National Bank Holdings Corporation — Q2 2021 Form 10-Q
Business context and reporting period. The filing covers the quarter and six months ended June 30, 2021. National Bank Holdings is a bank holding company operating through NBH Bank, with 82 banking centers primarily in Colorado and the greater Kansas City region, as well as in other markets. The company reported results amid an improving but still uncertain economic recovery from COVID-19.
Key financial results
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net income | $24.2 million | $17.7 million | $51.0 million | $33.5 million |
| Diluted EPS | $0.77 | $0.57 | $1.63 | $1.08 |
| Net interest income, GAAP | $44.9 million | $47.3 million | $90.1 million | $97.7 million |
| Non-interest income | $25.3 million | $38.8 million | $58.6 million | $62.4 million |
| Non-interest expense | $46.3 million | $53.8 million | $96.0 million | $102.4 million |
| FTE net interest margin | 2.82% | 3.39% | 2.92% | 3.62% |
- Profit and drivers: Net income increased year over year in both periods, despite lower net interest income and mortgage banking income. Lower provision expense (a release in 2021 versus expense in 2020) and reduced operating expenses supported earnings.
- Revenue and margins: Q2 mortgage banking income fell 54.4% to $14.0 million, primarily reflecting lower refinance activity. Six-month FTE net interest income declined 7.6% to $92.6 million. Management attributed margin pressure mainly to lower earning-asset yields, Federal Reserve rate actions and a larger share of cash and other lower-yielding assets; lower funding costs partly offset this.
- Credit costs and quality: The company recorded a $5.9 million total provision release in Q2 and a $9.4 million release for the first half, citing strong asset quality and an improved economic forecast. The allowance for credit losses was $49.0 million, or 1.14% of loans, versus $59.8 million, or 1.37%, at year-end 2020. Non-performing loans were 0.32% of loans, down from 0.47% at year-end.
- Balance sheet and liquidity: At June 30, assets were $7.14 billion, deposits $6.16 billion, loans $4.30 billion, and shareholders’ equity $851.9 million. Cash and cash equivalents were $1.00 billion; on-balance-sheet liquidity, including unencumbered securities, totaled $1.74 billion. Deposits rose $481.8 million from year-end, while loans declined $53.0 million, including a $46.5 million reduction in PPP balances. The period-end loan-to-deposit ratio was 69.84%.
- Cash flow: For the six months, operating activities provided $130.2 million, compared with $13.3 million used in the prior-year period. Cash, cash equivalents and restricted cash increased $393.9 million to $1.01 billion; this cash-flow measure includes restricted cash.
- Funding, debt and capital: Deposits were the principal funding source. The company had $23.0 million in repurchase-agreement obligations and no FHLB advances outstanding; it reported $0.9 billion of available FHLB credit. The Bank’s capital ratios exceeded well-capitalized thresholds; consolidated Tier 1 leverage was 10.6% and total risk-based capital was 16.3%.
Material changes, outlook and risks
- Total assets increased 7.1% from December 31, 2020, driven by higher cash and investment securities. Held-to-maturity securities increased to $687.6 million from $376.6 million, reflecting substantial purchases.
- Transaction deposits rose to 85.0% of total deposits from 82.6% at year-end; the six-month average cost of deposits fell to 0.26% from 0.55% in the comparable 2020 period.
- Management said Q2 originations excluding PPP more than doubled from Q1, increasing $189.0 million, or 109.2%. Total loans nevertheless declined modestly from year-end, excluding PPP loans.
- The company completed plans to consolidate seven banking centers. Six-month consolidation-related expense was $1.6 million; it also recorded $2.4 million of gains on fixed-asset sales during the first half. The board authorized a new $75 million stock repurchase program; no amount had been used under that program by June 30. A quarterly dividend of $0.22 per share was declared after quarter-end.
- COVID-related modified loans still on payment deferral totaled $108.6 million, or 2.5% of loans, down from $173.6 million, or 4.0%, at year-end; all such loans were classified as performing at June 30. PPP loans outstanding were $129.6 million and are SBA-guaranteed.
- Management said liquidity sources were expected to provide adequate funding for at least 12 months. It described the company as asset-sensitive: its modeled net interest income increased 12.09% under an immediate, sustained 200-basis-point rate increase and declined 0.23% under a 25-basis-point decrease. These are model estimates, not forecasts; actual results may differ.
- Key risks include COVID-19 resurgence and economic effects, credit and real-estate exposures, low interest rates and asset yields, competition and the ability to grow loans, regulatory and capital requirements, cybersecurity and technology risks, and mortgage repurchase or indemnification obligations. The filing reported no material change to previously disclosed risk factors and no litigation expected to have a material adverse effect.
Important facts for investors to verify
- Whether loan growth excluding PPP accelerates and whether excess liquidity can be deployed at attractive yields without weakening underwriting.
- Credit performance as deferrals expire, including migration in non-performing loans, charge-offs, and the adequacy of the allowance under changing economic forecasts.
- Whether lower refinance volumes continue to pressure mortgage banking revenue and related compensation, and how the mortgage servicing portfolio performs.
- The sensitivity of net interest income and securities values to rate movements, including duration and unrealized losses in the expanded mortgage-backed securities portfolio.
- Execution and costs of the banking-center consolidations, use of the $75 million repurchase authorization, and capacity to maintain dividends while preserving capital and liquidity.
- Potential cash requirements from $1.00 billion of unfunded commitments and from mortgage repurchase representations, warranties, and indemnities.