NIC Nicolet Bankshares Inc

• Net income of $23 million for second quarter 2023
• Net income of $14 million for first six months of 2023, compared to $48 million for first six months of 2022, significantly impacted by first quarter balance sheet repositioning
• Quarterly net interest margin of 3.14%, an increase of 23 bps over the first quarter
• Improvement in asset quality as nonperforming assets decline to 0.32% of total assets
• First quarterly cash dividend of $0.25 per common share paid during the second quarter

GREEN BAY, Wis., July 18, 2023 /PRNewswire/ -- Nicolet Bankshares, Inc. (NYSE: NIC) ("Nicolet") announced second quarter 2023 net income of $23 million and earnings per diluted common share of $1.51, compared to a net loss of $9 million and loss per diluted common share of $0.61 for first quarter 2023, and net income of $24 million and earnings per diluted common share of $1.73 for second quarter 2022.  Net income for the six months ended June 30, 2023 was $14 million and earnings per diluted common share of $0.91, compared to net income of $48 million and earnings per diluted common share of $3.43 for the first half of 2022.

Results for 2023 were significantly impacted by the March 7 sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million.  The $500 million portfolio yielded approximately 88 bps with scheduled maturities in 2024 and 2025 (or average duration of 2 years).  Proceeds from the sale were used to reduce existing FHLB borrowings with the remainder held in investable cash. 

Net income reflected certain non-core items and the related tax effect of each, including U.S. Treasury securities sale loss, expected loss (provision expense) on the Signature Bank sub debt investment (acquired in an acquisition), merger-related expenses, Day 2 credit provision expense required under the CECL model, as well as gains / (losses) on other assets and investments.  These non-core items negatively impacted earnings per diluted common share $0.02 for second quarter 2023 and $2.06 for first quarter 2023, and positively impacted earnings per diluted common share $0.06 for second quarter 2022.  For the six months ended June 30, 2023, these non-core items negatively impacted earnings per diluted common share $2.07, and positively impacted earnings per diluted common share $0.12 for the first half of 2022.

"First things first, I am impressed at how the entire Nicolet team has responded to our decision to reposition our balance sheet in the first quarter.  We have been re-energized by the move and the results are showing up in new relationships across our revenue lines," said Mike Daniels, President and CEO of Nicolet. "I think this shows the value of putting actions behind our words and trusting our team to continue to deliver on Nicolet's promise - to serve our customers, communities, and each other.  Thus far, they have, and I am confident that this will continue.  We anticipated a higher net interest margin, which has happened this quarter.  This, combined with an already outstanding asset quality profile and a clean balance sheet, continues to put Nicolet in an enviable position despite the ongoing macroeconomic challenges."

Daniels continued, "It is important to remember that we are a reflection of the communities we serve. Given the appropriate heightened scrutiny around office commercial real estate, I want to re-emphasize our lending strategy is in the markets we serve.  That means any office exposure is limited only to our smaller and mid-size markets, with no exposure in major metro areas.  I think people tend to group all office CRE into one bucket, but fail to realize the whole "work from home" movement has had a limited effect in our markets.  As a result, our credit quality continues to remain strong.  Furthermore, I'll note the office portfolio is very granular, with the average balance in the portfolio less than $886,000, we believe this speaks to the above point on diversification and limits the loss risk to Nicolet should conditions worsen."

Nicolet's financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet's August 2022 acquisition of Charter Bankshares, Inc. ("Charter"). Certain income statement results, average balances, and related ratios for 2022 include contributions from Charter from the acquisition date.  At acquisition, Charter added assets of $1.1 billion, loans of $827 million, and deposits of $869 million.

Balance Sheet Review
At June 30, 2023, period end assets were $8.5 billion, an increase of $290 million (4%) from March 31, 2023, mostly higher cash balances, partly offset by maturities and paydowns of investment securities.  Total loans were minimally changed from March 31, 2023, as growth in the portfolio was offset by the sale of specific nonaccrual loans (net book value of approximately $13 million) and the payoff of a classified loan relationship ($10 million outstanding).  Total deposits of $7.2 billion at June 30, 2023, increased $270 million (4%) from March 31, 2023, with growth in customer and brokered time deposits partly offset by lower transaction account balances.  Total capital was $978 million at June 30, 2023, an increase of $16 million since March 31, 2023, on solid earnings, partly offset by payment of the first quarterly cash dividend and unfavorable market valuations on available for sale securities. 

Asset Quality
Nonperforming assets were $27 million and represented 0.32% of total assets at June 30, 2023, compared to $41 million or 0.50% at March 31, 2023, and $42 million or 0.56% at June 30, 2022.  The reduction in nonperforming assets was due to the nonaccrual loan sale (noted above).  The allowance for credit losses-loans was $63 million and represented 1.01% of total loans at June 30, 2023, compared to $62 million (or 1.00% of total loans) at March 31, 2023, and $51 million (or 1.02% of total loans) at June 30, 2022.  Asset quality trends remain solid and loan net charge-offs were negligible.

Income Statement Review - Quarter
Net income for second quarter 2023 was $23 million, compared to a net loss of $9 million for first quarter 2023.

Net interest income was $59 million for second quarter 2023, up $2 million from first quarter 2023, the net effect of higher interest income and higher interest expense. The higher interest income was largely attributable to the repricing of new and renewed loans in a rising interest rate environment along with increased investable cash balances, partly offset by lower interest income on investment securities from the balance sheet repositioning late in first quarter 2023. The increase in interest expense was mostly due to higher average rates, reflecting the rising interest rate environment as well as some migration of customer deposits to higher rate deposit products. The net interest margin for second quarter 2023 was 3.14%, up 23 bps from 2.91% for first quarter 2023. The yield on interest-earning assets increased 41 bps (to 4.90%) due to a shift in the mix of average interest-earning assets (from the balance sheet repositioning) as well as the rising interest rate environment, while the cost of funds increased 24 bps (to 2.54%) for second quarter 2023, attributable mainly to the repricing of deposits and funding in the higher interest rate environment.

Noninterest income was $17 million for second quarter 2023, a $39 million favorable change compared to first quarter 2023. Excluding net asset gains (losses), noninterest income for second quarter 2023 was $17 million, a $1 million increase over first quarter 2023. The sequential quarter increase included higher wealth revenue, mortgage income, and card interchange income, partly offset by an unfavorable change in the fair value of nonqualified deferred compensation plan assets. 

Noninterest expense of $45 million was minimally changed from first quarter 2023. Personnel expense decreased slightly due to a decrease in the fair value of nonqualified deferred compensation plan liabilities.  Non-personnel expenses increased 2% between the sequential quarters including higher data processing (mostly volume-based system processing) and FDIC assessments, partly offset by lower marketing expense. 

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 or core banking operations, 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.

Forward Looking Statements "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this communication, which are not statements of historical fact, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act.  Forward-looking statements generally can be identified by words or phrases such as, without limitation, "anticipate," "believe," "aim," "can," "conclude," "continue," "could," "estimate," "expect," "foresee," "goal," "intend," "may," "might," "outlook," "possible," "plan," "predict," "project," "potential," "seek," "should," "target," "will," "will likely," "would," or the negative of these terms or other comparable terminology, as well as similar expressions, and in this press release include our statements about our expectations of higher net interest margin in the future and our expectations for potential loss exposure within the loan portfolio due to the current macroeconomic challenges.

Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. Risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, including, but not limited to: (i) deterioration in the financial condition of Nicolet's borrowers, including as a result of the negative impact of inflationary pressures on our customers and their businesses, resulting in significant increases in loan losses and provisions for those losses; (ii) fluctuations or differences in interest rates on loans or deposits from those that Nicolet is modeling or anticipating, including as a result of Nicolet's inability to better match deposit rates with the changes in the short-term rate environment, or that affect the yield curve; (iii) adverse conditions in the national or local economies including in Nicolet's operating markets; (iv) the inability of Nicolet, or entities in which it has significant investments, to maintain the long-term historical growth rate of its loan portfolio; (v) the ability to grow and retain low-cost core deposits and retain large, uninsured deposits, including during times when Nicolet is seeking to limit the rates it pays on deposits; (vi) changes in loan underwriting, credit review or loss reserve policies associated with economic conditions, examination conclusions, or regulatory developments; (vii) effectiveness of Nicolet's asset management activities in improving, resolving or liquidating lower-quality assets; (viii) the impact of competition with other financial institutions, including pricing pressures and the resulting impact on Nicolet's results, including as a result of the negative impact to net interest margin from rising deposit and other funding costs; (ix) the results of regulatory examinations; (x) Nicolet's ability to identify potential candidates for, consummate, and achieve synergies from, potential future acquisitions; (xi) difficulties and delays in integrating acquired businesses or fully realizing costs savings and other benefits from acquisitions; (xii) risks of expansion into new geographic or product markets; (xiiii) any matter that would cause Nicolet to conclude that there was impairment of any asset, including goodwill or other intangible assets; (xiv) reduced ability to attract additional financial advisors (or failure of such advisors to cause their clients to switch to Nicolet), to retain financial advisors (including as a result of the competitive environment for associates) or otherwise to attract customers from other financial institutions; (xv) deterioration in the valuation of other real estate owned and increased expenses associated therewith; (xvi) inability to comply with regulatory capital requirements, including those resulting from changes to capital calculation methodologies, required capital maintenance levels or regulatory requests or directives; (xvii) the vulnerability of Nicolet's network and online banking portals, and the systems of parties with whom Nicolet contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches; (xviii) the possibility of increased compliance and operational costs as a result of increased regulatory oversight, and the development of additional banking products for Nicolet's corporate and consumer clients; (xix) changes in state and federal legislation, regulations or policies applicable to banks and other financial service providers; (xx) fluctuations in the valuations of Nicolet's equity investments and the ultimate success of such investments; (xxi) the availability of and access to capital; (xxii) adverse results (including costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, regulatory examinations or other legal and/or regulatory actions, including as a result of Nicolet's participation in and execution of government programs related to the COVID-19 pandemic; and (xxiii) general competitive, economic, political and market conditions. Additional factors which could affect the forward looking statements can be found in Nicolet's 2022 Annual Report on Form 10-K, as well subsequent filings with the SEC and are available on the SEC's website at www.sec.gov.

All forward-looking statements included in this press release are made as of the date hereof and are based on information available to management at that time. Except as required by law, Nicolet disclaims any obligation to update or revise any forward-looking statement contained in this press release to reflect new information or events or circumstances that occur after the date the forward-looking statements were made.