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What changed in NICOLET BANKSHARES INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NICOLET BANKSHARES INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+285 added−273 removedSource: 10-K (2024-02-28) vs 10-K (2023-02-24)

Top changes in NICOLET BANKSHARES INC's 2023 10-K

285 paragraphs added · 273 removed · 191 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

34 edited+12 added−8 removed101 unchanged
Biggest changeManagement will continue to evaluate any changes to the CRA’s regulations and their impact to the Bank. Payment of Dividends. Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Parent Company.
Biggest changeThe full effects on the Bank of these changes to the CRA rules will depend on the regulatory interpretation of this federal rulemaking and cannot be predicted at this time. Management will continue to evaluate the changes to the CRA’s regulations and their impact to the Bank. Payment of Dividends.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. See “Prompt Corrective Action” below. 9 Prompt Corrective Action.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and 9 certain other restrictions on its business. See “Prompt Corrective Action” below. Prompt Corrective Action.
Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident 11 that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Banks’ service providers are required under the federal regulation to notify any affected bank to or on behalf of which the service provider provides services “as soon as possible” after determining that it has experienced an incident that materially disrupts or degrades, or is reasonably likely to materially disrupt or degrade, covered services provided to such bank for as much as four hours.
Nicolet employs seasoned banking and wealth management professionals with experience in its market areas and who are active in their communities. We believe our emphasis on meeting customer needs in a relationship-focused manner, combined with local decision making on extensions of credit, distinguishes Nicolet from its competitors, particularly in the case of large financial institutions.
Nicolet employs seasoned banking and wealth management professionals with experience in its market areas and who are active in their communities. We believe our emphasis on meeting customer needs in a relationship-focused manner, combined with local decision making on extensions of credit, distinguishes Nicolet from its competitors, particularly in the case of large financial 6 institutions.
These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be over $1.9 million per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. Community Reinvestment Act.
These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be over $1.9 million per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. 10 Community Reinvestment Act.
Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.
Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the 11 discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.
Competition involves efforts to retain current or procure new customers, obtain new loans and deposits, increase the scope and type of products or services offered, and offer 6 competitive interest rates paid on deposits or earned on loans, as well as to deliver other aspects of banking competitively.
Competition involves efforts to retain current or procure new customers, obtain new loans and deposits, increase the scope and type of products or services offered, and offer competitive interest rates paid on deposits or earned on loans, as well as to deliver other aspects of banking competitively.
Under the Bank Holding Company Act, control is deemed to exist if a company acquires 25% or more of any 7 class of voting securities of a bank holding company; controls the election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company.
Under the Bank Holding Company Act, control is deemed to exist if a company acquires 25% or more of any class of voting securities of a bank holding company; controls the election of a majority of the members of the board of directors; or exercises a controlling influence over the management or policies of a bank or bank holding company.
Products and Services Overview Nicolet’s principal business is banking, consisting of lending and deposit gathering, as well as ancillary banking-related products and services, to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage such banking products and services.
Products and Services Overview Nicolet’s principal business is banking, consisting of lending and deposit gathering, as well as ancillary banking-related products and services, to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage 4 such banking products and services.
As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
As the percentage of 7 ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
Support of Subsidiary Institutions . Under Federal Reserve policy and the Dodd-Frank Act, Nicolet is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy or the related rules, Nicolet might not be inclined to provide it.
Under Federal Reserve policy and the Dodd-Frank Act, Nicolet is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy or the related rules, Nicolet might not be inclined to provide it.
At December 31, 2022, the Parent Company also wholly owns a registered investment advisory firm, Nicolet Advisory Services, LLC (“Nicolet Advisory”), that provides brokerage and investment advisory services to customers, and Nicolet Insurance Services, LLC (“Nicolet Insurance”), to facilitate the delivery of a crop insurance product associated with Nicolet’s agricultural lending.
At December 31, 2023, the Parent Company also wholly owns a registered investment advisory firm, Nicolet Advisory Services, LLC (“Nicolet Advisory”), that provides brokerage and investment advisory services to customers, and Nicolet Insurance Services, LLC (“Nicolet Insurance”), to facilitate the delivery of a crop insurance product associated with Nicolet’s agricultural lending.
The OCC also has the power to 8 prevent the continuance or development of unsafe or unsound banking practices or other violations of law.
The OCC also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law.
As of December 31, 2022, the Bank satisfied the requirements of “well-capitalized” under the regulatory framework for prompt corrective action. See Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for regulatory capital ratios of Nicolet and the Bank.
As of December 31, 2023, the Bank satisfied the requirements of “well-capitalized” under the regulatory framework for prompt corrective action. See Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for regulatory capital ratios of Nicolet and the Bank.
Each Nicolet employee has a life outside of the workplace, and Nicolet seeks to provide support for all their life events by offering additional benefits such as (1) health, dental, hearing, and vision plans, (2) voluntary insurance plans to address hospital indemnity, critical illness, disability, and accidental injury, (3) paid time off for vacation, short-term sickness, and long-term sickness, (4) financial assistance for adoption, (5) grief support, (6) an employee assistance plan, (7) religious observance leave, and (8) other unpaid leave when necessary.
Each Nicolet employee has a life outside of the workplace, and Nicolet seeks to provide support for all their life events by offering additional benefits such as (1) health, dental, hearing, and vision plans, (2) voluntary insurance plans to address hospital indemnity, critical illness, disability, and accidental injury, (3) paid time off for vacation, short-term sickness, and long-term sickness, (4) financial assistance for adoption, (5) grief support, (6) an employee assistance plan, (7) religious observance leave, (8) fraud protection services, and (9) other unpaid leave when necessary.
At December 31, 2022, the Bank wholly owns an investment subsidiary based in Nevada, an entity that owns the building in which Nicolet is headquartered, and a subsidiary that provides a web-based investment management platform for financial advisor trades and related activity.
At December 31, 2023, the Bank wholly owns an investment subsidiary based in Nevada, an entity that owns the building in which Nicolet is headquartered, and a subsidiary that provides a web-based investment management platform for financial advisor trades and related activity.
Other than the Bank, these subsidiaries are closely related to or incidental to the business of banking and none are individually or collectively significant to Nicolet’s financial position or results as of December 31, 2022.
Other than the Bank, these subsidiaries are closely related to or incidental to the business of banking and none are individually or collectively significant to Nicolet’s financial position or results as of December 31, 2023.
Nicolet’s call center also services customers. 4 Nicolet offers a variety of loans, deposits and related services to business customers (especially small and medium-sized businesses and professional concerns), including but not limited to: business checking and other business deposit products and cash management services, international banking services, business loans, lines of credit, commercial real estate financing, construction loans, agricultural real estate or production loans, and letters of credit, as well as retirement plan services.
Nicolet offers a variety of loans, deposits and related services to business customers (especially small and medium-sized businesses and professional concerns), including but not limited to: business checking and other business deposit products and cash management services, international banking services, business loans, lines of credit, commercial real estate financing, construction loans, agricultural real estate or production loans, and letters of credit, as well as retirement plan services.
Nicolet markets its services to owner-managed companies, the individual owners of these businesses, and other residents within its market area, which at December 31, 2022 is through 55 branches located principally within the geographic area of its branch locations. The financial services industry is highly competitive.
Nicolet markets its services to owner-managed companies, the individual owners of these businesses, and other residents within its market area, which at December 31, 2023 is through 56 branches located principally within the geographic area of its branch locations. The financial services industry is highly competitive.
At December 31, 2022 the Bank’s commercial real estate lending levels are below the guidance levels noted above. Enforcement Powers .
At December 31, 2023 the Bank’s commercial real estate lending levels are below the guidance levels noted above. Enforcement Powers .
Depository institutions with less than $10 billion in assets, such as the Bank, are subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. UDAP and UDAAP.
Depository institutions with less than $10 billion in assets, such as the Bank, are subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. As the Bank approaches the $10 billion asset threshold, the Bank is preparing to be examined by the CFPB. UDAP and UDAAP.
Additionally, trust, brokerage and other investment management services predominantly for individuals and retirement plan services for business customers are offered. Nicolet delivers its products and services principally through 55 bank branch locations, online banking, mobile banking and an interactive website.
Additionally, trust, brokerage and other investment management services predominantly for individuals and retirement plan services for business customers are offered. Nicolet delivers its products and services principally through 56 bank branch locations, online banking, mobile banking and an interactive website. Nicolet’s call center also services customers.
To assist them, Nicolet offers competitive wages and a comprehensive financial benefit package that includes offerings such as (1) a 401(k) plan with a dollar-for-dollar match of employee contributions up to 6%, (2) health savings accounts for employees who elect to participate in high-deductible health plans, (3) flexible spending accounts, (4) profit sharing contributions to the 401(k) plan, and (5) Nicolet paid life insurance.
To assist employees reach their goals, Nicolet offers competitive wages and a comprehensive financial benefit package that includes offerings such as (1) a 401(k) plan with a dollar-for-dollar match of employee contributions up to 6%, (2) health savings accounts for employees who elect to participate in high-deductible health plans, (3) flexible spending accounts, (4) profit sharing contributions to the 401(k) plan, (5) Nicolet paid life insurance, (6) an employee stock purchase plan, and (7) discounted wealth services.
In order to remain a financial holding company, Nicolet must continue to be considered well managed and well capitalized by the Federal Reserve, and the Bank must continue to be considered well managed and well capitalized by the Office of the Comptroller of the Currency (the “OCC”) and have at least a “satisfactory” rating under the Community Reinvestment Act.
In order to remain a financial holding company, Nicolet must continue to be considered well managed and well capitalized by the Federal Reserve, and the Bank must continue to be considered well managed and well capitalized by the OCC and have at least a “satisfactory” rating under the Community Reinvestment Act. Support of Subsidiary Institutions .
At December 31, 2022, Nicolet had total assets of $8.8 billion, loans of $6.2 billion, deposits of $7.2 billion and total stockholders’ equity of $973 million. For the year ended December 31, 2022, Nicolet earned net income of $94 million, or $6.56 per diluted common share.
At December 31, 2023, Nicolet had total assets of $8.5 billion, loans of $6.4 billion, deposits of $7.2 billion and total stockholders’ equity of $1.0 billion. For the year ended December 31, 2023, Nicolet earned net income of $62 million, or $4.08 per diluted common share.
Nicolet also partners with local civic organizations, schools, professional associations, and other organizations to attract, recruit, retain, engage, support, develop, and advance diverse employees. As of December 31, 2022, Nicolet had 942 full-time equivalent employees and 972 total employees, of which, approximately 66% were women and 34% were men. In addition, 43% of all officer-titled employees were women.
Nicolet also partners with local civic organizations, schools, professional associations, and other organizations to attract, recruit, retain, engage, support, develop, and advance diverse employees. As of December 31, 2023, Nicolet had 976 total employees, of which, approximately 65% were women and 35% were men. In addition, 45% of all officer-titled employees were women.
These facts are 10 also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the terms of various Community Reinvestment Act-related agreements. The Bank received an “outstanding” CRA rating in its most recent evaluation.
Failure to adequately meet these criteria could impose additional requirements and limitations on the Bank. Additionally, the Bank must publicly disclose the terms of various Community Reinvestment Act-related agreements. The Bank received an “outstanding” CRA rating in its most recent evaluation.
Because the Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations and the FDIC also has examination authority and back-up enforcement power over the Bank. The Bank is also subject to numerous state and federal statutes and regulations that affect Nicolet, its business, activities, and operations. Branching.
Because the Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations and the FDIC also has examination authority and back-up enforcement power over the Bank.
The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions within their respective jurisdictions, the federal banking agencies evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods.
The Community Reinvestment Act (“CRA”) requires that, in connection with examinations of financial institutions within their respective jurisdictions, the federal banking agencies evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility.
If, in the opinion of the OCC, the Bank were engaged in or about to engage in an unsafe or unsound practice, the OCC could require that the Bank stop or refrain from engaging in the practice.
Statutory and regulatory limitations apply to the Bank’s payment of dividends to the Parent Company. If, in the opinion of the OCC, the Bank were engaged in or about to engage in an unsafe or unsound practice, the OCC could require that the Bank stop or refrain from engaging in the practice.
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy. Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act and the Bank Merger Act and adopt a plan for revitalization of such practices.
Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act and the Bank Merger Act, which similarly requires the approval of the federal banking agencies prior to the consummation of any merger involving a bank, and adopt a plan for revitalization of such practices.
In support further of that goal, Nicolet is in the process of developing a new training facility (expected completion in second quarter 2023) that Nicolet will use to expand its learning and development options for all employees, including in person or virtual options.
In 2023, 29% of all job opportunities were filled by internal mobility. To support the continued training of employees, Nicolet opened a new training facility during 2023 that will be used to expand its learning and development options for all employees, including in person or virtual options.
Nicolet also strives to support under-represented communities through its volunteer program and provides financial assistance (through both lending and investment opportunities) to elevate financially disadvantaged communities. Market Area and Competition The Bank is a full-service community bank, providing services ranging from commercial, agricultural, and consumer banking to wealth management and retirement plan services. Nicolet operates in Wisconsin, Michigan, and Minnesota.
Nicolet also offers tuition reimbursement to all employees who wish to pursue their education in a field of study related to their position. Market Area and Competition The Bank is a full-service community bank, providing services ranging from commercial, agricultural, and consumer banking to wealth management and retirement plan services. Nicolet primarily operates in Wisconsin, Michigan, and Minnesota.
For example, in 2022 Nicolet made enhancements to its benefits plans in response to the employee survey, to include the addition of a new health plan option, a change in provider network, and the acceleration of paid time off for FMLA leave. Be Personal Employees are more than their contributions at work.
For example, in response to the 2023 survey results, Nicolet made significant additions to its onboarding process and training resources for employees and managers to increase employee confidence and engagement while reducing employee turnover. Be Personal Employees are more than their contributions at work.
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Be Memorable Nicolet wants its employees, who demonstrate Nicolet’s Core Values every day, to share in Nicolet’s long-term legacy. We encourage employees to share in Nicolet’s success through the Employee Stock Purchase Plan, which allows employees to purchase Nicolet stock at a discounted price.
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Be Memorable Nicolet encourages employees to be a memorable part of their communities. In 2023, Nicolet employees reported almost 18,000 total volunteer hours in their respective communities.
Removed
Nicolet also provides each employee – regardless of their position – access to Nicolet’s wealth advisory services at a sharply reduced fee. Be Entrepreneurial Nicolet encourages employees to develop their professional skills and advance in their career. In 2022, 25% of all job opportunities were filled by internal mobility.
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In addition, Nicolet employees donated over $180,000 to the Nicolet Foundation (which was matched by Nicolet) and donated to local non-profits - all of whom are nominated by employees and selected by a committee of employees. Be Entrepreneurial Nicolet encourages employees to develop their professional skills and advance in their career.
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Nicolet also offers tuition reimbursement to all employees who wish to pursue their education in a field of study related to their position. Our Employee’s Commitment to Our Communities. We encourage Nicolet employees to pay-it-forward by supporting their local communities.
Added
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy.
Removed
Through the Nicolet National Foundation, Inc., which is a public charity operated exclusively by Nicolet employees, Nicolet is able to collect (and then match) employee contributions and award 100% of those funds to local community-based organizations in which our employees are involved We also provide flexible schedules to employees who engage in volunteerism, community events, and community organizations.
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On January 29, 2024, the Office of the Comptroller of the Currency (the “OCC”) proposed to update its rules on business combinations involving national banks.
Removed
Dividend Restrictions . Under Federal Reserve policies, bank holding companies may pay cash dividends on common stock only out of income available over the past year if prospective earnings retention is consistent with the organization’s expected future needs and financial condition and if the organization is not in danger of not meeting its minimum regulatory capital requirements.
Added
The proposed rules identified general principles for the OCC’s review of applications under the Bank Merger Act, including indicators for applications likely consistent with approval and applications that raise supervisory or regulatory concerns, additional considerations regarding financial stability managerial and financial resources, and convenience and needs statutory factors, and clarify the OCC’s decision process for extending the public comment period or holding a public meeting under the Bank Merger Act.
Removed
Federal Reserve policy also provides that bank holding companies should not maintain a level of cash dividends that undermines the bank holding company’s ability to serve as a source of strength to its banking subsidiaries.
Added
Payment of Dividends . The Parent Company is a legal entity separate and distinct from the Bank and other subsidiaries. The Parent Company’s principal source of cash flow, including cash flow to pay dividends on our stock or to pay principal and interest on debt securities is dividends paid to it by the Bank.
Removed
Under Federal Reserve policy, bank holding companies are expected to inform the Federal Reserve reasonably in advance of declaring or paying a dividend that exceeds earnings for the period (e.g., quarter) for which the dividend is being paid or that could result in a material adverse change to the organization’s capital structure. Stock Buybacks and Other Capital Redemptions.
Added
There are statutory and regulatory requirements applicable to the payment of dividends and other distributions by the Bank, as well as by the Parent Company to its shareholders. In 2023, we began paying dividends on our common stock. During 2023, 2022, and 2021, the Bank paid dividends to the Parent Company of $70 million, $70 million, and $60 million, respectively.
Removed
The OCC, FDIC, and Federal Reserve have announced that they are working together to “strengthen and modernize the rules implementing the CRA.” The effects on the Bank of any potential change to the CRA rules will depend on the final form of any federal rulemaking and cannot be predicted at this time.
Added
During 2023, the Parent Company declared quarterly cash dividends on its common stock totaling $0.75 per share. The Holding Company did not pay cash dividends on its common stock in 2022 or 2021. Stock Buybacks and Other Capital Redemptions.
Added
The Bank is also subject to numerous state and federal statutes and regulations that affect Nicolet, its business, activities, and operations. 8 Mergers. As a national bank, under the National Bank Act and the Bank Merger Act, the Bank is required to obtain the approval of the OCC prior to merging another institution into the Bank.
Added
As noted above, President Biden has encouraged the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act and the Bank Merger Act, and the OCC has proposed rulemaking to update its rules for business combinations.
Added
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. Branching.
Added
On October 24, 2023, the OCC, FDIC, and Federal Reserve adopted a final rule intended to “strengthen and modernize regulations implementing the CRA to better achieve the purposes of the law.” Most of the rule’s requirements will be applicable beginning January 1, 2026.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

57 edited+28 added−20 removed154 unchanged
Biggest changeAs of December 31, 2022, approximately 39% of our loans were secured by commercial-based real estate, 11% of loans were secured by agriculture-based real estate, and 21% of our loans were secured by residential real estate. We are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies.
Biggest changeWe are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies. 23 Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition.
Our stock price can fluctuate significantly in response to a variety of factors, some of which are unrelated to our financial performance, including, among other things: • actual or anticipated variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; or • geopolitical conditions such as acts or threats of terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations.
Our stock price can fluctuate significantly in response to a variety of factors, some of which are unrelated to our financial performance, including, among other things: • actual or anticipated variations in quarterly results of operations; • recommendations by securities analysts; • operating and stock price performance of other companies that investors deem comparable to us; • news reports relating to trends, concerns and other issues in the financial services industry; • perceptions in the marketplace regarding us and/or our competitors; • new technology used, or services offered, by competitors; • significant acquisitions or business combinations, strategic partnerships, joint ventures or capital commitments by or involving us or our competitors; • failure to integrate acquisitions or realize anticipated benefits from acquisitions; • changes in government regulations; or • geopolitical conditions such as acts or threats of war, terrorism, military conflicts, the effects (or perceived effects) of pandemics and trade relations.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; • a provision requiring that any merger or share exchange involving Nicolet be approved by either: (i) two-thirds of the Nicolet directors then in office and a majority of Nicolet’s outstanding shares of common stock; or (ii) a majority of the Nicolet directors then in officer and two-thirds of Nicolet’s outstanding shares of common stock; • a provision restricting removal of directors except for cause and upon the approval of a majority of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chief executive officer pursuant to a resolution adopted by a majority of the board of directors or the holders of 10% of the outstanding shares of Nicolet’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; • a provision requiring that any merger or share exchange involving Nicolet be approved by either: (i) two-thirds of the Nicolet directors then in office and a majority of Nicolet’s outstanding shares of common stock; or (ii) a majority of the Nicolet directors then in officer and two-thirds of Nicolet’s outstanding shares of common stock; 25 • a provision restricting removal of directors except for cause and upon the approval of a majority of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chief executive officer pursuant to a resolution adopted by a majority of the board of directors or the holders of 10% of the outstanding shares of Nicolet’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we integrate our recent acquisitions, including Charter; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment 13 Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we integrate our recent acquisitions; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; 13 • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. Lending activities are inherently risky. When we lend money or commit to lend, we incur credit risk or the risk of loss if borrowers do not repay their loans or other credit obligations.
In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. 17 Lending activities are inherently risky. When we lend money or commit to lend, we incur credit risk or the risk of loss if borrowers do not repay their loans or other credit obligations.
The federal banking agencies have also issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current earnings. The Federal Reserve may 24 also prevent the payment of a dividend by the Bank if it determines that the payment would be an unsafe and unsound banking practice.
The federal banking agencies have also issued policy statements which provide that bank holding companies and insured banks should generally only pay dividends out of current earnings. The Federal Reserve may also prevent the payment of a dividend by the Bank if it determines that the payment would be an unsafe and unsound banking practice.
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, compliance risk, strategic risk, reputational risk and operational risk related to its employees, systems and vendors, among others .
This framework is comprised of various processes, systems and strategies, and is designed to identify, measure, monitor, report and manage the types of risk to which we are subject, including, among others, credit risk, interest rate risk, liquidity risk, legal and regulatory risk, cybersecurity risk, compliance risk, strategic risk, reputational risk and operational risk related to its employees, systems and vendors, among others .
Operational risk can arise in many ways, including: errors related to failed or inadequate physical, operational, information technology, or other processes; faulty or disabled computer or other technology systems; fraud, theft, physical security breaches, 14 electronic data and related security breaches, or other criminal conduct by associates or third parties; and exposure to other external events.
Operational risk can arise in many ways, including: errors related to failed or inadequate physical, operational, information technology, or other processes; faulty or disabled computer or other technology systems; fraud, theft, physical security breaches, electronic data and related security breaches, or other criminal conduct by associates or third parties; and exposure to other external events.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our results of operations or financial condition.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material 21 adverse effect on our results of operations or financial condition.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies whose securities are publicly traded in the U.S. securities markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies whose securities are publicly traded in the U.S. securities 19 markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties.
Replacing these third-party vendors could also create significant delay and expense. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.
Replacing these third-party vendors could also create significant delay and 15 expense. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.
An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for loan losses and an increase in loan charge-offs, all of which could have a material adverse effect on our business, financial condition and results of operations.
An increase in nonperforming loans could result in a net loss of earnings from these loans, an increase in the provision for credit losses and an increase in loan charge-offs, all of which could have a material adverse effect on our business, financial condition and results of operations.
If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer. 17 We are exposed to higher credit and concentration risk from our commercial-related lending.
If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer. We are exposed to higher credit and concentration risk from our commercial-related lending.
As a result, we must make payments on the junior subordinated debentures before we can pay any dividends on our common stock, and in the event of our bankruptcy, dissolution or liquidation, holders of our junior subordinated debentures must be satisfied before any distributions can be made on our common stock.
As a result, we must make payments on the subordinated notes and the junior subordinated debentures before we can pay any dividends on our common stock, and in the event of our bankruptcy, dissolution or liquidation, holders of our subordinated notes and junior subordinated debentures must be satisfied before any distributions can be made on our common stock.
Our ability to recoup our losses may be limited legally or practically in many situations. 15 Our risk management framework may not be effective in mitigating risks and/or losses. We have implemented a risk management framework to mitigate our risk and loss exposure.
Our ability to recoup our losses may be limited legally or practically in many situations. Our risk management framework may not be effective in mitigating risks and/or losses. We have implemented a risk management framework to mitigate our risk and loss exposure.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • a decrease in the demand for loans and other products and services offered by us; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or 16 • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for loan losses.
Such a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • a decrease in the demand for loans and other products and services offered by us; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for credit losses.
Although we are taking precautions to protect the safety and well-being of our employees and customers, the unpredictability of the pandemic and public health issues could result in any of the following: • employees contracting these diseases, including COVID-19 or its variants; • reductions in operating effectiveness as employees work from home; • a work stoppage, forced quarantine, or other interruption of our business, including sustained closures of our business locations; • unavailability of key personnel necessary to conduct our business activities; • effects on key employees, including operational management personnel and those charged with preparing, monitoring, and evaluating our financial reporting and internal controls; • increased cybersecurity risks as a result of employees working remotely; • declines in demand for loans and other banking services and products; • reduced consumer spending due to job losses, inflation and other effects directly or indirectly attributable to the pandemic; • continued volatility in United States financial markets; • continued volatile performance of our investment securities portfolio; • decline in the credit quality of our loan portfolio resulting from the effects of the COVID-19 pandemic in our markets, leading to a need to increase the ACL, as applicable; • declines in value of collateral for loans, including real estate collateral; • declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us, which may affect, among other things, the levels of NPAs, charge-offs, and provision expense; and • declines in demand resulting from businesses deemed to be “non-essential” by governments in the markets that we serve, and from both “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity.
Although we take precautions to protect the safety and well-being of our employees and customers, the unpredictability of the pandemic and public health issues could result in any of the following: • employees contracting these diseases; • reductions in operating effectiveness as employees work from home; • a work stoppage, forced quarantine, or other interruption of our business, including sustained closures of our business locations; • unavailability of key personnel necessary to conduct our business activities; • effects on key employees, including operational management personnel and those charged with preparing, monitoring, and evaluating our financial reporting and internal controls; • increased cybersecurity risks as a result of employees working remotely; • declines in demand for loans and other banking services and products; • reduced consumer spending due to job losses, inflation and other effects directly or indirectly attributable to the pandemic; • continued volatility in United States financial markets; • continued volatile performance of our investment securities portfolio; • decline in the credit quality of our loan portfolio, leading to a need to increase the ACL, as applicable; • declines in value of collateral for loans, including real estate collateral; • declines in the net worth and liquidity of borrowers and loan guarantors, impairing their ability to honor commitments to us, which may affect, among other things, the levels of NPAs, charge-offs, and provision expense; and • declines in demand resulting from businesses deemed to be “non-essential” by governments in the markets that we serve, and from both “non-essential” and “essential” businesses suffering adverse effects from reduced levels of economic activity.
As a national bank, the Bank is subject to limitations on the amount of dividends that it is permitted to pay, as described under “Regulation of the Bank – Payment of Dividends” in Part I, Item 1 of this Report.
As a national bank, the Bank is subject to limitations on the amount of dividends that it is permitted to pay, as described under “Regulation of Nicolet – Payment of Dividends” and “Regulation of the Bank – Payment of Dividends” in Part I, Item 1 of this Report.
Actions could be taken that would further limit the amount of interest or fees we can charge, further restrict our ability to 19 collect on loans or related collateral, affect the terms or profitability of the products and services we offer, or materially and adversely affect us in other ways.
Actions could be taken that would further limit the amount of interest or fees we can charge, further restrict our ability to collect on loans or realize on collateral, affect the terms or profitability of the products and services we offer, or materially and adversely affect us in other ways.
Our principal source of funds that would be used to pay cash dividends on our common and preferred stock is dividends that we receive from the Bank.
Our principal source of funds used to pay cash dividends on our common and preferred stock is dividends that we receive from the Bank.
Any future determination relating to dividend policy will be made at the discretion of Nicolet’s board of directors and will depend on a number of factors, including the company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the board of directors may deem relevant.
Any determination relating to the continuation or any change in dividend policy will be made at the discretion of Nicolet’s board of directors and will depend on a number of factors, including the company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the board of directors may deem relevant.
As of December 31, 2022, approximately 78% of our loan portfolio consisted of commercial-related loans, including commercial and industrial loans, owner-occupied CRE, AG production and AG real estate, CRE investment, and construction and land-development loans. Our borrowers under these loans tend to be small to medium-sized businesses.
As of December 31, 2023, approximately 76% of our loan portfolio consisted of commercial-related loans, including commercial and industrial loans, owner-occupied CRE, AG production and AG real estate, CRE investment, and construction and land-development loans. Our borrowers under these loans tend to be small to medium-sized businesses.
After adopting ASC 326, the ACL reflects our assessment of the current expected losses over the life of the loan using historical experience, current conditions and reasonable and supportable forecasts. CECL has created more volatility in the level of our ACL because it relies on macroeconomic forecasts.
The ACL reflects our assessment of the current expected losses over the life of the loan using historical experience, current conditions and reasonable and supportable forecasts. CECL has created more volatility in the level of our ACL because it relies on macroeconomic forecasts.
The holders of our common stock receive dividends only if and when declared by the Nicolet board of directors out of legally available funds. Nicolet’s board of directors has not declared a dividend on the common stock since our inception in 2000.
The holders of our common stock receive dividends only if and when declared by the Nicolet board of directors out of legally available funds. Prior to 2023, Nicolet’s board of directors had not declared a dividend on the common stock since our inception in 2000.
These increases in interest rates can have significant and adverse effects upon our business as well as the business of many of our customers. Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.
Fluctuations in interest rates have had and can continue to have significant and sometimes adverse effects upon our business as well as the business of many of our customers. Federal Reserve strategies can, and often are intended to, affect the domestic money supply, inflation, interest rates, and the shape of the yield curve.
Although our current strategy is expected to evolve as business conditions change, in 2023 our strategy is to continue to invest resources in our banking businesses and operations as we integrate the businesses and operations of our recent acquisitions, including Charter, and seek to exploit opportunities for cost and revenue synergies.
Although our current strategy is expected to evolve as business conditions change, in 2024 our strategy is to continue to invest resources in our banking businesses and operations as we continue the integration of the businesses and operations of our recent acquisitions, and seek to exploit opportunities for cost and revenue synergies.
If market and economic conditions deteriorate, this may lead to valuation adjustments on our loan portfolio and losses on defaulted loans and on the sale of other real estate owned. 23 Additionally, such adverse economic conditions in our market areas, specifically decreases in real estate property values due to the nature of our loan portfolio, the majority of which is secured by real estate, could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations.
Additionally, such adverse economic conditions in our market areas, specifically decreases in real estate property values due to the nature of our loan portfolio, the majority of which is secured by real estate, could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of operations.
We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
Additionally, the use of artificial intelligence could exacerbate many of these risks. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
Nicolet’s corporate organizational documents and the provisions of Wisconsin law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition of Nicolet that you may favor. 25 Nicolet’s amended and restated articles of incorporation, as amended (our “articles”), and bylaws, as amended (our “bylaws”), contain various provisions that could have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change of control of Nicolet.
Nicolet’s corporate organizational documents and the provisions of Wisconsin law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition of Nicolet that you may favor.
Changes associated with LIBOR also may impact our funding ability; see Interest Rate and Yield Curve Risks below. Interest Rate and Yield Curve Risks We are subject to interest rate risk because a significant portion of our business involves borrowing and lending money, and investing in financial instruments.
Interest Rate and Yield Curve Risks We are subject to interest rate risk because a significant portion of our business involves borrowing and lending money, and investing in financial instruments.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability which, in turn, could have a material adverse effect on our business, financial condition and results of operations.
Failure 12 to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability which, in turn, could have a material adverse effect on our business, financial condition and results of operations. We may also be affected by the marketplace loosening of credit underwriting standards and structures.
Also, the junior subordinated debentures issued to the special purpose trusts that relate to those trust preferred securities are senior to our common stock.
We have also unconditionally guaranteed the payment of principal and interest on our trust preferred securities, and the junior subordinated debentures issued to the special purpose trusts that relate to those trust preferred securities are senior to our common stock.
Any increases in the ACL will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Furthermore, if charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL. Any increases in the ACL will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds.
Liquidity represents an institution’s ability to provide funds to satisfy demands from depositors, borrowers and other creditors by either converting assets into cash or accessing new or existing sources of incremental funds. Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs.
Historically, the yield curve is usually upward sloping (higher rates for longer terms). However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years. A flat or inverted yield curve, which tends to decrease net interest margin, would adversely impact our lending businesses and investment portfolio.
However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years. A flat or inverted yield curve, which tends to decrease net interest margin, would adversely impact our lending businesses and investment portfolio. The Federal Reserve, consistent with long-term goals, has been raising rates in response to inflation.
Liquidity and Funding Risk Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity could materially impair our ability to fund our operations and jeopardize our results of operation, financial condition and cash flows.
Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well. 20 Liquidity and Funding Risk Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity could materially impair our ability to fund our operations and jeopardize our results of operation, financial condition and cash flows.
Following a substantial and broad stock market decline in 2019, the Federal Reserve began to lower interest rates, which, until 2022, remained at historically low levels. In 2022, however, in response to inflationary pressures, the Federal Reserve increased interest rates substantially. In 2023, the Federal Reserve has continued to increase interest rates and indicated its intent to further increase rates.
Following a substantial and broad stock market decline in 2019, and the onset of the COVID-19 pandemic, the Federal Reserve lowered interest rates, which, until 2022, remained at historically low levels. In 2022, however, in response to inflationary pressures, the Federal Reserve increased interest rates substantially.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected. 21 A flat or inverted yield curve may reduce our net interest margin and adversely affect our loan and investment portfolios.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected.
However, other estimates can be highly significant at discrete times or during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time. As actual events unfold, estimates are adjusted accordingly.
The estimate that is consistently one of our most critical is the level of the allowance for credit losses. However, other estimates can be highly significant at discrete times or during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time.
We may from time to time issue additional senior or subordinated indebtedness or preferred stock that would have to be repaid before our shareholders would be entitled to receive any of our assets. Nicolet’s directors and executive officers own a significant portion of our common stock and can influence shareholder decisions.
We may from time to time issue additional senior or subordinated indebtedness or preferred stock that would have to be repaid before our shareholders would be entitled to receive any of our assets. Our stock price can be volatile.
Holders of our indebtedness have rights that are senior to those of our common shareholders. We have supported our continued growth by issuing trust preferred securities and accompanying junior subordinated debentures and by assuming the trust preferred securities and accompanying junior subordinated debentures issued by companies we have acquired.
We have supported our continued growth by issuing subordinated notes and by assuming the subordinated notes and trust preferred securities and accompanying junior subordinated debentures issued by companies we have acquired.
As of December 31, 2022, we had outstanding trust preferred securities and associated junior subordinated debentures with an aggregate par principal amount of approximately $49.8 million and $48.0 million, respectively. We have unconditionally guaranteed the payment of principal and interest on our trust preferred securities.
As of December 31, 2023, we had outstanding subordinated notes of approximately $121.4 million and outstanding trust preferred securities and associated junior subordinated debentures with an aggregate par principal amount of approximately $1.8 million and $48.0 million, respectively. The subordinated notes are senior to our common stock.
Liquidity risk arises from the possibility that we may be unable to satisfy current or future funding requirements and needs. 20 Deposit levels may be affected by several factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors.
Deposit levels may be affected by several factors, including rates paid by competitors, general interest rate levels, returns available to customers on alternative investments, general economic and market conditions and other factors.
Such natural disasters could significantly affect the local population and economies, the activities of many of our customers and clients, and our business, and could pose physical risks to our properties.
We operate in markets in which natural disasters, including tornadoes, severe storms, fires, floods, hurricanes and earthquakes have occurred. Such natural disasters could significantly affect the local population and economies, the activities of many of our customers and clients, and our business, and could pose physical risks to our properties.
We may also be affected by the marketplace loosening of credit underwriting standards and structures. 12 Strategic and Macro Risks We may be unable to successfully implement our strategy to grow our commercial and consumer banking businesses.
Strategic and Macro Risks We may be unable to successfully implement our strategy to grow our commercial and consumer banking businesses.
In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL.
If we are required to materially increase our level of ACL for any reason, such increase could adversely affect our business, financial condition and results of operations . 18 In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.
Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated. 14 Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
See the section captioned “BALANCE SHEET ANALYSIS - Allowance for Credit Losses - Loans” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” for further discussion related to our process for determining the appropriate level of the ACL. 18 Risks Related to Public Health Issues, Including COVID-19 Outbreaks of communicable diseases, including COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
Risks Related to Public Health Issues, Including COVID-19 Outbreaks of communicable diseases, such as COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
In addition, we could face increased regulatory, reputational and legal scrutiny as a result of its climate risk. Stock Holding and Governance Risks We have historically not paid dividends; moreover, the inability of our subsidiaries to declare and pay dividends or other distributions to the Holding Company could adversely affect its liquidity and ability to declare and pay dividends.
Stock Holding and Governance Risks We have only recently begun to pay dividends; moreover, the inability of our subsidiaries to declare and pay dividends or other distributions to the Holding Company could adversely affect its liquidity and ability to declare and pay dividends.
The Holding Company and the Bank must also maintain the CET1 capital conservation buffer of 2.5% to avoid becoming subject to restrictions on capital distributions, including dividends. If the Bank is not permitted to pay cash dividends to the Holding Company, it is unlikely that we would be able to continue to pay interest on our indebtedness.
The Holding Company and the Bank must also maintain the CET1 capital conservation buffer of 2.5% to avoid becoming subject to restrictions on capital distributions, including dividends.
The yield curve is a reflection of interest rates applicable to short and long-term debt. The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates.
The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is usually upward sloping (higher rates for longer terms).
In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative. The estimate that is consistently one of our most critical is the level of the allowance for credit losses.
Management must make significant assumptions and estimates and exercise significant judgment in selecting and applying accounting and reporting policies. In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative.
As discussed elsewhere in this Item 1A, inflationary pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so. Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
As discussed elsewhere in this Item 1A, inflationary 16 pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so if inflationary pressures continue or return.
The ongoing COVID-19 pandemic has caused and may continue to cause significant disruption in the international and United States economies and financial markets and has had an adverse effect on our business and results of operations. This has recently been accompanied by a surge in flu and other respiratory illnesses of varying seriousness and magnitude.
Pandemics and widespread outbreaks of communicable diseases (such as COVID-19) have caused and may continue to cause significant disruption in the international and United States economies and financial markets and have had an adverse effect on our business and results of operations.
Neither is a banking industry regulation, but both apply to banks in relation to certain clients. Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well.
Neither is a banking industry regulation, but both apply to banks in relation to certain clients.
Accounting and Tax Risks The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant assumptions, estimates and judgments that affect the financial statements. Management must make significant assumptions and estimates and exercise significant judgment in selecting and applying accounting and reporting policies.
We cannot predict how long those conditions will exist. See Risks Associated with Monetary Events within this section of the Report for additional information. 22 Accounting and Tax Risks The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant assumptions, estimates and judgments that affect the financial statements.
Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
It is also not uncommon for other financial institutions to deploy this strategy as well and there is a risk that teams of our employees may be recruited by other financial institutions. Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
Removed
Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated.
Added
Additionally, the use of artificial intelligence could exacerbate many of these risks.
Removed
If we are required to materially increase our level of ACL for any reason, such increase could adversely affect our business, financial condition and results of operations .
Added
Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
Removed
The Federal Reserve, consistent with long-term goals, has been raising rates in response to inflation. We cannot predict how long those conditions will exist. See Risks Associated with Monetary Events within this section of the Report for additional information.
Added
In 2023, the Federal Reserve continued to increase interest rates, but in December 2023, indicated its intention to begin to decrease interest rates in 2024 in response to moderating rates of inflation.
Removed
Discontinuance of, and transition away from, LIBOR (and any other reference rates) may adversely affect our reputation, business, financial condition and results of operations. ICE Benchmark Administration, the administrator of LIBOR, ceased publication of one-week and two-month USD LIBOR on a representative basis on December 31, 2021.
Added
See the section captioned “BALANCE SHEET ANALYSIS - Allowance for Credit Losses - Loans” under Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operation,” for further discussion related to our process for determining the appropriate level of the ACL.
Removed
The remaining USD LIBOR settings (i.e., overnight, one month, three month, six month and 12 month) will cease or become non-representative immediately after June 30, 2023. We no longer originate loans that reference LIBOR. New floating rate loans reference alternative reference rates, such as SOFR or Prime.
Added
This has recently been accompanied by a surge in flu and other respiratory illnesses of varying seriousness and magnitude.
Removed
LIBOR and other benchmarks which rely upon LIBOR (or LIBOR transactions) for their calculation, however, remain the reference rate in a substantial number of our outstanding debt securities, derivatives, corporate and commercial loans, consumer loans, residential mortgages loans, credit cards, structured products, and other assets and liabilities.
Added
Our access to funding sources in amounts adequate to finance our activities or on terms that are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy generally.
Removed
Discontinuance of, and transition away from, such reference rates present various uncertainties and operational, legal, reputational, compliance, financial and other risks and challenges. For example, LIBOR-based products and contracts, may contain language requiring us to undertake certain actions to determine a successor rate to the existing benchmark or to exercise discretion in selection of such rate.
Added
Factors that could reduce our access to liquidity sources include a downturn in our local or national economy, difficult credit markets or adverse regulatory actions against us. Our access to deposits may also be affected by the liquidity needs of our depositors.
Removed
We may face a risk of litigation, disputes or other actions from clients, counterparties, customers, investors or others based on various claims, for example that we incorrectly interpreted or enforced such contract provisions or failed to appropriately communicate or effectuate such transition.
Added
A substantial majority of our liabilities are demand, savings, interest checking and money market deposits, which are payable on demand or upon several days’ notice, while by comparison, a substantial portion of our assets are loans, which cannot be called or sold in the same time frame.
Removed
Other LIBOR-based products and contracts may have no fallback provisions, and we are assessing and planning to utilize relevant contractual and statutory solutions, including the Adjustable Interest Rate (LIBOR) Act, enacted in March 2022 and the implementing rules by the Federal Reserve (collectively, the “LIBOR Act”), to transition such products and contracts.
Added
We may not be able to replace maturing deposits and advances as necessary in the future, especially if a large number of our depositors sought to withdraw their accounts, regardless of the reason.
Removed
It is possible that the characteristics of alternative reference rates may not be sufficiently similar to, or produce the economic equivalent of, the benchmark rates that they are intended to replace. For example, SOFR is a riskless rate. Historically, in periods of economic or financial industry stress, riskless rates that are analogous to SOFR have been relatively stable.
Added
Our access to deposits may be negatively impacted by, among other factors, periods of low interest rates or higher interest rates which could promote increased competition for deposits, including from new financial technology competitors, or provide customers with alternative investment options.
Removed
In contrast, LIBOR, which is designed to reflect the credit risk of banks, has widened relative to riskless rates, reflecting increased uncertainty regarding the creditworthiness of banks. SOFR, because it is riskless, tends to be a lower rate than LIBOR.
Added
Additionally, negative news about us or the banking industry in general could negatively impact market and/or customer perceptions of our Company, which could lead to a loss of depositor confidence and an increase in deposit withdrawals, particularly among those with uninsured deposits.
Removed
To address these differences between LIBOR and SOFR, industry-recommended LIBOR fallback provisions and the LIBOR ACT include a concept of an adjustment spread that is applied when a LIBOR-based contract falls back to SOFR and that is calculated based on a five-year median look-back of the historical spot difference between the applicable LIBOR tenor and the applicable SOFR tenor.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeITEM 2. PROPERTIES The corporate headquarters of both the Parent Company and the Bank are located at 111 North Washington Street, Green Bay, Wisconsin. At year-end 2022, including the main office, the Bank operated 55 bank branch locations, 43 of which are owned and 12 that are leased.
Biggest changeITEM 2. PROPERTIES The corporate headquarters of both the Parent Company and the Bank are located at 111 North Washington Street, Green Bay, Wisconsin. At year-end 2023, including the main office, the Bank operated 56 bank branch locations, 44 of which are owned and 12 that are leased.
None of the owned properties are subject to a mortgage or similar encumbrance. Two leased locations involve directors, with lease terms that management considers arms-length. For additional disclosure, see Note 15, “Related Party Transactions,” of the Notes to Consolidated Financial Statements under Part II, Item 8. 26
None of the owned properties are subject to a mortgage or similar encumbrance. Two leased locations involve directors, with lease terms that management considers arms-length. For additional disclosure, see Note 15, “Related Party Transactions,” of the Notes to Consolidated Financial Statements under Part II, Item 8.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor additional disclosure, see Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements under Part II, Item 8. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeFor additional disclosure, see Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements under Part II, Item 8. 27 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeBMI Banks Index tracks the performance of all U.S. domiciled bank companies with float-adjusted market capitalization of at least $100 million. In 2022, the Company elected to move to the S&P U.S. BMI Banks Index as it provides a broader view of the banking industry rather than only focusing on the largest bank organizations.
Biggest changeBMI Banks Index for the period of December 31, 2018 to December 31, 2023. 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.
Any cash dividends paid by Nicolet on its common stock must comply with applicable Federal Reserve policies described further in “Business—Regulation of Nicolet—Dividend Restrictions.” The Bank is also subject to regulatory restrictions on the amount of dividends it is permitted to pay to Nicolet as further described in “Business—Regulation of the Bank—Payment of Dividends” and in Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements under Part II, Item 8.
Any cash dividends paid by Nicolet on its common stock must comply with applicable Federal Reserve policies described further in “Business—Regulation of Nicolet—Payment of Dividends.” The Bank is also subject to regulatory restrictions on the amount of dividends it is permitted to pay to Nicolet as further described in “Business—Regulation of the Bank—Payment of Dividends” and in Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements under Part II, Item 8.
Stock Repurchases . The following table contains information regarding purchases of Nicolet’s common stock made during fourth quarter 2022 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
Stock Repurchases . The following table contains information regarding purchases of Nicolet’s common stock made during fourth quarter 2023 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
The graph assumes the value of the investment in the Company’s common stock and in each index was $100 on December 31, 2017. Historical stock price performance shown on the graph is not necessarily indicative of the future price performance.
The graph assumes the value of the investment in the Company’s common stock and in each index was $100 on December 31, 2018. Historical stock price performance shown on the graph is not necessarily indicative of the future price performance.
At December 31, 2022, approximately $48 million remained available under this common stock repurchase program, or approximately 595,300 shares of common stock (based on the closing stock price of $79.79 on December 31, 2022). 27 Performance Graph The following graph shows the cumulative stockholder return on our common stock compared with the KBW NASDAQ Bank Index, the S&P 500 Index, and the S&P U.S.
At December 31, 2023, approximately $46 million remained available under this common stock repurchase program, or approximately 571,200 shares of common stock (based on the closing stock price of $80.48 on December 31, 2023). 28 Performance Graph The following graph shows the cumulative stockholder return on our common stock compared with the S&P 500 Index and the S&P U.S.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock . Nicolet’s common stock trades on the New York Stock Exchange under the symbol “NIC”. As of February 20, 2023, Nicolet had approximately 3,700 shareholders of record. Dividends . Nicolet has not paid dividends on its common stock since its inception in 2000.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock . Nicolet’s common stock trades on the New York Stock Exchange under the symbol “NIC”. As of February 26, 2024, Nicolet had approximately 3,400 shareholders of record. Dividends . In 2023, we began paying dividends on our common stock.
Period: Total Number of Shares Purchased (#) (a) Average Price Paid per Share ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (#) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (#) (b) October 1 – October 31, 2022 390 $ 73.84 — November 1– November 30, 2022 3,278 $ 80.79 — December 1 – December 31, 2022 10,000 $ 78.55 10,000 Total 13,668 $ 78.95 10,000 595,300 (a) During fourth quarter 2022, the Company withheld 1,784 common shares for minimum tax withholding settlements on restricted stock and the Company withheld 1,884 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises.
Period: Total Number of Shares Purchased (#) (a) Average Price Paid per Share ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (#) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (#) (b) October 1 – October 31, 2023 — $ — — November 1– November 30, 2023 4,587 $ 77.14 — December 1 – December 31, 2023 — $ — — Total 4,587 $ 77.14 — 571,200 (a) During fourth quarter 2023, the Company withheld 3,637 common shares for minimum tax withholding settlements on restricted stock and the Company withheld 950 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises.
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For the foreseeable future, we do not intend to declare cash dividends, as we intend to retain earnings to grow our business and strengthen our capital base, while returning value to our shareholders by continuing to repurchase shares from time to time.
Added
Our Board declared quarterly cash dividends totaling $0.75 per share on our common stock in 2023. We currently intend to continue to pay comparable quarterly cash dividends on our common stock, subject to approval by our Board, although we may elect not to pay dividends or to change the amount of such dividends.
Removed
BMI Banks Index for the period of December 31, 2017 to December 31, 2022. The KBW NASDAQ Bank Index tracks the performance of 24 banking stocks representing the large U.S. national money centers, regional banks, and thrift institutions, while the S&P U.S.
Added
Period Ending Index 2018 2019 2020 2021 2022 2023 Nicolet Bankshares, Inc. $ 100.00 $ 151.33 $ 135.96 $ 175.72 $ 163.50 $ 166.65 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 S&P U.S. BMI Bank Index 100.00 137.36 119.83 162.92 135.13 147.41 Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 29
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The following performance graph does not constitute soliciting material and should not be deemed filed or incorporated by reference into any other Company filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that we specifically incorporate the performance graphs by reference therein.
Removed
Period Ending Index 2017 2018 2019 2020 2021 2022 Nicolet Bankshares, Inc. $ 100.00 $ 89.15 $ 134.91 $ 121.21 $ 156.65 $ 145.76 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 S&P U.S.
Removed
BMI Bank Index 100.00 83.54 114.74 100.10 136.10 112.89 KBW Nasdaq Bank Index 100.00 82.29 112.01 100.46 138.97 109.23 Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 28

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeTables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread, and net interest margin. 32 Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis Years Ended December 31, (in thousands) 2022 2021 2020 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Interest-earning assets PPP Loans $ 4,872 $ 1,392 28.57 % $ 141,510 $ 16,672 11.78 % $ 220,544 $ 8,062 3.66 % All other commercial-based loans 4,377,313 202,692 4.63 % 2,477,608 114,089 4.60 % 2,088,149 105,643 5.06 % Retail-based loans 873,461 39,735 4.55 % 564,563 25,883 4.58 % 478,894 22,776 4.76 % Total loans, including loan fees (1)(2) 5,255,646 243,819 4.64 % 3,183,681 156,644 4.92 % 2,787,587 136,481 4.90 % Investment securities: Taxable 1,389,956 21,383 1.54 % 592,561 9,934 1.68 % 354,430 8,118 2.29 % Tax-exempt (2) 229,316 6,192 2.70 % 145,979 3,113 2.13 % 135,779 2,961 2.18 % Total investment securities 1,619,272 27,575 1.70 % 738,540 13,047 1.77 % 490,209 11,079 2.26 % Other interest-earning assets 232,531 4,437 1.91 % 797,196 2,909 0.36 % 572,016 2,611 0.46 % Total non-loan earning assets 1,851,803 32,012 1.73 % 1,535,736 15,956 1.04 % 1,062,225 13,690 1.29 % Total interest-earning assets 7,107,449 $ 275,831 3.88 % 4,719,417 $ 172,600 3.66 % 3,849,812 $ 150,171 3.90 % Other assets, net 730,246 552,046 405,395 Total assets $ 7,837,695 $ 5,271,463 $ 4,255,207 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities Savings $ 875,530 $ 2,075 0.24 % $ 644,525 $ 382 0.06 % $ 422,171 $ 700 0.17 % Interest-bearing demand 999,700 4,382 0.44 % 725,686 2,816 0.39 % 562,370 3,938 0.70 % Money market accounts (“MMA”) 1,553,131 6,696 0.43 % 994,866 613 0.06 % 749,877 1,502 0.20 % Core time deposits 558,840 2,171 0.39 % 364,069 2,846 0.78 % 390,216 6,023 1.54 % Total interest-bearing core deposits 3,987,201 15,324 0.38 % 2,729,146 6,657 0.24 % 2,124,634 12,163 0.57 % Brokered deposits 490,871 6,428 1.31 % 308,091 3,791 1.23 % 289,489 4,478 1.55 % Total interest-bearing deposits 4,478,072 21,752 0.49 % 3,037,237 10,448 0.34 % 2,414,123 16,641 0.69 % PPPLF — — — % — — — % 161,634 571 0.35 % Other interest-bearing liabilities 298,852 12,205 4.08 % 103,156 3,156 3.06 % 84,751 2,652 3.13 % Total wholesale funding 298,852 12,205 4.08 % 103,156 3,156 3.06 % 246,385 3,223 1.31 % Total interest-bearing liabilities 4,776,924 33,957 0.71 % 3,140,393 13,604 0.43 % 2,660,508 19,864 0.75 % Noninterest-bearing demand deposits 2,135,852 1,461,850 1,025,625 Other liabilities 38,534 46,317 41,646 Stockholders’ equity 886,385 622,903 527,428 Total liabilities and stockholders’ equity $ 7,837,695 $ 5,271,463 $ 4,255,207 Tax-equivalent net interest income and rate spread $ 241,874 3.17 % $ 158,996 3.23 % $ 130,307 3.15 % Tax-equivalent adjustment and net free funds 1,913 0.23 % 1,041 0.14 % 969 0.23 % Net interest income and net interest margin $ 239,961 3.40 % $ 157,955 3.37 % $ 129,338 3.38 % (1) Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.
Biggest changeTables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread, and net interest margin. 34 Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis Years Ended December 31, (in thousands) 2023 2022 2021 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Interest-earning assets Total loans, including loan fees (1)(2) $ 6,233,623 $ 341,332 5.48 % $ 5,255,646 $ 243,819 4.64 % $ 3,183,681 $ 156,644 4.92 % Investment securities: Taxable 864,637 18,182 2.10 % 1,389,956 21,383 1.54 % 592,561 9,934 1.68 % Tax-exempt (2) 242,468 7,960 3.28 % 229,316 6,192 2.70 % 145,979 3,113 2.13 % Total investment securities 1,107,105 26,142 2.36 % 1,619,272 27,575 1.70 % 738,540 13,047 1.77 % Other interest-earning assets 331,111 17,494 5.28 % 232,531 4,437 1.91 % 797,196 2,909 0.36 % Total non-loan earning assets 1,438,216 43,636 3.03 % 1,851,803 32,012 1.73 % 1,535,736 15,956 1.04 % Total interest-earning assets 7,671,839 $ 384,968 5.02 % 7,107,449 $ 275,831 3.88 % 4,719,417 $ 172,600 3.66 % Other assets, net 735,723 730,246 552,046 Total assets $ 8,407,562 $ 7,837,695 $ 5,271,463 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities Savings $ 828,141 $ 9,891 1.19 % $ 875,530 $ 2,075 0.24 % $ 644,525 $ 382 0.06 % Interest-bearing demand 877,832 12,627 1.44 % 999,700 4,382 0.44 % 725,686 2,816 0.39 % Money market accounts (“MMA”) 1,868,867 49,937 2.67 % 1,553,131 6,696 0.43 % 994,866 613 0.06 % Core time deposits 842,586 27,218 3.23 % 558,840 2,171 0.39 % 364,069 2,846 0.78 % Total interest-bearing core deposits 4,417,426 99,673 2.26 % 3,987,201 15,324 0.38 % 2,729,146 6,657 0.24 % Brokered deposits 615,209 26,151 4.25 % 490,871 6,428 1.31 % 308,091 3,791 1.23 % Total interest-bearing deposits 5,032,635 125,824 2.50 % 4,478,072 21,752 0.49 % 3,037,237 10,448 0.34 % Wholesale funding 304,190 15,522 5.10 % 298,852 12,205 4.08 % 103,156 3,156 3.06 % Total interest-bearing liabilities 5,336,825 141,346 2.65 % 4,776,924 33,957 0.71 % 3,140,393 13,604 0.43 % Noninterest-bearing demand deposits 2,054,792 2,135,852 1,461,850 Other liabilities 36,579 38,534 46,317 Stockholders’ equity 979,366 886,385 622,903 Total liabilities and stockholders’ equity $ 8,407,562 $ 7,837,695 $ 5,271,463 Tax-equivalent net interest income and rate spread $ 243,622 2.37 % $ 241,874 3.17 % $ 158,996 3.23 % Tax-equivalent adjustment and net free funds 2,106 0.81 % 1,913 0.23 % 1,041 0.14 % Net interest income and net interest margin $ 241,516 3.18 % $ 239,961 3.40 % $ 157,955 3.37 % (1) Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.
Potential problem loans require a heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
Potential problem loans require heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives. Additional disclosures on deposits are included in Note 8, “Deposits,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher rate deposit products or non-deposit investment alternatives. Additional disclosures on deposits are included in Note 8, “Deposits,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Additional information on the subjectivity of income taxes is discussed further under 37 “Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Additional information on the subjectivity of income taxes is discussed further under “Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, accounting policies for loans and the ACL-Loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional credit quality disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, accounting policies for 43 loans and the ACL-Loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional credit quality disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting 44 Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Income Taxes Nicolet is subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations.
Income Taxes Nicolet is subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different 50 interpretations.
Management must make conclusions and estimates about the application of these innately intricate laws, related 48 regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws.
Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws.
Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could 47 have a material impact on the financial statements.
Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the accounting 49 estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the financial statements.
As of December 31, 2022, management believed that adequate liquidity existed to meet all projected cash flow obligations. Nicolet’s primary sources of funds include the core deposit base, repayment and maturity of loans, investment securities calls, maturities, and sales, and procurement of brokered deposits or other wholesale funding.
As of December 31, 2023, management believed that adequate liquidity existed to meet all projected cash flow obligations. Nicolet’s primary sources of funds include the core deposit base, repayment and maturity of loans, investment securities calls, maturities, and sales, and procurement of brokered deposits or other wholesale funding.
See Note 9, “Short and Long-Term Borrowings,” of the Notes to Consolidated Financial Statements under Part II, Item 8 for additional disclosures and see section “Liquidity Management,” for information on available funding sources at December 31, 2022.
See Note 9, “Short and Long-Term Borrowings,” of the Notes to Consolidated Financial Statements under Part II, Item 8 for additional disclosures and see section “Liquidity Management,” for information on available funding sources at December 31, 2023.
Table 11: Investment Securities Portfolio Maturity Distribution (1) Securities AFS at December 31, 2022 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Mortgage- backed Securities Total Amortized Cost Total Fair Value (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount U.S.
Table 11: Investment Securities Portfolio Maturity Distribution (1) Securities AFS at December 31, 2023 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Mortgage- backed Securities Total Amortized Cost Total Fair Value (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount U.S.
The amounts presented below exclude amounts due for interest, if applicable, and include any unamortized premiums / discounts or other similar carrying value adjustments. As of December 31, 2022, Nicolet had the following contractual obligations.
The amounts presented below exclude amounts due for interest, if applicable, and include any unamortized premiums / discounts or other similar carrying value adjustments. As of December 31, 2023, Nicolet had the following contractual obligations.
For additional information regarding nonperforming assets see “BALANCE SHEET ANALYSIS – Nonperforming Assets.” 39 The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date.
For additional information regarding nonperforming assets see “BALANCE SHEET ANALYSIS – Nonperforming Assets.” 41 The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date.
Management believes the ACL-Loans is appropriate at December 31, 2022. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.
Management believes the ACL-Loans is appropriate at December 31, 2023. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.
Other Funding Sources Other funding sources include short-term and long-term borrowings. Short-term borrowings (with an original contractual maturity of one year or less) consist mainly of short-term FHLB advances, customer repurchase agreements or federal funds purchased. Long-term borrowings (with an original contractual maturity of over one year) include FHLB advances, junior subordinated debentures, and subordinated notes.
Other Funding Sources Other funding sources include short-term and long-term borrowings. Short-term borrowings (with an original contractual maturity of one year or less) generally may consist of short-term FHLB advances, customer repurchase agreements or federal funds purchased. Long-term borrowings (with an original contractual maturity of over one year) include FHLB advances, junior subordinated debentures, and subordinated notes.
For a discussion of 2021 results compared to 2020, see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022, which information under that caption is incorporated herein by reference.
For a discussion of 2022 results compared to 2021, see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023, which information under that caption is incorporated herein by reference.
Nicolet also had other investments of $65 million and $44 million at December 31, 2022 and 2021, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies.
Nicolet also had other investments of $58 million and $65 million at December 31, 2023 and 2022, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies.
Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At December 31, 2022, there remained $48 million authorized under this repurchase program, as modified, to be utilized from time to time to repurchase shares in the open market, through block transactions or in private transactions.
Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At December 31, 2023, there remained $46 million authorized under this repurchase program, as modified, to be utilized from time to time to repurchase shares in the open market, through block transactions or in private transactions.
This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to identify problem loans early and minimize the risk of loss. Management continues to actively work with customers and monitor credit risk from the ongoing economic uncertainty.
This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to identify problem loans early and minimize the risk of loss. Management continues to actively work with customers and monitor credit risk from the ongoing macroeconomic challenges.
The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At December 31, 2022, the Parent Company had $64 million in cash.
The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At December 31, 2023, the Parent Company had $88 million in cash.
The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At December 31, 2022, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in the current economic environment and in strategic growth.
The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At December 31, 2023, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in strategic growth.
At December 31, 2022, interest rate lock commitments to originate residential mortgage loans held for sale of $9 million (included in the commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale of $9 million are considered derivative instruments.
At December 31, 2023, interest rate lock commitments to originate residential mortgage loans held for sale of $13 million (included in the commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale of $13 million are considered derivative instruments.
Table 14: Interest Rate Sensitivity December 31, 2022 December 31, 2021 200 bps decrease in interest rates (0.7) % (0.3) % 100 bps decrease in interest rates (0.4) % (0.3) % 100 bps increase in interest rates — % (0.1) % 200 bps increase in interest rates 0.1 % (0.3) % Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.
Table 15: Interest Rate Sensitivity December 31, 2023 December 31, 2022 200 bps decrease in interest rates (1.1) % (0.7) % 100 bps decrease in interest rates (0.6) % (0.4) % 100 bps increase in interest rates 0.6 % — % 200 bps increase in interest rates 1.2 % 0.1 % Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.
The detailed financial discussion that follows focuses on 2022 results compared to 2021.
The detailed financial discussion that follows focuses on 2023 results compared to 2022.
In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities) in light of strategic plans.
In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities, dividends, or repayment of equity-equivalent debt) in light of strategic plans.
The Company’s most liquid assets are cash and due from banks, interest-earning deposits, and federal funds sold, which totaled $155 million and $595 million at December 31, 2022 and 2021, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.
The Company’s most liquid assets are cash and due from banks and 46 interest-earning deposits, which totaled $491 million and $155 million at December 31, 2023 and 2022, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.
Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis.
Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis.
Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately.
Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately. Nonperforming assets include nonperforming loans and other real estate owned.
The components of the ACL-Loans are detailed further in Tables 8 and 9 below. 40 Table 8: Allowance for Credit Losses - Loans (in thousands) Years Ended December 31, 2022 2021 2020 Allowance for credit losses - loans: Beginning balance $ 49,672 $ 32,173 $ 13,972 Adoption of CECL — — 8,488 Initial PCD ACL — — 797 Total impact for adoption of CECL — — 9,285 ACL on PCD loans acquired 1,937 5,159 — Net charge-offs: Commercial & industrial (86) 50 (692) Owner-occupied CRE (555) — (449) Agricultural — (48) — CRE investment 169 (2) (190) Construction & land development — — — Residential construction — — — Residential first mortgage (57) (93) 9 Residential junior mortgage 1 4 67 Retail & other (202) (71) (129) Total net charge-offs (730) (160) (1,384) Provision for credit losses 10,950 12,500 10,300 Ending balance of ACL-Loans $ 61,829 $ 49,672 $ 32,173 Ratio of net charge-offs to average loans by loan composition Commercial & industrial 0.01 % (0.01) % 0.07 % Owner-occupied CRE 0.06 % — % 0.09 % Agricultural — % 0.02 % — % CRE investment (0.02) % — % 0.04 % Construction & land development — % — % — % Residential construction — % — % — % Residential first mortgage 0.01 % 0.02 % — % Residential junior mortgage — % — % (0.06) % Retail & other 0.38 % 0.18 % 0.42 % Total net charge-offs to average loans 0.01 % 0.01 % 0.05 % The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9.
The components of the ACL-Loans are detailed further in Tables 8 and 9 below. 42 Table 8: Allowance for Credit Losses - Loans (in thousands) Years Ended December 31, 2023 2022 2021 Allowance for credit losses - loans: Beginning balance $ 61,829 $ 49,672 $ 32,173 ACL on PCD loans acquired — 1,937 5,159 Net charge-offs: Commercial & industrial 80 (86) 50 Owner-occupied CRE (526) (555) — Agricultural (63) — (48) CRE investment — 169 (2) Construction & land development — — — Residential construction — — — Residential first mortgage (2) (57) (93) Residential junior mortgage (95) 1 4 Retail & other (263) (202) (71) Total net charge-offs (869) (730) (160) Provision for credit losses 2,650 10,950 12,500 Ending balance of ACL-Loans $ 63,610 $ 61,829 $ 49,672 Ratio of net charge-offs to average loans by loan composition Commercial & industrial (0.01) % 0.01 % (0.01) % Owner-occupied CRE 0.05 % 0.06 % — % Agricultural 0.01 % — % 0.02 % CRE investment — % (0.02) % — % Construction & land development — % — % — % Residential construction — % — % — % Residential first mortgage — % 0.01 % 0.02 % Residential junior mortgage 0.05 % — % — % Retail & other 0.48 % 0.38 % 0.18 % Total net charge-offs to average loans 0.01 % 0.01 % 0.01 % The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9.
Net mortgage income was $8 million for 2022, down $14 million (62%) between the years, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales.
Net mortgage income was $7 million for 2023, down $1 million (16%) between the years, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales.
Table 10: Nonperforming Assets (in thousands) December 31, 2022 December 31, 2021 December 31, 2020 Nonperforming loans: Commercial & industrial $ 3,328 $ 1,908 $ 2,646 Owner-occupied CRE 5,647 4,220 1,869 Agricultural 20,416 28,367 1,830 CRE investment 3,832 4,119 1,488 Construction & land development 771 1,071 327 Residential construction — — — Residential first mortgage 3,780 4,132 823 Residential junior mortgage 224 243 384 Retail & other 82 94 88 Total nonaccrual loans 38,080 44,154 9,455 Accruing loans past due 90 days or more — — — Total nonperforming loans 38,080 44,154 9,455 OREO: Commercial real estate owned 628 1,549 — Residential real estate owned — 99 — Bank property real estate owned 1,347 10,307 3,608 Total OREO 1,975 11,955 3,608 Total nonperforming assets (NPAs) $ 40,055 $ 56,109 $ 13,063 Performing troubled debt restructurings $ — $ 5,443 $ 2,120 Ratios: Nonperforming loans to total loans 0.62 % 0.96 % 0.34 % NPAs to total loans plus OREO 0.65 % 1.21 % 0.47 % NPAs to total assets 0.46 % 0.73 % 0.29 % ACL-Loans to nonperforming loans 162 % 112 % 340 % ACL-Loans to total loans 1.00 % 1.07 % 1.15 % 42 Investment Securities Portfolio The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income.
Table 10: Nonperforming Assets (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Nonperforming loans: Commercial & industrial $ 4,046 $ 3,328 $ 1,908 Owner-occupied CRE 4,399 5,647 4,220 Agricultural 12,185 20,416 28,367 CRE investment 1,453 3,832 4,119 Construction & land development 161 771 1,071 Residential construction — — — Residential first mortgage 4,059 3,780 4,132 Residential junior mortgage 150 224 243 Retail & other 172 82 94 Total nonaccrual loans 26,625 38,080 44,154 Accruing loans past due 90 days or more — — — Total nonperforming loans $ 26,625 $ 38,080 $ 44,154 OREO: Commercial real estate owned $ 305 $ 628 $ 1,549 Residential real estate owned 154 — 99 Bank property real estate owned 808 1,347 10,307 Total OREO 1,267 1,975 11,955 Total nonperforming assets (NPAs) $ 27,892 $ 40,055 $ 56,109 Performing troubled debt restructurings $ — $ — $ 5,443 Ratios: Nonperforming loans to total loans 0.42 % 0.62 % 0.96 % NPAs to total loans plus OREO 0.44 % 0.65 % 1.21 % NPAs to total assets 0.33 % 0.46 % 0.73 % ACL-Loans to nonperforming loans 239 % 162 % 112 % ACL-Loans to total loans 1.00 % 1.00 % 1.07 % Investment Securities Portfolio The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income.
See also “Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8. • Service charges on deposit accounts were up $1 million (22%) to $6 million for 2022, mostly due to the larger deposit base from the acquisitions. • Card interchange income grew $2 million (27%) to $12 million in 2022 largely due to higher volume and activity. • BOLI income increased $1 million (60%) to $4 million for 2022, attributable to higher average balances from BOLI acquired with the acquisitions. • The Company sponsors a nonqualifed deferred compensation (“NQDC”) plan for certain employees, that fluctuates based upon market valuations of the underlying plan assets.
See also “Off-Balance Sheet 37 Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8. • Card interchange income grew $1 million (12%) to $13 million in 2023 largely due to higher volume and activity. • BOLI income increased $1 million (18%) to $5 million for 2023, attributable to higher average balances from BOLI acquired with the Charter acquisition. • The Company sponsors a nonqualifed deferred compensation (“NQDC”) plan for certain employees, that fluctuates based upon market valuations of the underlying plan assets.
Deposits levels may also be impacted by competition with other bank and nonbank institutions, as well as with a number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products.
Deposits Deposits represent Nicolet’s largest source of liquidity, which provide a stable and lower-cost funding source. Deposits levels may be impacted by competition with other bank and nonbank institutions, as well as with a number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products.
Notable contributions to the change in noninterest income were: • Trust services fee income and brokerage fee income combined were $21 million for 2022, up $1 million (5%) from 2021, as growth in accounts and assets under management outpaced unfavorable market-related declines. • Mortgage income represents net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any.
Notable contributions to the change in noninterest income were: • Wealth management fee income was $24 million for 2023, up $3 million (14%) from 2022, on growth in accounts and assets under management. • Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any.
Table 9: Allocation of the Allowance for Credit Losses - Loans December 31, 2022 December 31, 2021 December 31, 2020 (in thousands) Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Commercial & industrial * $ 16,350 21 % 26 % $ 12,613 23 % 25 % $ 11,644 34 % 36 % Owner-occupied CRE 9,138 15 % 15 % 7,222 17 % 14 % 5,872 19 % 18 % Agricultural 9,762 18 % 16 % 9,547 17 % 19 % 1,395 4 % 4 % CRE investment 12,744 19 % 21 % 8,462 18 % 17 % 5,441 16 % 17 % Construction & land development 2,572 5 % 4 % 1,812 5 % 4 % 984 5 % 3 % Residential construction 1,412 2 % 2 % 900 1 % 2 % 421 1 % 1 % Residential first mortgage 6,976 16 % 11 % 6,844 15 % 14 % 4,773 16 % 15 % Residential junior mortgage 1,846 3 % 3 % 1,340 3 % 3 % 1,086 4 % 4 % Retail & other 1,029 1 % 2 % 932 1 % 2 % 557 1 % 2 % Total ACL-Loans $ 61,829 100 % 100 % $ 49,672 100 % 100 % $ 32,173 100 % 100 % * The PPP loans are fully guaranteed by the SBA; thus, no ACL-Loans has been allocated to these loans. 41 Nonperforming Assets As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy.
Table 9: Allocation of the Allowance for Credit Losses - Loans December 31, 2023 December 31, 2022 December 31, 2021 (in thousands) Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Commercial & industrial $ 15,225 20 % 24 % $ 16,350 21 % 26 % $ 12,613 23 % 25 % Owner-occupied CRE 9,082 15 % 14 % 9,138 15 % 15 % 7,222 17 % 14 % Agricultural 12,629 18 % 20 % 9,762 18 % 16 % 9,547 17 % 19 % CRE investment 12,693 18 % 20 % 12,744 19 % 21 % 8,462 18 % 17 % Construction & land development 2,440 5 % 4 % 2,572 5 % 4 % 1,812 5 % 4 % Residential construction 916 1 % — % 1,412 2 % 2 % 900 1 % 2 % Residential first mortgage 7,320 19 % 12 % 6,976 16 % 11 % 6,844 15 % 14 % Residential junior mortgage 2,098 3 % 4 % 1,846 3 % 3 % 1,340 3 % 3 % Retail & other 1,207 1 % 2 % 1,029 1 % 2 % 932 1 % 2 % Total ACL-Loans $ 63,610 100 % 100 % $ 61,829 100 % 100 % $ 49,672 100 % 100 % Nonperforming Assets As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy.
A summary of Nicolet’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in Table 15. 46 Table 15: Capital ($ in thousands) December 31, 2022 December 31, 2021 Company Stock Repurchases: * Common stock repurchased during the year (dollars) $ 61,483 $ 61,464 Common stock repurchased during the year (shares) 671,662 793,064 Company Risk-Based Capital: Total risk-based capital $ 889,763 $ 793,410 Tier 1 risk-based capital 684,280 604,199 Common equity Tier 1 capital 646,341 567,095 Total capital ratio 12.3 % 13.8 % Tier 1 capital ratio 9.5 % 10.5 % Common equity tier 1 capital ratio 9.0 % 9.9 % Tier 1 leverage ratio 8.2 % 9.4 % Bank Risk-Based Capital: Total risk-based capital $ 816,951 $ 700,869 Tier 1 risk-based capital 764,090 664,688 Common equity Tier 1 capital 764,090 664,688 Total capital ratio 11.3 % 12.2 % Tier 1 capital ratio 10.6 % 11.6 % Common equity tier 1 capital ratio 10.6 % 11.6 % Tier 1 leverage ratio 9.1 % 10.3 % * Reflects only the common stock repurchased under board of director authorizations.
A summary of Nicolet’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in Table 16. 48 Table 16: Capital ($ in thousands) December 31, 2023 December 31, 2022 Company Stock Repurchases: * Common stock repurchased during the year (dollars) $ 1,519 $ 61,464 Common stock repurchased during the year (shares) 26,853 793,064 Company Risk-Based Capital: Total risk-based capital $ 930,804 $ 889,763 Tier 1 risk-based capital 750,811 684,280 Common equity Tier 1 capital 712,040 646,341 Total capital ratio 13.0 % 12.3 % Tier 1 capital ratio 10.5 % 9.5 % Common equity tier 1 capital ratio 9.9 % 9.0 % Tier 1 leverage ratio 9.2 % 8.2 % Bank Risk-Based Capital: Total risk-based capital $ 827,341 $ 816,951 Tier 1 risk-based capital 768,726 764,090 Common equity Tier 1 capital 768,726 764,090 Total capital ratio 11.5 % 11.3 % Tier 1 capital ratio 10.7 % 10.6 % Common equity tier 1 capital ratio 10.7 % 10.6 % Tier 1 leverage ratio 9.4 % 9.1 % * Reflects only the common stock repurchased under board of director authorizations.
Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies.
(2) Short-term funding availability defined as funding that could be secured between 2 and 30 days. Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies.
At December 31, 2022, approximately 55% of the investment securities portfolio was pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by regulation.
At December 31, 2023, approximately 45% of the investment securities portfolio was pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by regulation. Liquidity sources available to the Company at December 31, 2023, are presented in Table 14 below.
For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” and “— Allowance for Credit Losses - Loans” and “—Nonperforming Assets.” 35 Noninterest Income Table 4: Noninterest Income (in thousands) Years Ended December 31, Change From Prior Year 2022 2021 2020 $ Change 2022 % Change 2022 $ Change 2021 % Change 2021 Trust services fee income $ 7,947 $ 7,774 $ 6,463 $ 173 2 % $ 1,311 20 % Brokerage fee income 12,923 12,143 9,753 780 6 % 2,390 25 % Mortgage income, net 8,497 22,155 29,807 (13,658) (62) % (7,652) (26) % Service charges on deposit accounts 6,104 5,023 4,208 1,081 22 % 815 19 % Card interchange income 11,643 9,163 6,998 2,480 27 % 2,165 31 % Bank owned life insurance (“BOLI”) income 3,818 2,380 2,710 1,438 60 % (330) (12) % Deferred compensation plan asset market valuations (2,040) 609 590 (2,649) N/M 19 N/M LSR income, net (1,366) — — (1,366) N/M — N/M Other income 7,264 3,936 3,902 3,328 85 % 34 1 % Noninterest income without net gains 54,790 63,183 64,431 (8,393) (13) % (1,248) (2) % Asset gains (losses), net 3,130 4,181 (1,805) (1,051) N/M 5,986 N/M Total noninterest income $ 57,920 $ 67,364 $ 62,626 $ (9,444) (14) % $ 4,738 8 % Trust services fee income & Brokerage fee income combined $ 20,870 $ 19,917 $ 16,216 $ 953 5 % $ 3,701 23 % N/M means not meaningful.
For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” and “— Allowance for Credit Losses - Loans” and “—Nonperforming Assets.” Noninterest Income Table 4: Noninterest Income (in thousands) Years Ended December 31, Change From Prior Year 2023 2022 2021 $ Change 2023 % Change 2023 $ Change 2022 % Change 2022 Trust services fee income $ 8,614 $ 7,947 $ 7,774 $ 667 8 % $ 173 2 % Brokerage fee income 15,133 12,923 12,143 2,210 17 % 780 6 % Wealth management fee income 23,747 20,870 19,917 2,877 14 % 953 5 % Mortgage income, net 7,164 8,497 22,155 (1,333) (16) % (13,658) (62) % Service charges on deposit accounts 5,976 6,104 5,023 (128) (2) % 1,081 22 % Card interchange income 12,991 11,643 9,163 1,348 12 % 2,480 27 % Bank owned life insurance (“BOLI”) income 4,524 3,818 2,380 706 18 % 1,438 60 % Deferred compensation plan asset market valuations 1,937 (2,040) 609 3,977 N/M (2,649) N/M LSR income, net 4,425 (1,366) — 5,791 N/M (1,366) N/M Other income 8,016 7,264 3,936 752 10 % 3,328 85 % Noninterest income without net gains 68,780 54,790 63,183 13,990 26 % (8,393) (13) % Asset gains (losses), net (32,808) 3,130 4,181 (35,938) N/M (1,051) N/M Total noninterest income $ 35,972 $ 57,920 $ 67,364 $ (21,948) (38) % $ (9,444) (14) % N/M means not meaningful.
The largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 26% and 21%, respectively, of the ACL-Loans at December 31, 2022. In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans and agricultural loans, representing 25% and 19%, respectively, of the ACL-Loans at December 31, 2021.
The largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24% , 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023.
The following table provides information on the maturity distribution of those time deposits, including the portion of those time deposits in excess of the FDIC insurance limits (over $250,000) as of December 31, 2022.
At December 31, 2023, Nicolet had $310 million of time deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. The following table provides information on the maturity distribution of those time deposits, including the portion of those time deposits in excess of the FDIC insurance limits (over $250,000) as of December 31, 2023.
Noninterest Expense Table 5: Noninterest Expense ($ in thousands) Years Ended December 31, Change From Prior Year 2022 2021 2020 Change 2022 % Change 2022 Change 2021 % Change 2021 Personnel $ 88,713 $ 70,618 $ 57,121 $ 18,095 26 % $ 13,497 24 % Occupancy, equipment and office 29,722 21,058 16,718 8,664 41 % 4,340 26 % Business development and marketing 8,472 5,403 5,396 3,069 57 % 7 — % Data processing 14,518 11,990 10,495 2,528 21 % 1,495 14 % Intangibles amortization 6,616 3,494 3,567 3,122 89 % (73) (2) % FDIC assessments 1,920 2,035 707 (115) (6) % 1,328 188 % Merger-related expense 1,664 5,651 1,020 (3,987) (71) % 4,631 454 % Other expense 9,019 9,048 5,695 (29) — % 3,353 59 % Total noninterest expense $ 160,644 $ 129,297 $ 100,719 $ 31,347 24 % $ 28,578 28 % Non-personnel expenses $ 71,931 $ 58,679 $ 43,598 $ 13,252 23 % $ 15,081 35 % Average full-time equivalent employees 881 626 553 255 41 % 73 13 % Comparison of 2022 versus 2021 Noninterest expense was $161 million, an increase of $31 million (24%) over 2021.
Noninterest Expense Table 5: Noninterest Expense ($ in thousands) Years Ended December 31, Change From Prior Year 2023 2022 2021 Change 2023 % Change 2023 Change 2022 % Change 2022 Personnel $ 99,109 $ 88,713 $ 70,618 $ 10,396 12 % $ 18,095 26 % Occupancy, equipment and office 36,222 29,722 21,058 6,500 22 % 8,664 41 % Business development and marketing 7,790 8,472 5,403 (682) (8) % 3,069 57 % Data processing 19,892 14,518 11,990 5,374 37 % 2,528 21 % Intangibles amortization 8,072 6,616 3,494 1,456 22 % 3,122 89 % FDIC assessments 3,999 1,920 2,035 2,079 108 % (115) (6) % Merger-related expense 189 1,664 5,651 (1,475) (89) % (3,987) (71) % Other expense 10,593 9,019 9,048 1,574 17 % (29) — % Total noninterest expense $ 185,866 $ 160,644 $ 129,297 $ 25,222 16 % $ 31,347 24 % Non-personnel expenses $ 86,757 $ 71,931 $ 58,679 $ 14,826 21 % $ 13,252 23 % Average full-time equivalent employees 953 881 626 72 8 % 255 41 % Comparison of 2023 versus 2022 Noninterest expense was $186 million, an increase of $25 million (16%) over 2022.
The interest on all long-term borrowings is current. Short-term borrowings were $317 million and zero at December 31, 2022 and 2021, respectively, all in FHLB advances, with approximately half acquired with Charter. Long-term borrowings were $225 million and $217 million at December 31, 2022 and 44 2021, respectively.
The interest on all long-term borrowings is current. Short-term borrowings were $317 million (all in FHLB advances) at December 31, 2022, compared to none at December 31, 2023. Long-term borrowings were $167 million and $225 million at December 31, 2023 and 2022, respectively.
At December 31, 2022, the investment securities portfolio totaled $1.6 billion (representing 18% of total assets), comprised of $918 million securities AFS and $679 million securities HTM, minimally changed from $1.6 billion (representing 20% of total assets) at December 31, 2021, comprised of $922 million securities AFS and $652 million securities HTM.
At December 31, 2023, the investment securities portfolio totaled $803 million (representing 9% of total assets), all classified as securities AFS, compared to investment securities of $1.6 billion (representing 18% of total assets) at December 31, 2022, comprised of $918 million securities AFS and $679 million securities HTM.
See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. • Occupancy, equipment and office expense was $30 million for 2022, up $9 million (41%) from 2021, largely due to the expanded branch network with the recent acquisitions, as well as additional expense for software and technology solutions to drive operational efficiencies, and enhance products or services. 2021 also included approximately $1 million of accelerated depreciation and write-offs related to branch closures. • Business development and marketing expense was $8 million for 2022, up $3 million (57%) from 2021, largely due to higher travel and entertainment expenses, as well as additional marketing donations, promotions, and media to support our expanded branch network and community base. • Data processing expense was $15 million for 2022, up $3 million (21%) over 2021, mostly due to volume-based increases in core processing charges, including the larger operating base following the Charter, County, and Mackinac acquisitions. • Intangible amortization increased $3 million (89%) between the years, due to higher amortization from the intangibles added with the recent acquisitions. • Other expense was $9 million for 2022, minimally changed from 2021, with 2022 including higher professional fees, director fees, fraud losses, and higher overall expenses related to our larger operating base, while 2021 included a $2 million contract termination charge.
See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. 38 • Occupancy, equipment and office expense was $36 million for 2023, up $7 million (22%) from 2022, largely due to the expanded branch network with the Charter acquisition, as well as additional expense for software and technology solutions. • Business development and marketing expense was $8 million for 2023, down $1 million (8%) from 2022, largely due to timing and extent of marketing donations, promotions, and media. • Data processing expense was $20 million for 2023, up $5 million (37%) over 2022, mostly due to a $3 million early contract termination charge and volume-based increases in core processing charges. • Intangible amortization increased $1 million (22%) between the years, due to higher amortization from the intangibles added with the Charter acquisition. • Other expense was $11 million for 2023, an increase of $2 million (17%) over 2022, mostly due to higher professional fees.
Such scenarios can involve static balance sheets, balance sheets with projected growth, parallel (or non-parallel) yield curve slope changes, immediate or gradual changes in market interest rates, and one-year or longer time horizons.
Such scenarios can involve static balance sheets, balance sheets with projected growth, parallel (or non-parallel) yield curve slope changes, immediate or gradual changes in 47 market interest rates, and one-year or longer time horizons. The simulation modeling uses assumptions involving market spreads, prepayments of rate-sensitive instruments, renewal rates on maturing or new loans, deposit retention rates, and other assumptions.
The program remains on pause through early 2023 (beyond a small private purchase transaction), and management expects it to restart at some point during 2023, as common equity levels have rebounded due to strong retained earnings, and a shift in interest rates has improved the unrealized losses on securities available for sale. 30 Table 1: Earnings Summary and Selected Financial Data At and for the years ended December 31, (in thousands, except per share data) 2022 2021 2020 Results of operations: Net interest income $ 239,961 $ 157,955 $ 129,338 Provision for credit losses 11,500 14,900 10,300 Noninterest income 57,920 67,364 62,626 Noninterest expense 160,644 129,297 100,719 Income before income tax expense 125,737 81,122 80,945 Income tax expense 31,477 20,470 20,476 Net income 94,260 60,652 60,469 Net income attributable to noncontrolling interest — — 347 Net income attributable to Nicolet Bankshares, Inc. $ 94,260 $ 60,652 $ 60,122 Earnings per common share: Basic $ 6.78 $ 5.65 $ 5.82 Diluted $ 6.56 $ 5.44 $ 5.70 Common shares: Basic weighted average 13,909 10,736 10,337 Diluted weighted average 14,375 11,145 10,541 Year-End Balances: Loans $ 6,180,499 $ 4,621,836 $ 2,789,101 Allowance for credit losses - loans (“ACL-Loans”) 61,829 49,672 32,173 Total assets 8,763,969 7,695,037 4,551,789 Deposits 7,178,921 6,465,916 3,910,399 Stockholders’ equity (common) 972,529 891,891 539,189 Book value per common share $ 66.20 $ 63.73 $ 53.86 Tangible book value per common share (1) $ 38.81 $ 39.47 $ 36.34 Financial Ratios: Return on average assets 1.20 % 1.15 % 1.41 % Return on average common equity 10.63 9.74 11.40 Return on average tangible common equity (1) 17.96 14.74 16.76 Stockholders’ equity to assets 11.10 11.59 11.85 Tangible common equity to tangible assets (1) 6.82 7.51 8.31 Reconciliation of Non-GAAP Financial Measures: Adjusted net income reconciliation: (2) Net income attributable to Nicolet (GAAP) $ 94,260 $ 60,652 $ 60,122 Adjustments: Provision expense related to merger 8,000 14,400 — Assets (gains) losses, net (3,130) (4,181) 1,805 Merger-related expense 1,664 5,651 1,020 Branch closure expense — 944 500 Adjustments subtotal 6,534 16,814 3,325 Tax on Adjustments (25% effective tax rate) 1,634 4,204 831 Adjustments, net of tax 4,901 12,611 2,494 Adjusted net income attributable to Nicolet (Non-GAAP) $ 99,161 $ 73,263 $ 62,616 Adjusted Diluted earnings per common share (Non-GAAP) $ 6.90 $ 6.57 $ 5.94 Tangible assets: Total assets $ 8,763,969 $ 7,695,037 $ 4,551,789 Goodwill and other intangibles, net 402,438 339,492 175,353 Tangible assets $ 8,361,531 $ 7,355,545 $ 4,376,436 Tangible common equity: Stockholders’ equity (common) $ 972,529 $ 891,891 $ 539,189 Goodwill and other intangibles, net 402,438 339,492 175,353 Tangible common equity $ 570,091 $ 552,399 $ 363,836 Tangible average common equity: Average stockholders’ equity (common) $ 886,385 $ 622,903 $ 527,428 Average goodwill and other intangibles, net 361,471 211,463 168,802 Average tangible common equity $ 524,914 $ 411,440 $ 358,626 (1) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets exclude goodwill and other intangibles, net.
In the meantime, the Board expects to remain diligent as to how it allocates shareholder capital, whether it be through organic growth, M&A, share repurchases, an increase to the shareholder dividend, or most likely, some combination of the four. 32 Table 1: Earnings Summary and Selected Financial Data At and for the years ended December 31, (in thousands, except per share data) 2023 2022 2021 Results of operations: Net interest income $ 241,516 $ 239,961 $ 157,955 Provision for credit losses 4,990 11,500 14,900 Noninterest income 35,972 57,920 67,364 Noninterest expense 185,866 160,644 129,297 Income before income tax expense 86,632 125,737 81,122 Income tax expense 25,116 31,477 20,470 Net income $ 61,516 $ 94,260 $ 60,652 Earnings per common share: Basic $ 4.17 $ 6.78 $ 5.65 Diluted $ 4.08 $ 6.56 $ 5.44 Common shares: Basic weighted average 14,743 13,909 10,736 Diluted weighted average 15,071 14,375 11,145 Year-End Balances: Loans $ 6,353,942 $ 6,180,499 $ 4,621,836 Allowance for credit losses - loans (“ACL-Loans”) 63,610 61,829 49,672 Total assets 8,468,678 8,763,969 7,695,037 Deposits 7,197,800 7,178,921 6,465,916 Stockholders’ equity (common) 1,039,007 972,529 891,891 Book value per common share $ 69.76 $ 66.20 $ 63.73 Tangible book value per common share (1) $ 43.28 $ 38.81 $ 39.47 Financial Ratios: Return on average assets 0.73 % 1.20 % 1.15 % Return on average common equity 6.28 10.63 9.74 Return on average tangible common equity (1) 10.58 17.96 14.74 Stockholders’ equity to assets 12.27 11.10 11.59 Tangible common equity to tangible assets (1) 7.98 6.82 7.51 Reconciliation of Non-GAAP Financial Measures: Adjusted net income reconciliation: (2) Net income (GAAP) $ 61,516 $ 94,260 $ 60,652 Adjustments: Provision expense (3) 2,340 8,000 14,400 Assets (gains) losses, net 32,808 (3,130) (4,181) Merger-related expense 189 1,664 5,651 Contract termination charge 2,689 — — Branch closure expense — — 944 Adjustments subtotal 38,026 6,534 16,814 Tax on Adjustments 7,415 1,634 4,204 Tax impact of Wisconsin tax law change (4) 9,118 — — Adjusted net income (Non-GAAP) $ 101,245 $ 99,161 $ 73,263 Adjusted Diluted earnings per common share (Non-GAAP) $ 6.72 $ 6.90 $ 6.57 Tangible assets: Total assets $ 8,468,678 $ 8,763,969 $ 7,695,037 Goodwill and other intangibles, net 394,366 402,438 339,492 Tangible assets $ 8,074,312 $ 8,361,531 $ 7,355,545 Tangible common equity: Stockholders’ equity (common) $ 1,039,007 $ 972,529 $ 891,891 Goodwill and other intangibles, net 394,366 402,438 339,492 Tangible common equity $ 644,641 $ 570,091 $ 552,399 Tangible average common equity: Average stockholders’ equity (common) $ 979,366 $ 886,385 $ 622,903 Average goodwill and other intangibles, net 398,106 361,471 211,463 Average tangible common equity $ 581,260 $ 524,914 $ 411,440 (1) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets exclude goodwill and other intangibles, net.
This change in allocated ACL-Loans was attributable to the change in loan portfolio composition, as well as changes in current and forecasted risk trends within loan categories.
In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 26% and 21%, respectively, of the ACL-Loans at December 31, 2022. This change in allocated ACL-Loans was attributable to the change in loan portfolio composition, as well as changes in current and forecasted risk trends within loan categories.
The simulation modeling uses assumptions involving market spreads, prepayments of rate-sensitive instruments, renewal rates on maturing or new loans, deposit retention rates, and other assumptions. 45 Among other scenarios, Nicolet assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps change in market rates (parallel to the change in prime rate) over a one-year time horizon to a static (flat) balance sheet.
Among other scenarios, Nicolet assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps change in market rates (parallel to the change in prime rate) over a one-year time horizon to a static (flat) balance sheet. The results provided include the liquidity measures mentioned above and reflect the changed interest rate environment.
(2) The adjusted net income measure and related reconciliation provide information useful to investors in understanding the operating performance and trends of Nicolet and also to aid investors in the comparison of Nicolet’s financial performance to the financial performance of peer banks. 31 Non-GAAP Financial Measures We identify “tangible book value per common share,” “return on average tangible common equity,” “tangible common equity to tangible assets” “adjusted net income,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in effect in the United States in our statements of income, balance sheets or statements of cash flows.
(4) The effective tax rate for periods prior to the January 1, 2023, effective date of the Wisconsin tax law change (as detailed further in the Overview section above) assumed an effective tax rate of 25%, and periods subsequent to the effective date assumed an effective tax rate of 19.5%. 33 Non-GAAP Financial Measures We identify “tangible book value per common share,” “return on average tangible common equity,” “tangible common equity to tangible assets” “adjusted net income,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in effect in the United States in our statements of income, balance sheets or statements of cash flows.
Additional 36 information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Net asset gains in 2022 of $3 million were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations). Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Table 6: Period End Loan Composition December 31, 2022 December 31, 2021 December 31, 2020 (in thousands) Amount % of Total Amount % of Total Amount % of Total Commercial & industrial $ 1,304,819 21 % $ 1,042,256 23 % $ 936,734 34 % Owner-occupied CRE 954,599 15 % 787,189 17 % 521,300 19 % Agricultural 1,088,607 18 % 794,728 17 % 109,629 4 % Commercial 3,348,025 54 % 2,624,173 57 % 1,567,663 57 % CRE investment 1,149,949 19 % 818,061 18 % 460,721 16 % Construction & land development 318,600 5 % 213,035 5 % 131,283 5 % Commercial real estate 1,468,549 24 % 1,031,096 23 % 592,004 21 % Commercial-based loans 4,816,574 78 % 3,655,269 80 % 2,159,667 78 % Residential construction 114,392 2 % 70,353 1 % 41,707 1 % Residential first mortgage 1,016,935 16 % 713,983 15 % 444,155 16 % Residential junior mortgage 177,332 3 % 131,424 3 % 111,877 4 % Residential real estate 1,308,659 21 % 915,760 19 % 597,739 21 % Retail & other 55,266 1 % 50,807 1 % 31,695 1 % Retail-based loans 1,363,925 22 % 966,567 20 % 629,434 22 % Total loans $ 6,180,499 100 % $ 4,621,836 100 % $ 2,789,101 100 % As noted in Table 6 above, year-end 2022 loans were broadly 78% commercial-based and 22% retail-based compared to 80% commercial-based and 20% retail-based at year-end 2021.
Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early problem loan identification and remedial action to minimize losses, an appropriate ACL-Loans, and sound nonaccrual and charge-off policies. 39 Table 6: Period End Loan Composition December 31, 2023 December 31, 2022 December 31, 2021 (in thousands) Amount % of Total Amount % of Total Amount % of Total Commercial & industrial $ 1,284,009 20 % $ 1,304,819 21 % $ 1,042,256 23 % Owner-occupied CRE 956,594 15 % 954,599 15 % 787,189 17 % Agricultural 1,161,531 18 % 1,088,607 18 % 794,728 17 % Commercial 3,402,134 53 % 3,348,025 54 % 2,624,173 57 % CRE investment 1,142,251 18 % 1,149,949 19 % 818,061 18 % Construction & land development 310,110 5 % 318,600 5 % 213,035 5 % Commercial real estate 1,452,361 23 % 1,468,549 24 % 1,031,096 23 % Commercial-based loans 4,854,495 76 % 4,816,574 78 % 3,655,269 80 % Residential construction 75,726 1 % 114,392 2 % 70,353 1 % Residential first mortgage 1,167,109 19 % 1,016,935 16 % 713,983 15 % Residential junior mortgage 200,884 3 % 177,332 3 % 131,424 3 % Residential real estate 1,443,719 23 % 1,308,659 21 % 915,760 19 % Retail & other 55,728 1 % 55,266 1 % 50,807 1 % Retail-based loans 1,499,447 24 % 1,363,925 22 % 966,567 20 % Total loans $ 6,353,942 100 % $ 6,180,499 100 % $ 4,621,836 100 % As noted in Table 6 above, the loan portfolio at December 31, 2023 was 76% commercial-based and 24% retail-based, compared to 78% commercial-based and 22% retail-based at December 31, 2022.
Salary expense increased $15 million (25%) over 2021, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up 41%) as well as merit increases between the years and investments in our wealth team.
Salary expense increased $6 million (9%) over 2022, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up 8%, mostly due to the Charter acquisition), merit increases between the years, and investments in our wealth team, partly offset by lower incentive compensation commensurate with the lower current year earnings.
Comparison of 2022 versus 2021 The Federal Reserve raised short-term interest rates a total of 425 bps since mid-March 2022, increasing the Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Prior to this, short-term interest rates remained steady since March 2020, with a Federal Funds rate of 0.00% to 0.25%.
Comparison of 2023 versus 2022 The Federal Reserve raised short-term interest rates a total of 425 bps during 2022, increasing the Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Additional increases totaling 100 bps were made during 2023, resulting in a Federal Funds range of 5.25% to 5.50% as of December 31, 2023.
Based on financial data at December 31, 2022 and 2021, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 14 below. The results were within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps.
The interest rate scenarios are used for analytical purposes only and do not necessarily represent management’s view of future market interest rate movements. Based on financial data at December 31, 2023 and 2022, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 15 below.
A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate.
The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized.
Table 16: Contractual Obligations (in thousands) Note Maturity by Years Reference Total 1 or less 1-3 3-5 Over 5 Time deposits 8 $ 898,219 $ 464,568 $ 400,343 $ 32,538 $ 770 Long-term borrowings 9 225,342 — 5,000 — 220,342 Operating leases 5 11,137 2,437 4,076 3,207 1,417 Total long-term contractual obligations $ 1,134,698 $ 467,005 $ 409,419 $ 35,745 $ 222,529 Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes.
Table 17: Contractual Obligations (in thousands) Note Maturity by Years Reference Total 1 or less 1-3 3-5 Over 5 Time deposits 8 $ 1,523,883 $ 1,171,328 $ 330,901 $ 21,544 $ 110 Long-term borrowings 9 166,930 — 5,000 — 161,930 Operating leases 5 11,641 2,486 4,170 3,143 1,842 Total long-term contractual obligations $ 1,702,454 $ 1,173,814 $ 340,071 $ 24,687 $ 163,882 Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes.
In response, the Federal Reserve has raised interest rates from a target range of 0.00%-0.25% in early March 2022 to 4.25%-4.50% at the end of December 2022.
The Federal Reserve tightened monetary policy to combat inflation by aggressively raising interest rates from a target range of 0.00%-0.25% in early March 2022 to 5.25%-5.50% at the end of 2023, and inflation did slow from the start of the year.
Personnel costs increased $18 million (26%), while non-personnel expenses combined increased $13 million (23%) over 2021. Notable contributions to the change in noninterest expense were: • Personnel expense (including salaries, overtime, cash and equity incentives, and employee benefit and payroll-related expenses) was $89 million for 2022, an increase of $18 million (26%) over 2021.
Personnel costs increased $10 million (12%), while non-personnel expenses combined increased $15 million (21%) over 2022. Notable contributions to the change in noninterest expense were: • Personnel expense was $99 million for 2023, an increase of $10 million (12%) over 2022.
The contribution from net free funds increased 9 bps, attributable to the higher value in a rising interest rate environment and an increase in average net free funds (largely from higher average noninterest-bearing demand deposits and stockholders’ equity) between the years. As a result, the net interest margin was 3.40% for 2022, up 3 bps compared to 3.37% for 2021.
The contribution from net free funds increased 58 bps, mostly due to the higher value in a rising interest rate environment. As a result, the net interest margin was 3.18% for 2023, down 22 bps compared to 3.40% for 2022.
Nicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”).
BALANCE SHEET ANALYSIS Loans Nicolet services a diverse customer base primarily throughout Wisconsin, Michigan and Minnesota. The Company concentrates on originating loans in its local markets and assisting current loan customers. Nicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”).
The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $94 million, mostly from interest-earning asset volumes added with the recent acquisitions, as well as solid loan growth and strategic investment purchases in fourth quarter 2021) and net unfavorable rates (which decreased net interest income $12 million from higher deposit rates and the lag in repricing the loan portoflio to current market interest rates).
The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $41 million, mostly from the full year impact of the Charter acquisition and loan growth) offset by net unfavorable rates (which decreased net interest income $40 million from higher deposit costs and the lag in repricing the loan portfolio to current market interest rates).
Table 12: Period End Deposit Composition (in thousands) December 31, 2022 December 31, 2021 December 31, 2020 Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 2,361,816 33 % $ 1,975,705 31 % $ 1,212,787 31 % Money market and interest-bearing demand 2,987,469 42 % 2,834,824 44 % 1,551,325 40 % Savings 931,417 13 % 803,197 12 % 521,814 13 % Time 898,219 12 % 852,190 13 % 624,473 16 % Total deposits $ 7,178,921 100 % $ 6,465,916 100 % $ 3,910,399 100 % Brokered transaction accounts $ 252,829 3 % $ 234,306 4 % $ 46,340 1 % Brokered time deposits 339,066 5 % 209,857 3 % 278,521 7 % Total brokered deposits $ 591,895 8 % $ 444,163 7 % $ 324,861 8 % Customer transaction accounts $ 6,027,873 84 % $ 5,379,420 83 % $ 3,239,586 83 % Customer time deposits 559,153 8 % 642,333 10 % 345,952 9 % Total customer deposits (core) $ 6,587,026 92 % $ 6,021,753 93 % $ 3,585,538 92 % Total deposits were $7.2 billion at December 31, 2022, an increase of $713 million (11%) over year-end 2021, primarily due to the acquisition of Charter, and included a $565 million increase to customer deposits (core) and a $148 million increase to brokered deposits.
See Table 2 for information on average deposit balances and deposit rates. 45 Table 12: Period End Deposit Composition (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 1,958,709 27 % $ 2,361,816 33 % $ 1,975,705 31 % Interest-bearing demand 1,055,520 15 % 1,279,850 18 % 1,272,858 20 % Money market 1,891,287 26 % 1,707,619 24 % 1,561,966 24 % Savings 768,401 11 % 931,417 13 % 803,197 12 % Time 1,523,883 21 % 898,219 12 % 852,190 13 % Total deposits $ 7,197,800 100 % $ 7,178,921 100 % $ 6,465,916 100 % Brokered transaction accounts $ 166,861 2 % $ 252,829 3 % $ 234,306 4 % Brokered time deposits 448,582 6 % 339,066 5 % 209,857 3 % Total brokered deposits $ 615,443 8 % $ 591,895 8 % $ 444,163 7 % Customer transaction accounts $ 5,507,056 77 % $ 6,027,873 84 % $ 5,379,420 83 % Customer time deposits 1,075,301 15 % 559,153 8 % 642,333 10 % Total customer deposits (core) $ 6,582,357 92 % $ 6,587,026 92 % $ 6,021,753 93 % Total deposits were $7.2 billion at December 31, 2023, up slightly ($19 million) over year-end 2022, and included a shift to higher rate deposit products (mostly to money market and time deposits).
(2) The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense. 33 Table 3: Volume/Rate Variance - Tax-Equivalent Basis (in thousands) 2022 Compared to 2021 Increase (Decrease) Due to Changes in 2021 Compared to 2020 Increase (Decrease) Due to Changes in Volume Rate Net (1) Volume Rate Net (1) Interest-earning assets PPP Loans $ (19,160) $ 3,880 $ (15,280) $ (3,850) $ 12,460 $ 8,610 All other commercial-based loans 101,805 (13,202) 88,603 19,329 (10,883) 8,446 Retail-based loans 12,804 1,048 13,852 4,919 (1,812) 3,107 Total loans, including loan fees (2) (3) 95,449 (8,274) 87,175 20,398 (235) 20,163 Investment securities: Taxable 10,595 854 11,449 2,723 (907) 1,816 Tax-exempt (3) 2,100 979 3,079 218 (66) 152 Total investment securities 12,695 1,833 14,528 2,941 (973) 1,968 Other interest-earning assets (480) 2,008 1,528 552 (254) 298 Total non-loan earning assets 12,215 3,841 16,056 3,493 (1,227) 2,266 Total interest-earning assets $ 107,664 $ (4,433) $ 103,231 $ 23,891 $ (1,462) $ 22,429 Interest-bearing liabilities Savings $ 181 $ 1,512 $ 1,693 $ 261 $ (579) $ (318) Interest-bearing demand 1,167 399 1,566 943 (2,065) (1,122) MMA 520 5,563 6,083 382 (1,271) (889) Core time deposits 1,128 (1,803) (675) (380) (2,797) (3,177) Total interest-bearing core deposits 2,996 5,671 8,667 1,206 (6,712) (5,506) Brokered deposits 2,379 258 2,637 274 (961) (687) Total interest-bearing deposits 5,375 5,929 11,304 1,480 (7,673) (6,193) PPPLF — — — (286) (285) (571) Other interest-bearing liabilities 7,897 1,152 9,049 1,195 (691) 504 Total wholesale funding 7,897 1,152 9,049 909 (976) (67) Total interest-bearing liabilities 13,272 7,081 20,353 2,389 (8,649) (6,260) Net interest income $ 94,392 $ (11,514) $ 82,878 $ 21,502 $ 7,187 $ 28,689 (1) The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each.
(2) The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense. 35 Table 3: Volume/Rate Variance - Tax-Equivalent Basis (in thousands) 2023 Compared to 2022 Increase (Decrease) Due to Changes in 2022 Compared to 2021 Increase (Decrease) Due to Changes in Volume Rate Net (1) Volume Rate Net (1) Interest-earning assets Total loans, including loan fees (2) (3) $ 49,407 $ 48,106 $ 97,513 $ 95,449 $ (8,274) $ 87,175 Investment securities: Taxable (4,715) 1,514 (3,201) 10,595 854 11,449 Tax-exempt (3) 371 1,397 1,768 2,100 979 3,079 Total investment securities (4,344) 2,911 (1,433) 12,695 1,833 14,528 Other interest-earning assets 1,428 11,629 13,057 (480) 2,008 1,528 Total non-loan earning assets (2,916) 14,540 11,624 12,215 3,841 16,056 Total interest-earning assets $ 46,491 $ 62,646 $ 109,137 $ 107,664 $ (4,433) $ 103,231 Interest-bearing liabilities Savings $ (118) $ 7,934 $ 7,816 $ 181 $ 1,512 $ 1,693 Interest-bearing demand (596) 8,841 8,245 1,167 399 1,566 MMA 1,628 41,613 43,241 520 5,563 6,083 Core time deposits 1,625 23,422 25,047 1,128 (1,803) (675) Total interest-bearing core deposits 2,539 81,810 84,349 2,996 5,671 8,667 Brokered deposits 1,999 17,724 19,723 2,379 258 2,637 Total interest-bearing deposits 4,538 99,534 104,072 5,375 5,929 11,304 Total wholesale funding 618 2,699 3,317 7,897 1,152 9,049 Total interest-bearing liabilities 5,156 102,233 107,389 13,272 7,081 20,353 Net interest income $ 41,335 $ (39,587) $ 1,748 $ 94,392 $ (11,514) $ 82,878 (1) The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each.
At December 31, 2022, the ACL-Loans was $62 million (representing 1.00% of period end loans) compared to $50 million at December 31, 2021. The increase in the ACL-Loans was largely due to the acquisition of Charter, which added $8 million of provision for the Day 2 allowance and $2 million related to purchased credit deteriorated loans.
The increase in the ACL-Loans during 2023 was due to solid organic loan growth, while the increase in the ACL-Loans during 2022 was largely due to the acquisition of Charter, which added $8 million of provision for the Day 2 allowance and $2 million related to purchased credit deteriorated loans. Net charge-offs (0.01% of average loans) remain negligible.
Table 13: Maturity Distribution of Uninsured Time Deposits (in thousands) Time Deposits Over FDIC Insurance Limits Portion of Time Deposits in Excess of FDIC Insurance Limits 3 months or less $ 14,369 $ 5,619 Over 3 months through 6 months 15,764 6,514 Over 6 months through 12 months 17,875 5,875 Over 12 months 28,823 14,631 Total $ 76,831 $ 32,639 Total uninsured deposits were $2.3 billion and $2.1 billion as of December 31, 2022 and 2021, respectively.
Table 13: Maturity Distribution of Uninsured Time Deposits (in thousands) Time Deposits Over FDIC Insurance Limits Portion of Time Deposits in Excess of FDIC Insurance Limits 3 months or less $ 134,638 $ 77,638 Over 3 months through 6 months 85,408 49,908 Over 6 months through 12 months 85,939 43,188 Over 12 months 3,914 664 Total $ 309,899 $ 171,398 Estimated total uninsured deposits were $2.1 billion (representing 29% of total deposits) and $2.3 billion (representing 32% of total deposits) as of December 31, 2023 and 2022, respectively.
The mix of average interest-bearing liabilities was 84% core deposits, 10% brokered deposits, and 6% other funding for 2022, compared to 87% core deposits, 10% brokered deposits, and 3% other funding in 2021.
The mix of average interest-bearing liabilities was 83% core deposits, 11% brokered deposits, and 6% other funding for 2023, compared to 84% core deposits, 10% brokered deposits, and 6% other funding in 2022. The interest rate spread decreased 80 bps between the periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate environment.
See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the LSR asset. • Other income grew $3 million to $7 million for 2022, largely due to revenue from crop insurance sales (acquired with County) and broker fees. • The $3 million net asset gains in 2022 were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations).
See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the LSR asset. • Other income grew $1 million to $8 million for 2023, and included increases in card incentives income, swap fees, crop insurance sales and broker fees, as well as a gain on the early extinguishment of debt. • Net asset losses of $33 million in 2023 were primarily attributable to losses of $38 million on the sale of approximately $500 million (par value) U.S.
Income Taxes Income tax expense was $31 million (effective tax rate of 25.0%) for 2022, compared to $20 million (effective tax rate of 25.2%) for 2021. The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required.
Income Taxes Income tax expense was $25 million (effective tax rate of 29.0%) for 2023, compared to $31 million (effective tax rate of 25.0%) for 2022.
The interest rate spread decreased 6 bps between the periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate environment of 2022. The 2022 interest-earning asset yield increased 22 bps to 3.88% for 2022, largely due to the changing mix of interest-earning assets (to a higher percentage of loan assets, as noted above).
The interest-earning asset yield increased 114 bps to 5.02% for 2023, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 84 bps to 5.48% for 2023, largely due to the repricing of new and renewed loans in a rising interest rate environment.
Nonperforming assets were $40 million and represented 0.46% of total assets at December 31, 2022, compared to $56 million or 0.73% at year-end 2021, with the decline due to a $6 million improvement in nonaccrual loans and a $10 million reduction in other real estate owned (primarily sales of closed bank branches).
At December 31, 2023, nonperforming assets were $28 million and represented 0.33% of total assets, compared to $40 million or 0.46% of total assets at December 31, 2022. The reduction in nonperforming assets between the years was mostly due to the sale of specific nonaccrual loans.
Comparison of 2022 versus 2021 Noninterest income was $58 million for 2022, a decrease of $9 million (14%) from 2021, primarily due to lower net mortgage income.
Comparison of 2023 versus 2022 Noninterest income was $36 million for 2023, a decrease of $22 million (38%) from 2022, primarily due to the balance sheet repositioning. Excluding net asset gains (losses), noninterest income for 2023 was $69 million, a $14 million (26%) increase over 2022.
As a result, the mix of average interest-earning assets shifted to 74% loans, 23% investment securities, and 3% other interest-earning assets (mostly cash) for 2022, compared to 67%, 16%, and 17%, respectively, for 2021. 34 Average interest-bearing liabilities were $4.8 billion for 2022, an increase of $1.6 billion (52%) from 2021, also primarily due to the timing of the acquisitions.
Average investment securities decreased $512 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $99 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 81% loans, 15% investment securities, and 4% other interest-earning assets (mostly cash) for 2023, compared to 74%, 23%, and 3%, respectively, for 2022.
Salary expense also reflected increases in hourly pay and base salaries effective at the end of March 2022, which benefited the majority of our employee base. Fringe benefits increased $3 million (30%) over 2021, also mainly due to the larger employee base. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities.
Fringe benefits increased $4 million (32%) over 2022, reflecting higher overall health care expenses as well as the larger employee base. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities.
Nonperforming assets (which include nonperforming loans and other real estate owned “OREO”) were $40 million and represented 0.46% of total assets at December 31, 2022, compared to $56 million or 0.73% at December 31, 2021.
Nonperforming assets were $28 million and represented 0.33% of total assets at December 31, 2023, compared to $40 million or 0.46% at year-end 2022. The allowance for credit losses-loans increased to $64 million (1.00% of loans) at December 31, 2023, compared to $62 million (1.00% of loans) at December 31, 2022.
Average interest-earning assets were $7.1 billion for 2022, $2.4 billion (51%) higher than 2021, primarily due to the acquisitions of Mackinac, County, and Charter (in September 2021, December 2021, and August 2022, respectively).
Average interest-earning assets increased to $7.7 billion for 2023, $564 million (8%) higher than 2022, primarily due to the timing of the acquisition of Charter (in August 2022). Average loans increased $1.0 billion (19%) to $6.2 billion, mostly due to the timing of the Charter acquisition (which added loans of $827 million at acquisition) and solid loan growth.
Total loans were $6.2 billion at December 31, 2022, an increase of $1.6 billion (34%), compared to total loans of $4.6 billion at December 31, 2021. The increase in total loans included the Charter acquisition (which added $827 million, at acquisition) and the repurchase of approximately $100 million previously participated agriculture loans, as well as strong organic loan growth.
Total loans were $6.4 billion at December 31, 2023, an increase of $173 million (3%), compared to total loans of $6.2 billion at December 31, 2022, with growth in residential mortgage and agricultural loans.
Total stockholders’ equity was $973 million at December 31, 2022, an increase of $81 million since December 31, 2021, mostly due to the common stock issued in the Charter acquisition, as well as solid earnings, offset by unfavorable changes in the fair value of available for sale securities and common stock repurchases executed early in 2022.
Total stockholders’ equity was $1.0 billion at December 31, 2023, an increase of $66 million since December 31, 2022, mostly due to solid earnings, partly offset by payment of a quarterly common stock dividend (beginning in second quarter 2023).
Provision for Credit Losses The provision for credit losses in 2022 was $11.5 million (comprised of $11.0 million related to the ACL-Loans, and the remainder for the ACL on unfunded commitments).
Interest expense on deposits increased $104 million from 2022 due to the rising interest rate environment and the migration of customer deposits into higher rate deposit products. Provision for Credit Losses The provision for credit losses for 2023 was $5.0 million (comprised of $2.7 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS).

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For additional disclosure, see section, “Interest Rate Sensitivity Management and Impact of Inflation,” of the Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part II, Item 7. 49
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For additional disclosure, see section, “Interest Rate Sensitivity Management and Impact of Inflation,” within Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part II, Item 7. 51

Other NIC 10-K year-over-year comparisons