Nicolet Bankshares, Inc. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024; balance-sheet comparisons are primarily against December 31, 2023. Amounts are in U.S. dollars unless stated otherwise.
Business context
Nicolet is a bank holding company headquartered in Green Bay, Wisconsin, providing banking and wealth management services primarily in Wisconsin, Michigan and Minnesota.
Financial performance and position
| Metric | Q1 2024 / March 31, 2024 | Comparison |
|---|---|---|
| Net income; diluted EPS | $27.8 million; $1.82 | Q1 2023: net loss of $8.9 million; diluted loss per share of $0.61. Q4 2023 net income was $30.7 million and diluted EPS was $2.02. |
| Adjusted net income; adjusted diluted EPS (non-GAAP) | $26.3 million; $1.72 | Q1 2023: $21.8 million; $1.45. |
| Net interest income; net interest margin | $62.8 million; 3.26% | NII increased $6.1 million and margin rose 35 basis points year over year; NII was down $1.5 million from Q4 2023. |
| Loans | $6.40 billion | Up $44 million, or 1%, from year-end 2023. |
| Deposits | $7.17 billion | Down $32 million from year-end; noninterest-bearing demand deposits fell $293 million. |
| Total assets; stockholders’ equity | $8.45 billion; $1.06 billion | Assets down $22 million and equity up $25 million from year-end. |
| Cash and cash equivalents | $427 million | Down $64 million from year-end. |
| Credit allowance; nonperforming assets | Loan allowance $64.3 million, or 1.01% of loans; nonperforming assets $27.9 million, or 0.33% of assets | Allowance was 1.00% at year-end; nonperforming assets were essentially unchanged from year-end and below $40.9 million a year earlier. |
| Borrowings | $162.3 million long-term; no short-term borrowings | Long-term borrowings declined $4.7 million from year-end, including approximately $5 million of subordinated notes repurchased and retired. |
Changes and drivers
- Compared with Q1 2023, net interest income rose 11% as loan growth and higher asset yields more than offset higher funding costs. The yield on earning assets increased 95 basis points to 5.44%; cost of funds rose 71 basis points to 3.01%.
- Reported noninterest income improved by $41.3 million year over year, chiefly because Q1 2023 included $38.5 million of net asset losses from a securities portfolio repositioning. Excluding asset gains and losses, noninterest income increased $0.9 million to $17.5 million.
- Q1 2024 net asset gains of $1.9 million mainly reflected a $1.0 million gain on an investment security sale and a $0.9 million gain on early extinguishment of subordinated notes.
- Noninterest expense increased 5% year over year to $47.1 million, primarily from personnel costs, which rose 9%; FDIC assessments also increased. Provision for credit losses was $0.8 million, versus $3.1 million in Q1 2023, which included a $2.3 million securities credit provision.
- Deposit mix shifted toward higher-cost funding: core deposits declined $200 million from year-end while brokered deposits increased $168 million. Estimated uninsured deposits were $2.1 billion, or 29% of deposits.
Liquidity, capital, outlook and risks
- Management said liquidity was adequate. Reported contingent funding availability was approximately $2.0 billion, including $808 million of immediate funding availability. The company had $85 million of parent-company cash.
- The Bank was well-capitalized under regulatory prompt-corrective-action standards. At March 31, 2024, its total capital ratio was 12.0%, CET1 ratio 11.1%, and leverage ratio 9.9%.
- Interest-rate simulations indicated a shift to a liability-sensitive position: a gradual 100-basis-point rate increase was modeled to reduce one-year net interest income by 0.3%; a 100-basis-point decrease was modeled to increase it by 0.3%. Actual outcomes may differ.
- Management described a slowing U.S. economy, persistent inflation above the Federal Reserve’s 2% goal, and expectations that rates may remain higher for longer. The filing provides no company-specific earnings or growth guidance.
- Key risks include deposit competition and funding costs, interest-rate and economic changes, borrower and collateral deterioration, regulatory and legal matters, cybersecurity, and acquisition integration. Management reported no material change in previously disclosed risk factors and no legal proceedings expected to have a material adverse effect.
Important facts for investors to verify
- Whether deposit outflows, brokered-funding reliance and deposit pricing continue to affect funding costs and net interest margin.
- Loan growth and credit trends, including commercial real estate and agricultural exposures, nonperforming assets, potential problem loans, and allowance adequacy.
- Whether the improvement in reported earnings is sustainable apart from unusual asset gains and the prior-year securities repositioning; compare GAAP and non-GAAP results.
- Interest-rate sensitivity assumptions and the potential effect of persistently high rates, inflation and economic weakness on earnings and credit quality.
- Liquidity and capital availability, including contingent funding sources, uninsured deposits and regulatory capital levels.