•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, Wisconsin, October 25, 2022 - 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.

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.

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.

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.

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).

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.

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.

 

(1)Income statement-related ratios for partial-year periods are annualized.

(2)See Reconciliation of Non-GAAP Financial Measures below for a reconciliation of these financial measures.

(3)Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.

(1) Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.

(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.

(3) Loan purchase accounting accretion included in All other loans above, and the related impact to net interest margin..

Note: Numbers may not sum due to rounding.

(1)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.

(2)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. These financial ratios have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength.