National Bank Holdings Corporation Announces Fourth Quarter and Record Full Year 2018 Financial Results

GREENWOOD VILLAGE, Colo., Jan. 24, 2019 /PRNewswire/ -- National Bank Holdings Corporation (NYSE: NBHC) reported: 

In announcing these results, Chief Executive Officer Tim Laney shared, "We delivered record results on multiple fronts during 2018 and I am pleased to announce record full-year earnings of $2.16 per share after adjusting for acquisition costs. These earnings were the result of our intense focus on developing full client relationships. Our team delivered organic loan growth of 11.7% while maintaining excellent credit quality metrics. This loan growth was fueled by record fourth quarter loan originations of $364.4 million, topping off full-year loan originations of $1.2 billion. We continue to build an attractive book of relationship-based deposits, evidenced by a 2018 deposit beta of just 8%. My teammates and I also continued to focus on expense management. Adjusted for one-time acquisition expenses, full year expenses were $181.4 million, well below our initial 2018 year guidance of $189 million to $192 million."

Mr. Laney added, "Our recently announced expansion into the Utah marketplace demonstrates our commitment to investing in and growing our business. My teammates are committed to building high-quality client relationships that will benefit our communities and continue to translate into positive shareholder return. Since 2012, we have repurchased 51% of our Company's stock, and since our last stock repurchase in October 2016, our stock has outperformed the KBW Regional Banking Index by 29.6% and the Russell 2000 Index by 23.8%."

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

Net Interest Income
Fully taxable equivalent net interest income totaled $51.8 million and increased $0.9 million, or 7.2% annualized. Fully taxable equivalent net interest margin was 3.99%, widening 0.03% from the prior quarter, driven by 0.11% higher earning asset yields and partially offset by higher cost of funds. In addition, net interest income included $0.6 million in accelerated accretion benefit from early payoffs of 310-30 loans, a benefit of 0.04% to the fully taxable equivalent net interest margin, and compares to a third quarter accelerated accretion benefit of $0.4 million, or a 0.03% benefit to the fully taxable equivalent net interest margin.

Loans
Originated loans and acquired loans not accounted for under 310-30 ("acquired loans") exceeded $4.0 billion for the first time in the Company's history at December 31, 2018, increasing $191.0 million, or 19.8% annualized, led by originated and acquired commercial loan growth of $204.3 million, or 33.5% annualized. Total fourth quarter loan originations were a record $364.4 million, led by commercial loan originations of $269.7 million, which increased 43.3% compared to the prior quarter. The fully taxable equivalent yield on originated loans outstanding increased 0.19% during the fourth quarter to 4.69% 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 $2.5 million was recorded during the quarter to support originated loan growth. Annualized net charge-offs on originated and acquired loans totaled 0.06%, compared to annualized net recoveries of 0.08% in the prior quarter and net charge-offs of 0.02% for the year. Non-performing originated and acquired loans (comprised of non-accrual loans and non-accrual TDRs) were 0.61% of total originated and acquired loans, compared to 0.64% at September 30, 2018. The originated and acquired allowance for loan losses was 0.88%, consistent with the prior quarter.

Acquired problem loans accounted for under 310-30 totaled $70.9 million at December 31, 2018 and decreased $4.0 million from the third quarter. The life-to-date economic benefit of the accretable yield transfers, net of impairments, on 310-30 loans totals $292.8 million. Other real estate owned totaled $10.6 million at December 31, 2018 and decreased $24.5 million from September 30, 2018, or 69.8%. This decrease was driven by the sale of one large property that was previously an acquired 310-30 loan, which was transferred to OREO during the second quarter of 2018, as part of the asset resolution process.

Deposits
Average transaction deposits (defined as total deposits less time deposits) increased $11.4 million, or 1.3% annualized, driven by an increase in average non-interest bearing demand deposits of $7.6 million, or 2.8% annualized. Average total deposits decreased $15.8 million to $4.6 billion, or 1.4% annualized. The cost of deposits was 0.52%, an increase of 0.05% from the prior quarter and 0.08% over the fourth quarter last year.

Non-Interest Income
Non-interest income totaled $15.3 million and decreased $2.7 million primarily due to lower mortgage banking income of $2.4 million, driven by lower levels of 1-4 family mortgage loans sold in the secondary market. Service charges and bank card fees increased a combined $0.1 million and were offset by $0.4 million lower other non-interest income, driven by fair value losses on insurance policies.

Non-Interest Expense
Non-interest expense totaled $42.9 million and decreased $1.6 million from the prior quarter, primarily driven by $1.1 million lower salaries and benefits due to lower mortgage commissions directly related to the decline in mortgage loan volume and lower payroll taxes, $0.5 million lower occupancy and equipment expenses and $0.2 million lower intangible asset amortization.

Capital
Capital ratios continue to be strong and in excess of federal bank regulatory agency "well capitalized" thresholds. The leverage ratio at December 31, 2018 for the consolidated company and NBH Bank was 10.51% and 9.04%, respectively. Shareholders' equity totaled $695.0 million at December 31, 2018 and increased $21.9 million from the prior quarter end. The increase in shareholders' equity was due to higher retained earnings and lower accumulated other comprehensive loss, driven by the fair market value fluctuations of the available-for-sale investment securities portfolio.

Common book value per share increased $0.71 to $22.59 at December 31, 2018. The tangible common book value per share was $18.77 at December 31, 2018 and increased $0.73 due to the increase in retained earnings and decrease in accumulated other comprehensive loss, partially offset by dividends paid. Excluding accumulated other comprehensive loss, the tangible book value increased $0.43 to $19.13.

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 December 31, 2018 accretable yield balance on the 310-30 loans of $35.9 million would add $0.89 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 $0.63 after-tax to our tangible book value per share as of December 31, 2018, resulting in a tangible common book value per share of $19.40. 

Year-Over-Year Review
(All comparisons refer to the full year 2017, except as noted)

Fully taxable equivalent net interest income totaled $201.9 million in 2018 and increased $49.8 million, or 32.7%. Average earning assets increased $778.4 million, or 17.9%, driven by originated loan growth and the Peoples acquisition. The fully taxable equivalent net interest margin widened 0.43% to 3.93% as the yield on earning assets increased 0.49%, led by a 0.44% increase in the originated loan portfolio yields due to short-term rate increases, partially offset by an increase in the cost of deposits of 0.04% from 0.41% to 0.45%.

Loan balances at December 31, 2018 totaled $4.1 billion and increased $913.4 million, or 28.7%, while originated and acquired loans outstanding totaled $4.0 billion and increased $963.1 million, or 31.5%, driven by Peoples acquired loans and an increase in originated loans of $615.6 million, or 20.8%. New loan originations for the year totaled a record $1.2 billion, led by commercial loan originations of $909.6 million. The 310-30 loan portfolio declined $49.7 million, or 41.2%, to $70.9 million at December 31, 2018.

Total deposits averaged $4.6 billion during 2018, increasing $717.7 million, or 18.3%. 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 76.2% from 71.9% the prior year.

Provision for loan loss expense on originated and acquired loans was $5.0 million during 2018, compared to $13.1 million last year. Net charge-offs on originated and acquired loans totaled 0.02%, compared to 0.38% last year. Non-performing originated and acquired loans decreased to 0.61% from 0.69% the prior year. The originated and acquired allowance for loan losses totaled 0.88% of total originated and acquired loans compared to 1.02% at December 31, 2017 and decreased as the acquired loans from the Peoples acquisition were recorded at fair value.

Non-interest income was $70.8 million during 2018, representing an increase of $31.6 million, primarily due to the Peoples acquisition. Service charges and bank card interchange fees grew $5.9 million due to organic growth and the addition of the Peoples' client base. Mortgage banking income increased $28.0 million, primarily due to increased gain on sale of mortgages from the acquisition of the Peoples mortgage business. OREO related income increased $0.5 million compared to the prior year. Other non-interest income decreased $2.8 million, primarily driven by a gain on the sale of banking centers during 2017.

Non-interest expense totaled $189.3 million during 2018, representing an increase of $52.7 million, primarily driven by the Peoples acquisition. Included in non-interest expense is $8.0 million of acquisition costs, or $6.3 million after-tax.

Income tax expense totaled $12.2 million during 2018 compared to $21.3 million during 2017, a decrease of $9.1 million. Included in income tax expense was $1.3 million and $4.2 million of tax benefits from stock compensation activity during 2018 and 2017, respectively. In addition, income tax expense during 2017 included an $18.5 million non-cash, one-time charge related to the deferred tax asset re-measurement, due to the Tax Cuts and Jobs Act (the "Act"). Adjusting for the above mentioned stock compensation activity and deferred tax assets re-measurement, the effective tax rate for 2018 would be 18.3% compared to an adjusted 2017 rate of 19.7%. The effective tax rate is lower compared to the prior year primarily due to the 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 Friday, January 25, 2019. Interested parties may listen to this call by dialing (877) 272-6762 / (615) 800-6832 (International) using the Conference ID of 1148965 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 8, 2019, by dialing (855) 859-2056 (United States) / (404) 537-3406 (International) using the Conference ID of 1148965. 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 common equity," "tangible common book value," "tangible common book value per share," "tangible common equity," "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 104 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: Bank Midwest in Kansas and Missouri, Community Banks of Colorado in Colorado and Hillcrest Bank in New Mexico, Texas and Utah. 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; 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.