National Bank Holdings Corporation Announces Record First Quarter 2018 Financial Results

National Bank Holdings Corporation Announces Record First Quarter 2018 Financial Results

PR Newswire

GREENWOOD VILLAGE, Colo., April 26, 2018 /PRNewswire/ — National Bank Holdings Corporation (NYSE: NBHC) reported:

For the quarter

For the quarter – Adjusted(1)

1Q18

4Q17

1Q17

1Q18

4Q17

1Q17

Net income (loss) ($000’s)

$

8,464

$

(10,119)

$

8,258

$

14,510

$

9,883

$

8,258

Income (loss) per share – diluted

$

0.27

$

(0.37)

$

0.30

$

0.47

$

0.36

$

0.30

Return on average tangible assets

0.66%

(0.78)%

0.81%

1.11%

0.88%

0.81%

Return on average tangible common equity

6.95%

(7.41)%

7.66%

11.63%

8.41%

7.66%

_____________________________

(1)

Adjusted for Peoples, Inc. (“Peoples”) one-time acquisition-related costs and 4Q 2017 deferred tax asset re-measurement charge. See non-GAAP reconciliations below.

NBHC Logo (PRNewsfoto/National Bank Holdings Corporat)

“We’ve had a solid start to 2018,” said Tim Laney, Chief Executive Officer. “After adjusting for Peoples acquisition-related expenses, we delivered record earnings, and for the first time in our short history, over 1% return on average tangible assets and double-digit return on average tangible common equity. The Peoples acquisition was completed on January 1st and provided strong growth in our balance sheet and all revenue lines. Organic loans and deposits grew nicely year-over-year as we continue to grow relationships with our clients. Our loan portfolio continues to perform well with just 0.07% of annualized net charge-offs in the first quarter. Contributing to our record earnings was revenue growth of $22 million, or 49% year-over-year, driven by organic growth and the acquisition of Peoples, coupled with a continued focus on expense management.”

Mr. Laney added, “Our progress is a testament to the dedication and focus of our teammates. Through their efforts, we completed a near perfect conversion of Peoples while continuing to grow and expand our client relationships in the first quarter. This momentum, combined with our strong capital position, allows us to pursue future growth opportunities that we believe will continue to create attractive returns for our shareholders while helping the communities where we do business grow stronger.”

Acquisition
On January 1, 2018, the Company completed its acquisition of Peoples, the bank holding company of Colorado-based Peoples National Bank and Kansas-based Peoples Bank. The Company acquired 20 banking centers located in the highly-attractive and geographically-relevant markets of Colorado Springs in Colorado, Overland Park and Lawrence in Kansas, and Taos and Albuquerque in New Mexico, and added approximately $842 million in total assets, net of FHLB payoffs, $543 million in loans and $730 million in deposits. The merger consideration totaled $146.4 million and consisted of $110.2 million in Company stock and $36.2 million in cash. All operating systems were converted during the first quarter of 2018.

First Quarter 2018 Results
(All comparisons refer to the fourth quarter of 2017, except as noted)

Net Interest Income
Fully taxable equivalent net interest income totaled $48.7 million and increased $10.1 million, or 26.2%, driven by a $645.0 million increase in earning assets and a 0.43% widening of the fully taxable equivalent net interest margin to 3.84%. The increase in average earning assets was primarily due to the acquired loans and investments from Peoples. The margin expansion was driven by a 0.41% increase in earning assets yield, while the cost of interest bearing liabilities decreased 0.05% to 0.55% due to Peoples’ attractive deposit base. Originated loan yields increased 0.20% to 4.32% due to increases in short-term market rates. In addition, accelerated accretion on 310-30 and acquired loans not accounted for under 310-30 (“acquired loans”) totaled $1.3 million, contributing 0.10% to the fully taxable equivalent net interest margin this quarter.

Loans
Total loans ended the quarter at $3.7 billion, increasing $523.4 million primarily driven by the Peoples acquisition. Originated loans grew 2.2% annualized as strong growth in commercial loans of 13.2% annualized was mostly offset by expected payoffs of non-owner occupied commercial real estate loans. Commercial loan originations totaled $162.7 million for the quarter, increasing 27.4% over the first quarter of the prior year. Acquired loans grew $515.4 million, entirely due to the acquisition of Peoples.

Asset Quality and Provision for Loan Losses
Originated and acquired loans totaled $3.6 billion, increasing $531.7 million and represented 97.0% of total loans at March 31, 2018. Minimal provision for loan losses was recorded during the first quarter due to strong credit trends and low net charge-offs of 0.07%, annualized. Non-performing originated and acquired loans (comprised of non-accrual loans and non-accrual TDRs) were 0.66% of total originated and acquired loans, compared to 0.69% at December 31, 2017. The originated and acquired allowance for loan losses was 0.85% compared to 1.02% at the prior quarter end, and decreased as the acquired loans from the Peoples acquisition were recorded at fair value.

Acquired problem loans accounted for under 310-30 totaled $112.3 million at March 31, 2018 and decreased $8.3 million during the first quarter, an annualized decrease of 28.0%. The life-to-date economic benefit of the accretable yield transfers net of impairments on 310-30 loans totals $226.8 million.

Deposits
Total deposits averaged $4.6 billion and increased $614.3 million entirely due to the Peoples acquisition. Average transaction deposits (defined as total deposits less time deposits) increased $575.0 million. Excluding Peoples, average transaction deposits decreased $85.5 million, or 3.0%, due to lower average demand deposits of $74.5 million, or 8.0%, and a decrease in average interest bearing savings and money market deposits of $11.0 million, or 0.6%, as our clients had built larger cash balances during the prior quarter followed by the seasonal decrease in the first quarter. Excluding Peoples, total transaction deposits at March 31, 2018 grew $33.9 million, or 1.2%, over year-end. The cost of deposits was 0.41%, decreasing 0.03% from the prior quarter, benefitting from Peoples’ low-cost deposits.

Non-Interest Income
Non-interest income totaled $17.8 million, increasing $9.0 million primarily due to the Peoples acquisition. The addition of Peoples clients drove a $1.0 million, or 12.0%, increase in service charges, bank card interchange fees and other fees. Mortgage banking income increased $7.5 million primarily due to sales of $219 million of 1-4 family mortgage loans sold in the secondary market.

Non-Interest Expense
Non-interest expense totaled $55.3 million and increased $21.3 million from the prior quarter driven by the Peoples acquisition. Included in the quarter was $7.6 million of one-time acquisition costs, with $1.1 million included in salaries and benefits, $0.8 million included in occupancy and equipment, $2.0 million included in professional fees and $3.7 million included in other non-interest expenses. Gain on sale of OREO and problem asset workout expense totaled a net expense of $0.9 million, a change of $2.2 million due to higher OREO gains in the prior quarter.

Income tax expense totaled $1.7 million, representing an effective tax rate of 16.7%, and decreased $16.9 million due to a deferred tax asset re-measurement charge in the prior quarter and a decrease in statutory rates. 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 $645.9 million at March 31, 2018 and increased $113.5 million from the prior quarter end. The increase in shareholders’ equity was due to higher retained earnings and the issuance of stock for the Peoples acquisition and was partially offset by an increase in accumulated other comprehensive loss, which was driven by the fair market value fluctuations of the available-for-sale investment securities portfolio.

Common book value per share was $21.19 at March 31, 2018 and increased $1.38. The tangible common book value per share was $17.27 at March 31, 2018 and decreased $0.67 due to a $0.24 change in accumulated other comprehensive loss and a $65.5 million increase in intangible assets from the Peoples acquisition. The leverage ratio at March 31, 2018 for the consolidated company and NBH Bank was 9.59% and 8.83%, 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 March 31, 2018 accretable yield balance on the 310-30 loans of $45.2 million would add $1.11 after-tax to the tangible book value per share. A more conservative methodology that management uses values the excess yield above a 4.0% yield and then considers the timing of the excess accreted interest income recognition discounted at 5.0%. This would add $0.83 after-tax to our tangible book value per share as of March 31, 2018, resulting in a tangible common book value per share of $18.10.

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

Fully taxable equivalent net interest income totaled $48.7 million and increased $12.7 million, or 35.3%. Average earning assets increased $892.1 million as average originated loans increased $361.3 million, or 13.9%, and average acquired loans increased $496.2 million due to Peoples acquired loans. These increases were partially offset by the paydowns of higher-yielding 310-30 loans. The fully taxable equivalent net interest margin widened 0.40% to 3.84% as the yield on earning assets increased 0.43%, led by a 0.44% increase in the originated portfolio yields due to short-term rate increases, partially offset by an increase in the cost of deposits of 0.02%.

Loan balances at March 31, 2018 totaled $3.7 billion and increased $748.7 million, or 25.3%, while originated and acquired loans outstanding totaled $3.6 billion and increased $776.4 million, or 27.6%, driven by Peoples acquired loans and an increase in originated loans of $294.3 million, or 11.0%. New loan originations between the two periods totaled $890.9 million, led by commercial loan originations of $640.3 million. The 310-30 loan portfolio declined $27.8 million, or 19.8%.

Total deposits averaged $4.6 billion, increasing $732.1 million. Adjusting for the Peoples deposits added this quarter and the banking center divestitures in the second quarter of 2017, average total deposits grew $113.4 million, or 3.0%, while average transaction deposits increased $134.6 million, or 5.0%. The mix of transaction deposits to total deposits improved to 75.6% from 70.1% in the prior year. Additionally, the cost of deposits was 0.41%, increasing 0.02% compared to the first quarter of the prior year due to slightly higher cost of savings, money market and time deposits.

Provision for loan loss expense on originated and acquired loans was $0.0 million, compared to $1.8 million last year. Annualized net charge-offs on originated and acquired loans totaled 0.07%, compared to 0.02%. Non-performing originated and acquired loans decreased to 0.66% of total originated and acquired loans, compared to 1.20% at March 31, 2017, primarily due to the resolution of non-accrual energy loans. The originated and acquired allowance for loan losses totaled 0.85% of total originated and acquired loans compared to 1.09% in the first quarter of 2017, and decreased as the acquired loans from the Peoples acquisition were recorded at fair value.

Non-interest income totaled $17.8 million, representing an increase of $9.1 million primarily due to the Peoples acquisition. Service charges, bank card interchange fees and other fees grew $1.5 million due to organic growth and the addition of Peoples’ client base. Mortgage banking income increased $7.5 million primarily due to increased volume from the acquisition of Peoples. OREO related income increased $0.2 million compared to the prior year.

Non-interest expense totaled $55.3 million the first quarter of 2018, representing an increase of $20.7 million driven by the Peoples acquisition. Included in the quarter was $7.6 million of one-time acquisition costs.

Income tax expense totaled $1.7 million and increased $2.9 million. Income tax expense included a large $2.8 million tax benefit from stock compensation activity in the first quarter of 2017. The effective tax rate of 16.7%, compares to an adjusted effective tax rate of 22.9% in the first quarter of 2017.

Conference Call
Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Friday, April 27, 2018. Interested parties may listen to this call by dialing (877) 272-6762 (United States) / (615) 800-6832 (International) using the Conference ID of 92242833 and asking for the National Bank Holdings Corporation First Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately two hours after the call’s completion through May 11, 2018, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 92242833. The earnings release 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 banking group primarily serves the bank’s core footprint with additional offices in Arizona, Nevada 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, Nevada 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.

NATIONAL BANK HOLDINGS CORPORATION

FINANCIAL SUMMARY

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except share and per share data)

For the three months ended

March 31,

December 31,

March 31,

2018

2017

2017

Total interest and dividend income

$

52,791

$

41,889

$

38,740

Total interest expense

5,144

4,976

4,018

Net interest income

47,647

36,913

34,722

Taxable equivalent adjustment

1,063

1,676

1,269

Net interest income FTE(1)

48,710

38,589

35,991

Provision for loan losses

41

3,272

1,795

Net interest income after provision for loan losses FTE(1)

48,669

35,317

34,196

Non-interest income:

Service charges

4,510

4,058

3,326

Bank card fees

3,362

3,012

2,804

Mortgage banking income

7,971

438

454

Other non-interest income

1,602

1,387

1,884

OREO related income

390

(12)

228

Total non-interest income

17,835

8,883

8,696

Non-interest expense:

Salaries and benefits

30,672

20,526

20,390

Occupancy and equipment

7,955

5,107

5,437

Professional fees

2,819

890

416

Other non-interest expense

12,324

7,564

6,232

Problem asset workout

781

606

872

Gain on sale of OREO, net

78

(1,897)

(112)

Intangible asset amortization

653

1,232

1,370

Total non-interest expense

55,282

34,028

34,605

Income before income taxes FTE(1)

11,222

10,172

8,287

Taxable equivalent adjustment

1,063

1,676

1,269

Income before income taxes

10,159

8,496

7,018

Income tax expense (benefit)

1,695

18,615

(1,240)

Net income (loss)

$

8,464

$

(10,119)

$

8,258

Income (loss) per share – basic

$

0.28

$

(0.37)

$

0.31

Income (loss) per share – diluted

$

0.27

$

(0.37)

$

0.30

_______________________________

(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%, 35% and 35% for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively. See non-GAAP reconciliations below.

NATIONAL BANK HOLDINGS CORPORATION

Consolidated Statements of Financial Condition (Unaudited)

(Dollars in thousands, except share and per share data)

March 31, 2018

December 31, 2017

March 31, 2017

ASSETS

Cash and cash equivalents

$

286,870

$

257,364

$

218,430

Investment securities available-for-sale

917,865

855,345

921,881

Investment securities held-to-maturity

283,369

258,730

313,446

Non-marketable securities

14,088

15,030

13,065

Loans

3,702,334

3,178,947

2,953,655

Allowance for loan losses

(30,686)

(31,264)

(30,850)

Loans, net

3,671,648

3,147,683

2,922,805

Loans held for sale

51,050

4,629

3,547

Other real estate owned

11,875

10,491

15,552

Premises and equipment, net

112,038

93,708

94,485

Goodwill

114,909

59,630

59,630

Intangible assets, net

15,561

1,607

5,580

Other assets

178,310

139,248

159,874

Total assets

$

5,657,583

$

4,843,465

$

4,728,295

LIABILITIES AND SHAREHOLDERS’ EQUITY

Liabilities:

Non-interest bearing demand deposits

$

1,083,245

$

902,439

$

876,933

Interest bearing demand deposits

698,796

474,607

428,174

Savings and money market

1,779,817

1,484,463

1,477,842

Total transaction deposits

3,561,858

2,861,509

2,782,949

Time deposits

1,147,452

1,118,050

1,184,994

Total deposits

4,709,310

3,979,559

3,967,943

Securities sold under agreements to repurchase

141,187

130,463

91,697

Federal Home Loan Bank advances

77,335

129,115

76,780

Other liabilities

83,888

71,921

54,257

Total liabilities

5,011,720

4,311,058

4,190,677

Shareholders’ equity:

Common stock

515

515

514

Additional paid in capital

1,012,268

970,668

971,742

Retained earnings

68,008

60,795

61,812

Treasury stock

(420,040)

(493,329)

(494,594)

Accumulated other comprehensive (loss) income, net of tax

(14,888)

(6,242)

(1,856)

Total shareholders’ equity

645,863

532,407

537,618

Total liabilities and shareholders’ equity

$

5,657,583

$

4,843,465

$

4,728,295

SHARE DATA

Average basic shares outstanding

30,493,689

27,007,799

26,801,773

Average diluted shares outstanding

31,143,528

27,007,799

27,680,029

Ending shares outstanding

30,479,969

26,875,585

26,715,532

Common book value per share

$

21.19

$

19.81

$

20.12

Tangible common book value per share(1)

$

17.27

$

17.94

$

18.05

Tangible common book value per share, excluding accumulated other comprehensive income(1)

$

17.76

$

18.17

$

18.12

CAPITAL RATIOS

Average equity to average assets

11.44%

11.41%

11.68%

Tangible common equity to tangible assets(1)

9.51%

10.06%

10.32%

Leverage ratio

9.59%

9.83%

10.22%

Tier 1 risk-based capital ratio

12.43%

12.94%

13.52%

Total risk-based capital ratio

13.17%

13.82%

14.43%

_______________________________

(1)

Represents a non-GAAP financial measure. See non-GAAP reconciliations below.

NATIONAL BANK HOLDINGS CORPORATION

Loan Portfolio

(Dollars in thousands)

Period End Loan Balances by Type

March 31, 2018

March 31, 2018

vs. December 31, 2017

vs. March 31, 2017

March 31, 2018

December 31, 2017

% Change

March 31, 2017

% Change

Originated:

Commercial:

Commercial and industrial

$

1,422,517

$

1,375,028

3.5%

$

1,148,541

23.9%

Owner-occupied commercial real estate

274,182

264,357

3.7%

221,353

23.9%

Agriculture

154,922

135,397

14.4%

123,804

25.1%

Energy

40,213

57,460

(30.0)%

89,491

(55.1)%

Total commercial

1,891,834

1,832,242

3.3%

1,583,189

19.5%

Commercial real estate non-owner occupied

424,125

464,121

(8.6)%

425,566

(0.3)%

Residential real estate

630,576

633,578

(0.5)%

641,462

(1.7)%

Consumer

23,082

23,398

(1.4)%

25,142

(8.2)%

Total originated

2,969,617

2,953,339

0.6%

2,675,359

11.0%

Acquired:

Commercial:

Commercial and industrial

72,571

994

7200.9%

2,149

3277.0%

Owner-occupied commercial real estate

110,065

8,396

1210.9%

14,981

634.7%

Agriculture

6,727

3,498

92.3%

4,344

54.9%

Total commercial

189,363

12,888

1369.3%

21,474

781.8%

Commercial real estate non-owner occupied

211,313

21,020

905.3%

25,585

725.9%

Residential real estate

216,579

69,900

209.8%

89,521

141.9%

Consumer

3,153

1,177

167.9%

1,652

90.9%

Total acquired

620,408

104,985

490.9%

138,232

348.8%

ASC 310-30 loans

112,309

120,623

(6.9)%

140,064

(19.8)%

Total loans

$

3,702,334

$

3,178,947

16.5%

$

2,953,655

25.3%

Originations(1)

First quarter

Fourth quarter

Third quarter

Second quarter

First quarter

2018

2017

2017

2017

2017

Commercial:

Commercial and industrial

$

123,984

$

167,699

$

73,917

$

159,340

$

114,414

Owner occupied commercial real estate

23,576

8,937

32,787

6,899

16,988

Agriculture

25,873

14,050

3,335

16,696

(3,644)

Energy

(10,778)

(8,121)

(6,993)

9,120

(81)

Total commercial

162,655

182,565

103,046

192,055

127,677

Commercial real estate non-owner occupied

20,694

21,323

46,654

47,312

36,962

Residential real estate

21,698

25,995

28,471

26,979

29,616

Consumer

3,238

1,815

3,122

3,233

2,378

Total

$

208,285

$

231,698

$

181,293

$

269,579

$

196,633

_______________________________

(1)

Originations are defined as closed end funded loans and net fundings under revolving lines of credit. Net fundings under revolving lines of credit were $59,236, $65,686, $(12,804), $68,305 and $33,397 as of the first quarter 2018, fourth quarter 2017, third quarter 2017, second quarter 2017 and first quarter 2017, respectively.

NATIONAL BANK HOLDINGS CORPORATION

Summary of Net Interest Margin

(Dollars in thousands)

For the three months ended

For the three months ended

For the three months ended

March 31, 2018

December 31, 2017

March 31, 2017

Average

Average

Average

Average

Average

Average

balance

Interest

rate

balance

Interest

rate

balance

Interest

rate

Interest earning assets:

Originated loans FTE(1)(2)

$

2,954,865

$

31,454

4.32%

$

2,905,810

$

30,205

4.12%

$

2,593,554

$

24,842

3.88%

Acquired loans

639,552

8,930

5.66%

109,420

1,698

6.16%

143,343

2,174

6.15%

ASC 310-30 loans

115,432

5,393

18.69%

122,175

4,787

15.67%

142,200

5,871

16.51%

Loans held for sale

54,358

566

4.22%

6,935

117

6.69%

10,081

145

5.83%

Investment securities available-for-sale

935,359

4,775

2.04%

817,024

3,885

1.90%

930,651

4,361

1.87%

Investment securities held-to-maturity

256,646

1,751

2.73%

268,353

1,848

2.75%

324,411

2,252

2.78%

Other securities

16,072

244

6.07%

15,075

220

5.84%

13,383

167

4.99%

Interest earning deposits and securities purchased under agreements to resell

168,318

741

1.79%

250,859

805

1.27%

90,864

197

0.88%

Total interest earning assets FTE(2)

$

5,140,602

$

53,854

4.25%

$

4,495,651

$

43,565

3.84%

$

4,248,487

$

40,009

3.82%

Cash and due from banks

$

99,798

$

70,804

$

67,102

Other assets

406,903

309,604

321,128

Allowance for loan losses

(31,619)

(30,321)

(29,847)

Total assets

$

5,615,684

$

4,845,738

$

4,606,870

Interest bearing liabilities:

Interest bearing demand, savings and money market deposits

$

2,408,387

$

1,844

0.31%

$

1,957,306

$

1,709

0.35%

$

1,896,259

$

1,366

0.29%

Time deposits

1,167,302

2,790

0.97%

1,128,069

2,704

0.95%

1,179,821

2,421

0.83%

Securities sold under agreements to repurchase

132,339

50

0.15%

98,218

45

0.18%

78,326

33

0.17%

Federal Home Loan Bank advances

115,683

460

1.61%

129,115

518

1.59%

48,463

198

1.66%

Total interest bearing liabilities

$

3,823,711

$

5,144

0.55%

$

3,312,708

$

4,976

0.60%

$

3,202,869

$

4,018

0.51%

Demand deposits

$

1,057,622

$

933,657

$

825,146

Other liabilities

92,076

46,563

40,936

Total liabilities

4,973,409

4,292,928

4,068,951

Shareholders’ equity

642,275

552,810

537,919

Total liabilities and shareholders’ equity

$

5,615,684

$

4,845,738

$

4,606,870

Net interest income FTE(2)

$

48,710

$

38,589

$

35,991

Interest rate spread FTE(2)

3.70%

3.24%

3.31%

Net interest earning assets

$

1,316,891

$

1,182,943

$

1,045,618

Net interest margin FTE(2)

3.84%

3.41%

3.44%

Average transaction deposits

3,466,009

2,890,963

2,721,405

Average total deposits

4,633,311

4,019,032

3,901,226

Ratio of average interest earning assets to average interest bearing liabilities

134.44%

135.71%

132.65%

_______________________________

(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%, 35% and 35% for the three month ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively. The tax equivalent adjustments included above are $1,063, $1,676 and $1,269 for the three months ended March 31, 2018, December 31, 2017 and March 31, 2017, respectively.

NATIONAL BANK HOLDINGS CORPORATION

Allowance for Loan Losses and Asset Quality

(Dollars in thousands)

Allowance for Loan Losses Analysis

As of and for the three months ended

March 31, 2018

December 31, 2017

March 31, 2017

ASC

Originated

ASC

Originated

ASC

Originated

310-30

and acquired

310-30

and acquired

310-30

and acquired

loans

loans

Total

loans

loans

Total

loans

loans

Total

Beginning allowance for loan losses

$

71

$

31,193

$

31,264

$

$

30,047

$

30,047

$

225

$

28,949

$

29,174

Charge-offs

(716)

(716)

(2,139)

(2,139)

(210)

(210)

Recoveries

97

97

84

84

91

91

Provision (recoupment)

41

41

71

3,201

3,272

(5)

1,800

1,795

Ending ALL

$

112

$

30,574

$

30,686

$

71

$

31,193

$

31,264

$

220

$

30,630

$

30,850

Ratio of annualized net charge-offs to average total loans during the period, respectively

0.00%

0.07%

0.07%

0.00%

0.27%

0.26%

0.00%

0.02%

0.02%

Ratio of ALL to total loans outstanding at period end, respectively

0.10%

0.85%

0.83%

0.06%

1.02%

0.98%

0.16%

1.09%

1.04%

Ratio of ALL to total non-performing loans at period end, respectively(1)

0.00%

129.17%

129.65%

0.00%

148.54%

148.88%

0.00%

90.85%

91.50%

Total loans

$

112,309

$

3,590,025

$

3,702,334

$

120,623

$

3,058,324

$

3,178,947

$

140,064

$

2,813,591

$

2,953,655

Average total loans during the period

$

115,432

$

3,594,417

$

3,709,849

$

122,175

$

3,015,230

$

3,137,405

$

142,200

$

2,736,897

$

2,879,097

Total non-performing loans(1)

$

$

23,669

$

23,669

$

$

21,000

$

21,000

$

$

33,716

$

33,716

_______________________________

(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.

Originated and Acquired Loans

March 31, 2018

December 31, 2017

March 31, 2017

Loans 30-89 days past due and still accruing interest

$

6,029

$

3,681

$

3,122

Loans 90 days past due and still accruing interest

1,767

150

105

Non-accrual loans

23,669

21,000

33,716

Total past due and non-accrual loans

$

31,465

$

24,831

$

36,943

Total 90 days past due and still accruing interest and non-accrual loans to total originated and acquired loans

0.71%

0.69%

1.20%

Total non-accrual loans to total originated and acquired loans

0.66%

0.69%

1.20%

NATIONAL BANK HOLDINGS CORPORATION

Asset Quality

(Dollars in thousands)

Asset Quality Data

March 31, 2018

December 31, 2017

March 31, 2017

Non-performing loans

$

23,669

$

21,000

$

33,716

OREO

11,875

10,491

15,552

Total non-performing assets

$

35,544

$

31,491

$

49,268

Accruing restructured loans

$

8,678

$

8,461

$

5,589

Total non-performing loans to total loans

0.64%

0.66%

1.14%

Total non-performing assets to total loans and OREO

0.96%

0.99%

1.66%

Changes in Accretable Yield

For the three months ended

Life-to-date

March 31, 2018

December 31, 2017

March 31, 2017

March 31, 2018

Accretable yield at beginning of period

$

46,568

$

51,548

$

60,476

$

Additions through acquisitions

214,996

Reclassification from non-accretable difference to accretable yield

5,409

1,702

5,385

287,455

Reclassification to non-accretable difference from accretable yield

(1,391)

(1,895)

(399)

(36,959)

Accretion

(5,393)

(4,787)

(5,871)

(420,299)

Accretable yield at end of period

$

45,193

$

46,568

$

59,591

$

45,193

NATIONAL BANK HOLDINGS CORPORATION

Key Ratios

As of and for the three months ended

March 31,

December 31,

March 31,

2018

2017

2017

Key Ratios(1)

Return on average assets

0.61%

(0.83)%

0.73%

Return on average tangible assets(2)

0.66%

(0.78)%

0.81%

Return on average tangible assets, adjusted(2)

1.11%

0.88%

0.81%

Return on average equity

5.34%

(7.26)%

6.23%

Return on average tangible common equity(2)

6.95%

(7.41)%

7.66%

Return on average tangible common equity, adjusted(2)

11.63%

8.41%

7.66%

Loans to deposits ratio (end of period)

79.70%

80.00%

74.53%

Non-interest bearing deposits to total deposits (end of period)

23.00%

22.68%

22.10%

Net interest margin(4)

3.76%

3.26%

3.31%

Net interest margin FTE(2)(4)

3.84%

3.41%

3.44%

Interest rate spread FTE(5)

3.70%

3.24%

3.31%

Yield on earning assets(3)

4.16%

3.70%

3.70%

Yield on earning assets FTE(2)(3)

4.25%

3.84%

3.82%

Cost of interest bearing liabilities(3)

0.55%

0.60%

0.51%

Cost of deposits

0.41%

0.44%

0.39%

Non-interest income to total revenue FTE

26.80%

18.71%

19.46%

Non-interest expense to average assets

3.99%

2.79%

3.05%

Non-interest expense to average assets, adjusted(2)

3.44%

2.58%

3.05%

Efficiency ratio FTE(2)(6)

82.09%

69.08%

74.37%

Efficiency ratio FTE, adjusted for acquisition-related costs(2)(6)

70.68%

64.87%

74.37%

Asset Quality Data(7)(8)(9)

Non-performing loans to total loans

0.64%

0.66%

1.14%

Non-performing assets to total loans and OREO

0.96%

0.99%

1.66%

Allowance for loan losses to total loans

0.83%

0.98%

1.04%

Allowance for loan losses to non-performing loans

129.65%

148.88%

91.50%

Net charge-offs to average loans(1)

0.07%

0.26%

0.02%

______________________________

(1)

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 are excluded from interest earning assets. Interest bearing liabilities include liabilities that must be paid interest.

(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)

The efficiency ratio represents non-interest expense, less intangible asset amortization, as a percentage of net interest income on a FTE basis plus non-interest income.

(7)

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.

(8)

Non-performing assets include non-performing loans, other real estate owned and other repossessed assets.

(9)

Total loans are net of unearned discounts and fees.

NATIONAL BANK HOLDINGS CORPORATION

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS

(Dollars in thousands, except share and per share data)

Tangible Common Book Value Ratios

March 31, 2018

December 31, 2017

March 31, 2017

Total shareholders’ equity

$

645,863

$

532,407

$

537,618

Less: goodwill and core deposit intangible assets, net

(126,340)

(61,237)

(65,210)

Add: deferred tax liability related to goodwill

6,878

10,873

9,710

Tangible common equity (non-GAAP)

$

526,401

$

482,043

$

482,118

Total assets

$

5,657,583

$

4,843,465

$

4,728,295

Less: goodwill and core deposit intangible assets, net

(126,340)

(61,237)

(65,210)

Add: deferred tax liability related to goodwill

6,878

10,873

9,710

Tangible assets (non-GAAP)

$

5,538,121

$

4,793,101

$

4,672,795

Tangible common equity to tangible assets calculations:

Total shareholders’ equity to total assets

11.42%

10.99%

11.37%

Less: impact of goodwill and core deposit intangible assets, net

(1.91)%

(0.93)%

(1.05)%

Tangible common equity to tangible assets (non-GAAP)

9.51%

10.06%

10.32%

Tangible common book value per share calculations:

Tangible common equity (non-GAAP)

$

526,401

$

482,043

$

482,118

Divided by: ending shares outstanding

30,479,969

26,875,585

26,715,532

Tangible common book value per share (non-GAAP)

$

17.27

$

17.94

$

18.05

Tangible common book value per share, excluding accumulated other comprehensive loss calculations:

Tangible common equity (non-GAAP)

$

526,401

$

482,043

$

482,118

Accumulated other comprehensive loss, net of tax

14,888

6,242

1,856

Tangible common book value, excluding accumulated other comprehensive loss, net of tax (non-GAAP)

541,289

488,285

483,974

Divided by: ending shares outstanding

30,479,969

26,875,585

26,715,532

Tangible common book value per share, excluding accumulated other comprehensive loss, net of tax (non-GAAP)

$

17.76

$

18.17

$

18.12

NATIONAL BANK HOLDINGS CORPORATION

(Dollars in thousands, except share and per share data)

Return on Average Tangible Assets and Return on Average Tangible Equity

As of and for the three months ended

March 31, 2018

December 31, 2017

March 31, 2017

Net income (loss)

$

8,464

$

(10,119)

$

8,258

Add: impact of core deposit intangible amortization expense, after tax

496

752

836

Net income adjusted for impact of core deposit intangible amortization expense, after tax

$

8,960

$

(9,367)

$

9,094

Average assets

$

5,615,684

$

4,845,738

$

4,606,870

Less: average goodwill and core deposit intangible asset, net of deferred tax liability related to goodwill

(119,158)

(50,945)

(56,180)

Average tangible assets (non-GAAP)

$

5,496,526

$

4,794,793

$

4,550,690

Average shareholders’ equity

$

642,275

$

552,810

$

537,919

Less: average goodwill and core deposit intangible assets, net of deferred tax liability related to goodwill

(119,158)

(50,945)

(56,180)

Average tangible common equity (non-GAAP)

$

523,117

$

501,865

$

481,739

Return on average assets

0.61%

(0.83)%

0.73%

Return on average tangible assets (non-GAAP)

0.66%

(0.78)%

0.81%

Return on average equity

5.34%

(7.26)%

6.23%

Return on average tangible common equity (non-GAAP)

6.95%

(7.41)%

7.66%

Fully Taxable Equivalent Yield on Earning Assets and Net Interest Margin

As of and for the three months ended

March 31, 2018

December 31, 2017

March 31, 2017

Interest income

$

52,791

$

41,889

$

38,740

Add: impact of taxable equivalent adjustment

1,063

1,676

1,269

Interest income FTE (non-GAAP)

$

53,854

$

43,565

$

40,009

Net interest income

$

47,647

$

36,913

$

34,722

Add: impact of taxable equivalent adjustment

1,063

1,676

1,269

Net interest income FTE (non-GAAP)

$

48,710

$

38,589

$

35,991

Average earning assets

$

5,140,602

$

4,495,651

$

4,248,487

Yield on earning assets

4.16%

3.70%

3.70%

Yield on earning assets FTE (non-GAAP)

4.25%

3.84%

3.82%

Net interest margin

3.76%

3.26%

3.31%

Net interest margin FTE (non-GAAP)

3.84%

3.41%

3.44%

Adjusted Financial Results

As of and for the

As of and for the

three months ended

three months ended

March 31, 2018

December 31, 2017

Adjustments to net income (loss):

Net income (loss)

$

8,464

$

(10,119)

Adjustments (non-GAAP)(1)

6,046

20,002

Adjusted net income (non-GAAP)

$

14,510

$

9,883

Adjustments to income (loss) per share:

Income (loss) per share

$

0.27

$

(0.37)

Adjustments (non-GAAP)(1)

0.20

0.73

Adjusted income per share – diluted (non-GAAP)(1)

$

0.47

$

0.36

Adjustments to return on average tangible assets:

Adjusted net income (non-GAAP)(1)

$

14,510

$

9,883

Add: impact of core deposit intangible amortization expense, after tax

496

752

Net income adjusted for impact of core deposit intangible amortization expense, after tax(1)

15,006

10,635

Average tangible assets (non-GAAP)

5,496,526

4,794,793

Adjusted return on average tangible assets (non-GAAP)

1.11%

0.88%

Adjustments to return on average tangible common equity:

Net income adjusted for impact of core deposit intangible amortization expense, after tax(1)

15,006

10,635

Average tangible common equity (non-GAAP)

523,117

501,865

Adjusted return on average tangible common equity (non-GAAP)

11.63%

8.41%

Adjustments to non-interest expense:

Non-interest expense

55,282

34,028

Adjustments (non-GAAP)(1)

7,598

2,492

Adjusted non-interest expense (non-GAAP)

47,684

31,536

Non-interest expense to average assets, adjusted (non-GAAP)

3.44%

2.58%

(1) Refer to table below for adjustments

Adjustments:

Non-interest expense adjustments:

Acquisition-related

$

7,598

$

2,001

Bonus accrual

491

Total pre-tax adjustments (non-GAAP)

7,598

2,492

Collective tax expense impact

(1,552)

(947)

Deferred tax asset re-measurement

18,457

Adjustments (non-GAAP)

$

6,046

$

20,002

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SOURCE National Bank Holdings Corporation

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