National Bank Holdings Corporation Announces Fourth Quarter 2013 Financial Results and Increases Share Repurchase Authorization to $50 Million

GREENWOOD VILLAGE, Colo.--()--National Bank Holdings Corporation (NYSE: NBHC) reported net income of $1.0 million, or $0.02 per diluted share, for the fourth quarter of 2013, compared to net income of $0.9 million, or $0.02 per diluted share, for the third quarter of 2013.

In announcing these results, President and Chief Executive Officer Tim Laney said, “We are pleased to report continued strength and momentum in our loan production during the fourth quarter with $244.2 million in new loan originations and total loans growing by $111.3 million, or 25.3% annualized. We are realizing solid growth while maintaining strong credit quality, as reflected by total charge-offs on originated loans of just three basis points during 2013.”

Mr. Laney continued, “In just over three years, we have acquired four banks with $2.8 billion in loans. Almost $2 billion of these loans were determined to be distressed or non-strategic. We closed out 2013 with non-strategic loan balances at $350.0 million and with strong workout performance as evidenced by a pickup of $166.7 million of net accretable yield. At the same time, we have grown our strategic portfolio from $800 million to over $1.5 billion and our organic loan growth has outpaced our aggressive reduction in non-strategic loans, resulting in net loan growth during the second half of 2013. To put organic loan growth in perspective - new loan fundings of approximately $714 million represented a 65% increase over 2012.”

Mr. Laney added, “We end 2013 with a focus on levering our momentum in loan production to expand client relationships and realize solid growth in fee income and transaction account balances during 2014.”

With regard to mergers and acquisitions, Mr. Laney shared, “We are not pleased with the current pace of acquisitions but remain confident that there are opportunities to leverage capital in situations that we believe will create attractive returns for our investors. In the interim, we expect to continue to opportunistically buy in our shares, as evidenced by the 7.4 million shares that have been repurchased to date, representing a 14.2% reduction in total shares outstanding. To take advantage of future opportunities, we recently increased our share repurchase program to $50 million. Further, we believe these repurchases could serve to offset any future share issuances for acquisitions.”

Fourth Quarter 2013 Highlights

  • Grew the strategic loan portfolio by $174.5 million, or 52.1% annualized, driven by $244.2 million in originations, a 27.4% linked quarter increase in originations and a 74.7% increase over the fourth quarter last year.
  • Successfully exited $63.2 million, or 60.7% annualized, of the non-strategic loan portfolio.
  • Total loans increased $111.3 million, or 25.3% annualized, over September 30, 2013.
  • Increased client cash flow estimates resulted in a net addition of $23.6 million to accretable yield for the acquired loans accounted for under ASC 310-30, complemented by $0.2 million in provision recoupments within that portfolio.
  • Credit quality of the non 310-30 loan portfolio continued to improve, with non-performing loans decreasing to 1.51% of total non 310-30 loans at December 31, 2013 from 2.31% at September 30, 2013.
  • Net interest income totaled $43.6 million, decreasing $1.9 million from the prior quarter. The third quarter had the benefit of $2.5 million from the early pay off of one ASC 310-30 loan pool.
  • Operating expenses before the banking center closure charges, problem loan/OREO workout expenses and fair value changes to the warrant liability decreased $2.2 million from the prior quarter driven by efficiency initiatives.
  • Problem loan/OREO workout expenses totaled $4.6 million, increasing $3.0 million from the prior quarter as the third quarter included the benefit of $3.5 million of OREO gains.
  • Repurchased 6,306,551 shares at a weighted average price of $20.00 per share and announced a new $35 million share repurchase authorization.
  • Tangible common book value per share was $18.27 before consideration of the excess accretable yield value of $0.75 per share.

Fourth Quarter 2013 Results

(All comparisons refer to the third quarter of 2013, except as noted)

Net Interest Income

Net interest income totaled $43.6 million for the fourth quarter of 2013, decreasing $1.9 million compared to the prior quarter. The linked quarter decrease was largely reflective of an early payoff of one loan pool in the third quarter, which resulted in an immediate recognition of $2.5 million of accretable yield at that time. Excluding the $2.5 million of accretable yield recognized in the prior quarter, the net interest income increased slightly as strong originations have helped stabilize interest income. Interest earning assets declined $174.0 million, largely due to the $126.1 million of cash used to repurchase shares during the fourth quarter. Higher yields on the ASC 310-30 loan portfolio (acquired loan pools) were realized as a result of the continued improvements in expected cash flows on these loans and the resulting transfers to accretable yield in recent quarters. The increase in yield on the ASC 310-30 loans was offset by lower average balances in the ASC 310-30 portfolio as we continue to actively exit the non-strategic loan portfolio. A three basis point decrease in yield earned on interest earning assets was complemented by a one basis point decrease in the cost of interest bearing deposits and client repurchase agreements. As a result, the fourth quarter net interest margin narrowed by two basis points to 3.78%.

Loans

During the fourth quarter total loans increased $111.3 million, or 25.3% annualized, ending at $1.9 billion. Strategic loans totaled $1.5 billion at December 31, 2013 and increased $174.5 million, or 52.1% annualized, on the strength of $244.2 million in loan originations, a $52.5 million increase from the third quarter of 2013, and a 74.7% increase over the fourth quarter of 2012. Included in strategic loans outstanding are $1.1 billion in originated balances, which increased $206.4 million, or 93.4% annualized, over the prior quarter. Consistent with the strategy of exiting the non-strategic loan portfolio, balances of non-strategic relationships decreased $63.2 million during the quarter, or 60.7% annualized, to $350.0 million, as adversely rated and other non-strategic relationships paid off or paid down. Strategic loans include all originated loans in addition to those acquired loans inside our operating markets that meet our credit risk profile. Identification as strategic for acquired loans was made at the time of acquisition. 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.

Asset Quality and Provision for Loan Losses

“We had another quarter of outstanding credit quality as we continue to benefit from prudent underwriting standards and successful workout efforts,” said Chief Financial Officer Brian Lilly. “During the fourth quarter, we transferred an additional $23.6 million, net, from non-accretable difference to accretable yield, which we will recognize over the lives of the acquired loan pools. Our life-to-date benefit of accretable yield net of impairments is $166.7 million, further validating our conservative acquisition due diligence process and our ongoing workout efforts.” Mr. Lilly continued, “FDIC loss-sharing agreements cover 17% of loans and 55% of OREO. As a result, we have one of the lowest risk-weighted assets to total assets ratio in the industry at 43%. Additionally, 38% of the loan portfolio carries acquisition discounts and 24% of loans are accounted for under ASC 310-30 in acquired loan pools.”

Loans accounted for under ASC 310-30 totaled $450.9 million at December 31, 2013 and decreased $62.1 million during the fourth quarter, an annualized decrease of 48.0%, reflecting workout efforts on these purchased loans. One commercial and industrial loan pool, totaling $14.8 million and covered by a loss-sharing agreement, remains on non-accrual status with the balance decreasing $2.0 million from September 30, 2013 as cash payments were applied to the book balance.

Credit quality trends in the non 310-30 portfolio continue to be very strong. Non 310-30 loans totaled $1.4 billion and represented 75.7% of total loans at December 31, 2013. These loans are comprised of $1.1 billion of originated loans and $320.2 million of acquired loans that are not accounted for under the ASC 310-30 acquired loan pool accounting. Within the non 310-30 portfolio, the ratio of non-performing loans to loans improved to 1.51% at December 31, 2013 from 2.31% at September 30, 2013. The non 310-30 loan portfolio had net recoveries of $0.4 million during the fourth quarter. Originated loans within the non 310-30 portfolio continued to show strong credit quality and finished the year with total net charge-offs of just 0.03% and non-performing loans of 0.42%. As a result of the net recoveries, improved credit quality and loan growth, a provision for loan losses of $1.0 million was recorded during the fourth quarter on the non 310-30 loans.

OREO ended the quarter at $70.1 million, a decrease of $0.6 million and included transfers from the loan portfolio of $7.6 million. Of the $70.1 million of OREO at December 31, 2013, $38.8 million, or 55.4%, were covered by the loss-sharing agreements with the FDIC.

Deposits

Transaction deposits (defined as total deposits less time deposits) and client repurchase agreements averaged $2.5 billion during the fourth quarter, decreasing $81.2 million. Total deposits and client repurchase agreements averaged $4.0 billion during the fourth quarter, decreasing $98.5 million. Both decreases were driven by the previously announced closing of the California banking centers and the limited-service retirement centers on December 31, 2013, coupled with a fourth quarter restructuring of a legacy deposit product that was in place at Bank of Choice at the time of acquisition. Excluding these actions, average balances of transaction deposits and client repurchase agreements increased $25.4 million, or 4.0% annualized, and average balances of total deposits and client repurchase agreements decreased $34.3 million. The mix of transaction deposits to total deposits remained steady at 61.0% at December 31, 2013. Additionally, the average cost of total deposits improved two basis points to 0.38% in the fourth quarter from 0.40% during the prior quarter. The balance sheet is strongly funded by client deposits and client repurchase agreements, and at December 31, 2013, these client fundings comprised 98.0% of total liabilities.

Non-Interest Income

Banking related non-interest income (excludes FDIC-related income) totaled $9.9 million during the fourth quarter of 2013 and increased $1.2 million compared to the prior quarter as a $0.4 million decrease in service charge and bank card income was offset by a $1.4 million increase in OREO income.

Included in total non-interest income is a net $2.2 million decrease in FDIC-related income largely as a result of additional amortization on the FDIC indemnification asset. The amortization of the FDIC indemnification asset has been steadily increasing over the past three quarters due to better performance of the underlying covered assets. As of December 31, 2013, the FDIC indemnification asset was $64.4 million, comprised of $44.7 million in projected future FDIC loss-share billings and $19.7 million representing increased client cash flows. The benefit of the increased client cash flows is primarily captured in the ASC 310-30 accretable yield as most of the FDIC covered assets are accounted for in the ASC 310-30 loan pools. Our current projection for the $19.7 million portion of the FDIC indemnification asset related to increased client cash flows is for amortization of $16.6 million in 2014 and $2.9 million in 2015.

Non-Interest Expense

Non-interest expense totaled $44.2 million during the fourth quarter of 2013, a decrease of $2.4 million from the previous quarter. Operating expenses totaled $39.0 million and decreased $2.2 million from the prior quarter. Operating expenses exclude problem loan/OREO workout expenses, the warrant liability charge of $0.7 million and the banking center closure charges incurred in the third quarter. This decrease was primarily due to a $2.0 million decline in salaries and employee benefits in the fourth quarter as a result of operating efficiency initiatives that were implemented.

OREO and problem loan expenses totaled $4.6 million during the fourth quarter and increased $3.0 million from the prior quarter as the third quarter benefited from $3.5 million of gains on sale of OREO. The OREO and problem loan expenses are expected to continue to fluctuate quarterly as we resolve the acquired problem asset portfolio, however, these expenses have been trending downward steadily.

Taxes were a net benefit of $56.0 thousand for the fourth quarter. The net tax benefit related to the true-up of state-related tax liabilities that benefited the fourth quarter by $0.5 million.

Capital

Capital ratios continue to be strong and well in excess of federal bank regulatory agency “well capitalized” thresholds. Stockholders’ equity totaled $897.8 million at December 31, 2013 and decreased $133.5 million during the fourth quarter, primarily due to the repurchase of 6.3 million shares for $126.1 million as well as a $6.6 million decline in accumulated other comprehensive income (loss), net of tax, which was driven by the fair market value fluctuations of the available-for-sale investment securities portfolio. The 6.3 million shares repurchased during the quarter represented a 12.3% reduction in shares outstanding, at a weighted average price of $20.00 per share.

Tangible common book value per share at December 31, 2013 was $18.27, compared to $18.60 at September 30, 2013, and the tangible common equity to tangible assets ratio decreased 177 basis points during the quarter ending at 16.97%. Both decreases were driven by the share repurchases and the decrease in accumulated other comprehensive income (loss) related to market value fluctuations in the investment portfolio.

To date, we have repurchased 7.4 million shares, representing a 14.2% reduction in total shares outstanding. During the fourth quarter, the Board of Directors approved a new $35 million share repurchase authorization. As of December 31, 2013, there was $25 million remaining under that $35 million repurchase authorization. On January 23, 2014, the Board of Directors replaced the remaining buyback authorization with a new authorization to repurchase up to $50 million of the Company’s common stock through December 31, 2014. Under the new program, the shares may be acquired from time to time either in the open market or in privately negotiated transactions.

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, 2013 accretable yield balance on the ASC 310-30 loans of $130.6 million would add $1.77 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. Under this more conservative methodology, we first net the $130.6 million of accretable yield on ASC 310-30 loans and the $19.7 million of the FDIC indemnification asset that is to be amortized in the future, and then calculate the excess above a 4.5% yield (an approximate yield on new loan originations), and finally discount the amounts at 5%. The result would add $0.75 after-tax to our tangible book value per share as of December 31, 2013.

Year-Over-Year Review

(All comparisons refer to the full year 2012)

Net income for 2013 was $6.9 million, or $0.14 per diluted share, compared to a net loss of $0.5 million for 2012, or $0.01 per diluted share. Included in 2013 were after-tax banking center closure expenses of $2.1 million, or $0.04 per diluted share, and included in 2012 were one-time after tax expenses of $11.2 million, or $0.22 per diluted share, related to our initial public offering completed in September 2012, which included $8.0 million of initial public offering expenses and $3.2 million related to stock-based compensation, after tax. Net interest income totaled $179.0 million and decreased $25.3 million, which resulted from the lower purchased loan balances as non-strategic loans were paid off or paid down, coupled with lower yields earned on the non 310-30 loan portfolio and on the investment portfolio. Loan originations increased 64.4% to $714.0 million in 2013 from $434.3 million in 2012 and resulted in reaching the loans outstanding inflection point during the third quarter where total loan balances began to grow as originations began to outpace the resolution of acquired problem loans. Total loans outstanding at December 31, 2013 increased $21.4 million over the prior year-end as strong originations more than offset the steady resolution of acquired troubled loans.

The net interest margin narrowed 17 basis points to 3.81% during 2013 from 3.98% during 2012 as a result of lower yield on earning assets, and partially offset by a lower average cost of interest bearing liabilities. The yield on interest earning assets declined 39 basis points in 2013 compared to 2012 due to lower balances on the higher-yielding purchased portfolios as loans originated during the current low interest rate environment continue to make up a larger portion of the loan portfolio coupled with lower reinvestment yields earned on the investment portfolio.

Transaction deposits and client repurchase agreements averaged $2.5 billion during 2013, increasing $78.2 million, or 3.3%, from the prior year. Total deposits and client repurchase agreements averaged $4.1 billion during 2013, decreasing $506.6 million from the prior year. The decline was driven by a $584.8 million decrease in average time deposits as many of these clients were single-service, highly rate-sensitive clients of the problem banks that we purchased, coupled to a lesser extent with the previously mentioned California banking center and limited-service retirement center closures. Since the completion of the acquisitions, we have focused our deposit base on in-market clients who are interested in market rate time deposits and developing a banking relationship. In doing so, the mix of transaction deposits to total deposits increased to 61.0% at December 31, 2013 from 58.3% at December 31, 2012 and the cost of deposits decreased 23 basis points during 2013.

Provision for loan loss expense was $4.3 million during 2013, compared to $28.0 million during 2012, a decrease of $23.7 million. The decrease in provision was due to lower impairment charges on the ASC 310-30 loan pools coupled with improved credit quality in the non 310-30 loan portfolio. The ratio of non-performing loans to total loans within the non 310-30 portfolio improved to 1.51% at December 31, 2013 from 4.04% at December 31, 2012 and net charge-offs declined to 0.27% in 2013 from 0.79% in 2012.

Non-interest income was $20.2 million in 2013 compared to $37.4 million during 2012, a decrease of $17.2 million, which was largely due to a $14.4 million decrease in FDIC-related income as a result of lower covered OREO expenses and higher amortization of the FDIC indemnification asset, coupled with a $3.0 million decrease in gain on previously charged-off acquired loans, and a $0.7 million decrease in gain on sale of securities. The higher FDIC indemnification asset amortization is driven by better performance of covered assets and is also reflected in the higher yields on the ASC 310-30 loan portfolio.

Non-interest expense totaled $184.0 million in 2013 compared to $209.6 million during 2012, a decrease of $25.6 million. Operating expenses, which excludes problem loan/OREO workout expenses, warrant liability changes, IPO related expenses in 2012, and the banking center closure charges in 2013, decreased $11.0 million during 2013. The year-over-year decrease in operating expenses was primarily due to lower professional fees of $7.4 million, lower salaries and employee benefits of $4.1 million and lower telecommunications and data processing expenses of $1.8 million as management continues to realize efficiencies in the business. The increase in occupancy and equipment expense primarily related to the settlement of the premises and equipment purchased from the FDIC in the first half of 2012 related to our Bank of Choice and Community Banks of Colorado acquisitions.

OREO and problem loan expenses decreased $12.2 million during 2013. These expenses have been steadily trending downward echoing the resolutions of purchased troubled assets throughout the year. The increase in the warrant liability expense of $2.2 million was primarily attributable to the increase in our stock price during 2013.

Income tax expense totaled $4.0 million in 2013 compared to $4.6 million in 2012, which equate to effective tax rates of 36.3% and 113.4% for the respective periods. The higher effective tax rate for 2012 was primarily attributable to $8.0 million of expenses associated with the initial public offering of our stock that were non-deductible for income tax purposes.

Stockholders' equity decreased $192.8 million during 2013 and was primarily impacted by the repurchase of 7.4 million shares at a weighted average purchase price of $19.77. Also contributing to the decrease was a $47.3 million decline in accumulated other comprehensive income, net of tax, as a result of market value fluctuations in the investment portfolio.

Conference Call

Management will host a conference call to review the results at 11:00 a.m. Eastern Time on Wednesday, January 29, 2014. Interested parties may listen to this call by dialing (877) 272-6762 (United States)/(615) 800-6832 (International) using the Conference ID of 26586785 and asking 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, 2014, by dialing (855) 859-2056 (United States)/(404) 537-3406 (International) using the Conference ID of 26586785. The earnings release and an on-line replay of the call will also be available on the Company’s website at www.nationalbankholdings.com 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 average tangible assets,” “tangible common equity,” “return on average tangible common equity,” “tangible common book value,” “tangible common book value per share,” “tangible common book value per share, excluding accumulated other comprehensive income (loss),” and "tangible common equity to tangible assets," are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “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.

These non-GAAP financial measures are presented for supplemental informational purposes only and should not be considered a substitute for financial information presented in accordance with GAAP. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. In particular, 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 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 client service and committed to shareholder results. National Bank Holdings Corporation operates a network of 97 banking centers located in Colorado, the greater Kansas City region and Texas. 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 Hillcrest Bank in Texas. Additional information about National Bank Holdings Corporation can be found at www.nationalbankholdings.com.

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 “anticipate,” “believe,” “can,” “would,” “should,” “could,” “may,” “predict,” “seek,” “potential,” “will,” “estimate,” “target,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “intend” or similar expressions that relate to the Company’s strategy, plans or intentions. Forward-looking statements involve certain important risks, uncertainties and other factors, any of which could cause actual results to differ materially from those in such statements. Such factors include, without limitation, the “Risk Factors” referenced in our most recent Form 10-K filed with the Securities and Exchange Commission (SEC), as supplemented from time to time in our periodic reports filed with the SEC, and the following additional factors: ability to execute our business strategy; business and economic conditions; economic, market, operational, liquidity, credit and interest rate risks associated with the Company’s business; effects of any changes in trade, monetary and fiscal policies and laws; changes imposed by regulatory agencies to increase capital standards; effects of inflation, as well as, interest rate, securities market and monetary supply fluctuations; changes in consumer spending, borrowings and savings habits; the Company’s ability to identify potential candidates for, consummate, integrate and realize operating efficiencies from, acquisitions of financial institutions; the Company's ability to complete the integration of its retirement center locations and the exit of its California banking centers on the anticipated timeline and at the expected cost; the Company’s ability to achieve organic loan and deposit growth and the composition of such growth; changes in sources and uses of funds; increased competition in the financial services industry; the effect of changes in accounting policies and practices; continued consolidation in the financial services industry; ability to maintain or increase market share and control expenses; costs and effects of changes in laws and regulations and of other legal and regulatory developments; technological changes; the timely development and acceptance of new products and services; the Company’s continued ability to attract and maintain qualified personnel; ability to implement and/or improve operational management and other internal risk controls and processes and its reporting system and procedures; regulatory limitations on dividends from the Company's bank subsidiary; changes in estimates of future loan reserve requirements based upon the periodic review thereof under relevant regulatory and accounting requirements; political instability, acts of war or terrorism and natural disasters; impact of reputational risk; and success at managing the risks involved in the foregoing items. The Company can give no assurance that any goal or plan or expectation set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements. The forward-looking statements are made as of the date of this press release, and the Company does not intend, and assumes no obligation, to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events or circumstances, except as required by applicable law.

               
NATIONAL BANK HOLDINGS CORPORATION
FINANCIAL SUMMARY    
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except share and per share data)
 
For the three months ended For the years ended
December 31, September 30, December 31, December 31, December 31,
2013 2013 2012 2013 2012
Total interest and dividend income $ 47,377 $ 49,522 $ 54,708 $ 195,475 $ 233,485
Total interest expense 3,787   4,007   5,124   16,514   29,234  
Net interest income before provision for loan losses 43,590   45,515   49,584   178,961   204,251  
Provision for loan losses on 310-30 loans (230 ) (313 ) 1,620 769 19,018
Provision for loan losses on non 310-30 loans 1,002   750   1,050   3,527   8,977  
Net interest income after provision for loan losses 42,818   45,078   46,914   174,665   176,256  
Non-interest income:
FDIC indemnification asset amortization (7,117 ) (4,208 ) (4,655 ) (18,960 ) (13,820 )
Other FDIC loss-sharing income (467 ) (1,191 ) 2,791 2,811 12,069
Service charges 4,011 4,334 4,222 15,955 17,392
Bank card fees 2,447 2,482 2,531 9,956 9,699
Gain on sale of mortgages, net 233 345 328 1,358 1,214
Gain on sale of securities, net 674
Gain on previously charged-off acquired loans 221 224 1,671 1,339 4,298
Other non-interest income 3,036   1,352   2,109   7,718   5,853  
Total non-interest income 2,364   3,338   8,997   20,177   37,379  
Non-interest expense:
Salaries and employee benefits 20,639 22,639 21,885 90,002 94,111
Occupancy and equipment 6,309 6,556 5,713 24,700 20,558
Professional fees 689 791 2,544 3,734 11,156
Other real estate owned expenses 3,282 459 8,161 10,957 20,313
Problem loan expenses 1,283 1,134 1,828 5,644 8,532
Intangible asset amortization 1,337 1,336 1,324 5,346 5,344
Banking center closure related expenses 3,389 3,389
Initial public offering related expenses 7,974
Other non-interest expense 10,699   10,309   9,912   40,193   41,610  
Total non-interest expense 44,238   46,613   51,367   183,965   209,598  
Income before income taxes 944 1,803 4,544 10,877 4,037
Income tax (benefit) expense (56 ) 856   1,541   3,950   4,580  
Net income (loss) $ 1,000   $ 947   $ 3,003   $ 6,927   $ (543 )
Income (loss) per share - basic $ 0.02 $ 0.02 $ 0.06 $ 0.14 $ (0.01 )
Income (loss) per share - diluted $ 0.02 $ 0.02 $ 0.06 $ 0.14 $ (0.01 )
 
       
NATIONAL BANK HOLDINGS CORPORATION
Consolidated Statements of Condition (Unaudited)    
(Dollars in thousands, except share and per share data)
 
December 31, 2013 September 30, 2013 December 31, 2012
 
ASSETS
Cash and cash equivalents $ 189,460 $ 349,244 $ 769,180
Securities purchased under agreements to resell 75,000
Investment securities available-for-sale 1,785,528 1,889,962 1,718,028
Investment securities held-to-maturity 641,907 664,717 577,486
Non-marketable securities 31,663 31,725 32,996
Loans receivable, net 1,854,094 1,742,813 1,832,702
Allowance for loan losses (12,521 ) (11,419 ) (15,380 )
Loans, net 1,841,573 1,731,394 1,817,322
Loans held for sale 5,787 5,265 5,368
FDIC indemnification asset, net 64,447 58,086 86,923
Other real estate owned 70,125 70,753 94,808
Premises and equipment, net 115,219 117,285 121,436
Goodwill 59,630 59,630 59,630
Intangible assets, net 22,229 23,566 27,575
Other assets 86,547   85,342   100,023  
Total assets $ 4,914,115   $ 5,161,969   $ 5,410,775  
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Non-interest bearing demand deposits $ 674,989 $ 689,405 $ 677,985
Interest bearing demand deposits 386,762 430,123 529,996
Savings and money market 1,280,871   1,297,585   1,240,020  
Total transaction deposits 2,342,622 2,417,113 2,448,001
Time deposits 1,495,687   1,534,390   1,752,718  
Total deposits 3,838,309 3,951,503 4,200,719
Securities sold under agreements to repurchase 99,547 116,471 53,685
Other liabilities 78,467   62,745   65,812  
Total liabilities 4,016,323 4,130,719 4,320,216
Stockholders' equity:
Common stock 512 512 523
Additional paid in capital 990,216 989,614 1,006,194
Retained earnings 39,966 41,266 43,273
Treasury stock (126,146 ) (4 )
Accumulated other comprehensive income (loss), net of tax (6,756 ) (142 ) 40,573  
Total stockholders' equity 897,792   1,031,250   1,090,559  
Total liabilities and stockholders' equity $ 4,914,115   $ 5,161,969   $ 5,410,775  
SHARE DATA
Average basic shares outstanding 47,378,400 51,454,200 52,296,704
Average diluted shares outstanding 47,494,341 51,501,980 52,372,806
Ending shares outstanding 44,918,336 51,213,044 52,327,672
Common book value per share $ 19.99 $ 20.14 $ 20.84
Tangible common book value per share1 $ 18.27 $ 18.60 $ 19.23
Tangible common book value per share, excluding accumulated other comprehensive income (loss)1 $ 18.42 $ 18.60 $ 18.46
CAPITAL RATIOS
Average equity to average assets 19.02 % 19.97 % 20.09 %
Tangible common equity to tangible assets1 16.97 % 18.74 % 18.89 %
Leverage ratio 16.63 % 18.54 % 18.21 %
 

1Represents a non-GAAP financial measure. See non-GAAP reconciliation on page 15.

               
NATIONAL BANK HOLDINGS CORPORATION
Loan Portfolio Update
(Dollars in thousands)
       
Accounting Treatment and Loss-Share Coverage Period End Loan Balances:
 
December 31, 2013 September 30, 2013

ASC 310-30
Loans

Non 310-30
Loans

Total Loans

ASC 310-30
Loans

Non 310-30
Loans

Total Loans
Commercial $ 61,511 $ 421,984 $ 483,495 $ 68,250 $ 272,114 $ 340,364
Commercial real estate 291,198 283,022 574,220 325,701 288,752 614,453
Agriculture 27,000 132,952 159,952 37,882 117,464 155,346
Residential real estate 63,011 536,913 599,924 72,409 523,160 595,569
Consumer 8,160   28,343   36,503   8,768   28,313   37,081
Total $ 450,880   $ 1,403,214   $ 1,854,094   $ 513,010   $ 1,229,803   $ 1,742,813
Covered $ 259,364 $ 50,033 $ 309,397 $ 309,380 $ 56,966 $ 366,346
Non-covered 191,516   1,353,181   1,544,697   203,630   1,172,837   1,376,467
Total $ 450,880   $ 1,403,214   $ 1,854,094   $ 513,010   $ 1,229,803   $ 1,742,813
 
 
Strategic/Non-Strategic Period-End Loan Balances:
 
December 31, 2013 September 30, 2013
Strategic Non-strategic Total Strategic Non-strategic Total
Commercial $ 411,589 $ 71,906 $ 483,495 $ 262,384 $ 77,980 $ 340,364
Commercial real estate 333,651 240,569 574,220 326,679 287,774 614,453
Agriculture 154,811 5,141 159,952 144,784 10,562 155,346
Residential real estate 570,455 29,469 599,924 561,770 33,799 595,569
Consumer 33,599   2,904   36,503   34,002   3,079   37,081
Total $ 1,504,105   $ 349,989   $ 1,854,094   $ 1,329,619   $ 413,194   $ 1,742,813
 
 
Originations:
 
Fourth Third Second First Fourth
quarter quarter quarter quarter quarter
2013 2013 2013 2013 2012
Commercial $ 159,931 $ 80,833 $ 24,982 $ 15,150 $ 30,988
Commercial real estate 20,959 50,081 31,553 36,749 20,993
Agriculture 23,610 5,689 22,901 9,446 28,978
Residential real estate 36,113 51,749 86,161 45,808 52,778
Consumer 3,594   3,326   3,157   2,211   6,025
Total $ 244,207   $ 191,678   $ 168,754   $ 109,364   $ 139,762
 
                   
NATIONAL BANK HOLDINGS CORPORATION
Summary of Net Interest Margin
(Dollars in thousands)
     
Three months ended December 31, 2013   Three months ended September 30, 2013  
Average Average Average Average
Balance Interest Rate Balance Interest Rate
Interest earning assets:
ASC 310-30 loans $ 475,562 $ 17,045 14.34 % $ 554,750 $ 19,603 14.14 %
Non 310-30 loans (1) (2) (3) 1,310,450 16,220 4.91 % 1,149,312 15,725 5.43 %
Investment securities available-for-sale 1,864,960 8,886 1.91 % 1,983,108 8,851 1.79 %
Investment securities held-to-maturity 655,805 4,676 2.85 % 648,799 4,688 2.89 %
Other securities 31,700 389 4.91 % 31,754 388 4.89 %
Interest earning deposits and securities purchased under agreements to resell 234,739   161   0.27 % 379,537   267   0.28 %
Total interest earning assets $ 4,573,216   $ 47,377   4.11 % $ 4,747,260   $ 49,522   4.14 %
Cash and due from banks 60,961 60,410
Other assets 391,974 402,496
Allowance for loan losses (11,977 ) (11,668 )
Total assets $ 5,014,174   $ 5,198,498  
Interest bearing liabilities:
Interest bearing demand, savings and money market deposits $ 1,667,653 $ 1,031 0.25 % $ 1,744,705 $ 1,085 0.25 %
Time deposits 1,544,223 2,715 0.70 % 1,561,552 2,880 0.73 %
Securities sold under agreements to repurchase 107,985   41   0.15 % 120,654   42   0.14 %
Total interest bearing liabilities $ 3,319,861   $ 3,787   0.45 % $ 3,426,911   $ 4,007   0.46 %
Demand deposits 676,959 668,400
Other liabilities 63,518   65,219  
Total liabilities 4,060,338   4,160,530  
Stockholders' equity 953,836   1,037,968  
Total liabilities and stockholders' equity $ 5,014,174   $ 5,198,498  
Net interest income $ 43,590   $ 45,515  
Interest rate spread 3.66 % 3.68 %
Net interest earning assets $ 1,253,355   $ 1,320,349  
Net interest margin 3.78 % 3.80 %
Ratio of average interest earning assets to average interest bearing liabilities 137.75 % 138.53 %
(1)   Originated loans are net of deferred loan fees, less costs, which are included in interest income over the life of the loan.
(2) Includes originated loans with average balances of $972,275 and $769,586, interest income of $10,747 and $8,697 and yields of 4.39% and 4.48% for the three months ended December 31, 2013 and September 30, 2013, respectively.
(3) Non 310-30 loans include loans held-for-sale. Average balances during the three months ended December 31, 2013 and September 30, 2013 were $2.8 million and $6.1 million, and interest income was $67 thousand and $101 thousand for the same periods, respectively.
 
                   
NATIONAL BANK HOLDINGS CORPORATION
(Dollars in thousands)    
 
Allowance For Loan Losses Analysis (1):
As of and for the three months ended
December 31, 2013 September 30, 2013
ASC 310-30 Non 310-30 Total ASC 310-30 Non 310-30 Total
Beginning allowance for loan losses $ 1,604 $ 9,815 $ 11,419 $ 2,195 $ 9,652 $ 11,847
Net (charge-offs)/recoveries (94 ) 424 330 (278 ) (587 ) (865 )
Provision (recoupment)/expense (230 ) 1,002   772   (313 ) 750   437  
Ending allowance for loan losses $ 1,280   $ 11,241   $ 12,521   $ 1,604   $ 9,815   $ 11,419  
Ratio of annualized net charge-offs/(recoveries) to average total loans during the period, respectively 0.08 % (0.13 )% (0.07 )% 0.20 % 0.20 % 0.20 %
Ratio of allowance for loan losses to total loans outstanding at period end, respectively 0.28 % 0.80 % 0.68 % 0.31 % 0.80 % 0.66 %
Ratio of total non-performing loans to total loans, respectively 3.29 % 1.51 % 1.95 % 3.29 % 2.31 % 2.60 %
Ratio of allowance for loan losses to total non-performing loans at period end, respectively 8.63 % 52.90 % 34.71 % 9.52 % 34.50 % 25.20 %
Total loans $ 450,880 $ 1,403,214 $ 1,854,094 $ 513,010 $ 1,229,803 $ 1,742,813
Average total loans during the period $ 475,562 $ 1,307,631 $ 1,783,193 $ 554,750 $ 1,143,223 $ 1,697,973
Total non-performing loans $ 14,828 $ 21,250 $ 36,078 $ 16,857 $ 28,453 $ 45,310
 
Past Due Loans(1):
 
December 31, 2013 September 30, 2013

ASC 310-30
Loans

Non 310-30
Loans

Total

ASC 310-30
Loans

Non 310-30
Loans

Total
Non-accrual loans $ 14,827 $ 9,517 $ 24,344 $ 16,857 $ 13,994 $ 30,851
Loans 30-89 days past due and still accruing interest 11,245 2,854 14,099 27,900 2,247 30,147
Loans 90 days past due and still accruing interest 55,864   129   55,993   62,324   169   62,493  
Total past due and non-accrual loans $ 81,936   $ 12,500   $ 94,436   $ 107,081   $ 16,410   $ 123,491  
Total past due and non-accrual loans to total loans, respectively 18.17 % 0.89 % 5.09 % 20.87 % 1.33 % 7.09 %
Total non-accrual loans to total loans, respectively 3.29 % 0.68 % 1.31 % 3.29 % 1.14 % 1.77 %
% of total past due and non-accrual loans that carry fair value marks 100.00 % 52.23 % 93.68 % 100.00 % 38.65 % 91.85 %
% of total past due and non-accrual loans that are covered by FDIC loss sharing agreements, respectively 77.63 % 18.27 % 69.77 % 82.56 % 16.10 % 73.73 %
 
           
NATIONAL BANK HOLDINGS CORPORATION
(Dollars in thousands)            
 
Asset Quality Data (Covered/Non-covered)(1):
December 31, 2013 September 30, 2013
Non-covered Covered Total Non-covered Covered Total
Total non-accrual loans $ 7,573 $ 16,771 $ 24,344 $ 11,591 $ 19,260 $ 30,851
Total loans 90 days past due and still accruing interest 14 115 129 169 169
Accruing restructured loans (2) 5,891   5,714   11,605   8,286   6,004   14,290  
Total non-performing loans 13,478 22,600 36,078 20,046 25,264 45,310
OREO 31,300 38,825 70,125 26,671 44,082 70,753
Other repossessed assets 784   302   1,086   784   481   1,265  
Total non-performing assets $ 45,562   $ 61,727   $ 107,289   $ 47,501   $ 69,827   $ 117,328  
Allowance for loan losses $ 12,521 $ 11,419
Total non-performing loans to loans, respectively 0.87 % 7.30 % 1.95 % 1.46 % 6.90 % 2.60 %
Total non-performing assets to total assets 2.18 % 2.27 %
(1) Loans accounted for under ASC 310-30 may be considered performing, regardless of past due status, if the timing and expected cash flows on these loans can be reasonably estimated and if collection of the new carrying value is expected.
(2) Includes restructured loans less than 90 days past due and still accruing.
 
                     
Changes in Accretable Yield:
For the three months ended Life-to-date
December 31, 2013 September 30, 2013 December 31, 2012 December 31, 2013
Accretable yield at beginning of period $ 124,086 $ 128,542 $ 148,868 $
Additions through acquisitions 214,994
Reclassification from non-accretable difference to accretable yield 25,343 17,626 13,145 186,684
Reclassification to non-accretable difference from accretable yield (1,760 ) (2,479 ) (4,273 ) (20,024 )
Accretion income (17,045 ) (19,603 ) (24,155 ) (251,030 )
Accretable yield at end of period $ 130,624   $ 124,086   $ 133,585   $ 130,624  
 
           
NATIONAL BANK HOLDINGS CORPORATION
Key Ratios
      As of and for the three months ended   As of and for the years ended  
December 31, 2013     September 30, 2013 December 31, 2012 December 31, 2013 December 31, 2012

Key Ratios (1)

Return on average assets 0.08 % 0.07 % 0.22 % 0.13 % -0.01%
Return on average tangible assets (2) 0.15 % 0.14 % 0.28 % 0.20 % 0.05 %
Return on average equity 0.42 % 0.36 % 1.10 % 0.67 % -0.05%
Return on average tangible common equity (2) 0.82 % 0.73 % 1.50 % 1.06 % 0.27 %
Return on risk weighted assets 0.19 % 0.19 % 0.64 % 0.33 % -0.03%
Interest earning assets to interest bearing liabilities (end of period) (3) 137.05 % 139.44 % 134.44 % 137.05 % 134.44 %
Loans to deposits ratio (end of period) 48.46 % 44.24 % 43.76 % 48.46 % 43.76 %
Non-interest bearing deposits to total deposits (end of period) 17.59 % 17.45 % 16.14 % 17.59 % 16.14 %
Net interest margin (4) 3.78 % 3.80 % 4.09 % 3.81 % 3.98 %
Interest rate spread (5) 3.66 % 3.68 % 3.94 % 3.68 % 3.81 %
Yield on earning assets (3) 4.11 % 4.14 % 4.51 % 4.16 % 4.55 %
Cost of interest bearing liabilities (3) 0.45 % 0.46 % 0.57 % 0.48 % 0.74 %
Cost of deposits 0.38 % 0.40 % 0.48 % 0.41 % 0.64 %
Non-interest expense to average assets 3.50 % 3.56 % 3.77 % 3.55 % 3.62 %
Efficiency ratio (6) 93.36 % 92.68 % 85.43 % 89.70 % 84.53 %

Asset Quality Data (7) (8) (9)

Non-performing loans to total loans 1.95 % 2.60 % 2.23 % 1.95 % 2.23 %
Covered non-performing loans to total non-performing loans 62.64 % 55.76 % 27.14 % 62.64 % 27.14 %
Non-performing assets to total assets 2.18 % 2.27 % 2.53 % 2.18 % 2.53 %
Covered non-performing assets to total non-performing assets 57.53 % 59.51 % 41.70 % 57.53 % 41.70 %
Allowance for loan losses to total loans 0.68 % 0.66 % 0.84 % 0.68 % 0.84 %
Allowance for loan losses to total non-covered loans 0.81 % 0.83 % 1.26 % 0.81 % 1.26 %
Allowance for loan losses to non-performing loans 34.71 % 25.20 % 37.64 % 34.71 % 37.64 %
Net (recoveries)/charge-offs to average loans (0.07 )% 0.20 % 1.00 % 0.41 % 1.20 %
(1)   Ratios are annualized.
(2) Ratio represents non-GAAP financial measure. See non-GAAP reconciliation on page 15.
(3)

Interest earning assets include assets that earn interest/accretion or dividends, except for the FDIC indemnification asset, which is not part of interest earning assets. Any market value adjustments on investment securities are excluded from interest-earning assets. Interest bearing liabilities include liabilities that must be paid interest.

(4) Net interest margin represents net interest income, including amortization income on interest earning assets, as a percentage of average interest earning assets.
(5) Interest rate spread represents the difference between the weighted average yield on interest earning assets and the weighted average cost of interest bearing liabilities.
(6) The efficiency ratio represents non-interest expense, less intangible asset amortization, as a percentage of net interest income plus non-interest income.
(7) Non-performing loans consist of non-accruing loans, loans 90 days or more past due and still accruing interest and restructured loans, but exclude any loans accounted for under ASC 310-30 in which the pool is still performing. These ratios may, therefore, not be comparable to similar ratios of our peers.
(8) Non-performing assets include non-performing loans, other real estate owned and other repossessed assets.
(9) Total loans are net of unearned discounts and fees.
 
   
NATIONAL BANK HOLDINGS CORPORATION
Non-GAAP Financial Measures        
(Dollars in thousands, except share and per share data)
 
Statements of Financial Condition Non-GAAP Reconciliations
 
December 31, 2013 September 30, 2013 December 31, 2012
Total stockholders' equity $ 897,792 $ 1,031,250 $ 1,090,559
Less: goodwill (59,630 ) (59,630 ) (59,630 )
Add: deferred tax liability related to goodwill 4,671 4,284 3,121
Less: intangible assets, net (22,229 ) (23,566 ) (27,575 )
Tangible common equity $ 820,604   $ 952,338   $ 1,006,475  
 
Total assets $ 4,914,115 $ 5,161,969 $ 5,410,775
Less: goodwill (59,630 ) (59,630 ) (59,630 )
Add: deferred tax liability related to goodwill 4,671 4,284 3,121
Less: intangible assets, net (22,229 ) (23,566 ) (27,575 )
Tangible assets $ 4,836,927   $ 5,083,057   $ 5,326,691  
 
Total stockholders' equity to total assets 18.27 % 19.98 % 20.16 %
Less: impact of goodwill and intangible assets, net -1.30% -1.24% -1.27%
Tangible common equity to tangible assets 16.97 % 18.74 % 18.89 %
 
Common book value per share calculations:
Total stockholders' equity $ 897,792 $ 1,031,250 $ 1,090,559
Divided by: ending shares outstanding 44,918,336   51,213,044   52,327,672  
Common book value per share $ 19.99   $ 20.14   $ 20.84  
 
Tangible common book value per share calculations:
Tangible common equity $ 820,604 $ 952,338 $ 1,006,475
Divided by: ending shares outstanding 44,918,336   51,213,044   52,327,672  
Tangible common book value per share $ 18.27   $ 18.60   $ 19.23  
 
Tangible common book value per share, excluding accumulated other comprehensive income (loss) calculations:
Tangible common equity $ 820,604 $ 952,338 $ 1,006,475
Less: accumulated other comprehensive income (loss), net of tax 6,756   142   (40,573 )
Tangible common book value, excluding accumulated other comprehensive income (loss), net of tax 827,360 952,480 965,902
Divided by: ending shares outstanding 44,918,336   51,213,044   52,327,672  
Tangible common book value per share, excluding accumulated other comprehensive income (loss), net of tax $ 18.42   $ 18.60   $ 18.46  
 
       
As of and for the three months ended   As of and for the years ended  
December 31, 2013     September 30, 2013     December 31, 2012 December 31, 2013     December 31, 2012
Return on average assets 0.08 % 0.07 % 0.22 % 0.13 % -0.01%
Add: impact of goodwill and intangible assets, after tax, net 0.00 % 0.00 % 0.00 % 0.00 % 0.00 %
Add: impact of core deposit intangible expense, after tax 0.07 % 0.07 % 0.06 % 0.07 % 0.06 %
Return on average tangible assets 0.15 % 0.14 % 0.28 % 0.20 % 0.05 %
 
Return on average equity 0.42 % 0.36 % 1.10 % 0.67 % -0.05%
Add: impact of goodwill and intangible assets, after tax, net 0.07 % 0.03 % 0.09 % 0.08 % 0.00 %
Add: impact of core deposit intangible expense, after tax 0.33 % 0.34 % 0.31 % 0.31 % 0.32 %
Return on average tangible common equity 0.82 % 0.73 % 1.50 % 1.06 % 0.27 %
 

Contacts

National Bank Holdings Corporation
Analysts/Institutional Investors:
Brian Lilly, 720-529-3315
Chief Financial Officer
blilly@nationalbankholdings.com
or
Media:
Whitney Bartelli, 816-298-2203
SVP Director of Marketing
whitney.bartelli@nbhbank.com

Release Summary

$NBHC National Bank Holdings Corporation Announces Fourth Quarter 2013 Financial Results and Increases Share Repurchase Authorization to $50 Million

Sharing

Contacts

National Bank Holdings Corporation
Analysts/Institutional Investors:
Brian Lilly, 720-529-3315
Chief Financial Officer
blilly@nationalbankholdings.com
or
Media:
Whitney Bartelli, 816-298-2203
SVP Director of Marketing
whitney.bartelli@nbhbank.com