Nicolet Bankshares, Inc. — 2022 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2022. This is an annual report, not a standalone fourth-quarter earnings filing. Nicolet is a regional community bank operating in Wisconsin, Michigan, and Minnesota.
Business context and results
Nicolet completed its acquisition of Charter Bankshares on August 26, 2022, expanding into western Wisconsin and Minnesota. The transaction’s $137 million purchase price included approximately $98 million in stock and $39 million in cash. Charter added about $1.1 billion of assets, including $827 million of loans and $870 million of deposits. Results include Charter only from the acquisition date; 2021 results likewise include partial contributions from the Mackinac and County acquisitions.
| Metric | 2022 | 2021 | Change or context |
|---|---|---|---|
| Net interest income | $240.0 million | $158.0 million | Up 52% |
| Net interest margin | 3.40% | 3.37% | Up 3 basis points |
| Provision for credit losses | $11.5 million | $14.9 million | Included $8.0 million of Charter Day 2 provision in 2022 |
| Noninterest income | $57.9 million | $67.4 million | Down 14%, primarily from lower mortgage income |
| Noninterest expense | $160.6 million | $129.3 million | Up 24%, reflecting acquisitions and a larger operating base |
| Net income | $94.3 million | $60.7 million | Up 55% |
| Diluted EPS | $6.56 | $5.44 | Adjusted diluted EPS, a non-GAAP measure, was $6.90 and $6.57, respectively |
| Return on average assets | 1.20% | 1.15% | Up 5 basis points |
| Return on average common equity | 10.63% | 9.74% | Up 89 basis points |
Financial position, cash flow, and capital
- At year-end, total assets were $8.76 billion, loans were $6.18 billion, deposits were $7.18 billion, and stockholders’ equity was $972.5 million. Assets grew 14%, loans 34%, and deposits 11% from year-end 2021. Excluding Charter’s acquired loans and approximately $100 million of repurchased agricultural participations, management reported 14% organic loan growth.
- Cash and cash equivalents fell $440.6 million to $154.7 million. Operating activities provided $117.4 million; investing activities used $516.4 million, primarily reflecting loan growth; financing activities used $41.6 million.
- Borrowings totaled $542.3 million: $317.0 million of short-term FHLB advances and $225.3 million of long-term borrowings. The short-term advances were due in January and September 2023 at weighted average rates of 4.29% and 4.30%.
- Management said liquidity was adequate. Available sources included $195 million of unused federal funds lines and $607 million of FHLB borrowing capacity. The Bank had $2.3 billion of uninsured deposits at year-end.
- The Bank was well-capitalized: CET1 was 10.6%, total risk-based capital was 11.3%, and the leverage ratio was 9.1%. The holding company’s CET1 ratio was 9.0%.
- Rising rates drove the AFS securities portfolio from a $4 million unrealized gain at year-end 2021 to a $79 million unrealized loss at year-end 2022. Accumulated other comprehensive loss was $57.5 million, versus income of $3.1 million a year earlier. HTM securities also had $55.8 million of unrealized losses; they were carried at amortized cost.
- Nonperforming assets declined to $40.1 million, or 0.46% of assets, from $56.1 million, or 0.73%. The allowance for loan losses was $61.8 million, or 1.00% of loans; net charge-offs were 0.01% of average loans.
Material changes, outlook, and risks
- Higher interest rates increased deposit and wholesale funding costs faster than yields on parts of the fixed-rate loan and securities portfolios. Management said net interest margin could remain under pressure in the first quarter of 2023 and may improve after the Federal Reserve pauses rate increases.
- Management described Nicolet as asset-sensitive, but noted that time is needed for loans to reprice. Its 2022 year-end simulation showed net interest income essentially unchanged under a 100-basis-point rate increase and up 0.1% under a 200-basis-point increase; these scenarios are estimates, not forecasts.
- Management’s 2023 priorities included integrating Charter, continuing cultural integration, and renewing efforts to gather core deposits. It expected intense competition for local deposits. No specific numerical earnings or growth guidance was provided.
- The share repurchase program was paused in April 2022 amid pressure on common equity from securities’ mark-to-market losses and the Charter transaction. Management said it expected to resume repurchases at some point in 2023; approximately $48 million remained authorized at year-end. Nicolet has not paid a common-stock dividend since inception and said it did not intend to declare cash dividends for the foreseeable future.
- Other unusual or non-core items included acquisition-related expenses, $8 million of Charter Day 2 credit provision, branch optimization costs, and gains on asset sales and investments. Management’s non-GAAP adjusted earnings exclude specified items and should be considered alongside GAAP results.
- Principal risks include a possible recession, persistent inflation, rapid rate changes and deposit competition; credit concentration in commercial-related lending (78% of loans) and Midwest markets; commercial real estate and agricultural borrower exposures; securities valuation and liquidity risk; acquisition integration; cybersecurity, fraud, and third-party service disruptions; and regulatory, legal, and LIBOR-transition risks. Management said routine legal proceedings were not expected to have a material adverse effect, while acknowledging outcomes can be uncertain.
Important facts for investors to verify
- How much of 2022 earnings and loan growth came from Charter and prior acquisitions versus organic operations, and whether expected integration benefits are being realized.
- Deposit trends, deposit pricing and mix, uninsured and brokered deposit levels, and the cost and availability of wholesale funding.
- Net interest margin and asset-liability sensitivity as loans reprice and rates change; compare management’s scenarios with actual results.
- Credit quality by portfolio segment, especially agricultural and commercial real estate exposures, criticized or potential problem loans, nonaccruals, and the adequacy of the CECL allowance.
- The implications of unrealized securities losses for capital and liquidity, including the distinction between AFS and HTM holdings and any need to sell securities.
- Progress on Charter integration, the timing and rationale for restarting repurchases, and the use of the remaining authorization.
- Charter purchase-accounting estimates remained preliminary, and the auditor excluded Charter from its internal-control audit scope; verify any subsequent purchase-price allocation adjustments and control-integration updates.