National Bank Holdings Corporation Announces Second Quarter 2017 Financial Results

GREENWOOD VILLAGE, Colo., July 20, 2017 /PRNewswire/ -- National Bank Holdings Corporation (NYSE: NBHC) reported net income of $9.2 million, or $0.33 per diluted share, for the second quarter of 2017, compared to net income of $8.3 million, or $0.30 per diluted share, for the first quarter of 2017 and net income of $4.5 million, or $0.15 per diluted share, for the second quarter of 2016. The return on average tangible assets was 0.87% for the second quarter of 2017 compared to 0.81% for the first quarter of 2017, and 0.45% for the second quarter of 2016. The return on average tangible equity was 8.21% for the second quarter of 2017 compared to 7.66% for the first quarter of 2017, and 3.98% for the second quarter of 2016.

In announcing these results, Chief Executive Officer Tim Laney shared, "We continue to be pleased with the progress of our organic growth for the quarter as revenues grew 23.8%, annualized, excluding the $2.9 million gain from the divestiture of four banking centers. My teammates delivered another quarter of strong loan growth, deposit growth, banking fee income growth and solid expense control. Credit costs are in line with our plan with good credit trends across our diverse portfolio."

Mr. Laney added, "We are also very pleased to have announced our planned merger with Peoples, bolstering our presence in our home markets of the Colorado Front Range and the greater Kansas City region while adding a best-in-class mortgage banking platform to our community bank. We expect the strongly accretive transaction to close in the fourth quarter of 2017, accelerating our trajectory toward our financial targets. I look forward to our associates coming together, continuing to build quality relationships with our clients and delivering greater returns for our shareholders."

Second Quarter 2017 Highlights
(All comparisons refer to the first quarter of 2017, except as noted)

• Total loans ended the quarter at $3.1 billion and increased $134.3 million, or 18.2% annualized, driven by $269.6 million in second quarter originations. Non 310-30 loans totaled $3.0 billion and increased $139.9 million, or 19.9% annualized.
• Fully taxable equivalent net interest income totaled $38.3 million and increased $2.3 million, due to growth in average earning assets and an 0.11% widening of the net interest margin to 3.55%.
• Non 310-30 provision for loan losses totaled $4.1 million, an increase of $2.3 million due to a net increase in specific reserves, partially offset by positive credit trends during the quarter. Annualized net recoveries in the non 310-30 portfolio were 0.01% of average non 310-30 loans.
• Total deposits averaged $3.9 billion and decreased $24.1 million due to the banking center divestitures in the quarter. Total average deposits increased $47.8 million, or 4.9% annualized, excluding the banking center divestitures.
• Non-interest income totaled $12.0 million and increased $3.3 million, driven primarily by a $2.9 million gain from banking center divestitures. Additionally, service charges and bank card fees grew $0.2 million and $0.3 million, respectively.
• Non-interest expense totaled $33.4 million and decreased $1.2 million due to better gain on sale of OREO, net of problem asset workout expense.
• Declared a $0.09 per share quarterly dividend on May 3, 2017, which represents a 28.6% increase from the previous quarterly dividend of $0.07 per share.
• At June 30, 2017, common book value per share was $20.33, while tangible common book value per share was $18.32 and $19.22 after consideration of the excess accretable yield value of $0.90 per share.
• Announced the acquisition of Peoples, Inc. which will add $865 million in assets, $483 million of loans held for investment and $719 million of deposits as of March 31, 2017, as well as a complementary franchise-centric retail mortgage business, which originates over $1.0 billion of mortgage loans per year. The transaction is expected to close in the fourth quarter of 2017.

Second Quarter 2017 Results
(All comparisons refer to the first quarter of 2017, except as noted)

Net Interest Income

Fully taxable equivalent net interest income totaled $38.3 million, and increased $2.3 million due to growth in average earning assets and a widening of the net interest margin. Average earning assets increased $73.7 million, or 7.0% annualized, as strong loan growth was partially offset by the continued investment portfolio runoff. The fully taxable equivalent net interest margin widened 0.11% from 3.44% to 3.55% due to a 0.14% increase in the yield on earning assets partially offset by a 0.04% increase in the cost of interest bearing liabilities. The earning asset yield benefited from higher yields on our variable rate loans, primarily driven by the short-term market rate increases, as well as an increase in the accretion income from the high-yielding 310-30 loans.

Loans

Total loans ended the quarter at $3.1 billion, increasing $134.3 million, or 18.2% annualized, driven by new loan originations of $269.6 million. Non 310-30 loans increased $139.9 million, or 19.9% annualized, led by total commercial loans increasing 33.7% annualized. Originated loans outstanding totaled $2.8 billion and increased $151.5 million, or 22.7% annualized. Loan originations totaled $1.0 billion during the past twelve months, resulting in originated loan outstandings growth of 18.1% over June 30, 2016.

Asset Quality and Provision for Loan Losses

Non 310-30 loans totaled $3.0 billion and represented 95.6% of total loans at June 30, 2017. These loans are comprised of originated loans and acquired loans not accounted for under 310-30. A provision for loan losses on the non 310-30 loans of $4.1 million was recorded during the quarter, increasing $2.3 million from the prior quarter. The provision for loan losses increased primarily due to a $2.1 million specific reserve on one commercial loan. Net recoveries within the non 310-30 portfolio totaled $0.1 million, or 0.01% annualized, improving from annualized net charge-offs of 0.02% in the prior quarter. Non-performing non 310-30 loans (comprised of non-accrual loans and non-accrual TDRs) were 1.10% of total non 310-30 loans, compared to 1.20% at March 31, 2017 and 1.46% at June 30, 2016. The non 310-30 allowance for loan losses was 1.18% of total non 310-30 loans, increasing from 1.09% at prior quarter end.

Acquired problem loans accounted for under 310-30 totaled $134.4 million at June 30, 2017 and decreased $5.6 million during the second quarter, an annualized decrease of 16.1%, reflecting continued successful workout efforts. The quarterly fair value re-measurement on the 310-30 loans resulted in a favorable net transfer of $2.3 million from non-accretable difference to accretable yield, which will be recognized over the lives of the 310-30 pools. This increased the life-to-date economic benefit of the accretable yield transfers net of impairments on 310-30 loans to $221.4 million.

Deposits

Total deposits averaged $3.9 billion and increased $47.8 million, or 4.9% annualized, adjusting for the banking center divestitures during the period. Adjusting for the banking center divestitures, average transaction deposits (defined as total deposits less time deposits) increased $44.3 million, or 6.5% annualized, driven by demand deposit growth of $42.3 million, or 20.6% annualized. Time deposits averaged $1.1 billion, which was consistent with prior quarter after adjusting for the banking center divestiture. The cost of deposits was 0.40%, increasing from 0.39% in the prior quarter.

Non-Interest Income

Non-interest income totaled $12.0 million, increasing $3.3 million, driven primarily by a $2.9 million gain from banking center divestitures. Service charges increased $0.2 million due to seasonality as well as growth in our treasury management fees. Bank card fees grew $0.3 million, primarily due to higher merchant fee income and interchange revenue on stronger transaction volumes. Gain on sale of mortgages increased $0.1 million and was offset by lower other non-interest income items. 

Non-Interest Expense

Non-interest expense totaled $33.4 million and decreased $1.2 million primarily due to higher gain on sale of OREO, net of problem asset workout expense. Salaries and benefits decreased $0.5 million primarily due to timing of associate benefit costs. Occupancy and equipment decreased $0.2 million due to lower utilities and maintenance expense. Professional fees increased $0.9 million primarily due to $0.3 million of acquisition-related expenses and the timing of projects.

Income tax expense totaled $2.2 million, including a benefit of $0.5 million due to tax benefits from stock compensation activity. Without this $0.5 million benefit, tax expense would have been $2.7 million, an effective tax rate of 23.9%. 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. Shareholders' equity totaled $544.5 million at June 30, 2017 and increased $6.9 million from the prior quarter end. The increase in equity was due to net income, partially offset by dividends in the period.

Common book value per share was $20.33 at June 30, 2017 and increased $0.21 from the prior quarter end. Tangible common book value per share was $18.32 at June 30, 2017, compared to $18.05 at the prior quarter end, as the increase from net income was partially offset by dividends. The leverage ratio at June 30, 2017 for the consolidated company and the Bank was 10.25% and 8.39%, 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 June 30, 2017 accretable yield balance on the 310-30 loans of $55.7 million would add $1.27 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%. This would add $0.90 after-tax to our tangible book value per share as of June 30, 2017, resulting in a tangible common book value per share of $19.22.

Year-Over-Year Review
(All comparisons refer to the first six months of 2016, except as noted)

Net income for first six months of 2017 was $17.5 million, or $0.63 per diluted share, compared to net income of $4.8 million, or $0.16 per diluted share for the first six months of 2016. Fully taxable equivalent net interest income totaled $74.3 million and decreased $0.5 million due to lower average earning assets, partially offset by a 0.02% increase in the fully taxable equivalent net interest margin from 3.47% to 3.49%. The lower earning assets are due to the continued paydowns of higher-yielding 310-30 loans and the investment portfolio runoff, partially offset by the strong loan growth between the two periods. The 0.02% widening of the fully taxable equivalent net interest margin is due to a 0.09% increase in the yield on earning assets, benefiting from higher yields on our variable rate loans, primarily from the short-term market rate increases, and partially offset by lower levels of high-yielding 310-30 loans. These increases were partially offset by the 0.08% increase in the cost of interest bearing liabilities.

Loan balances at June 30, 2017 totaled $3.1 billion and increased $349.4 million, or 12.8%, on the strength of $1.0 billion in loan originations between the two periods. Non 310-30 loans increased $384.3 million, or 15.0%, led by total commercial loans increasing 20.5%. Originated loans outstanding totaled $2.8 billion and increased $434.0 million, or 18.1%. The acquired 310-30 loan portfolio declined $34.9 million, or 20.6%, as a result of the continued successful workout efforts that have been made on exiting acquired problem loans.

Total deposits averaged $3.9 billion during the first six months of 2017, increasing $27.8 million from the prior year, adjusting for the banking center divestitures. Average transaction deposits (defined as total deposits less time deposits) totaled $2.7 billion and increased $9.1 million. Excluding the banking center divestitures, average transaction deposits increased $26.5 million, driven by demand deposit growth of $38.2 million, or 4.8%. Time deposits averaged $1.2 billion, decreasing $20.0 million, or 1.7%. Client repurchase agreements averaged $81.7 million, decreasing $28.6 million due to temporary client funds from one client in the prior year. The mix of transaction deposits to total deposits improved to 70.8% at June 30, 2017 from 69.1% in the prior year. Additionally, the cost of deposits was 0.40%, increasing from 0.35% in the prior year primarily due to higher cost of time deposits.

Provision for loan loss expense on non 310-30 loans was $5.9 million during the first six months of 2017, compared to $17.9 million, a decrease of $12.0 million driven by an energy sector provision of $15.1 million during the first six months of 2016. The non 310-30 allowance for loan losses ended the quarter at 1.18% of total non 310-30 loans compared to 1.55% in the second quarter of 2016. Annualized net charge-offs on non 310-30 loans totaled 0.00%, compared to 0.34% in the first six months of 2016, or 0.06% excluding the energy portfolio.

Non-interest income totaled $20.7 million during the first six months of 2017, representing an increase of $2.2 million, driven by a $2.9 million gain from banking center divestitures during the second quarter of 2017 and a $1.1 million increase in swap related income due to interest rate movements. In addition, the prior year included a $1.8 million gain on sale of a building. Service charges and bank card fees increased a combined $0.4 million, or 3.1% due to higher treasury management fees and higher interchange activity. Gain on sale of mortgages decreased $0.4 million due to lower volumes.

Non-interest expense totaled $68.0 million during the first six months of 2017, representing a decrease of $0.2 million. Occupancy and equipment expenses were $1.1 million lower due to lower depreciation expense. Professional fees increased $0.3 million, due to acquisition-related expenses. Other non-interest expense increased $0.5 million, due to various expense categories. Problem asset workout expenses and gain on sale of OREO increased a combined $0.1 million.

Income tax expense totaled $0.9 million, including a benefit of $3.4 million due to tax benefits from stock compensation activity. Without this $3.4 million benefit, tax expense would have been $4.3 million, an effective tax rate of 23.5%. 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, July 21, 2017. Interested parties may listen to this call by dialing (877) 272-6762 (United States) / (615) 800-6832 (International) using the Conference ID of 92242776 and asking for the National Bank Holdings Corporation Second Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately two hours after the call's completion through August 4, 2017, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 92242776. 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," 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 customer service and committed to shareholder results. National Bank Holdings Corporation operates a network of 86 banking centers located in Colorado, the greater Kansas City region and Texas. Through the Company's subsidiary, NBH Bank, it operates under the following brand names: Bank Midwest in Kansas and Missouri, Community Banks of Colorado in Colorado and Hillcrest Bank in Texas. 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

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