National Bank Holdings Corporation (NBHC) — Q1 2021 Form 10-Q
Business context and reporting period
Quarter ended March 31, 2021. NBHC is a bank holding company operating through NBH Bank, with 89 banking centers primarily in Colorado and the greater Kansas City region, alongside digital banking. The unaudited interim statements are prepared under U.S. GAAP; results for the quarter are not necessarily indicative of full-year performance. Amounts below are in millions unless noted.
Key financial metrics
| Metric | Q1 2021 | Comparable period / change |
|---|---|---|
| Net interest income (GAAP) | $45.2 | $50.3 in Q1 2020 |
| Net interest margin | 2.94%; 3.02% FTE | 3.78%; 3.87% FTE in Q1 2020 |
| Provision for credit losses | $3.6 release, net | $6.2 expense in Q1 2020 |
| Non-interest income | $33.4 | $23.5 in Q1 2020 |
| Non-interest expense | $49.7 | $48.7 in Q1 2020 |
| Net income / diluted EPS | $26.8 / $0.86 | $15.8 / $0.50 in Q1 2020 |
| Operating cash flow | $6.4 | $26.2 in Q1 2020 |
| Efficiency ratio | 62.83%; 61.83% FTE | 65.48%; 64.37% FTE in Q1 2020 |
At March 31, 2021, total assets were $6.95 billion, loans $4.30 billion, deposits $6.00 billion, and shareholders’ equity $832.0 million. Cash and cash equivalents were $822.5 million. Deposits grew $325.4 million from year-end 2020; transaction deposits represented 84.2% of deposits. Total loans fell $50.5 million from year-end, or 4.7% annualized, and fell $92.1 million excluding PPP loans.
Cash flow for the quarter was $6.4 million from operations, negative $108.9 million from investing, and positive $314.4 million from financing, principally reflecting deposit growth. The company reported $19.4 million of repurchase-agreement borrowings and no FHLB advances outstanding. It cited $1.47 billion of on-balance-sheet liquidity and $0.9 billion of FHLB availability; management stated the company had access to $2.5 billion in readily available funds.
Credit indicators improved: non-performing loans were 0.38% of loans versus 0.47% at December 31, 2020; the allowance for credit losses was $55.1 million, or 1.28% of loans (1.35% excluding PPP loans). Annualized net charge-offs were 0.01%. The Bank’s regulatory capital ratios exceeded well-capitalized thresholds; consolidated Tier 1 leverage was 10.8%, and consolidated common equity Tier 1 and Tier 1 risk-based ratios were 15.2%.
Material changes versus prior periods
- Net income rose about 69% year over year, supported by the net credit-loss provision release and higher non-interest income. Mortgage banking income rose to $22.4 million from $13.7 million, while lower service charges partly offset the increase.
- Net interest income and FTE net interest margin declined year over year as lower market rates reduced asset yields. FTE net interest income was $46.5 million, down $5.1 million; FTE margin narrowed 85 basis points to 3.02%.
- Non-interest expense increased $1.0 million year over year, including $1.3 million related to planned banking-center consolidations. The company also recorded $1.3 million of impairment on premises and equipment held for sale and reported gains on fixed-asset sales in other non-interest income.
- Investment securities increased $148.2 million from year-end to approximately $1.2 billion; cash and cash equivalents increased $217.0 million. Available-for-sale securities had $9.1 million of net unrealized losses in other comprehensive income during the quarter, attributed by management to interest-rate changes.
- COVID-related loans remaining on payment deferral declined to $144.1 million, or 3.3% of loans, from $173.6 million, or 4.0%, at year-end. All such modified loans were classified as performing at March 31, 2021.
Outlook, commentary, risks and contingencies
The filing gives no numerical earnings or revenue guidance. Management described improving general economic conditions but emphasized that the pandemic’s duration and effects remain uncertain. It expected short-term rates to remain near zero for the foreseeable future and noted that future earnings depend in part on deploying elevated cash balances into quality loans and securities. New loan originations had a weighted-average rate of 2.64%, compared with a 4.01% FTE yield on the originated loan portfolio.
Management characterized the company as asset-sensitive: its model estimated projected net interest income would increase 11.95% under an immediate, sustained 200-basis-point rate increase and 5.85% under a 100-basis-point increase, while a 25-basis-point decline was estimated to reduce it 0.35%. These are model estimates subject to assumptions and management actions.
Principal risks include credit deterioration, real-estate values, interest-rate and securities-market changes, competition, deposit and loan growth, COVID-19 effects, and operational, cybersecurity and regulatory risks. Management said the loan portfolio is diversified and reported limited exposure to several pandemic-affected sectors, while acknowledging that much of the portfolio is secured by real estate. The allowance depends on estimates and could require future adjustments.
Other items to note: unfunded commitments totaled $924.9 million; mortgage-loan repurchase reserve was $2.6 million; and management did not expect pending or threatened litigation to materially affect the company. Derivative agreements could require settlement if specified default or capital conditions were breached; the disclosed termination value of derivatives in a net liability position was $29.8 million, with $35.1 million of collateral posted. A $75 million share-repurchase authorization was approved in February, with the full amount remaining available at quarter-end. After quarter-end, the Board declared a $0.22-per-share dividend payable June 15, 2021.
Most important facts for investors to verify
- Whether loan balances stabilize and deferred COVID-related loans continue to perform, including subsequent modifications and delinquency trends.
- Whether the provision release and improved credit metrics remain supportable as economic forecasts and the allowance for credit losses change.
- How sustainable mortgage banking income is, given its contribution to the year-over-year revenue increase, and how consolidation costs and asset-sale gains affect comparisons.
- Whether deposits can be retained and excess cash deployed at yields sufficient to offset low asset yields and margin pressure.
- Liquidity and capital capacity relative to unfunded commitments, maturing time deposits, derivative collateral requirements, and the new repurchase authorization.