KBRA Affirms Ratings for Nicolet Bankshares, Inc. and MidWestOne Financial Group, Inc. Following Acquisition Announcement; Outlook for MidWestOne Financial Group, Inc. Revised to Positive
27 Oct 2025 | New York
KBRA affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for Green Bay, Wisconsin-based Nicolet Bankshares, Inc (NYSE: NIC) (“Nicolet” or “the company”) following the recently proposed merger announcement with Iowa City, Iowa-based MidWestOne Financial Group, Inc. (NASDAQ: MOFG) (“MidWestOne”). In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for its subsidiary, Nicolet National Bank. The Outlook for all long-term ratings remains Positive.
KBRA also affirms the senior unsecured debt rating of BBB, the subordinated debt rating of BBB-, and the short-term debt rating of K3 for MidWestOne. In addition, KBRA affirms the deposit and senior unsecured debt ratings of BBB+, the subordinated debt rating of BBB, and the short-term deposit and debt ratings of K2 for the bank subsidiary, MidWestOne Bank. The Outlook for all long-term ratings is revised to Positive from Stable.
Key Credit Considerations
On October 23, 2025, Nicolet and MidwestOne announced that they had entered into a definitive agreement whereby Nicolet will acquire MidWestOne in an 100% stock transaction expected to close in 1H26. The proposed transaction will create a pro forma institution with ~$15+ billion of assets, ~$13 billion of deposits, ~$11 billion of loans, and ~110 branch offices. With respect to deal terms, the transaction is valued at ~$864 million, or ~1.66x P/TBV. In terms of pro forma ownership, Nicolet and MidWestOne shareholders are expected to comprise ~69% and ~31% of the combined institution, respectively. The company’s board of directors will feature a similar composition (8 from Nicolet and 4 from MidWestOne).
KBRA views the proposed transaction favorably for both Nicolet and MidWestOne. From Nicolet’s perspective, the addition of MOFG’s ~$6 billion balance sheet is a significant leap over the $10 billion regulatory threshold which should give the combined company meaningful scale to absorb the loss of interchange revenue associated with the Durbin Rule. MidWestOne’s footprint bolsters Nicolet’s strong market position in Wisconsin, adds meaningful scale in the Twin Cities, Minnesota, and gives the company immediate “lead-local" market share in Iowa. Furthermore, MidWestOne’s stable deposit base should enhance Nicolet’s in terms of funding cost and loans-to-deposits ratio (85% loan-to-deposits ratio projected at close). The proposed transaction would also reduce Nicolet’s dairy-related concentration to <15% of loans at close, from ~20% as of 3Q25, which we view favorably. Additionally, MidWestOne’s sizeable wealth management segment ($3.4 billion in AUA at 3Q25 which would bring proforma AUA to ~$9+ billion) should help maintain a relatively healthy contribution from stable fee revenues at Nicolet, historically, while noting the expected loss of $8 million - $9 million in interchange revenues annually starting in 2027. Finally, if pro forma earnings are close to the company’s illustrative projections of ~1.8% ROA and ~4.30% NIM – which assume full achievement of MOFG cost saves and exclude Durbin impact – the combined institution will be among the strongest performers in its peer group which could support positive rating momentum over time.
As it relates to MidWestOne, the benefits are relatively clear. First and foremost, while the company has completed multiple balance sheet restructurings over the last 12 to 18 months to improve its earnings performance, ROA has remained somewhat subdued relative to historical levels, though trending towards peers at ~1.0%. As such, combining with a higher performing bank such as Nicolet with the prospect of generating peer-leading returns is positive for MidWestOne creditors and counterparties. Further, the additional scale and geographic diversity MidWestOne will be getting (into Wisconsin and Michigan) is a positive from our perspective. While not “high growth” markets, these tend to match MidWestOne’s legacy Iowa footprint in terms of steady economic expansion. Also, while MidWestOne has not been overly concentrated in investor CRE (representing 211% of risk-based capital at 2Q25), the combination will lower this exposure to ~200% and we note that Nicolet has historically managed below 200%.
A less favorable characteristic of the proposed deal, in our view, includes the expected decline in Nicolet’s core capital (forecasted pro forma CET1 ratio of 10.6% at close vs. 11.4% as of 3Q25). Historically, Nicolet has run capital ratios below those of some similarly rated and many higher rated peers but had recently narrowed the gap, which along with strong credit quality and earnings performance supported the Positive Outlook. While pro forma core capital ratios are consistent with where Nicolet has managed capital during previous periods of M&A activity, in KBRA’s opinion, further positive ratings momentum is dependent in part upon a rebuild of core capital post-deal close to a CET1 ratio above 11% and a TCE ratio above 9% within a reasonable time frame.
We also have a less constructive opinion of the strategic fit of MidWestOne’s Denver operations, notwithstanding the market’s demographic tailwinds, given the distance from Nicolet's core operating footprint and lack of meaningful scale (2 branches, ~$800 million of loans, ~$400 million of deposits). That said, we expect management to consider strategic options for both growth or divestment, with minimal impact on the company’s core credit profile.
Additionally, while the combined entity’s loan portfolio will be more heavily comprised of investor CRE than Nicolet’s legacy book has reflected historically, as mentioned, we believe credit marks on MidWestOne’s portfolio (supported by meaningful due diligence of the book), should reduce the risk of a higher concentration.
Finally, while KBRA believes there is an inherent level of integration risk involved with any bank M&A transaction, such risk is somewhat mitigated by Nicolet’s demonstrated track record as a successful acquirer, although this will be its largest acquisition to date.
Rating Sensitivities
The affirmation of Nicolet’s current ratings and maintenance of the Positive Outlook reflects our continued favorable opinion of the company’s earnings performance, credit quality, and funding profile. Most important to further positive ratings development at Nicolet is a smooth closing and integration of the proposed acquisition, and a rebuilding of core capital following close to a CET1 ratio above 11% and a TCE ratio above 9% within a reasonable time frame. Should the transaction be terminated, or if Nicolet does not rebuild capital metrics post-close, we may revisit the company’s Positive Outlook. Degradation in the company’s earnings performance or credit quality would also be viewed negatively.
The revision of MidWestOne’s Outlook to Positive from Stable assumes that the transaction receives the required regulatory, shareholder, and other approvals to close in a timely manner, and recognizes that MidWestOne will be merging with and into a better performing institution. As such, MidWestOne is sensitive to Nicolet’s standalone credit profile and a revision of the Positive Outlook on Nicolet’s ratings could also impact the Outlook of MidWestOne. Conversely, if the transaction were to be terminated, MidWestOne’s ratings would likely be maintained at current levels with a Stable Outlook, assuming operating performance remains in line with recent periods.
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