National Bank Holdings Corporation Announces Record Third Quarter 2018 Financial Results

GREENWOOD VILLAGE, Colo., Oct. 23, 2018 /PRNewswire/ -- National Bank Holdings Corporation (NYSE: NBHC) reported:

In announcing these results, Chief Executive Officer Tim Laney shared, "We are pleased to announce record quarterly earnings of $0.58 per share fueled by strong loan growth, outstanding credit quality, and diligent expense management.  Our relationship banking strategy continues to pay dividends in the form of non-interest bearing deposit growth, which grew 10.3% annualized during the third quarter.  Originated and acquired loans increased at an annualized rate of 9.3% during the quarter led by our commercial banking business.  Loan originations over the last four quarters totaled a record $1.1 billion.  We are growing loans by adhering to our uncompromising underwriting standards and concentration limits with 0.00% net charge-offs for the year.

Mr. Laney added, "We expect to finish the year strong.  We have built a solid foundation that positions us well for future growth.  Our intense focus on building high quality client relationships is yielding targeted results."

Third Quarter 2018 Results
(All comparisons refer to the second quarter of 2018, except as noted)

Net Interest Income
Fully taxable equivalent net interest income totaled $50.9 million and increased $0.4 million, or 3.3% annualized.  Fully taxable equivalent net interest margin was 3.96%, widening 0.01% from the prior quarter, driven by 0.05% higher earning asset yields and partially offset by higher cost of funds.  In addition, net interest income included $0.4 million in accelerated accretion benefit from early payoffs of 310-30 loans, a benefit of 0.03% to the fully taxable equivalent net interest margin, and compares to a second quarter accelerated accretion benefit of $0.6 million, or a 0.05% benefit to the fully taxable equivalent net interest margin.

Loans
Originated loans and acquired loans not accounted for under 310-30 ("acquired loans") ended the quarter at $3.8 billion, increasing $87.8 million, or 9.3% annualized, led by originated commercial loan growth of $134.2 million, or 25.1% annualized. Commercial loan originations totaled $188.2 million for the quarter, increasing 82.7% over the third quarter last year.  The yield on outstanding originated loans increased 0.05% during the third quarter to 4.50% due to higher new loan yields and increases in short-term market rates.

Asset Quality and Provision for Loan Losses
Provision for loan losses of $0.8 million was recorded during the quarter, driven by an increase in originated loans, partially offset by one large recovery of $1.1 million. Annualized net recoveries on originated and acquired loans totaled 0.08%, compared to annualized net charge-offs of 0.03% in the prior quarter and 0.00% year-to-date.  Non-performing originated and acquired loans (comprised of non-accrual loans and non-accrual TDRs) were 0.64% of total originated and acquired loans, compared to 0.68% at June 30, 2018. The originated and acquired allowance for loan losses was 0.88% compared to 0.86% at the prior quarter end.

Acquired problem loans accounted for under 310-30 totaled $74.9 million at September 30, 2018 and decreased $8.0 million during the third quarter. The life-to-date economic benefit of the accretable yield transfers, net of impairments, on 310-30 loans totals $292.1 million.

Deposits
Average transaction deposits (defined as total deposits less time deposits) increased $2.1 million, a 0.2% annualized increase driven by an increase in average non-interest bearing demand deposits of $27.6 million, or 10.3% annualized.  Average total deposits decreased $10.4 million to $4.6 billion, or 0.9% annualized.  The cost of deposits was 0.47%, an increase of 0.05% from the prior quarter and 0.05% over the third quarter last year.

Non-Interest Income
Non-interest income totaled $18.1 million and decreased $1.5 million as increases in service charges and bankcard fees were offset by decreases in mortgage banking income, other non-interest income, and OREO income. Mortgage banking income decreased $1.1 million, or 12.3%, due to lower levels of 1-4 family mortgage loans sold in the secondary market.  The decreases in OREO income of $0.4 million and other non-interest income of $0.3 million were partially offset by an increase in service charges of $0.2 million.

Non-Interest Expense
Non-interest expense totaled $44.4 million and decreased $2.3 million from the prior quarter, driven by $0.6 million lower commissions, $0.4 million lower OREO and problem loan expenses, and $0.9 million of expense reductions due to operational efficiencies and non-recurring acquisition-related adjustments.  The second quarter included $0.4 million of acquisition costs, included in other non-interest expense.

Income tax expense totaled $4.4 million, representing an effective tax rate of 19.3%, compared to an effective tax rate of 13.8% in the prior quarter. Both quarters included tax benefits related to stock-based compensation activity totaling $0.1 million in the third quarter, compared to $0.8 million in the second quarter. The lower tax rate compared to the statutory rate reflects the continued success of our tax strategies and tax-exempt income in relation to the pre-tax income. 

Capital
Capital ratios continue to be strong and in excess of federal bank regulatory agency "well capitalized" thresholds. Shareholders' equity totaled $673.1 million at September 30, 2018 and increased $12.9 million from the prior quarter end. The increase in shareholders' equity was due to higher retained earnings, which was partially offset by an increase in accumulated other comprehensive loss (AOCI), driven by the fair market value fluctuations of the available-for-sale investment securities portfolio.

Common book value per share increased $0.39 to $21.88 at September 30, 2018. The tangible common book value per share was $18.04 at September 30, 2018 and increased $0.43 primarily due to the increase in retained earnings. Excluding AOCI, the tangible book value increased $0.52 to $18.70. The leverage ratio at September 30, 2018 for the consolidated company and NBH Bank was 10.31% and 9.08%, respectively.

A common convention in the industry is to add the value of the accretable yield to the tangible book value per share. The value of the September 30, 2018 accretable yield balance on the 310-30 loans of $39.7 million would add $0.99 after-tax to the tangible book value per share. A more conservative methodology that management uses values the excess yield above 5.0% and then considers the timing of the excess accreted interest income recognition discounted at 5.0%. This would add $0.76 after-tax to our tangible book value per share as of September 30, 2018, resulting in a tangible common book value per share of $18.80. 

Year-Over-Year Review
(All comparisons refer to the first nine months of 2017, except as noted)

Fully taxable equivalent net interest income totaled $150.1 million and increased $36.4 million, or 32.0%. Average earning assets increased $819.2 million, or 19.0%, driven by originated loan growth and the Peoples acquisition. The fully taxable equivalent net interest margin widened 0.39% to 3.92% as the yield on earning assets increased 0.41%, led by a 0.40% increase in the originated loan portfolio yields due to short-term rate increases, partially offset by an increase in the cost of deposits of 0.02% from 0.41% to 0.43%.

Loan balances at September 30, 2018 totaled $3.9 billion and increased $784.8 million, or 25.1%, while originated and acquired loans outstanding totaled $3.8 billion and increased $835.4 million, or 27.9%, driven by Peoples acquired loans and an increase in originated loans of $444.2 million, or 15.4%. New loan originations over the trailing twelve months totaled $1.1 billion, led by commercial loan originations of $822.4 million. The 310-30 loan portfolio declined $50.7 million, or 40.3%.

Total deposits averaged $4.6 billion, increasing $757.3 million, or 19.5%.  The growth in deposits was primarily driven by the Peoples acquisition, which added $730 million in total deposits on January 1, 2018, and transaction deposit growth, partially offset by the sale of four banking centers in the second quarter 2017. The mix of transaction deposits to total deposits improved to 75.7% from 71.3% in the prior year.

Provision for loan loss expense on originated and acquired loans was $2.5 million, compared to $9.9 million last year. Annualized net charge-offs on originated and acquired loans totaled 0.00%, compared to 0.41% last year. Non-performing originated and acquired loans remained consistent at 0.64% of total originated and acquired loans for both periods. The originated and acquired allowance for loan losses totaled 0.88% of total originated and acquired loans compared to 1.00% at September 30, 2017 and decreased as the acquired loans from the Peoples acquisition were recorded at fair value.

Non-interest income for the first nine months of 2018 was $55.5 million, representing an increase of $25.3 million, primarily due to the Peoples acquisition. Service charges and bank card interchange fees grew $4.7 million due to organic growth and the addition of Peoples' client base. Mortgage banking income increased $23.0 million, primarily due to increased volume from the acquisition of Peoples. OREO related income increased $0.5 million compared to the prior year. Other non-interest income decreased $2.9 million, primarily driven by a gain on the sale of banking centers during 2017.

Non-interest expense totaled $146.5 million the first nine months of 2018, representing an increase of $43.8 million, driven by the Peoples acquisition. The first nine months of 2018 included $8.0 million of acquisition costs.

Income tax expense totaled $8.8 million and increased $6.2 million compared to last year. Income tax expense included a $1.3 million tax benefit from stock compensation activity in the first nine months of 2018, compared to $3.4 million in the first nine months of 2017. Adjusting for the stock compensation activity, the effective tax rate for the first nine months of 2018 would be 19.1%, compared to an adjusted 2017 rate of 22.3%. The effective tax rate is lower compared to the prior year primarily due to the Tax Cuts and Jobs Act which, among other items, reduced the federal corporate tax rate to 21% effective January 1, 2018.

Conference Call
Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Wednesday, October 24, 2018. Interested parties may listen to this call by dialing (877) 272-6762 / (615) 800-6832 (International) using the Conference ID of 6870724 and asking for the NBHC Third Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately two hours after the call's completion through November 1, 2018, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 6870724. 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," "return on average tangible assets before provision for loan losses and taxes," "return on average tangible common equity," "tangible common book value," "tangible common book value per share," "tangible common equity," "tangible common equity to tangible assets," "adjusted non-interest expense to average assets," "adjusted net income," "adjusted income per share," "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 104 banking centers, serving individual consumers, small, medium and large businesses, and government and non-profit entities. Its banking centers are located in its core footprint of Colorado, the greater Kansas City region, Texas and New Mexico. Its comprehensive residential mortgage banking group primarily serves the bank's core footprint with additional offices in Arizona and Utah. NBH Bank operates under the following brand names: Bank Midwest in Kansas and Missouri, Community Banks of Colorado in Colorado and Hillcrest Bank in Texas and New Mexico. It also operates as Community Banks Mortgage, a division of NBH Bank, in Arizona, Colorado and Utah. Additional information about National Bank Holdings Corporation can be found at www.nationalbankholdings.com.

For more information visit: bankmw.com, cobnks.com, hillcrestbank.com or nbhbank.com. Or, follow us on any of our social media sites:

Bank Midwest: facebook.com/bankmw, twitter.com/bank_mw, instagram.com/bankmw;
Community Banks of Colorado: facebook.com/cobnks, twitter.com/cobnks, instagram.com/cobnks;
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; 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 or consolidations; 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 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.

                                                      

                                                      

                                                      

                                                      

                                                      

                                                     

                                                      

SOURCE National Bank Holdings Corporation

Related Links

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