National Bank Holdings Corporation Announces Second Quarter 2021 Financial Results

Greenwood Village, Colorado, UNITED STATES


DENVER, July 26, 2021 (GLOBE NEWSWIRE) -- National Bank Holdings Corporation (NYSE: NBHC) reported:

         
 For the quarter
 2Q21 1Q21 2Q20
Net income ($000's)$ 24,200  $26,812  $17,705 
Earnings per share - diluted$ 0.77  $0.86  $0.57 
Return on average tangible assets(1) 1.41%  1.65%  1.16%
Return on average tangible common equity(1) 13.41%  15.20%  10.98%

                                                      

   
(1) Ratios are annualized. See non-GAAP reconciliations below.
   

In announcing these results, Chief Executive Officer Tim Laney shared, “We built strong momentum during the second quarter, delivering solid loan growth and earnings of $0.77 per diluted share. Our resumed focus on new business development drove annualized loan growth of 8.4%, net of PPP loans, during the second quarter. We maintained our proven track record of exceptional credit quality with year-to-date annualized net charge-offs of just four basis points. We realized meaningful new relationship growth during the quarter and brought our cost of deposits down another four basis points.”

Mr. Laney added, “We are pleased with the economic recovery in our markets and are committed to delivering additional growth as we look to the second half of 2021. We are inspired by our clients’ fortitude during this economic recovery period, and we are well-positioned with a strong Common Equity Tier 1 ratio of 15.31% to provide our clients the tools they need to succeed.”

Second Quarter 2021 Results
(All comparisons refer to the first quarter of 2021, except as noted)

Net income totaled $24.2 million, or $0.77 per diluted share, during the second quarter of 2021, compared to $26.8 million, or $0.86 per diluted share during the first quarter. The return on average tangible assets was 1.41%, compared to 1.65%, and the return on average tangible common equity was 13.41%, compared to 15.20% last quarter.

Net Interest Income
Fully taxable equivalent net interest income totaled $46.1 million during the second quarter of 2021, a decrease of $0.3 million compared to the first quarter. Excluding PPP loan fee income of $2.0 million, which was $0.6 million lower than last quarter, net interest income increased $0.2 million. As of June 30, 2021, the remaining unamortized PPP loan fees totaled $5.0 million. The fully taxable equivalent net interest margin narrowed 20 basis points to 2.82% driven by higher levels of excess cash liquidity and lower PPP loan forgiveness income during the second quarter. The yield on earning assets decreased 24 basis points, and our cost of deposits decreased four basis points to 0.24%.

Loans
Total loans ended the quarter at $4.3 billion consistent with the prior quarter as the second quarter’s strong loan origination activity was offset by PPP loan balance declines. Excluding PPP loans, total loans increased $85.6 million or 8.4% annualized, led by commercial loan growth of $93.3 million, or 13.6% annualized. Second quarter loan originations totaled $362.1 million, led by commercial loan originations of $247.3 million. Excluding PPP loans, the second quarter’s loan originations more than doubled the first quarter’s loan origination level increasing $189.0 million over the first quarter or 109.2%.

Asset Quality and Provision for Loan Losses
The Company released $5.9 million of provision during the quarter, including a release of $0.6 of unfunded loan commitment reserves, driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. Annualized net charge-offs totaled 0.07% of total loans, compared to 0.01% in the prior quarter. Non-performing loans (comprised of non-accrual loans and non-accrual TDRs) improved six basis points to 0.32% of total loans, and non-performing assets improved seven basis points to 0.44% of total loans and OREO. The allowance for credit losses as a percentage of total loans totaled 1.14% at June 30, 2021. Excluding PPP loans, non-performing loans totaled 0.33% of total loans, non-performing assets totaled 0.46% of total loans and OREO, and the allowance for credit losses as a percentage of total loans totaled 1.18% at June 30, 2021.

Deposits
Average total deposits increased $317.3 million or 22.0% annualized, to $6.1 billion for the second quarter 2021. Average transaction deposits (defined as total deposits less time deposits) increased $347.1 million or 28.9% annualized. The mix of transaction deposits to total deposits improved 79 basis points to 85.0% at June 30, 2021. The loan to deposit ratio totaled 69.8% at June 30, 2021, compared to 71.7% at March 31, 2021. The cost of deposits decreased four basis points from the prior quarter to 0.24%.

Non-Interest Income
Non-interest income totaled $25.3 million, a decrease of $8.1 million, driven by lower mortgage banking income. Service charges and bank card fees increased a combined $0.6 million during the quarter. Included in other non-interest income were $0.8 million and $1.6 million of gains on fixed assets sales from banking center consolidations during the second and first quarters, respectively.

Non-Interest Expense
Non-interest expense totaled $46.3 million, a decrease of $3.3 million primarily due to lower mortgage banking related compensation and lower banking center consolidation-related expense. Occupancy and equipment decreased $0.4 million largely due to efficiencies gained from the completion of the previously announced banking center consolidations. Banking center consolidation-related expense totaled $0.3 million and $1.3 million during the second and first quarters, respectively. The fully taxable equivalent efficiency ratio totaled 64.5% at June 30, 2021, compared to 61.8% at March 31, 2021.

Income tax expense totaled $5.4 million during the second quarter, compared to $5.7 million. Included in income tax expense was $0.2 million of tax benefit from stock compensation activity during the second and first quarters 2021. Adjusting for stock compensation activity, the effective tax rate for the second quarter 2021 was 19.1%, compared to 18.0% during the prior quarter. 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. The Tier 1 leverage ratios at June 30, 2021 for the consolidated company and NBH Bank was 10.57% and 9.00%, respectively. Shareholders’ equity totaled $851.9 million at June 30, 2021 and increased $19.9 million from the prior quarter due to higher retained earnings and accumulated other comprehensive income.

Common book value per share increased $0.57 to $27.66 at June 30, 2021. The quarter’s earnings and higher accumulated other comprehensive income, net of dividends paid, increased the tangible common book value per share by $0.60 to $24.01 at June 30, 2021. Excluding accumulated other comprehensive income, the tangible book value per share increased $0.55 to $23.95 at June 30, 2021.

Recent Events
The COVID-19 pandemic has caused substantial disruption to the communities we serve and has changed the way we live and work.  We remain committed to ensuring our associates, clients and communities continue to receive the support they need. Our banking centers are fully operational, and we continue to leverage our digital banking platform with our clients. Our teams have been working diligently to support our clients who are experiencing financial hardship due to COVID-19 through participation in the SBA’s Paycheck Protection Program, including assistance with PPP loan forgiveness applications, and loan modifications, as needed. The full extent to which COVID-19 impacts our business and financial results will depend on future developments that are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of the virus and the actions to contain its impact, the impacts of new variants of the virus, and the timing, distribution, efficacy and public acceptance of vaccines and other treatment for COVID-19.

Year-Over-Year Review
(All comparisons refer to the first six months of 2020, except as noted)

Net income totaled $51.0 million, or $1.63 per diluted share, an increase of $17.5 million, or 52.1% over the first six months of 2020. The return on average tangible assets increased 39 basis points to 1.53%, and the return on average tangible common equity increased 391 basis points to 14.29%.

Fully taxable equivalent net interest income totaled $92.6 million, decreasing $7.6 million or 7.6%, as a result of interest rate actions taken by the Federal Reserve during 2020 and lower non-PPP loan balances. Average earning assets increased $838.1 million, or 15.1%, primarily driven by increases in average interest bearing cash balances of $734.8 million and average investment securities of $353.3 million. The fully taxable equivalent net interest margin narrowed 70 basis points to 2.92% due to lower earning asset yields. The yield on earning assets decreased 100 basis points, driven by the remix of assets into lower-yielding cash balances and an 18 basis point decrease in the originated loan portfolio yields. The cost of deposits decreased 29 basis points to 0.26%.

Loans outstanding totaled $4.3 billion, decreasing $481.6 million or 10.1%, due to loan payoffs including lower PPP loan balances of $219.0 million as a result of PPP loan forgiveness. New loan originations over the trailing 12 months totaled $1.1 billion, led by commercial loan originations of $649.3 million including PPP loan originations of $121.3 million.

Average total deposits increased $990.3 million, or 20.0%, to $5.9 billion for the first six months of 2021. Average non-interest bearing demand deposits increased $980.9 million or 76.2%, and average transaction deposits increased $1.1 billion, or 28.0%. The mix of transaction deposits to total deposits increased by 441 basis points to 85.0% at June 30, 2021. The mix of non-interest bearing demand deposits to total deposits improved to 39.6% from 27.8% at June 30, 2020.

The Company recorded $9.4 million of net provision release during the first six months of 2021, compared to $16.4 million of net provision expense during the same period in 2020. The provision release was driven by strong asset quality and an improved outlook in the CECL model’s underlying economic forecast. Net charge-offs totaled 0.04% of total loans during the first six months of 2021 and 2020. Non-performing loans to total loans improved 10 basis points to 0.32%, compared to 0.42% at June 30, 2020. The allowance for credit losses totaled 1.14% of total loans, compared to 1.26% at June 30, 2020.

Non-interest income totaled $58.6 million, representing a decrease of $3.7 million or 6.0%. Mortgage banking income decreased $7.9 million due to lower refinance activity during 2021. Service charges and bank card fees increased a combined $1.3 million. Other non-interest income increased $2.9 million due to $2.4 million of gains on fixed assets sales from the banking center consolidations during the first six months of 2021.

Non-interest expense totaled $96.0 million, a decrease of $6.4 million or 6.3% driven by lower mortgage-related compensation as well as the Company’s strategic efforts to improve operating efficiency. Salaries and benefits decreased $4.7 million largely due to lower mortgage banking related compensation. Occupancy and equipment decreased $1.3 million largely due to efficiencies gained from the completion of the previously announced banking center consolidations. Problem asset workout expenses decreased $0.5 million.

Income tax expense totaled $11.1 million, an increase of $3.5 million, driven by 2021’s higher pre-tax income. Included in income tax expense was $0.4 million of tax benefit and $0.1 million of tax expense from stock compensation activity during the first six months of 2021 and 2020, respectively. Adjusting for stock compensation activity, the effective tax rate for the first six months of 2021 was 18.5%, compared to 18.3% in the prior period.

Conference Call
Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Tuesday, July 27, 2021. Interested parties may listen to this call by dialing (888) 394-8218 (United States) / 0800 358 6377 (United Kingdom) using the confirmation code of 8424776 and asking for the NBHC Q2 2021 Earnings Call. A telephonic replay of the call will be available beginning approximately four hours after the call’s completion through August 1, 2021, by dialing (888) 203-1112 using the confirmation code of 8424776. The earnings release and an on-line replay of the call will also be available on the Company’s website at www.nationalbankholdings.com by visiting the investor relations area.

About Non-GAAP Financial Measures
Certain of the financial measures and ratios we present, including “tangible assets,” “return on average tangible assets,” “tangible common equity,” “return on average tangible common equity,” “tangible common book value per share,” “tangible common book value, excluding accumulated other comprehensive loss, net of tax,” “tangible common book value per share, excluding accumulated other comprehensive loss, net of tax,” “tangible common equity to tangible assets,” 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 stakeholder results. Through its bank subsidiary, NBH Bank, National Bank Holdings Corporation operates a network of 82 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, Utah and New Mexico. Its comprehensive residential mortgage banking group primarily serves the bank’s core footprint. NBH Bank operates under the following brand names: Community Banks of Colorado and Community Banks Mortgage, a division of NBH Bank, in Colorado, Bank Midwest and Bank Midwest Mortgage in Kansas and Missouri, and Hillcrest Bank and Hillcrest Bank Mortgage in Texas, Utah and New Mexico. Additional information about National Bank Holdings Corporation can be found at www.nationalbankholdings.com.

For more information visit: cobnks.com, bankmw.com, hillcrestbank.com or nbhbank.com. Or, follow us on any of our social media sites:
Community Banks of Colorado: facebook.com/cobnks, twitter.com/cobnks, instagram.com/cobnks;
Bank Midwest: facebook.com/bankmw, twitter.com/bank_mw, instagram.com/bankmw;
Hillcrest Bank: facebook.com/hillcrestbank, twitter.com/hillcrest_bank;
NBH Bank: twitter.com/nbhbank;
or connect with any of our brands on LinkedIn.

Forward-Looking Statements

This press release contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements contain words such as “anticipate,” “believe,” “can,” “would,” “should,” “could,” “may,” “predict,” “seek,” “potential,” “will,” “estimate,” “target,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “intend” or similar expressions that relate to the Company’s strategy, plans or intentions. Forward-looking statements involve certain important risks, uncertainties and other factors, any of which could cause actual results to differ materially from those in such statements. Such factors include, without limitation, the “Risk Factors” referenced in our most recent Form 10-K filed with the Securities and Exchange Commission (SEC), other risks and uncertainties listed from time to time in our reports and documents filed with the SEC, and the following factors: ability to execute our business strategy; business and economic conditions; effects of any potential government shutdowns; 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; with respect to our mortgage business, the inability to negotiate fees with investors for the purchase or our loans or our obligation to indemnify purchasers or repurchase related loans; 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 credit reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; widespread natural and other disasters, pandemics, dislocations, political instability, acts of war or terrorist activities, cyberattacks or international hostilities; adverse effects due to the novel Coronavirus Disease 2019 (COVID-19) on the Company and its clients, counterparties, employees, and third-party service providers, and the adverse impacts on our business, financial position, results of operations, and prospects; impact of reputational risk; and success at managing the risks involved in the foregoing items. The Company can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking statements are made as of the date of this press release, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

Contact:
Analysts/Institutional Investors: Aldis Birkans, Chief Financial Officer, (720) 554-6640, ir@nationalbankholdings.com
Media: Jody Soper, Chief Marketing Officer, (303) 784-5925, Jody.Soper@nbhbank.com

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  For the six months ended
 June 30,     March 31,     June 30,     June 30,     June 30, 
 2021  2021  2020 2021  2020
Total interest and dividend income$ 48,450  $49,213  $53,744 $ 97,663  $112,412
Total interest expense  3,582   3,992   6,416   7,574   14,737
Net interest income  44,868   45,221   47,328   90,089   97,675
Taxable equivalent adjustment  1,279   1,268   1,301   2,547   2,568
Net interest income FTE(1)  46,147   46,489   48,629   92,636   100,243
Provision (release) expense for loan losses  (5,850)  (3,575)  10,271   (9,425)  16,430
Net interest income after provision for loan losses FTE(1)  51,997   50,064   38,358   102,061   83,813
Non-interest income:              
Service charges  3,568   3,474   3,094   7,042   7,220
Bank card fees  4,614   4,073   3,654   8,687   7,167
Mortgage banking income  13,979   22,379   30,630   36,358   44,303
Other non-interest income  3,105   3,400   1,459   6,505   3,651
OREO-related income    35      35   28
Total non-interest income  25,266   33,361   38,837   58,627   62,369
Non-interest expense:              
Salaries and benefits  31,439   33,523   36,457   64,962   69,637
Occupancy and equipment  6,131   6,550   7,078   12,681   13,976
Professional fees  649   742   759   1,391   1,368
Other non-interest expense  7,019   6,853   6,778   13,872   13,779
Problem asset workout  294   438   629   732   1,277
Loss (gain) on sale of OREO, net  221   (29)  55   192   94
Core deposit intangible asset amortization  296   296   296   592   592
Banking center consolidation-related expense  294   1,295   1,708   1,589   1,708
Total non-interest expense  46,343   49,668   53,760   96,011   102,431
               
Income before income taxes FTE(1)  30,920   33,757   23,435   64,677   43,751
Taxable equivalent adjustment  1,279   1,268   1,301   2,547   2,568
Income before income taxes  29,641   32,489   22,134   62,130   41,183
Income tax expense  5,441   5,677   4,429   11,118   7,654
Net income$ 24,200  $26,812  $17,705 $ 51,012  $33,529
Earnings per share - basic$ 0.78  $0.87  $0.57 $ 1.65  $1.08
Earnings per share - diluted  0.77   0.86   0.57   1.63   1.08

                                                      

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

NATIONAL BANK HOLDINGS CORPORATION
Consolidated Statements of Financial Condition (Unaudited)
(Dollars in thousands, except share and per share data)

            
 June 30, 2021 March 31, 2021    December 31, 2020 June 30, 2020
ASSETS           
Cash and cash equivalents$ 1,004,493  $822,518  $605,565  $142,385 
Investment securities available-for-sale  605,798   666,915   661,955   610,735 
Investment securities held-to-maturity  687,635   520,823   376,615   215,183 
Non-marketable securities  14,741   15,493   16,493   30,188 
Loans  4,300,757   4,303,246   4,353,726   4,782,383 
Allowance for credit losses  (49,030)  (55,057)  (59,777)  (60,465)
Loans, net  4,251,727   4,248,189   4,293,949   4,721,918 
Loans held for sale  134,805   228,888   247,813   204,856 
Other real estate owned  5,124   5,669   4,730   6,491 
Premises and equipment, net  95,019   101,830   106,982   110,019 
Goodwill  115,027   115,027   115,027   115,027 
Intangible assets, net  22,360   20,205   17,928   12,175 
Other assets  199,399   203,944   212,893   216,454 
Total assets$ 7,136,128  $6,949,501  $6,659,950  $6,385,431 
LIABILITIES AND SHAREHOLDERS' EQUITY           
Liabilities:           
Non-interest bearing demand deposits$ 2,437,328  $2,295,704  $2,111,045  $1,502,948 
Interest bearing demand deposits  555,865   557,850   514,286   955,951 
Savings and money market  2,240,359   2,199,420   2,064,769   1,903,427 
Total transaction deposits  5,233,552   5,052,974   4,690,100   4,362,326 
Time deposits  924,501   948,676   986,132   1,051,563 
Total deposits  6,158,053   6,001,650   5,676,232   5,413,889 
Securities sold under agreements to repurchase  22,957   19,405   22,897   24,504 
Federal Home Loan Bank advances          15,000 
Other liabilities  103,252   96,456   140,130   155,071 
Total liabilities  6,284,262   6,117,511   5,839,259   5,608,464 
Shareholders' equity:           
Common stock  515   515   515   515 
Additional paid in capital  1,011,200   1,010,798   1,011,362   1,008,773 
Retained earnings  260,821   243,446   223,175   180,537 
Treasury stock  (422,365)  (423,254)  (424,127)  (425,053)
Accumulated other comprehensive income, net of tax  1,695   485   9,766   12,195 
Total shareholders' equity  851,866   831,990   820,691   776,967 
Total liabilities and shareholders' equity$ 7,136,128  $6,949,501  $6,659,950  $6,385,431 
SHARE DATA           
Average basic shares outstanding  30,947,206   30,828,262   30,784,896   30,731,758 
Average diluted shares outstanding  31,226,351   31,143,322   31,032,648   30,857,606 
Ending shares outstanding  30,800,985   30,715,790   30,634,291   30,569,011 
Common book value per share$ 27.66  $27.09  $26.79  $25.42 
Tangible common book value per share(1) (non-GAAP)  24.01   23.41   23.09   21.67 
Tangible common book value per share, excluding accumulated other comprehensive income(1) (non-GAAP)  23.95   23.40   22.77   21.27 
CAPITAL RATIOS           
Average equity to average assets 11.95%  12.36%  12.27%  12.21%
Tangible common equity to tangible assets(1) 10.53%  10.52%  10.80%  10.56%
Tier 1 leverage ratio 10.57%  10.80%  10.70%  10.53%
Common equity tier 1 risk-based capital ratio 15.31%  15.23%  14.70%  13.21%
Tier 1 risk-based capital ratio 15.31%  15.23%  14.70%  13.21%
Total risk-based capital ratio 16.27%  16.30%  15.83%  14.26%

                                                      

   
(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

             
     June 30, 2021   June 30, 2021
     vs. March 31, 2021   vs. June 30, 2020
 June 30, 2021 March 31, 2021 % Change June 30, 2020 % Change
Originated:            
Commercial:            
Commercial and industrial$ 1,253,745 $1,177,764 6.5% $1,360,679 (7.9)%
Municipal and non-profit  860,740  850,663 1.2%  912,287 (5.7)%
Owner-occupied commercial real estate  479,286  476,625 0.6%  455,846 5.1%
Food and agribusiness  195,095  178,419 9.3%  213,789 (8.7)%
PPP loans(1)  129,643  217,697 (40.4)%  348,689 (62.8)%
Total commercial  2,918,509  2,901,168 0.6%  3,291,290 (11.3)%
Commercial real estate non-owner occupied  570,252  553,184 3.1%  540,412 5.5%
Residential real estate  600,124  604,001 (0.6)%  631,032 (4.9)%
Consumer  17,942  17,671 1.5%  20,370 (11.9)%
Total originated  4,106,827  4,076,024 0.8%  4,483,104 (8.4)%
             
Acquired:            
Commercial:            
Commercial and industrial  18,710  20,405 (8.3)%  27,461 (31.9)%
Municipal and non-profit  359  370 (3.0)%  593 (39.5)%
Owner-occupied commercial real estate  40,435  50,607 (20.1)%  65,052 (37.8)%
Food and agribusiness  3,913  4,129 (5.2)%  6,237 (37.3)%
Total commercial  63,417  75,511 (16.0)%  99,343 (36.2)%
Commercial real estate non-owner occupied  67,368  81,176 (17.0)%  101,412 (33.6)%
Residential real estate  62,805  70,141 (10.5)%  97,982 (35.9)%
Consumer  340  394 (13.7)%  542 (37.3)%
Total acquired  193,930  227,222 (14.7)%  299,279 (35.2)%
Total loans$ 4,300,757 $4,303,246 (0.1)% $4,782,383 (10.1)%

                                                      

   
(1)    PPP loan balances are net of fees and costs and include principal totaling $134,632, $223,867 and $358,798 as of June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

Originations(1)

               
 Second quarter First quarter Fourth quarter Third quarter Second quarter
 2021 2021  2020 2020 2020 
Commercial:              
Commercial and industrial$ 147,030 $23,390  $96,625 $11,354 $(8,726)
Municipal and non-profit  25,131  7,999   25,348  6,083  49,679 
Owner occupied commercial real estate  48,225  27,093   36,085  23,758  22,078 
Food and agribusiness  26,956  (10,104)  19,191  13,876  (10,480)
PPP loans   121,141     122  358,798 
Total commercial  247,342  169,519   177,249  55,193  411,349 
Commercial real estate non-owner occupied  58,532  49,195   52,018  24,937  18,992 
Residential real estate  53,962  74,145   41,355  49,786  29,024 
Consumer  2,267  1,353   1,858  2,980  2,206 
Total$ 362,103 $294,212  $272,480 $132,896 $461,571 

                                                      

   
(1)    Originations are defined as closed end funded loans and net fundings under revolving lines of credit. Net funding under revolving lines of credit were $59,520, ($26,395), $50,982, ($27,899) and ($55,826) as of the second and first quarters of 2021 and the fourth, third and second quarters of 2020, 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
  June 30, 2021 March 31, 2021 June 30, 2020
  Average          Average    Average          Average    Average          Average
  balance Interest rate balance Interest rate balance Interest rate
Interest earning assets:                           
Originated loans FTE(1)(2) $ 4,077,142  $ 40,036  3.94% $4,004,994  $39,560  4.01% $4,432,725  $42,440  3.85%
Acquired loans   211,126    3,923  7.45%  238,468   5,128  8.72%  312,723   6,722  8.65%
Loans held for sale   159,068    1,213  3.06%  231,521   1,517  2.66%  157,887   1,310  3.34%
Investment securities available-for-sale   638,039    2,397  1.50%  686,731   2,485  1.45%  607,132   3,050  2.01%
Investment securities held-to-maturity   572,534    1,723  1.20%  421,119   1,416  1.34%  189,360   1,201  2.54%
Other securities   15,079    209  5.54%  15,818   210  5.31%  30,087   310  4.12%
Interest earning deposits and securities purchased under agreements to resell   888,600    228  0.10%  639,273   165  0.10%  36,758   12  0.13%
Total interest earning assets FTE(2) $ 6,561,588  $ 49,729  3.04% $6,237,924  $50,481  3.28% $5,766,672  $55,045  3.84%
Cash and due from banks $ 78,148        $81,253        $76,041       
Other assets   472,142         495,222         532,867       
Allowance for credit losses   (54,984)        (58,915)        (56,984)      
Total assets $ 7,056,894        $6,755,484        $6,318,596       
Interest bearing liabilities:                           
Interest bearing demand, savings and money market deposits $ 2,789,681  $ 1,572  0.23% $2,645,487  $1,652  0.25% $2,719,433  $1,951  0.29%
Time deposits   937,579    2,004  0.86%  967,447   2,335  0.98%  1,048,772   4,136  1.59%
Securities sold under agreements to repurchase   19,891    6  0.12%  21,377   5  0.09%  23,485   18  0.31%
Federal Home Loan Bank advances       0.00%       0.00%  163,263   311  0.77%
Total interest bearing liabilities $ 3,747,151  $ 3,582  0.38% $3,634,311  $3,992  0.45% $3,954,953  $6,416  0.65%
Demand deposits $ 2,368,810        $2,165,868        $1,436,671       
Other liabilities   97,817         120,607         155,379       
Total liabilities   6,213,778         5,920,786         5,547,003       
Shareholders' equity   843,116         834,698         771,593       
Total liabilities and shareholders' equity $ 7,056,894        $6,755,484        $6,318,596       
Net interest income FTE(2)    $ 46,147       $46,489       $48,629   
Interest rate spread FTE(2)        2.66%        2.83%        3.19%
Net interest earning assets $ 2,814,437        $2,603,613        $1,811,719       
Net interest margin FTE(2)        2.82%        3.02%        3.39%
Average transaction deposits $ 5,158,491        $4,811,355        $4,156,104       
Average total deposits   6,096,070         5,778,802         5,204,876       
Ratio of average interest earning assets to average interest bearing liabilities  175.11%        171.64%        145.81%      

                                                      

   
(1)    Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)    Presented on a fully taxable equivalent basis using the statutory tax rate of 21%. The tax equivalent adjustments included above are $1,279, $1,268 and $1,301 for the three months ended June 30, 2021, March 31, 2021 and June 30, 2020, respectively.

NATIONAL BANK HOLDINGS CORPORATION
Summary of Net Interest Margin
(Dollars in thousands)

                
 For the six months ended June 30, 2021 For the six months ended June 30, 2020
 Average         Average Average         Average
 balance Interest rate balance Interest rate
Interest earning assets:               
Originated loans FTE(1)(2)$ 4,041,268  $ 79,596 3.97% $4,237,946  $87,419 4.15%
Acquired loans  224,722    9,051 8.12%  328,165   15,601 9.56%
Loans held for sale  195,094    2,730 2.82%  130,411   2,246 3.46%
Investment securities available-for-sale  662,250    4,882 1.47%  617,027   6,445 2.09%
Investment securities held-to-maturity  497,245    3,139 1.26%  189,211   2,436 2.57%
Other securities  15,446    419 5.43%  29,920   724 4.84%
Interest earning deposits and securities purchased under agreements to resell  764,626    393 0.10%  29,858   109 0.73%
Total interest earning assets FTE(2)$ 6,400,651  $ 100,210 3.16% $5,562,538  $114,980 4.16%
Cash and due from banks$ 79,692       $75,412      
Other assets  483,617        503,669      
Allowance for credit losses  (56,938)       (50,895)     
Total assets$ 6,907,022       $6,090,724      
Interest bearing liabilities:               
Interest bearing demand, savings and money market deposits$ 2,717,983  $ 3,224 0.24% $2,608,281  $4,839 0.37%
Time deposits  952,431    4,339 0.92%  1,052,732   8,574 1.64%
Securities sold under agreements to repurchase  20,630    11 0.11%  34,192   115 0.68%
Federal Home Loan Bank advances     0.00%  191,308   1,209 1.27%
Total interest bearing liabilities$ 3,691,044  $ 7,574 0.41% $3,886,513  $14,737 0.76%
Demand deposits$ 2,267,900       $1,286,972      
Other liabilities  109,148        144,253      
Total liabilities  6,068,092        5,317,738      
Shareholders' equity  838,930        772,986      
Total liabilities and shareholders' equity$ 6,907,022       $6,090,724      
Net interest income FTE(2)   $ 92,636      $100,243  
Interest rate spread FTE(2)      2.75%       3.40%
Net interest earning assets$ 2,709,607       $1,676,025      
Net interest margin FTE(2)      2.92%       3.62%
Average transaction deposits$ 4,985,883       $3,895,253      
Average total deposits  5,938,314        4,947,985      
Ratio of average interest earning assets to average interest bearing liabilities 173.41%       143.12%     

                                                      

   
(1)    Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2)    Presented on a fully taxable equivalent basis using the statutory tax rate of 21%. The tax equivalent adjustments included above are $2,547 and $2,568 for the six months ended June 30, 2021 and June 30, 2020, respectively.

NATIONAL BANK HOLDINGS CORPORATION
Allowance for Credit Losses and Asset Quality
(Dollars in thousands)

Allowance for Credit Losses Analysis

         
 As of and for the three months ended
 June 30, 2021 March 31, 2021 June 30, 2020
Beginning allowance for credit losses$ 55,057  $59,777  $50,956 
Charge-offs  (925)  (302)  (852)
Recoveries  198   182   236 
Provision (release) expense  (5,300)  (4,600)  10,125 
Ending allowance for credit losses ("ACL")$ 49,030  $55,057  $60,465 
Ratio of annualized net charge-offs to average total loans during the period 0.07%  0.01%  0.05%
Ratio of annualized net charge-offs to average total loans excluding PPP loans during the period 0.07%  0.01%  0.05%
Ratio of ACL to total loans outstanding at period end 1.14%  1.28%  1.26%
Ratio of ACL to total loans outstanding excluding PPP loans at period end 1.18%  1.35%  1.36%
Ratio of ACL to total non-performing loans at period end 353.22%  336.25%  302.34%
Total loans$ 4,300,757  $4,303,246  $4,782,383 
Average total loans during the period  4,312,128   4,277,481   4,794,466 
Average total loans excluding PPP loans during the period  4,112,172   4,098,898   4,512,010 
Total non-performing loans  13,881   16,374   19,999 

Past Due and Non-accrual Loans

         
 June 30, 2021 March 31, 2021 June 30, 2020
Loans 30-89 days past due and still accruing interest$ 2,098  $1,867  $3,932 
Loans 90 days past due and still accruing interest  767   1,021   2,444 
Non-accrual loans  13,881   16,374   19,999 
Total past due and non-accrual loans$ 16,746  $19,262  $26,375 
Total 90 days past due and still accruing interest and non-accrual loans to total loans 0.34%  0.40%  0.47%


   

Asset Quality Data

         
 June 30, 2021 March 31, 2021 June 30, 2020
Non-performing loans$ 13,881  $16,374  $19,999 
OREO  5,124   5,669   6,491 
Other repossessed assets    17    
Total non-performing assets$ 19,005  $22,060  $26,490 
Accruing restructured loans$ 11,844  $13,822  $20,284 
Total non-performing loans to total loans 0.32%  0.38%  0.42%
Total non-performing loans to total loans excluding PPP loans 0.33%  0.40%  0.45%
Total non-performing assets to total loans and OREO 0.44%  0.51%  0.55%
Total non-performing assets to total loans and OREO excluding PPP loans 0.46%  0.54%  0.60%

NATIONAL BANK HOLDINGS CORPORATION
Key Ratios(1)

          
 As of and for the three months ended  As of and for the six months ended
 June 30,     March 31,     June 30,     June 30,  June 30, 
 2021     2021     2020     2021  2020 
Return on average assets1.38% 1.61% 1.13% 1.49% 1.11%
Return on average tangible assets(2)1.41% 1.65% 1.16% 1.53% 1.14%
Return on average equity11.51% 13.03% 9.23% 12.26% 8.72%
Return on average tangible common equity(2)13.41% 15.20% 10.98% 14.29% 10.38%
Loan to deposit ratio (end of period)69.84% 71.70% 88.34% 69.84% 88.34%
Non-interest bearing deposits to total deposits (end of period)39.58% 38.25% 27.76% 39.58% 27.76%
Net interest margin(4)2.74% 2.94% 3.30% 2.84% 3.53%
Net interest margin FTE(2)(4)2.82% 3.02% 3.39% 2.92% 3.62%
Interest rate spread FTE(2)(5)2.66% 2.83% 3.19% 2.75% 3.40%
Yield on earning assets(3)2.96% 3.20% 3.75% 3.08% 4.06%
Yield on earning assets FTE(2)(3)3.04% 3.28% 3.84% 3.16% 4.16%
Cost of interest bearing liabilities(3)0.38% 0.45% 0.65% 0.41% 0.76%
Cost of deposits0.24% 0.28% 0.47% 0.26% 0.55%
Non-interest income to total revenue FTE(2)35.38% 41.78% 44.40% 38.76% 38.35%
Non-interest expense to average assets2.63% 2.98% 3.42% 2.80% 3.38%
Efficiency ratio65.66% 62.83% 62.05% 64.16% 63.63%
Efficiency ratio FTE(2)64.48% 61.83% 61.13% 63.08% 62.63%
          
Total Loans Asset Quality Data(6)(7)(8)         
Non-performing loans to total loans0.32% 0.38% 0.42% 0.32% 0.42%
Non-performing loans to total loans excluding PPP loans0.33% 0.40% 0.45% 0.33% 0.45%
Non-performing assets to total loans and OREO0.44% 0.51% 0.55% 0.44% 0.55%
Non-performing assets to total loans and OREO excluding PPP loans0.46% 0.54% 0.60% 0.46% 0.60%
Allowance for credit losses to total loans1.14% 1.28% 1.26% 1.14% 1.26%
Allowance for credit losses to total loans excluding PPP loans1.18% 1.35% 1.36% 1.18% 1.36%
Allowance for credit losses to non-performing loans353.22% 336.25% 302.34% 353.22% 302.34%
Net charge-offs to average loans(1)0.07% 0.01% 0.05% 0.04% 0.04%

                                                      

   
(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 or loans are excluded from interest earning assets.
(4)    Net interest margin represents net interest income, including accretion income on interest earning assets, as a percentage of average interest earning assets.
(5)    Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.
(6) Non-performing loans consist of non-accruing loans and restructured loans on non-accrual.
(7) Non-performing assets include non-performing loans and other real estate owned.
(8) 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

            
 June 30, 2021 March 31, 2021    December 31, 2020 June 30, 2020
Total shareholders' equity$ 851,866  $831,990  $820,691  $776,967 
Less: goodwill and core deposit intangible assets, net  (121,983)  (122,280)  (122,575)  (123,166)
Add: deferred tax liability related to goodwill  9,612   9,384   9,155   8,698 
Tangible common equity (non-GAAP)$ 739,495  $719,094  $707,271  $662,499 
            
Total assets$ 7,136,128  $6,949,501  $6,659,950  $6,385,431 
Less: goodwill and core deposit intangible assets, net  (121,983)  (122,280)  (122,575)  (123,166)
Add: deferred tax liability related to goodwill  9,612   9,384   9,155   8,698 
Tangible assets (non-GAAP)$ 7,023,757  $6,836,605  $6,546,530  $6,270,963 
            
Tangible common equity to tangible assets calculations:           
Total shareholders' equity to total assets 11.94%  11.97%  12.32%  12.17%
Less: impact of goodwill and core deposit intangible assets, net (1.41)%  (1.45)%  (1.52)%  (1.61)%
Tangible common equity to tangible assets (non-GAAP) 10.53%  10.52%  10.80%  10.56%
            
Tangible common book value per share calculations:           
Tangible common equity (non-GAAP)$ 739,495  $719,094  $707,271  $662,499 
Divided by: ending shares outstanding  30,800,985   30,715,790   30,634,291   30,569,011 
Tangible common book value per share (non-GAAP)$ 24.01  $23.41  $23.09  $21.67 
            
Tangible common book value per share, excluding accumulated other comprehensive income calculations:           
Tangible common equity (non-GAAP)$ 739,495  $719,094  $707,271  $662,499 
Accumulated other comprehensive income, net of tax  (1,695)  (485)  (9,766)  (12,195)
Tangible common book value, excluding accumulated other comprehensive income, net of tax (non-GAAP)  737,800   718,609   697,505   650,304 
Divided by: ending shares outstanding  30,800,985   30,715,790   30,634,291   30,569,011 
Tangible common book value per share, excluding accumulated other comprehensive income, net of tax (non-GAAP)$ 23.95  $23.40  $22.77  $21.27 

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 As of and for the six months ended
  June 30,     March 31,     June 30,     June 30,     June 30, 
  2021     2021     2020     2021     2020 
Net income $ 24,200  $26,812  $17,705  $ 51,012  $33,529 
Add: impact of core deposit intangible amortization expense, after tax   228   228   227    455   454 
Net income adjusted for impact of core deposit intangible amortization expense, after tax $ 24,428  $27,040  $17,932  $ 51,467  $33,983 
                
Average assets $ 7,056,894  $6,755,484  $6,318,596  $ 6,907,022  $6,090,724 
Less: average goodwill and core deposit intangible asset, net of deferred tax liability related to goodwill   (112,552)  (113,074)  (114,631)   (112,698)  (114,779)
Average tangible assets (non-GAAP) $ 6,944,342  $6,642,410  $6,203,965  $ 6,794,324  $5,975,945 
                
Average shareholders' equity $ 843,116  $834,698  $771,593  $ 838,930  $772,986 
Less: average goodwill and core deposit intangible asset, net of deferred tax liability related to goodwill   (112,552)  (113,074)  (114,631)   (112,698)  (114,779)
Average tangible common equity (non-GAAP) $ 730,564  $721,624  $656,962  $ 726,232  $658,207 
                
Return on average assets  1.38%  1.61%  1.13%  1.49%  1.11%
Return on average tangible assets (non-GAAP)  1.41%  1.65%  1.16%  1.53%  1.14%
Return on average equity  11.51%  13.03%  9.23%  12.26%  8.72%
Return on average tangible common equity (non-GAAP)  13.41%  15.20%  10.98%  14.29%  10.38%

Fully Taxable Equivalent Yield on Earning Assets and Net Interest Margin

                
  As of and for the three months ended As of and for the six months ended
  June 30,  March 31,  June 30,  June 30,  June 30, 
  2021  2021  2020  2021  2020 
Interest income $ 48,450     $49,213     $53,744     $ 97,663  $112,412 
Add: impact of taxable equivalent adjustment   1,279   1,268   1,301    2,547   2,568 
Interest income FTE (non-GAAP) $ 49,729  $50,481  $55,045  $ 100,210  $114,980 
                
Net interest income $ 44,868  $45,221  $47,328  $ 90,089  $97,675 
Add: impact of taxable equivalent adjustment   1,279   1,268   1,301    2,547   2,568 
Net interest income FTE (non-GAAP) $ 46,147  $46,489  $48,629  $ 92,636  $100,243 
                
Average earning assets $ 6,561,588  $6,237,924  $5,766,672  $ 6,400,651  $5,562,538 
Yield on earning assets  2.96%  3.20%  3.75%  3.08%  4.06%
Yield on earning assets FTE (non-GAAP)  3.04%  3.28%  3.84%  3.16%  4.16%
Net interest margin  2.74%  2.94%  3.30%  2.84%  3.53%
Net interest margin FTE (non-GAAP)  2.82%  3.02%  3.39%  2.92%  3.62%

Efficiency Ratio

                
  As of and for the three months ended As of and for the six months ended
     June 30,     March 31,     June 30,     June 30,     June 30, 
     2021      2021     2020     2021      2020 
Net interest income $ 44,868  $45,221  $47,328  $ 90,089  $97,675 
Add: impact of taxable equivalent adjustment   1,279   1,268   1,301    2,547   2,568 
Net interest income, FTE (non-GAAP) $ 46,147  $46,489  $48,629  $ 92,636  $100,243 
                
Non-interest income $ 25,266  $33,361  $38,837  $ 58,627  $62,369 
                
Non-interest expense $ 46,343  $49,668  $53,760  $ 96,011  $102,431 
Less: core deposit intangible asset amortization   (296)  (296)  (296)   (592)  (592)
Non-interest expense, adjusted for core deposit intangible asset amortization $ 46,047  $49,372  $53,464  $ 95,419  $101,839 
                
Efficiency ratio  65.66%  62.83%  62.05%  64.16%  63.63%
Efficiency ratio FTE (non-GAAP)  64.48%  61.83%  61.13%  63.08%  62.63%