10-K: National Bank Holdings Corp. Reports Solid 2024 Results Amidst Economic Headwinds

National Bank Holdings Corporation (NBHC) announces its 2024 financial results, showcasing a net income of $118.8 million and strategic balance sheet management.

Summary

• National Bank Holdings Corporation (NBHC) reported a net income of $118.8 million, or $3.08 per diluted share, for the year ended December 31, 2024, compared to $142.0 million, or $3.72 per diluted share, for the year ended December 31, 2023.
• Adjusting for a non-recurring loss on available-for-sale (AFS) security sales, net income totaled $123.9 million, and diluted earnings per share totaled $3.22.
• The return on average tangible assets was 1.30% for 2024, compared to 1.57% for 2023; adjusted for the non-recurring loss, it was 1.36%.
• The return on average tangible common equity was 13.65% for 2024, compared to 18.23% for 2023; adjusted for the non-recurring loss, it was 14.20%.
• The company delivered tangible book value per share growth of 11.0% over the prior year, reaching $25.28.
• NBHC continues to invest in its digital solution, 2UniFi, incurring $13.0 million in non-interest expense related to its buildout.
• The fully taxable equivalent (FTE) net interest margin expanded 12 basis points to 3.99% during the fourth quarter of 2024.
• Total loans ended the year at $7.8 billion, increasing $52.4 million, or 0.7%, since December 31, 2023.
• Loan fundings totaled $1.5 billion during the year, with a weighted average new loan origination rate of 8.3%.
• The allowance for credit losses totaled 1.22% of total loans at December 31, 2024, compared to 1.27% at December 31, 2023.
• Average total deposits for the year ended December 31, 2024, increased $374.4 million, or 4.7%, to $8.3 billion.
• The cost of deposits totaled 2.23% during the year ended December 31, 2024, compared to 1.37% for the prior year.
• On-balance sheet liquidity totaled $447.8 million as of December 31, 2024.
• At December 31, 2024, the company's available secured and committed borrowing capacity at the FHLB and Federal Reserve totaled $2.7 billion.
• FTE net interest income totaled $352.5 million for the year ended December 31, 2024, compared to $368.1 million for the prior year.
• Non-interest income totaled $61.2 million during the year ended December 31, 2024.
• Non-interest expense totaled $254.6 million during the year ended December 31, 2024, an increase of $12.6 million, or 5.2%.
• At December 31, 2024, the consolidated tier 1 leverage ratio was 10.69%, and the common equity tier 1 and consolidated tier 1 risk-based capital ratios were 13.20%.

Sentiment

Score: 6

Explanation: The document presents a mixed sentiment. While the company highlights its strategic execution and strong capital position, there are also concerns about decreased net income and increased non-interest expenses. The overall tone is cautiously optimistic.

Positives

• Tangible book value per share growth of 11.0% indicates strong equity value creation.
• Expansion of FTE net interest margin in Q4 2024 suggests improved profitability.
• Growth in average total deposits reflects strong customer relationships and funding base.
• High available secured and committed borrowing capacity provides financial flexibility.
• Continued investment in digital solutions positions the company for future growth.
• Strong capital ratios exceed regulatory requirements.

Negatives

• Net income decreased from $142.0 million in 2023 to $118.8 million in 2024.
• Return on average tangible assets and equity decreased compared to the previous year.
• Non-interest expense increased by 5.2% due to ongoing technology investments.
• Net interest margin narrowed by 23 basis points.

Risks

• Macroeconomic pressures and volatility in the banking industry pose ongoing challenges.
• Intense competition for deposits may continue to impact funding costs.
• Integration of fintech partnerships and new technologies may present operational and compliance risks.
• Dependence on originating high-quality loans and managing the cost of funds affects future interest income.
• Changes in Federal Reserve interest rate policies could impact future earnings.

Future Outlook

The company aims to generate strong organic growth, pursue selective acquisitions, and expand its digital offerings through 2UniFi, while maintaining a conservative risk profile.

Management Comments

• The company is focused on providing small and medium-sized businesses with alternative digital access to address borrowing, depository and cash management needs.
• Management employs risk management policies to monitor and limit exposure to changes in market rates.

Industry Context

The banking industry faces macroeconomic pressures, increased regulatory scrutiny, and intense competition for deposits. NBHC is navigating these challenges through strategic acquisitions, digital innovation, and disciplined risk management.

Comparison to Industry Standards

• NBHC is the third largest banking center network among Colorado-based banks.
• NBHC is the sixth largest banking center network in the greater Kansas City metropolitan statistical area (MSA) among Missouriand Kansas-based banks ranked by deposits as of June 30, 2024, according to S&P Global.
• The top 3 competitor combined deposit market share in Denver, CO is 50%.
• The top 3 competitor combined deposit market share in Kansas City, MO-KS MSA is 47%.

Legal Proceedings

• The company is a party to various litigation matters incidental to the conduct of its business, but none are expected to have a material adverse effect.

Stakeholder Impact

• Shareholders may be concerned about the decrease in net income and return on equity.
• Employees may be affected by changes in compensation and benefits.
• Customers may benefit from the company's investments in digital solutions.

Next Steps

• Continue to implement and scale the 2UniFi platform.
• Pursue disciplined acquisitions or other expansionary opportunities.
• Monitor and manage exposure to changes in market rates.

Key Dates