National Bank (NBHC) - 2021 Q3 - Quarterly Report

Part I. Financial Information Item 1. Financial Statements (Unaudited) This section presents the unaudited consolidated financial statements, including statements of financial condition, operations, and cash flows, with detailed accounting policy notes Consolidated Statements of Financial Condition As of September 30, 2021, total assets grew to $7.10 billion from $6.66 billion at year-end 2020, driven by increases in cash and investment securities Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $807,370 | $605,565 | | Investment securities (AFS & HTM) | $1,300,469 | $1,038,570 | | Loans, net | $4,372,605 | $4,293,949 | | Total Assets | $7,100,991 | $6,659,950 | | Liabilities & Equity | | | | Total deposits | $6,134,620 | $5,676,232 | | Total liabilities | $6,256,275 | $5,839,259 | | Total shareholders' equity | $844,716 | $820,691 | | Total Liabilities & Equity | $7,100,991 | $6,659,950 | Consolidated Statements of Operations For the nine months ended September 30, 2021, net income increased to $70.8 million, driven by a significant provision release for loan losses Key Performance Indicators (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net Interest Income | $137,658 | $144,390 | | Provision (release) for loan losses | $(9,425) | $17,630 | | Non-interest Income | $87,149 | $106,901 | | Non-interest Expense | $147,325 | $157,752 | | Net Income | $70,837 | $61,422 | | Diluted EPS | $2.27 | $1.97 | - For the third quarter of 2021, net income was $19.8 million, a decrease from $27.9 million in Q3 2020, primarily due to a significant drop in mortgage banking income from $34.9 million to $16.6 million year-over-year[14] Consolidated Statements of Cash Flows Net cash provided by operating activities significantly improved to $144.9 million, while investing activities increased cash usage, and financing activities provided $417.7 million Cash Flow Summary (in thousands) | Activity | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $144,866 | $(59,755) | | Net cash used in investing activities | $(366,191) | $(206,464) | | Net cash provided by financing activities | $417,655 | $601,132 | | Increase in cash and cash equivalents | $196,330 | $334,913 | Notes to Consolidated Financial Statements The notes provide detailed disclosures on accounting policies, investment and loan portfolios, credit losses, MSRs, regulatory capital, and derivatives - The company invested $20.0 million in Finstro Global Holdings Inc. and $2.0 million in Figure Technologies during the first nine months of 2021 as part of its digital financial ecosystem strategy for small and medium-sized businesses[45] - COVID-19 related loan modifications on deferral plans decreased significantly to $0.9 million as of September 30, 2021, down from $173.6 million at year-end 2020[62] - During Q3 2021, the company sold mortgage servicing rights (MSRs) on loans with $1.3 billion in unpaid principal balances, resulting in a $1.3 million gain[75] - On November 5, 2021, the Company issued a $40.0 million subordinated note with a fixed rate of 3.00% for the first five years, maturing in 2031[156] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, highlighting $70.8 million net income, strategic actions, and changes in net interest margin, non-interest income, and expenses Financial Condition Total assets grew by $441.0 million to $7.1 billion, driven by increases in cash and investment securities, while deposits grew by $458.4 million Loan Portfolio Composition (in thousands) | Loan Category | Sep 30, 2021 | Dec 31, 2020 | % Change | | :--- | :--- | :--- | :--- | | Commercial (ex-PPP) | $2,931,650 | $2,788,546 | 5.1% | | PPP loans | $76,794 | $176,106 | (56.4)% | | Commercial real estate non-owner occupied | $670,927 | $631,996 | 6.2% | | Residential real estate | $665,502 | $658,659 | 1.0% | | Consumer | $18,031 | $19,006 | (5.1)% | | Total loans | $4,421,760 | $4,353,726 | 1.6% | Deposit Composition (in thousands) | Deposit Type | Sep 30, 2021 | Dec 31, 2020 | % Change | | :--- | :--- | :--- | :--- | | Non-interest bearing demand | $2,447,099 | $2,111,045 | 15.9% | | Total transaction deposits | $5,257,779 | $4,690,100 | 12.1% | | Total time deposits | $876,841 | $986,132 | (11.1)% | | Total deposits | $6,134,620 | $5,676,232 | 8.1% | Asset Quality Asset quality remained strong with non-performing loans decreasing by 37.0% to $12.8 million, and the allowance for credit losses providing a strong coverage ratio Non-Performing Assets (in thousands) | Metric | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Non-performing loans | $12,848 | $20,387 | | OREO | $4,325 | $4,730 | | Total non-performing assets | $17,173 | $25,134 | | Non-performing loans to total loans | 0.29% | 0.47% | - The company recorded a net provision release of $9.4 million for the nine months ended Sep 30, 2021, driven by strong asset quality and an improved economic outlook in the CECL model[242][280] Results of Operations Net income for the nine months ended September 30, 2021, was $70.8 million, driven by a provision release and lower non-interest expense, despite a narrowed net interest margin and decreased non-interest income Net Interest Margin Analysis (FTE) | Metric | Nine Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Yield on earning assets | 3.14% | 3.96% | | Cost of interest bearing liabilities | 0.39% | 0.69% | | Net Interest Margin | 2.92% | 3.48% | - Non-interest income for the nine months ended Sep 30, 2021, decreased by 18.5% YoY to $87.1 million, mainly due to a 33.2% decline in mortgage banking income as refinance activity slowed[282] - Non-interest expense for the nine months ended Sep 30, 2021, decreased by 6.6% YoY to $147.3 million, primarily due to a $10.7 million reduction in salaries and benefits from lower mortgage-related compensation[284] Liquidity and Capital Resources The company maintained strong liquidity with on-balance sheet liquidity increasing to $1.57 billion and capital ratios remaining well above regulatory requirements Key Capital Ratios (Consolidated) | Ratio | Sep 30, 2021 | Dec 31, 2020 | | :--- | :--- | :--- | | Tier 1 leverage ratio | 10.4% | 10.7% | | Common equity tier 1 risk based capital | 14.6% | 14.7% | | Total risk based capital ratio | 15.5% | 15.8% | - The company repurchased 527,214 shares for $19.4 million during Q3 2021, with $55.6 million remaining available under the $75.0 million repurchase program authorized in February 2021[297] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's interest rate risk model indicated an asset-sensitive position, with a +100 basis point rate shock projected to increase net interest income by 6.04% Net Interest Income Sensitivity | Hypothetical Rate Shift (bps) | % Change in Projected NII (Sep 30, 2021) | | :--- | :--- | | +200 | 12.11% | | +100 | 6.04% | | -25 | (0.17)% | - The company's interest rate risk model indicated an asset-sensitive balance sheet as of September 30, 2021[303] Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of September 30, 2021, with no material changes to internal controls over financial reporting - The principal executive officer and principal financial officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2021[309] - No changes were made in the company's internal controls over financial reporting during the quarter that have materially affected, or are reasonably likely to materially affect, these controls[310] Part II. Other Information Legal Proceedings The company is involved in various litigation matters incidental to its business but does not believe any current proceedings will have a material adverse effect on its financial condition or results of operations - The company is not party to any legal proceedings expected to have a material adverse effect on its business, financial condition, or operations[313] Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - No material changes to the risk factors disclosed in the 2020 Form 10-K were reported[314] Unregistered Sales of Equity Securities and Use of Proceeds During Q3 2021, the company repurchased 528,352 shares at an average price of $36.72 per share, with $55.6 million remaining under its repurchase authorization Share Repurchase Activity (Q3 2021) | Period | Total Shares Purchased | Avg. Price Paid | Shares Purchased Under Plan | | :--- | :--- | :--- | :--- | | Aug 2021 | 230,742 | $36.84 | 229,604 | | Sep 2021 | 297,610 | $36.62 | 297,610 | | Total Q3 | 528,352 | $36.72 | 527,214 | - As of September 30, 2021, $55.6 million remained available for purchase under the $75.0 million stock repurchase program authorized in February 2021[316] Other Information There was no other information to report for this item during the quarter - No information was reported under this item[317] Exhibits This section lists the exhibits filed with the Form 10-Q, including corporate governance documents, debt agreements, and CEO/CFO certifications - Exhibits filed include CEO/CFO certifications (31.1, 31.2, 32), agreements related to a subordinated note issuance (4.1, 10.1), and XBRL data files[320]