UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SeptemberJune 30, 20182019
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-37700
NICOLET BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
|
| |
WISCONSIN (State or Other Jurisdiction of Incorporation or Organization) | 47-0871001 (I.R.S. Employer Identification No.) |
| |
111 North Washington Street Green Bay, Wisconsin (Address of Principal Executive Offices) | 54301 (Zip Code) |
| |
(920) 430-1400 (Registrant’s Telephone Number, Including Area Code) |
|
N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) |
|
| | |
Securities registered pursuant to Section 12(b) of the Act: |
| | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | NCBS | The NASDAQ Stock Market LLC |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
|
| |
Large accelerated filer ¨ | Accelerated filer x |
| |
Non-accelerated filer ¨ | Smaller reporting company ¨ |
| |
Emerging Growth Company x¨ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of OctoberJuly 31, 20182019 there were 9,525,8559,345,621 shares of $0.01 par value common stock outstanding.
Nicolet Bankshares, Inc.
Quarterly Report on Form 10-Q
June 30, 2019
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS:
NICOLET BANKSHARES, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
| (Unaudited) | | (Audited) | (Unaudited) | | (Audited) |
Assets | | | | | | |
Cash and due from banks | $ | 60,346 |
| | $ | 86,191 |
| $ | 75,074 |
| | $ | 85,896 |
|
Interest-earning deposits | 100,066 |
| | 68,008 |
| 79,846 |
| | 163,630 |
|
Federal funds sold | 743 |
| | 734 |
| |
Cash and cash equivalents | 161,155 |
|
| 154,933 |
| 154,920 |
|
| 249,526 |
|
Certificates of deposit in other banks | 995 |
| | 1,746 |
| 5,396 |
| | 993 |
|
Securities available for sale (“AFS”), at fair value | 410,911 |
| | 405,153 |
| 403,989 |
| | 400,144 |
|
Other investments | 17,479 |
| | 14,837 |
| 19,841 |
| | 17,997 |
|
Loans held for sale | 2,593 |
| | 4,666 |
| 4,699 |
| | 1,639 |
|
Loans | 2,143,457 |
| | 2,087,925 |
| 2,203,273 |
| | 2,166,181 |
|
Allowance for loan losses | (12,992 | ) | | (12,653 | ) | |
Allowance for loan losses ("ALLL") | | (13,571 | ) | | (13,153 | ) |
Loans, net | 2,130,465 |
|
| 2,075,272 |
| 2,189,702 |
|
| 2,153,028 |
|
Premises and equipment, net | 47,305 |
| | 47,151 |
| 49,109 |
| | 48,173 |
|
Bank owned life insurance (“BOLI”) | 65,820 |
| | 64,453 |
| 69,222 |
| | 66,310 |
|
Goodwill and other intangibles, net | 125,360 |
| | 128,406 |
| 122,285 |
| | 124,307 |
|
Accrued interest receivable and other assets | 38,819 |
| | 35,816 |
| 35,650 |
| | 34,418 |
|
Total assets | $ | 3,000,902 |
|
| $ | 2,932,433 |
| $ | 3,054,813 |
|
| $ | 3,096,535 |
|
| | | | | | |
Liabilities and Stockholders’ Equity | | | | | | |
Liabilities: | | | | | | |
Noninterest-bearing demand deposits | $ | 664,788 |
| | $ | 631,831 |
| $ | 743,380 |
| | $ | 753,065 |
|
Interest-bearing deposits | 1,857,368 |
| | 1,839,233 |
| 1,793,259 |
| | 1,861,073 |
|
Total deposits | 2,522,156 |
|
| 2,471,064 |
| 2,536,639 |
|
| 2,614,138 |
|
Short-term borrowings | — |
| | — |
| |
Long-term borrowings | 77,241 |
| | 78,046 |
| 77,432 |
| | 77,305 |
|
Accrued interest payable and other liabilities | 23,602 |
| | 18,444 |
| 28,594 |
| | 17,740 |
|
Total liabilities | 2,622,999 |
|
| 2,567,554 |
| 2,642,665 |
|
| 2,709,183 |
|
| | | | | | |
Stockholders’ Equity: | | | | | | |
Common stock | 96 |
| | 98 |
| 94 |
| | 95 |
|
Additional paid-in capital | 251,631 |
| | 263,835 |
| 234,963 |
| | 247,790 |
|
Retained earnings | 133,501 |
| | 102,391 |
| 173,180 |
| | 144,364 |
|
Accumulated other comprehensive loss | (8,057 | ) | | (2,146 | ) | |
Accumulated other comprehensive income (loss) | | 3,178 |
| | (5,640 | ) |
Total Nicolet Bankshares, Inc. stockholders’ equity | 377,171 |
|
| 364,178 |
| 411,415 |
|
| 386,609 |
|
Noncontrolling interest | 732 |
| | 701 |
| 733 |
| | 743 |
|
Total stockholders’ equity and noncontrolling interest | 377,903 |
|
| 364,879 |
| 412,148 |
|
| 387,352 |
|
Total liabilities, noncontrolling interest and stockholders’ equity | $ | 3,000,902 |
| | $ | 2,932,433 |
| $ | 3,054,813 |
| | $ | 3,096,535 |
|
| | | | | | |
Preferred shares authorized (no par value) | 10,000,000 |
| | 10,000,000 |
| 10,000,000 |
| | 10,000,000 |
|
Preferred shares issued and outstanding | — |
| | — |
| — |
| | — |
|
Common shares authorized (par value $0.01 per share) | 30,000,000 |
| | 30,000,000 |
| 30,000,000 |
| | 30,000,000 |
|
Common shares outstanding | 9,576,644 |
| | 9,818,247 |
| 9,327,420 |
| | 9,495,265 |
|
Common shares issued | 9,604,160 |
| | 9,849,167 |
| 9,351,359 |
| | 9,524,777 |
|
See accompanying notes to unaudited consolidated financial statements.
ITEM 1. Financial Statements Continued:
NICOLET BANKSHARES, INC.
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Interest income: | | | | | | | | | | | | | | |
Loans, including loan fees | $ | 28,997 |
| | $ | 27,329 |
| | $ | 84,644 |
| | $ | 73,098 |
| $ | 31,209 |
| | $ | 27,193 |
| | $ | 61,177 |
| | $ | 55,647 |
|
Investment securities: | | | | | | | | | | | | | | |
Taxable | 1,564 |
| | 1,114 |
| | 4,503 |
| | 3,422 |
| 2,041 |
| | 1,597 |
| | 3,674 |
| | 2,939 |
|
Tax-exempt | 572 |
| | 604 |
| | 1,737 |
| | 1,761 |
| 522 |
| | 577 |
| | 1,071 |
| | 1,165 |
|
Other interest income | 747 |
| | 407 |
| | 2,326 |
| | 1,136 |
| 798 |
| | 1,178 |
| | 1,807 |
| | 1,579 |
|
Total interest income | 31,880 |
|
| 29,454 |
|
| 93,210 |
|
| 79,417 |
| 34,570 |
|
| 30,545 |
|
| 67,729 |
|
| 61,330 |
|
Interest expense: | | | | | | | | | | | | | | |
Deposits | 4,055 |
| | 2,364 |
| | 11,012 |
| | 5,216 |
| 4,730 |
| | 3,868 |
| | 9,507 |
| | 6,957 |
|
Short-term borrowings | — |
| | — |
| | 8 |
| | 72 |
| — |
| | 5 |
| | — |
| | 8 |
|
Long-term borrowings | 883 |
| | 699 |
| | 2,571 |
| | 1,894 |
| 896 |
| | 869 |
| | 1,803 |
| | 1,688 |
|
Total interest expense | 4,938 |
|
| 3,063 |
|
| 13,591 |
|
| 7,182 |
| 5,626 |
|
| 4,742 |
|
| 11,310 |
|
| 8,653 |
|
Net interest income | 26,942 |
| | 26,391 |
| | 79,619 |
| | 72,235 |
| 28,944 |
| | 25,803 |
| | 56,419 |
| | 52,677 |
|
Provision for loan losses | 340 |
| | 975 |
| | 1,360 |
| | 1,875 |
| 300 |
| | 510 |
| | 500 |
| | 1,020 |
|
Net interest income after provision for loan losses | 26,602 |
|
| 25,416 |
|
| 78,259 |
|
| 70,360 |
| 28,644 |
|
| 25,293 |
|
| 55,919 |
|
| 51,657 |
|
Noninterest income: | | | | | | | | | | | | | | |
Trust services fee income | 1,638 |
| | 1,479 |
| | 4,915 |
| | 4,431 |
| 1,569 |
| | 1,671 |
| | 3,037 |
| | 3,277 |
|
Brokerage fee income | 1,732 |
| | 1,500 |
| | 5,074 |
| | 4,192 |
| 2,002 |
| | 1,738 |
| | 3,812 |
| | 3,342 |
|
Mortgage income, net | 1,902 |
| | 1,774 |
| | 4,510 |
| | 4,022 |
| 2,059 |
| | 1,528 |
| | 3,262 |
| | 2,608 |
|
Service charges on deposit accounts | 1,247 |
| | 1,238 |
| | 3,637 |
| | 3,367 |
| 1,194 |
| | 1,200 |
| | 2,364 |
| | 2,390 |
|
Card interchange income | 1,481 |
| | 1,225 |
| | 4,082 |
| | 3,378 |
| 1,660 |
| | 1,358 |
| | 3,080 |
| | 2,601 |
|
BOLI income | 1,019 |
| | 459 |
| | 1,929 |
| | 1,314 |
| 880 |
| | 468 |
| | 1,339 |
| | 910 |
|
Rent income | 303 |
| | 285 |
| | 951 |
| | 852 |
| |
Asset gains (losses), net | 146 |
| | 1,305 |
| | 1,322 |
| | 2,071 |
| 7,572 |
| | 972 |
| | 7,744 |
| | 1,176 |
|
Other income | 1,181 |
| | 899 |
| | 3,292 |
| | 2,391 |
| 1,624 |
| | 1,304 |
| | 3,108 |
| | 2,759 |
|
Total noninterest income | 10,649 |
|
| 10,164 |
|
| 29,712 |
|
| 26,018 |
| 18,560 |
| | 10,239 |
| | 27,746 |
| | 19,063 |
|
Noninterest expense: | | | | | | | | | | | | | | |
Personnel | 12,983 |
| | 11,488 |
| | 38,149 |
| | 32,404 |
| 15,358 |
| | 12,674 |
| | 27,895 |
| | 25,166 |
|
Occupancy, equipment and office | 3,660 |
| | 3,559 |
| | 10,901 |
| | 9,613 |
| 3,757 |
| | 3,454 |
| | 7,507 |
| | 7,241 |
|
Business development and marketing | 1,334 |
| | 1,113 |
| | 4,139 |
| | 3,359 |
| 1,579 |
| | 1,463 |
| | 2,860 |
| | 2,805 |
|
Data processing | 2,375 |
| | 2,238 |
| | 7,094 |
| | 6,428 |
| 2,350 |
| | 2,399 |
| | 4,705 |
| | 4,719 |
|
FDIC expense | 245 |
| | 205 |
| | 800 |
| | 582 |
| |
Intangibles amortization | 1,054 |
| | 1,173 |
| | 3,336 |
| | 3,514 |
| 969 |
| | 1,100 |
| | 2,022 |
| | 2,282 |
|
Other expense | 1,393 |
| | 1,086 |
| | 3,718 |
| | 3,598 |
| 1,714 |
| | 1,361 |
| | 3,497 |
| | 2,880 |
|
Total noninterest expense | 23,044 |
|
| 20,862 |
|
| 68,137 |
|
| 59,498 |
| 25,727 |
|
| 22,451 |
|
| 48,486 |
|
| 45,093 |
|
Income before income tax expense | 14,207 |
| | 14,718 |
| | 39,834 |
| | 36,880 |
| 21,477 |
| | 13,081 |
| | 35,179 |
| | 25,627 |
|
Income tax expense | 3,268 |
| | 5,133 |
| | 9,431 |
| | 12,605 |
| 2,833 |
| | 3,255 |
| | 6,185 |
| | 6,163 |
|
Net income | 10,939 |
|
| 9,585 |
|
| 30,403 |
|
| 24,275 |
| 18,644 |
|
| 9,826 |
|
| 28,994 |
|
| 19,464 |
|
Less: Net income attributable to noncontrolling interest | 80 |
| | 74 |
| | 230 |
| | 228 |
| 95 |
| | 89 |
| | 178 |
| | 150 |
|
Net income attributable to Nicolet Bankshares, Inc. | $ | 10,859 |
|
| $ | 9,511 |
|
| $ | 30,173 |
|
| $ | 24,047 |
| $ | 18,549 |
|
| $ | 9,737 |
|
| $ | 28,816 |
|
| $ | 19,314 |
|
| | | | | | | | |
Earnings per common share: | | | | | | | | | | | | | | |
Basic | $ | 1.13 |
| | $ | 0.97 |
| | $ | 3.12 |
| | $ | 2.58 |
| $ | 1.98 |
| | $ | 1.01 |
| | $ | 3.06 |
| | $ | 1.99 |
|
Diluted | $ | 1.09 |
| | $ | 0.91 |
| | $ | 3.02 |
| | $ | 2.45 |
| $ | 1.91 |
| | $ | 0.98 |
| | $ | 2.97 |
| | $ | 1.93 |
|
| | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | | | | | | |
Basic | 9,633,158 |
| | 9,836,646 |
| | 9,678,726 |
| | 9,316,814 |
| 9,374,348 |
| | 9,639,098 |
| | 9,417,676 |
| | 9,701,888 |
|
Diluted | 9,949,295 |
| | 10,408,683 |
| | 10,004,316 |
| | 9,820,724 |
| 9,692,378 |
| | 9,969,854 |
| | 9,710,827 |
| | 10,032,304 |
|
See accompanying notes to unaudited consolidated financial statements.
ITEM 1. Financial Statements Continued:
NICOLET BANKSHARES, INC.
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
| 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Net income | $ | 10,939 |
| | $ | 9,585 |
| | $ | 30,403 |
| | $ | 24,275 |
| $ | 18,644 |
| | $ | 9,826 |
| | $ | 28,994 |
| | $ | 19,464 |
|
Other comprehensive income (loss), net of tax: | | | | | | | | | | | | | | |
Unrealized gains (losses) on securities AFS: | | | | | | | | | | | | | | |
Net unrealized holding gains (losses) arising during the period | (1,836 | ) | | 834 |
| | (6,814 | ) | | 5,685 |
| |
Reclassification adjustment for net gains included in income | — |
| | (1,222 | ) | | — |
| | (1,220 | ) | |
Net unrealized holding gains (losses) | | 4,401 |
| | (320 | ) | | 12,112 |
| | (4,978 | ) |
Net realized (gains) losses included in income | | (19 | ) | | — |
| | (32 | ) | | — |
|
Income tax (expense) benefit | 497 |
| | 125 |
| | 1,840 |
| | (1,741 | ) | (1,183 | ) | | 86 |
| | (3,262 | ) | | 1,343 |
|
Total other comprehensive income (loss) | (1,339 | ) |
| (263 | ) |
| (4,974 | ) |
| 2,724 |
| 3,199 |
|
| (234 | ) |
| 8,818 |
|
| (3,635 | ) |
Comprehensive income | $ | 9,600 |
|
| $ | 9,322 |
|
| $ | 25,429 |
|
| $ | 26,999 |
| $ | 21,843 |
|
| $ | 9,592 |
|
| $ | 37,812 |
|
| $ | 15,829 |
|
See accompanying notes to unaudited consolidated financial statements.
ITEM 1. Financial Statements Continued:
NICOLET BANKSHARES, INC.
Consolidated StatementStatements of Stockholders’ Equity
(In thousands) (Unaudited)
| | | Nicolet Bankshares, Inc. Stockholders’ Equity | | | Nicolet Bankshares, Inc. Stockholders’ Equity | | |
| Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Noncontrolling Interest | | Total | Common Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Non- controlling Interest | | Total |
Balance December 31, 2017 | $ | 98 |
| | $ | 263,835 |
| | $ | 102,391 |
| | $ | (2,146 | ) | | $ | 701 |
| | $ | 364,879 |
| |
Balance, December 31, 2017 | | $ | 98 |
| | $ | 263,835 |
| | $ | 102,391 |
| | $ | (2,146 | ) | | $ | 701 |
| | $ | 364,879 |
|
Comprehensive income: | | | | | | | | | | |
|
| | | | | | | | | | | |
Net income | — |
| | — |
| | 30,173 |
| | — |
| | 230 |
| | 30,403 |
| — |
| | — |
| | 9,577 |
| | — |
| | 61 |
| | 9,638 |
|
Other comprehensive loss | — |
| | — |
| | — |
| | (4,974 | ) | | — |
| | (4,974 | ) | |
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | (3,401 | ) | | — |
| | (3,401 | ) |
Stock-based compensation expense | — |
| | 3,613 |
| | — |
| | — |
| | — |
| | 3,613 |
| — |
| | 1,220 |
| | — |
| | — |
| | — |
| | 1,220 |
|
Exercise of stock options | 1 |
| | 1,223 |
| | — |
| | — |
| | — |
| | 1,224 |
| |
Exercise of stock options, net | | — |
| | 427 |
| | — |
| | — |
| | — |
| | 427 |
|
Issuance of common stock | — |
| | 167 |
| | — |
| | — |
| | — |
| | 167 |
| — |
| | 51 |
| | — |
| | — |
| | — |
| | 51 |
|
Purchase and retirement of common stock | (3 | ) | | (17,207 | ) | | — |
| | — |
| | — |
| | (17,210 | ) | (1 | ) | | (8,063 | ) | | — |
| | — |
| | — |
| | (8,064 | ) |
Distribution to noncontrolling interest | — |
| | — |
| | — |
| | — |
| | (199 | ) | | (199 | ) | — |
| | — |
| | — |
| | — |
| | (99 | ) | | (99 | ) |
Adoption of ASU 2016-01 (See Notes 1 and 5) | — |
| | — |
| | 937 |
| | (937 | ) | | — |
| | — |
| |
Balance, September 30, 2018 | $ | 96 |
|
| $ | 251,631 |
|
| $ | 133,501 |
|
| $ | (8,057 | ) |
| $ | 732 |
|
| $ | 377,903 |
| |
Adoption of new accounting pronouncement | | — |
| | — |
| | 937 |
| | (937 | ) | | — |
| | — |
|
Balance, March 31, 2018 | | $ | 97 |
| | $ | 257,470 |
| | $ | 112,905 |
| | $ | (6,484 | ) | | $ | 663 |
| | $ | 364,651 |
|
Comprehensive income: | | | | | | | | | | | | |
Net income | | — |
| | — |
| | 9,737 |
| | — |
| | 89 |
| | 9,826 |
|
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | (234 | ) | | — |
| | (234 | ) |
Stock-based compensation expense | | — |
| | 1,094 |
| | — |
| | — |
| | — |
| | 1,094 |
|
Exercise of stock options, net | | — |
| | 535 |
| | — |
| | — |
| | — |
| | 535 |
|
Issuance of common stock | | — |
| | 57 |
| | — |
| | — |
| | — |
| | 57 |
|
Purchase and retirement of common stock | | (1 | ) | | (4,592 | ) | | — |
| | — |
| | — |
| | (4,593 | ) |
Distribution to noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | (51 | ) | | (51 | ) |
Balance, June 30, 2018 | | $ | 96 |
| | $ | 254,564 |
| | $ | 122,642 |
| | $ | (6,718 | ) | | $ | 701 |
| | $ | 371,285 |
|
| | | | | | | | | | | | |
Balance, December 31, 2018 | | $ | 95 |
| | $ | 247,790 |
| | $ | 144,364 |
| | $ | (5,640 | ) | | $ | 743 |
| | $ | 387,352 |
|
Comprehensive income: | | | | | | | | | | | |
|
|
Net income | | — |
| | — |
| | 10,267 |
| | — |
| | 83 |
| | 10,350 |
|
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | 5,619 |
| | — |
| | 5,619 |
|
Stock-based compensation expense | | — |
| | 1,108 |
| | — |
| | — |
| | — |
| | 1,108 |
|
Exercise of stock options, net | | — |
| | 698 |
| | — |
| | — |
| | — |
| | 698 |
|
Issuance of common stock | | — |
| | 148 |
| | — |
| | — |
| | — |
| | 148 |
|
Purchase and retirement of common stock | | (1 | ) | | (5,681 | ) | | — |
| | — |
| | — |
| | (5,682 | ) |
Balance, March 31, 2019 | | $ | 94 |
|
| $ | 244,063 |
|
| $ | 154,631 |
|
| $ | (21 | ) |
| $ | 826 |
|
| $ | 399,593 |
|
Comprehensive income: | | | | | | | | | | | | |
Net income | | — |
| | — |
| | 18,549 |
| | — |
| | 95 |
| | 18,644 |
|
Other comprehensive income (loss) | | — |
| | — |
| | — |
| | 3,199 |
| | — |
| | 3,199 |
|
Stock-based compensation expense | | — |
| | 1,391 |
| | — |
| | — |
| | — |
| | 1,391 |
|
Exercise of stock options, net | | 2 |
| | 2,482 |
| | — |
| | — |
| | — |
| | 2,484 |
|
Issuance of common stock | | — |
| | 135 |
| | — |
| | — |
| | — |
| | 135 |
|
Purchase and retirement of common stock | | (2 | ) | | (13,108 | ) | | — |
| | — |
| | — |
| | (13,110 | ) |
Distribution to noncontrolling interest | | — |
| | — |
| | — |
| | — |
| | (188 | ) | | (188 | ) |
Balance, June 30, 2019 | | $ | 94 |
| | $ | 234,963 |
| | $ | 173,180 |
| | $ | 3,178 |
| | $ | 733 |
| | $ | 412,148 |
|
See accompanying notes to unaudited consolidated financial statements.
ITEM 1. Financial Statements Continued:
NICOLET BANKSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
| | (In thousands) | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
Cash Flows From Operating Activities: | | | | | | |
Net income | $ | 30,403 |
| | $ | 24,275 |
| $ | 28,994 |
| | $ | 19,464 |
|
Adjustments to reconcile net income to net cash provided by operating activities: | | | | | | |
Depreciation, amortization, and accretion | 4,643 |
| | 7,038 |
| 3,194 |
| | 3,121 |
|
Provision for loan losses | 1,360 |
| | 1,875 |
| 500 |
| | 1,020 |
|
Increase in cash surrender value of life insurance | (1,367 | ) | | (1,314 | ) | (938 | ) | | (910 | ) |
Stock-based compensation expense | 3,613 |
| | 1,871 |
| 2,499 |
| | 2,314 |
|
Asset (gains) losses, net | (1,322 | ) | | (2,071 | ) | (7,744 | ) | | (1,176 | ) |
Gain on sale of loans held for sale, net | (4,026 | ) | | (3,614 | ) | (3,246 | ) | | (2,235 | ) |
Proceeds from sale of loans held for sale | 184,314 |
| | 164,726 |
| 120,753 |
| | 115,515 |
|
Origination of loans held for sale | (178,911 | ) | | (164,806 | ) | (121,438 | ) | | (114,926 | ) |
Net change in: | | | | | | |
Accrued interest receivable and other assets | (4,952 | ) | | 239 |
| (6,595 | ) | | (3,223 | ) |
Accrued interest payable and other liabilities | 6,798 |
| | 1,733 |
| 3,135 |
| | 1,054 |
|
Net cash provided by operating activities | 40,553 |
|
| 29,952 |
| 19,114 |
|
| 20,018 |
|
Cash Flows From Investing Activities: | | | | | | |
Net increase in loans | (50,703 | ) | | (126,499 | ) | (34,459 | ) | | (37,458 | ) |
Net decrease in certificates of deposit in other banks | 751 |
| | 1,490 |
| |
Net (increase) decrease in certificates of deposit in other banks | | (4,403 | ) | | 499 |
|
Purchases of securities AFS | (57,891 | ) | | (49,119 | ) | (29,087 | ) | | (33,697 | ) |
Proceeds from sales of securities AFS | — |
| | 10,798 |
| 13,240 |
| | — |
|
Proceeds from calls and maturities of securities AFS | 40,302 |
| | 34,426 |
| 23,055 |
| | 27,657 |
|
Purchases of other investments | (634 | ) | | (3,256 | ) | (1,373 | ) | | (629 | ) |
Proceeds from sales of other investments | 807 |
| | 6,519 |
| 17,144 |
| | 386 |
|
Purchases of BOLI | | (2,000 | ) | | — |
|
Proceeds from redemption of BOLI | 561 |
| | — |
| 428 |
| | — |
|
Net increase in premises and equipment | (2,974 | ) | | (2,958 | ) | |
Net decrease in other real estate and other assets | 1,486 |
| | 2,470 |
| |
Net cash received in business combination | — |
| | 9,119 |
| |
Net cash used by investing activities | (68,295 | ) |
| (117,010 | ) | |
Net (increase) decrease in premises and equipment | | (3,137 | ) | | (814 | ) |
Net (increase) decrease in other real estate and other assets | | 15 |
| | 1,486 |
|
Net cash provided by (used in) investing activities | | (20,577 | ) |
| (42,570 | ) |
Cash Flows From Financing Activities: | | | | | | |
Net increase in deposits | 51,171 |
| | 22,054 |
| |
Net increase in short-term borrowings | — |
| | 12,900 |
| |
Proceeds from long-term borrowings | — |
| | 30,000 |
| |
Net increase (decrease) in deposits | | (77,499 | ) | | (15,449 | ) |
Repayments of long-term borrowings | (1,189 | ) | | (4,487 | ) | (129 | ) | | (1,126 | ) |
Purchase and retirement of common stock | (17,210 | ) | | (7,462 | ) | (18,792 | ) | | (12,657 | ) |
Capitalized issuance costs, net | — |
| | (186 | ) | |
Proceeds from issuance of common stock | 167 |
| | 175 |
| 283 |
| | 108 |
|
Proceeds from exercise of stock options | 1,224 |
| | 1,064 |
| 3,182 |
| | 962 |
|
Distribution to noncontrolling interest | (199 | ) | | — |
| (188 | ) | | (150 | ) |
Net cash provided by financing activities | 33,964 |
|
| 54,058 |
| |
Net cash provided by (used in) financing activities | | (93,143 | ) |
| (28,312 | ) |
Net increase (decrease) in cash and cash equivalents | 6,222 |
| | (33,000 | ) | (94,606 | ) | | (50,864 | ) |
Cash and cash equivalents: | | | | | | |
Beginning | 154,933 |
| | 129,103 |
| 249,526 |
| | 154,933 |
|
Ending * | $ | 161,155 |
|
| $ | 96,103 |
| $ | 154,920 |
|
| $ | 104,069 |
|
Supplemental Disclosures of Cash Flow Information: | | | | | | |
Cash paid for interest | $ | 13,294 |
| | $ | 7,117 |
| $ | 11,091 |
| | $ | 8,574 |
|
Cash paid for taxes | 9,325 |
| | 8,805 |
| 6,340 |
| | 5,325 |
|
Transfer of loans and bank premises to other real estate owned | 587 |
| | 828 |
| — |
| | 537 |
|
Capitalized mortgage servicing rights | 696 |
| | 679 |
| 871 |
| | 275 |
|
Transfer of loans from held for sale to held for investment | — |
| | 3,236 |
| |
Acquisitions: | | | | |
Fair value of assets acquired | $ | — |
| | $ | 439,000 |
| |
Fair value of liabilities assumed | — |
| | 398,000 |
| |
Net assets acquired | — |
| | 41,000 |
| |
Initial recognition of operating lease right of use asset | | 5,403 |
| | — |
|
Initial recognition of operating lease liability | | 5,403 |
| | — |
|
* Cash and cash equivalents include restricted cash of $7.4$5.8 million and $2.4$6.8 million at SeptemberJune 30, 20182019 and 2017,2018, respectively, for the reserve balance required with the Federal Reserve Bank. At June 30, 2019, cash and cash equivalents also includes restricted cash of $950,000 pledged as collateral on interest rate swaps.
See accompanying notes to unaudited consolidated financial statements.
NICOLET BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements
Note 1 – Basis of Presentation
General
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets, statements of income, comprehensive income, changes in stockholders’ equity and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.
These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Critical Accounting Policies and Estimates
Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for loan losses, valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for loan losses, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.
There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
Recent Accounting Developments Adopted
In MayAugust 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-09,2017-12, Compensation – Stock CompensationDerivatives and Hedging (Topic 718)815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-09 applies to entities2017-12 expands the activities that changequalify for hedge accounting and simplifies the terms or conditions of a share-based payment award to provide clarity and reduce diversity in practice as well as cost and complexity when applying the guidance in Topic 718 to the modification to the terms and conditions of a share-based payment award.rules for reporting hedging transactions. The updated guidance wasis effective for interim and annual reporting periods beginning after December 15, 2017.2018, with early adoption permitted. The Company adopted the updated guidance effective January 1, 20182019 with no material impact on its consolidated financial statements.statements, because the Company does not have any significant derivatives and does not currently apply hedge accounting to derivatives.
In January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, to clarify the definition of a business to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets versus businesses. The update narrows the definition of a business by adding three principal clarifications: (1) if substantially all the fair value of the gross assets in the asset group is concentrated in either a single identifiable asset or group of similar identifiable assets the transaction does not involve a business, (2) if the asset group does not include a minimum of an input and a substantive process, it does not represent a business, and (3) if the integrated set of activities (including its inputs and processes) does not create, or have the ability to create, goods or services to customers, investment income (e.g., dividends or interest) or other revenue, it is not a business. The overall intention is to provide consistency in applying the guidance and make the definition of a business more operable. This update was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied prospectively. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.
In NovemberFebruary 2016, the FASB issued ASU 2016-18,2016-02, Statement of Cash FlowsLeases (Topic 230): Restricted Cash to provide guidance on the presentation of restricted cash or restricted cash equivalents in the statement of cash flows to reduce diversity in practice. The amendment requires that a statement of cash flow explain the change during the period in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash or restricted cash equivalents should be included in cash and cash equivalents when reconciling the beginning and end of period total amounts shown on the statement of cash flow. This amendment was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years and should be applied retrospectively to each period presented. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements. See the consolidated statements of cash flows for additional disclosures related to this ASU.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments provide guidance on specific cash flow issues, including: debt prepayment or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, proceeds from the settlement of Corporate-Owned Life Insurance Policies, including Bank-Owned Life Insurance Policies, and distributions received from equity method investees. The amendments were effective for public business entities for fiscal years beginning after December 31, 2017, and interim periods within those fiscal years. The Company adopted the updated guidance effective January 1, 2018 with no material impact on its consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, to address certain aspects of recognition, measurement, presentation, and disclosure of financial instruments. This amendment supersedes the guidance to classify equity securities with readily determinable fair values into different categories, requires equity securities to be measured at fair value with changes in the fair value recognized through net income, and simplifies the impairment assessment of equity investments without readily determinable fair values. The amendment also requires public business entities that are required to disclose the fair value of financial instruments measured at amortized cost on the balance sheet to measure that fair value using the exit price notion. The amendment requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or in the accompanying notes to the financial statements. This amendment was effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Entities were required to apply the amendment by means of a cumulative-effect adjustment as of the beginning of the fiscal year of adoption, with the exception of the amendment related to equity securities without readily determinable fair values, which should be applied prospectively to equity investments that exist as of the date of adoption. The Company adopted the updated guidance effective January 1, 2018 and recognized a cumulative-effect adjustment at adoption of approximately $0.9 million for the after tax impact of the unrealized gain on equity securities. See the consolidated statement of stockholders’ equity and Note 5 for additional disclosures related to this ASU.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606)842), with several subsequent updates. The core principle ofupdates. Topic 842 introduced a new accounting model for lessors and lessees. For lessees, almost all leases are now recognized on the guidance is that an entity should recognize revenue to depict the transfer of promised goodsbalance sheet as a right-of-use ("ROU") asset and services to customers in an amount that reflects the consideration tolease liability, unlike previous GAAP which the entity expectsrequired only capital leases to be entitled in exchange for those goodsrecognized on the balance sheet. The accounting applied by lessors is largely unchanged from existing guidance. Topic 842 also requires additional disclosures concerning the amount, timing and services. Topic 606 provides a five-step model to apply to revenue recognition, consistinguncertainty of the following: (1) identify the contract; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when or as the performance obligationcash flows arising from leases. The updated guidance is satisfied. The guidance was effective for annual reporting periods beginning after December 15, 2017, including interim periods within2018, and provides a modified retrospective transition approach that reporting period. The Companyallows lessees to recognize and measure leases on the balance sheet at the beginning of either the earliest period presented or as of the beginning of the period of adoption (the "effective date" method), with the option to elect certain practical expedients. Nicolet adopted the updatednew guidance prospectively as of January 1, 2019, using the modified retrospective approach effective January 1, 2018, withdate method; thus, prior comparative periods have not been restated.
Upon adoption, Nicolet recognized an ROU asset and lease liability of approximately $5 million. There was no material impact onto its consolidated financial statements.statements of income or cash flows compared to the prior lease accounting model. The ROU asset and lease liability are recorded in other assets and other liabilities, respectively, in the consolidated balance sheets. As part of the adoption, Nicolet elected the package of practical expedients permitted under the transition guidance of the new standard which allowed the carry forward of the historical lease classification. Nicolet also elected the practical expedient to group lease and non-lease components as a single lease component; thus, the Company's leases include both lease (e.g., fixed payments including rent, taxes, and insurance
costs) and non-lease components (e.g., common area or other maintenance costs). See Note 10 for the new disclosures related torequired by Topic 606.
Operating Segment
While the chief-operating decision makers monitor the revenue streams of the various products and services, and evaluate costs, balance sheet positions and quality, all such products, services and activities are directly or indirectly related to the business of community banking, with no regular, formal or material segment delineations. Operations are managed and financial performance is evaluated on a company-wide basis, and accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating segment.842.
Reclassifications
Certain amounts in the 20172018 consolidated financial statements have been reclassified to conform to the 20182019 presentation.
Note 2 – AcquisitionsPending Acquisition
During the third quarter of 2018, Nicolet purchased a small brokerage book of business from a retiring financial advisor in support of the Company's initiative to expand its wealth management business. As a result of this purchase, the Company recorded a customer list intangible of $290,000 which will be amortized on a straight-line basis.
On April 28, 2017, the Company consummated itsJune 26, 2019, Nicolet entered into a definitive merger agreement with First Menasha Bancshares,Choice Bancorp, Inc. (“First Menasha”("Choice" (OTC Pink "CBKW")) pursuant to the Agreement and Plan of Merger by and between the Company and First Menasha dated November 3, 2016, (the “Merger Agreement”), whereby First Menasha was merged with and into the Company, and The First National Bank-Fox Valley, the wholly
owned commercial bank subsidiary of First Menasha serving the Fox Valley area of Wisconsin, was mergedwhich Choice will merge with and into Nicolet National Bank (the “Bank”).to create the largest community bank in the Oshkosh, Wisconsin marketplace. The system integration was completed,acquisition will involve stock-for-stock consideration at a fixed exchange ratio, subject to cap and five branches of First Menasha opened on May 1, 2017, as Nicolet National Bank branches, expanding its presencecollar provisions provided for in Calumet and Winnebago Counties, Wisconsin. The Company closed one of its Calumet County locations concurrently with the First Menasha merger.
The purpose of the merger wasagreement. At June 30, 2019, Choice had total assets of $444 million, loans of $349 million, deposits of $312 million, and equity of $39 million. The merger is expected to continue Nicolet’s interest in strategic growth, consistent with its plan to improve profitability through efficiency, leverage the strengths of each bank across the combined customer base, and add shareholder value. With the merger, Nicolet became the leading community bank to serve the Fox Valley area of Wisconsin.
Pursuant to the Merger Agreement, the final purchase price consisted of issuing 1,309,885 shares of the Company’s common stock (given the final stock-for-stock exchange ratio of 3.126 except for First Menasha shares owned by the Company immediately prior to the time of the merger), for common stock consideration of $62.2 million (based on $47.52 per share, the volume weighted average closing price of the Company’s common stock over the preceding 20 trading day period) plus cash consideration of $19.3 million. Approximately $0.2 million in direct stock issuance costs for the merger were incurred and charged against additional paid-in capital.
Upon consummation, the Company added $480 million in assets, $351 million in loans, $375 million in deposits, $4 million in core deposit intangible, and $41 million of goodwill. The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of First Menasha prior to the consummation date were not includedclose in the accompanying consolidated financial statements. The accounting required assets purchasedfourth quarter of 2019 and liabilities assumedremains subject to be recorded at their respective estimated fair values at the date of acquisition.customary closing conditions, including approval by Choice shareholders and regulatory approvals.
Note 3 – Earnings per Common Share
Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock), if any. Presented below are the calculations for basic and diluted earnings per common share.
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(In thousands, except per share data) | 2018 | | 2017 | | 2018 | | 2017 | 2019 | | 2018 | | 2019 | | 2018 |
Net income attributable to Nicolet Bankshares, Inc. | $ | 10,859 |
| | $ | 9,511 |
| | $ | 30,173 |
| | $ | 24,047 |
| $ | 18,549 |
| | $ | 9,737 |
| | $ | 28,816 |
| | $ | 19,314 |
|
| | | | | | | | |
Weighted average common shares outstanding | 9,633 |
| | 9,837 |
| | 9,679 |
| | 9,317 |
| 9,374 |
| | 9,639 |
| | 9,418 |
| | 9,702 |
|
Effect of dilutive common stock awards | 316 |
| | 572 |
| | 325 |
| | 504 |
| 318 |
| | 331 |
| | 293 |
| | 330 |
|
Diluted weighted average common shares outstanding | 9,949 |
| | 10,409 |
| | 10,004 |
| | 9,821 |
| 9,692 |
| | 9,970 |
| | 9,711 |
| | 10,032 |
|
| | | | | | | | |
Basic earnings per common share* | $ | 1.13 |
| | $ | 0.97 |
| | $ | 3.12 |
| | $ | 2.58 |
| $ | 1.98 |
| | $ | 1.01 |
| | $ | 3.06 |
| | $ | 1.99 |
|
Diluted earnings per common share* | $ | 1.09 |
| | $ | 0.91 |
| | $ | 3.02 |
| | $ | 2.45 |
| $ | 1.91 |
| | $ | 0.98 |
| | $ | 2.97 |
| | $ | 1.93 |
|
*Cumulative quarterly per share performance may not equal annual per share totals due to the effects of the amount and timing of capital increases. When computing earnings per share for an interim period, the denominator is based on the weighted average shares outstanding during the interim period, and not on an annualized weighted average basis. Accordingly, the sum of the earnings per share data for the quarters will not necessarily equal the year to date earnings per share data.
For the three and ninesix months ended SeptemberJune 30, 2019, options to purchase less than 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive. For the three and six months ended June 30, 2018, options to purchase approximately 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive. There was no anti-dilutive effect of options outstanding for the three and nine months ended September 30, 2017.
Note 4 – Stock-Based Compensation
The Company may grant stock options and restricted stock under its stock-based compensation plans to certain officers, employees and directors. These plans are administered by a committee of the Board of Directors. In February 2019, with subsequent shareholder approval, the 2011 Long-Term Incentive Plan was amended to increase the shares reserved for potential stock-based awards from 1,500,000 shares to 3,000,000 shares. At SeptemberJune 30, 2018,2019, approximately 144,0001.6 million shares were available for grant under these stock-based compensation plans.
A Black-Scholes model is utilized to estimate the fair value of stock option grants, while the market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards. The weighted average assumptions used in the Black-Scholes model for valuing stock option grants were as follows.
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
Dividend yield | — | % | | — | % | — | % | | — | % |
Expected volatility | 25 | % | | 25 | % | 25 | % | | 25 | % |
Risk-free interest rate | 2.48 | % | | 2.13 | % | 2.37 | % | | 2.48 | % |
Expected average life | 7 years |
| | 7 years |
| 7 years |
| | 7 years |
|
Weighted average per share fair value of options | $ | 17.60 |
| | $ | 15.44 |
| $ | 19.23 |
| | $ | 17.60 |
|
Activity in
A summary of the Company’s Stock Incentive Plansstock option activity is summarized in the following tables.below.
| | Stock Options | | Option Shares Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Life (Years) | | Aggregate Intrinsic Value (in thousands) | | Option Shares Outstanding | | Weighted Average Exercise Price | | Weighted Average Remaining Life (Years) | | Aggregate Intrinsic Value (in thousands) |
Outstanding - December 31, 2017 | | 1,643,255 |
| | $ | 39.82 |
| | | |
Outstanding - December 31, 2018 | | | 1,581,699 |
| | $ | 40.77 |
| | |
Granted | | 10,000 |
| | 54.06 |
| | | | 15,000 |
| | 59.55 |
| | |
Exercise of stock options * | | (56,881 | ) | | 21.53 |
| | | | (137,443 | ) | | 23.15 |
| | |
Forfeited | | (6,500 | ) | | 39.43 |
| | | | | | (3,538 | ) | | 27.43 |
| | | | |
Outstanding - September 30, 2018 | | 1,589,874 |
| | $ | 40.57 |
| | 7.6 | | $ | 22,429 |
| |
Exercisable - September 30, 2018 | | 543,886 |
| | $ | 32.00 |
| | 6.4 | | $ | 12,243 |
| |
Outstanding - June 30, 2019 | | | 1,455,718 |
| | $ | 42.65 |
| | 7.1 | | $ | 28,249 |
|
Exercisable - June 30, 2019 | | | 667,418 |
| | $ | 38.34 |
| | 6.5 | | $ | 15,833 |
|
* The terms of the stock option agreements permit having a number of shares of stock withheld, the fair market value of which as of the date of exercise is sufficient to satisfy the exercise price and/or tax withholding requirements; accordingly, 2,194requirements. For the six months ended June 30, 2019, 64,681 such shares were surrendered to the Company during the nine months ended September 30, 2018.Company.
Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock options. The intrinsic value of options exercised for both the ninesix months ended SeptemberJune 30, 20182019 and 20172018 was approximately $1.8 million.$5.0 million and $1.4 million, respectively.
A summary of the Company’s restricted stock activity is summarized below.
| | Restricted Stock | | Weighted Average Grant Date Fair Value | | Restricted Shares Outstanding | | Weighted Average Grant Date Fair Value | | Restricted Shares Outstanding |
Outstanding - December 31, 2017 | | $ | 34.26 |
| | 30,920 |
| |
Outstanding - December 31, 2018 | | | $ | 39.37 |
| | 29,512 |
|
Granted | | 55.64 |
| | 7,510 |
| | 61.96 |
| | 4,257 |
|
Vested * | | 37.44 |
| | (10,911 | ) | | 44.79 |
| | (9,422 | ) |
Forfeited | | 16.50 |
| | (3 | ) | | 16.50 |
| | (408 | ) |
Outstanding - September 30, 2018 | | $ | 38.84 |
| | 27,516 |
| |
Outstanding - June 30, 2019 | | | $ | 41.64 |
| | 23,939 |
|
* The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, 1,6151,553 shares were surrendered during the ninesix months ended SeptemberJune 30, 2018.2019.
The Company recognized approximately $3.4$2.2 million and $1.9$2.3 million of stock-based compensation expense (included in personnel on the consolidated statements of income) during the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, associated with its common stock awards granted to officers and employees. In addition, during the third quarterfirst half of 2018,2019, the Company recognized approximately $0.2$0.3 million of director expense (included in other expense on the consolidated statements of income) for a total restricted stock grant of 3,5104,257 shares with immediate vesting to directors. As of SeptemberJune 30, 2018,2019, there was approximately $13.7$11.0 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the remaining vesting period of approximately three years. The Company recognized a tax benefit of approximately $0.9 million and $0.2 million for both the ninesix months ended SeptemberJune 30, 20182019 and 2017,2018, respectively, for the tax impact of stock option exercises and vesting of restricted stock.
Note 5 – Securities Available for Sale
Amortized cost and fair value of securities available for sale are summarized as follows.
| | | September 30, 2018 | June 30, 2019 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. government agency securities | $ | 27,133 |
| | $ | — |
| | $ | 879 |
| | $ | 26,254 |
| $ | 16,834 |
| | $ | — |
| | $ | 205 |
| | $ | 16,629 |
|
State, county and municipals | 169,431 |
| | 38 |
| | 4,647 |
| | 164,822 |
| 147,959 |
| | 597 |
| | 386 |
| | 148,170 |
|
Mortgage-backed securities | 140,427 |
| | 85 |
| | 4,667 |
| | 135,845 |
| 150,094 |
| | 2,507 |
| | 772 |
| | 151,829 |
|
Corporate debt securities | 84,957 |
| | 165 |
| | 1,132 |
| | 83,990 |
| 84,749 |
| | 2,629 |
| | 17 |
| | 87,361 |
|
Total | $ | 421,948 |
| | $ | 288 |
| | $ | 11,325 |
| | $ | 410,911 |
| $ | 399,636 |
| | $ | 5,733 |
| | $ | 1,380 |
| | $ | 403,989 |
|
|
| | | | | | | | | | | | | | | |
| December 31, 2017 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. government agency securities | $ | 26,586 |
| | $ | — |
| | $ | 377 |
| | $ | 26,209 |
|
State, county and municipals | 186,128 |
| | 180 |
| | 2,264 |
| | 184,044 |
|
Mortgage-backed securities | 157,705 |
| | 160 |
| | 2,333 |
| | 155,532 |
|
Corporate debt securities | 36,387 |
| | 449 |
| | 39 |
| | 36,797 |
|
Equity securities * | 1,287 |
| | 1,284 |
| | — |
| | 2,571 |
|
Total | $ | 408,093 |
| | $ | 2,073 |
| | $ | 5,013 |
| | $ | 405,153 |
|
* Effective January 1, 2018, the Company adopted ASU 2016-01, which requires equity securities with readily determinable fair values to be measured at fair value with changes in the fair value recognized through net income. Such securities are no longer reflected as securities AFS. As a result of this accounting change, the Company recognized a cumulative-effect adjustment at adoption from accumulated other comprehensive income to retained earnings of approximately $0.9 million in the consolidated statement of stockholders’ equity for the net of tax impact of the unrealized gain on equity securities as of the date of adoption and recognized a gain of approximately $475,000 for the nine months ended September 30, 2018, in the consolidated statements of income for the change in fair value on equity securities since adoption. In addition, the approximately $2.8 million current fair value of equity securities is now reflected within other investments on the consolidated balance sheets rather than as securities AFS. Prior periods have not been restated for the impact of this accounting change. See Note 1 for additional information on this new accounting standard. |
| | | | | | | | | | | | | | | |
| December 31, 2018 |
(in thousands) | Amortized Cost | | Gross Unrealized Gains | | Gross Unrealized Losses | | Fair Value |
U.S. government agency securities | $ | 22,467 |
| | $ | — |
| | $ | 818 |
| | $ | 21,649 |
|
State, county and municipals | 163,702 |
| | 76 |
| | 3,252 |
| | 160,526 |
|
Mortgage-backed securities | 134,350 |
| | 328 |
| | 3,034 |
| | 131,644 |
|
Corporate debt securities | 87,352 |
| | 66 |
| | 1,093 |
| | 86,325 |
|
Total | $ | 407,871 |
| | $ | 470 |
| | $ | 8,197 |
| | $ | 400,144 |
|
The following table representspresents gross unrealized losses and the related estimated fair value of investment securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position.
| | | September 30, 2018 | June 30, 2019 |
| Less than 12 months | | 12 months or more | | Total | Less than 12 months | | 12 months or more | | Total |
($ in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities |
U.S. government agency securities | $ | — |
| | $ | — |
| | $ | 26,254 |
| | $ | 879 |
| | $ | 26,254 |
| | $ | 879 |
| | 2 |
| $ | — |
| | $ | — |
| | $ | 16,629 |
| | $ | 205 |
| | $ | 16,629 |
| | $ | 205 |
| | 3 |
|
State, county and municipals | 71,359 |
| | 1,168 |
| | 81,418 |
| | 3,479 |
| | 152,777 |
| | 4,647 |
| | 453 |
| 1,917 |
| | 2 |
| | 64,560 |
| | 384 |
| | 66,477 |
| | 386 |
| | 181 |
|
Mortgage-backed securities | 32,929 |
| | 727 |
| | 93,312 |
| | 3,940 |
| | 126,241 |
| | 4,667 |
| | 212 |
| 13,180 |
| | 25 |
| | 64,028 |
| | 747 |
| | 77,208 |
| | 772 |
| | 166 |
|
Corporate debt securities | 69,816 |
| | 1,132 |
| | — |
| | — |
| | 69,816 |
| | 1,132 |
| | 37 |
| — |
| | — |
| | 2,041 |
| | 17 |
| | 2,041 |
| | 17 |
| | 1 |
|
Total | $ | 174,104 |
| | $ | 3,027 |
| | $ | 200,984 |
| | $ | 8,298 |
| | $ | 375,088 |
| | $ | 11,325 |
| | 704 |
| $ | 15,097 |
| | $ | 27 |
| | $ | 147,258 |
| | $ | 1,353 |
| | $ | 162,355 |
| | $ | 1,380 |
| | 351 |
|
| | | December 31, 2017 | December 31, 2018 |
| Less than 12 months | | 12 months or more | | Total | Less than 12 months | | 12 months or more | | Total |
($ in thousands) | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities | Fair Value | | Unrealized Losses | | Fair Value | �� | Unrealized Losses | | Fair Value | | Unrealized Losses | | Number of Securities |
U.S. government agency securities | $ | 26,209 |
| | $ | 377 |
| | $ | — |
| | $ | — |
| | $ | 26,209 |
| | $ | 377 |
| | 2 |
| $ | — |
| | $ | — |
| | $ | 21,649 |
| | $ | 818 |
| | $ | 21,649 |
| | $ | 818 |
| | 3 |
|
State, county and municipals | 110,157 |
| | 1,097 |
| | 49,326 |
| | 1,167 |
| | 159,483 |
| | 2,264 |
| | 465 |
| 16,136 |
| | 98 |
| | 130,975 |
| | 3,154 |
| | 147,111 |
| | 3,252 |
| | 440 |
|
Mortgage-backed securities | 72,210 |
| | 735 |
| | 65,537 |
| | 1,598 |
| | 137,747 |
| | 2,333 |
| | 215 |
| 20,568 |
| | 132 |
| | 89,189 |
| | 2,902 |
| | 109,757 |
| | 3,034 |
| | 204 |
|
Corporate debt securities | 10,172 |
| | 39 |
| | — |
| | — |
| | 10,172 |
| | 39 |
| | 5 |
| 51,592 |
| | 677 |
| | 9,757 |
| | 416 |
| | 61,349 |
| | 1,093 |
| | 33 |
|
Total | $ | 218,748 |
| | $ | 2,248 |
| | $ | 114,863 |
| | $ | 2,765 |
| | $ | 333,611 |
| | $ | 5,013 |
| | 687 |
| $ | 88,296 |
| | $ | 907 |
| | $ | 251,570 |
| | $ | 7,290 |
| | $ | 339,866 |
| | $ | 8,197 |
| | 680 |
|
As of SeptemberJune 30, 2018,2019, the Company does not consider its securities AFS with unrealized losses to be other-than-temporarily impaired, as the unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. The Company has the ability and intent to hold its securities to maturity. There were no other-than-temporary impairments charged to earnings during the ninesix months ended SeptemberJune 30, 20182019 or 2017.2018.
The amortized cost and fair value of securities AFS by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; as this is particularly inherent in mortgage-backed securities, these securities are not included in the maturity categories below.
| | | September 30, 2018 | June 30, 2019 |
(in thousands) | Amortized Cost | | Fair Value | Amortized Cost | | Fair Value |
Due in less than one year | $ | 21,592 |
| | $ | 21,559 |
| $ | 21,526 |
| | $ | 21,528 |
|
Due in one year through five years | 157,636 |
| | 154,294 |
| 187,172 |
| | 189,049 |
|
Due after five years through ten years | 95,324 |
| | 92,078 |
| 34,437 |
| | 34,702 |
|
Due after ten years | 6,969 |
| | 7,135 |
| 6,407 |
| | 6,881 |
|
| 281,521 |
| | 275,066 |
| 249,542 |
| | 252,160 |
|
Mortgage-backed securities | 140,427 |
| | 135,845 |
| 150,094 |
| | 151,829 |
|
Securities available for sale | $ | 421,948 |
| | $ | 410,911 |
| |
Securities AFS | | $ | 399,636 |
| | $ | 403,989 |
|
Proceeds and realized gains / losses from the sale of securities AFS were as follows.
| | | Nine Months Ended September 30, | Six Months Ended June 30, |
(in thousands) | 2018 | | 2017 | 2019 | | 2018 |
Gross gains | $ | — |
| | $ | 1,227 |
| $ | 152 |
| | $ | — |
|
Gross losses | — |
| | (7 | ) | (120 | ) | | — |
|
Gains (losses) on sales of securities AFS, net | $ | — |
| | $ | 1,220 |
| $ | 32 |
| | $ | — |
|
Proceeds from sales of securities AFS | $ | — |
| | $ | 10,798 |
| $ | 13,240 |
| | $ | — |
|
Note 6 – Loans, Allowance for Loan Losses, and Credit Quality
The loan composition is summarized as follows.
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
(in thousands) | Amount | | % of Total | | Amount | | % of Total | Amount | | % of Total | | Amount | | % of Total |
Commercial & industrial | $ | 665,754 |
| | 31.1 | % | | $ | 637,337 |
| | 30.5 | % | $ | 737,928 |
| | 34 | % | | $ | 684,920 |
| | 32 | % |
Owner-occupied commercial real estate (“CRE”) | 449,151 |
| | 21.0 |
| | 430,043 |
| | 20.6 |
| 447,554 |
| | 20 |
| | 441,353 |
| | 20 |
|
Agricultural (“AG”) production | 35,727 |
| | 1.7 |
| | 35,455 |
| | 1.7 |
| 35,765 |
| | 2 |
| | 35,625 |
| | 2 |
|
AG real estate | 52,378 |
| | 2.4 |
| | 51,778 |
| | 2.5 |
| 53,485 |
| | 2 |
| | 53,444 |
| | 2 |
|
CRE investment | 331,312 |
| | 15.5 |
| | 314,463 |
| | 15.1 |
| 326,820 |
| | 15 |
| | 343,652 |
| | 16 |
|
Construction & land development | 86,533 |
| | 4.0 |
| | 89,660 |
| | 4.3 |
| 73,108 |
| | 3 |
| | 80,599 |
| | 4 |
|
Residential construction | 30,295 |
| | 1.4 |
| | 36,995 |
| | 1.8 |
| 38,246 |
| | 2 |
| | 30,926 |
| | 1 |
|
Residential first mortgage | 357,163 |
| | 16.6 |
| | 363,352 |
| | 17.4 |
| 345,061 |
| | 16 |
| | 357,841 |
| | 17 |
|
Residential junior mortgage | 109,692 |
| | 5.1 |
| | 106,027 |
| | 5.1 |
| 116,433 |
| | 5 |
| | 111,328 |
| | 5 |
|
Retail & other | 25,452 |
| | 1.2 |
| | 22,815 |
| | 1.0 |
| 28,873 |
| | 1 |
| | 26,493 |
| | 1 |
|
Loans | 2,143,457 |
| | 100.0 | % | | 2,087,925 |
| | 100.0 | % | 2,203,273 |
| | 100 | % | | 2,166,181 |
| | 100 | % |
Less allowance for loan losses (“ALLL”) | 12,992 |
| | | | 12,653 |
| | | 13,571 |
| | | | 13,153 |
| | |
Loans, net | $ | 2,130,465 |
| | | | $ | 2,075,272 |
| | | $ | 2,189,702 |
| | | | $ | 2,153,028 |
| | |
Allowance for loan losses to loans | 0.61 | % | | | | 0.61 | % | | | 0.62 | % | | | | 0.61 | % | | |
As a further breakdown, loans are summarized by originated and acquired as follows.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| September 30, 2018 | | December 31, 2017 |
(in thousands) | Originated Amount | | % of Total | | Acquired Amount | | % of Total | | Originated Amount | | % of Total | | Acquired Amount | | % of Total |
Commercial & industrial | $ | 551,395 |
| | 38.9 | % | | $ | 114,359 |
| | 15.8 | % | | $ | 488,600 |
| | 39.3 | % | | $ | 148,737 |
| | 17.6 | % |
Owner-occupied CRE | 274,036 |
| | 19.3 |
| | 175,115 |
| | 24.2 |
| | 237,548 |
| | 19.1 |
| | 192,495 |
| | 22.8 |
|
AG production | 10,821 |
| | 0.8 |
| | 24,906 |
| | 3.4 |
| | 11,102 |
| | 0.9 |
| | 24,353 |
| | 2.9 |
|
AG real estate | 29,685 |
| | 2.1 |
| | 22,693 |
| | 3.1 |
| | 27,831 |
| | 2.2 |
| | 23,947 |
| | 2.8 |
|
CRE investment | 151,335 |
| | 10.7 |
| | 179,977 |
| | 24.8 |
| | 113,862 |
| | 9.2 |
| | 200,601 |
| | 23.8 |
|
Construction & land development | 63,106 |
| | 4.4 |
| | 23,427 |
| | 3.2 |
| | 56,061 |
| | 4.5 |
| | 33,599 |
| | 4.0 |
|
Residential construction | 30,245 |
| | 2.1 |
| | 50 |
| | 0.1 |
| | 33,615 |
| | 2.7 |
| | 3,380 |
| | 0.4 |
|
Residential first mortgage | 211,474 |
| | 14.9 |
| | 145,689 |
| | 20.1 |
| | 191,186 |
| | 15.4 |
| | 172,166 |
| | 20.4 |
|
Residential junior mortgage | 74,366 |
| | 5.2 |
| | 35,326 |
| | 4.9 |
| | 65,643 |
| | 5.3 |
| | 40,384 |
| | 4.8 |
|
Retail & other | 22,464 |
| | 1.6 |
| | 2,988 |
| | 0.4 |
| | 18,254 |
| | 1.4 |
| | 4,561 |
| | 0.5 |
|
Loans | 1,418,927 |
| | 100.0 | % | | 724,530 |
| | 100.0 | % | | 1,243,702 |
| | 100.0 | % | | 844,223 |
| | 100.0 | % |
Less ALLL | 11,118 |
| | | | 1,874 |
| | | | 10,542 |
| | | | 2,111 |
| | |
Loans, net | $ | 1,407,809 |
| | | | $ | 722,656 |
| | | | $ | 1,233,160 |
| | | | $ | 842,112 |
| | |
ALLL to loans | 0.78 | % | | | | 0.26 | % | | | | 0.85 | % | | | | 0.25 | % | | |
A roll forward of the allowance for loan losses is summarized as follows.
|
| | | | | | | | | | | |
| Nine Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | September 30, 2017 | | December 31, 2017 |
Beginning balance | $ | 12,653 |
| | $ | 11,820 |
| | $ | 11,820 |
|
Provision for loan losses | 1,360 |
| | 1,875 |
| | 2,325 |
|
Charge-offs | (1,110 | ) | | (1,156 | ) | | (1,604 | ) |
Recoveries | 89 |
| | 71 |
| | 112 |
|
Net charge-offs | (1,021 | ) | | (1,085 | ) | | (1,492 | ) |
Ending balance | $ | 12,992 |
| | $ | 12,610 |
| | $ | 12,653 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| June 30, 2019 | | December 31, 2018 |
(in thousands) | Originated Amount | | % of Total | | Acquired Amount | | % of Total | | Originated Amount | | % of Total | | Acquired Amount | | % of Total |
Commercial & industrial | $ | 625,450 |
| | 40 | % | | $ | 112,478 |
| | 18 | % | | $ | 568,100 |
| | 38 | % | | $ | 116,820 |
| | 17 | % |
Owner-occupied CRE | 306,634 |
| | 19 |
| | 140,920 |
| | 22 |
| | 283,531 |
| | 19 |
| | 157,822 |
| | 23 |
|
AG production | 11,383 |
| | 1 |
| | 24,382 |
| | 4 |
| | 11,113 |
| | 1 |
| | 24,512 |
| | 4 |
|
AG real estate | 33,907 |
| | 2 |
| | 19,578 |
| | 3 |
| | 31,374 |
| | 2 |
| | 22,070 |
| | 3 |
|
CRE investment | 165,687 |
| | 10 |
| | 161,133 |
| | 26 |
| | 171,087 |
| | 12 |
| | 172,565 |
| | 25 |
|
Construction & land development | 60,297 |
| | 4 |
| | 12,811 |
| | 2 |
| | 66,478 |
| | 4 |
| | 14,121 |
| | 2 |
|
Residential construction | 37,996 |
| | 2 |
| | 250 |
| | — |
| | 30,926 |
| | 2 |
| | — |
| | — |
|
Residential first mortgage | 221,613 |
| | 14 |
| | 123,448 |
| | 20 |
| | 220,368 |
| | 15 |
| | 137,473 |
| | 20 |
|
Residential junior mortgage | 88,053 |
| | 6 |
| | 28,380 |
| | 5 |
| | 78,379 |
| | 5 |
| | 32,949 |
| | 5 |
|
Retail & other | 27,115 |
| | 2 |
| | 1,758 |
| | — |
| | 23,809 |
| | 2 |
| | 2,684 |
| | 1 |
|
Loans | 1,578,135 |
| | 100 | % | | 625,138 |
| | 100 | % | | 1,485,165 |
| | 100 | % | | 681,016 |
| | 100 | % |
Less ALLL | 11,934 |
| | | | 1,637 |
| | | | 11,448 |
| | | | 1,705 |
| | |
Loans, net | $ | 1,566,201 |
| | | | $ | 623,501 |
| | | | $ | 1,473,717 |
| | | | $ | 679,311 |
| | |
ALLL to loans | 0.76 | % | | | | 0.26 | % | | | | 0.77 | % | | | | 0.25 | % | | |
As a percent of total loans | 72 | % | | | | 28 | % | | | | 69 | % | | | | 31 | % | | |
Practically all of the Company’s loans, commitments, and letters of credit have been granted to customers in the Company’s market area. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting impact on the operations of borrowers or on the value of underlying collateral, if any.
The following tables present
A roll forward of the balance and activity in the ALLL by portfolio segment and the recorded investment in loans by portfolio segment.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL – Nine Months Ended September 30, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 4,934 |
| | $ | 2,607 |
| | $ | 129 |
| | $ | 296 |
| | $ | 1,388 |
| | $ | 726 |
| | $ | 251 |
| | $ | 1,609 |
| | $ | 488 |
| | $ | 225 |
| | $ | 12,653 |
|
Provision | 1,043 |
| | 293 |
| | (8 | ) | | (2 | ) | | (8 | ) | | (230 | ) | | (41 | ) | | 119 |
| | (55 | ) | | 249 |
| | 1,360 |
|
Charge-offs | (743 | ) | | (64 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (85 | ) | | — |
| | (181 | ) | | (1,110 | ) |
Recoveries | 30 |
| | 12 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 31 |
| | 13 |
| | 89 |
|
Net charge-offs | (713 | ) | | (52 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (82 | ) | | 31 |
| | (168 | ) | | (1,021 | ) |
Ending balance | $ | 5,264 |
| | $ | 2,848 |
| | $ | 121 |
| | $ | 294 |
| | $ | 1,343 |
| | $ | 496 |
| | $ | 210 |
| | $ | 1,646 |
| | $ | 464 |
| | $ | 306 |
| | $ | 12,992 |
|
As percent of ALLL | 40.5 | % | | 21.9 | % | | 0.9 | % | | 2.3 | % | | 10.3 | % | | 3.8 | % | | 1.6 | % | | 12.7 | % | | 3.6 | % | | 2.4 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated | 5,264 |
| | 2,848 |
| | 121 |
| | 294 |
| | 1,343 |
| | 496 |
| | 210 |
| | 1,646 |
| | 464 |
| | 306 |
| | 12,992 |
|
Ending balance | $ | 5,264 |
| | $ | 2,848 |
| | $ | 121 |
| | $ | 294 |
| | $ | 1,343 |
| | $ | 496 |
| | $ | 210 |
| | $ | 1,646 |
| | $ | 464 |
| | $ | 306 |
| | $ | 12,992 |
|
| | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 5,858 |
| | $ | 1,548 |
| | $ | — |
| | $ | 234 |
| | $ | 2,876 |
| | $ | 603 |
| | $ | — |
| | $ | 2,663 |
| | $ | 57 |
| | $ | 12 |
| | $ | 13,851 |
|
Collectively evaluated | 659,896 |
| | 447,603 |
| | 35,727 |
| | 52,144 |
| | 328,436 |
| | 85,930 |
| | 30,295 |
| | 354,500 |
| | 109,635 |
| | 25,440 |
| | 2,129,606 |
|
Total loans | $ | 665,754 |
| | $ | 449,151 |
| | $ | 35,727 |
| | $ | 52,378 |
| | $ | 331,312 |
| | $ | 86,533 |
| | $ | 30,295 |
| | $ | 357,163 |
| | $ | 109,692 |
| | $ | 25,452 |
| | $ | 2,143,457 |
|
| | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 5,264 |
| | 2,848 |
| | 121 |
| | 294 |
| | 1,343 |
| | 496 |
| | 210 |
| | 1,646 |
| | 464 |
| | 306 |
| | 12,992 |
|
Net loans | $ | 660,490 |
| | $ | 446,303 |
| | $ | 35,606 |
| | $ | 52,084 |
| | $ | 329,969 |
| | $ | 86,037 |
| | $ | 30,085 |
| | $ | 355,517 |
| | $ | 109,228 |
| | $ | 25,146 |
| | $ | 2,130,465 |
|
As a further breakdown, the ALLLallowance for loan losses is summarized by originated and acquired as follows.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated – Nine Months Ended September 30, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 4,192 |
| | $ | 2,115 |
| | $ | 112 |
| | $ | 235 |
| | $ | 1,154 |
| | $ | 628 |
| | $ | 200 |
| | $ | 1,297 |
| | $ | 409 |
| | $ | 200 |
| | $ | 10,542 |
|
Provision | 1,143 |
| | 349 |
| | (4 | ) | | 9 |
| | (13 | ) | | (217 | ) | | (25 | ) | | 165 |
| | (43 | ) | | 247 |
| | 1,611 |
|
Charge-offs | (743 | ) | | (64 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (85 | ) | | — |
| | (178 | ) | | (1,107 | ) |
Recoveries | 29 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 29 |
| | 13 |
| | 72 |
|
Net charge-offs | (714 | ) | | (63 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (85 | ) | | 29 |
| | (165 | ) | | (1,035 | ) |
Ending balance | $ | 4,621 |
| | $ | 2,401 |
| | $ | 108 |
| | $ | 244 |
| | $ | 1,104 |
| | $ | 411 |
| | $ | 175 |
| | $ | 1,377 |
| | $ | 395 |
| | $ | 282 |
| | $ | 11,118 |
|
As percent of ALLL | 41.6 | % | | 21.6 | % | | 1.0 | % | | 2.2 | % | | 9.9 | % | | 3.7 | % | | 1.6 | % | | 12.4 | % | | 3.5 | % | | 2.5 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 2,553 |
| | $ | 328 |
| | $ | — |
| | $ | — |
| | $ | 918 |
| | $ | — |
| | $ | — |
| | $ | 251 |
| | $ | — |
| | $ | — |
| | $ | 4,050 |
|
Collectively evaluated | 548,842 |
| | 273,708 |
| | 10,821 |
| | 29,685 |
| | 150,417 |
| | 63,106 |
| | 30,245 |
| | 211,223 |
| | 74,366 |
| | 22,464 |
| | 1,414,877 |
|
Total loans | $ | 551,395 |
| | $ | 274,036 |
| | $ | 10,821 |
| | $ | 29,685 |
| | $ | 151,335 |
| | $ | 63,106 |
| | $ | 30,245 |
| | $ | 211,474 |
| | $ | 74,366 |
| | $ | 22,464 |
| | $ | 1,418,927 |
|
| | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 4,621 |
| | 2,401 |
| | 108 |
| | 244 |
| | 1,104 |
| | 411 |
| | 175 |
| | 1,377 |
| | 395 |
| | 282 |
| | 11,118 |
|
Net loans | $ | 546,774 |
| | $ | 271,635 |
| | $ | 10,713 |
| | $ | 29,441 |
| | $ | 150,231 |
| | $ | 62,695 |
| | $ | 30,070 |
| | $ | 210,097 |
| | $ | 73,971 |
| | $ | 22,182 |
| | $ | 1,407,809 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Acquired – Nine Months Ended September 30, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 742 |
| | $ | 492 |
| | $ | 17 |
| | $ | 61 |
| | $ | 234 |
| | $ | 98 |
| | $ | 51 |
| | $ | 312 |
| | $ | 79 |
| | $ | 25 |
| | $ | 2,111 |
|
Provision | (100 | ) | | (56 | ) | | (4 | ) | | (11 | ) | | 5 |
| | (13 | ) | | (16 | ) | | (46 | ) | | (12 | ) | | 2 |
| | (251 | ) |
Charge-offs | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (3 | ) |
Recoveries | 1 |
| | 11 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 2 |
| | — |
| | 17 |
|
Net charge-offs | 1 |
| | 11 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 3 |
| | 2 |
| | (3 | ) | | 14 |
|
Ending balance | $ | 643 |
| | $ | 447 |
| | $ | 13 |
| | $ | 50 |
| | $ | 239 |
| | $ | 85 |
| | $ | 35 |
| | $ | 269 |
| | $ | 69 |
| | $ | 24 |
| | $ | 1,874 |
|
As percent of ALLL | 34.3 | % | | 23.9 | % | | 0.7 | % | | 2.7 | % | | 12.7 | % | | 4.5 | % | | 1.9 | % | | 14.3 | % | | 3.7 | % | | 1.3 | % | | 100.0 | % |
| | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 3,305 |
| | $ | 1,220 |
| | $ | — |
| | $ | 234 |
| | $ | 1,958 |
| | $ | 603 |
| | $ | — |
| | $ | 2,412 |
| | $ | 57 |
| | $ | 12 |
| | $ | 9,801 |
|
Collectively evaluated | 111,054 |
| | 173,895 |
| | 24,906 |
| | 22,459 |
| | 178,019 |
| | 22,824 |
| | 50 |
| | 143,277 |
| | 35,269 |
| | 2,976 |
| | 714,729 |
|
Total loans | $ | 114,359 |
| | $ | 175,115 |
| | $ | 24,906 |
| | $ | 22,693 |
| | $ | 179,977 |
| | $ | 23,427 |
| | $ | 50 |
| | $ | 145,689 |
| | $ | 35,326 |
| | $ | 2,988 |
| | $ | 724,530 |
|
| | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 643 |
| | 447 |
| | 13 |
| | 50 |
| | 239 |
| | 85 |
| | 35 |
| | 269 |
| | 69 |
| | 24 |
| | 1,874 |
|
Net loans | $ | 113,716 |
| | $ | 174,668 |
| | $ | 24,893 |
| | $ | 22,643 |
| | $ | 179,738 |
| | $ | 23,342 |
| | $ | 15 |
| | $ | 145,420 |
| | $ | 35,257 |
| | $ | 2,964 |
| | $ | 722,656 |
|
|
| | | | | | | | | | | |
| Six Months Ended | | Year Ended |
(in thousands) | June 30, 2019 | | June 30, 2018 | | December 31, 2018 |
Beginning balance | $ | 13,153 |
| | $ | 12,653 |
| | $ | 12,653 |
|
Provision for loan losses | 500 |
| | 1,020 |
| | 1,600 |
|
Charge-offs | (232 | ) | | (877 | ) | | (1,213 | ) |
Recoveries | 150 |
| | 79 |
| | 113 |
|
Net (charge-offs) recoveries | (82 | ) | | (798 | ) | | (1,100 | ) |
Ending balance | $ | 13,571 |
| | $ | 12,875 |
| | $ | 13,153 |
|
The following tables present the balance and activity in the ALLL by portfolio segment and the recorded investment in loans by portfolio segment.
| | | TOTAL – Year Ended December 31, 2017 | TOTAL – Six Months Ended June 30, 2019 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 3,919 |
| | $ | 2,867 |
| | $ | 150 |
| | $ | 285 |
| | $ | 1,124 |
| | $ | 774 |
| | $ | 304 |
| | $ | 1,784 |
| | $ | 461 |
| | $ | 152 |
| | $ | 11,820 |
| $ | 5,271 |
| | $ | 2,847 |
| | $ | 121 |
| | $ | 301 |
| | $ | 1,470 |
| | $ | 510 |
| | $ | 211 |
| | $ | 1,646 |
| | $ | 472 |
| | $ | 304 |
| | $ | 13,153 |
|
Provision | 2,419 |
| | (290 | ) | | (21 | ) | | 11 |
| | 263 |
| | (35 | ) | | (53 | ) | | (192 | ) | | 96 |
| | 127 |
| | 2,325 |
| 371 |
| | 17 |
| | 15 |
| | 23 |
| | (19 | ) | | (65 | ) | | 35 |
| | (79 | ) | | 66 |
| | 136 |
| | 500 |
|
Charge-offs | (1,442 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) | | — |
| | (8 | ) | | (72 | ) | | (69 | ) | | (1,604 | ) | — |
| | (13 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60 | ) | | (159 | ) | | (232 | ) |
Recoveries | 38 |
| | 30 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 25 |
| | 3 |
| | 15 |
| | 112 |
| 50 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 29 |
| | 34 |
| | 150 |
|
Net charge-offs | (1,404 | ) | | 30 |
| | — |
| | — |
| | 1 |
| | (13 | ) | | — |
| | 17 |
| | (69 | ) | | (54 | ) | | (1,492 | ) | |
Net (charge-offs) recoveries | | 50 |
| | (11 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | (31 | ) | | (125 | ) | | (82 | ) |
Ending balance | $ | 4,934 |
| | $ | 2,607 |
| | $ | 129 |
| | $ | 296 |
| | $ | 1,388 |
| | $ | 726 |
| | $ | 251 |
| | $ | 1,609 |
| | $ | 488 |
| | $ | 225 |
| | $ | 12,653 |
| $ | 5,692 |
| | $ | 2,853 |
| | $ | 136 |
| | $ | 324 |
| | $ | 1,451 |
| | $ | 445 |
| | $ | 246 |
| | $ | 1,602 |
| | $ | 507 |
| | $ | 315 |
| | $ | 13,571 |
|
As percent of ALLL | 39.0 | % | | 20.6 | % | | 1.0 | % | | 2.3 | % | | 11.0 | % | | 5.7 | % | | 2.0 | % | | 12.7 | % | | 3.9 | % | | 1.8 | % | | 100.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
As % of ALLL | | 42 | % | | 21 | % | | 1 | % | | 2 | % | | 11 | % | | 3 | % | | 2 | % | | 12 | % | | 4 | % | | 2 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 163 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 163 |
| $ | 382 |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 420 |
|
Collectively evaluated | 4,771 |
| | 2,607 |
| | 129 |
| | 296 |
| | 1,388 |
| | 726 |
| | 251 |
| | 1,609 |
| | 488 |
| | 225 |
| | 12,490 |
| 5,310 |
| | 2,853 |
| | 98 |
| | 324 |
| | 1,451 |
| | 445 |
| | 246 |
| | 1,602 |
| | 507 |
| | 315 |
| | 13,151 |
|
Ending balance | $ | 4,934 |
| | $ | 2,607 |
| | $ | 129 |
| | $ | 296 |
| | $ | 1,388 |
| | $ | 726 |
| | $ | 251 |
| | $ | 1,609 |
| | $ | 488 |
| | $ | 225 |
| | $ | 12,653 |
| $ | 5,692 |
| | $ | 2,853 |
| | $ | 136 |
| | $ | 324 |
| | $ | 1,451 |
| | $ | 445 |
| | $ | 246 |
| | $ | 1,602 |
| | $ | 507 |
| | $ | 315 |
| | $ | 13,571 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 5,870 |
| | $ | 1,689 |
| | $ | — |
| | $ | 248 |
| | $ | 5,290 |
| | $ | 1,053 |
| | $ | 80 |
| | $ | 2,801 |
| | $ | 178 |
| | $ | 12 |
| | $ | 17,221 |
| $ | 2,476 |
| | $ | 2,734 |
| | $ | 401 |
| | $ | 734 |
| | $ | 1,520 |
| | $ | 472 |
| | $ | 451 |
| | $ | 2,632 |
| | $ | 224 |
| | $ | 12 |
| | $ | 11,656 |
|
Collectively evaluated | 631,467 |
| | 428,354 |
| | 35,455 |
| | 51,530 |
| | 309,173 |
| | 88,607 |
| | 36,915 |
| | 360,551 |
| | 105,849 |
| | 22,803 |
| | 2,070,704 |
| 735,452 |
| | 444,820 |
| | 35,364 |
| | 52,751 |
| | 325,300 |
| | 72,636 |
| | 37,795 |
| | 342,429 |
| | 116,209 |
| | 28,861 |
| | 2,191,617 |
|
Total loans | $ | 637,337 |
| | $ | 430,043 |
| | $ | 35,455 |
| | $ | 51,778 |
| | $ | 314,463 |
| | $ | 89,660 |
| | $ | 36,995 |
| | $ | 363,352 |
| | $ | 106,027 |
| | $ | 22,815 |
| | $ | 2,087,925 |
| $ | 737,928 |
| | $ | 447,554 |
| | $ | 35,765 |
| | $ | 53,485 |
| | $ | 326,820 |
| | $ | 73,108 |
| | $ | 38,246 |
| | $ | 345,061 |
| | $ | 116,433 |
| | $ | 28,873 |
| | $ | 2,203,273 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 4,934 |
| | 2,607 |
| | 129 |
| | 296 |
| | 1,388 |
| | 726 |
| | 251 |
| | 1,609 |
| | 488 |
| | 225 |
| | 12,653 |
| 5,692 |
| | 2,853 |
| | 136 |
| | 324 |
| | 1,451 |
| | 445 |
| | 246 |
| | 1,602 |
| | 507 |
| | 315 |
| | 13,571 |
|
Net loans | $ | 632,403 |
| | $ | 427,436 |
| | $ | 35,326 |
| | $ | 51,482 |
| | $ | 313,075 |
| | $ | 88,934 |
| | $ | 36,744 |
| | $ | 361,743 |
| | $ | 105,539 |
| | $ | 22,590 |
| | $ | 2,075,272 |
| $ | 732,236 |
| | $ | 444,701 |
| | $ | 35,629 |
| | $ | 53,161 |
| | $ | 325,369 |
| | $ | 72,663 |
| | $ | 38,000 |
| | $ | 343,459 |
| | $ | 115,926 |
| | $ | 28,558 |
| | $ | 2,189,702 |
|
As a further breakdown, the ALLL is summarized by originated and acquired as follows.
| | | Originated – Year Ended December 31, 2017 | Originated – Six Months Ended June 30, 2019 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 3,150 |
| | $ | 2,263 |
| | $ | 122 |
| | $ | 222 |
| | $ | 893 |
| | $ | 656 |
| | $ | 266 |
| | $ | 1,372 |
| | $ | 373 |
| | $ | 132 |
| | $ | 9,449 |
| $ | 4,683 |
| | $ | 2,439 |
| | $ | 110 |
| | $ | 255 |
| | $ | 1,230 |
| | $ | 431 |
| | $ | 211 |
| | $ | 1,400 |
| | $ | 408 |
| | $ | 281 |
| | $ | 11,448 |
|
Provision | 2,429 |
| | (172 | ) | | (10 | ) | | 13 |
| | 261 |
| | (28 | ) | | (66 | ) | | (69 | ) | | 105 |
| | 122 |
| | 2,585 |
| 385 |
| | 36 |
| | 12 |
| | 23 |
| | 14 |
| | (49 | ) | | 1 |
| | (56 | ) | | 8 |
| | 136 |
| | 510 |
|
Charge-offs | (1,388 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (8 | ) | | (72 | ) | | (69 | ) | | (1,537 | ) | — |
| | (13 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (159 | ) | | (172 | ) |
Recoveries | 1 |
| | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 3 |
| | 15 |
| | 45 |
| 50 |
| | 2 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 27 |
| | 34 |
| | 148 |
|
Net charge-offs | (1,387 | ) | | 24 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (6 | ) | | (69 | ) | | (54 | ) | | (1,492 | ) | |
Net (charge-offs) recoveries | | 50 |
| | (11 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | 35 |
| | 27 |
| | (125 | ) | | (24 | ) |
Ending balance | $ | 4,192 |
| | $ | 2,115 |
| | $ | 112 |
| | $ | 235 |
| | $ | 1,154 |
| | $ | 628 |
| | $ | 200 |
| | $ | 1,297 |
| | $ | 409 |
| | $ | 200 |
| | $ | 10,542 |
| $ | 5,118 |
| | $ | 2,464 |
| | $ | 122 |
| | $ | 278 |
| | $ | 1,244 |
| | $ | 382 |
| | $ | 212 |
| | $ | 1,379 |
| | $ | 443 |
| | $ | 292 |
| | $ | 11,934 |
|
As percent of ALLL | 39.8 | % | | 20.1 | % | | 1.1 | % | | 2.2 | % | | 10.9 | % | | 6.0 | % | | 1.9 | % | | 12.3 | % | | 3.9 | % | | 1.8 | % | | 100.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
As % of ALLL | | 43 | % | | 21 | % | | 1 | % | | 2 | % | | 10 | % | | 3 | % | | 2 | % | | 12 | % | | 4 | % | | 2 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 163 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 163 |
| $ | 382 |
| | $ | — |
| | $ | 38 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 420 |
|
Collectively evaluated | 4,029 |
| | 2,115 |
| | 112 |
| | 235 |
| | 1,154 |
| | 628 |
| | 200 |
| | 1,297 |
| | 409 |
| | 200 |
| | 10,379 |
| 4,736 |
| | 2,464 |
| | 84 |
| | 278 |
| | 1,244 |
| | 382 |
| | 212 |
| | 1,379 |
| | 443 |
| | 292 |
| | 11,514 |
|
Ending balance | $ | 4,192 |
| | $ | 2,115 |
| | $ | 112 |
| | $ | 235 |
| | $ | 1,154 |
| | $ | 628 |
| | $ | 200 |
| | $ | 1,297 |
| | $ | 409 |
| | $ | 200 |
| | $ | 10,542 |
| $ | 5,118 |
| | $ | 2,464 |
| | $ | 122 |
| | $ | 278 |
| | $ | 1,244 |
| | $ | 382 |
| | $ | 212 |
| | $ | 1,379 |
| | $ | 443 |
| | $ | 292 |
| | $ | 11,934 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 2,189 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 549 |
| | $ | — |
| | $ | — |
| | $ | 253 |
| | $ | 12 |
| | $ | — |
| | $ | 3,003 |
| $ | 777 |
| | $ | 1,841 |
| | $ | 224 |
| | $ | 466 |
| | $ | — |
| | $ | — |
| | $ | 451 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 3,759 |
|
Collectively evaluated | 486,411 |
| | 237,548 |
| | 11,102 |
| | 27,831 |
| | 113,313 |
| | 56,061 |
| | 33,615 |
| | 190,933 |
| | 65,631 |
| | 18,254 |
| | 1,240,699 |
| 624,673 |
| | 304,793 |
| | 11,159 |
| | 33,441 |
| | 165,687 |
| | 60,297 |
| | 37,545 |
| | 221,613 |
| | 88,053 |
| | 27,115 |
| | 1,574,376 |
|
Total loans | $ | 488,600 |
| | $ | 237,548 |
| | $ | 11,102 |
| | $ | 27,831 |
| | $ | 113,862 |
| | $ | 56,061 |
| | $ | 33,615 |
| | $ | 191,186 |
| | $ | 65,643 |
| | $ | 18,254 |
| | $ | 1,243,702 |
| $ | 625,450 |
| | $ | 306,634 |
| | $ | 11,383 |
| | $ | 33,907 |
| | $ | 165,687 |
| | $ | 60,297 |
| | $ | 37,996 |
| | $ | 221,613 |
| | $ | 88,053 |
| | $ | 27,115 |
| | $ | 1,578,135 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 4,192 |
| | 2,115 |
| | 112 |
| | 235 |
| | 1,154 |
| | 628 |
| | 200 |
| | 1,297 |
| | 409 |
| | 200 |
| | 10,542 |
| 5,118 |
| | 2,464 |
| | 122 |
| | 278 |
| | 1,244 |
| | 382 |
| | 212 |
| | 1,379 |
| | 443 |
| | 292 |
| | 11,934 |
|
Net loans | $ | 484,408 |
| | $ | 235,433 |
| | $ | 10,990 |
| | $ | 27,596 |
| | $ | 112,708 |
| | $ | 55,433 |
| | $ | 33,415 |
| | $ | 189,889 |
| | $ | 65,234 |
| | $ | 18,054 |
| | $ | 1,233,160 |
| $ | 620,332 |
| | $ | 304,170 |
| | $ | 11,261 |
| | $ | 33,629 |
| | $ | 164,443 |
| | $ | 59,915 |
| | $ | 37,784 |
| | $ | 220,234 |
| | $ | 87,610 |
| | $ | 26,823 |
| | $ | 1,566,201 |
|
| | | Acquired – Year Ended December 31, 2017 | Acquired – Six Months Ended June 30, 2019 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 769 |
| | $ | 604 |
| | $ | 28 |
| | $ | 63 |
| | $ | 231 |
| | $ | 118 |
| | $ | 38 |
| | $ | 412 |
| | $ | 88 |
| | $ | 20 |
| | $ | 2,371 |
| $ | 588 |
| | $ | 408 |
| | $ | 11 |
| | $ | 46 |
| | $ | 240 |
| | $ | 79 |
| | $ | — |
| | $ | 246 |
| | $ | 64 |
| | $ | 23 |
| | $ | 1,705 |
|
Provision | (10 | ) | | (118 | ) | | (11 | ) | | (2 | ) | | 2 |
| | (7 | ) | | 13 |
| | (123 | ) | | (9 | ) | | 5 |
| | (260 | ) | (14 | ) | | (19 | ) | | 3 |
| | — |
| | (33 | ) | | (16 | ) | | 34 |
| | (23 | ) | | 58 |
| | — |
| | (10 | ) |
Charge-offs | (54 | ) | | — |
| | — |
| | — |
| | — |
| | (13 | ) | | — |
| | — |
| | — |
| | — |
| | (67 | ) | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (60 | ) | | — |
| | (60 | ) |
Recoveries | 37 |
| | 6 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | 23 |
| | — |
| | — |
| | 67 |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | — |
| | 2 |
|
Net charge-offs | (17 | ) | | 6 |
| | — |
| | — |
| | 1 |
| | (13 | ) | | — |
| | 23 |
| | — |
| | — |
| | — |
| |
Net (charge-offs) recoveries | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (58 | ) | | — |
| | (58 | ) |
Ending balance | $ | 742 |
| | $ | 492 |
| | $ | 17 |
| | $ | 61 |
| | $ | 234 |
| | $ | 98 |
| | $ | 51 |
| | $ | 312 |
| | $ | 79 |
| | $ | 25 |
| | $ | 2,111 |
| $ | 574 |
| | $ | 389 |
| | $ | 14 |
| | $ | 46 |
| | $ | 207 |
| | $ | 63 |
| | $ | 34 |
| | $ | 223 |
| | $ | 64 |
| | $ | 23 |
| | $ | 1,637 |
|
As percent of ALLL | 35.1 | % | | 23.3 | % | | 0.8 | % | | 2.9 | % | | 11.1 | % | | 4.6 | % | | 2.4 | % | | 14.8 | % | | 3.7 | % | | 1.3 | % | | 100.0 | % | |
| | | | | | | | | | | | | | | | | | | | | | |
As % of ALLL | | 35 | % | | 24 | % | | 1 | % | | 3 | % | | 13 | % | | 4 | % | | 2 | % | | 13 | % | | 4 | % | | 1 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated | 742 |
| | 492 |
| | 17 |
| | 61 |
| | 234 |
| | 98 |
| | 51 |
| | 312 |
| | 79 |
| | 25 |
| | 2,111 |
| 574 |
| | 389 |
| | 14 |
| | 46 |
| | 207 |
| | 63 |
| | 34 |
| | 223 |
| | 64 |
| | 23 |
| | 1,637 |
|
Ending balance | $ | 742 |
| | $ | 492 |
| | $ | 17 |
| | $ | 61 |
| | $ | 234 |
| | $ | 98 |
| | $ | 51 |
| | $ | 312 |
| | $ | 79 |
| | $ | 25 |
| | $ | 2,111 |
| $ | 574 |
| | $ | 389 |
| | $ | 14 |
| | $ | 46 |
| | $ | 207 |
| | $ | 63 |
| | $ | 34 |
| | $ | 223 |
| | $ | 64 |
| | $ | 23 |
| | $ | 1,637 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Loans: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 3,681 |
| | $ | 1,689 |
| | $ | — |
| | $ | 248 |
| | $ | 4,741 |
| | $ | 1,053 |
| | $ | 80 |
| | $ | 2,548 |
| | $ | 166 |
| | $ | 12 |
| | $ | 14,218 |
| $ | 1,699 |
| | $ | 893 |
| | $ | 177 |
| | $ | 268 |
| | $ | 1,520 |
| | $ | 472 |
| | $ | — |
| | $ | 2,632 |
| | $ | 224 |
| | $ | 12 |
| | $ | 7,897 |
|
Collectively evaluated | 145,056 |
| | 190,806 |
| | 24,353 |
| | 23,699 |
| | 195,860 |
| | 32,546 |
| | 3,300 |
| | 169,618 |
| | 40,218 |
| | 4,549 |
| | 830,005 |
| 110,779 |
| | 140,027 |
| | 24,205 |
| | 19,310 |
| | 159,613 |
| | 12,339 |
| | 250 |
| | 120,816 |
| | 28,156 |
| | 1,746 |
| | 617,241 |
|
Total loans | $ | 148,737 |
| | $ | 192,495 |
| | $ | 24,353 |
| | $ | 23,947 |
| | $ | 200,601 |
| | $ | 33,599 |
| | $ | 3,380 |
| | $ | 172,166 |
| | $ | 40,384 |
| | $ | 4,561 |
| | $ | 844,223 |
| $ | 112,478 |
| | $ | 140,920 |
| | $ | 24,382 |
| | $ | 19,578 |
| | $ | 161,133 |
| | $ | 12,811 |
| | $ | 250 |
| | $ | 123,448 |
| | $ | 28,380 |
| | $ | 1,758 |
| | $ | 625,138 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Less ALLL | 742 |
| | 492 |
| | 17 |
| | 61 |
| | 234 |
| | 98 |
| | 51 |
| | 312 |
| | 79 |
| | 25 |
| | 2,111 |
| 574 |
| | 389 |
| | 14 |
| | 46 |
| | 207 |
| | 63 |
| | 34 |
| | 223 |
| | 64 |
| | 23 |
| | 1,637 |
|
Net loans | $ | 147,995 |
| | $ | 192,003 |
| | $ | 24,336 |
| | $ | 23,886 |
| | $ | 200,367 |
| | $ | 33,501 |
| | $ | 3,329 |
| | $ | 171,854 |
| | $ | 40,305 |
| | $ | 4,536 |
| | $ | 842,112 |
| $ | 111,904 |
| | $ | 140,531 |
| | $ | 24,368 |
| | $ | 19,532 |
| | $ | 160,926 |
| | $ | 12,748 |
| | $ | 216 |
| | $ | 123,225 |
| | $ | 28,316 |
| | $ | 1,735 |
| | $ | 623,501 |
|
For comparison purposes, the following tables present the balance and activity in the ALLL by portfolio segment and the recorded investment in loans by portfolio segment for the prior year-end period. |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| TOTAL – Year Ended December 31, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 4,934 |
| | $ | 2,607 |
| | $ | 129 |
| | $ | 296 |
| | $ | 1,388 |
| | $ | 726 |
| | $ | 251 |
| | $ | 1,609 |
| | $ | 488 |
| | $ | 225 |
| | $ | 12,653 |
|
Provision | 1,107 |
| | 300 |
| | (8 | ) | | 5 |
| | 119 |
| | (216 | ) | | (40 | ) | | 117 |
| | (51 | ) | | 267 |
| | 1,600 |
|
Charge-offs | (813 | ) | | (74 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (85 | ) | | — |
| | (204 | ) | | (1,213 | ) |
Recoveries | 43 |
| | 14 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 5 |
| | 35 |
| | 16 |
| | 113 |
|
Net (charge-offs) recoveries | (770 | ) | | (60 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (80 | ) | | 35 |
| | (188 | ) | | (1,100 | ) |
Ending balance | $ | 5,271 |
| | $ | 2,847 |
| | $ | 121 |
| | $ | 301 |
| | $ | 1,470 |
| | $ | 510 |
| | $ | 211 |
| | $ | 1,646 |
| | $ | 472 |
| | $ | 304 |
| | $ | 13,153 |
|
As % of ALLL | 40 | % | | 22 | % | | 1 | % | | 2 | % | | 11 | % | | 4 | % | | 2 | % | | 12 | % | | 4 | % | | 2 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated | 5,271 |
| | 2,847 |
| | 121 |
| | 301 |
| | 1,470 |
| | 510 |
| | 211 |
| | 1,646 |
| | 472 |
| | 304 |
| | 13,153 |
|
Ending balance | $ | 5,271 |
| | $ | 2,847 |
| | $ | 121 |
| | $ | 301 |
| | $ | 1,470 |
| | $ | 510 |
| | $ | 211 |
| | $ | 1,646 |
| | $ | 472 |
| | $ | 304 |
| | $ | 13,153 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 2,927 |
| | $ | 1,506 |
| | $ | — |
| | $ | 222 |
| | $ | 1,686 |
| | $ | 603 |
| | $ | — |
| | $ | 2,750 |
| | $ | 233 |
| | $ | 12 |
| | $ | 9,939 |
|
Collectively evaluated | 681,993 |
| | 439,847 |
| | 35,625 |
| | 53,222 |
| | 341,966 |
| | 79,996 |
| | 30,926 |
| | 355,091 |
| | 111,095 |
| | 26,481 |
| | 2,156,242 |
|
Total loans | $ | 684,920 |
| | $ | 441,353 |
| | $ | 35,625 |
| | $ | 53,444 |
| | $ | 343,652 |
| | $ | 80,599 |
| | $ | 30,926 |
| | $ | 357,841 |
| | $ | 111,328 |
| | $ | 26,493 |
| | $ | 2,166,181 |
|
Less ALLL | 5,271 |
| | 2,847 |
| | 121 |
| | 301 |
| | 1,470 |
| | 510 |
| | 211 |
| | 1,646 |
| | 472 |
| | 304 |
| | 13,153 |
|
Net loans | $ | 679,649 |
| | $ | 438,506 |
| | $ | 35,504 |
| | $ | 53,143 |
| | $ | 342,182 |
| | $ | 80,089 |
| | $ | 30,715 |
| | $ | 356,195 |
| | $ | 110,856 |
| | $ | 26,189 |
| | $ | 2,153,028 |
|
As a further breakdown, the ALLL is summarized by originated and acquired as follows.
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Originated – Year Ended December 31, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 4,192 |
| | $ | 2,115 |
| | $ | 112 |
| | $ | 235 |
| | $ | 1,154 |
| | $ | 628 |
| | $ | 200 |
| | $ | 1,297 |
| | $ | 409 |
| | $ | 200 |
| | $ | 10,542 |
|
Provision | 1,262 |
| | 385 |
| | (2 | ) | | 20 |
| | 113 |
| | (197 | ) | | 11 |
| | 187 |
| | (31 | ) | | 266 |
| | 2,014 |
|
Charge-offs | (813 | ) | | (64 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (85 | ) | | — |
| | (201 | ) | | (1,200 | ) |
Recoveries | 42 |
| | 3 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 1 |
| | 30 |
| | 16 |
| | 92 |
|
Net (charge-offs) recoveries | (771 | ) | | (61 | ) | | — |
| | — |
| | (37 | ) | | — |
| | — |
| | (84 | ) | | 30 |
| | (185 | ) | | (1,108 | ) |
Ending balance | $ | 4,683 |
| | $ | 2,439 |
| | $ | 110 |
| | $ | 255 |
| | $ | 1,230 |
| | $ | 431 |
| | $ | 211 |
| | $ | 1,400 |
| | $ | 408 |
| | $ | 281 |
| | $ | 11,448 |
|
As % of ALLL | 41 | % | | 21 | % | | 1 | % | | 2 | % | | 11 | % | | 4 | % | | 2 | % | | 12 | % | | 4 | % | | 2 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated | 4,683 |
| | 2,439 |
| | 110 |
| | 255 |
| | 1,230 |
| | 431 |
| | 211 |
| | 1,400 |
| | 408 |
| | 281 |
| | 11,448 |
|
Ending balance | $ | 4,683 |
| | $ | 2,439 |
| | $ | 110 |
| | $ | 255 |
| | $ | 1,230 |
| | $ | 431 |
| | $ | 211 |
| | $ | 1,400 |
| | $ | 408 |
| | $ | 281 |
| | $ | 11,448 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 227 |
| | $ | 321 |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 548 |
|
Collectively evaluated | 567,873 |
| | 283,210 |
| | 11,113 |
| | 31,374 |
| | 171,087 |
| | 66,478 |
| | 30,926 |
| | 220,368 |
| | 78,379 |
| | 23,809 |
| | 1,484,617 |
|
Total loans | $ | 568,100 |
| | $ | 283,531 |
| | $ | 11,113 |
| | $ | 31,374 |
| | $ | 171,087 |
| | $ | 66,478 |
| | $ | 30,926 |
| | $ | 220,368 |
| | $ | 78,379 |
| | $ | 23,809 |
| | $ | 1,485,165 |
|
Less ALLL | 4,683 |
| | 2,439 |
| | 110 |
| | 255 |
| | 1,230 |
| | 431 |
| | 211 |
| | 1,400 |
| | 408 |
| | 281 |
| | 11,448 |
|
Net loans | $ | 563,417 |
| | $ | 281,092 |
| | $ | 11,003 |
| | $ | 31,119 |
| | $ | 169,857 |
| | $ | 66,047 |
| | $ | 30,715 |
| | $ | 218,968 |
| | $ | 77,971 |
| | $ | 23,528 |
| | $ | 1,473,717 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Acquired – Year Ended December 31, 2018 |
(in thousands) | Commercial & industrial | | Owner- occupied CRE | | AG production | | AG real estate | | CRE investment | | Construction & land development | | Residential construction | | Residential first mortgage | | Residential junior mortgage | | Retail & other | | Total |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Beginning balance | $ | 742 |
| | $ | 492 |
| | $ | 17 |
| | $ | 61 |
| | $ | 234 |
| | $ | 98 |
| | $ | 51 |
| | $ | 312 |
| | $ | 79 |
| | $ | 25 |
| | $ | 2,111 |
|
Provision | (155 | ) | | (85 | ) | | (6 | ) | | (15 | ) | | 6 |
| | (19 | ) | | (51 | ) | | (70 | ) | | (20 | ) | | 1 |
| | (414 | ) |
Charge-offs | — |
| | (10 | ) | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (3 | ) | | (13 | ) |
Recoveries | 1 |
| | 11 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | 5 |
| | — |
| | 21 |
|
Net (charge-offs) recoveries | 1 |
| | 1 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 4 |
| | 5 |
| | (3 | ) | | 8 |
|
Ending balance | $ | 588 |
| | $ | 408 |
| | $ | 11 |
| | $ | 46 |
| | $ | 240 |
| | $ | 79 |
| | $ | — |
| | $ | 246 |
| | $ | 64 |
| | $ | 23 |
| | $ | 1,705 |
|
As % of ALLL | 34 | % | | 24 | % | | 1 | % | | 3 | % | | 14 | % | | 5 | % | | — | % | | 14 | % | | 4 | % | | 1 | % | | 100 | % |
ALLL: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
|
Collectively evaluated | 588 |
| | 408 |
| | 11 |
| | 46 |
| | 240 |
| | 79 |
| | — |
| | 246 |
| | 64 |
| | 23 |
| | 1,705 |
|
Ending balance | $ | 588 |
| | $ | 408 |
| | $ | 11 |
| | $ | 46 |
| | $ | 240 |
| | $ | 79 |
| | $ | — |
| | $ | 246 |
| | $ | 64 |
| | $ | 23 |
| | $ | 1,705 |
|
Loans: | | | | | | | | | | | | | | | | | | | | | |
Individually evaluated | $ | 2,700 |
| | $ | 1,185 |
| | $ | — |
| | $ | 222 |
| | $ | 1,686 |
| | $ | 603 |
| | $ | — |
| | $ | 2,750 |
| | $ | 233 |
| | $ | 12 |
| | $ | 9,391 |
|
Collectively evaluated | 114,120 |
| | 156,637 |
| | 24,512 |
| | 21,848 |
| | 170,879 |
| | 13,518 |
| | — |
| | 134,723 |
| | 32,716 |
| | 2,672 |
| | 671,625 |
|
Total loans | $ | 116,820 |
| | $ | 157,822 |
| | $ | 24,512 |
| | $ | 22,070 |
| | $ | 172,565 |
| | $ | 14,121 |
| | $ | — |
| | $ | 137,473 |
| | $ | 32,949 |
| | $ | 2,684 |
| | $ | 681,016 |
|
Less ALLL | 588 |
| | 408 |
| | 11 |
| | 46 |
| | 240 |
| | 79 |
| | — |
| | 246 |
| | 64 |
| | 23 |
| | 1,705 |
|
Net loans | $ | 116,232 |
| | $ | 157,414 |
| | $ | 24,501 |
| | $ | 22,024 |
| | $ | 172,325 |
| | $ | 14,042 |
| | $ | — |
| | $ | 137,227 |
| | $ | 32,885 |
| | $ | 2,661 |
| | $ | 679,311 |
|
The following table presents nonaccrual loans by portfolio segment in total and then as a further breakdown by originated or acquired.
| | | Total Nonaccrual Loans | Total Nonaccrual Loans |
(in thousands) | September 30, 2018 | | % of Total | | December 31, 2017 | | % of Total | June 30, 2019 | | % of Total | | December 31, 2018 | | % of Total |
Commercial & industrial | $ | 5,803 |
| | 57.0 | % | | $ | 6,016 |
| | 46.0 | % | $ | 2,673 |
| | 35 | % | | $ | 2,816 |
| | 52 | % |
Owner-occupied CRE | 474 |
| | 4.6 |
| | 533 |
| | 4.1 |
| 2,462 |
| | 32 |
| | 673 |
| | 12 |
|
AG production | — |
| | — |
| | — |
| | — |
| 401 |
| | 5 |
| | — |
| | — |
|
AG real estate | 175 |
| | 1.7 |
| | 186 |
| | 1.4 |
| 427 |
| | 6 |
| | 164 |
| | 3 |
|
CRE investment | 1,381 |
| | 13.6 |
| | 4,531 |
| | 34.6 |
| 175 |
| | 2 |
| | 210 |
| | 4 |
|
Construction & land development | 80 |
| | 0.8 |
| | — |
| | — |
| — |
| | — |
| | 80 |
| | 1 |
|
Residential construction | 28 |
| | 0.3 |
| | 80 |
| | 0.6 |
| 451 |
| | 6 |
| | 1 |
| | — |
|
Residential first mortgage | 1,973 |
| | 19.4 |
| | 1,587 |
| | 12.1 |
| 739 |
| | 10 |
| | 1,265 |
| | 23 |
|
Residential junior mortgage | 268 |
| | 2.6 |
| | 158 |
| | 1.2 |
| 314 |
| | 4 |
| | 262 |
| | 5 |
|
Retail & other | — |
| | — |
| | 4 |
| | — |
| 8 |
| | — |
| | — |
| | — |
|
Nonaccrual loans | $ | 10,182 |
| | 100.0 | % | | $ | 13,095 |
| | 100.0 | % | $ | 7,650 |
| | 100 | % | | $ | 5,471 |
| | 100 | % |
Percent of total loans | 0.5 | % | | | | 0.6 | % | | | 0.3 | % | | | | 0.2 | % | | |
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
(in thousands) | Originated Amount | | % of Total | | Acquired Amount | | % of Total | | Originated Amount | | % of Total | | Acquired Amount | | % of Total | Originated Amount | | % of Total | | Acquired Amount | | % of Total | | Originated Amount | | % of Total | | Acquired Amount | | % of Total |
Commercial & industrial | $ | 2,729 |
| | 55.9 | % | | $ | 3,074 |
| | 58.0 | % | | $ | 2,296 |
| | 70.0 | % | | $ | 3,720 |
| | 37.9 | % | $ | 953 |
| | 23 | % | | $ | 1,720 |
| | 51 | % | | $ | 352 |
| | 25 | % | | $ | 2,464 |
| | 61 | % |
Owner-occupied CRE | 360 |
| | 7.4 |
| | 114 |
| | 2.2 |
| | 86 |
| | 2.6 |
| | 447 |
| | 4.6 |
| 1,841 |
| | 43 |
| | 621 |
| | 18 |
| | 362 |
| | 26 |
| | 311 |
| | 8 |
|
AG production | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| 224 |
| | 5 |
| | 177 |
| | 5 |
| | — |
| | — |
| | — |
| | — |
|
AG real estate | — |
| | — |
| | 175 |
| | 3.3 |
| | — |
| | — |
| | 186 |
| | 1.9 |
| 216 |
| | 5 |
| | 211 |
| | 6 |
| | — |
| | — |
| | 164 |
| | 4 |
|
CRE investment | 918 |
| | 18.8 |
| | 463 |
| | 8.7 |
| | 549 |
| | 16.8 |
| | 3,982 |
| | 40.6 |
| — |
| | — |
| | 175 |
| | 5 |
| | — |
| | — |
| | 210 |
| | 5 |
|
Construction & land development | — |
| | — |
| | 80 |
| | 1.5 |
| | — |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 80 |
| | 2 |
|
Residential construction | 28 |
| | 0.6 |
| | — |
| | — |
| | — |
| | — |
| | 80 |
| | 0.8 |
| 451 |
| | 11 |
| | — |
| | — |
| | 1 |
| | — |
| | — |
| | — |
|
Residential first mortgage | 777 |
| | 15.9 |
| | 1,196 |
| | 22.5 |
| | 331 |
| | 10.1 |
| | 1,256 |
| | 12.8 |
| 472 |
| | 11 |
| | 267 |
| | 8 |
| | 629 |
| | 45 |
| | 636 |
| | 15 |
|
Residential junior mortgage | 66 |
| | 1.4 |
| | 202 |
| | 3.8 |
| | 12 |
| | 0.4 |
| | 146 |
| | 1.4 |
| 98 |
| | 2 |
| | 216 |
| | 7 |
| | 65 |
| | 4 |
| | 197 |
| | 5 |
|
Retail & other | — |
| | — |
| | — |
| | — |
| | 4 |
| | 0.1 |
| | — |
| | — |
| — |
| | — |
| | 8 |
| | — |
| | — |
| | — |
| | — |
| | — |
|
Nonaccrual loans | $ | 4,878 |
| | 100.0 | % | | $ | 5,304 |
| | 100.0 | % | | $ | 3,278 |
| | 100.0 | % | | $ | 9,817 |
| | 100.0 | % | $ | 4,255 |
| | 100 | % | | $ | 3,395 |
| | 100 | % | | $ | 1,409 |
| | 100 | % | | $ | 4,062 |
| | 100 | % |
Percent of nonaccrual loans | 47.9 | % | | | | 52.1 | % | | | | 25.0 | % | | | | 75.0 | % | | | 56 | % | | | | 44 | % | | | | 26 | % | | | | 74 | % | | |
The following tables present past due loans by portfolio segment.
| | | September 30, 2018 | June 30, 2019 |
(in thousands) | 30-89 Days Past Due (accruing) | | 90 Days & Over or nonaccrual | | Current | | Total | 30-89 Days Past Due (accruing) | | 90 Days & Over or nonaccrual | | Current | | Total |
Commercial & industrial | $ | 30 |
| | $ | 5,803 |
| | $ | 659,921 |
| | $ | 665,754 |
| $ | 344 |
| | $ | 2,673 |
| | $ | 734,911 |
| | $ | 737,928 |
|
Owner-occupied CRE | — |
| | 474 |
| | 448,677 |
| | 449,151 |
| — |
| | 2,462 |
| | 445,092 |
| | 447,554 |
|
AG production | — |
| | — |
| | 35,727 |
| | 35,727 |
| — |
| | 401 |
| | 35,364 |
| | 35,765 |
|
AG real estate | 48 |
| | 175 |
| | 52,155 |
| | 52,378 |
| — |
| | 427 |
| | 53,058 |
| | 53,485 |
|
CRE investment | — |
| | 1,381 |
| | 329,931 |
| | 331,312 |
| — |
| | 175 |
| | 326,645 |
| | 326,820 |
|
Construction & land development | 104 |
| | 80 |
| | 86,349 |
| | 86,533 |
| 71 |
| | — |
| | 73,037 |
| | 73,108 |
|
Residential construction | 212 |
| | 28 |
| | 30,055 |
| | 30,295 |
| 841 |
| | 451 |
| | 36,954 |
| | 38,246 |
|
Residential first mortgage | 638 |
| | 1,973 |
| | 354,552 |
| | 357,163 |
| 383 |
| | 739 |
| | 343,939 |
| | 345,061 |
|
Residential junior mortgage | 31 |
| | 268 |
| | 109,393 |
| | 109,692 |
| 536 |
| | 314 |
| | 115,583 |
| | 116,433 |
|
Retail & other | 61 |
| | — |
| | 25,391 |
| | 25,452 |
| 122 |
| | 8 |
| | 28,743 |
| | 28,873 |
|
Total loans | $ | 1,124 |
| | $ | 10,182 |
| | $ | 2,132,151 |
| | $ | 2,143,457 |
| $ | 2,297 |
| | $ | 7,650 |
| | $ | 2,193,326 |
| | $ | 2,203,273 |
|
Percent of total loans | 0.1 | % | | 0.4 | % | | 99.5 | % | | 100.0 | % | 0.1 | % | | 0.3 | % | | 99.6 | % | | 100.0 | % |
| | | December 31, 2017 | December 31, 2018 |
(in thousands) | 30-89 Days Past Due (accruing) | | 90 Days & Over or nonaccrual | | Current | | Total | 30-89 Days Past Due (accruing) | | 90 Days & Over or nonaccrual | | Current | | Total |
Commercial & industrial | $ | 211 |
| | $ | 6,016 |
| | $ | 631,110 |
| | $ | 637,337 |
| $ | — |
| | $ | 2,816 |
| | $ | 682,104 |
| | $ | 684,920 |
|
Owner-occupied CRE | 671 |
| | 533 |
| | 428,839 |
| | 430,043 |
| 557 |
| | 673 |
| | 440,123 |
| | 441,353 |
|
AG production | 30 |
| | — |
| | 35,425 |
| | 35,455 |
| 19 |
| | — |
| | 35,606 |
| | 35,625 |
|
AG real estate | — |
| | 186 |
| | 51,592 |
| | 51,778 |
| 35 |
| | 164 |
| | 53,245 |
| | 53,444 |
|
CRE investment | — |
| | 4,531 |
| | 309,932 |
| | 314,463 |
| 180 |
| | 210 |
| | 343,262 |
| | 343,652 |
|
Construction & land development | 76 |
| | — |
| | 89,584 |
| | 89,660 |
| — |
| | 80 |
| | 80,519 |
| | 80,599 |
|
Residential construction | 587 |
| | 80 |
| | 36,328 |
| | 36,995 |
| — |
| | 1 |
| | 30,925 |
| | 30,926 |
|
Residential first mortgage | 1,039 |
| | 1,587 |
| | 360,726 |
| | 363,352 |
| 758 |
| | 1,265 |
| | 355,818 |
| | 357,841 |
|
Residential junior mortgage | 14 |
| | 158 |
| | 105,855 |
| | 106,027 |
| 12 |
| | 262 |
| | 111,054 |
| | 111,328 |
|
Retail & other | 4 |
| | 4 |
| | 22,807 |
| | 22,815 |
| 10 |
| | — |
| | 26,483 |
| | 26,493 |
|
Total loans | $ | 2,632 |
| | $ | 13,095 |
| | $ | 2,072,198 |
| | $ | 2,087,925 |
| $ | 1,571 |
| | $ | 5,471 |
| | $ | 2,159,139 |
| | $ | 2,166,181 |
|
Percent of total loans | 0.1 | % | | 0.6 | % | | 99.3 | % | | 100.0 | % | 0.1 | % | | 0.2 | % | | 99.7 | % | | 100.0 | % |
A description of the loan risk categories used by the Company follows.
Grades 1-4, Pass: Credits exhibit adequate cash flows, appropriate management and financial ratios within industry norms and/or are supported by sufficient collateral. Some credits in these rating categories may require a need for monitoring but elements of concern are not severe enough to warrant an elevated rating.
Grade 5, Watch: Credits with this rating are adequately secured and performing but are being monitored due to the presence of various short-term weaknesses which may include unexpected, short-term adverse financial performance, managerial problems, potential impact of a decline in the entire industry or local economy and delinquency issues. Loans to individuals or loans supported by guarantors with marginal net worth or collateral may be included in this rating category.
Grade 6, Special Mention: Credits with this rating have potential weaknesses that, without the Company’s attention and correction may result in deterioration of repayment prospects. These assets are considered Criticized Assets. Potential weaknesses may include adverse financial trends for the borrower or industry, repeated lack of compliance with Company requests, increasing debt to net worth, serious management conditions and decreasing cash flow.
Grade 7, Substandard: Assets with this rating are characterized by the distinct possibility the Company will sustain some loss if deficiencies are not corrected. All foreclosures, liquidations, and nonaccrual loans are considered to be categorized in this rating, regardless of collateral sufficiency.
Grade 8, Doubtful: Assets with this rating exhibit all the weaknesses as one rated Substandard with the added characteristic that such weaknesses make collection or liquidation in full highly questionable.
Grade 9, Loss: Assets in this category are considered uncollectible. Pursuing any recovery or salvage value is impractical but does not preclude partial recovery in the future.
The following tables present total loans by risk categories.
| | | September 30, 2018 | June 30, 2019 |
(in thousands) | Grades 1- 4 | | Grade 5 | | Grade 6 | | Grade 7 | | Grade 8 | | Grade 9 | | Total | Grades 1- 4 | | Grade 5 | | Grade 6 | | Grade 7 | | Grade 8 | | Grade 9 | | Total |
Commercial & industrial | $ | 630,681 |
| | $ | 20,123 |
| | $ | 2,725 |
| | $ | 12,225 |
| | $ | — |
| | $ | — |
| | $ | 665,754 |
| $ | 702,261 |
| | $ | 20,234 |
| | $ | 2,413 |
| | $ | 13,020 |
| | $ | — |
| | $ | — |
| | $ | 737,928 |
|
Owner-occupied CRE | 412,146 |
| | 28,643 |
| | 2,234 |
| | 6,128 |
| | — |
| | — |
| | 449,151 |
| 418,203 |
| | 16,027 |
| | 2,464 |
| | 10,860 |
| | — |
| | — |
| | 447,554 |
|
AG production | 30,195 |
| | 2,892 |
| | 2,342 |
| | 298 |
| | — |
| | — |
| | 35,727 |
| 26,000 |
| | 5,096 |
| | 1,622 |
| | 3,047 |
| | — |
| | — |
| | 35,765 |
|
AG real estate | 45,288 |
| | 3,483 |
| | 3,026 |
| | 581 |
| | — |
| | — |
| | 52,378 |
| 40,983 |
| | 6,645 |
| | 2,367 |
| | 3,490 |
| | — |
| | — |
| | 53,485 |
|
CRE investment | 321,138 |
| | 7,086 |
| | 1,006 |
| | 2,082 |
| | — |
| | — |
| | 331,312 |
| 322,209 |
| | 2,569 |
| | 890 |
| | 1,152 |
| | — |
| | — |
| | 326,820 |
|
Construction & land development | 81,296 |
| | 5,141 |
| | 16 |
| | 80 |
| | — |
| | — |
| | 86,533 |
| 73,040 |
| | 52 |
| | 16 |
| | — |
| | — |
| | — |
| | 73,108 |
|
Residential construction | 30,267 |
| | — |
| | — |
| | 28 |
| | — |
| | — |
| | 30,295 |
| 37,795 |
| | — |
| | — |
| | 451 |
| | — |
| | — |
| | 38,246 |
|
Residential first mortgage | 352,778 |
| | 1,388 |
| | 520 |
| | 2,477 |
| | — |
| | — |
| | 357,163 |
| 340,609 |
| | 1,360 |
| | 1,264 |
| | 1,828 |
| | — |
| | — |
| | 345,061 |
|
Residential junior mortgage | 109,394 |
| | 17 |
| | — |
| | 281 |
| | — |
| | — |
| | 109,692 |
| 116,092 |
| | 17 |
| | — |
| | 324 |
| | — |
| | — |
| | 116,433 |
|
Retail & other | 25,452 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 25,452 |
| 28,865 |
| | — |
| | — |
| | 8 |
| | — |
| | — |
| | 28,873 |
|
Total loans | $ | 2,038,635 |
| | $ | 68,773 |
| | $ | 11,869 |
| | $ | 24,180 |
| | $ | — |
| | $ | — |
| | $ | 2,143,457 |
| $ | 2,106,057 |
| | $ | 52,000 |
| | $ | 11,036 |
| | $ | 34,180 |
| | $ | — |
| | $ | — |
| | $ | 2,203,273 |
|
Percent of total | 95.1 | % | | 3.2 | % | | 0.6 | % | | 1.1 | % | | — |
| | — |
| | 100.0 | % | 95.6 | % | | 2.4 | % | | 0.5 | % | | 1.5 | % | | — |
| | — |
| | 100.0 | % |
| | | December 31, 2017 | December 31, 2018 |
(in thousands) | Grades 1- 4 | | Grade 5 | | Grade 6 | | Grade 7 | | Grade 8 | | Grade 9 | | Total | Grades 1- 4 | | Grade 5 | | Grade 6 | | Grade 7 | | Grade 8 | | Grade 9 | | Total |
Commercial & industrial | $ | 597,854 |
| | $ | 12,999 |
| | $ | 16,129 |
| | $ | 10,355 |
| | $ | — |
| | $ | — |
| | $ | 637,337 |
| $ | 649,475 |
| | $ | 16,145 |
| | $ | 6,178 |
| | $ | 13,122 |
| | $ | — |
| | $ | — |
| | $ | 684,920 |
|
Owner-occupied CRE | 397,357 |
| | 23,340 |
| | 6,442 |
| | 2,904 |
| | — |
| | — |
| | 430,043 |
| 405,198 |
| | 22,776 |
| | 6,569 |
| | 6,810 |
| | — |
| | — |
| | 441,353 |
|
AG production | 30,431 |
| | 4,000 |
| | — |
| | 1,024 |
| | — |
| | — |
| | 35,455 |
| 29,363 |
| | 3,302 |
| | 2,351 |
| | 609 |
| | — |
| | — |
| | 35,625 |
|
AG real estate | 44,321 |
| | 4,873 |
| | — |
| | 2,584 |
| | — |
| | — |
| | 51,778 |
| 46,248 |
| | 3,246 |
| | 2,983 |
| | 967 |
| | — |
| | — |
| | 53,444 |
|
CRE investment | 299,926 |
| | 8,399 |
| | 190 |
| | 5,948 |
| | — |
| | — |
| | 314,463 |
| 334,080 |
| | 6,792 |
| | — |
| | 2,780 |
| | — |
| | — |
| | 343,652 |
|
Construction & land development | 86,011 |
| | 2,758 |
| | 17 |
| | 874 |
| | — |
| | — |
| | 89,660 |
| 75,365 |
| | 5,138 |
| | 16 |
| | 80 |
| | — |
| | — |
| | 80,599 |
|
Residential construction | 36,915 |
| | — |
| | — |
| | 80 |
| | — |
| | — |
| | 36,995 |
| 30,926 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 30,926 |
|
Residential first mortgage | 358,067 |
| | 1,868 |
| | 683 |
| | 2,734 |
| | — |
| | — |
| | 363,352 |
| 353,239 |
| | 1,406 |
| | 510 |
| | 2,686 |
| | — |
| | — |
| | 357,841 |
|
Residential junior mortgage | 105,736 |
| | 117 |
| | — |
| | 174 |
| | — |
| | — |
| | 106,027 |
| 111,037 |
| | 17 |
| | — |
| | 274 |
| | — |
| | — |
| | 111,328 |
|
Retail & other | 22,811 |
| | — |
| | — |
| | 4 |
| | — |
| | — |
| | 22,815 |
| 26,493 |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 26,493 |
|
Total loans | $ | 1,979,429 |
| | $ | 58,354 |
| | $ | 23,461 |
| | $ | 26,681 |
| | $ | — |
| | $ | — |
| | $ | 2,087,925 |
| $ | 2,061,424 |
| | $ | 58,822 |
| | $ | 18,607 |
| | $ | 27,328 |
| | $ | — |
| | $ | — |
| | $ | 2,166,181 |
|
Percent of total | 94.8 | % | | 2.8 | % | | 1.1 | % | | 1.3 | % | | — |
| | — |
| | 100.0 | % | 95.1 | % | | 2.7 | % | | 0.9 | % | | 1.3 | % | | — |
| | — |
| | 100.0 | % |
The following tables present impaired loans. |
| | | | | | | | | | | | | | | | | | | |
| Total Impaired Loans – June 30, 2019 |
(in thousands) | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Commercial & industrial | $ | 2,476 |
| | $ | 7,253 |
| | $ | 382 |
| | $ | 3,196 |
| | $ | 969 |
|
Owner-occupied CRE | 2,734 |
| | 3,069 |
| | — |
| | 2,812 |
| | 127 |
|
AG production | 401 |
| | 404 |
| | 38 |
| | 402 |
| | 4 |
|
AG real estate | 734 |
| | 734 |
| | — |
| | 735 |
| | — |
|
CRE investment | 1,520 |
| | 1,525 |
| | — |
| | 1,523 |
| | 5 |
|
Construction & land development | 472 |
| | 472 |
| | — |
| | 497 |
| | — |
|
Residential construction | 451 |
| | 451 |
| | — |
| | 451 |
| | — |
|
Residential first mortgage | 2,632 |
| | 2,798 |
| | — |
| | 2,672 |
| | 73 |
|
Residential junior mortgage | 224 |
| | 224 |
| | — |
| | 227 |
| | — |
|
Retail & other | 12 |
| | 15 |
| | — |
| | 12 |
| | 3 |
|
Total | $ | 11,656 |
| | $ | 16,945 |
| | $ | 420 |
| | $ | 12,527 |
| | $ | 1,181 |
|
Originated impaired loans | $ | 3,759 |
| | $ | 3,855 |
| | $ | 420 |
| | $ | 3,829 |
| | $ | 97 |
|
Acquired impaired loans | 7,897 |
| | 13,090 |
| | — |
| | 8,698 |
| | 1,084 |
|
Total | $ | 11,656 |
| | $ | 16,945 |
| | $ | 420 |
| | $ | 12,527 |
| | $ | 1,181 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Total Impaired Loans – September 30, 2018 |
(in thousands) | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Commercial & industrial | $ | 5,858 |
| | $ | 9,737 |
| | $ | — |
| | $ | 6,389 |
| | $ | 534 |
|
Owner-occupied CRE | 1,548 |
| | 2,010 |
| | — |
| | 1,614 |
| | 113 |
|
AG production | — |
| | 6 |
| | — |
| | — |
| | 1 |
|
AG real estate | 234 |
| | 293 |
| | — |
| | 238 |
| | 14 |
|
CRE investment | 2,876 |
| | 3,792 |
| | — |
| | 2,988 |
| | 294 |
|
Construction & land development | 603 |
| | 1,506 |
| | — |
| | 603 |
| | 16 |
|
Residential construction | — |
| | — |
| | — |
| | — |
| | — |
|
Residential first mortgage | 2,663 |
| | 3,122 |
| | — |
| | 2,734 |
| | 159 |
|
Residential junior mortgage | 57 |
| | 360 |
| | — |
| | 62 |
| | 19 |
|
Retail & other | 12 |
| | 13 |
| | — |
| | 12 |
| | 1 |
|
Total | $ | 13,851 |
| | $ | 20,839 |
| | $ | — |
| | $ | 14,640 |
| | $ | 1,151 |
|
| | | | | | | | | |
Originated impaired loans | $ | 4,050 |
| | $ | 4,050 |
| | $ | — |
| | $ | 4,453 |
| | $ | 213 |
|
Acquired impaired loans | 9,801 |
| | 16,789 |
| | — |
| | 10,187 |
| | 938 |
|
Total | $ | 13,851 |
| | $ | 20,839 |
| | $ | — |
| | $ | 14,640 |
| | $ | 1,151 |
|
| | | Total Impaired Loans – December 31, 2017 | Total Impaired Loans – December 31, 2018 |
(in thousands) | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized | Recorded Investment | | Unpaid Principal Balance | | Related Allowance | | Average Recorded Investment | | Interest Income Recognized |
Commercial & industrial | $ | 5,870 |
| | $ | 10,063 |
| | $ | 163 |
| | $ | 6,586 |
| | $ | 718 |
| $ | 2,927 |
| | $ | 6,736 |
| | $ | — |
| | $ | 4,041 |
| | $ | 660 |
|
Owner-occupied CRE | 1,689 |
| | 2,256 |
| | — |
| | 1,333 |
| | 132 |
| 1,506 |
| | 1,833 |
| | — |
| | 1,659 |
| | 137 |
|
AG production | — |
| | 10 |
| | — |
| | — |
| | — |
| — |
| | — |
| | — |
| | — |
| | — |
|
AG real estate | 248 |
| | 307 |
| | — |
| | 233 |
| | 26 |
| 222 |
| | 281 |
| | — |
| | 238 |
| | 26 |
|
CRE investment | 5,290 |
| | 8,102 |
| | — |
| | 5,411 |
| | 465 |
| 1,686 |
| | 2,484 |
| | — |
| | 1,606 |
| | 163 |
|
Construction & land development | 1,053 |
| | 1,053 |
| | — |
| | 813 |
| | 57 |
| 603 |
| | 1,506 |
| | — |
| | 603 |
| | 21 |
|
Residential construction | 80 |
| | 983 |
| | — |
| | 91 |
| | 27 |
| — |
| | — |
| | — |
| | — |
| | — |
|
Residential first mortgage | 2,801 |
| | 3,653 |
| | — |
| | 2,177 |
| | 180 |
| 2,750 |
| | 2,907 |
| | — |
| | 2,478 |
| | 176 |
|
Residential junior mortgage | 178 |
| | 507 |
| | — |
| | 154 |
| | 17 |
| 233 |
| | 262 |
| | — |
| | 62 |
| | 15 |
|
Retail & other | 12 |
| | 14 |
| | — |
| | 12 |
| | 1 |
| 12 |
| | 12 |
| | — |
| | 12 |
| | 1 |
|
Total | $ | 17,221 |
| | $ | 26,948 |
| | $ | 163 |
| | $ | 16,810 |
| | $ | 1,623 |
| $ | 9,939 |
| | $ | 16,021 |
| | $ | — |
| | $ | 10,699 |
| | $ | 1,199 |
|
| | | | | | | | | | |
Originated impaired loans | $ | 3,003 |
| | $ | 3,003 |
| | $ | 163 |
| | $ | 2,964 |
| | $ | 241 |
| $ | 548 |
| | $ | 548 |
| | $ | — |
| | $ | 899 |
| | $ | 154 |
|
Acquired impaired loans | 14,218 |
| | 23,945 |
| | — |
| | 13,846 |
| | 1,382 |
| 9,391 |
| | 15,473 |
| | — |
| | 9,800 |
| | 1,045 |
|
Total | $ | 17,221 |
| | $ | 26,948 |
| | $ | 163 |
| | $ | 16,810 |
| | $ | 1,623 |
| $ | 9,939 |
| | $ | 16,021 |
| | $ | — |
| | $ | 10,699 |
| | $ | 1,199 |
|
Total purchased credit impaired loans (in aggregate since the Company’s 2013 acquisitions) were initially recorded at a fair value of $43.6 million on their respective acquisition dates, net of an initial $34.4 million non-accretablenonaccretable mark and a zero accretable mark. At SeptemberJune 30, 2018, $9.82019, $7.9 million of the $43.6 million remain in impaired loans.
|
| | | | | | | | | | | |
Nonaccretable discount on purchased credit impaired loans: | Six Months Ended | | Year Ended |
(in thousands) | June 30, 2019 | | June 30, 2018 | | December 31, 2018 |
Balance at beginning of period | $ | 6,408 |
| | $ | 9,471 |
| | $ | 9,471 |
|
Accretion to loan interest income | (1,524 | ) | | (1,580 | ) | | (1,976 | ) |
Transferred to accretable | — |
| | (56 | ) | | (990 | ) |
Disposals of loans | — |
| | — |
| | (97 | ) |
Balance at end of period | $ | 4,884 |
| | $ | 7,835 |
| | $ | 6,408 |
|
Non-accretable discount on purchased credit impaired (“PCI”) loans:
|
| | | | | | | | | | | |
| Nine Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | September 30, 2017 | | December 31, 2017 |
Balance at beginning of period | $ | 9,471 |
| | $ | 14,327 |
| | $ | 14,327 |
|
Acquired balance, net | — |
| | 8,352 |
| | 8,352 |
|
Accretion to loan interest income | (1,872 | ) | | (5,925 | ) | | (7,995 | ) |
Transferred to accretable | (513 | ) | | — |
| | (1,936 | ) |
Disposals of loans | (97 | ) | | (1,121 | ) | | (3,277 | ) |
Balance at end of period | $ | 6,989 |
| | $ | 15,633 |
| | $ | 9,471 |
|
Troubled Debt Restructurings
At SeptemberJune 30, 2018,2019, there were fivesix loans classified as troubled debt restructurings with a current outstanding balance of $0.7$1.4 million (including performing TDRs of $0.5 million and the remainder on nonaccrual) and pre-modification balance of $2.7$2.1 million. In comparison, at December 31, 2017,2018, there were eightfour loans classified as troubled debt restructurings with an outstanding balance of $5.6$0.6 million and pre-modification balance of $6.9$2.7 million. There were no loans classified as troubled debt restructurings during the previous twelve months that subsequently defaulted during the ninesix months ended SeptemberJune 30, 2018.2019. As of SeptemberJune 30, 2018,2019, there were no commitments to lend additional funds to debtors whose terms have been modified in troubled debt restructurings.
Note 7 – Goodwill and Other Intangibles and Mortgage Servicing Rights
Management periodically reviews the carrying value of its intangible assets to determine if any impairment has occurred, in which case an impairment charge would be recorded as an expense in the period of impairment, or whether changes in circumstances have occurred that would require a revision to the remaining useful life which would impact expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give rise to the intangible. The Company’s quarterly assessment indicated no impairment charge on goodwill, core deposit intangibles or customer list intangibles was required for the year ended December 31, 20172018 or the ninesix months ended SeptemberJune 30, 2018.2019. A summary of goodwill and other intangibles was as follows.
| | | Nine Months Ended | | Year Ended | Six Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
Goodwill | $ | 107,366 |
| | $ | 107,366 |
| $ | 107,366 |
| | $ | 107,366 |
|
Core deposit intangibles | 13,488 |
| | 16,477 |
| 10,794 |
| | 12,562 |
|
Customer list intangibles | 4,506 |
| | 4,563 |
| 4,125 |
| | 4,379 |
|
Other intangibles | 17,994 |
| | 21,040 |
| 14,919 |
| | 16,941 |
|
Goodwill and other intangibles, net | $ | 125,360 |
| | $ | 128,406 |
| $ | 122,285 |
| | $ | 124,307 |
|
Goodwill: Goodwill was $107.4 million at both SeptemberJune 30, 20182019 and December 31, 2017. During 2017, goodwill increased due to the First Menasha acquisition. See Note 2 for additional information on the First Menasha acquisition.2018.
Other intangible assets: Other intangible assets, consisting of core deposit intangibles and customer list intangibles, are amortized over their estimated finite lives. During 2018, customer list intangibles increased due to the purchase of a brokerage book of business, while during 2017, core deposit intangibles increased due to the First Menasha acquisition and customer list intangibles increased due to a modification to the contingent earn-out payment on the financial advisor business acquired in 2016, fixing the previously variable earn-out payment on a portion of the purchase price. See Note 2 for additional information on Nicolet's acquisitions.
|
| | | | | | | |
| Six Months Ended | | Year Ended |
(in thousands) | June 30, 2019 | | December 31, 2018 |
Core deposit intangibles: | | | |
Gross carrying amount | $ | 29,015 |
| | $ | 29,015 |
|
Accumulated amortization | (18,221 | ) | | (16,453 | ) |
Net book value | $ | 10,794 |
| | $ | 12,562 |
|
Additions during the period | $ | — |
| | $ | — |
|
Amortization during the period | $ | 1,768 |
| | $ | 3,915 |
|
Customer list intangibles: | | | |
Gross carrying amount | $ | 5,523 |
| | $ | 5,523 |
|
Accumulated amortization | (1,398 | ) | | (1,144 | ) |
Net book value | $ | 4,125 |
| | $ | 4,379 |
|
Additions during the period | $ | — |
| | $ | 290 |
|
Amortization during the period | $ | 254 |
| | $ | 474 |
|
|
| | | | | | | |
| Nine Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | December 31, 2017 |
Core deposit intangibles: | | | |
Gross carrying amount | $ | 29,015 |
| | $ | 29,015 |
|
Accumulated amortization | (15,527 | ) | | (12,538 | ) |
Net book value | $ | 13,488 |
| | $ | 16,477 |
|
Additions during the period | $ | — |
| | $ | 3,670 |
|
Amortization during the period | $ | 2,989 |
| | $ | 4,294 |
|
| | | |
Customer list intangibles: | | | |
Gross carrying amount | $ | 5,523 |
| | $ | 5,233 |
|
Accumulated amortization | (1,017 | ) | | (670 | ) |
Net book value | $ | 4,506 |
| | $ | 4,563 |
|
Additions during the period | $ | 290 |
| | $ | 870 |
|
Amortization during the period | $ | 347 |
| | $ | 401 |
|
Mortgage servicing rights: Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date, with the amortization recorded in mortgage income, net, in the consolidated statements of income. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other assets in the consolidated balance sheets. ActivityA summary of the changes in the mortgage servicing rights asset was as follows.
| | | Nine Months Ended | | Year Ended | Six Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
Mortgage servicing rights (MSR) asset: | | | | |
Mortgage servicing rights ("MSR") asset: | | | | |
MSR asset at beginning of year | $ | 3,187 |
| | $ | 1,922 |
| $ | 3,749 |
| | $ | 3,187 |
|
Capitalized MSR | 696 |
| | 876 |
| 871 |
| | 1,203 |
|
MSR asset acquired | — |
| | 874 |
| |
Amortization during the period | (464 | ) | | (485 | ) | (387 | ) | | (641 | ) |
MSR asset at end of period | $ | 3,419 |
| | $ | 3,187 |
| $ | 4,233 |
| | $ | 3,749 |
|
Fair value of MSR asset at end of period | $ | 4,304 |
| | $ | 4,097 |
| $ | 6,506 |
| | $ | 6,347 |
|
Residential mortgage loans serviced for others | $ | 560,607 |
| | $ | 518,419 |
| $ | 663,360 |
| | $ | 603,446 |
|
Net book value of MSR asset to loans serviced for others | 0.61 | % | | 0.61 | % | 0.64 | % | | 0.62 | % |
The Company periodically evaluates its mortgage servicing rights asset for impairment. At each reporting date, impairment is assessed based on an estimated fair value using estimated prepayment speeds of the underlying mortgage loans serviced and stratifications based on the risk characteristics of the underlying loans serviced (predominantly loan type and note interest rate). No valuation allowance or impairment charge was recorded for the year ended December 31, 20172018 or the ninesix months ended SeptemberJune 30, 2018.2019. See Note 9 for additional information on the fair value of the MSR asset.
The following table shows the estimated future amortization expense for amortizing intangible assets and the MSR asset. The projections are based on existing asset balances, the current interest rate environment and prepayment speeds as of the SeptemberJune 30, 2018.2019. The actual amortization expense the Company recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements and events or circumstances that indicate the carrying amount of an asset may not be recoverable.
| | (in thousands) | Core deposit intangibles | | Customer list intangibles | | MSR asset | Core deposit intangibles | | Customer list intangibles | | MSR asset |
Year ending December 31, | | | | | | | | | | |
2018 (remaining three months) | $ | 926 |
| | $ | 127 |
| | $ | 161 |
| |
2019 | 3,337 |
| | 507 |
| | 643 |
| |
2019 (remaining six months) | | $ | 1,569 |
| | $ | 253 |
| | $ | 395 |
|
2020 | 2,657 |
| | 507 |
| | 814 |
| 2,657 |
| | 507 |
| | 773 |
|
2021 | 2,167 |
| | 507 |
| | 381 |
| 2,167 |
| | 507 |
| | 623 |
|
2022 | 1,735 |
| | 507 |
| | 381 |
| 1,735 |
| | 507 |
| | 623 |
|
2023 | | 1,273 |
| | 483 |
| | 520 |
|
2024 | | 841 |
| | 449 |
| | 324 |
|
Thereafter | 2,666 |
| | 2,351 |
| | 1,039 |
| 552 |
| | 1,419 |
| | 975 |
|
Total | $ | 13,488 |
| | $ | 4,506 |
| | $ | 3,419 |
| $ | 10,794 |
| | $ | 4,125 |
| | $ | 4,233 |
|
Note 8 – Short and Long-Term Borrowings
Short-Term Borrowings:
The Company did not have any short-term borrowings (borrowing with an original maturity of one year or less) outstanding at SeptemberJune 30, 20182019 or December 31, 2017.2018.
Long-Term Borrowings:
The components of long-term borrowings (borrowing with an original maturity greater than one year) were as follows.
| | (in thousands) | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
FHLB advances | $ | 35,317 |
| | $ | 36,509 |
| $ | 35,122 |
| | $ | 35,252 |
|
Junior subordinated debentures | 29,976 |
| | 29,616 |
| 30,335 |
| | 30,096 |
|
Subordinated notes | 11,948 |
| | 11,921 |
| 11,975 |
| | 11,957 |
|
Total long-term borrowings | $ | 77,241 |
| | $ | 78,046 |
| $ | 77,432 |
| | $ | 77,305 |
|
Percent of fixed rate long-term borrowings | | 69 | % | | 69 | % |
Percent of floating rate long-term borrowings | | 31 | % | | 31 | % |
FHLB Advances: The FHLB advances bear fixed rates, require interest-only monthly payments, and have maturity dates through 2022. The weighted average rate of the FHLB advances was 1.72% and 1.71% at Septemberboth June 30, 20182019 and December 31, 2017, respectively.2018.
Junior Subordinated Debentures: The following table shows the breakdown of junior subordinated debentures. Interest on all debentures is current. Any applicable discounts (initially recorded to carry an acquired debenture at its then estimated fair market value) are being accreted to interest expense over the remaining life of the debentures. All the debentures below are currently callable and may be redeemed in part or in full at par plus any accrued but unpaid interest. At SeptemberJune 30, 20182019 and December 31, 2017, $28.82018, $29.2 million and $28.5$28.9 million, respectively, qualify as Tier 1 capital.
|
| | | | | | | | | | | | | | | | | | |
| | | | Junior Subordinated Debentures |
(in thousands) | | Maturity Date | | Par | | 9/30/2018 Unamortized Discount | | 9/30/2018 Carrying Value | | 12/31/2017 Carrying Value |
2004 Nicolet Bankshares Statutory Trust(1) | | 7/15/2034 | | $ | 6,186 |
| | $ | — |
| | $ | 6,186 |
| | $ | 6,186 |
|
2005 Mid-Wisconsin Financial Services, Inc.(2) | | 12/15/2035 | | 10,310 |
| | (3,421 | ) | | 6,889 |
| | 6,739 |
|
2006 Baylake Corp.(3) | | 9/30/2036 | | 16,598 |
| | (4,179 | ) | | 12,419 |
| | 12,242 |
|
2004 First Menasha Bancshares, Inc.(4) | | 3/17/2034 | | 5,155 |
| | (673 | ) | | 4,482 |
| | 4,449 |
|
Total | | | | $ | 38,249 |
| | $ | (8,273 | ) | | $ | 29,976 |
| | $ | 29,616 |
|
|
| | | | | | | | | | | | | | | | | | |
| | | | Junior Subordinated Debentures |
(in thousands) | | Maturity Date | | Par | | 6/30/2019 Unamortized Discount | | 6/30/2019 Carrying Value | | 12/31/2018 Carrying Value |
2004 Nicolet Bankshares Statutory Trust (1) | | 7/15/2034 | | $ | 6,186 |
| | $ | — |
| | $ | 6,186 |
| | $ | 6,186 |
|
2005 Mid-Wisconsin Financial Services, Inc. (2) | | 12/15/2035 | | 10,310 |
| | (3,272 | ) | | 7,038 |
| | 6,939 |
|
2006 Baylake Corp. (3) | | 9/30/2036 | | 16,598 |
| | (4,002 | ) | | 12,596 |
| | 12,478 |
|
2004 First Menasha Bancshares, Inc. (4) | | 3/17/2034 | | 5,155 |
| | (640 | ) | | 4,515 |
| | 4,493 |
|
Total | | | | $ | 38,249 |
| | $ | (7,914 | ) | | $ | 30,335 |
| | $ | 30,096 |
|
| |
(1) | The interest rate is 8.00% fixed. |
| |
(2) | The debentures, assumed in April 2013 as the result of an acquisition, have a floating rate of the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rates were 3.76%3.84% and 3.02%4.22% as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
(3) | The debentures, assumed in April 2016 as a result of an acquisition, have a floating rate of the three-month LIBOR plus 1.35%, adjusted quarterly. The interest rates were 3.75%3.67% and 3.04%4.15% as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
| |
(4) | The debentures, assumed in April 2017 as the result of an acquisition, have a floating rate of the three-month LIBOR plus 2.79%, adjusted quarterly. The interest rates were 5.12%5.20% and 4.39%5.58% as of SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. |
Subordinated Notes: In 2015, the Company placed an aggregate of $12 million in subordinated Notes in private placements with certain accredited investors. All Notes were issued with 10-year maturities, have a fixed annual interest rate of 5% payable quarterly, are callable on or after the fifth anniversary of their respective issuances dates, and qualify for Tier 2 capital for regulatory purposes. The carrying value of these subordinated Notes was $11.9 million at both September 30, 2018 and December 31, 2017.
Note 9 – Fair Value Measurements
Fair value represents the estimated price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept), and is a market-based measurement versus an entity-specific measurement.
The Company records and/or discloses financial instruments on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. These levels are:
Level 1 – quoted market prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly
Level 3 – significant unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity
In instances where the fair value measurement is based on inputs from different levels, the level within which the entire fair value measurement will be categorized is based on the lowest level input that is significant to the fair value measurement in its entirety. This assessment of the significance of an input requires management judgment.
Recurring basis fair value measurements:
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented.
|
| | | | | | | | | | | | | | | | |
(in thousands) | | | | Fair Value Measurements Using |
Measured at Fair Value on a Recurring Basis: | | Total | | Level 1 | | Level 2 | | Level 3 |
September 30, 2018 | | | | | | | | |
U.S. government agency securities | | $ | 26,254 |
| | $ | — |
| | $ | 26,254 |
| | $ | — |
|
State, county and municipals | | 164,822 |
| | — |
| | 164,756 |
| | 66 |
|
Mortgage-backed securities | | 135,845 |
| | — |
| | 135,845 |
| | — |
|
Corporate debt securities | | 83,990 |
| | — |
| | 75,552 |
| | 8,438 |
|
Securities AFS | | $ | 410,911 |
| | $ | — |
| | $ | 402,407 |
| | $ | 8,504 |
|
Other investments (equity securities) * | | $ | 2,778 |
| | $ | 2,778 |
| | $ | — |
| | $ | — |
|
| | | | | | | | |
December 31, 2017 | | | | | | | | |
U.S. government agency securities | | $ | 26,209 |
| | $ | — |
| | $ | 26,209 |
| | $ | — |
|
State, county and municipals | | 184,044 |
| | — |
| | 183,386 |
| | 658 |
|
Mortgage-backed securities | | 155,532 |
| | — |
| | 155,529 |
| | 3 |
|
Corporate debt securities | | 36,797 |
| | — |
| | 28,307 |
| | 8,490 |
|
Equity securities * | | 2,571 |
| | 2,571 |
| | — |
| | — |
|
Securities AFS | | $ | 405,153 |
| | $ | 2,571 |
| | $ | 393,431 |
| | $ | 9,151 |
|
* Effective January 1, 2018, the Company adopted ASU 2016-01, which requires equity securities with readily determinable fair values to be measured at fair value with changes in the fair value recognized through net income. As a result, the approximately $2.8 million current fair value of equity securities is now reflected within other investments on the consolidated balance sheets instead of in securities AFS at December 31, 2017. Prior periods have not been restated for the impact of this accounting change. See Note 1 for additional information on this new accounting standard and see Note 5 for additional information on the impact to securities AFS. |
| | | | | | | | | | | | | | | | |
(in thousands) | | | | Fair Value Measurements Using |
Measured at Fair Value on a Recurring Basis: | | Total | | Level 1 | | Level 2 | | Level 3 |
June 30, 2019 | | | | | | | | |
U.S. government agency securities | | $ | 16,629 |
| | $ | — |
| | $ | 16,629 |
| | $ | — |
|
State, county and municipals | | 148,170 |
| | — |
| | 148,105 |
| | 65 |
|
Mortgage-backed securities | | 151,829 |
| | — |
| | 151,829 |
| | — |
|
Corporate debt securities | | 87,361 |
| | — |
| | 79,523 |
| | 7,838 |
|
Securities AFS | | $ | 403,989 |
| | $ | — |
| | $ | 396,086 |
| | $ | 7,903 |
|
Other investments (equity securities) | | $ | 3,258 |
| | $ | 3,258 |
| | $ | — |
| | $ | — |
|
December 31, 2018 | | | | | | | | |
U.S. government agency securities | | $ | 21,649 |
| | $ | — |
| | $ | 21,649 |
| | $ | — |
|
State, county and municipals | | 160,526 |
| | — |
| | 160,460 |
| | 66 |
|
Mortgage-backed securities | | 131,644 |
| | — |
| | 131,644 |
| | — |
|
Corporate debt securities | | 86,325 |
| | — |
| | 77,901 |
| | 8,424 |
|
Securities AFS | | $ | 400,144 |
| | $ | — |
| | $ | 391,654 |
| | $ | 8,490 |
|
Other investments (equity securities) | | $ | 2,650 |
| | $ | 2,650 |
| | $ | — |
| | $ | — |
|
The following is a description of the valuation methodologies used by the Company for the securities AFS and equity securities measured at fair value on a recurring basis, as noted in the tables above. Where quoted market prices on securities exchanges are available, the investments are classified as Level 1. Level 1 investments primarily include exchange-traded equity securities. If quoted market prices are not available, fair value is generally determined using prices obtained from independent pricing vendors who use pricing models (with typical inputs including benchmark yields, reported trades for similar securities, issuer spreads or relationship to other benchmark quoted securities), or discounted cash flows, and are classified as Level 2. Examples of these investments include U.S. government agency securities, mortgage-backed securities, obligations of state, county and municipals, and certain corporate debt securities. Finally, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, investments are classified within Level 3 of the hierarchy. Examples of these include private municipal bonds and corporate debt securities, which include trust preferred security investments. At SeptemberJune 30, 20182019 and December 31, 2017,2018, it was determined that carrying value was the best approximation of fair value for these Level 3 securities, based primarily on the internal analysis on these securities.
The following table presents the changes in the Level 3 securities AFS measured at fair value on a recurring basis.
| | (in thousands) | | Nine Months Ended | | Year Ended | | Six Months Ended | | Year Ended |
Level 3 Fair Value Measurements: | | September 30, 2018 | | December 31, 2017 | | June 30, 2019 | | December 31, 2018 |
Balance at beginning of year | | $ | 9,151 |
| | $ | 9,108 |
| | $ | 8,490 |
| | $ | 9,151 |
|
Acquired balance | | — |
| | 189 |
| |
Paydowns/Sales/Settlements | | (647 | ) | | (146 | ) | | (587 | ) | | (661 | ) |
Balance at end of period | | $ | 8,504 |
| | $ | 9,151 |
| | $ | 7,903 |
| | $ | 8,490 |
|
Nonrecurring basis fair value measurements:
The following table presents the Company’s assets measured at fair value on a nonrecurring basis, for the periods presented, aggregated by level in the fair value hierarchy within which those measurements fall.
| | (in thousands) | | | | Fair Value Measurements Using | | | | Fair Value Measurements Using |
Measured at Fair Value on a Nonrecurring Basis: | | Total | | Level 1 | | Level 2 | | Level 3 | | Total | | Level 1 | | Level 2 | | Level 3 |
September 30, 2018 | | | | | | | | | |
June 30, 2019 | | | | | | | | | |
Impaired loans | | $ | 13,851 |
| | $ | — |
| | $ | — |
| | $ | 13,851 |
| | $ | 11,236 |
| | $ | — |
| | $ | — |
| | $ | 11,236 |
|
Other real estate owned (“OREO”) | | 1,281 |
| | — |
| | — |
| | 1,281 |
| | 300 |
| | — |
| | — |
| | 300 |
|
MSR asset | | 4,304 |
| | — |
| | — |
| | 4,304 |
| | 6,506 |
| | — |
| | — |
| | 6,506 |
|
| | | | | | | | | |
December 31, 2017 | | | | | | | | | |
December 31, 2018 | | | | | | | | | |
Impaired loans | | $ | 17,058 |
| | $ | — |
| | $ | — |
| | $ | 17,058 |
| | $ | 9,939 |
| | $ | — |
| | $ | — |
| | $ | 9,939 |
|
OREO | | 1,294 |
| | — |
| | — |
| | 1,294 |
| | 420 |
| | — |
| | — |
| | 420 |
|
MSR asset | | 4,097 |
| | — |
| | — |
| | 4,097 |
| | 6,347 |
| | — |
| | — |
| | 6,347 |
|
The following is a description of the valuation methodologies used by the Company for the items noted in the table above. For individually evaluated impaired loans, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral for collateral-dependent loans, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell. To estimate the fair value of the MSR asset, the underlying serviced loan pools are stratified by interest rate tranche and term of the loan, and a valuation model is used to calculate the present value of the expected future cash flows for each stratum. The valuation model incorporates assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, ancillary income, default rates and losses, and prepayment speeds. Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value.
Financial instruments:
The carrying amounts and estimated fair values of the Company’s financial instruments are shown below.
| | September 30, 2018 | |
June 30, 2019 | | June 30, 2019 |
(in thousands) | | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 161,155 |
| | $ | 161,155 |
| | $ | 161,155 |
| | $ | — |
| | $ | — |
| | $ | 154,920 |
| | $ | 154,920 |
| | $ | 154,920 |
| | $ | — |
| | $ | — |
|
Certificates of deposit in other banks | | 995 |
| | 995 |
| | — |
| | 995 |
| | — |
| | 5,396 |
| | 5,378 |
| | — |
| | 5,378 |
| | — |
|
Securities AFS | | 410,911 |
| | 410,911 |
| | — |
| | 402,407 |
| | 8,504 |
| | 403,989 |
| | 403,989 |
| | — |
| | 396,086 |
| | 7,903 |
|
Other investments, including equity securities | | 17,479 |
| | 17,479 |
| | 2,778 |
| | 13,117 |
| | 1,584 |
| | 19,841 |
| | 19,841 |
| | 3,258 |
| | 13,224 |
| | 3,359 |
|
Loans held for sale | | 2,593 |
| | 2,643 |
| | — |
| | 2,643 |
| | — |
| | 4,699 |
| | 4,783 |
| | — |
| | 4,783 |
| | — |
|
Loans, net | | 2,130,465 |
| | 2,103,456 |
| | — |
| | — |
| | 2,103,456 |
| | 2,189,702 |
| | 2,200,767 |
| | — |
| | — |
| | 2,200,767 |
|
BOLI | | 65,820 |
| | 65,820 |
| | 65,820 |
| | — |
| | — |
| | 69,222 |
| | 69,222 |
| | 69,222 |
| | — |
| | — |
|
MSR asset | | 3,419 |
| | 4,304 |
| | — |
| | — |
| | 4,304 |
| | 4,233 |
| | 6,506 |
| | — |
| | — |
| | 6,506 |
|
| | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | 2,522,156 |
| | $ | 2,523,832 |
| | $ | — |
| | $ | — |
| | $ | 2,523,832 |
| | $ | 2,536,639 |
| | $ | 2,537,128 |
| | $ | — |
| | $ | — |
| | $ | 2,537,128 |
|
Long-term borrowings | | 77,241 |
| | 76,198 |
| | — |
| | 35,300 |
| | 40,898 |
| | 77,432 |
| | 76,671 |
| | — |
| | 35,254 |
| | 41,417 |
|
| | December 31, 2017 | |
December 31, 2018 | | December 31, 2018 |
(in thousands) | | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 | | Carrying Amount | | Estimated Fair Value | | Level 1 | | Level 2 | | Level 3 |
Financial assets: | | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 154,933 |
| | $ | 154,933 |
| | $ | 154,933 |
| | $ | — |
| | $ | — |
| | $ | 249,526 |
| | $ | 249,526 |
| | $ | 249,526 |
| | $ | — |
| | $ | — |
|
Certificates of deposit in other banks | | 1,746 |
| | 1,746 |
| | — |
| | 1,746 |
| | — |
| | 993 |
| | 993 |
| | — |
| | 993 |
| | — |
|
Securities AFS | | 405,153 |
| | 405,153 |
| | 2,571 |
| | 393,431 |
| | 9,151 |
| | 400,144 |
| | 400,144 |
| | — |
| | 391,654 |
| | 8,490 |
|
Other investments | | 14,837 |
| | 14,837 |
| | — |
| | 13,142 |
| | 1,695 |
| |
Other investments, including equity securities | | | 17,997 |
| | 17,997 |
| | 2,650 |
| | 13,189 |
| | 2,158 |
|
Loans held for sale | | 4,666 |
| | 4,750 |
| | — |
| | 4,750 |
| | — |
| | 1,639 |
| | 1,662 |
| | — |
| | 1,662 |
| | — |
|
Loans, net | | 2,075,272 |
| | 2,068,382 |
| | — |
| | — |
| | 2,068,382 |
| | 2,153,028 |
| | 2,139,322 |
| | — |
| | — |
| | 2,139,322 |
|
BOLI | | 64,453 |
| | 64,453 |
| | 64,453 |
| | — |
| | — |
| | 66,310 |
| | 66,310 |
| | 66,310 |
| | — |
| | — |
|
MSR asset | | 3,187 |
| | 4,097 |
| | — |
| | — |
| | 4,097 |
| | 3,749 |
| | 6,347 |
| | — |
| | — |
| | 6,347 |
|
| | | | | | | | | | | |
Financial liabilities: | | | | | | | | | | | | | | | | | | | | |
Deposits | | $ | 2,471,064 |
| | $ | 2,469,456 |
| | $ | — |
| | $ | — |
| | $ | 2,469,456 |
| | $ | 2,614,138 |
| | $ | 2,614,995 |
| | $ | — |
| | $ | — |
| | $ | 2,614,995 |
|
Long-term borrowings | | 78,046 |
| | 77,029 |
| | — |
| | 36,510 |
| | 40,519 |
| | 77,305 |
| | 75,923 |
| | — |
| | 34,907 |
| | 41,016 |
|
The carrying value of certain assets and liabilities such as cash and cash equivalents, bank owned life insurance, short-term borrowings,BOLI, and nonmaturing deposits, approximate their estimated fair value. For those financial instruments not previously disclosed, the following is a description of the valuation methodologies used.
Certificates of deposits in other banks: Fair values are estimated using discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and represents a Level 2 measurement.
Other investments: The valuation methodologies utilized for exchange-traded equity securities are discussed under “Recurring basis fair value measurements” above. The carrying amount of Federal Reserve Bank Bankers Bank, Federal Agricultural Mortgage Corporation, and FHLB stock is a reasonably accepted fair value estimate given their restricted nature. Fair value is the redeemable (carrying) value based on the redemption provisions of the instruments which is considered a Level 2 measurement. The carrying amount of the remaining other investments (particularly common stocks of companies or other banks that are not publicly traded) approximates their fair value, determined primarily by
analysis of company financial statements and recent capital issuances of the respective companies or banks, if any, and represents a Level 3 measurement.
Loans held for sale: The fair value estimation process for the loans held for sale portfolio is segregated by loan type. The estimated fair value was based on what secondary markets are currently offering for portfolios with similar characteristics and represents a Level 2 measurement.
Loans, net: For variable-rate loans that reprice frequently and with no significant change in credit risk or other optionality, fair values are based on carrying values. Fair values for all other loans are estimated by discounting contractual cash flows using estimated market discount rates, which reflect the credit and interest rate risk inherent in the loan. Collateral-dependent impaired loans are included in loans, net. The fair value of loans is considered to be a Level 3 measurement due to internally developed discounted cash flow measurements.
Deposits: The fair value of deposits with no stated maturity (such as demand deposits, savings, interest and non-interestnoninterest checking, and money market accounts) is, by definition, equal to the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market place on certificates of similar remaining maturities. Use of internal discounted cash flows provides a Level 3 fair value measurement.
Long-term borrowings: The fair value of the FHLB advances is obtained from the FHLB which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities and represents a Level 2 measurement. The fair values of the junior subordinated debentures and subordinated notes utilize a discounted cash flow analysis based on an estimate of current interest rates being offered by instruments with similar terms and credit quality. Since the market for these instruments is limited, the internal evaluation represents a Level 3 measurement.
Lending-related commitments and derivative financial instruments: At SeptemberJune 30, 20182019 and December 31, 2017,2018, the estimated fair value of letters of credit, andinterest rate lock commitments on residential mortgage loans, outstanding mandatory commitments to sell residential mortgage loans into the secondary market, was insignificant.and mirror interest rate swap agreements were not significant.
Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.
Note 10 – Revenue RecognitionOperating Leases
As of January 1, 2018,2019, the Company adopted ASU 2014-092016-02 (Topic 606)842) on a prospective basis using the modified retrospective approach.effective date method. The adoption of the guidance had nonew standard did not have a material impact on the measurement, timing, or recognition of revenue;Nicolet's financial statements; however, additional disclosures have been added in accordance with the ASU. See Note 1 for additional information on this new accounting standard.
Topic 606 does not applyThe operating lease ROU asset represents the right to revenue associated with financial instruments, including revenueuse an underlying asset during the lease term, while the operating lease liability represents the obligation to make lease payments arising from loansthe lease. The ROU asset and securities. In addition, certain noninterest income categories such as gains or losses associated with mortgage servicing rights, derivatives, and income from bank owned life insurancelease liability are not withinrecognized at lease commencement based on the scope of the new guidance. The main types of revenue contracts within the scope of Topic 606 include trust services income, brokerage fee income, service charges on deposit accounts, card interchange income, and certain other noninterest income. These contracts are discussed in detail below:
Trust services and brokerage fee income: A contract between the Company and its customers to provide fiduciary and / or investment administration services on trust accounts and brokerage accounts in exchange for a fee. Trust services and brokerage fee income is based upon the month-end marketpresent value of the assets under management and the applicable feeremaining lease payments, considering a discount rate whichthat represents Nicolet's incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the period the underlying trust or brokerage account is serviced (generally on a monthly basis). Such contracts are generally cancellable at any time, with the customer subject to a pro-rated fee in the month of termination.
Service charges on deposit accounts: The deposit contract obligates the Company to serve as a custodian of the customer’s deposited fundslease term and is generally terminablerecognized in occupancy, equipment, and office on the consolidated statements of income.
Nicolet leases space under non-cancelable operating lease agreements for certain bank and nonbank branch facilities with remaining lease terms of 2 to 7 years. Certain lease arrangements contain extension options which typically range from 5 to 10 years at will by either party. This contract permits the customer to access the funds on depositthen fair market rental rates. The lease asset and request additional servicesliability considers renewal options when they are reasonably certain of being exercised.
A summary of net lease cost and selected other information related to operating leases was as follows.
|
| | | |
| Six Months Ended |
($ in thousands) | June 30, 2019 |
Net lease cost: | |
Operating lease cost | $ | 501 |
|
Variable lease cost | 113 |
|
Net lease cost | $ | 614 |
|
Selected other operating lease information: | |
Weighted average remaining lease term (years) | 5 |
|
Weighted average discount rate | 2.5 | % |
The following table summarizes the deposit account. Service charges on deposit accounts consistmaturity of account analysis fees (net fees earned on analyzed business and public checking accounts), monthly service charges, nonsufficient fund (“NSF”) charges, and other deposit account related charges. The Company’s performance obligation for account analysis fees and monthly service charges is generally satisfied, and the related revenue recognized, over the period in which the service is provided (typically on a monthly basis); while NSF charges and other deposit account related charges are largely transactional based and the related revenue is recognized at the time the service is provided.remaining lease liabilities.
Card interchange income: A contract between the Company, as a card-issuing bank, and its customers whereby the Company receives a transaction fee from the merchant’s bank whenever a customer uses a debit or credit card to make a purchase. The performance obligation is completed and the fees are recognized as the service is provided (i.e., when the customer uses a debit or credit card).Other noninterest income: Other noninterest income includes several items, such as wire transfer income, check cashing fees, check printing fees, safe deposit box rental fees, management fee income, and consulting fees. These fees are generally recognized at the time the service is provided. |
| | | |
(in thousands) | |
Year ending December 31, | |
2019 (remaining six months) | $ | 566 |
|
2020 | 1,129 |
|
2021 | 1,017 |
|
2022 | 961 |
|
2023 | 718 |
|
2024 | 613 |
|
Thereafter | 151 |
|
Total future minimum lease payments | 5,155 |
|
Less: amount representing interest | (129 | ) |
Present value of net future minimum lease payments | $ | 5,026 |
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) is a bank holding company headquartered in Green Bay, Wisconsin. Nicolet provides a diversified range of traditional banking and wealth management services to individuals and businesses in its market area and through the branch offices of its banking subsidiary, Nicolet National Bank (the “Bank”), in northeastern and central Wisconsin and in Menominee, Michigan.
Forward-Looking Statements
Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements generally may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Shareholders should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those expressed in forward-looking statements contained in this document. These factors, many of which are beyond Nicolet’s control, include, but are not necessarily limited to the following:
operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;
economic, market, political and competitive forces affecting Nicolet’s banking and wealth management businesses;
changes in interest rates, monetary policy and general economic conditions, which may impact Nicolet’s net interest income;
potential difficulties in integrating the operations of Nicolet with those of acquired entities, if any;Choice following the merger;
compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Nicolet may pursue or implement; and
the risk that Nicolet’s analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements. Nicolet specifically disclaims any obligation to update factors or to publicly announce the results of revisions to any of the forward-looking statements or comments included herein to reflect future events or developments.
Overview
The following discussion is management’s analysis of the consolidated financial condition as of SeptemberJune 30, 20182019 and December 31, 20172018 and results of operations for the three and nine-monthsix-month periods ended SeptemberJune 30, 20182019 and 2017.2018. It should be read in conjunction with Nicolet’s audited consolidated financial statements included in Nicolet’s Annual Report on Form 10-K for the year ended December 31, 2017.
The timing of Nicolet’s April 2017 acquisition of First Menasha Bancshares, Inc. (“First Menasha”), at approximately 20% of pre-merger assets at the time of acquisition, impacts financial comparisons to 2017 periods. Certain income statement results, average balances and related ratios for 2018 include the full contribution of First Menasha operations, versus five months of contribution of First Menasha in the comparable nine-month period of 2017 . The first half of 2017 also included non-recurring other direct merger and integration pre-tax expenses of $0.5 million. See Note 2, “Acquisitions,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on this acquisition.2018.
Performance Summary
Table 1: Earnings Summary and Selected Financial Data
| | | At or for the Three Months Ended | | At or for the Nine Months Ended | At or for the Three Months Ended | | At or for the Six Months Ended |
(In thousands, except per share data) | 9/30/2018 | | 6/30/2018 | | 3/31/2018 | | 12/31/2017 | | 9/30/2017 | | 9/30/2018 | | 9/30/2017 | 6/30/2019 | | 3/31/2019 | | 12/31/2018 | | 9/30/2018 | | 6/30/2018 | | 6/30/2019 | | 6/30/2018 |
Results of operations: | | | | | | | | | | | | | | | | | | | | | | | | | | |
Interest income | $ | 31,880 |
| | $ | 30,545 |
| | $ | 30,785 |
| | $ | 29,836 |
| | $ | 29,454 |
| | $ | 93,210 |
| | $ | 79,417 |
| $ | 34,570 |
| | $ | 33,159 |
| | $ | 32,327 |
| | $ | 31,880 |
| | $ | 30,545 |
| | $ | 67,729 |
| | $ | 61,330 |
|
Interest expense | 4,938 |
| | 4,742 |
| | 3,911 |
| | 3,329 |
| | 3,063 |
| | 13,591 |
| | 7,182 |
| 5,626 |
| | 5,684 |
| | 5,298 |
| | 4,938 |
| | 4,742 |
| | 11,310 |
| | 8,653 |
|
Net interest income | 26,942 |
| | 25,803 |
| | 26,874 |
| | 26,507 |
| | 26,391 |
| | 79,619 |
| | 72,235 |
| 28,944 |
| | 27,475 |
| | 27,029 |
| | 26,942 |
| | 25,803 |
| | 56,419 |
| | 52,677 |
|
Provision for loan losses | 340 |
| | 510 |
| | 510 |
| | 450 |
| | 975 |
| | 1,360 |
| | 1,875 |
| 300 |
| | 200 |
| | 240 |
| | 340 |
| | 510 |
| | 500 |
| | 1,020 |
|
Net interest income after provision for loan losses | 26,602 |
| | 25,293 |
| | 26,364 |
| | 26,057 |
| | 25,416 |
| | 78,259 |
| | 70,360 |
| 28,644 |
| | 27,275 |
| | 26,789 |
| | 26,602 |
| | 25,293 |
| | 55,919 |
| | 51,657 |
|
Noninterest income | 10,649 |
| | 10,239 |
| | 8,824 |
| | 8,621 |
| | 10,164 |
| | 29,712 |
| | 26,018 |
| 18,560 |
| | 9,186 |
| | 9,797 |
| | 10,649 |
| | 10,239 |
| | 27,746 |
| | 19,063 |
|
Noninterest expense | 23,044 |
| | 22,451 |
| | 22,642 |
| | 21,858 |
| | 20,862 |
| | 68,137 |
| | 59,498 |
| 25,727 |
| | 22,759 |
| | 21,621 |
| | 23,044 |
| | 22,451 |
| | 48,486 |
| | 45,093 |
|
Income before income tax expense | 14,207 |
| | 13,081 |
| | 12,546 |
| | 12,820 |
| | 14,718 |
| | 39,834 |
| | 36,880 |
| 21,477 |
| | 13,702 |
| | 14,965 |
| | 14,207 |
| | 13,081 |
| | 35,179 |
| | 25,627 |
|
Income tax expense | 3,268 |
| | 3,255 |
| | 2,908 |
| | 3,662 |
| | 5,133 |
| | 9,431 |
| | 12,605 |
| 2,833 |
| | 3,352 |
| | 4,015 |
| | 3,268 |
| | 3,255 |
| | 6,185 |
| | 6,163 |
|
Net income | 10,939 |
| | 9,826 |
| | 9,638 |
| | 9,158 |
| | 9,585 |
| | 30,403 |
| | 24,275 |
| 18,644 |
| | 10,350 |
| | 10,950 |
| | 10,939 |
| | 9,826 |
| | 28,994 |
| | 19,464 |
|
Net income attributable to noncontrolling interest | 80 |
| | 89 |
| | 61 |
| | 55 |
| | 74 |
| | 230 |
| | 228 |
| 95 |
| | 83 |
| | 87 |
| | 80 |
| | 89 |
| | 178 |
| | 150 |
|
Net income attributable to Nicolet Bankshares, Inc. | $ | 10,859 |
| | $ | 9,737 |
| | $ | 9,577 |
| | $ | 9,103 |
| | $ | 9,511 |
| | $ | 30,173 |
| | $ | 24,047 |
| $ | 18,549 |
| | $ | 10,267 |
| | $ | 10,863 |
| | $ | 10,859 |
| | $ | 9,737 |
| | $ | 28,816 |
| | $ | 19,314 |
|
Earnings per common share: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Basic | $ | 1.13 |
| | $ | 1.01 |
| | $ | 0.98 |
| | $ | 0.93 |
| | $ | 0.97 |
| | $ | 3.12 |
| | $ | 2.58 |
| $ | 1.98 |
| | $ | 1.09 |
| | $ | 1.14 |
| | $ | 1.13 |
| | $ | 1.01 |
| | $ | 3.06 |
| | $ | 1.99 |
|
Diluted | $ | 1.09 |
| | $ | 0.98 |
| | $ | 0.94 |
| | $ | 0.88 |
| | $ | 0.91 |
| | $ | 3.02 |
| | $ | 2.45 |
| $ | 1.91 |
| | $ | 1.05 |
| | $ | 1.11 |
| | $ | 1.09 |
| | $ | 0.98 |
| | $ | 2.97 |
| | $ | 1.93 |
|
Common Shares: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Basic weighted average | 9,633 |
| | 9,639 |
| | 9,765 |
| | 9,805 |
| | 9,837 |
| | 9,679 |
| | 9,317 |
| 9,374 |
| | 9,461 |
| | 9,526 |
| | 9,633 |
| | 9,639 |
| | 9,418 |
| | 9,702 |
|
Diluted weighted average | 9,949 |
| | 9,970 |
| | 10,225 |
| | 10,368 |
| | 10,409 |
| | 10,004 |
| | 9,821 |
| 9,692 |
| | 9,758 |
| | 9,814 |
| | 9,949 |
| | 9,970 |
| | 9,711 |
| | 10,032 |
|
Outstanding (period end) | 9,577 |
| | 9,643 |
| | 9,699 |
| | 9,818 |
| | 9,799 |
| | 9,577 |
| | 9,799 |
| 9,327 |
| | 9,431 |
| | 9,495 |
| | 9,577 |
| | 9,643 |
| | 9,327 |
| | 9,643 |
|
Period-End Balances: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Loans | $ | 2,143,457 |
| | $ | 2,128,624 |
| | $ | 2,100,597 |
| | $ | 2,087,925 |
| | $ | 2,051,122 |
| | $ | 2,143,457 |
| | $ | 2,051,122 |
| $ | 2,203,273 |
| | $ | 2,189,688 |
| | $ | 2,166,181 |
| | $ | 2,143,457 |
| | $ | 2,128,624 |
| | $ | 2,203,273 |
| | $ | 2,128,624 |
|
Allowance for loan losses | 12,992 |
| | 12,875 |
| | 12,765 |
| | 12,653 |
| | 12,610 |
| | 12,992 |
| | 12,610 |
| 13,571 |
| | 13,370 |
| | 13,153 |
| | 12,992 |
| | 12,875 |
| | 13,571 |
| | 12,875 |
|
Securities available-for-sale, at fair value | 410,911 |
| | 401,975 |
| | 401,130 |
| | 405,153 |
| | 408,217 |
| | 410,911 |
| | 408,217 |
| 403,989 |
| | 407,693 |
| | 400,144 |
| | 410,911 |
| | 401,975 |
| | 403,989 |
| | 401,975 |
|
Goodwill and other intangibles, net | 125,360 |
| | 126,124 |
| | 127,224 |
| | 128,406 |
| | 129,588 |
| | 125,360 |
| | 129,588 |
| 122,285 |
| | 123,254 |
| | 124,307 |
| | 125,360 |
| | 126,124 |
| | 122,285 |
| | 126,124 |
|
Total assets | 3,000,902 |
| | 2,922,151 |
| | 3,223,935 |
| | 2,932,433 |
| | 2,845,730 |
| | 3,000,902 |
| | 2,845,730 |
| 3,054,813 |
| | 3,041,091 |
| | 3,096,535 |
| | 3,000,902 |
| | 2,922,151 |
| | 3,054,813 |
| | 2,922,151 |
|
Deposits | 2,522,156 |
| | 2,455,536 |
| | 2,765,090 |
| | 2,471,064 |
| | 2,366,951 |
| | 2,522,156 |
| | 2,366,951 |
| 2,536,639 |
| | 2,538,486 |
| | 2,614,138 |
| | 2,522,156 |
| | 2,455,536 |
| | 2,536,639 |
| | 2,455,536 |
|
Stockholders’ equity | 377,171 |
| | 370,584 |
| | 363,988 |
| | 364,178 |
| | 360,426 |
| | 377,171 |
| | 360,426 |
| 411,415 |
| | 398,767 |
| | 386,609 |
| | 377,171 |
| | 370,584 |
| | 411,415 |
| | 370,584 |
|
Book value per common share | 39.38 |
| | 38.43 |
| | 37.53 |
| | 37.09 |
| | 36.78 |
| | 39.38 |
| | 36.78 |
| 44.11 |
| | 42.28 |
| | 40.72 |
| | 39.38 |
| | 38.43 |
| | 44.11 |
| | 38.43 |
|
Tangible book value per common share(2) | 26.29 |
| | 25.35 |
| | 24.41 |
| | 24.01 |
| | 23.56 |
| | 26.29 |
| | 23.56 |
| 31.00 |
| | 29.21 |
| | 27.62 |
| | 26.29 |
| | 25.35 |
| | 31.00 |
| | 25.35 |
|
Average Balances: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Loans | $ | 2,134,448 |
| | $ | 2,117,828 |
| | $ | 2,114,345 |
| | $ | 2,066,974 |
| | $ | 2,035,277 |
| | $ | 2,122,280 |
| | $ | 1,842,695 |
| $ | 2,189,070 |
| | $ | 2,179,420 |
| | $ | 2,142,870 |
| | $ | 2,134,448 |
| | $ | 2,117,828 |
| | $ | 2,184,272 |
| | $ | 2,116,096 |
|
Interest-earning assets | 2,664,316 |
| | 2,742,976 |
| | 2,584,070 |
| | 2,531,066 |
| | 2,505,073 |
| | 2,664,081 |
| | 2,291,588 |
| 2,702,357 |
| | 2,734,936 |
| | 2,693,752 |
| | 2,664,316 |
| | 2,742,976 |
| | 2,718,557 |
| | 2,663,962 |
|
Goodwill and other intangibles, net | | 122,841 |
| | 123,892 |
| | 124,930 |
| | 125,798 |
| | 126,646 |
| | 123,363 |
| | 127,220 |
|
Total assets | 2,971,247 |
| | 3,044,466 |
| | 2,896,533 |
| | 2,852,400 |
| | 2,825,542 |
| | 2,971,022 |
| | 2,580,126 |
| 3,022,383 |
| | 3,047,068 |
| | 2,996,553 |
| | 2,971,247 |
| | 3,044,466 |
| | 3,034,658 |
| | 2,970,908 |
|
Deposits | 2,497,439 |
| | 2,583,112 |
| | 2,436,103 |
| | 2,385,821 |
| | 2,377,229 |
| | 2,505,776 |
| | 2,175,360 |
| 2,514,226 |
| | 2,556,927 |
| | 2,518,378 |
| | 2,497,439 |
| | 2,583,112 |
| | 2,535,459 |
| | 2,510,013 |
|
Interest-bearing liabilities | 1,931,119 |
| | 2,084,361 |
| | 1,925,443 |
| | 1,835,375 |
| | 1,854,339 |
| | 1,980,329 |
| | 1,721,362 |
| 1,892,775 |
| | 1,946,210 |
| | 1,867,327 |
| | 1,931,119 |
| | 2,084,361 |
| | 1,919,345 |
| | 2,005,341 |
|
Goodwill and other intangibles, net | 125,798 |
| | 126,646 |
| | 127,801 |
| | 128,980 |
| | 129,158 |
| | 126,741 |
| | 110,886 |
| |
Stockholders’ equity | 375,507 |
| | 364,988 |
| | 366,002 |
| | 361,455 |
| | 358,228 |
| | 368,867 |
| | 323,273 |
| 404,345 |
| | 391,027 |
| | 379,846 |
| | 375,507 |
| | 364,988 |
| | 397,723 |
| | 365,492 |
|
Financial Ratios*: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Financial Ratios: (1) | | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Return on average assets | 1.45 | % | | 1.28 | % | | 1.34 | % | | 1.27 | % | | 1.34 | % | | 1.36 | % | | 1.25 | % | 2.46 | % | | 1.37 | % | | 1.44 | % | | 1.45 | % | | 1.28 | % | | 1.91 | % | | 1.31 | % |
Return on average common equity | 11.47 |
| | 10.70 |
| | 10.61 |
| | 9.99 |
| | 10.53 |
| | 10.94 |
| | 9.95 |
| 18.40 |
| | 10.65 |
| | 11.35 |
| | 11.47 |
| | 10.70 |
| | 14.61 |
| | 10.66 |
|
Return on average tangible common equity(2) | 17.25 |
| | 16.39 |
| | 16.31 |
| | 15.53 |
| | 16.47 |
| | 16.66 |
| | 15.14 |
| 26.43 |
| | 15.59 |
| | 16.91 |
| | 17.25 |
| | 16.39 |
| | 21.18 |
| | 16.35 |
|
Average equity to average assets | 12.64 |
| | 11.99 |
| | 12.64 |
| | 12.67 |
| | 12.68 |
| | 12.42 |
| | 12.53 |
| 13.38 |
| | 12.83 |
| | 12.68 |
| | 12.64 |
| | 11.99 |
| | 13.11 |
| | 12.30 |
|
Stockholders' equity to assets | 12.57 |
| | 12.68 |
| | 11.29 |
| | 12.42 |
| | 12.67 |
| | 12.57 |
| | 12.67 |
| 13.47 |
| | 13.11 |
| | 12.49 |
| | 12.57 |
| | 12.68 |
| | 13.47 |
| | 12.68 |
|
Tangible equity to tangible assets | 8.76 |
| | 8.74 |
| | 7.65 |
| | 8.41 |
| | 8.50 |
| | 8.76 |
| | 8.50 |
| |
Tangible common equity to tangible assets (2) | | 9.86 |
| | 9.44 |
| | 8.83 |
| | 8.76 |
| | 8.74 |
| | 9.86 |
| | 8.74 |
|
Net interest margin | 4.02 |
| | 3.77 |
| | 4.20 |
| | 4.21 |
| | 4.24 |
| | 3.99 |
| | 4.27 |
| 4.28 |
| | 4.05 |
| | 3.98 |
| | 4.02 |
| | 3.77 |
| | 4.16 |
| | 3.98 |
|
Net loan charge-offs to average loans | 0.04 |
| | 0.08 |
| | 0.08 |
| | 0.08 |
| | 0.19 |
| | 0.06 |
| | 0.08 |
| 0.02 |
| | (0.00 | ) | | 0.01 |
| | 0.04 |
| | 0.08 |
| | 0.01 |
| | 0.08 |
|
Nonperforming loans to total loans | 0.48 |
| | 0.51 |
| | 0.56 |
| | 0.63 |
| | 0.70 |
| | 0.48 |
| | 0.70 |
| 0.35 |
| | 0.40 |
| | 0.25 |
| | 0.48 |
| | 0.51 |
| | 0.35 |
| | 0.51 |
|
Nonperforming assets to total assets | 0.38 |
| | 0.41 |
| | 0.40 |
| | 0.49 |
| | 0.55 |
| | 0.38 |
| | 0.55 |
| 0.26 |
| | 0.30 |
| | 0.19 |
| | 0.38 |
| | 0.41 |
| | 0.26 |
| | 0.41 |
|
Efficiency ratio | | 64.01 |
| | 61.91 |
| | 58.03 |
| | 61.08 |
| | 63.49 |
| | 63.00 |
| | 63.38 |
|
Effective tax rate | 23.00 |
| | 24.88 |
| | 23.18 |
| | 28.56 |
| | 34.88 |
| | 23.68 |
| | 34.18 |
| 13.19 |
| | 24.46 |
| | 26.83 |
| | 23.00 |
| | 24.88 |
| | 17.58 |
| | 24.05 |
|
Selected Items: | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
|
Interest income from resolving PCI loans (rounded) | $ | 300 |
| | $ | 100 |
| | $ | 1,500 |
| | $ | 2,100 |
| | $ | 2,100 |
| | $ | 1,900 |
| | $ | 5,900 |
| $ | 1,300 |
| | $ | 200 |
| | $ | 100 |
| | $ | 300 |
| | $ | 100 |
| | $ | 1,500 |
| | $ | 1,600 |
|
Tax-equivalent adjustment on net interest income | 285 |
| | 289 |
| | 298 |
| | 584 |
| | 594 |
| | 872 |
| | 1,785 |
| 263 |
| | 272 |
| | 278 |
| | 285 |
| | 289 |
| | 535 |
| | 587 |
|
Tax expense (benefit) on stock-based compensation | — |
| | — |
| | (159 | ) | | (1,678 | ) | | (15 | ) | | (159 | ) | | (176 | ) | |
Tax expense of tax reform items | — |
| | — |
| | — |
| | 896 |
| | — |
| | — |
| | — |
| |
Tax benefit on stock-based compensation | | (739 | ) | | (144 | ) | | (23 | ) | | — |
| | — |
| | (883 | ) | | (159 | ) |
*(1) Income statement-related ratios for partial-year periods are annualized.
(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.
Net income was $30.2$28.8 million for the ninesix months ended SeptemberJune 30, 2018,2019, an increase of $6.1$9.5 million or 25%49% over $24.0$19.3 million for the ninesix months ended SeptemberJune 30, 2017.2018. Earnings per diluted common share was $3.02$2.97 for the first ninesix months of 2018, 23%2019, 54% higher than $2.45$1.93 for the comparable 2018 period.
During second quarter 2019, Nicolet sold approximately 80% of its equity investment in UFS, LLC, a data processing and e-banking entity, and recognized a $7.4 million after-tax gain (included in noninterest income under asset gains) and recorded $2.75 million ($2.0 million after-tax) in personnel expense for retirement-related compensation declared. Consistent with our philosophy of aligning outcomes to customers, shareholders, and employees, the board approved these retirement-related compensation actions to benefit all employees following the recognition of the gain on the equity investment sale. Combined, net of taxes, these actions impacted net income favorably by $5.4 million and diluted earnings per common share by $0.55.
Net interest income was $56.4 million for the first ninesix months of 2017. Annualized return2019, up $3.7 million or 7% over first half 2018. Interest income grew $6.4 million (despite $1.0 million lower aggregate discount income on purchased loans), aided by a higher mix of average interest-earning assets in loans and the elevated rate environment on new, renewed and variable rate loans. Interest expense increased $2.7 million primarily due to rising rates. Net interest margin was 4.16% for the six months ended June 30, 2019, compared to 3.98% for the six months ended June 30, 2018. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest Income.”
Noninterest income was $27.7 million for first nine monthshalf 2019, up $8.7 million or 46% over the comparable 2018 period, mostly due to the $7.4 million gain on the equity investment sale noted above. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”
Noninterest expense was $48.5 million, $3.4 million or 8% higher than first half 2018, mostly due to the retirement-related compensation actions in second quarter 2019 noted above. Personnel costs increased $2.7 million, and non-personnel expenses combined increased $0.7 million or 3% over first half 2018. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”
Asset quality remains sound. Nonperforming assets were $8.0 million, representing 0.26% of total assets at June 30, 2019, up modestly from 0.19% at December 31, 2018 and 2017 was 1.36% and 1.25%, respectively.down favorably from 0.41% at June 30, 2018. For additional information regarding nonperforming assets, see “Balance Sheet Analysis – Nonperforming Assets.”
At SeptemberJune 30, 2018,2019, assets were $3.0$3.1 billion, an increasea decrease of $68$42 million (2%(1%) from December 31, 20172018 (largely due to a $95 million decrease in cash and cash equivalents exceeding a $37 million increase in loans) and an increase of $155$133 million (5%) from SeptemberJune 30, 2017.2018 (mostly due to a $51 million increase in cash and cash equivalents and $75 million increase in loans).
At SeptemberJune 30, 2018,2019, loans were $2.1$2.2 billion, 3%2% higher than December 31, 20172018 and 5%4% higher than SeptemberJune 30, 2017.2018. On an average, basis, loans grew $280$68 million or 15%3% over the first nine months of 2017, largely attributable to the timing of the 2017 acquisition (which added $351 million in April 2017).half 2018. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”
Total deposits were $2.5 billion at SeptemberJune 30, 2019, a decrease of 3% from December 31, 2018 2%and 3% higher than December 31, 2017 and 7%June 30, 2018. Average deposits were $25 million or 1% higher than September 30, 2017. On an average basis, deposits grew $330 million or 15% over the first nine monthshalf 2018 (which included a $0.1 billion impact of 2017, largely attributable to the timing of the 2017 acquisition (which added $375 million in April 2017) andcarrying a $0.3 billion short-term transaction deposit of a long-standinglarge commercial customer held in 2018 from late March to mid-June.mid-June 2018). For additional information regarding deposits, see “Balance Sheet Analysis – Deposits.”
Net interest income increased $7.4 million or 10% over the first nine months of 2017. Interest income grew $13.8 million (despite $4.0 million lower discount income on resolved purchased credit impaired loans), aided by a 16% increase in average interest-earning assets and the elevated rate environment on new, renewed and variable rate loans. Interest expense increased $6.4 million primarily due to rising rates on a larger deposit base. Net interest margin was 3.99% for the nine months ended September 30, 2018, compared to 4.27% last year. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest Income.”
Noninterest income grew $3.7 million or 14% over the first nine months of 2017, with all categories except net asset gains up year-over-year. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”
Noninterest expense increased $8.6 million or 15% over the first nine months of 2017, mostly due to the expanded workforce and larger operating base. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”
Income tax expense for the first nine months of 2018 benefited from the lower corporate tax rate effective in 2018, due to the passage of the Tax Cuts and Jobs Act in December 2017. Income tax expense included a $0.2 million tax benefit for the tax impact of stock option exercises for both nine-month periods. As a result, the effective tax rate was 23.7% for the first nine months of 2018 and 34.2% for the first nine months of 2017.
Asset quality remains sound. Nonperforming assets declined to $11.5 million, representing 0.38% of total assets at September 30, 2018, down favorably from 0.49% at December 31, 2017 and 0.55% at September 30, 2017. For additional information regarding nonperforming assets, see “Balance Sheet Analysis – Nonperforming Assets.”
INCOME STATEMENT ANALYSIS
Net Interest Income
Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and its use in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. The tax-equivalent adjustments bring tax-exempt interest to a level that would yield the same after-tax income by applying the effective Federal corporate tax rates to the underlying assets. Tables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread and net interest margin.
Table 2: Average Balance Sheet and Net Interest Income Analysis –- Tax-Equivalent Basis
| | | For the Nine Months Ended September 30, | For the Six Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
(in thousands) | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate |
ASSETS | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | | | | | | | |
Loans, including loan fees (1)(2) | $ | 2,122,280 |
| | $ | 84,786 |
| | 5.28 | % | | $ | 1,842,695 |
| | $ | 73,377 |
| | 5.26 | % | $ | 2,184,272 |
| | $ | 61,270 |
| | 5.59 | % | | $ | 2,116,096 |
| | $ | 55,741 |
| | 5.25 | % |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | |
Taxable | 255,763 |
| | 4,503 |
| | 2.35 | % | | 236,275 |
| | 3,422 |
| | 1.93 | % | 268,663 |
| | 3,674 |
| | 2.73 | % | | 251,204 |
| | 2,939 |
| | 2.34 | % |
Tax-exempt (2) | 151,643 |
| | 2,467 |
| | 2.17 | % | | 160,815 |
| | 3,267 |
| | 2.71 | % | 137,576 |
| | 1,513 |
| | 2.20 | % | | 153,724 |
| | 1,658 |
| | 2.16 | % |
Other interest-earning assets | 134,395 |
| | 2,326 |
| | 2.29 | % | | 51,803 |
| | 1,136 |
| | 2.92 | % | 128,046 |
| | 1,807 |
| | 2.81 | % | | 142,938 |
| | 1,579 |
| | 2.20 | % |
Total non-loan earning assets | 541,801 |
| | 9,296 |
| | 2.28 | % | | 448,893 |
| | 7,825 |
| | 2.32 | % | 534,285 |
| | 6,994 |
| | 2.62 | % | | 547,866 |
| | 6,176 |
| | 2.25 | % |
Total interest-earning assets | 2,664,081 |
| | $ | 94,082 |
| | 4.67 | % | | 2,291,588 |
| | $ | 81,202 |
| | 4.69 | % | 2,718,557 |
| | $ | 68,264 |
| | 5.00 | % | | 2,663,962 |
| | $ | 61,917 |
| | 4.63 | % |
Other assets, net | 306,941 |
| | | | | | 288,538 |
| | | | | 316,101 |
| | | | | | 306,946 |
| | | | |
Total assets | $ | 2,971,022 |
| | | | | | $ | 2,580,126 |
| | | | | $ | 3,034,658 |
| | | | | | $ | 2,970,908 |
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | |
Savings | $ | 282,606 |
| | $ | 818 |
| | 0.39 | % | | $ | 249,099 |
| | $ | 271 |
| | 0.15 | % | $ | 305,449 |
| | $ | 752 |
| | 0.50 | % | | $ | 277,927 |
| | $ | 504 |
| | 0.37 | % |
Interest-bearing demand | 545,980 |
| | 3,361 |
| | 0.82 | % | | 419,266 |
| | 1,590 |
| | 0.51 | % | 495,878 |
| | 2,549 |
| | 1.04 | % | | 550,631 |
| | 2,171 |
| | 0.79 | % |
Money market (“MMA”) | 650,485 |
| | 2,897 |
| | 0.60 | % | | 581,277 |
| | 1,165 |
| | 0.27 | % | |
Money market accounts (“MMA”) | | 569,167 |
| | 1,986 |
| | 0.70 | % | | 678,719 |
| | 1,918 |
| | 0.57 | % |
Core time deposits | 323,570 |
| | 3,481 |
| | 1.44 | % | | 288,524 |
| | 1,568 |
| | 0.73 | % | 401,849 |
| | 4,059 |
| | 2.04 | % | | 310,696 |
| | 2,009 |
| | 1.30 | % |
Brokered deposits | 99,818 |
| | 455 |
| | 0.61 | % | | 120,782 |
| | 622 |
| | 0.69 | % | 69,634 |
| | 161 |
| | 0.47 | % | | 109,158 |
| | 355 |
| | 0.66 | % |
Total interest-bearing deposits | 1,902,459 |
| | 11,012 |
| | 0.77 | % | | 1,658,948 |
| | 5,216 |
| | 0.42 | % | 1,841,977 |
| | 9,507 |
| | 1.04 | % | | 1,927,131 |
| | 6,957 |
| | 0.73 | % |
Other interest-bearing liabilities | 77,870 |
| | 2,579 |
| | 4.38 | % | | 62,414 |
| | 1,966 |
| | 4.17 | % | 77,368 |
| | 1,803 |
| | 4.64 | % | | 78,210 |
| | 1,696 |
| | 4.32 | % |
Total interest-bearing liabilities | 1,980,329 |
| | 13,591 |
| | 0.92 | % | | 1,721,362 |
| | 7,182 |
| | 0.56 | % | 1,919,345 |
| | 11,310 |
| | 1.19 | % | | 2,005,341 |
| | 8,653 |
| | 0.87 | % |
Noninterest-bearing demand | 603,317 |
| | | | | | 516,412 |
| | | | | 693,482 |
| | | | | | 582,882 |
| | | | |
Other liabilities | 18,509 |
| | | | | | 19,079 |
| | | | | 24,108 |
| | | | | | 17,193 |
| | | | |
Stockholders’ equity | 368,867 |
| | | | | | 323,273 |
| | | | | 397,723 |
| | | | | | 365,492 |
| | | | |
Total liabilities and stockholders’ equity | $ | 2,971,022 |
| | | | | | $ | 2,580,126 |
| | | | | $ | 3,034,658 |
| | | | | | $ | 2,970,908 |
| | | | |
Net interest income and rate spread | | | $ | 80,491 |
| | 3.75 | % | | | | $ | 74,020 |
| | 4.13 | % | | | $ | 56,954 |
| | 3.81 | % | | | | $ | 53,264 |
| | 3.76 | % |
Tax-equivalent adjustment | | | $ | 872 |
| | | | | | $ | 1,785 |
| | | | | $ | 535 |
| | | | | | $ | 587 |
| | |
Net interest margin | | | | | 3.99 | % | | | | | | 4.27 | % | | | | | 4.16 | % | | | | | | 3.98 | % |
| |
(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% for 2018 periods and 34% for 2017 periods and adjusted for the disallowance of interest expense. |
Table 2: Average Balance Sheet and Net Interest Income Analysis –- Tax-Equivalent Basis (Continued)
| | | For the Three Months Ended September 30, | For the Three Months Ended June 30, |
| 2018 | | 2017 | 2019 | | 2018 |
(in thousands) | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate | Average Balance | | Interest | | Average Yield/Rate | | Average Balance | | Interest | | Average Yield/Rate |
ASSETS | | | | | | | | | | | | | | | | | | | | | | |
Interest-earning assets | | | | | | | | | | | | | | | | | | | | | | |
Loans, including loan fees (1)(2) | $ | 2,134,448 |
| | $ | 29,045 |
| | 5.35 | % | | $ | 2,035,277 |
| | $ | 27,420 |
| | 5.29 | % | $ | 2,189,070 |
| | $ | 31,257 |
| | 5.66 | % | | $ | 2,117,828 |
| | $ | 27,241 |
| | 5.10 | % |
Investment securities: | | | | | | | | | | | | | | | | | | | | | | |
Taxable | 264,733 |
| | 1,564 |
| | 2.36 | % | | 248,579 |
| | 1,114 |
| | 1.79 | % | 269,072 |
| | 2,041 |
| | 3.03 | % | | 257,537 |
| | 1,597 |
| | 2.48 | % |
Tax-exempt (2) | 147,547 |
| | 809 |
| | 2.19 | % | | 160,965 |
| | 1,107 |
| | 2.75 | % | 133,862 |
| | 737 |
| | 2.20 | % | | 151,163 |
| | 818 |
| | 2.16 | % |
Other interest-earning assets | 117,588 |
| | 747 |
| | 2.51 | % | | 60,252 |
| | 407 |
| | 2.69 | % | 110,353 |
| | 798 |
| | 2.87 | % | | 216,448 |
| | 1,178 |
| | 2.16 | % |
Total non-loan earning assets | 529,868 |
| | 3,120 |
| | 2.35 | % | | 469,796 |
| | 2,628 |
| | 2.23 | % | 513,287 |
| | 3,576 |
| | 2.78 | % | | 625,148 |
| | 3,593 |
| | 2.29 | % |
Total interest-earning assets | 2,664,316 |
| | $ | 32,165 |
| | 4.75 | % | | 2,505,073 |
| | $ | 30,048 |
| | 4.72 | % | 2,702,357 |
| | $ | 34,833 |
| | 5.11 | % | | 2,742,976 |
| | $ | 30,834 |
| | 4.46 | % |
Other assets, net | 306,931 |
| | | | | | 320,469 |
| | | | | 320,026 |
| | | | | | 301,490 |
| | | | |
Total assets | $ | 2,971,247 |
| | | | | | $ | 2,825,542 |
| | | | | $ | 3,022,383 |
| | | | | | $ | 3,044,466 |
| | | | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | | LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | |
Savings | $ | 291,811 |
| | $ | 313 |
| | 0.43 | % | | $ | 268,552 |
| | $ | 129 |
| | 0.19 | % | $ | 311,029 |
| | $ | 392 |
| | 0.50 | % | | $ | 282,656 |
| | $ | 286 |
| | 0.41 | % |
Interest-bearing demand | 536,830 |
| | 1,191 |
| | 0.88 | % | | 441,409 |
| | 758 |
| | 0.68 | % | 478,447 |
| | 1,228 |
| | 1.03 | % | | 539,744 |
| | 1,098 |
| | 0.82 | % |
MMA | 594,937 |
| | 979 |
| | 0.65 | % | | 606,737 |
| | 622 |
| | 0.41 | % | 559,355 |
| | 976 |
| | 0.70 | % | | 765,741 |
| | 1,195 |
| | 0.63 | % |
Core time deposits | 348,899 |
| | 1,472 |
| | 1.67 | % | | 297,318 |
| | 595 |
| | 0.79 | % | 406,427 |
| | 2,100 |
| | 2.07 | % | | 317,594 |
| | 1,143 |
| | 1.44 | % |
Brokered deposits | 81,441 |
| | 100 |
| | 0.49 | % | | 172,200 |
| | 260 |
| | 0.60 | % | 60,115 |
| | 34 |
| | 0.23 | % | | 100,426 |
| | 146 |
| | 0.59 | % |
Total interest-bearing deposits | 1,853,918 |
| | 4,055 |
| | 0.87 | % | | 1,786,216 |
| | 2,364 |
| | 0.53 | % | 1,815,373 |
| | 4,730 |
| | 1.05 | % | | 2,006,161 |
| | 3,868 |
| | 0.77 | % |
Other interest-bearing liabilities | 77,201 |
| �� | 883 |
| | 4.49 | % | | 68,123 |
| | 699 |
| | 4.04 | % | 77,402 |
| | 896 |
| | 4.59 | % | | 78,200 |
| | 874 |
| | 4.43 | % |
Total interest-bearing liabilities | 1,931,119 |
| | 4,938 |
| | 1.01 | % | | 1,854,339 |
| | 3,063 |
| | 0.65 | % | 1,892,775 |
| | 5,626 |
| | 1.19 | % | | 2,084,361 |
| | 4,742 |
| | 0.91 | % |
Noninterest-bearing demand | 643,521 |
| | | | | | 591,013 |
| | | | | 698,853 |
| | | | | | 576,951 |
| | | | |
Other liabilities | 21,100 |
| | | | | | 21,962 |
| | | | | 26,410 |
| | | | | | 18,166 |
| | | | |
Stockholders’ equity | 375,507 |
| | | | | | 358,228 |
| | | | | 404,345 |
| | | | | | 364,988 |
| | | | |
Total liabilities and stockholders’ equity | $ | 2,971,247 |
| | | | | | $ | 2,825,542 |
| | | | | $ | 3,022,383 |
| | | | | | $ | 3,044,466 |
| | | | |
Net interest income and rate spread | | | $ | 27,227 |
| | 3.74 | % | | | | $ | 26,985 |
| | 4.07 | % | | | $ | 29,207 |
| | 3.92 | % | | | | $ | 26,092 |
| | 3.55 | % |
Tax-equivalent adjustment | | | $ | 285 |
| | | | | | $ | 594 |
| | | | | $ | 263 |
| | | | | | $ | 289 |
| | |
Net interest margin | | | | | 4.02 | % | | | | | | 4.24 | % | | | | | 4.28 | % | | | | | | 3.77 | % |
| |
(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% for 2018 periods and 34% for 2017 periods and adjusted for the disallowance of interest expense. |
Table 3: Volume/Rate Variance –- Tax-Equivalent Basis
| | | For the Three Months Ended September 30, 2018 Compared to September 30, 2017: | | For the Nine Months Ended September 30, 2018 Compared to September 30, 2017: | For the Three Months Ended June 30, 2019 Compared to June 30, 2018: | | For the Six Months Ended June 30, 2019 Compared to June 30, 2018: |
| Increase (Decrease) Due to Changes in | | Increase (Decrease) Due to Changes in | Increase (Decrease) Due to Changes in | | Increase (Decrease) Due to Changes in |
(in thousands) | Volume | | Rate | | Net (1) | | Volume | | Rate | | Net (1) | Volume | | Rate | | Net (1) | | Volume | | Rate | | Net (1) |
Interest-earning assets | | | | | | | | | | | | | | | | | | | | | | |
Loans (2) | $ | 1,452 |
| | $ | 173 |
| | $ | 1,625 |
| | $ | 11,431 |
| | $ | (22 | ) | | $ | 11,409 |
| $ | 996 |
| | $ | 3,020 |
| | $ | 4,016 |
| | $ | 1,968 |
| | $ | 3,561 |
| | $ | 5,529 |
|
Investment securities: | | | | | | | | | | | | | | | | | | | | | | |
Taxable | 220 |
| | 230 |
| | 450 |
| | 626 |
| | 455 |
| | 1,081 |
| 101 |
| | 343 |
| | 444 |
| | 484 |
| | 251 |
| | 735 |
|
Tax-exempt (2) | (88 | ) | | (210 | ) | | (298 | ) | | (179 | ) | | (621 | ) | | (800 | ) | (94 | ) | | 13 |
| | (81 | ) | | (177 | ) | | 32 |
| | (145 | ) |
Other interest-earning assets | 301 |
| | 39 |
| | 340 |
| | 1,121 |
| | 69 |
| | 1,190 |
| (583 | ) | | 203 |
| | (380 | ) | | (130 | ) | | 358 |
| | 228 |
|
Total non-loan earning assets | 433 |
| | 59 |
| | 492 |
| | 1,568 |
| | (97 | ) | | 1,471 |
| (576 | ) | | 559 |
| | (17 | ) | | 177 |
| | 641 |
| | 818 |
|
Total interest-earning assets | $ | 1,885 |
| | $ | 232 |
| | $ | 2,117 |
| | $ | 12,999 |
| | $ | (119 | ) | | $ | 12,880 |
| $ | 420 |
| | $ | 3,579 |
| | $ | 3,999 |
| | $ | 2,145 |
| | $ | 4,202 |
| | $ | 6,347 |
|
| | | | | | | | | | | | | | | | | | | | | | |
Interest-bearing liabilities | | | | | | | | | | | | | | | | | | | | | | |
Savings | $ | 12 |
| | $ | 172 |
| | $ | 184 |
| | $ | 41 |
| | $ | 506 |
| | $ | 547 |
| $ | 31 |
| | $ | 75 |
| | $ | 106 |
| | $ | 54 |
| | $ | 194 |
| | $ | 248 |
|
Interest-bearing demand | 185 |
| | 248 |
| | 433 |
| | 578 |
| | 1,193 |
| | 1,771 |
| (135 | ) | | 265 |
| | 130 |
| | (232 | ) | | 610 |
| | 378 |
|
MMA | (13 | ) | | 370 |
| | 357 |
| | 154 |
| | 1,578 |
| | 1,732 |
| (348 | ) | | 129 |
| | (219 | ) | | (339 | ) | | 407 |
| | 68 |
|
Core time deposits | 119 |
| | 758 |
| | 877 |
| | 211 |
| | 1,702 |
| | 1,913 |
| 374 |
| | 583 |
| | 957 |
| | 703 |
| | 1,347 |
| | 2,050 |
|
Brokered deposits | (118 | ) | | (42 | ) | | (160 | ) | | (100 | ) | | (67 | ) | | (167 | ) | (44 | ) | | (68 | ) | | (112 | ) | | (108 | ) | | (86 | ) | | (194 | ) |
Total interest-bearing deposits | 185 |
| | 1,506 |
| | 1,691 |
| | 884 |
| | 4,912 |
| | 5,796 |
| (122 | ) | | 984 |
| | 862 |
| | 78 |
| | 2,472 |
| | 2,550 |
|
Other interest-bearing liabilities | 64 |
| | 120 |
| | 184 |
| | 332 |
| | 281 |
| | 613 |
| 6 |
| | 16 |
| | 22 |
| | (1 | ) | | 108 |
| | 107 |
|
Total interest-bearing liabilities | 249 |
| | 1,626 |
| | 1,875 |
| | 1,216 |
| | 5,193 |
| | 6,409 |
| (116 | ) | | 1,000 |
| | 884 |
| | 77 |
| | 2,580 |
| | 2,657 |
|
Net interest income | $ | 1,636 |
| | $ | (1,394 | ) | | $ | 242 |
| | $ | 11,783 |
| | $ | (5,312 | ) | | $ | 6,471 |
| $ | 536 |
| | $ | 2,579 |
| | $ | 3,115 |
| | $ | 2,068 |
| | $ | 1,622 |
| | $ | 3,690 |
|
| |
(1) | The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each. |
| |
(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% for 2018 periods and 34% for 2017 periods and adjusted for the disallowance of interest expense. |
The Federal Reserve raised short-term interest rates by 25 bps in eight moves from fourth quarter 2016 through fourth quarter 2018 (up 200 bps total) to 2.50% at December 31, 2018, with no short-term moves in 2019 through June 30. The noted increases impacted the rate earned on short-term assets and pressured the cost of shorter-term borrowings, but did not consistently cause a corresponding increase on rates further out on the curve. Hence, 2018 was characterized by a flattening yield curve, while the first six months of 2019 has had periods of an inverted yield curve.
Tax-equivalent net interest income was $80$57.0 million for the first ninesix months of 2018, $6.52019, comprised of net interest income of $56.4 million ($3.7 million or 9%7% higher than $74first half 2018, overcoming $1.0 million forlower aggregate discount accretion on purchased loans), and a $0.5 million tax-equivalent adjustment (relatively unchanged between the first nine monthsperiods). The $3.7 million increase in tax-equivalent net interest income was due to favorable volumes (which added $2.1 million, with $2.0 million from higher loan volumes) and favorable rates (which added $1.6 million). The net $1.6 million increase from rates was from interest-earning asset rate changes in the higher interest rate environment (improving net interest income by $4.2 million, of 2017. which $3.6 million was from loans, inclusive of the lower aggregate discount accretion), exceeding the rising cost of funds (which cost $2.6 million more, led by interest-bearing deposits and most notably time deposits).
Between the comparative nine-monthcomparable six-month periods, the interest rate spread decreased 38increased 5 bps due to a higher cost of funds (up 36 bps) and a decreasean increase in the interest-earning asset yield (down 2 bps)(up 37 bps to 5.00%, aided by an improved mix of assets in higher-yielding loans), exceeding a rise in the cost of funds (up 32 bps to 1.19%). The contribution from net free funds increased 1013 bps, due mostly to the increase in average noninterest-bearing demand deposits (up 17%19%) and their increased value in the higher rate environment. As a result, the tax-equivalent net interest margin was 3.99%4.16% for first half 2019, up 18 bps compared to 3.98% for the comparable 2018 period.
Average interest-earning assets were $2.7 billion for the first ninesix months of 2018, down 28 bps compared to 4.27% for2019, $55 million or 2% higher than the comparable 20172018 period.
Between the comparable nine-monthsix-month periods, average interest-earning assetsloans increased $372$68 million or 16% to $2.7 billion, primarily due to a $280 million or 15% increase in loans (attributable to acquired balances as well as organic growth) and a $93 million increase in3%, while all other interest-earning assets declined $13 million (mainly lowin lower earning cash, which included the 2018 large short-term deposit previously noted)as total investment securities were relatively unchanged). The 2019 mix of average interest-earning assets was 80% loans, 15% investments, and 5% other interest-earning assets (mostly cash), compared to 80%79%, 18%15% and 2%6%, respectively, for the nine months of 2017.first half 2018.
Tax-equivalent interest income increased $12.9was $68.3 million for first half 2019, up $6.3 million or 16% to $94 million for the10% over first nine months ofhalf 2018, while the related interest-earning asset yield decreased 2was 5.00%, up 37 bps to 4.67%.over first half 2018. Interest income on loans increased $11$5.5 million or 10% over the first nine months of 2017, while the related yield was up 2 bps to 5.28%half 2018, despite $4$1.0 million lower aggregate discount accretion income on favorably resolved purchased credit impaired loans between the periods (predominantly attributable to aging discounts on purchased loans). The 2019 loan yield was 5.59%, up 34 bps over first half 2018 (which, if excluding the PCI interestaggregate discount accretion income from both nine monthsix-month periods, the loan yield would have increased 3244 bps), as the higher yieldimproved yields on new, renewed and variable rate loans in the risinghigher rate environment more than offset the lower aggregate discount income. InterestBetween the comparable six-month periods, interest income on non-loan earning assets combined increased $1$0.8 million or 19% over the first nine months of 2017,13%, while the related yield decreased 4increased 37 bps to 2.62%, due mostly to the lower corporate effective taxhigher rate for 2018 reducing the benefit (and thus yields) of tax-exempt investment securities and the higher volume of lower interest-earningon cash offset partly bylevels, as well as higher yields on new investments added in the higher rate environment.
Average interest-bearing liabilities were $2.0$1.9 billion, an increasea decrease of $259$86.0 million or 15%4% compared to the first nine months of 2017,half 2018, primarily due to a $244an $85.2 million or 15% increase4% decrease in interest-bearing deposits (attributable to acquired balances and(with organic growth includingpartially offsetting the $0.1 billion impact on first half 2018 of carrying a $0.3 billion short-term transaction deposit of a large commercial customer from late March to mid-June 2018). With core deposit previously noted).growth (especially in core time deposits, responding to more favorable rate offerings between the years), brokered deposits have continued to decline. The mix of average interest-bearing liabilities was 91%92% core deposits, 5%4% brokered deposits and 4% other funding, compared to 89%90%, 7%6% and 4%, respectively, for the nine months of 2017.
first half 2018.
Interest expense was $14$11.3 million for the first nine months of 2018,half 2019, up $6$2.7 million over the first nine months of 2017,half 2018, and the related cost of funds increased 3632 bps to 0.92%1.19%, driven predominantly by the cost, mix and volume of deposits. Interest expense on deposits increased nearly $6$2.6 million from the first nine months of 2017half 2018 and the average cost of interest-bearing deposits increased 3531 bps to 0.77%1.04%, influenced by increases in select deposit rates from general rate pressures of the federal fundshigher rate environment and the larger proportion of core time deposits. The 2019 cost of savings, interest-bearing demand and money market accounts increased over first half 2018 by 13 bps, 25 bps and 13 bps, respectively, as product rate changes sincelagged the startincremental rise in the rate environment, and time deposits cost 74 bps more between the six-month periods commensurate with paying more for a customer's commitment of 2017. The Federal Reserve raised short-term interest rates by 150 bps since January 1, 2017.term in the higher rate environment.
Of note for 2018, the large customer deposit previously noted as accepted in late March and fully distributed by mid-June was a positive contributor to net interest income, though at a very low net spread, compressing the related margin components for 2018. The inclusion of the large deposit lowered the 2018 earning asset yield by approximately 8 bps and net interest margin by 8 bps, with no material impact on the cost of funds.
Provision for Loan Losses
Asset quality trends remained strong. The provision for loan losses was $1.4$0.5 million for the ninesix months ended SeptemberJune 30, 2018, exceeding net charge-offs of2019, compared to $1.0 million. In comparison, the provision for loan lossesmillion for the ninesix months ended SeptemberJune 30, 2017, was $1.9 million, exceeding net charge-offs of $1.1 million. Asset quality trends remained strong with continued resolutions of problem loans.2018. The ALLL was $13.0$13.6 million (0.61%(0.62% of loans) at SeptemberJune 30, 2018,2019, compared to $12.7$13.2 million (0.61% of loans) at December 31, 20172018 and $12.6$12.9 million (0.61%(0.60% of loans) at SeptemberJune 30, 2017.2018.
The provision for loan losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the appropriateness of the ALLL. The appropriateness of the ALLL is affected by changes in the size and character of the loan portfolio, changes in levels of impaired and other nonperforming loans, historical losses and delinquencies in each portfolio segment, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing and future economic conditions, the fair value of underlying collateral, and other factors which could affect potential credit losses. For additional information regarding asset quality and the ALLL, see “Balance Sheet Analysis“BALANCE SHEET ANALYSIS — Loans,” “— Allowance for Loan Losses,” and “— Nonperforming Assets.”
Noninterest Income
Table 4: Noninterest Income
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
(in thousands) | 2018 | | 2017 | | $ Change | | % Change | | 2018 | | 2017 | | $ Change | | % Change | 2019 | | 2018 | | $ Change | | % Change | | 2019 | | 2018 | | $ Change | | % Change |
Trust services fee income | $ | 1,638 |
| | $ | 1,479 |
| | $ | 159 |
| | 10.8 | % | | $ | 4,915 |
| | $ | 4,431 |
| | $ | 484 |
| | 10.9 | % | $ | 1,569 |
| | $ | 1,671 |
| | $ | (102 | ) | | (6 | )% | | $ | 3,037 |
| | $ | 3,277 |
| | $ | (240 | ) | | (7 | )% |
Brokerage fee income | 1,732 |
| | 1,500 |
| | 232 |
| | 15.5 |
| | 5,074 |
| | 4,192 |
| | 882 |
| | 21.0 |
| 2,002 |
| | 1,738 |
| | 264 |
| | 15 |
| | 3,812 |
| | 3,342 |
| | 470 |
| | 14 |
|
Mortgage income, net | 1,902 |
| | 1,774 |
| | 128 |
| | 7.2 |
| | 4,510 |
| | 4,022 |
| | 488 |
| | 12.1 |
| 2,059 |
| | 1,528 |
| | 531 |
| | 35 |
| | 3,262 |
| | 2,608 |
| | 654 |
| | 25 |
|
Service charges on deposit accounts | 1,247 |
| | 1,238 |
| | 9 |
| | 0.7 |
| | 3,637 |
| | 3,367 |
| | 270 |
| | 8.0 |
| 1,194 |
| | 1,200 |
| | (6 | ) | | (1 | ) | | 2,364 |
| | 2,390 |
| | (26 | ) | | (1 | ) |
Card interchange income | 1,481 |
| | 1,225 |
| | 256 |
| | 20.9 |
| | 4,082 |
| | 3,378 |
| | 704 |
| | 20.8 |
| 1,660 |
| | 1,358 |
| | 302 |
| | 22 |
| | 3,080 |
| | 2,601 |
| | 479 |
| | 18 |
|
BOLI income | 1,019 |
| | 459 |
| | 560 |
| | 122.0 |
| | 1,929 |
| | 1,314 |
| | 615 |
| | 46.8 |
| 880 |
| | 468 |
| | 412 |
| | 88 |
| | 1,339 |
| | 910 |
| | 429 |
| | 47 |
|
Rent income | 303 |
| | 285 |
| | 18 |
| | 6.3 |
| | 951 |
| | 852 |
| | 99 |
| | 11.6 |
| |
Other income | 1,181 |
| | 899 |
| | 282 |
| | 31.4 |
| | 3,292 |
| | 2,391 |
| | 901 |
| | 37.7 |
| 1,624 |
| | 1,304 |
| | 320 |
| | 25 |
| | 3,108 |
| | 2,759 |
| | 349 |
| | 13 |
|
Noninterest income without net gains | 10,503 |
| | 8,859 |
| | 1,644 |
| | 18.6 |
| | 28,390 |
| | 23,947 |
| | 4,443 |
| | 18.6 |
| 10,988 |
| | 9,267 |
| | 1,721 |
| | 19 |
| | 20,002 |
| | 17,887 |
| | 2,115 |
| | 12 |
|
Asset gains (losses), net | 146 |
| | 1,305 |
| | (1,159 | ) | | (88.8 | ) | | 1,322 |
| | 2,071 |
| | (749 | ) | | (36.2 | ) | 7,572 |
| | 972 |
| | 6,600 |
| | N/M |
| | 7,744 |
| | 1,176 |
| | 6,568 |
| | N/M |
|
Total noninterest income | $ | 10,649 |
| | $ | 10,164 |
| | $ | 485 |
| | 4.8 | % | | $ | 29,712 |
| | $ | 26,018 |
| | $ | 3,694 |
| | 14.2 | % | $ | 18,560 |
| | $ | 10,239 |
| | $ | 8,321 |
| | 81 | % | | $ | 27,746 |
| | $ | 19,063 |
| | $ | 8,683 |
| | 46 | % |
Trust services fee income & Brokerage fee income combined | | $ | 3,571 |
| | $ | 3,409 |
| | $ | 162 |
| | 5 | % | | $ | 6,849 |
| | $ | 6,619 |
| | $ | 230 |
| | 3 | % |
N/M means not meaningful.
Noninterest income grew $3.7was $27.7 million for first half 2019, compared to $19.1 million for first half 2018, an increase of $8.7 million or 14% over46%, mostly due to the first nine months of 2017, with all categories increasing except$7.4 million gain on the equity investment sale noted previously. Noninterest income excluding net asset gains.
Trust service fees were up $0.5gains grew $2.1 million or 11%12% between the comparable nine-monthsix-month periods, due to higher assets under management. Between the first nine months,with most categories up year over year.
Trust services fee income and brokerage feesfee income combined were up $0.9$0.2 million or 21%, attributable to growth within3% with some Trust accounts being transferred into the financial advisor business.Brokerage accounts.
Mortgage income represents net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), servicing fees, fair value marks on the mortgage interest rate lock commitments and forward commitments, offsetting MSR amortization, MSR valuation changes, if any, and to a smaller degree some related income. Net mortgage income increased $0.5$0.7 million or 12%25% between the comparable nine-monthsix-month periods, commensurate withpredominantly from higher sales volumeMSR gains (reflective of changes in MSR capitalization assumptions in mid-2018), higher gains on sale, and increased net servicing fees on the growing portfolio of mortgage loans serviced for others.
others, partially offset by unfavorable changes in the fair value of the mortgage interest rate lock and forward commitments.
Service charges on deposits accounts were minimally changed at $2.4 million for both six-month periods. The change in the 2019 deposit accounts increased $0.3 million or 8% overbase had minimal impact on service charges since most of the first nine months of 2017, resulting from a higher number of accountsdeposit growth in 2019 occurred in time deposits and anthe increase to the fee charged on overdrafts implemented during mid-2017. earnings credit rate in mid-2018 mostly offset the growth in transaction deposits.
Card interchange income grew $0.7$0.5 million or 21%18% due to higher volume and activity.
BOLI income was up $0.6increased $0.4 million, or 47% over the first nine months of 2017, with the majorityfully attributable to a BOLI death benefit. benefit received in second quarter 2019.
Other income was $3.3increased $0.3 million, up $0.9 million or 38% over the first nine months of 2017, mostly attributable to the fee earned on a customer loan interest rate swap in second quarter 2019.
The $7.7 million net asset gains in first half 2019 were comprised primarily of the $7.4 million gain on the equity investment sale and $0.6 million of favorable fair value marks on equity securities, partially offset by losses of $0.1 million on the disposal of fixed assets, a $0.1 million write-down on an increaseOREO property, and a $0.1 million write-down on an other investment. The $7.4 million equity investment gain was related to Nicolet's sale of $0.3 million in income from theapproximately 80% of its equity interest in UFS, (aLLC, a data processing company interest acquired with a 2016 bank merger) and $0.3 million of annual card contract incentives received in first quarter 2018.
e-banking entity. The $1.3$1.2 million net asset gains in first half 2018 were primarily attributable to $0.6 million of net gains on the sale of OREO and fixed assets, and a $0.7$0.3 million favorable fair value mark on equity securities. The $2.1securities, and a $0.2 million net asset gains in 2017 were primarily attributable to a $1.2 million gain to record the fair value of Nicolet's pre-acquisition interest in First Menasha, a $0.3 million net gain on the sale of OREO, and a $0.7 million net gain on the sale or disposition of assets (mostly from the sale of two vacated bank branches).equity securities.
Noninterest Expense
Table 5: Noninterest Expense
| | | Three Months Ended September 30, | | Nine Months Ended September 30, | Three Months Ended June 30, | | Six Months Ended June 30, |
($ in thousands) | 2018 | | 2017 | | Change | | % Change | | 2018 | | 2017 | | Change | | % Change | 2019 | | 2018 | | Change | | % Change | | 2019 | | 2018 | | Change | | % Change |
Personnel | $ | 12,983 |
| | $ | 11,488 |
| | $ | 1,495 |
| | 13.0 | % | | $ | 38,149 |
| | $ | 32,404 |
| | $ | 5,745 |
| | 17.7 | % | $ | 15,358 |
| | $ | 12,674 |
| | $ | 2,684 |
| | 21 | % | | $ | 27,895 |
| | $ | 25,166 |
| | $ | 2,729 |
| | 11 | % |
Occupancy, equipment and office | 3,660 |
| | 3,559 |
| | 101 |
| | 2.8 |
| | 10,901 |
| | 9,613 |
| | 1,288 |
| | 13.4 |
| 3,757 |
| | 3,454 |
| | 303 |
| | 9 |
| | 7,507 |
| | 7,241 |
| | 266 |
| | 4 |
|
Business development and marketing | 1,334 |
| | 1,113 |
| | 221 |
| | 19.9 |
| | 4,139 |
| | 3,359 |
| | 780 |
| | 23.2 |
| 1,579 |
| | 1,463 |
| | 116 |
| | 8 |
| | 2,860 |
| | 2,805 |
| | 55 |
| | 2 |
|
Data processing | 2,375 |
| | 2,238 |
| | 137 |
| | 6.1 |
| | 7,094 |
| | 6,428 |
| | 666 |
| | 10.4 |
| 2,350 |
| | 2,399 |
| | (49 | ) | | (2 | ) | | 4,705 |
| | 4,719 |
| | (14 | ) | | — |
|
FDIC expense | 245 |
| | 205 |
| | 40 |
| | 19.5 |
| | 800 |
| | 582 |
| | 218 |
| | 37.5 |
| |
Intangibles amortization | 1,054 |
| | 1,173 |
| | (119 | ) | | (10.1 | ) | | 3,336 |
| | 3,514 |
| | (178 | ) | | (5.1 | ) | 969 |
| | 1,100 |
| | (131 | ) | | (12 | ) | | 2,022 |
| | 2,282 |
| | (260 | ) | | (11 | ) |
Other expense | 1,393 |
| | 1,086 |
| | 307 |
| | 28.3 |
| | 3,718 |
| | 3,598 |
| | 120 |
| | 3.3 |
| 1,714 |
| | 1,361 |
| | 353 |
| | 26 |
| | 3,497 |
| | 2,880 |
| | 617 |
| | 21 |
|
Total noninterest expense | $ | 23,044 |
| | $ | 20,862 |
| | $ | 2,182 |
| | 10.5 | % | | $ | 68,137 |
| | $ | 59,498 |
| | $ | 8,639 |
| | 14.5 | % | $ | 25,727 |
| | $ | 22,451 |
| | $ | 3,276 |
| | 15 | % | | $ | 48,486 |
| | $ | 45,093 |
| | $ | 3,393 |
| | 8 | % |
| | | | | | | | | | | | | | | | |
Non-personnel expenses | $ | 10,061 |
| | $ | 9,374 |
| | $ | 687 |
| | 7.3 | % | | $ | 29,988 |
| | $ | 27,094 |
| | $ | 2,894 |
| | 10.7 | % | $ | 10,369 |
| | $ | 9,777 |
| | $ | 592 |
| | 6 | % | | $ | 20,591 |
| | $ | 19,927 |
| | $ | 664 |
| | 3 | % |
Average full-time equivalent employees | 567 |
| | 547 |
| | 20 |
| | 3.7 | % | | 554 |
| | 519 |
| | 35 |
| | 6.7 | % | 555 |
| | 552 |
| | 3 |
| | 1 | % | | 552 |
| | 548 |
| | 4 |
| | 1 | % |
Noninterest expense increased $8.6was $48.5 million, an increase of $3.4 million or 15%8% over first half 2018. Personnel costs increased $2.7 million, and non-personnel expenses combined increased $0.7 million or 3% over the first nine monthshalf of 2017, mostly due to the expanded workforce and larger operating base. Excluding the $0.5 million of non-recurring merger-related costs included in 2017, noninterest expense increased $9.1 million or 15%.2018.
Personnel expense was $38.1$27.9 million for the first ninesix months of 2018, up $5.72019, an increase of $2.7 million or 18% compared11% over the comparable period in 2018. As previously noted, the increase in personnel expense was largely driven by $2.75 million of retirement-related compensation actions in second quarter 2019, including a discretionary profit sharing contribution of $1.05 million to the first nine months of 2017, partly due401k plan and a $1.7 million contribution to the expanded workforce resulting fromnonqualified deferred compensation plan. Consistent with our philosophy of aligning outcomes to customers, shareholders, and employees, the 2017 acquisition, with average full-time equivalentboard approved these retirement-related compensation actions to benefit
all employees up 7% betweenfollowing the comparable nine-month periods. Additionally,recognition of the increase results fromgain on the equity investment sale. Personnel expense was also impacted by merit increases between the periods additional competitive market-based wage increases made more broadly across staff positions after tax reform was passed,(though on a minimally changed workforce, with average full-time equivalents up less than 1%), lower equity and cash incentives (mostly timing in nature), and equity incentives timing, and higherlower health and other benefitsbenefit costs.
Occupancy, equipment and office expense was $10.9$7.5 million for the first nine months of 2018,half 2019, up $1.3$0.3 million or 13%4% compared to 2017, primarily the result of the larger operating base andfirst half 2018, with 2019 including higher expense for software and technology costs as the Company invests in solutions that willto drive operational efficiency and product or service enhancements. In addition, 2018 includesenhancements, and both periods including approximately $0.4$0.2 million of accelerated depreciation on old buildings related to two branches, one extensively renovated and the other a new location under construction.for branch facility upgrades.
Business development and marketing expense was $4.1$2.9 million, up $0.8$0.1 million or 23%2%, between the comparable nine-monthsix-month periods, largely due to $0.7 million higher charitable giving and the timing and extent of donations, marketing campaigns, promotions, and media.
Data processing, which is primarily volume-based, rose $0.7Intangibles amortization decreased $0.3 million or 10% between the comparable nine-month periods; however, excluding the $0.2 million of merger-related expenses incurred in 2017, data processing costs rose 14%, in line with the higher volume of accounts and activity.
Intangible amortization decreased between the nine-monthfirst half periods as higher expense from intangibles added in April 2017 was more than offset by declining amortization on the aging intangibles of previous acquisitions. Other expense was $3.5 million, up $0.1$0.6 million
or 3%21% between the comparable nine-month periods; however, excluding thesix-month periods, due primarily to a $0.3 million of merger-related expenses incurredfraud contingency loss recognized in 2017, other expenses rose 11%,first quarter 2019 and $0.3 million for the annual equity retainer granted to directors in line with the larger operating base offset by certain economies of scale.second quarter 2019 (versus granted in third quarter last year).
Income Taxes
Income tax expense was $9.4$6.2 million (effective tax rate of 23.7%17.6%) for the first nine months of 2018,half 2019, compared to $12.6$6.2 million (effective tax rate of 34.2%24.0%) for the comparable period of 2017.2018. The underlying Federal corporatelower effective tax rate declinedwas due to 21% (beginning in 2018) from 35% (for 2017) as a resultthe favorable tax treatment of the Tax Cuts and Jobs Act passed in December 2017, impacting the effective tax rates between the years. Additionally, theequity investment sale, BOLI death benefit, recognized in third quarter 2018 was non-taxable, and athe tax benefit of $159,000 and $176,000 was recorded against income tax expense for the nine months ended September 30, 2018 and 2017, respectively, related to the tax impact of stock option exercises and vesting of restricted stock.on stock-based compensation.
Income Statement Analysis – Three Months Ended SeptemberJune 30, 20182019 versus Three Months Ended SeptemberJune 30, 20172018
Net income was $10.9$18.5 million for the three months ended SeptemberJune 30, 2018,2019, an increase of $1.3$8.8 million or 14%91% over $9.5$9.7 million for the three months ended SeptemberJune 30, 2017.2018. Earnings per diluted common share was $1.09$1.91 for thirdsecond quarter 2018, 20%2019, 95% higher than $0.91$0.98 for thirdsecond quarter 2017. Annualized return on average assets2018. Net income in second quarter 2019 included $5.4 million from two nonrecurring items, a $7.4 million after-tax gain from the equity investment sale previously noted (recorded in net asset gains) and $2.75 million ($2.0 million after tax) in personnel expense for third quarter 2018 and 2017 was 1.45% and 1.34%, respectively.retirement-related compensation actions.
Tax-equivalent net interest income was $27.2$29.2 million for thirdsecond quarter 2018,2019, comprised of net interest income of $26.9$28.9 million ($0.63.1 million or 2%12% over thirdsecond quarter 2017, despite $1.82018, driven mostly by net positive rate variances, including $0.6 million lowerhigher aggregate discount accretion on purchased loans), and a tax-equivalent adjustment of $0.3 million (down $0.3 million, due to lower tax-exempt municipal securities held and the lower corporate tax rate between the years)(unchanged from second quarter 2018). Tax-equivalent interest income increased $2.1$4.0 million between the thirdsecond quarter periods, with $1.9 million from stronger earning asset volumes (led by loans and lower earning cash) and $0.2$3.6 million from improved yields across all interest-earning assets though led by loans (with a 365 bps increase in the interest-earning asset yield, despite lower discount accretion incomeyield) and $0.4 million from favorably resolved purchased credit impairedstronger volumes (led by average loans and the lower taxable equivalent adjustment). Excluding the PCI interest from both thirdwhich grew to represent 81% of interest-earning assets versus 77% for second quarter periods, the loan yield would have increased 38 bps, compared to the reported 6 bps increase reflected in Table 2.2018). Interest expense increased $1.9$0.9 million over thirdsecond quarter 2017,2018, with $1.6$1.0 million from rising rates (with a 3628 bps increase in the cost of funds) and the remainder from higher volumes, both led by deposits.deposits and deposit mix. For additional information regarding average balances and net interest income, see “Income Statement Analysis — Net Interest Income.”
Second quarter 2019 earning asset yield, cost of funds, and net interest margin were 5.11%, 1.19% and 4.28%, respectively, compared to 4.46%, 0.91% and 3.77%, respectively, for second quarter 2018. Of note, a $0.3 billion short-term transaction deposit of a long-standing customer was carried from late March to mid-June 2018, increasing second quarter 2018 average deposits and interest-bearing cash each by approximately $0.2 billion. The inclusion of the large deposit was a positive contributor to second quarter 2018 net interest income, though at a very low net spread, which lowered that quarter's reported earning asset yield and net interest margin by approximately 20 bps each and lowered the reported cost of funds by approximately 2 bps. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest Income.”
Asset quality remained exceptional. For thirdsecond quarter 2018,2019, provision for loan losses was $0.3 million and(covering $0.1 million of net charge-offs were $0.2 million, on continually improving asset quality. Provisioncharge-offs), compared to provision for loan losses of $0.5 million (covering $0.4 million of net charge-offs) for thirdsecond quarter 2017 was $1.0 million, with net charge-offs of $1.0 million due to the charge-off of a large commercial loan.2018.
Noninterest income was $10.6$18.6 million for thirdsecond quarter 2018,2019, an increase of $0.5$8.3 million or 5%81% over thirdsecond quarter 2017.2018. Excluding net asset gains, noninterest income increased $1.6$1.7 million or 19%, largely due to trust and brokerage fees (up $0.4 million or 13% combined), card interchange income (up $0.3 million or 21% on higher volume and activity), mortgage income (up $0.1$0.5 million or 7%35% on higher sales volume and a larger servicing portfolio), trust services fee income and brokerage fee income combined (up $0.2 million or 5%, with some Trust accounts being transferred into Brokerage), card interchange income (up $0.3 million or 22% on higher volume and activity), and BOLI income (up $0.6$0.4 million from a death benefit). Net asset gains of $0.1$7.6 million for thirdsecond quarter 20182019 were largely attributable to fair value marksthe $7.4 million gain on the equity securities.investment sale noted previously. Net asset gains of $1.3$1.0 million for thirdsecond quarter 20172018 were primarily attributable to $0.4 million of net gains on the gain to record thesale of fixed assets, a $0.4 million fair value mark on equity securities, and a $0.2 million gain on the sale of Nicolet's pre-acquisition interest in First Menasha.equity securities. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”
Noninterest expense was $23.0$25.7 million for thirdsecond quarter 2018,2019, an increase of $2.2$3.3 million or 10%15% over thirdsecond quarter 2017.2018. Personnel expense increased $1.5$2.7 million or 13%21% from thirdsecond quarter 2017 partly due2018, fully attributable to the expanded workforce (average FTEs increased 4%), as well aslarge retirement-related compensation noted previously. Personnel expense was also impacted by merit and competitive wage increases between the periods higher(though on a
minimally changed workforce, with average full-time equivalents up less than 1%), lower equity and cash incentives (mostly timing in nature), and higherminimally changed health and other benefit costs. Non-personnel expenses combined increased $0.7$0.6 million or 7%6%, largely due to business developmentoccupancy, equipment, and marketingoffice (up $0.2$0.3 million or 20%9%, on higher charitable giving)attributable to accelerated depreciation for branch facility upgrades) and other expense (up $0.3$0.4 million or 28% for an26%, mainly from the $0.3 million annual equity retainer granted to the Board)directors in second quarter versus third quarter last year). For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”
Income tax expense for thirdsecond quarter 2018 benefited from the lower corporate tax rate effective in 2018, due to the passage of the Tax Cuts and Jobs Act in December 2017, as well as the tax treatment on the BOLI death benefit in 2018. Income tax expense for third quarter 20182019 was $3.3$2.8 million, with an effective tax rate of 23.0%13.2%, compared to income tax expense of $5.1$3.3 million and an effective tax rate of 34.9%24.9% for thirdsecond quarter 2017.2018. The lower income tax expense and effective tax rate was due to the favorable tax treatment of the equity investment sale, BOLI death benefit, and the tax benefit on stock-based compensation.
BALANCE SHEET ANALYSIS
At SeptemberJune 30, 2018,2019, assets were $3.0$3.1 billion, an increasea decrease of $68$42 million or 1% from December 31, 2018, while deposits were $2.5 billion, a decrease of $78 million or 3% over the same period, with both reflecting the usual cyclical decline. Loans grew $37 million or 2% from December 31, 2017, including an increase of $56 million or 3% in loans, fully attributable to commercial-based loans. Deposits of $2.5$2.2 billion increased $51 million or 2% over the same period.at June 30, 2019. Total stockholders’ equity was $377$411 million, an increase of $13$25 million from December 31, 2017,2018, with net income and stock issuances partially offset by stock repurchasesearnings and net fair value investment changes.
changes partially offset by stock repurchases.
Compared to SeptemberJune 30, 2017,2018, assets increased $155were $3.1 billion, up $133 million or 5%, includingand deposits were $2.5 billion, an increase of $92$81 million or 5%3%, largely due to growth in loans, fully attributable to commercial-based loans. Depositstime deposits. Loans increased $155$75 million or 7% over the same period.4% from June 30, 2018. Compared to SeptemberJune 30, 2017,2018, stockholders’ equity increased $17$41 million, primarily due to net income, and stock issuances, and net fair value investment changes partially offset by stock repurchases over the year.
Loans
Nicolet services a diverse customer base throughout northeastern and central Wisconsin and in Menominee, Michigan. It continues to concentrate its efforts inThe Company concentrates on originating loans in its local markets and assisting its current loan customers. The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At SeptemberJune 30, 2018,2019, no significant industry concentrations existed in Nicolet’s portfolio in excess of 10% of total loans. Nicolet has also developed guidelines to manage its exposure to various types of concentration risks. See also Note 6, “Loans, Allowance for Loan Losses, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on loans.
An active credit risk management process is used to ensure that sound and consistent credit decisions are made. The credit management process is regularly reviewed and the process has been modified over the past several years to further strengthen the controls. Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early problem loan identification and remedial action to minimize losses, an appropriate ALLL, and sound nonaccrual and charge-off policies.
Table 6: Period End Loan Composition
| | | September 30, 2018 | | December 31, 2017 | | September 30, 2017 | June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
(in thousands) | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
Commercial & industrial | $ | 665,754 |
| | 31.1 | % | | $ | 637,337 |
| | 30.5 | % | | $ | 625,729 |
| | 30.5 | % | $ | 737,928 |
| | 34 | % | | $ | 684,920 |
| | 32 | % | | $ | 666,249 |
| | 31 | % |
Owner-occupied CRE | 449,151 |
| | 21.0 |
| | 430,043 |
| | 20.6 |
| | 428,054 |
| | 20.9 |
| 447,554 |
| | 20 |
| | 441,353 |
| | 20 |
| | 448,367 |
| | 21 |
|
AG production | 35,727 |
| | 1.7 |
| | 35,455 |
| | 1.7 |
| | 36,352 |
| | 1.8 |
| 35,765 |
| | 2 |
| | 35,625 |
| | 2 |
| | 34,016 |
| | 2 |
|
Commercial | 1,150,632 |
| | 53.8 |
| | 1,102,835 |
| | 52.8 |
| | 1,090,135 |
| | 53.2 |
| 1,221,247 |
| | 56 |
| | 1,161,898 |
| | 54 |
| | 1,148,632 |
| | 54 |
|
AG real estate | 52,378 |
| | 2.4 |
| | 51,778 |
| | 2.5 |
| | 48,443 |
| | 2.4 |
| 53,485 |
| | 2 |
| | 53,444 |
| | 2 |
| | 53,019 |
| | 2 |
|
CRE investment | 331,312 |
| | 15.5 |
| | 314,463 |
| | 15.1 |
| | 303,448 |
| | 14.8 |
| 326,820 |
| | 15 |
| | 343,652 |
| | 16 |
| | 333,893 |
| | 16 |
|
Construction & land development | 86,533 |
| | 4.0 |
| | 89,660 |
| | 4.3 |
| | 87,649 |
| | 4.3 |
| 73,108 |
| | 3 |
| | 80,599 |
| | 4 |
| | 75,053 |
| | 4 |
|
Commercial real estate | 470,223 |
| | 21.9 |
| | 455,901 |
| | 21.9 |
| | 439,540 |
| | 21.5 |
| 453,413 |
| | 20 |
| | 477,695 |
| | 22 |
| | 461,965 |
| | 22 |
|
Commercial-based loans | 1,620,855 |
| | 75.7 |
| | 1,558,736 |
| | 74.7 |
| | 1,529,675 |
| | 74.7 |
| 1,674,660 |
| | 76 |
| | 1,639,593 |
| | 76 |
| | 1,610,597 |
| | 76 |
|
Residential construction | 30,295 |
| | 1.4 |
| | 36,995 |
| | 1.8 |
| | 33,163 |
| | 1.6 |
| 38,246 |
| | 2 |
| | 30,926 |
| | 1 |
| | 28,701 |
| | 1 |
|
Residential first mortgage | 357,163 |
| | 16.6 |
| | 363,352 |
| | 17.4 |
| | 363,116 |
| | 17.7 |
| 345,061 |
| | 16 |
| | 357,841 |
| | 17 |
| | 358,537 |
| | 17 |
|
Residential junior mortgage | 109,692 |
| | 5.1 |
| | 106,027 |
| | 5.1 |
| | 102,654 |
| | 5.0 |
| 116,433 |
| | 5 |
| | 111,328 |
| | 5 |
| | 106,592 |
| | 5 |
|
Residential real estate | 497,150 |
| | 23.1 |
| | 506,374 |
| | 24.3 |
| | 498,933 |
| | 24.3 |
| 499,740 |
| | 23 |
| | 500,095 |
| | 23 |
| | 493,830 |
| | 23 |
|
Retail & other | 25,452 |
| | 1.2 |
| | 22,815 |
| | 1.0 |
| | 22,514 |
| | 1.0 |
| 28,873 |
| | 1 |
| | 26,493 |
| | 1 |
| | 24,197 |
| | 1 |
|
Retail-based loans | 522,602 |
| | 24.3 |
| | 529,189 |
| | 25.3 |
| | 521,447 |
| | 25.3 |
| 528,613 |
| | 24 |
| | 526,588 |
| | 24 |
| | 518,027 |
| | 24 |
|
Total loans | $ | 2,143,457 |
| | 100.0 | % | | $ | 2,087,925 |
| | 100.0 | % | | $ | 2,051,122 |
| | 100.0 | % | $ | 2,203,273 |
| | 100 | % | | $ | 2,166,181 |
| | 100 | % | | $ | 2,128,624 |
| | 100 | % |
Broadly, the loan portfolio at SeptemberJune 30, 2018, is2019, was 76% commercial-based and 24% retail-based. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.
Commercial-based loans of $1.6$1.7 billion increased $62$35 million or 4%2% since December 31, 2017,2018, primarily due to a $28 million or 4% increasegrowth in commercial and industrial and a $19 million or 4% increase in owner-occupied CRE.loans. Commercial and industrial loans continue to be the largest segment of Nicolet’s portfolio and increased to 31.1%represented 34% of the total portfolio at SeptemberJune 30, 2018, up from 30.5% at December 31, 2017.
Commercial real estate loans of $0.5 billion increased $14 million or 3% from year-end 2017, primarily in CRE investment loans. Lending in the CRE investment and construction and land development categories has been focused on loans that are secured by commercial income-producing properties as opposed to speculative real estate development.2019.
Residential real estate loans declined $9 million or 2% sincewere relatively unchanged from year-end 2017,2018, and represented 23.1%23% of total loans at SeptemberJune 30, 2018, compared to 24.3% at year-end 2017.2019. Residential first mortgage loans include conventional first-lien home mortgages, andwhile residential junior mortgage real estate loans consist mainly of home equity lines and term loans secured by junior mortgage liens. As part of its management of originating residential mortgage loans, the vast majority of Nicolet’s long-term, fixed-rate residential real estate mortgage loans are largely sold in the secondary market with or without retaining the servicing rights. MortgageNicolet's mortgage loans retained in the portfolio are typically of high quality and have historically had low net charge-off rates.
Retail and other loans (up $2 million from year-end 2018) represented approximately 1% of the total loan portfolio, and include predominantly short-term and other personal installment loans not secured by real estate. The loan balances in this portfolio remained relatively unchanged from December 31, 2017 to September 30, 2018.
Allowance for Loan Losses
In addition to the discussion that follows, see also Note 6, “Loans, Allowance for Loan Losses, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the allowance for loan losses.
Credit risks within the loan portfolio are inherently different for each loan type as describedsummarized under “Balance Sheet Analysis“BALANCE SHEET ANALYSIS — Loans.” A detailed discussion of the loan portfolio credit risk can be found in the "Loans" section in Management's Discussion and Analysis of Financial Condition and Results of Operations included in the Company's 2018 Annual Report on Form 10-K. There have been no material changes in the credit risk of the Company's loan portfolio since December 31, 2018. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and on-goingongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses.
The level of the ALLL represents management’s estimate of an amount of reserves that provides for estimated probable credit losses in the loan portfolio at the balance sheet date. To assess the appropriateness of the ALLL, an allocation methodology is applied by Nicolet which focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonperforming loans; (v)
the risk characteristics of the various loan portfolios;segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing and forecasted economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect potential credit losses. Assessing these numerous factors involves significant judgment; therefore, management considers the ALLL a critical accounting policy.
Management allocates the ALLL by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve for the estimated shortfall is established for all loans determined to be impaired. The specific reserve in the ALLL is equal to the aggregate collateral or discounted cash flow shortfall calculated from the impairment analyses. Management has definedanalysis. For determining the appropriateness of the ALLL, management defines impaired loans as nonaccrual credit relationships over $250,000, all loans determined to be troubled debt restructurings (“restructured loans”), plus additional loans with impairment risk characteristics. Second, management allocates the ALLL with historical loss rates by loan segment. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels on an annual basis. The look-back period on which the average historical loss rates are determined is a rolling 20-quarter (5 year) average. Lastly, management allocates the ALLL to the remaining loan portfolio using the qualitative factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience of each loan segment. Management conducts its allocation methodology on both the originated loans and on the acquired loans separately to account for differences, such as different loss histories and qualitative factors, between the two loan portfolios.
At SeptemberJune 30, 2018,2019, the ALLL was $13.0$13.6 million compared to $12.7$13.2 million at December 31, 2017.2018. The increase incomponents of the ALLL was the net result of a $1.4 million provision for loan losses exceeding net charge-offs by $0.3 million. Comparatively, the provision for loan lossesare detailed further in the first nine months of 2017 was $1.9 million and net charge-offs were $1.1 million.Table 7 below. Annualized net charge-offs as a percent of average loans were 0.06% in the0.01% for first nine months of 2018half 2019, compared to 0.08% for the first nine months of 2017half 2018 and 0.08%0.05% for the entire 20172018 year.
The ratio of the ALLL as a percentage of period-end loans was 0.62% at June 30, 2019, compared to 0.61% at Septemberand 0.60% for December 31, 2018 and June 30, 2018, unchanged from 0.61% at both December 31, 2017, and September 30, 2017.respectively. The ALLL to loans ratio is impacted by the accounting treatment of Nicolet’s bank acquisitions, which combined at their acquisition dates (from 2013 to 2017) added no ALLL to the numerator and $1.3 billion of loans into the denominator at their then estimated fair values.denominator. Remaining outstanding acquired loans were $725$625 million (28% of total loans) and $844$681 million (31% of total loans) at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. The related allowanceAt June 30, 2019, the $13.6 million ALLL was comprised of $1.6 million for acquired loans was $1.9 million, representing 0.26%(0.26% of acquired loans) and $11.9 million for originated loans (0.76% of originated loans). In comparison, at September 30,December 31, 2018, compared to an allowancethe $13.2 million ALLL was comprised of $1.7 million for acquired loans of $2.1 million, representing 0.25%(0.25% of acquired loans) and $11.4 million for originated loans at December 31, 2017. Originated loans outstanding, the related allowance and the ALLL to loans ratio at September 30, 2018 were $1.4 billion, $11.1 million and 0.78%, respectively, compared to $1.2 billion, $10.5 million and 0.85%, respectively, at December 31, 2017.(0.77% of originated loans).
Table 7: Allowance for Loan Losses
| | | Nine Months Ended | | Year Ended | Six Months Ended | | Year Ended |
(in thousands) | September 30, 2018 | | September 30, 2017 | | December 31, 2017 | June 30, 2019 | | June 30, 2018 | | December 31, 2018 |
Allowance for loan losses (ALLL): | | | | | | |
Allowance for loan losses: | | | | | | |
Balance at beginning of period | $ | 12,653 |
| | $ | 11,820 |
| | $ | 11,820 |
| $ | 13,153 |
| | $ | 12,653 |
| | $ | 12,653 |
|
Provision for loan losses | 1,360 |
| | 1,875 |
| | 2,325 |
| 500 |
| | 1,020 |
| | 1,600 |
|
Charge-offs | (1,110 | ) | | (1,156 | ) | | (1,604 | ) | (232 | ) | | (877 | ) | | (1,213 | ) |
Recoveries | 89 |
| | 71 |
| | 112 |
| 150 |
| | 79 |
| | 113 |
|
Net charge-offs | (1,021 | ) | | (1,085 | ) | | (1,492 | ) | |
Net (charge-offs) recoveries | | (82 | ) | | (798 | ) | | (1,100 | ) |
Balance at end of period | $ | 12,992 |
| | $ | 12,610 |
| | $ | 12,653 |
| $ | 13,571 |
| | $ | 12,875 |
| | $ | 13,153 |
|
| | | | | | |
Net loan charge-offs (recoveries): | | | | | | |
Net loan (charge-offs) recoveries: | | | | | | |
Commercial & industrial | $ | 713 |
| | $ | 1,077 |
| | $ | 1,404 |
| $ | 50 |
| | $ | (564 | ) | | $ | (770 | ) |
Owner-occupied CRE | 52 |
| | (29 | ) | | (30 | ) | (11 | ) | | (54 | ) | | (60 | ) |
AG production | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
AG real estate | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
CRE investment | 37 |
| | (1 | ) | | (1 | ) | — |
| | (37 | ) | | (37 | ) |
Construction & land development | — |
| | 13 |
| | 13 |
| — |
| | — |
| | — |
|
Residential construction | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
Residential first mortgage | 82 |
| | 2 |
| | (17 | ) | 35 |
| | (47 | ) | | (80 | ) |
Residential junior mortgage | (31 | ) | | (2 | ) | | 69 |
| (31 | ) | | 29 |
| | 35 |
|
Retail & other | 168 |
| | 25 |
| | 54 |
| (125 | ) | | (125 | ) | | (188 | ) |
Total net loans charged-off | $ | 1,021 |
| | $ | 1,085 |
| | $ | 1,492 |
| |
| | | | | | |
Total net (charge-offs) recoveries | | $ | (82 | ) | | $ | (798 | ) | | $ | (1,100 | ) |
Ratios: | | | | | | |
ALLL to total loans | 0.61 | % | | 0.61 | % | | 0.61 | % | 0.62 | % | | 0.60 | % | | 0.61 | % |
ALLL to net charge-offs | 951.7 | % | | 869.3 | % | | 848.1 | % | |
Net charge-offs to average loans, annualized | 0.06 | % | | 0.08 | % | | 0.08 | % | 0.01 | % | | 0.08 | % | | 0.05 | % |
Nonperforming Assets
As part of its overall credit risk management process, Nicolet’s management is committed to an aggressive problem loan identification philosophy. This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified early and the risk of loss is minimized. See also Note 6, “Loans, Allowance for Loan Losses, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on credit quality.
Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans, including those defined as impaired under current accounting standards, and loans 90 days or more past due but still accruing interest. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately. Nonaccrual loans decreased to $10.2were $7.7 million (consisting of $4.9$4.3 million originated loans and $5.3$3.4 million acquired loans) at SeptemberJune 30, 20182019 compared to $13.1$5.5 million at December 31, 20172018 (consisting of $3.3$1.4 million originated loans and $9.8$4.1 million acquired loans), with the decline primarily attributable to the favorable resolution of a large purchased credit impaired commercial loan.. Nonperforming assets (which include nonperforming loans and OREO)other real estate owned “OREO”) were $11.5$8.0 million at SeptemberJune 30, 20182019 compared to $14.4$5.9 million at December 31, 2017.2018. OREO was $1.3$0.3 million at SeptemberJune 30, 2018, minimally changed from year-end 2017, the majority of which is closed bank branch property.2019 and $0.4 million at December 31, 2018. Nonperforming assets as a percent of total assets were 0.38%0.26% at SeptemberJune 30, 20182019 compared to 0.49%0.19% at December 31, 2017.2018.
The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the ALLL. Potential problem loans are generally defined by management to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that Nicolet expects losses to occur, but that management
recognizes a higher degree of risk associated with these loans. The loans that have been reported as potential problem loans are predominantly commercial-based loans covering a diverse range of businesses and real estate property types. Potential problem loans were $14.0$26.5 million (0.7%(1.2% of loans) and $13.6$21.9 million (0.7%(1.0% of loans) at SeptemberJune 30, 20182019 and December 31, 2017,2018, respectively. Potential problem loans require a heightened management review of the pace at which a credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
Table 8: Nonperforming Assets
| | (in thousands) | September 30, 2018 | | December 31, 2017 | | September 30, 2017 | June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
Nonperforming loans: | | | | | | | | | | |
Commercial & industrial | $ | 5,803 |
| | $ | 6,016 |
| | $ | 5,078 |
| $ | 2,673 |
| | $ | 2,816 |
| | $ | 6,119 |
|
Owner-occupied CRE | 474 |
| | 533 |
| | 1,276 |
| 2,462 |
| | 673 |
| | 588 |
|
AG production | — |
| | — |
| | 2 |
| 401 |
| | — |
| | 66 |
|
AG real estate | 175 |
| | 186 |
| | 186 |
| 427 |
| | 164 |
| | 175 |
|
CRE investment | 1,381 |
| | 4,531 |
| | 4,537 |
| 175 |
| | 210 |
| | 1,487 |
|
Construction & land development | 80 |
| | — |
| | 723 |
| — |
| | 80 |
| | — |
|
Residential construction | 28 |
| | 80 |
| | 80 |
| 451 |
| | 1 |
| | 108 |
|
Residential first mortgage | 1,973 |
| | 1,587 |
| | 2,301 |
| 739 |
| | 1,265 |
| | 2,063 |
|
Residential junior mortgage | 268 |
| | 158 |
| | 239 |
| 314 |
| | 262 |
| | 276 |
|
Retail & other | — |
| | 4 |
| | — |
| 8 |
| | — |
| | — |
|
Total nonaccrual loans | 10,182 |
| | 13,095 |
| | 14,422 |
| 7,650 |
| | 5,471 |
| | 10,882 |
|
Accruing loans past due 90 days or more | — |
| | — |
| | — |
| — |
| | — |
| | — |
|
Total nonperforming loans | $ | 10,182 |
| | $ | 13,095 |
| | $ | 14,422 |
| $ | 7,650 |
| | $ | 5,471 |
| | $ | 10,882 |
|
OREO: | | | | | | | | | | |
Commercial real estate owned | $ | 505 |
| | $ | 185 |
| | $ | 275 |
| $ | 300 |
| | $ | 420 |
| | $ | 505 |
|
Residential real estate owned | 51 |
| | 70 |
| | — |
| |
Bank property real estate owned | 725 |
| | 1,039 |
| | 1,039 |
| — |
| | — |
| | 725 |
|
Total OREO | 1,281 |
| | 1,294 |
| | 1,314 |
| 300 |
| | 420 |
| | 1,230 |
|
Total nonperforming assets | $ | 11,463 |
| | $ | 14,389 |
| | $ | 15,736 |
| $ | 7,950 |
| | $ | 5,891 |
| | $ | 12,112 |
|
Performing troubled debt restructurings | $ | — |
| | $ | — |
| | $ | — |
| $ | 466 |
| | $ | — |
| | $ | — |
|
Ratios: | | | | | | | | | | |
Nonperforming loans to total loans | 0.48 | % | | 0.63 | % | | 0.70 | % | 0.35 | % | | 0.25 | % | | 0.51 | % |
Nonperforming assets to total loans plus OREO | 0.53 | % | | 0.69 | % | | 0.77 | % | 0.36 | % | | 0.27 | % | | 0.57 | % |
Nonperforming assets to total assets | 0.38 | % | | 0.49 | % | | 0.55 | % | 0.26 | % | | 0.19 | % | | 0.41 | % |
ALLL to nonperforming loans | 127.6 | % | | 96.6 | % | | 87.4 | % | 177.4 | % | | 240.4 | % | | 118.3 | % |
Deposits
Deposits represent Nicolet’s largest source of funds. The deposit composition including brokered deposits within total deposits, is presented in Table 9 below.
Total deposits were $2.5 billion at SeptemberJune 30, 2018, $512019, $77 million or 2% higher3% lower than December 31, 2017.2018, reflecting the usual cyclical decline. Notably, the decrease in total deposits since year-end 2018 was largely due to money market and interest-bearing demand (down $109 million or 9%), partially offset by growth in savings and time accounts.
Compared to June 30, 2018, total deposits were up $81 million or 3%. Notably, the increase in total deposits since year-end 2017June 30, 2018 was largely due to noninterest-bearing demand accounts (up $33$122 million or 5%, mostly commercial in nature),20%) as well as growth in savings and time accounts, combined exceeding the declinepartially offset by reductions in MMAmoney market and interest-bearing demand accounts. Given strong underlying growth in customer-based (“core”) deposits, brokered deposits were allowed to decline, down $44(down $115 million since year-end 2017. Core deposits increased $95 million over year-end 2017, including $58 million in time deposits and $37 million in transaction accounts (led by noninterest-bearing demand)or 10%).
Table 9: Period End Deposit Composition
| | | September 30, 2018 | | December 31, 2017 | | September 30, 2017 | June 30, 2019 | | December 31, 2018 | | June 30, 2018 |
(in thousands) | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total | Amount | | % of Total | | Amount | | % of Total | | Amount | | % of Total |
Noninterest-bearing demand | $ | 664,788 |
| | 26.4 | % | | $ | 631,831 |
| | 25.6 | % | | $ | 638,447 |
| | 27.0 | % | $ | 743,380 |
| | 29 | % | | $ | 753,065 |
| | 29 | % | | $ | 621,576 |
| | 25 | % |
Money market and interest-bearing demand | 1,174,912 |
| | 46.6 | % | | 1,222,401 |
| | 49.5 | % | | 1,107,360 |
| | 46.8 | % | 1,054,256 |
| | 41 | % | | 1,163,369 |
| | 45 | % | | 1,169,163 |
| | 48 | % |
Savings | 291,058 |
| | 11.5 | % | | 269,922 |
| | 10.9 | % | | 274,828 |
| | 11.6 | % | 318,947 |
| | 13 | % | | 294,068 |
| | 11 | % | | 289,156 |
| | 12 | % |
Time | 391,398 |
| | 15.5 | % | | 346,910 |
| | 14.0 | % | | 346,316 |
| | 14.6 | % | 420,056 |
| | 17 | % | | 403,636 |
| | 15 | % | | 375,641 |
| | 15 | % |
Total deposits | $ | 2,522,156 |
| | 100.0 | % | | $ | 2,471,064 |
| | 100.0 | % | | $ | 2,366,951 |
| | 100.0 | % | $ | 2,536,639 |
| | 100 | % | | $ | 2,614,138 |
| | 100 | % | | $ | 2,455,536 |
| | 100 | % |
| | | | | | | | | | | | |
Brokered transaction accounts | $ | 45,894 |
| | 1.8 | % | | $ | 76,141 |
| | 3.1 | % | | $ | 77,440 |
| | 3.3 | % | $ | 37,020 |
| | 1 | % | | $ | 62,021 |
| | 2 | % | | $ | 63,741 |
| | 3 | % |
Brokered time deposits | 31,056 |
| | 1.2 | % | | 44,645 |
| | 1.8 | % | | 48,249 |
| | 2.0 | % | 17,100 |
| | 1 | % | | 19,130 |
| | 1 | % | | 37,713 |
| | 1 | % |
Total brokered deposits | $ | 76,950 |
| | 3.0 | % | | $ | 120,786 |
| | 4.9 | % | | $ | 125,689 |
| | 5.3 | % | $ | 54,120 |
| | 2 | % | | $ | 81,151 |
| | 3 | % | | $ | 101,454 |
| | 4 | % |
| | | | | | | | | | | | |
Customer transaction accounts | $ | 2,084,864 |
| | 82.7 | % | | $ | 2,048,013 |
| | 82.9 | % | | $ | 1,943,195 |
| | 82.1 | % | $ | 2,079,563 |
| | 82 | % | | $ | 2,148,481 |
| | 82 | % | | $ | 2,016,154 |
| | 82 | % |
Customer time deposits | 360,342 |
| | 14.3 | % | | 302,265 |
| | 12.2 | % | | 298,067 |
| | 12.6 | % | 402,956 |
| | 16 | % | | 384,506 |
| | 15 | % | | 337,928 |
| | 14 | % |
Total customer deposits (core) | $ | 2,445,206 |
| | 97.0 | % | | $ | 2,350,278 |
| | 95.1 | % | | $ | 2,241,262 |
| | 94.7 | % | $ | 2,482,519 |
| | 98 | % | | $ | 2,532,987 |
| | 97 | % | | $ | 2,354,082 |
| | 96 | % |
Lending-Related Commitments
As of SeptemberJune 30, 20182019 and December 31, 2017,2018, Nicolet had the following off-balance sheet lending-related commitments.
Table 10: Commitments
| | (in thousands) | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
Commitments to extend credit | $ | 696,684 |
| | $ | 680,307 |
| $ | 720,685 |
| | $ | 721,098 |
|
Financial standby letters of credit | 9,176 |
| | 8,783 |
| 11,399 |
| | 8,571 |
|
Performance standby letters of credit | 8,538 |
| | 9,080 |
| 9,164 |
| | 7,094 |
|
Interest rate lock commitments to originate residential mortgage loans held for sale (included above in commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale are considered derivative instruments and represented $35.6$80.3 million and $16.2$15.2 million, respectively, at SeptemberJune 30, 2019. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale represented $18.2 million and $6.0 million, respectively, at December 31, 2018. The net fair value of these interest rate lock commitments and forward commitments was not significanta loss of $154,000 at SeptemberJune 30, 2019 compared to a gain of $162,000 at December 31, 2018.
Liquidity Management
Liquidity management refers to the ability to ensure that cash is available in a timely and cost-effective manner to meet cash flow requirements of depositors and borrowers and to meet other commitments as they fall due, including the ability to pay dividends to shareholders, service debt, invest in subsidiaries, repurchase common stock, pay dividends to shareholders (if any), and satisfy other operating requirements.
Funds are available from a number of basic banking activity sources including, but not limited to, the core deposit base; repayment and maturity of loans; investment securities calls, maturities, and sales; and procurement of brokered deposits.deposits or other wholesale funding. All securities AFS and equity securities (included in other investments) are reported at fair value on the consolidated balance sheet. At SeptemberJune 30, 2018,2019, approximately 33% of the $411$404 million securities AFS portfolio was pledged to secure public deposits and short-term borrowings, as applicable, and for other purposes as required by law. Additional funding sources at SeptemberJune 30, 2018,2019, consist of a $10 million available and unused line of credit at the holding company, $158$175 million of available and unused Federal funds lines, available borrowing capacity at the FHLB of $180$170 million, and borrowing capacity in the brokered deposit market.
Cash and cash equivalents at SeptemberJune 30, 20182019 and December 31, 20172018 were $161$155 million and $155$250 million, respectively. The increasedecrease in cash and cash equivalents since year-end 20172018 was largely attributable to earningsloan growth, a reduction in deposits, and deposit growth,common stock purchases, partially offset by loan growth, net investment purchases, and common stock purchases.earnings. Nicolet’s liquidity resources were sufficient as of SeptemberJune 30, 20182019 to fund loans, accommodate deposit cycles and trends, and to meet other cash needs as necessary.
Management is committed to the holding companyparent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the holding companyparent Company in light of current and projected needs, growth or strategies. The Parentparent Company uses cash for normal expenses, debt service requirements, and when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. Dividends from the Bank and, to a lesser extent, stock
option exercises, represent a significant sourcesources of incoming cash flowflows for the Parent Company, along with option exercises.parent Company. Among others, additional cash sources available
to the Parentparent Company include its $10 million available and unused line of credit, and access to the public or private markets to issue new equity, subordinated debt or other debt. At SeptemberJune 30, 2018,2019, the Parentparent Company had $31$42 million in cash.
Interest Rate Sensitivity Management and Impact of Inflation
A reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield, is highly important to Nicolet’s business success and profitability. As an ongoing part of its financial strategy and risk management, Nicolet attempts to understand and manage the impact of fluctuations in market interest rates on its net interest income. The consolidated balance sheet consists mainly of interest-earning assets (loans, investments and cash) which are primarily funded by interest-bearing liabilities (deposits and other borrowings). Such financial instruments have varying levels of sensitivity to changes in market rates of interest. Market rates are highly sensitive to many factors beyond our control, including but not limited to general economic conditions and policies of governmental and regulatory authorities. Our operating income and net income depends, to a substantial extent, on “rate spread” (i.e., the difference between the income earned on loans, investments and other earning assets and the interest expense paid to obtain deposits and other funding liabilities).
Asset-liability management policies establish guidelines for acceptable limits on the sensitivity to changes in interest rates on earnings and market value of assets and liabilities. Such policies are set and monitored by management and the board of directors’ Asset and Liability Committee.
To understand and manage the impact of fluctuations in market interest rates on net interest income, Nicolet measures its overall interest rate sensitivity through a net interest income analysis, which calculates the change in net interest income in the event of hypothetical changes in interest rates under different scenarios versus a baseline scenario. Such scenarios can involve static balance sheets, balance sheets with projected growth, parallel (or non-parallel) yield curve slope changes, immediate or gradual changes in market interest rates, and one-year or longer time horizons. The simulation modeling uses assumptions involving market spreads, prepayments of rate-sensitive instruments, renewal rates on maturing or new loans, deposit retention rates, and other assumptions.
Nicolet assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps change in market rates (parallel to the change in prime rate) over a one-year time horizon to a static (flat) balance sheet. The interest rate scenarios are used for analytical purposes only and do not necessarily represent management’s view of future market interest rate movements. Based on financial data at SeptemberJune 30, 20182019 and December 31, 2017,2018, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 11 below. The slight improvement to the rising rate scenario is mostly from the slightly lagged liability pricing. The results are within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps.
Table 11: Interest Rate Sensitivity
| | | September 30, 2018 | | December 31, 2017 | June 30, 2019 | | December 31, 2018 |
200 bps decrease in interest rates | (1.1 | )% | | (1.0 | )% | (2.4 | )% | | (0.6 | )% |
100 bps decrease in interest rates | (0.2 | )% | | (0.2 | )% | (1.1 | )% | | — | % |
100 bps increase in interest rates | 0.1 | % | | (0.1 | )% | 1.1 | % | | (0.1 | )% |
200 bps increase in interest rates | 0.5 | % | | (0.2 | )% | 2.2 | % | | — | % |
Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.
The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation.
Capital
Management regularly reviews the adequacy of its capital to ensure that sufficient capital is available for current and future needs and is in compliance with regulatory guidelines and actively reviews capital strategies in light of perceived business risks associated with current and prospective earning levels, liquidity, asset quality, economic conditions in the markets served, and level of returns available to shareholders. Management intends to maintain an optimal capital and leverage mix for growth and for shareholder return.
As shownNicolet’s intent is to maintain capital levels for the Company and the Bank at amounts in Table 12, Nicolet’sexcess of the regulatory capital ratios remain well above minimum regulatory ratios.well-capitalized thresholds. At SeptemberJune 30, 2018,2019, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in the current environment and in strategic growth. A summary of Nicolet’s
and the Bank’s regulatory capital amounts and ratios, as of September 30, 2018 and December 31, 2017well as selected capital metrics are presented in the following table.
Table 12: Capital
| | (in millions) | September 30, 2018 | | December 31, 2017 | |
Company: | | | | |
| | At or for the Six Months Ended | | At or for the Year Ended |
($ in thousands) | | June 30, 2019 | | December 31, 2018 |
Company Stock Repurchases: * | | | | |
Common stock repurchased during the period (dollars) | | $ | 14,742 |
| | $ | 22,178 |
|
Common stock repurchased during the period (full shares) | | 253,753 |
| | 408,071 |
|
Company Risk-Based Capital: | | | | |
Total risk-based capital | $ | 318.6 |
| | $ | 299.0 |
| $ | 344,596 |
| | $ | 326,235 |
|
Tier 1 risk-based capital | 292.6 |
| | 274.5 |
| 319,050 |
| | 301,125 |
|
Common equity Tier 1 capital | 263.1 |
| | 245.2 |
| 289,130 |
| | 271,435 |
|
Total capital ratio | 12.8 | % | | 12.8 | % | 13.2 | % | | 12.9 | % |
Tier 1 capital ratio | 11.8 | % | | 11.8 | % | 12.2 | % | | 11.9 | % |
Common equity tier 1 capital ratio | 10.6 | % | | 10.5 | % | 11.1 | % | | 10.7 | % |
Tier 1 leverage ratio | 10.3 | % | | 10.0 | % | 11.0 | % | | 10.4 | % |
Bank: | | | | |
Bank Risk-Based Capital: | | | | |
Total risk-based capital | $ | 280.7 |
| | $ | 267.2 |
| $ | 292,810 |
| | $ | 274,492 |
|
Tier 1 risk-based capital | 267.7 |
| | 254.5 |
| 279,239 |
| | 261,339 |
|
Common equity Tier 1 capital | 267.7 |
| | 254.5 |
| 279,239 |
| | 261,339 |
|
Total capital ratio | 11.3 | % | | 11.5 | % | 11.2 | % | | 10.8 | % |
Tier 1 capital ratio | 10.8 | % | | 10.9 | % | 10.7 | % | | 10.3 | % |
Common equity tier 1 capital ratio | 10.8 | % | | 10.9 | % | 10.7 | % | | 10.3 | % |
Tier 1 leverage ratio | 9.4 | % | | 9.3 | % | 9.6 | % | | 9.1 | % |
* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program. | | * Reflects common stock repurchased under board of director authorizations for the common stock repurchase program. |
In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities) in light of strategic plans. During the first nine months of 2018, $16.9half 2019, $14.7 million was utilized to repurchase and cancel approximately 307,800253,753 shares of common stock pursuant to our 2014 common stock repurchase program. On June 18, 2019, Nicolet's board authorized an increase to the program bringing the life-to-date cumulative totalsof $20 million or up to just over 1 million325,000 shares repurchased for $41.1 million.of common stock. As of Septembera result, at June 30, 2018,2019, there remains $12.9$25.0 million authorized under the repurchase program to be utilized from time-to-time to repurchase shares in the open market, through block transactions or in private transactions.
Critical Accounting Policies
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the valuation of loan acquisition transactions, as well as the determination of the allowance for loan losses and income taxes. A discussion of these policies can be found in the “Critical Accounting Policies” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 20172018 Annual Report on Form 10-K. There have been no changes in the Company’s application of critical accounting policies since December 31, 2017.2018.
Future Accounting Pronouncements
Recent accounting pronouncements adopted are included in Note 1, “Basis of Presentation” of the Notes to Unaudited Consolidated Financial Statements within Part I, Item 1.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The updated guidance is effective for annual reporting periods, including interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. As the new ASU only revises disclosure requirements, it is not expected to have a material impact on the Company's consolidated financial statements.
In August 2017, the FASB issued ASU 2017-12, Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging transactions. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of the new guidance on its consolidated financial statements, and it is not expected to have a significant impact on its consolidated financial statements because the Company does not have any significant derivatives and does not currently apply hedge accounting to derivatives.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments intended to improve the financial reporting by requiring earlier recognition of credit losses on loans and certain other financial assets. Topic 326 replaces the current incurred loss impairment model (which recognizes losses when a
probable threshold is met) with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The measurement of lifetime expected credit losses will be based on historical experience, current
conditions, and reasonable and supportable forecasts. The ASU is effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Entities should apply the amendment by means of a cumulative-effect adjustment to retained earnings as of the beginning of the fiscal year of adoption. Early application will beis permitted for all organizations for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company expects to adopt the new accounting standard in 2020, as required. Nicolet has established a cross-functional team to assess the impact of the new guidance on its consolidated financial statements and implement the new standard. This team is currently in the process ofcontinues to make progress on developing credit models, model validation and testing, as well as accounting, reporting, and governance processes to comply with the new credit loss requirements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with several subsequent updates. Topic 842 introduces a new accounting model for lessors and lessees. For lessees, almost all leases will be required to be recognized on the balance sheet as a right-of-use asset and lease liability, unlike current GAAP which requires only capital leases to be recognized on the balance sheet. The accounting applied by lessors is largely unchanged from existing guidance. Topic 842 also requires additional disclosures concerning the amount, timing and uncertainty of cash flows arising from leases. The updated guidance is effective for annual reporting periods beginning after December 15, 2018, with early application permitted. The Company will adopt the new accounting standard in 2019, as required, and is currently assessing the impact of the new guidance on its consolidated financial statements. At adoption, Nicolet will recognize right-of-use assets and lease liabilities for virtually all of its operating lease commitments. The amounts of these assets and liabilities recorded will be based, primarily, on the present value of unpaid future minimum lease payments as of January 1, 2019, the date of adoption. Those amounts will also be impacted by assumptions around renewals and/or extensions, and the interest rate used to discount those future lease commitments. As of December 31, 2017, Nicolet reported approximately $5 million in minimum lease payments due under lease commitments for January 1, 2019 forward. While these leases represent a majority of the leases within the scope of the standard, the lease portfolio is subject to change from the execution of new leases and termination of existing leases prior to the effective date.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See section “Interest Rate Sensitivity Management and Impact of Inflation” within Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I, Item 2.
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, management, under the supervision, and with the participation, of our Chairman, President and Chief Executive Officer and our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act pursuant to Exchange Act Rule 13a-15). Based upon, and as of the date of such evaluation, the Chairman, President and Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective.
There have been no changes in the Company’s internal controls or, to the Company’s knowledge, in other factors during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We and our subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in any legal proceedings that are expected to have a material adverse effect on our results of operations or financial position.
ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017.2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Following are Nicolet’s monthly common stock purchases during the thirdsecond quarter of 2018.2019.
|
| | | | | | | | | | | | |
| Total Number of Shares Purchased | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs(a) |
| (#) | | ($) | | (#) | | (#) |
Period | | | | | | | |
July 1 – July 31, 2018 | 2,014 |
| | $ | 55.04 |
| | 1,700 |
| | 514,000 |
|
August 1 – August 31, 2018 | 4,337 |
| | $ | 54.96 |
| | 2,457 |
| | 512,000 |
|
September 1 – September 30, 2018 | 77,123 |
| | $ | 54.45 |
| | 77,123 |
| | 435,000 |
|
Total | 83,474 |
| | $ | 54.49 |
| | 81,280 |
| | 435,000 |
|
|
| | | | | | | | | | | | |
| Total Number of Shares Purchased (a) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b) |
| (#) | | ($) | | (#) | | (#) |
Period | | | | | | | |
April 1 – April 30, 2019 | 39,755 |
| | $ | 59.72 |
| | 39,409 |
| | 393,000 |
|
May 1 – May 31, 2019 | 140,245 |
| | $ | 60.88 |
| | 75,730 |
| | 317,000 |
|
June 1 – June 30, 2019 | 35,959 |
| | $ | 60.96 |
| | 35,959 |
| | 606,000 |
|
Total | 215,959 |
| | $ | 60.68 |
| | 151,098 |
| | 606,000 |
|
| |
(a) | During thirdsecond quarter 2018,2019, the Company repurchased 180 common shares for minimum tax withholding settlements on restricted stock and repurchased 64,681 common shares to satisfy the exercise price and / or tax withholding requirements of stock options, respectively. These purchases do not count against the maximum number of shares that may yet be purchased under the board of directors' authorization. |
| |
(b) | During second quarter 2019, Nicolet utilized $4.4$9.1 million to repurchase and cancel approximately 81,300151,000 shares of common stock pursuant to our 2014 common stock repurchase program, bringingprogram. On June 18, 2019, Nicolet's board authorized an increase to the life-to-date cumulative totals to $41.1 million to repurchase and cancel just over 1 million shares at a weighted average price of $40.47 per share excluding commissions. At September 30, 2018, approximately $12.9 million remained available to repurchase up to 435,000 common shares. |
program of $20 million or up to 325,000 shares of common stock. As a result, at June 30, 2019, approximately $25.0 million remained available to repurchase up to 606,000 common shares.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
The following exhibits are filed herewith:
|
| | |
Exhibit Number | | Description |
2.1 | | |
31.1 | | |
31.2 | | |
32.1 | | |
32.2 | | |
101 | | The following material from Nicolet’s Form 10-Q Report for the three and ninesix months ended SeptemberJune 30, 2018,2019, formatted in eXtensible Business Reporting Language: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated StatementStatements of Stockholders’ Equity, (v) Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements. |
(1) Incorporated by reference to Exhibit 2.1 in the Registrant's Current Report on Form 8-K, filed on June 27, 2019.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
| |
| NICOLET BANKSHARES, INC. |
| |
NovemberAugust 2, 20182019 | /s/ Robert B. Atwell |
| Robert B. Atwell |
| Chairman, President and Chief Executive Officer |
| |
NovemberAugust 2, 20182019 | /s/ Ann K. Lawson |
| Ann K. Lawson |
| Chief Financial Officer |