DEF 14A: Nicolet Bankshares Reports Solid 2023 Performance Amidst Industry Challenges, Announces Shareholder Meeting

Nicolet Bankshares navigated a volatile banking environment in 2023, achieving strong loan growth and improved profitability, and will hold its annual shareholder meeting on May 20, 2024.

Summary

• Nicolet Bankshares faced industry-wide challenges in 2023, including bank failures and rising interest rates.
• Despite these challenges, the company repositioned its balance sheet, leading to a steady increase in net interest margin after a challenging first quarter.
• Key performance highlights for 2023 include net income of $62 million (or $101 million adjusted), earnings per diluted common share of $4.08 (or $6.72 adjusted), and an increase in the tangible common equity ratio to 7.98%.
• Nonperforming assets remained strong at $28 million, representing 0.33% of total assets.
• The company instituted its first quarterly dividend of $0.25 per share in the second quarter of 2023.
• The Annual Meeting of Shareholders will be held on May 20, 2024, to elect directors, ratify the selection of FORVIS, LLP as the independent auditor, and approve executive compensation.
• The record date for determining shareholders entitled to vote at the Annual Meeting was March 18, 2024.
• As of the record date, Nicolet had 14,853,712 shares outstanding.

Sentiment

Score: 7

Explanation: Despite a decrease in net income and earnings per share, the company demonstrated resilience and strategic adaptation in a challenging environment, leading to a positive outlook.

Positives

• Proactive balance sheet repositioning led to a steady increase in net interest margin during 2023.
• Strong loan growth and solid growth in fee income were observed.
• Credit quality remained resilient.
• The capital base grew.
• The company is well-positioned heading into 2024 due to strategic moves made in the past year.
• Tangible common equity ratio increased to 7.98% at year-end 2023, compared to 6.82% at year-end 2022.
• Asset quality remains strong, with nonperforming assets of $28 million (representing 0.33% of total assets) at December 31, 2023, compared to $40 million (representing 0.46% of total assets) at December 31, 2022.

Negatives

• Net income decreased from $94 million in 2022 to $62 million in 2023.
• Earnings per diluted common share decreased from $6.56 in 2022 to $4.08 in 2023.
• The company executed the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million to reposition the balance sheet for future growth.

Risks

• The banking industry faces ongoing challenges from rapidly rising interest rates and economic uncertainty.
• The company's performance is subject to market volatility and unpredictable events.
• Protecting and securing customers' data is of paramount importance and requires continuous investment in cybersecurity measures.

Future Outlook

Nicolet is well-positioned heading into 2024, with ample flexibility to assess and take advantage of opportunities that may arise.

Management Comments

• After a challenging first quarter where our net interest margin fell below 3.0%, the proactive balance sheet repositioning produced the results we thought it would, and we saw a steady increase in the margin during the remainder of 2023 a trend that was contrary to much of our peers and the industry.
• We saw strong loan growth, solid growth in fee income, resilience in our credit quality, and growth in our capital base.
• Due to several strategic moves made during the past year, including the large balance sheet repositioning in March, as well as additional smaller securities and noncore investment sales during the year, Nicolets strong financial performance to close out the year provides for ample flexibility to assess and take advantage of opportunities that may arise in 2024 and beyond.

Industry Context

The banking industry faced significant challenges in 2023, including bank failures and rising interest rates, making Nicolet's performance noteworthy.

Comparison to Industry Standards

• Nicolet's peer group includes banks with Midwest-based headquarters and an asset size between $6 billion and $18 billion, such as BancFirst Corporation, First Mid Bancshares, Inc., and Peoples Bancorp, Inc.
• The peer group for 2023 was expanded to include 24 peer banks, compared to 18 peer banks for 2022.
• Pearl Meyers assessment of Nicolets compensation practices and levels in the comprehensive reports concluded: Total cash compensation (base salary + annual cash incentives / bonus) of the named executive officers is considered competitive to peers.
• Pearl Meyers assessment of Nicolets compensation practices and levels in the comprehensive reports concluded: Total direct compensation (cash compensation + equity awards) is aligned with the market 70 th percentile.
• Pearl Meyers assessment of Nicolets compensation practices and levels in the comprehensive reports concluded: Total remuneration (direct compensation + all other compensation) are positioned above the 75 th percentile of peers.

Management Changes

Related Party Transactions

• Nicolet's bank subsidiary has loan transactions in the ordinary course of business with directors and executive officers of the Company, including the companies or firms with which they are affiliated and members of their immediate families.
• Chris Boland, the brother-in-law of executive officer Patrick J. Madson, is a Loan Operations Manager for Nicolet, and Adam M. Madson, the brother of Patrick J. Madson, was a Financial Advisor for Nicolet.
• Kyle Lawson, son of retired Director Ann K. Lawson, is a Finance & Data Analytics Officer for Nicolet.
• Nicolet entered into a lease for a branch location in a facility owned by Christopher J. Ghidorzi, director of the Company and the Bank.
• The Company assumed a lease for a Charter administrative location in a facility owned by an entity for which Brenda L. Johnson, director of the Company and the Bank, has the controlling ownership interest.

Stakeholder Impact

• Shareholders will have the opportunity to vote on key corporate governance matters at the Annual Meeting.
• Employees are supported through comprehensive benefits and development programs.
• Customers benefit from the company's commitment to supporting local businesses and protecting their data.
• The company supports environmental sustainability objectives through various initiatives.

Next Steps

• Shareholders will vote on the election of directors, ratification of the independent auditor, and approval of executive compensation at the Annual Meeting on May 20, 2024.

Key Dates

Keywords

Nicolet Bankshares, Annual Meeting, Proxy Statement, Executive Compensation, Financial Performance, Board of Directors, Shareholders, Dividends, FORVIS LLP, Banking Industry