Nicolet Bankshares, Inc. Announces Third Quarter 2021 Earnings

GREEN BAY, Wis., Oct. 19, 2021 /PRNewswire/ --Nicolet Bankshares, Inc. (NASDAQ: NCBS) ("Nicolet") announced third quarter 2021 net income of $7.8 million and earnings per diluted common share of $0.73, compared to $18.3 million and $1.77 for second quarter 2021, and $18.1 million and $1.72 for third quarter 2020, respectively. Annualized quarterly return on average assets was 0.59%, 1.62% and 1.55%, for third quarter 2021, second quarter 2021 and third quarter 2020, respectively.

Net income for the nine months ended September 30, 2021 was $44.3 million and earnings per diluted common share was $4.22, compared to net income of $42.1 million and earnings per diluted common share of $3.97 for the first nine months of 2020. Annualized return on average assets was 1.24% and 1.35% for the first nine months of 2021 and 2020, respectively.

On September 3, 2021, Nicolet completed its merger with Mackinac Financial Corporation ("Mackinac"), pursuant to the terms of the definitive merger agreement dated April 12, 2021, at which time Mackinac merged with and into Nicolet, expanding Nicolet prominently into Northern Michigan and the Upper Peninsula of Michigan, and adding to Nicolet's presence in upper northeastern Wisconsin. Mackinac shareholders received fixed consideration of 0.22 shares of Nicolet common stock and $4.64 in cash for each share of Mackinac common stock owned, resulting in the issuance of 2.3 million shares of Nicolet common stock for stock consideration of $180 million and cash consideration of $49 million, or a total purchase price of $229 million. Upon consummation, Mackinac added total assets of $1.5 billion, loans of $0.9 billion, deposits of $1.4 billion and preliminary goodwill of $92 million.

"We fully expected this to be a noisy quarter from a financial perspective with the closing of the Mackinac acquisition, and the financial results certainly proved that to be true. However, we view our acquisitions as long-term investments in the Nicolet franchise, which helps dampen some of the noise. Our integration team delivered another solid performance of combining two banks. We are especially pleased with the core performance of the bank this quarter. Our people did a great job of serving our customers without being distracted by the Mackinac integration. We remain focused on introducing our brand to new communities, introducing our culture to new employees, and operating an outstanding community bank," said Mike Daniels, President and CEO of Nicolet.

"Our organic loan growth is pacing at 7.5% annualized, and continues to stay ahead of our PPP forgiveness activity. Our credit metrics, including the addition of Mackinac, remain pristine and reflective of our strong credit culture," Daniels said. "We continue to focus on capital management, and although we were out of the market for about half of the quarter due to our M&A activity and related shareholder meetings, we repurchased $17.1 million or 233,594 of our shares through our repurchase program."

"The merger, while an exciting part of our business model, created some disruption in our reported earnings performance; however, internally we continue to measure and monitor these results to make sure we are remaining true to our commitment to provide superior shareholder return," commented Bob Atwell, Executive Chairman of Nicolet.

Balance Sheet Review
At September 30, 2021, period end assets were $6.4 billion, an increase of $1.8 billion (40%) from June 30, 2021, largely due to the acquisition of Mackinac, which added $1.5 billion of assets at acquisition. Total loans increased $0.7 billion from June 30, 2021, with Mackinac adding loans of $0.9 billion at acquisition, partly offset by the transfer of $0.2 billion of loans to other assets held for sale in anticipation of the previously announced sale of the Birmingham, Michigan branch. Total deposits of $5.4 billion at September 30, 2021, increased $1.5 billion (38%) from June 30, 2021, largely due to the acquisition of Mackinac. Total capital was $729 million at September 30, 2021, an increase of $170 million since June 30, 2021, mostly due to the acquisition of Mackinac. For the quarter ended September 30, 2021, Nicolet repurchased 233,594 shares at a total cost of $17.1 million, or an average per share cost of $73.31.

During 2020, we originated 2,725 PPP loans totaling $351 million, bearing a 1% contractual rate, and earned a $12.3 million fee. During 2021, under the latest round of the SBA's program, Nicolet originated 2,205 PPP loans totaling $160 million and earned a $9.3 million fee. Of the total fees, $5.7 million was accreted into interest in 2020 and $9.8 million was accreted in the first nine months of 2021. At September 30, 2021, the net carrying value of all remaining PPP loans was $72 million (2% of total loans), a $78 million decrease from June 30, 2021, with the $28 million added from the Mackinac acquisition more than offset by continued loan forgiveness.

Asset Quality
Nonperforming assets were $21 million at September 30, consisting of $17 million of nonaccrual loans and $4 million of other real estate owned (primarily closed bank branch properties yet to be sold), and representing 0.33% of total assets, compared to $10 million or 0.21% at June 30, 2021, and $12 million or 0.25% at September 30, 2020. Since the prior quarter, the allowance for credit losses-loans increased $6 million to $38 million, mostly due to the Day 2 allowance increase from the acquisition of Mackinac. At September 30, 2021, the allowance represented 1.09% of total loans.

Income Statement Review
Net income for third quarter 2021 was $7.8 million, compared to net income of $18.3 million for second quarter 2021 and net income of $18.1 million for third quarter 2020.

Net interest income was $35.2 million for third quarter 2021, $0.4 million (1%) lower than $35.6 million for second quarter 2021, comprised of $0.4 million higher interest income more than offset by $0.8 million higher interest expense. Between the sequential quarters, the lower net interest income included favorable volume variances (up $1.8 million) and one additional earning day (up $0.3 million), offset by unfavorable rate changes (down $2.5 million).

Average interest-earning assets of $4.7 billion were up $625 million from second quarter 2021, with higher average loans (up $207 million, mostly timing of the Mackinac acquisition) and continued growth in other interest-earning assets (up $344 million, mostly cash), resulting in a shift in the mix of average interest-earning assets to lower yielding assets. Other interest-earning assets increased to 22% of total interest-earning assets for third quarter 2021 (compared to 17% for second quarter 2021), while the percentage of loans declined to represent 65% of total interest-earning assets for third quarter 2021 (compared to 70% in the prior quarter). Average interest-bearing liabilities of $3.1 billion increased $408 million from second quarter 2021, with higher average interest-bearing deposits (up $308 million, mostly timing of the Mackinac acquisition) and an increase in other interest-bearing liabilities (up $100 million due to the subordinated notes issuance in July).

The net interest margin for third quarter 2021 was 2.94%, down 51bps from 3.45% for second quarter 2021. The yield on interest-earning assets decreased 48bps (to 3.24%), mostly due to the change in mix of interest-earnings assets, including a higher proportion of lower yielding cash assets, continued PPP loan forgiveness, and lower yield on all other loans (down 13bps from the prior quarter, pressured by new or renewed loans in the low rate environment). The cost of funds increased 5bps (to 0.46%) for third quarter 2021, attributable mainly to the $100 million subordinated notes issued in July.

Noninterest income was $14.0 million for third quarter 2021, down $6.2 million (31%) compared to second quarter 2021. Excluding net asset gains (losses), noninterest income was $15.2 million, down $0.8 million (5%) from second quarter 2021. Net mortgage income of $4.8 million remains strong, though continues to slow from the record levels experienced in 2020. Trust services fee income and brokerage fee income combined increased $0.3 million (6%) over second quarter 2021. Net asset losses were $1.2 million (comprised primarily of market losses on an equity investment), compared to net asset gains of $4.2 million in second quarter 2021 (comprised primarily of market gains on the same equity investment's initial public offering during the quarter). All remaining noninterest income categories combined decreased $0.3 million from second quarter 2021 largely due to the favorable resolution of an early lease termination in the prior quarter.

Noninterest expense of $33.1 million increased $2.3 million (8%) from second quarter 2021. Personnel expense decreased $0.2 million (1%) from second quarter 2021, while all non-personnel expenses combined increased $2.5 million (18%) over second quarter 2021. The increase in non-personnel expenses was largely due to higher merger-related expense, a $0.9 million impairment charge for the previously announced closure of five legacy Nicolet branches, and a larger operating base, partly offset by a $2 million contract termination charge incurred in second quarter.

On June 22, 2021, we entered into a definitive merger agreement with County Bancorp, Inc. ("County" (NASDAQ: ICBK)) pursuant to which County will merge with and into Nicolet, to become the premier agriculture lender throughout Wisconsin. Pursuant to the terms and subject to the conditions set forth in the Merger Agreement, County shareholders will have the right to receive for each share of County common stock, at the election of each holder and subject to proration, either $37.18 in cash or 0.48 shares of Nicolet common stock. County shareholder elections will be prorated to ensure the total consideration will consist of approximately 20% cash and approximately 80% common stock. At June 30, 2021, County had total assets of $1.5 billion, loans of $1.0 billion, deposits of $1.1 billion and equity of $175 million. As of September 7, 2021, Nicolet had received all regulatory approvals for the County merger. On October 5, 2021, the shareholders of both County and Nicolet approved the merger at special meetings of their respective shareholders held on that date. Nicolet expects to close the merger on December 3, 2021, subject to customary closing conditions.

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 and consumer banking to wealth management and retirement plan services. Founded in Green Bay in 2000, Nicolet National Bank operates branches in Northeast and Central Wisconsin, Northern Michigan and the upper peninsula of Michigan. More information can be found at www.nicoletbank.com.

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 federal securities law. Such statements include, but are not limited to, statements about Nicolet's business plans, objectives, expectations and intentions, including without limitation our continuing organic loan growth, as well as certain plans, expectations, goals, projections and benefits relating to the September 2021 merger of Mackinac into Nicolet and the proposed merger between Nicolet and County, all of which are subject to numerous assumptions, risks and uncertainties. Words or phrases such as "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, are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

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. In addition to factors disclosed in reports filed by Nicolet with the SEC, risks and uncertainties, including but not limited to risks and uncertainties for Nicolet with respect to its completed merger with Mackinac and its proposed merger with County, that may cause actual results or outcomes to differ materially from those anticipated include, but are not limited to: (1) the possibility that any of the anticipated benefits of either or both of the mergers will not be realized or will not be realized within the expected time period; (2) the risk that integration of Mackinac's operations and/or County's operations with those of Nicolet will be materially delayed or will be more costly or difficult than expected; (3) the inability of Nicolet and/or County to meet expectations regarding the timing of their proposed merger; (4) changes to tax legislation and their potential effects on the accounting for the mergers; (5) the failure of Nicolet and/or County to satisfy any remaining conditions to completion of their proposed merger; (6) the failure of the proposed merger with County to close for any other reason; (7) diversion of management's attention from ongoing business operations and opportunities due to the completed merger with Mackinac and the proposed merger with County; (8) the challenges of integrating and retaining key employees of Nicolet, including those who joined Nicolet from Mackinac, as well as key employees of County; (9) the effect of the announcements and completion of the mergers on Nicolet's, Mackinac's, County's, and/or the combined companies' respective customer and employee relationships and operating results; (10) the possibility that the Mackinac integration, as well as the proposed merger with and integration of County, may be more expensive and time-consuming to complete than anticipated, including as a result of unexpected factors or events; (11) dilution caused by Nicolet's issuance of additional shares of Nicolet common stock in connection with the completed merger with Mackinac and the proposed merger with County; (12) the magnitude and duration of the COVID pandemic and its impact on the global economy and financial market conditions and the business, results of operations and financial condition of Nicolet, County, and the combined company; (13) changes in consumer demand for financial services; and (14) general competitive, economic, political and market conditions and fluctuations. Please refer to each of Nicolet's, Mackinac's, and County's Annual Report on Form 10-K for the year ended December 31, 2020, as well as their other filings with the SEC, for a more detailed discussion of risks, uncertainties and factors that could cause actual results to differ from those discussed in the forward-looking statements.

The COVID pandemic is adversely affecting us, our customers, counterparties, employees, and third-party service providers, and the ultimate extent of the impacts on our business, financial position, results of operations, liquidity, and prospects is uncertain. Continued deterioration in general business and economic conditions or turbulence in domestic financial markets could adversely affect Nicolet's revenues and the values of its assets and liabilities, lead to a tightening of credit, and increase stock price volatility. In addition, the COVID pandemic may result in changes to statutes, regulations, or regulatory policies or practices that could affect Nicolet in substantial and unpredictable ways.

All forward-looking statements included in this communication are made as of the date hereof and are based on information available to management at that time. Except as required by law, Nicolet does not assume any obligation to update any forward-looking statement to reflect events or circumstances that occur after the date the forward-looking statements were made.

Important Information for Investors
This communication relates to the proposed merger transaction involving Nicolet and County. In connection with the proposed merger, Nicolet has filed a joint proxy statement-prospectus on Form S-4 and other relevant documents concerning the merger with the Securities and Exchange Commission (the "SEC"). BEFORE MAKING ANY INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE JOINT PROXY STATEMENT-PROSPECTUS AND ANY OTHER DOCUMENTS FILED OR TO BE FILED WITH THE SEC IN CONNECTION WITH THE PROPOSED MERGER OR INCORPORATED BY REFERENCE IN THE JOINT PROXY STATEMENT-PROSPECTUS BECAUSE THEY CONTAIN OR WILL CONTAIN IMPORTANT INFORMATION ABOUT NICOLET, COUNTY, AND THE PROPOSED MERGER. Investors may obtain copies of the joint proxy statement-prospectus and other relevant documents free of charge at the SEC's website (www.sec.gov). Copies of the documents filed with the SEC by Nicolet are available free of charge on Nicolet's website at www.nicoletbank.com. Copies of the documents filed with the SEC by County are available free of charge on County's website at Investors.ICBK.com/documents.

No Offer or Solicitation
This communication shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.