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National Bank Holdings Corporation (NYSE:NBHC) made its public debut on Thursday. Shares of the bank holding company active in Kansas, Missouri and Colorado ended its first day with gains of 1.8%.

The public offering

National Bank Holdings Corporation is a bank holding company incorporated as recent as 2009. The bank tries to expand its business by acquisitions and operating its community franchises efficiently. Currently the company has 103 banking centers. National Bank Holdings sold 7.15 million shares for $19.25 a piece. The firm did not raise capital in the offering, as all shares were offered by selling shareholders, including hedge funds Paulson & Co, Farallon Partners and Greenlight Capital. Based on the offer price of $19.25, the firm is valued at $889 million.

The offering is quite a disappointment. Initially the firm and its bankers set an offer price range of $20-$22 per share. Given the low demand for the shares, the company was forced to lower the offer price to $19.25. Based on the closing price of $19.65, the bank is valued at $908 million.

Major banks which brought the company public were Goldman Sachs, J.P. Morgan, Keefe, Bruyette & Woods and FBR.

Valuation

Incorporated just in 2009, National Bank Holdings Corporation tries to grow by making selective acquisitions. Since 2009, the bank has acquired four other banks bringing number of full-service banking centers to 103.

The company reported net interest income of $155.9 million for its annual year of 2011, up from just $15.9 million in 2010. The company reported a net profit of $42.2 million, or $0.81 per diluted share. The bank has total assets of $6.4 billion at the end of 2011, financed by a deposited base of $5.1 billion.

Profitability remained subdued. Return on equity for the full year of 2011 came in at just 4.0% as the bank uses relative low amounts of leverage. The company's Tier-1 ratio comes in at 15.1%, while the Tier-1 risk-based capital ratio comes in at 50.0%. The strong capital position, allows National Bank Holdings to make additional acquisitions in the near future.

Based on net interest income of $155.9 million, the bank is valued at 5.8 times net interest income. The bank is valued at 22 times 2011's annual earnings.

Investment Thesis

National Bank Holdings public offering was quite a disappointment. The public offering took place at a price $19.25, revised downwards from an initial price range of $20-$22 per share. Selling shareholders ended up selling 15% of the firm's outstanding shares. There was no need for the bank to offer shares, as the bank has sufficient capital to support its current operations.

Unfortunately the bank did not release its earnings for the first quarters of 2012. The acquisition of Bank of Choice and Community Banks of Colorado in the second half of 2011 added $2.2 billion in total assets, roughly a third of the total asset base. As such the bank is expected to show significant growth in net interest income and profit.

While National Bank Holdings is valued at 22 times earnings, there is significant potential for earnings growth. In 2012, earnings are expected to increase as a result of acquisitions made late in 2011. At the same time, the company has plenty of potential to acquire more banks, as its current capital ratio is sufficient to carry total assets of $10 billion or more. Further efficiencies are expected as high IT-costs could be spread out over more branches.

Investors are not too confident in the prospects of the bank yet. The bank is valued at 1.0 times its tangible book value of $19.16 per share at the end of 2011. The bank is most likely to make further acquisitions into 2012, fully using its capital position. Investors who believe in the acquisition-based strategy could pick up some shares for the longer term.

I remain on the sidelines. Shares have some execution risk in the future based on future acquisitions, despite stringent acquisition criteria. Furthermore valuations are on the high side, until the bank manages to grow its asset base.

Source: National Bank Holdings Corporation: Disappointing Offering