost of funds increased 33 basis points to 0.96% for the year ended December 31, 2019.

Originated and acquired loans outstanding totaled $4.4 billion and increased $339.9 million, or 8.5%, led by originated and acquired commercial loan growth of $352.8 million, or 13.4%. New loan originations for the year totaled $1.2 billion, led by commercial loan originations of $781.7 million. The 310-30 loan portfolio declined $16.8 million, or 23.7%, to $54.1 million at December 31, 2019.

Average non-interest bearing demand deposits increased $76.9 million, or 7.1%. Average transaction deposits increased $85.6 million, or 2.4%, and average total deposits increased $27.3 million, or 0.6%, to $4.7 billion. Spot transaction deposits increased $223.9 million to $3.7 billion at December 31, 2019, improving the mix of transaction deposits to total deposits to 77.7% from 76.2% at December 31, 2018. The mix of non-interest bearing demand deposits to total deposits improved to 25.0% from 23.6% at December 31, 2018.

Provision for loan loss expense was $11.6 million, compared to $5.2 million during 2018. Provision for loan loss expense during 2019 included $6.6 million related to the charge-off of one previously acquired commercial loan. Net charge-offs on originated and acquired loans totaled 0.20%, compared to 0.02% during 2018, increasing primarily due to the one acquired commercial loan charge-off. Non-performing originated and acquired loans decreased to 0.50% from 0.61% at December 31, 2018. The originated and acquired allowance for loan losses totaled 0.89% of originated and acquired loans compared to 0.88% at December 31, 2018.

Non-interest income totaled $82.8 million during 2019, representing an increase of $12.0 million, or 16.9%, from last year. Mortgage banking income increased $12.2 million, or 40.7%, other non-interest income increased $0.4 million, and service charges and bank card fees remained consistent with last year. Income on OREO properties decreased $0.6 million during the year.

Non-interest expense totaled $180.7 million during 2019, representing a decrease of $8.6 million, or 4.5%, driven by a $6.7 million increase in net gains on the sale of OREO properties and efficiencies gained from the integration of the Peoples acquisition. Salaries and benefits increased $7.8 million primarily due to higher mortgage banking commissions. Other non-interest expense included banking center consolidation expenses of $0.9 million recorded during 2019. Additionally, included in the prior year were $8.0 million of non-recurring acquisition costs.

Income tax expense totaled $15.8 million during 2019, compared to $12.2 million last year, an increase of $3.6 million. Included in income tax expense was $2.2 million and $1.3 million of tax benefit from stock compensation activity during 2019 and 2018, respectively. Adjusting for the stock compensation activity, the effective tax rate for 2019 was 18.7%, compared to 18.3% in the prior year. 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 Friday, January 24, 2020. Interested parties may listen to this call by dialing (877) 272-6762 / (615) 800-6832 (International) using the Conference ID of 6668206 and asking for the NBHC Fourth Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately four hours after the call's completion through February 6, 2020, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 6668206. 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; 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

(1)  Net interest income is presented on a GAAP basis and fully taxable equivalent (FTE) basis, as the Company believes this non-GAAP measure is the preferred industry measurement for this item. The FTE adjustment is for the tax benefit on certain tax exempt loans using the federal tax rate of 21% for each period presented. See non-GAAP reconciliations below.

(1)  Represents a non-GAAP financial measure. See non-GAAP reconciliations below.

(1)  Originations are defined as closed end funded loans and net fundings under revolving lines of credit. Net funding under revolving lines of credit were $1,756, $37,062, $48,955, $105,235 and $6,263 as of the fourth quarter 2019, third quarter 2019, second quarter 2019, first quarter 2019 and fourth quarter 2018, respectively.

(1)  Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)  Presented on a fully taxable equivalent basis using the statutory tax rate of 21%. The tax equivalent adjustments included above are $1,290, $1,264 and $1,195 for the three months ended December 31, 2019, September 30, 2019 and December 31, 2018, respectively.

(1)  Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)  Presented on a fully taxable equivalent basis using the statutory tax rate of 21%. The tax equivalent adjustments included above are $5,065 and $4,482 for the years ended December 31, 2019 and December 31, 2018, respectively.

(1)  Loans accounted for under ASC 310-30 may be considered performing, regardless of past due status, if the timing and expected cash flows on these loans can be reasonably estimated and if collection of the new carrying value is expected.

(1)  Quarter-to-date ratios are annualized.
(2)  Ratio represents non-GAAP financial measure. See non-GAAP reconciliations below.
(3)  Interest earning assets include assets that earn interest/accretion or dividends. Any market value adjustments on investment securities or loans are excluded from interest earning assets.
(4)  Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.
(5)  Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.
(6)  Non-performing loans consist of non-accruing loans and restructured loans on non-accrual, but exclude any loans accounted for under ASC 310-30 in which the pool is still performing. These ratios may, therefore, not be comparable to similar ratios of our peers.
(7)  Non-performing assets include non-performing loans and other real estate owned.
(8)  Total loans are net of unearned discounts and fees.