National Bank Holdings Corp (NBHC) 2013 Q4 法說會逐字稿

Good morning, everyone, and welcome to the National Bank Holdings Corporation 2013 Fourth Quarter Earnings Call. My name is Sarah, and I'll be your conference operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session following the presentation. As a reminder, this conference call is being recorded for replay purposes.

I would like to remind you that this conference call will contain forward-looking statements, including statements regarding the Company's loans and loan growth, deposits, strategic capital, potential income streams, gross margins, taxes, and non-interest expense. Actual results could differ materially from those discussed today.

These forward-looking statements are subject to risks, uncertainties, and other factors which are disclosed in more detail in the Company's most recent filings with the U.S. Securities and Exchange Commission. These statements speak only as of the date of this call, and National Bank Holdings Corporation undertakes no obligation to update or revise these statements.

It is now my pleasure to turn the call over and introduce National Bank Holdings Corporation's President and CEO, Mr. Tim Laney.

Thank you, Sarah. Good morning and thanks for joining us today for our 2013 fourth quarter earnings call. I have with me our Chief Financial Officer Brian Lilly and Rick Newfield, our Chief Risk Officer. On this call, we'll share our thoughts on the fourth quarter and the year as well as a rather detailed outlook for 2014 and then we'll take your questions.

With over $244 million in new loan originations during the fourth quarter, we continue to realize solid growth in quarter-over-quarter loan production and originations, and we entered 2014 with our largest pipeline ever.

Our new loan fundings during 2013 increased 65% year-over-year and we experienced total charge-offs on all originated loans of just 3 basis points. As we ended 2013, we were well positioned to maintain our momentum with loan production, while expanding new relationships to realize solid growth in fee income and client depository balances.

During 2013, we also continued to focus on expense control resulting in annualized expense savings of approximately $15 million, and we'll pursue additional opportunities to become more efficient during 2014.

With regard to acquisitions, while we are not pleased with the current pace of M&A, we continue to work with opportunities to lever capital into attractive situations. Factors impacting the pace of acquisitions include our thorough approach to due diligence current bank stock multiples, the regulatory environment and our conviction that any acquisition must be attractive to our shareholders. With all this said, we're not sitting on our hands and remain active on a range of opportunities.

We also take capital management seriously and to that end we are announcing an increase in our share repurchase program to $50 million. As you may know to-date we have repurchased 7.4 million shares representing a 14.2% reduction in total shares outstanding, and we intend to take advantage of future opportunities to buy in shares at attractive prices. As we said before, we believe that these repurchases could also serve to offset any future share issuances for acquisitions.

I'll now ask Brian Lilly, to take you through a detailed review of our financial results as well as guidance for 2014. Brian?

Thank you, Tim and good morning everyone. Yesterday we released our results with an analysis of the drivers of the fourth quarter. Today I will share a few more comments on the quarter as well as give you some perspective for how we see 2014 shaping up.

Before going too far, I should point out that inherent within our 2014 guidance are economic assumptions consistent with the current outlook of leading economists which includes generally stable interest rates and slightly improving business and consumer outlooks. We are very pleased with our fourth-quarter results as we continue to add to our organic growth, manage non-strategic assets for increasing returns, continued excellent credit quality and manage expenses lower.

We are moving all of the financial leverage in a positive direction. The primary driver of the lower than third quarter EPS was higher amortization of the FDIC indemnification assets. We will cover these items in my comments that follow.

As we look to 2014, we are forecasting that 2013's fourth quarter's earnings per share of $0.02 will be a key inflection point or low point in our journey to convert the failed bank acquisitions into a growing and sustainable revenue generator.

The success that we have had in building the organic growth, maintaining excellent credit quality and realizing expense efficiencies are all becoming a larger component of our earnings. During 2014, we expect increasing earnings and more importantly the recurring and sustainable nature of those earnings to be stronger and to position us well for 2015. We are firmly committed to delivering on our future goal of a greater than 1% return on tangible assets.

As Tim, mentioned we are very pleased with the progress that we have made growing the loan portfolio. The $244 million in quarterly originations, a quarterly record and very close to our stated goal of $250 million per quarter was 75% higher than the fourth quarter of 2012.

Our commercial bankers continue to lead the way generating 84% of the originations and we have remained disciplined on pricing with the weighted yield on new originations of 4%. Also noteworthy is that approximately 70% of variable rate, which continues to support our asset-sensitive position.

Driven by the strong fourth quarter loan originations, the strategic loans ended the quarter at $1.5 billion representing 81% of total loans and grew a very strong $174.5 million or 52% annualized. Within the strategic portfolio we now have an originated loan portfolio of $1.1 billion.

In 2014, we look to build on this momentum and we reiterate our goal of [1.002014 billion] originations. We continue to make steady progress exiting the non-strategic loan portfolio while increasing value through the addition of accretable yield. These loans decreased $63 million during the fourth quarter or 61% annualized to end the year at $350 million. A key evidence point in the value pick-up from our workout efforts is the continued quarterly accretable yield gain.

Our fourth quarter added a net $23.6 million in accretable yield transfers in addition to a $0.2 million reversal prior impairment provisions. The cumulative like to-date accretable yield pick-up is $167 million against impairments of only $25 million. The net economic impact totaled a favorable $144 million and reflects our conservative day one acquisition [marks] and the excellent results of ongoing workout efforts.

For the second consecutive quarter we grew total loans. Our strong originations more than offset the decreases in non-strategic loans resulting in total loan growth of $111.3 million or 25% annualized. As we entered 2014, we project continued growth in total loans driven by originated portfolio growing from $1.1 billion to approaching $2.0 billion.

Today the originated portfolio represents 58% of total loans and is expected to grow to closer to 80% by the year-end 2014. The much stronger mix of originated loans strengthens the sustainable income and positions us [well for] 2015.

In terms of deposits, we have worked through many of the unusual deposit products and banking center strategies that we acquired. Our single service clients have decreased to a manageable level and we see 2014 as achieving a key inflection point for positive total deposit growth.

We expect some continued run-offs in time deposits early in 2014, before beginning to stabilize and grow in the back half of 2014. In total, year-end to year-end we are projecting low single digit total deposit growth, but with a dip in the middle.

We see particular opportunity for our commercial bankers given our lending success and our competitive treasury management offerings as well as with our consumer bankers having added key product offerings like our relationship deposit products and implementing a sales and service culture. As a result, we expect to continue to grow the improved mix of transaction deposits and incrementally lower the cost of deposits.

Regarding the total balance sheet, during 2014 we expect to continue the remixing of the earning assets. We plan to fund the loan growth through reductions in the purchase loans and the natural run-off of the investment portfolio. Our current estimate is for the investment portfolio to cash flow a little over $400 million in 2014. The result should be a slight growth in earning assets and certainly a more valuable mix of earning assets as we end 2014. Net interest income totaled $43.6 million in the fourth quarter and actually increased versus the third quarter when adjusting for the large third quarter $2.5 million recognized on the early pay-off of a 310-30 loan pool.

On a third quarter adjusted basis, the net interest margin [wind] from 3.59% to 3.78% in the fourth quarter. The margin benefited from higher levels of loans, a slightly higher yield on the investment portfolio as prepayments been slowed and lower levels of low-yielding short-term investments never used to fund the share buybacks.

For 2014, we are forecasting quarterly net interest income to be consistent with the fourth quarter of 2013. The expected strong loan originations [we'll] remix during the assets as mentioned and we expect to add benefits from a higher 15% yield on the 310-30 loan portfolio and slightly lower cost of deposits. Reaching a stable net interest income in 2014 is exciting as we rework the sources of interest income and drive towards more recurring sustainable income that will be reflective of our future growth plans.

Credit quality continues to trend favorably. As you know, we believe that it is best to understand our credit quality and the provision for loan losses along the loan portfolios of ASC 310-30 acquired loan pool accounting and all other loans labeled as non-310-30 loans. Given that our originated loans now total $1.1 billion, we have included some key statistics on these loans as well.

With regard to the credit quality of the ASC 310-30 acquired loan pools, as I mentioned, the fourth quarter re-measurement process picked up an additional $23.6 million in net accretable yield transfers. Not more can be said here, the credit trends continue to be strong.

The non-310-30 loans also experienced positive credit quality trends. Within this loan portfolio we realized net recoveries in the quarter and the non-performing loans ratio improved to 1.51% from 2.31%. More importantly the $1.1 billion of originated loan showed strong credit quality with just 3 basis points of net charge-offs in the full year of 2013 and just 42 basis points in non-performing loans at the end of the year.

The provision for loan losses on the non-310-30 loans totaled $1 million and primarily supported the loan growth. We expect the credit quality to remain strong in 2014 and that the level of provision for loan losses will continue to support loan growth. We have plan for net charge-offs to be in the range of 10 to 15 basis points with the allowance for loan losses increasing slightly as a percentage of loans.

Turning to non-interest income, the quarter totaled $2.4 million and decreased $1 million from the third quarter. The decrease was driven by lower FDIC related income. For the second consecutive quarter we recorded a net expense in the FDIC loss share income as the sharing of the covered asset gains and income more than offset the sharing of covered expenses. We are projecting lower levels of covered expenses in 2014 and expect a few gains that could turn quarterly loss share income into expense. The largest decrease compared to the prior quarter was the $2.9 million higher amortization expense related to the FDIC indemnification assets.

Let me spend a little more time here as the accounting could be difficult to understand. Most of the covered assets are accounted for in the 310-30 loan pools. And as we have discussed they're performing increasingly well as you can see in the increasing accreted income yield on the 310-30 loan pools. As you know the higher returns on the covered assets resulted less loss-share billings to the FDIC. And this is reflected in the increased amortization expense this quarter.

We shared in the earnings release that we had a $64.4 million FDIC indemnification asset at year-end. It's interesting to reflect that the original balance was $311 million and has provided significant protection as we have worked through the problem acquired assets. Of the $64.4 million, we currently expect to bill the FDIC $44.7 million over the next several quarters, with the remaining $19.7 million coming in higher levels of cash flows on the covered assets.

However, the accounting requires that we write down the $19.7 million portion of the FDIC receivable through amortization expense in the non-interest income accounts, whereas most of the increased cash flows are reflected in the higher yields of the 310-30 loan pools. Therefore timing issue is created, as the amortization expense [accrues] over the projected remaining billings to the FDIC, whereas the higher cash flows, generally 310-30 accreted income, are recognized over the longer lives of the loans.

A great example is the most recent re-measurement where we added $23.6 million to accretable income. The average life of this income recognition is 28 months, whereas the impact of the FDIC indemnification asset will be amortized over an average life of just seven months. The economic impact is always positive, but the accounting impact results in a net expense mismatch in 2014 and in future re-measurements the mismatch may become more pronounced as we get closer to the end of the loss-share agreements. Our two loss-share agreements do not expire until late 2015 and late 2016, but the improved covered asset cash flows often are forecasted to extend beyond these days.

As we have shared, the current expectation for the FDIC indemnification asset amortization expense in 2014 is $16.6 million. This translates to quarterly amounts of $7.1 million in the first quarter, $4.4 million in the second, $3.1 million in the third and $2.0 million in the fourth. Of course, we will update you each quarter as these amounts will be adjusted with the results of our quarterly re-measurement.

One last thought on our banking-related fee income. We have enhanced our offering [to] sales activities and look for mid single-digit growth with upside potential from new product offerings in 2014.

Turning to expenses, we are very pleased with the progress reducing total expenses this year and operating expenses in particular. We lowered the fourth quarter operating expenses to $39 million from approximately $41.5 million in the last few quarters. The full effect of our efficiency initiatives will be realized in 2014, as we look for the first quarter to be below the $39 million and trend closer to $38 million at the end of 2014.

We've also made significant progress managing down the problem loans and OREO workout expenses, the fourth-quarter increase versus the third quarter as we have the benefit of over $3 million higher OREO gains in the third quarter. In the last few years these expenses totaled $28.8 million in 2012 and [$16.6 million] in 2013. We expect the improving trend to continue as we have made significant progress working through these worse problems assets and look for 2014 to be below $10 million in total.

Regarding taxes, you may have noted that we recorded a net tax benefit in the fourth quarter. We were able to reverse one-time items related to state taxes as we finished an amendment of our state tax returns during the fourth quarter. As we look forward, our guidance does not change as we expect a 39% tax rate.

Capital ratios remained strong. We purchased 6.3 million or 12.3% of total shares during the quarter at an average price of $20 per share. This purchase price represented a discount to the then market prices. We view this as an opportunistic use of our excess capital as we expect our valuation to increase as we continue to execute on our strategic priorities.

In addition, on the M&A side, the shift has been made from failed banks to open bank transactions with many potential partners wanting stock as consideration. The share purchases we completed could be used to offset any shares we may issue in connection with an acquisition.

We also announced an increase in our share purchase authorization as we added an additional $25 million -- the remaining $25 million of our prior $35 million authorization. We continue to use the new -- we will continue to use the new $50 million authorization opportunistically.

One last guidance item that I will mention is that the fully diluted shares ended 2013 at about 45 million and this should be a good level for 2014 modeling before the impact of the buybacks.

In summary, we are very excited for 2014. We believe that the earnings will begin to reflect a solid organic progress we have made rebuilding the banks we acquired. We have a great team, a relationship banking strategy that is gaining traction everyday and excellent communities in which [to] operate. We are firmly focused on driving to our goal of greater than 1% return on tangible assets and we believe that our results are making it clear that we are well on our way.

Tim, that concludes my comments.

Thanks, Brian. You covered a lot of ground. While our financial results in 2013 were somewhat clouded by the complexities and timing of loss-share accounting, we made significant progress in organically growing our earning assets, improving our expense profile, enhancing our enterprise risk management, reducing non-strategic assets and managing our capital base.

In a short period of time, we believe we've built a solid bank in attractive markets and put ourselves on a path toward realizing our goal of delivering a greater than 1% return on tangible assets, as well as levering our managing our capital with the discipline required to realize a double-digit return on equity.

With that said, Sarah, we are ready to open up the line for questions.

(Operator Instructions) Chris McGratty, KBW.

Hey, good morning guys.

[Good morning, Chris.]

Brian, just a couple to make sure I heard you on the guidance. The expense [run] rate that was $38 million that compares to the $44 million in the quarter. That's kind of the guidance I heard it right, there wasn't any other [adjustments] to that?

The way I talked about it I split, Chris; be careful to split the operating expenses the way we define it from the total expenses which excludes the OREO, [problem] workout. And so in total the problem loan workout, we were guiding towards just below $10 million. Then the operating expense is by themselves beginning around that $39 million, but then trending towards the $38 million as the year wears off.

Okay. [You add] the two together, okay. And then the fee income growth to mid single-digit, I think that's excluding of the amortization expense that you detailed, correct?

That's excluding all of the FDIC related, yes. And also working in there, we do have some OREO related income that will be a negative as we go into 2014 from the 2013 levels. And that's just natural because some of that is -- all of that is related to the workout that we have.

Okay. So, those are the technical questions. Tim, on the M&A front, you acknowledged that the difference in multiples where your peers are trading and where you are, I guess a year and a half out of the IPO can you talk about the strategy going forward in terms of can you get a deal done? And obviously you have a sophisticated shareholder base, I am wondering their patience kind of as we enter 2014?

Right, Chris. Well look, we are disappointed that we didn't announce an acquisition during 2013. Albeit, it's important to note that there were virtually no deals done in our core markets during the year. We're not disappointed with our pipeline of opportunities, although they are simply taking longer to come to fruition than any of us expected. We believe patience will be rewarded. We know that discipline will be rewarded. And we're in the game of creating long-term value for our investors. In the interim, I've got to say we're pleased with our core organic growth and the solid bank we've built in a relatively short period of time.

I can appreciate it. I was wondering if we have a sit here a year from now and the conversation is the same, is that something that is it a year from now that we need to kind of reconsider the strategy going forward of the Company or is that [I hate paying attention] to a time table, but I got to ask?

Yes. I totally understand, we have avoided making the declaration on a point at which we would say M&A is not part of our strategy. But I will add in the interim, as we noted in the release and in our earlier comments that we are going to be good stewards of our capital. We believe the share repurchases that we have conducted to-date will ultimately create very nice value for our investors and believe that we have been able to repurchase those shares at prices that -- and whether it's a year or two years or three years, in retrospect will appear very, very attractive.

So Chris, no, I am not going to give you a definitive answer on a point at which we would address a shift in strategy. I'll simply say, we actually remain very confident and excited about the opportunities in the market, but we are disappointed in the pacing and there are a lot of factors impacting that right now. But we believe that we can work through a number of those factors and make the right things happen.

Understood. Thanks.

Thank you, Chris.

Paul Miller, FBR.

Good morning, guys. This is actually Thomas on behalf of Paul.

Hi, Thomas.

Hello, Thomas.

Good morning. A couple of quick questions here, Brian you said that 70% a year in new originations are viable rate. Can you remind me what percentage of your strategic portfolio is viable rate as well? I think I heard that right.

(inaudible) told you that before. I'd have to pull that up, I don't have that handy and I can get that back to you, Thomas.

Okay. I was just wondering it is -- and then on the new originations, you said you are getting about 4% but your margins have been doing a great job just sort of holding in despite the accretable yield coming down and 4% on the origination sounds -- it sounds great relative to peers. So do you guys feel pretty comfortable that the margin, it will obviously drift down, but it doesn't seem like it's going to go all the way down to [3%] or can you just provide some color on that?

Yes. I think as you were doing math on the numbers, certainly those 15% 310-30 loans will bring down the margin a little bit, but we've got a lot of trading that's going on within the earning asset base. And so I tried to give you some guidance with the investment portfolio coming off at the [2%] and adding on to [4%] for the originations and losing a little bit of 310-30. I think when you look at your model, there will be some narrowing, but it's not as you said, it won't be as dramatic as what you are saying.

Hello Thomas, I'm going to ask Rick Newfield to provide a little more color on the newly originated portfolio, the strategic portfolio just to give you a sense of the profile of the kind of client relationships we're working with. Rick?

Certainly, this might be illustrative. During the fourth quarter we closed wide at 200 new loans to business clients at an average loan amount of just over $1 million, so very granular. As Brian indicated with the shift to C&I we are seeing an increase in variable rate.

As it relates to the consumer, and this is consistent with the existing strategic profile, also granular, very consistent with our underwriting standards that we've talked about before. The average loan in our mortgages closed during the quarter was right at $130,000. And I'll just continue to express our commitment to consistency, prudence and again being very aware of our concentrations and our larger exposures.

Okay, great. I appreciate the color. Thank you, guys.

Thank you, Thomas.

Tim O'Brien, Sandler O'Neill.

Good morning.

Hello Tim.

Hi, Tim.

Can I stick with Rick for a minute?

You bet.

Hello Rick, could you give a little bit of color on maybe the geographic breakdown of where production came from? Did you guys see more production out of Colorado or Kansas City or what did that look like?

Sure Tim. It's a good question. We actually continue to see a build-up across all our markets, Colorado certainly has come [on] strong in the second half of the year with the recruitment of strong talent. We continue to make inroads across a number of segments including most recently energy and agro business, which as we've talked about before are strategically important particularly in Colorado, obviously agro business in the Midwest as well.

And of the new originations in commercial, were they predominantly mostly lines or was there some -- what's the breakdown in type? Was there some equipment, was there asset base, can you characterize that some more?

Sure Tim, actually a good follow-on question. You mentioned asset base, as you know in the latter part of last year we brought in a capital finance team to do both asset-based lending and structured finance. Also right for the tail-end of the year we added a government not-for-profit banking team. Particularly with the asset-based lending we are seeing a pick-up in the lines of credit. We had our strongest quarter yet in terms of adding commitments outside of equipment and owner-occupied real estate. And I think that provides a nice benefit as we see the utilizations rise over time within that book.

And that leads into the next question. Did you have a utilization rate on your lines of credit at year-end versus when you started the quarter?

We started the quarter just over 50% and actually ended at December 31 at 43.7%.

And is that -- is the pay down in those due to seasonal factors or can you -- do you have a sense of why that -- the paydowns occurred?

Yes absolutely --

Or is it because of increase in commitments?

Increase in commitments and there is certainly a seasonality, as I think most folks would expect as of December 31 often a low point.

Hello Tim. This is Brian. Let me just clarify that. When we talk about our $244 million production, we're not including unfunded lines in that. Those are --

Yes, and these are funding. I got it.

Good.

And then just out of curiosity, what was the largest loan you made or largest couple of loans that were in that commercial type? Can you describe those?

Certainly, Tim. We had one funding at $25 million and only two others above $10 million, so very granular, and as I said, average loan of roughly $1 million across the business segments.

And what kind of loan was that $25 million loan?

Actually that one was fully secured by marketable securities. That would not be what I would call typical of the profile, but obviously unique situation.

Great. And then the last question I have for you, Brian. I caught this, I believe, did you give a quarterly expected amortization rate in the FDIC indemnification asset, borrowing the quarterly resets you described? Did you give those numbers out through 2014?

I did.

Could you [throw them] maybe one more time, I didn't get them all down?

Let me get back there. So in total for 2014 it was $16.6 million and we put that in the earnings release also, but breaking down [by] quarter it's $7.1 million in the first quarter, $4.4 million in the second, $3.1 million in the third and $2.0 million in the fourth. And as you said that will move, but as we think about that particular line item, that's not our future. So, happy to get you guys really [tied] on that. It's been a great earner for us and continues to throw up a lot of value. But that will burn off here in a couple of years and the organic business is really what we're excited about [doing. So, I hope that can do].

I am going to throw one more question at you guys regarding lending [chaos]. Why was production volume off in commercial real-estate mortgage this quarter as much as it was?

Tim, this is Rick. I wouldn't view that as particularly representative of a trend. I think again we believe it's actually healthy to see the mix of lines of credit particularly out of our capital finance team and continue to grow the variable rate component.

Thanks a lot. I'll step back.

Thank you Tim.

Gary Tenner, D.A. Davidson.

Good morning, guys. Brian, I just wanted to just clarify to make sure I heard your kind of commentary on the balance sheet outlook for 2014 correctly. It sounds like essentially a flat balance sheet just with the mix changing to where your -- just much lower [than] excess liquidity and securities. What was the number on the securities cash flows for 2014?

A little over $400 million. And Gary, I'd say -- we're looking at earning assets to increase slightly. And then more of that will be shown into 2015 as we work through that non-strategic portfolio. And then also we will have an impact here from the successful execution of our stock buyback authorization.

Right. And that will help to reduce some of the additional cash?

Right.

Okay. And what -- you had announced a couple of large share repurchases back in the fall. Do you have ongoing conversations with investors on that or were those just sort of out of left field sort transactions?

I think, not to use your words out of left field, I think we did not have ongoing conversations, there isn't any list. We actually have very good relations with our investors and have a number of follow-up discussions as the quarter progresses. And those are a couple of unique situations we were able to take advantage of and happy to take advantage of a few more for the benefit of our remaining shareholders, but I'd say one-offs.

Okay. And then just one last question, you had the loan originations of [224] I think here in the fourth quarter as you said pretty --

[244.]

[244], I am sorry. So, right on top of your [250] number. Have you -- you talked about the $1 billion for 2014, I mean it seems with a little bit of tailwind you could blow through that number. Do you have any sort of changes to -- would you increase that expectation at some point or is that sort of an ongoing basis where you'd like to be?

We certainly over time expect that $1 billion to grow, Gary. And what I would say is, we did enter 2014 with the strongest pipeline in the short history of our Company. We feel very good about the market share we're taking and would reiterate that we also feel good about the relationship expansion possibilities that lead to the growth and fee income and client depository balances. A lot of these relationships are new enough that we're still in that initial expansion phase and expect that to pay dividends over time.

Okay, great job on that loan ramp. Thank you.

Thank you, Gary.

Thanks Gary.

(Operator Instructions) Matt Olney, Stephens.

Hello, good morning guys. This is actually Tyler Stafford in for Matt. How are you doing?

Hi Tyler. Good to hear your voice.

Yes. You too. On M&A, based on the discussions you've had with these potential sellers, can you give us a sense of what an ideal kind of middle to fairway acquisition would look like in terms of supplies and then maybe cash for stock mix?

You bet. We have a greater clarity into that answer than you might ever guess. And I would say it would realistically look something like this. Ideally it might be 50% cash 50% stock, but in reality it could be 60% stock 40% cash. Obviously our preference would be for more cash. But we believe the smart sellers are looking to take shares and write them and benefit from the announcement of the resulting acquisition.

We still feel strong about the importance of announcing a deal with strong accretion to earnings and an acquisition that would earn back tangible book dilution in a reasonable period of time. We are also focused on acquisitions. 95% of our focus as it relates to banks are own banks in our core markets of Missouri, Kansas and Colorado, but we are also looking at and working with some potential asset generators and there have been a couple of opportunities to look at businesses and let's say the trust arena that we think would add value to our existing core franchise. But 95% of our focus is on banks in our core markets and I am not sure Brian if there is anything you would add, but I think that's the framework we are working under.

I think [Matt], I will just reiterate what we said before that they tend to be the size of that $500 million to $2 billion in size.

Okay, that's very helpful. And just can you remind us on what an acceptable TBV earn back would be in your view?

Look we've said a number of times that three to five year range is still our focus and three with where our shares are trading and stuff, but we still think that that three to five range can work for us.

Okay, perfect. Thanks guys.

All right. Thanks, Tyler.

Tim O'Brien, Sandler O'Neill.

Just real quickly for Brian the [$3,036000] other fee income number that was up quite a bit from last quarter. Did you talk about that earlier in the call and I just missed it or could you characterize what happened there?

Yes we had -- we took in a property in OREO that was generating a lot of recurring income, I actually feel very good about the property from a valuation standpoint. But we got to pick up in just cash flow from that. Plus there is a little bit of other OREO write-up activity that goes to that line. But that will be just a little bit higher than where we've been and then trend down because we see that property to be very attractive to exit.

So you capture I guess income from it for the near term until it sells.

Yes.

Okay. Thanks, I'll step back. Thanks a lot.

Thanks Tim.

And we have no further time for questions. I will now turn the call back over to Mr. Laney for his closing remarks.

Thank you Sarah. And most important I want to thank everyone for joining us today and wish you a very good day. Thank you.

And this concludes today's conference call. If you would like to listen to the telephone replay of this call [and] will be available beginning in approximately two hours and will run through February 12, 2014, by dialing 855-859-2056 or 404-537-3406 and referencing the conference ID of 26586785. The earnings release and an online replay of this call will also be available on the Company's website on the Investor Relations page. Thank you very much and have a great day. You may now disconnect.