An Eye on Earnings Report: Nicolet Bankshares Inc. (NASDAQ: NCBS)

Financial
Albert Welton

GREEN BAY, Wis, March 5, 2020 – Shares of Nicolet Bankshares Inc. (NASDAQ: NCBS) inclined 1.13% to $68.29. The stock grabbed the investor’s attention and traded 46.433K shares as compared to its average daily volume of 34.31K shares. The stock’s institutional ownership stands at 44.00%.

Nicolet Bankshares Inc. (NASDAQ: NCBS) reported third quarter 2019 net income of $13.50M and earnings per diluted common share of $1.40, contrast to $18.50M and $1.91 for second quarter 2019, and $10.90M and $1.09 for third quarter 2018, respectively. Annualized quarterly return on average assets was 1.73%, 2.46% and 1.45%, for third quarter 2019, second quarter 2019 and third quarter 2018, respectively.

Net income for the nine months ended September 30, 2019 was $42.30M, 40% higher than $30.20M for the first nine months of 2018, and earnings per diluted common share was $4.36, 44% higher than $3.02 for the comparable period a year ago. Annualized return on average assets for the first nine months of 2019 and 2018 was 1.85% and 1.36%, respectively.

During second quarter 2019, net income favorably included $5.40M (or $0.55 of diluted earnings per share) related to two actions combined, the sale of 80% of Nicolet’s equity investment in a data processing entity $7.40M after-tax gain and retirement-related compensation declared to benefit all employees after that sale $2.00M after-tax cost, impacting the 2019 year-to-date and linked-quarter comparisons.

At September 30, 2019, assets were $3.10B (up 3% since September 30, 2018), loans were $2.20B (up 5%), and deposits were $2.60B (up 2%). Since June 30, period end loans increased $40.0M or 7% annualized, with the majority in commercial loans, while deposits increased $48.0M or 7% annualized, with growth in transaction accounts surpassing the decline in time deposits. Year-over-year, average loans increased 3% and average deposits grew 2%.

Asset quality remained exceptional, with nonperforming assets of only $11.0M, representing 0.34% of total assets at September 30, 2019. The allowance for loan losses represented 0.61% of total loans at September 30, 2019. The provision for loan losses was $0.90M for the nine months ended September 30, 2019 covering $0.40M of net charge-offs, contrast to $1.40M covering $1.00M of net charge-offs for the nine months ended September 30, 2018.

Contrast to second quarter 2019, net interest income increased $0.20M (1%), despite continued pressure from recent Federal Reserve cuts to short-term interest rates. Excluding net asset gains, third quarter noninterest income grew $1.00M (9%) over second quarter, predominantly from stellar net mortgage income. Noninterest expense reduced $2.80M (11%) from second quarter, due principally to $2.75M of retirement-related compensation actions in second quarter. Income tax expense increased $1.80M as third quarter returned to a more normal effective tax rate of 25.3%,whereas second quarter was 13.2% given the favorable tax treatment on the equity investment sale, BOLI death benefit, and the tax benefit on stock-based compensation.

Net interest income increased $2.20M (8%) between the comparable third quarter periods, driven mostly by net positive volume and rate variances, as aggregate discount income was similar between the quarters. Net interest income and margin improvements benefited from a higher mix of average earning assets in loans, as well as a 22 bps increase in the earning asset yield and only a 13 bps increase in the cost of funds. Noninterest income excluding net asset gains increased $1.50M (15%) mostly from strong net mortgage income, while noninterest expense was minimally changed down $0.20M or 1% between the comparable third quarter periods.

Total capital was $428.0M at September 30, 2019, a boost of $17.0M or 4% since June 30, 2019, with strong third quarter earnings and positive net fair value investment changes. During third quarter 2019, we repurchased minimal shares of our common stock and will continue to be opportunistic with respect to such repurchases. At September 30, 2019, there remained $24.40M authorized under the repurchase program, as modified, to be utilized from time-to-time to repurchase shares in the open market, through block transactions or in private transactions.

NCBS has a market value of $661.64M while its EPS was booked as $5.54 in the last 12 months. The stock has 9.37M shares outstanding. In the profitability analysis, the company has net profit margin of 36.50%. Beta value of the company was 0.70; beta is used to measure riskiness of the security. Analyst recommendation for this stock stands at 2.80.

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