National Bank Holdings Corporation Announces Fourth Quarter 2012 Financial Results

National Bank Holdings Corporation Announces Fourth Quarter 2012 Financial Results

GREENWOOD VILLAGE, Colo.--(BUSINESS WIRE)-- National Bank Holdings Corporation (NYS: NBHC) reported net income of $3.0 million, or $0.06 per diluted share for the fourth quarter of 2012 compared to the third quarter of 2012 net loss of $0.15 per diluted share. The third quarter included $10.8 million of after tax costs related to the successful initial public offering (IPO) in September 2012. Excluding the IPO related charges, net income for the third quarter of 2012 was $2.9 million, or $0.06 per diluted share.

"We continued to build momentum during the quarter in the growth and expansion of client relationships," said President and Chief Executive Officer Tim Laney. "This was evidenced by our eighth consecutive quarter of increased organic loan production and solid growth in our non-interest bearing client demand deposits."

Fourth Quarter 2012 Highlights

  • Grew organic loan production for the eighth consecutive quarter, resulting in a 15.1% annualized growth in our strategic loan portfolio.
  • Grew average non-interest bearing demand deposit balances 16.6% annualized, driving an increase in average transaction deposits of 4.0% annualized and an 11 basis point decrease in total cost of deposits.
  • The net interest margin expanded to 4.09%, driven by higher yields on loans accounted for under ASC 310-30 loan pools and lower cost of deposits.
  • Net charge-offs on non 310-30 loans were 0.27% annualized.
  • Expenses before problem loan/OREO workout expenses were flat third to fourth quarter, adjusting for the third quarter IPO expenses.
  • Problem loan/OREO workout expenses totaled $10.0 million, increasing $4.3 million over the third quarter of 2012 due to higher OREO workout activity.
  • Added $8.9 million to accretable yield for the acquired loans accounted for under ASC 310-30. This was partially offset by $1.6 million in impairments.
  • Tangible book value per share was $19.17 before consideration of the excess accretable yield value of $0.50 per share.
  • Initiated regular quarterly dividend of $0.05 per share.
  • Approximately $400 million in excess strategic capital (above 10% Tier 1 Leverage), which positions us for future growth opportunities.

Fourth Quarter 2012 Results

(All comparisons refer to the third quarter of 2012, except as noted)

Net Interest Income

Net interest income totaled $49.6 million for the fourth quarter of 2012, and remained stable compared to the prior quarter. Despite the continued low interest rate environment, the fourth quarter net interest margin widened 17 basis points to 4.09%. The expansion of the net interest margin was benefitted by higher earning asset yields of 7 basis points and was driven by increased yields on loan pools accounted for under ASC 310-30. Yields earned on the ASC 310-30 loan pools improved 115 basis points from the prior quarter to 10.79% during the fourth quarter. In addition, the cost of deposits declined 11 basis points during the fourth quarter and continued to benefit from an improved deposit mix and lower costs of time deposits. The benefit of the wider net interest margin was offset by a decline in average interest earning assets of 3.9% as we continued our strategy of exiting non-strategic loans and slightly reduced the investment portfolio.


Strategic loans increased $41.2 million or 15.1% annualized over the prior quarter to $1.1 billion at December 31, 2012. We realized another quarter of increased production across the commercial loan categories and our residential mortgage promotions continue to generate new relationships. The credit quality of the strategic portfolio continues to be strong with only 0.6% in non-performing loans. Strategic loans include all originated loans in addition to those acquired loans inside our operating markets that meet our credit risk profile. Criteria utilized in the designation of an acquired loan as "strategic" include (a) geography, (b) total relationship with borrower and (c) credit metrics commensurate with our current underwriting standards.

"Our focus is on growing and expanding our relationships with individuals and small to mid-sized businesses. We realized our eighth consecutive quarter of increased loan production in the communities where we do business," said Mr. Laney. "More important, we are realizing loan growth while maintaining very strong underwriting standards and doing business with clients we know and understand."

Total loans ended the fourth quarter, 2012 at $1.8 billion representing a decrease from the prior quarter of $91.1 million or 18.7% annualized. The decrease reflects our strategy of exiting the non-strategic loan portfolio as adversely rated and other non-strategic relationships paid off or paid down. The non-strategic loans totaled $719.3 million at December 31, 2012 and decreased $132.2 million or 61.8% annualized from September 30, 2012.

Asset Quality and Provision for Loan Losses

"We continue to have one of the lowest risk balance sheets in the industry," stated Chief Financial Officer Brian Lilly. "We have a risk weighted assets to total assets ratio of 34%, which is one of the lowest in the industry, and our loan portfolio has several risk mitigants including: 66% of the loan portfolio carries acquisition discounts, 33% of our loans have the added protection of FDIC loss share and 45% are accounted for in acquired loan pools, which requires a quarterly valuation update."

Loans accounted for under ASC 310-30 (acquired loan pools) totaled $830.7 million at December 31, 2012 compared to $971.0 million at September 30, 2012. The quarterly fair value re-measurement on the acquired loan pools resulted in a transfer of $8.9 million from non-accretable to accretable yield while recording $1.6 million of impairment through the provision for credit losses thereby increasing the economic value of the acquired loan pools by an additional $7.3 million for the fourth quarter and $68.9 million on a life-to-date basis at December 31, 2012. The increase in accretable yield will be recognized over the remaining life of these loan pools with the quarter recognizing just $0.3 million of the fourth quarter increase in accretable yield.

The non 310-30 loans totaled $1.0 billion, or 55% of total loans, at December 31, 2012. These loans are primarily comprised of originated loans and acquired loans not accounted for under the ASC 310-30 acquired loan pool accounting. Net annualized charge-offs for the non 310-30 loans improved to 27 basis points for the fourth quarter 2012. The provision for loan losses on the non 310-30 loans of $1.1 million covered the net charge-offs and provided for new loan growth resulting in a non 310-30 allowance for loan losses to total non 310-30 loans ratio of 1.06% as of December 31, 2012. Other real estate owned decreased $43.7 million during the quarter primarily due to sales of $43.0 million.


Average transaction deposits (defined as total deposits less time deposits) totaled $2.4 billion and grew 4.0% annualized during the fourth quarter. Our continued focus on building client relationships resulted in an annualized increase of 16.6% in average non-interest bearing demand deposits. We continued to restructure our deposit base by retaining only those acquired time deposit clients who were interested in market rate time deposits and developing a banking relationship and as a result, average time deposits decreased $231 million. At December 31, 2012 the mix of transaction deposits to total deposits improved to 58% from 55% at the end of the prior quarter and the cost of deposits decreased to 0.48% in the fourth quarter representing an improvement of 11 basis points from the prior quarter. The balance sheet continues to be primarily funded by client deposits and repurchase agreements, and at December 31, 2012, comprised 98.5% of total liabilities.

Non-Interest Income

Banking related non-interest income (excludes FDIC related income) totaled $10.9 million for the fourth quarter 2012 and increased $1.5 million over the prior quarter. The increase was driven by the recovery of $1.3 million from a previously charged-off acquired loan. An additional $1.8 million of FDIC indemnification asset negative accretion was recorded during the fourth quarter as compared to the third quarter, resulting from improvements in actual and expected cash flows on covered assets. Other FDIC loss sharing income totaled $2.8 million in the fourth quarter and increased $1.3 million due to an increase in amounts due from the FDIC, primarily related to covered OREO write-downs.

Non-Interest Expense

Non-interest expense totaled $51.4 million during the fourth quarter of 2012, a decrease of $8.6 million from the previous quarter. The decrease in non-interest expense during the quarter was largely due to elevated non-interest expenses in the third quarter related to $12.5 million of IPO related expenses, offset by increased OREO expenses in the fourth quarter. Excluding IPO related expenses and problem loan/OREO workout expenses, non-interest expense was flat compared to the prior quarter. Salaries and employee benefits decreased $5.3 million driven by $4.9 million lower stock-based compensation expense related to the IPO in the prior quarter and lower incentive-based compensation expense recorded during the fourth quarter. The $4.7 million linked quarter increase in OREO costs was primarily driven by the increased levels of workout results during the quarter. The OREO and problem loan expenses are expected to continue to fluctuate quarterly as we resolve the acquired problem asset portfolio.


The Company's capital ratios continue to be well in excess of federal bank regulatory agency "well capitalized" thresholds. Shareholders' equity totaled $1.1 billion and decreased $5.3 million during the fourth quarter, due to a $6.2 million decrease in accumulated other comprehensive income, net of tax, which was driven by the fair market value fluctuations of the available-for-sale investment securities portfolio. Tangible book value per share decreased to $19.17 at December 31, 2012 from $19.30 at September 30, 2012, as a result of the decrease in accumulated other comprehensive income. The tangible common equity to tangible assets ratio ended December 31, 2012 at 18.85% representing an increase of 31 basis points from the prior quarter. This increase was driven by lower total assets at December 31, 2012.

A common convention in the industry is to add the value of the accretable yield to the tangible book value per share. The value of the December 31, 2012 accretable yield balance on the ASC 310-30 loans of $133.6 million would add $1.54 after-tax to the tangible book value per share. A more conservative methodology, that management uses, values the excess yield and then considers the timing of the accreted interest income recognition over time. Under this more conservative methodology, we first net the accretable yield on ASC 310-30 loans and the accretable yield on the FDIC indemnification asset and then calculate the excess of a 4.5% yield (an approximate yield on new loan originations), and finally discount the amounts at 5%. The result would add $0.50 after-tax to our tangible book value per share as of December 31, 2012.

Conference Call

Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Tuesday, January 29, 2013. Interested parties may listen to this call by dialing (877) 272-6762 (United States)/ (615) 800-6832 (International) using the Conference ID of 85388364 and ask for the National Bank Holdings Corporation Fourth Quarter Earnings conference call. A telephonic replay of the call will be available beginning approximately two hours after the call's completion through February 12, 2013, by dialing (855) 859-2056 (United States)/ (404) 537-3406 (International) using the Conference ID of 85388364. The earnings release and an on-line replay of the call will also be available on the Company's website at 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 tangible assets," "return on tangible equity," "tangible book value," "tangible book value per share," "pre-tax pre-provision net revenue to risk weighted assets," "adjusted net revenue," "adjusted non-interest expense," and "tangible common equity," are supplemental measures that are not required by, or are not presented in accordance with, accounting principles generally accepted in the United States, or "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. 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.

We believe that these measures provide useful information to management and investors that is supplementary to our financial condition, results of operations and cash flows computed in accordance with GAAP; however we acknowledge that our non-GAAP financial measures have a number of limitations relative to GAAP financial measures. First, certain non-GAAP financial measures exclude provisions for loan losses and income taxes, and both of these expenses significantly impact our financial statements. Additionally, the items that we exclude in our adjustments are not necessarily consistent with the items that our peers may exclude from their results of operations and key financial measures and therefore may limit the comparability of similarly named financial measures and ratios. 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 our 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 customer service and committed to shareholder results. National Bank Holdings Corporation currently operates a network of 101 full-service banking centers, with the majority of those banking centers located in Colorado and the greater Kansas City region. Through the Company's subsidiary, NBH Bank, N.A. it operates under the following brand names: Bank Midwest in Kansas and Missouri, Community Banks of Colorado in Colorado and California and Hillcrest Bank in Texas.

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 "believes," "expects," "may," "should," "will," "seeks," "approximately," "intends," "plans," "estimates," "targets" or "anticipates" or similar expressions that relate to the Company's strategy, plans or intentions. Forward-looking statements are statements about future, not past, events and involve certain important risks and uncertainties, any of which could cause the Company's actual results to differ materially from those expressed in forward-looking statements, including, without limitation, the factors more fully described under the caption "Risk Factors" in the last quarterly report we filed with the Securities and Exchange Commission and: (1) changes in business and economic conditions generally and in the financial services industry; (2) changes in the laws, regulations and the regulatory environment; (3) the Company's ability to identify potential candidates for, consummate, integrate and realize operating efficiencies from, acquisitions of banking franchises on attractive terms, or at all; (4) the Company's ability to achieve organic loan and deposit growth and the composition of such growth; (5) a weakening of the economy which could materially impact credit quality trends and local real estate values; and (6) increased competition in the financial services industry, nationally, regionally or locally. Except as required by law, the Company undertakes no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made and which reflect management's estimates, expectations or beliefs as of such time. For a discussion of additional risks and uncertainties that may affect the future results of the Company, please see the Company's filings with the Securities and Exchange Commission.


Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share data)
For the three months endedFor the twelve months ended
December 31,September 30,December 31,December 31,December 31,
Total interest and dividend income$54,708$56,042$60,939$233,485$197,159
Total interest expense 5,124  6,546  10,948  29,234  41,696 
Net interest income before provision for loan losses 49,584  49,496  49,991  204,251  155,463 
Provision for loan losses on 310-30 loans1,6203,6631,77319,0185,011
Provision for loan losses on non-310-30 loans 1,050  1,600  1,783  8,977  14,991 
Net interest income after provision for loan losses 46,914  44,233  46,435  176,256  135,461 
Non-interest income:
FDIC indemnification asset accretion(4,655)(2,832)(3,895)(13,820)(6,132)
Other FDIC loss sharing income (expense)2,7911,503(1,000)12,0691,410
Service charges4,2224,4664,63017,39216,810
Bank card fees2,5312,4842,2159,6997,611
Bargain purchase gain----60,520
Gain on sales of mortgages, net3282832861,2141,103
Gain (loss) on sale of securities, net--(24)674(645)
Gain on recoveries of previously charged-off acquired loans1,6718372,4324,2985,902
Other non-interest income 2,109  1,322  683  5,853  2,907 
Total non-interest income 8,997  8,063  5,327  37,379  89,486 
Non-interest expense:
Salaries and employee benefits21,88527,18215,36594,11167,480
Occupancy and equipment5,7135,5705,41820,55817,975
Professional fees2,5442,6696,27811,15613,650
Other real estate owned expenses8,1613,4684,50320,3137,064
Problem loan expenses1,8282,2672,0238,5324,389
Intangible asset amortization1,3241,3531,2805,3444,359
Initial public offering related expenses-7,566-7,974600
Acquisition related costs--6428704,935
Other non-interest expense 9,912  9,882  10,222  40,740  35,086 
Total non-interest expense 51,367  59,957  45,731  209,598  155,538 
Income (loss) before income taxes4,544(7,661)6,0314,03769,409
Income tax expense 1,541  230  3,578  4,580  27,446 
Net income (loss)$3,003 $(7,891)$2,453 $(543)$41,963 
Income (loss) per share - basic$0.06$(0.15)$0.05$(0.01)$0.81
Income (loss) per share - diluted$0.06$(0.15)$0.05$(0.01)$0.81

Consolidated Statements of Condition (Unaudited)

(Dollars in thousands, except share and per share data)
December 31, 2012September 30, 2012December 31, 2011
Cash and due from banks$90,505$65,452$93,862
Due from Federal Reserve Bank of Kansas City579,267496,8931,421,734
Federal funds sold and interest bearing bank deposits 99,408  102,354  112,541 
Cash and cash equivalents769,180664,6991,628,137
Investment securities available-for-sale1,718,0281,739,6321,862,699
Investment securities held-to-maturity577,486643,6616,801
Non-marketable securities32,99633,046