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NICOLET BANKSHARES, INC. ANNOUNCES THIRD QUARTER 2022 EARNINGS

  • Acquisition of Charter Bankshares, Inc. closed and integrated on August 26, adding approximately $1.1 billion in assets

  • Net income of $19 million and adjusted net income (non-GAAP) of $25 million, compared to net income of $24 million in prior quarter and net income of $8 million or adjusted net income (non-GAAP) of $16 million in third quarter 2021, impacted by the Charter acquisition in 2022 and the Mackinac acquisition in 2021

  • Net income of $67 million or adjusted net income (non-GAAP) of $71 million for first nine months of 2022, compared to net income of $44 million or adjusted net income (non-GAAP) of $49 million for first nine months of 2021

  • Earnings per diluted common share of $1.29 and $4.72 for the three and nine months ended September 30

  • Adjusted earnings per diluted common share (non-GAAP) of $1.74 and $5.05 for the three and nine months ended September 30

  • Return on average assets of 0.93% and 1.18% for the three and nine months ended September 30

GREEN BAY, Wis., Oct. 25, 2022 /PRNewswire/ -- Nicolet Bankshares, Inc. (NYSE: NIC) ("Nicolet" or the "Company") announced third quarter 2022 net income of $19 million and earnings per diluted common share of $1.29, compared to $24 million and $1.73 for second quarter 2022, and $8 million and $0.73 for third quarter 2021, respectively.  Annualized quarterly return on average assets was 0.93%, 1.32% and 0.59%, for third quarter 2022, second quarter 2022 and third quarter 2021, respectively.

(PRNewsfoto/Nicolet Bankshares, Inc.)
(PRNewsfoto/Nicolet Bankshares, Inc.)

Net income for the nine months ended September 30, 2022 was $67 million and earnings per diluted common share was $4.72, compared to net income of $44 million and earnings per diluted common share of $4.22 for the first nine months of 2021.  Annualized return on average assets was 1.18% and 1.24% for the first nine months of 2022 and 2021, respectively.

Net income reflected non-core items and the related tax effect of each, including merger and integration related expenses, Day 2 credit provision expense required under the CECL model, branch optimization costs, contract negotiation expenses, and gains on other assets and investments.  Non-core items negatively impacted earnings per diluted common share $0.45 for third quarter 2022 and $0.76 for third quarter 2021.  For the nine months ended September 30, non-core items negatively impacted diluted earnings per common share $0.33 for 2022 and $0.48 for 2021.

On August 26, 2022, Nicolet completed its acquisition of Charter Bankshares, Inc. ("Charter").  In the merger, Charter shareholders received approximately 1.26 million shares of Nicolet common stock (valued at $98 million) and cash consideration of $39 million, for a total purchase price of $137 million.  Upon consummation, Charter added total assets of $1.1 billion, loans of $827 million, deposits of $869 million, and preliminary goodwill of $53 million.

"Nicolet's penchant for taking the long view showed up in this quarter's numbers.  While we planned for and achieved successful integrations and organic growth, we didn't plan for the opportunity to add significant and proven talent to our wealth management team.  So, we were excited to add a pre-eminently successful wealth advisor in the greater Green Bay area and a team of seasoned wealth professionals in Northern Michigan," said Mike Daniels, President and CEO of Nicolet.  "Throughout Nicolet's history, we have aggressively added established bankers and advisors when possible, looking at these actions as long-term investments rather than short-term expenses.  We understand that our brand promise is delivered through our people, and the more talent we have, the better we can fulfill this promise.  Therefore, finding and retaining great people is key to our success."

"To some degree, I wish I could take you inside the room when we have strategic discussions.  You would see that we work hard to balance the optimism of having a record year with the realities of the macroeconomic environment.  We have found that remembering our core purpose of serving our 3 Circles (customers, shareholders, and employees) has helped us focus our discussions.  As our team continues to execute our strategic priorities, as evidenced by strong core growth, we gain confidence that our investments in people will continue to deliver long-term payoffs," Daniels added.

"Lastly, we maintain our confidence in our credit culture as our asset quality trends remain solid and net charge-offs negligible," Daniels continued.

The Company's financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet's 2022 and 2021 acquisitions.  In addition to the 2022 Charter acquisition, during 2021 Nicolet acquired, Mackinac Financial Corporation ("Mackinac") on September 3, 2021 and County Bancorp, Inc. ("County") on December 3, 2021. Certain income statement results, average balances and related ratios for 2022 include partial contributions from Charter, while 2021 results include partial contributions from Mackinac and County, each from the respective acquisition date.  At acquisition, Mackinac added assets of $1.5 billion, loans of $0.9 billion, and deposits of $1.4 billion, while at acquisition County added assets of $1.4 billion, loans of $1.0 billion, and deposits of $1.0 billion.

Balance Sheet Review
At September 30, 2022, period end assets were $8.9 billion, an increase of $1.5 billion (21%) from June 30, 2022, largely due to the Charter acquisition, which added $1.1 billion of assets at acquisition.  Total loans increased $1.0 billion (20%) from June 30, 2022, including the Charter acquisition as well as solid organic loan growth.  Excluding the $827 million of loans acquired with Charter, organic loan growth was 3.6% (or 14.2% annualized) from June 30, 2022.  Total deposits of $7.4 billion at September 30, 2022, increased $1.1 billion (18%) from June 30, 2022, including the Charter acquisition as well as higher brokered deposits.  Total borrowings increased $308 million from June 30, 2022, with approximately half acquired with Charter and the remainder related to new FHLB advances.  Total capital was $938 million at September 30, 2022, an increase of $99 million since June 30, 2022, mostly from the common stock issued for the Charter acquisition, as well as solid earnings offset by unfavorable changes in the fair value of available for sale securities.

Asset Quality
Nonperforming assets were $40 million and represented 0.45% of total assets at September 30, 2022, compared to $42 million or 0.56% at June 30, 2022.  The allowance for credit losses-loans was $60 million and represented 1.01% of total loans at September 30, 2022, compared to $51 million and 1.02% at June 30, 2022.  The growth in the allowance for credit losses-loans was mostly due to the $8 million Day 2 allowance increase from the acquisition of Charter.  Asset quality trends remain solid and net charge-offs are negligible.

Income Statement Review - Quarter
Net income for third quarter 2022 was $19 million, compared to net income of $24 million for second quarter 2022.

Net interest income was $63 million for third quarter 2022, up $8 million from second quarter 2022, the net of $11 million higher interest income and $3 million higher interest expense. The higher interest income was attributable to strong loan growth (both organic and acquired), new and renewed loans repricing higher from the Federal Reserve interest rate increases, and additional tax-exempt municipal securities (acquired with Charter), while the higher interest expense was due to both higher average balances and higher rates (also related to the Federal Reserve interest rate increases). Average interest-earning assets of $7.2 billion grew $581 million over second quarter 2022, mostly due to a $553 million increase in average loans from solid organic loan growth and one month of contribution from Charter.  Average interest-bearing liabilities of $4.7 billion increased $305 million from second quarter 2022, including $232 million higher interest-bearing deposits and $73 million higher wholesale funding, mostly due to the timing of the Charter acquisition.

The net interest margin for third quarter 2022 was 3.48%, up 14bps from 3.34% for second quarter 2022. The yield on interest-earning assets increased 30bps (to 3.91%) reflecting both the changing mix of interest-earning assets (which shifted to 75% loans and 25% investments / other interest-earning assets for third quarter 2022, compared to 73% loans and 27% investments / other interest-earning assets for second quarter 2022) and the rising interest rate environment.   The cost of funds increased 25bps (to 0.65%) for third quarter 2022, attributable mainly to the repricing of deposits and funding in the higher interest rate environment.

Noninterest income was $13.0 million for third quarter 2022, down $1.1 million (8%) compared to second quarter 2022, mostly due to lower net asset gains.  Third quarter 2022 included minimal net asset gains, while second quarter 2022 included $1.6 million of net asset gains, primarily related to sales of other real estate owned (mostly closed bank branch locations). Net mortgage income of $1.7 million was down $0.5 million from second quarter 2022, as mortgage volume continues to slow amidst the rising interest rates.  BOLI income increased $0.2 million over second quarter 2022, on improving rates and higher average balances.  Other noninterest income improved $0.7 million between the sequential quarters mostly due to a favorable change in the fair value of nonqualified deferred compensation plan assets from less dramatic market declines.

Noninterest expense of $42.6 million increased $6.0 million (17%) from second quarter 2022. Personnel expense increased $4.5 million (23%) from second quarter 2022, including one-time personnel costs for investments in our wealth team, higher incentives from the successful Charter acquisition, the offsetting change to the nonqualified deferred compensation plan liabilities, and higher health claim experience, as well as higher salaries and fringe benefits from the larger employee base.  Non-personnel expenses increased $1.6 million (9%), largely due to $0.8 million higher office expense (largely software and equipment maintenance), $0.2 million higher business development (timing of business events and community support), a  $0.3 million increase in intangible amortization (related to the Charter acquisition), and a $0.3 million increase in other noninterest expense (mostly related to a $0.2 million impairment on a closed bank branch).

About Nicolet Bankshares, Inc.
Nicolet Bankshares, Inc. is the bank holding company of Nicolet National Bank, a growing, full-service, community bank providing services ranging from commercial, agricultural and consumer banking to wealth management and retirement plan services. Founded in Green Bay in 2000, Nicolet National Bank operates branches in Wisconsin, Michigan, and Minnesota. More information can be found at www.nicoletbank.com.

Use of Non-GAAP Financial Measures
This communication contains non-GAAP financial measures, such as non-GAAP adjusted net income, non-GAAP adjusted earnings per  diluted common share, tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets. Management believes such measures to be helpful to management, investors and others in understanding Nicolet's results of operations or financial position. When non-GAAP financial measures are used, the comparable GAAP financial measures, as well as the reconciliation of the non-GAAP measures to the GAAP financial measures, are provided.  See "Reconciliation of Non-GAAP Financial Measures (Unaudited)" below. The non-GAAP net income measure and related reconciliation provide information useful to investors in understanding the operating performance and trends of Nicolet and also aid investors in comparing Nicolet's financial performance to the financial performance of peer banks.  Management considers non-GAAP financial ratios to be critical metrics with which to analyze and evaluate financial condition and capital strengths. While non-GAAP financial measures are frequently used by stakeholders in the evaluation of a corporation, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

Nicolet Bankshares, Inc.











Consolidated Balance Sheets (Unaudited)











(In thousands, except share data)


09/30/2022


06/30/2022


03/31/2022


12/31/2021


09/30/2021

Assets











Cash and due from banks


$            118,537


$              96,189


$            183,705


$            209,349


$            217,608

Interest-earning deposits


319,745


84,828


212,218


385,943


1,132,997

Cash and cash equivalents


438,282


181,017


395,923


595,292


1,350,605

Certificates of deposit in other banks


13,510


15,502


19,692


21,920


24,079

Securities available for sale, at fair value


949,597


813,248


852,331


921,661


715,942

Securities held to maturity, at amortized cost


686,424


695,812


684,991


651,803


49,063

Other investments


79,279


53,269


54,257


44,008


38,602

Loans held for sale


3,709


5,084


9,764


6,447


16,784

Other assets held for sale





199,833


177,627

Loans


5,984,437


4,978,654


4,683,315


4,621,836


3,533,198

Allowance for credit losses - loans


(60,348)


(50,655)


(49,906)


(49,672)


(38,399)

Loans, net


5,924,089


4,927,999


4,633,409


4,572,164


3,494,799

Premises and equipment, net


106,648


96,656


94,275


94,566


83,513

Bank owned life insurance ("BOLI")


165,166


136,060


135,292


134,476


100,690

Goodwill and other intangibles, net


407,117


336,721


338,068


339,492


269,954

Accrued interest receivable and other assets


122,095


108,884


102,210


113,375


86,162

Total assets


$         8,895,916


$         7,370,252


$         7,320,212


$         7,695,037


$         6,407,820












Liabilities and Stockholders' Equity











Liabilities:











Noninterest-bearing demand deposits


$         2,477,507


$         2,045,732


$         1,912,995


$         1,975,705


$         1,852,119

Interest-bearing deposits


4,918,395


4,240,534


4,318,125


4,490,211


3,576,655

Total deposits


7,395,902


6,286,266


6,231,120


6,465,916


5,428,774

Short-term borrowings


280,000





Long-term borrowings


225,236


196,963


206,946


216,915


144,233

Other liabilities held for sale





51,586


47,496

Accrued interest payable and other liabilities


56,315


47,636


45,836


68,729


58,039

Total liabilities


7,957,453


6,530,865


6,483,902


6,803,146


5,678,542

Stockholders' Equity:











Common stock


147


134


135


140


120

Additional paid-in capital


620,392


520,741


524,478


575,045


425,367

Retained earnings


380,263


361,753


337,768


313,604


297,299

Accumulated other comprehensive income (loss)


(62,339)


(43,241)


(26,071)


3,102


6,492

Total Nicolet stockholders' equity


938,463


839,387


836,310


891,891


729,278

Total liabilities and  stockholders' equity


$         8,895,916


$         7,370,252


$         7,320,212


$         7,695,037


$         6,407,820












Common shares outstanding


14,673,197


13,407,375


13,456,741


13,994,079


11,952,438

 

Nicolet Bankshares, Inc.















Consolidated Statements of Income (Unaudited)













For the Three Months Ended


For the Nine Months Ended

(In thousands, except per share data)


09/30/2022


06/30/2022


03/31/2022


12/31/2021


09/30/2021


9/30/2022


9/30/2021

Interest income:















Loans, including loan fees


$          63,060


$          52,954


$          51,299


$          52,292


$          35,294


$         167,313


$         104,267

Taxable investment securities


5,350


5,135


5,127


3,999


2,061


15,612


5,935

Tax-exempt investment securities


1,181


647


675


575


517


2,503


1,582

Other interest income


1,127


790


817


769


869


2,734


2,140

Total interest income


70,718


59,526


57,918


57,635


38,741


188,162


113,924

Interest expense:















Deposits


4,638


2,410


2,192


2,649


2,444


9,240


7,799

Short-term borrowings


594


28



1



622


Long-term borrowings


2,496


2,004


1,931


1,426


1,113


6,431


1,729

Total interest expense


7,728


4,442


4,123


4,076


3,557


16,293


9,528

Net interest income


62,990


55,084


53,795


53,559


35,184


171,869


104,396

Provision for credit losses


8,600


750


300


8,400


6,000


9,650


6,500

Net interest income after provision
     for credit losses


54,390


54,334


53,495


45,159


29,184


162,219


97,896

Noninterest income:















Trust services fee income


1,969


2,004


2,011


2,050


2,043


5,984


5,724

Brokerage fee income


3,040


2,988


3,688


3,205