National Bank Holdings Corporation — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. NBHC is a regional bank holding company operating primarily through NBH Bank and Bank of Jackson Hole Trust, with more than 95 banking centers and digital banking services. Unless otherwise stated, financial amounts below are in millions.
Financial performance and position
| Metric | Q2 2023 / June 30, 2023 | Comparable period / prior year-end |
|---|---|---|
| Net income | $32.6; diluted EPS $0.85 | Q2 2022: $20.4; diluted EPS $0.67 |
| Six-month net income | $72.8; diluted EPS $1.91 | Six months 2022: $38.7; diluted EPS $1.27 |
| Net interest income | Q2: $89.8; six months: $184.7 | Q2 2022: $56.0; six months 2022: $102.7 |
| FTE net interest margin | Q2: 4.07%; six months: 4.22% | Q2 2022: 3.38%; six months 2022: 3.15% |
| Non-interest income | Q2: $13.8; six months: $28.5 | Q2 2022: $16.8; six months 2022: $35.8 |
| Non-interest expense | Q2: $61.0; six months: $119.3 | Q2 2022: $45.6; six months 2022: $89.6 |
| Assets / loans / deposits | $9,872 / $7,414 / $8,121 | December 31, 2022: $9,573 / $7,220 / $7,873 |
| Cash and cash equivalents | $323.8 | December 31, 2022: $195.5 |
| Allowance for credit losses | $92.6; 1.25% of loans | December 31, 2022: $89.6; 1.24% |
| Shareholders’ equity | $1,147 | December 31, 2022: $1,092 |
Q2 and six-month earnings increased substantially year over year, reflecting higher interest rates, balance-sheet growth, and prior acquisitions. For the six months, FTE net interest income rose 78.0%; FTE margin widened 107 basis points. However, funding costs rose: the six-month cost of deposits was 0.93%, versus 0.16% a year earlier; Q2 cost of deposits was 1.27%. Six-month cost of funds was 1.20%.
Six-month cash flows were $74.2 provided by operating activities, $175.4 used in investing, and $228.1 provided by financing. Financing included a $247.9 net increase in deposits; FHLB advances and repayments each totaled $2,295.0. Ending cash, cash equivalents, and restricted cash totaled $325.3.
Material changes and notable items
- Total loans increased $193.9, or 2.7%, from year-end (5.4% annualized). Deposits increased $248.2. The deposit mix shifted: non-interest-bearing demand balances fell $505.8, while interest-bearing demand, money market, and time deposits increased.
- Non-performing loans rose to $33.5 from $16.5 at year-end, primarily due to one asset-based loan placed on non-accrual. Non-performing loans were 0.45% of loans, versus 0.23%; non-performing assets were 0.50% of loans and OREO, versus 0.28%. Net charge-offs remained low at $0.6 for six months.
- Mortgage banking income declined $9.7 for six months, attributed to weaker purchase and refinance activity and tighter gain-on-sale margins. Other non-interest income included $4.0 of impairments on venture-capital convertible preferred stock and $0.4 of equity-method investment losses.
- Operating expenses increased 33.1% for six months, largely reflecting acquired operations, higher FDIC insurance costs, and higher amortization. The six-month effective tax rate was 20.2%, compared with 17.1% in 2022.
- Cambr Solutions was acquired April 3 for $46.5 cash consideration. It administered approximately $1.7 billion in deposits across more than 500,000 FDIC-insured accounts at acquisition. NBHC recorded $26.9 of goodwill and $18.0 of intangibles; purchase accounting remained provisional.
Liquidity, capital, outlook, and risks
- On-balance-sheet liquidity was $784.2, comprising cash and unencumbered securities. FHLB borrowing capacity was $1.6 billion, with $385.0 outstanding; the company also cited access to the Federal Reserve discount window, BTFP, and other funding sources. Management said liquidity was adequate for at least 12 months and under modeled stress scenarios.
- Total deposits were $8.1 billion; management reported approximately 70% FDIC-insured and no venture-capital or crypto deposits. The loan-to-deposit ratio was 91.3%. Time deposits of $618.3 were scheduled to mature within 12 months. The company reported paying down $615.0 of FHLB advances since March using deposit growth.
- Borrowings included $385.0 of FHLB advances, $21.4 of repurchase agreements, and approximately $54.0 of long-term debt. The $40.0 subordinated note and acquired notes have fixed-to-floating rates that reset to SOFR plus contractual spreads beginning in 2026.
- Consolidated regulatory capital ratios were 9.2% Tier 1 leverage, 11.1% common equity Tier 1, and 13.0% total risk-based capital. The company and banks reported capital above applicable well-capitalized thresholds. A new $50.0 share-repurchase authorization was approved; a $0.26-per-share quarterly dividend was declared after quarter-end.
- Management described the company as asset-sensitive, though less so than at year-end. A modeled 200-basis-point rate increase would raise projected net interest income 0.76%; a 200-basis-point decrease would reduce it 2.08%. Actual outcomes may differ materially from the model.
- Management cited continued deposit competition, rate volatility, inflation and expense pressure, regulatory and FDIC-cost uncertainty, real-estate values, credit quality, and cyber and technology risks. It reported no material impact from recent banking-sector concerns and no formal numerical earnings guidance in the filing.
- Management disclosed an ongoing investigation into irregularities in mortgage loan applications at one office; the investigation was incomplete and its effect could not be assured. Mortgage loans sold to investors may also trigger repurchase or indemnification obligations. Unfunded commitments totaled $1,939.6.
- Available-for-sale and held-to-maturity securities had pre-tax unrealized losses of $112.9 and $91.8, respectively, primarily attributed to interest rates. Management said it did not intend or expect to need to sell them before recovery. The filing reported no material pending litigation and effective disclosure controls.
Most important facts for investors to verify
- Whether deposit growth and mix can withstand competition and continued repricing, and how rapidly deposit costs affect margin.
- Developments in the mortgage-application investigation, including any resulting repurchase, indemnification, or regulatory exposure.
- Whether the rise in non-performing loans, particularly the asset-based credit, leads to further reserve needs or charge-offs.
- Liquidity assumptions, deposit maturities, pledged collateral, borrowing availability, and the potential implications of unrealized securities losses.
- Cambr’s integration, deposit economics, fee contribution, and final purchase-accounting valuations; also distinguish GAAP results from management’s non-GAAP measures.