Nicolet Bankshares, Inc. — Q2 2022 Form 10-Q
Business context and reporting period
Quarter ended June 30, 2022. Nicolet is a bank holding company serving Wisconsin and Michigan markets. Results are affected by the 2021 Mackinac and County acquisitions; year-over-year comparisons include only partial contributions from those companies in 2021.
Financial performance and condition
- Q2 earnings: Net income was $24.0 million, up from $18.3 million in Q2 2021. Diluted EPS was $1.73 versus $1.77, reflecting a substantially larger weighted-average share count.
- First-half earnings: Net income was $48.1 million versus $36.5 million; diluted EPS was $3.43 versus $3.52.
- Net interest: Q2 net interest income was $55.1 million, up 55% year over year; net interest margin was 3.34%, down from 3.45%. First-half net interest income rose 57% to $108.9 million, while margin declined to 3.29% from 3.38%. Management attributed income growth primarily to acquisition-related balances and loan growth, partly offset by lower asset yields and repricing delays.
- Other income and expenses: Q2 noninterest income fell 30% to $14.1 million, mainly because mortgage income and asset gains declined. Noninterest expense rose 19% to $36.5 million, including higher personnel, occupancy, technology, and marketing costs. First-half noninterest income fell 19% to $30.1 million, while expense rose 30% to $74.1 million.
- Loans and credit: Loans were $5.0 billion, up 8% from year-end 2021. The allowance for loan losses was $50.7 million, or 1.02% of loans. Nonaccrual loans were $36.6 million (0.7% of loans); nonperforming assets were $41.6 million (0.56% of assets), down from $56.1 million at year-end.
- Deposits, liquidity, and borrowings: Deposits totaled $6.29 billion, down $180 million from year-end; core customer deposits were $5.80 billion and brokered deposits were 8% of deposits. Cash and cash equivalents were $181.0 million, down from $595.3 million. Long-term borrowings were $197.0 million. Management said liquidity resources were sufficient and reported $840 million of available FHLB borrowing capacity.
- Capital and securities: Stockholders’ equity was $839.4 million. The bank’s total risk-based capital ratio was 12.4%, and management said it remained well-capitalized. AFS securities had $59.3 million of gross unrealized losses at quarter-end; the company attributed these to market and interest-rate changes, not credit deterioration. First-half other comprehensive loss was $46.3 million, substantially reflecting securities valuation changes.
- Cash flow and repurchases: First-half operating cash flow was $49.3 million; investing activities used $212.2 million and financing activities used $251.4 million. Nicolet repurchased $60.7 million of stock in the first half.
Material changes, outlook, and risks
- Loans grew through organic lending and the repurchase of approximately $100 million of previously participated agricultural loans. Deposits declined from year-end, which management linked to repricing of acquired deposits and lower retail deposits.
- Rising rates and inflation, supply-chain pressures, geopolitical uncertainty, and possible recession were identified as economic risks. The Federal Reserve had raised rates 150 basis points through June; management noted that rate effects on results remained uncertain.
- Nicolet expected its proposed Charter Bankshares merger to close in Q3 2022, subject to customary conditions. The transaction was expected to involve approximately 1.26 million Nicolet shares and $38.8 million in cash; regulatory approvals had been received by July 12, 2022.
- No specific earnings or revenue guidance was provided. Management highlighted acquisition integration, interest-rate movements, credit quality, deposit behavior, liquidity, and merger execution as important uncertainties. It reported no material change in previously disclosed risk factors and no legal proceedings expected to materially affect results.
Important facts for investors to verify
- Whether loan growth, deposit trends, funding costs, and net interest margin evolve as rates continue to change.
- Whether unrealized securities losses remain manageable and do not create liquidity or capital pressure.
- Credit performance in the agricultural and commercial portfolios, including nonaccrual and potential problem loans.
- Actual Charter merger timing, consideration, integration costs, and expected benefits.
- Capital and liquidity after stock repurchases, deposit movements, and the planned merger.