10-K: Nicolet Bankshares Reports Strong 2024 Earnings, Eyes Future Growth Opportunities

Nicolet Bankshares reports a significant increase in net income for 2024, driven by strategic initiatives and a resilient economic environment.

Summary

• Nicolet Bankshares, Inc. reported net income of $124 million for the year ended December 31, 2024, a substantial increase from $62 million in 2023.
• Earnings per diluted common share rose to $8.05 in 2024, compared to $4.08 in the previous year.
• At year-end 2024, total assets reached $8.8 billion, loans totaled $6.6 billion, and deposits amounted to $7.4 billion.
• The company's Board and executive management view 2025 as a year of optionality, focusing on organic growth, M&A, share repurchases, and increased dividends.
• Nicolet aims to achieve top-quartile profitability metrics and shareholder returns among its peers.
• The company's strategic priorities for 2025 include funding organic growth, pursuing M&A opportunities, considering share repurchases, and evaluating increased dividends.
• Nonperforming assets remained stable at $29 million, representing 0.33% of total assets.
• The allowance for credit losses on loans was $66 million, or 1.00% of total loans, at the end of 2024.
• The company's tax-equivalent net interest income was $270 million for 2024, up from $244 million in 2023.
• The net interest margin increased to 3.47% for 2024, compared to 3.18% for 2023.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results and strategic plans for future growth, indicating a favorable sentiment.

Positives

• Strong financial performance in 2024 with significant increases in net income and earnings per share.
• Healthy capital levels and strong asset quality.
• Resilient commercial customers across the company's footprint.
• Potential pro-growth policies of the new presidential administration.
• Optionality for the company due to healthy capital levels and continued strong earnings.
• Increase in wealth management fee income by $4 million (16%) to $27 million for 2024.
• Mortgage income increased by $3 million (42%) to $10 million for 2024.
• Service charges on deposit accounts increased by $1 million (20%) to $7 million for 2024.
• BOLI income increased $1 million (20%) to $5 million for 2024.

Negatives

• Potential negative impact on certain industries in the company's markets due to higher tariffs and immigration policies.
• Unrealized losses in the securities portfolio, although not expected to require sales at a loss.
• Dependence on local economic conditions in Wisconsin, Michigan, and Minnesota.
• The company had a $16 million valuation allowance at December 31, 2024, compared to a valuation allowance of $9 million at December 31, 2023.

Risks

• Economic uncertainty due to the new presidential administration.
• Potential for higher credit losses in 2025, particularly in banks with higher CRE concentrations.
• Challenges in the accounting math behind M&A due to higher interest rates.
• Regulatory changes and the $10 billion asset threshold.
• Dependence on local economic conditions in Wisconsin, Michigan, and Minnesota.
• Inflationary pressures and potential impact on customers and their businesses.
• Competition for talent and increasing costs of hiring and retaining top revenue-producing talent.
• Cybersecurity risks and potential for data breaches.
• Reliance on third-party service providers and potential disruptions to operations.
• Interest rate risk and potential for negative impacts on net interest income.

Future Outlook

Nicolet's Board and executive management see 2025 as a year of optionality, focusing on organic growth, M&A, share repurchases, and increased dividends, with the ultimate goal of achieving top-quartile profitability metrics and shareholder returns.

Management Comments

• Nicolet came off of a record year of core earnings, capital levels have rebounded, and asset quality remains strong.
• There remains a general sense of cautious optimism across our markets.
• The potential pro-growth policies of the new presidential administration likely changed the outlook of the banking industry for the better.
• We are committed to not grow through acquisition just for the sake of it.
• The ultimate goal is to produce profitability metrics and shareholder returns that place us in the top quartile, if not top decile, of our peers.

Industry Context

The report notes a shift in the outlook for the U.S. banking industry, with increased optimism following the November 2024 elections due to expectations of policies that may lead to more bank M&A and a subsiding of fears regarding commercial real estate credit losses.

Comparison to Industry Standards

• The report aims to achieve top-quartile profitability metrics and shareholder returns among its peers.
• The S&P U.S. BMI Banks Index tracks the performance of all U.S. domiciled bank companies with float-adjusted market capitalization of at least $100 million.
• The report compares the cumulative stockholder return on Nicolet's common stock with the S&P 500 Index and the S&P U.S. BMI Banks Index for the period of December 31, 2019 to December 31, 2024.

Management Changes

Related Party Transactions

• The Company conducted transactions, in the normal course of business, with its directors and executive officers, including companies in which they have a beneficial interest.
• Robert B. Atwell, former Executive Chairman, received consulting fees totaling approximately $717,000 during 2024.
• The Company has granted loans to its directors, executive officers, and their related interests.
• In October 2013, the Company entered into a lease for a branch location in a facility owned by a member of the Company’s Board and incurred annual rent expense of $230,000, $228,000, and $153,000, on this facility during 2024, 2023, and 2022, respectively. This lease was terminated during 2024.
• This same Board member participated in a competitive bid process for and was awarded the contract as general contractor for the construction of two new branch locations (one during 2023 and one during 2022).
• In August 2022, the Company assumed a lease for a Charter administrative location in a facility owned by an entity for which another Board member had the controlling ownership interest. Rent expense of $37,000 and $149,000 was paid during 2024 and 2023, respectively, on this location. This facility was sold and the related lease was terminated during 2024.

Stakeholder Impact

• The company aims to optimize the long-term return to its customers and communities, employees and shareholders.
• The company is committed to supporting the well-being and development of each employee in a collaborative and inclusive environment.
• The company encourages employees to be a memorable part of their communities, with employees reporting almost 18,500 total volunteer hours in 2024.

Next Steps

• The Board will assess the level of the $0.28 per share quarterly dividend at the May meeting.
• The company will continue to evaluate strategic priorities, including organic growth, M&A, share repurchases, and increased dividends.
• Management will continue to evaluate the changes to the CRAs regulations and their impact to the Bank.

Key Dates