Nicolet Bankshares Earnings 2019-03-31

NCBS 10Q Quarterly Report

Balance Sheet	Income Statement	Cash Flow

10-Q 1 ncbs-03312019x10q.htm 10-Q Document

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 March 31, 2019

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 ¨

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 April 30, 2019 there were 9,397,147 shares of $0.01 par value common stock outstanding.

Nicolet Bankshares, Inc.

TABLE OF CONTENTS



			PAGE
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidated Balance Sheets March 31, 2019 (unaudited) and December 31, 2018	3

		Consolidated Statements of Income Three Months Ended March 31, 2019 and 2018 (unaudited)	4

		Consolidated Statements of Comprehensive Income Three Months Ended March 31, 2019 and 2018 (unaudited)	5

		Consolidated Statements of Stockholders’ Equity Three Months Ended March 31, 2019 and 2018 (unaudited)	6

		Consolidated Statements of Cash Flows Three Months Ended March 31, 2019 and 2018 (unaudited)	7

		Notes to Unaudited Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	27

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

	Item 4.	Controls and Procedures	41

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	41

	Item 1A.	Risk Factors	41

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	41

	Item 3.	Defaults Upon Senior Securities	42

	Item 4.	Mine Safety Disclosures	42

	Item 5.	Other Information	42

	Item 6.	Exhibits	42

		Signatures	43

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:

NICOLET BANKSHARES, INC.

Consolidated Balance Sheets

(In thousands, except share and per share data)



	March 31, 2019			December 31, 2018
	(Unaudited)			(Audited)
Assets
Cash and due from banks	$	51,896		$	85,896
Interest-earning deposits	102,865			163,630
Cash and cash equivalents	154,761			249,526
Certificates of deposit in other banks	992			993
Securities available for sale (“AFS”), at fair value	407,693			400,144
Other investments	18,219			17,997
Loans held for sale	1,831			1,639
Loans	2,189,688			2,166,181
Allowance for loan losses ("ALLL")	(13,370		)	(13,153		)
Loans, net	2,176,318			2,153,028
Premises and equipment, net	49,443			48,173
Bank owned life insurance (“BOLI”)	66,769			66,310
Goodwill and other intangibles, net	123,254			124,307
Accrued interest receivable and other assets	41,811			34,418
Total assets	$	3,041,091		$	3,096,535

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits	$	696,111		$	753,065
Interest-bearing deposits	1,842,375			1,861,073
Total deposits	2,538,486			2,614,138
Long-term borrowings	77,369			77,305
Accrued interest payable and other liabilities	25,643			17,740
Total liabilities	2,641,498			2,709,183

Stockholders’ Equity:
Common stock	94			95
Additional paid-in capital	244,063			247,790
Retained earnings	154,631			144,364
Accumulated other comprehensive loss	(21		)	(5,640		)
Total Nicolet Bankshares, Inc. stockholders’ equity	398,767			386,609
Noncontrolling interest	826			743
Total stockholders’ equity and noncontrolling interest	399,593			387,352
Total liabilities, noncontrolling interest and stockholders’ equity	$	3,041,091		$	3,096,535

Preferred shares authorized (no par value)	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
Common shares outstanding	9,430,851			9,495,265
Common shares issued	9,455,955			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 March 31,
	2019		2018
Interest income:
Loans, including loan fees	$	29,968	$	28,454
Investment securities:
Taxable	1,633		1,342
Tax-exempt	549		588
Other interest income	1,009		401
Total interest income	33,159		30,785
Interest expense:
Deposits	4,777		3,089
Short-term borrowings	—		3
Long-term borrowings	907		819
Total interest expense	5,684		3,911
Net interest income	27,475		26,874
Provision for loan losses	200		510
Net interest income after provision for loan losses	27,275		26,364
Noninterest income:
Trust services fee income	1,468		1,606
Brokerage fee income	1,810		1,604
Mortgage income, net	1,203		1,080
Service charges on deposit accounts	1,170		1,190
Card interchange income	1,420		1,243
BOLI income	459		442
Asset gains (losses), net	172		204
Other income	1,484		1,455
Total noninterest income	9,186		8,824
Noninterest expense:
Personnel	12,537		12,492
Occupancy, equipment and office	3,750		3,787
Business development and marketing	1,281		1,342
Data processing	2,355		2,320
Intangibles amortization	1,053		1,182
Other expense	1,783		1,519
Total noninterest expense	22,759		22,642
Income before income tax expense	13,702		12,546
Income tax expense	3,352		2,908
Net income	10,350		9,638
Less: Net income attributable to noncontrolling interest	83		61
Net income attributable to Nicolet Bankshares, Inc.	$	10,267	$	9,577
Earnings per common share:
Basic	$	1.09	$	0.98
Diluted	$	1.05	$	0.94
Weighted average common shares outstanding:
Basic	9,461,485		9,765,375
Diluted	9,758,351		10,224,788

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 March 31,
	2019			2018
Net income	$	10,350		$	9,638
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities AFS:
Net unrealized holding gains (losses) arising during the period	7,711			(4,658		)
Reclassification adjustment for net (gains) losses included in income	(13		)	—
Income tax (expense) benefit	(2,079		)	1,257
Total other comprehensive income (loss)	5,619			(3,401		)
Comprehensive income	$	15,969		$	6,237

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.

Consolidated Statements of Stockholders’ Equity

(In thousands) (Unaudited)



	Nicolet Bankshares, Inc. Stockholders’ Equity
	Common Stock			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Income (Loss)			Noncontrolling Interest			Total
Balance, December 31, 2017	$	98		$	263,835		$	102,391	$	(2,146	)	$	701		$	364,879
Comprehensive income:
Net income	—			—			9,577		—			61			9,638
Other comprehensive income (loss)	—			—			—		(3,401		)	—			(3,401		)
Stock-based compensation expense	—			1,220			—		—			—			1,220
Exercise of stock options, net	—			427			—		—			—			427
Issuance of common stock	—			51			—		—			—			51
Purchase and retirement of common stock	(1		)	(8,063		)	—		—			—			(8,064		)
Distribution to noncontrolling interest	—			—			—		—			(99		)	(99		)
Adoption of new accounting pronouncement	—			—			937		(937		)	—			—
Balance, March 31, 2018	$	97		$	257,470		$	112,905	$	(6,484	)	$	663		$	364,651

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

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.

Consolidated Statements of Cash Flows (Unaudited)



(In thousands)	Three Months Ended March 31,
	2019			2018
Cash Flows From Operating Activities:
Net income	$	10,350		$	9,638
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	1,108			1,741
Provision for loan losses	200			510
Increase in cash surrender value of life insurance	(459		)	(442		)
Stock-based compensation expense	1,108			1,220
Asset (gains) losses, net	(172		)	(204		)
Gain on sale of loans held for sale, net	(1,102		)	(905		)
Proceeds from sale of loans held for sale	37,338			47,396
Origination of loans held for sale	(36,747		)	(49,808		)
Net change in:
Accrued interest receivable and other assets	(1,748		)	(985		)
Accrued interest payable and other liabilities	421			(105		)
Net cash provided by operating activities	10,297			8,056
Cash Flows From Investing Activities:
Net increase in loans	(21,728		)	(11,313		)
Net decrease in certificates of deposit in other banks	1			498
Purchases of securities AFS	(19,064		)	(15,901		)
Proceeds from sales of securities AFS	8,076			—
Proceeds from calls and maturities of securities AFS	10,636			11,835
Purchases of other investments	(63		)	(36		)
Net increase in premises and equipment	(2,368		)	(400		)
Net increase in other real estate and other assets	—			(15		)
Net cash used in investing activities	(24,510		)	(15,332		)
Cash Flows From Financing Activities:
Net increase (decrease) in deposits	(75,652		)	294,105
Repayments of long-term borrowings	(64		)	(1,062		)
Purchase and retirement of common stock	(5,682		)	(8,064		)
Proceeds from issuance of common stock	148			478
Proceeds from exercise of stock options	698			—
Distribution to noncontrolling interest	—			(99		)
Net cash provided by (used in) financing activities	(80,552		)	285,358
Net increase (decrease) in cash and cash equivalents	(94,765		)	278,082
Cash and cash equivalents:
Beginning	249,526			154,933
Ending *	$	154,761		$	433,015
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	5,466		$	3,956
Cash paid for taxes	—			54
Transfer of loans and bank premises to other real estate owned	—			32
Capitalized mortgage servicing rights	319			103
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 $9.0 million and $7.5 million at March 31, 2019 and 2018, respectively, for the reserve balance required with the Federal Reserve Bank.

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, 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, 2018.

Recent Accounting Developments Adopted

In August 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“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 adopted the updated guidance effective January 1, 2019 with no material 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 February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), with several subsequent updates. Topic 842 introduced a new accounting model for lessors and lessees. For lessees, almost all leases are now recognized on the balance sheet as a right-of-use ("ROU") asset and lease liability, unlike previous GAAP which required 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, and provides a modified retrospective transition approach that allows 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 new guidance prospectively as of January 1, 2019, using the effective date 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 impact to its consolidated 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 9 for the new disclosures required by Topic 842.

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.

Reclassifications

Certain amounts in the 2018 consolidated financial statements have been reclassified to conform to the 2019 presentation.

Note 2 – 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 March 31,
(In thousands, except per share data)	2019		2018
Net income attributable to Nicolet Bankshares, Inc.	$	10,267	$	9,577
Weighted average common shares outstanding	9,461		9,765
Effect of dilutive common stock awards	297		460
Diluted weighted average common shares outstanding	9,758		10,225
Basic earnings per common share*	$	1.09	$	0.98
Diluted earnings per common share*	$	1.05	$	0.94

*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 months ended March 31, 2019 and 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.

Note 3 – 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. At March 31, 2019, approximately 129,000 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. There were no stock options granted during the three months ended March 31, 2019.



	Three Months Ended March 31,
	2019			2018
Dividend yield	—		%	—		%
Expected volatility	—		%	25		%
Risk-free interest rate	—		%	2.48		%
Expected average life	0 years			7 years
Weighted average per share fair value of options	$	—		$	17.60

A summary of the Company’s stock option activity is summarized below.



Stock Options	Option Shares Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2018	1,581,699		$	40.77
Granted	—		—
Exercise of stock options *	(32,623	)	21.41
Forfeited	(2,938	)	25.44
Outstanding - March 31, 2019	1,546,138		$	41.20	7.2	$	28,445
Exercisable - March 31, 2019	597,788		$	33.14	6.1	$	15,816

* 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. For the three months ended March 31, 2019, no such shares were surrendered to the 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 the three months ended March 31, 2019 and 2018 was approximately $1.1 million and $0.7 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
Outstanding - December 31, 2018	$	39.37	29,512
Granted	—		—
Vested *	34.75		(4,000	)
Forfeited	16.50		(408	)
Outstanding - March 31, 2019	$	40.48	25,104

* 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, 1,373 shares were surrendered during the three months ended March 31, 2019.

The Company recognized approximately $1.1 million and $1.2 million of stock-based compensation expense (included in personnel on the consolidated statements of income) during the three months ended March 31, 2019 and 2018, respectively, associated with its common stock awards granted to officers and employees. As of March 31, 2019, there was approximately $11.9 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.

Note 4 – Securities Available for Sale

Amortized cost and fair value of securities available for sale are summarized as follows.



	March 31, 2019
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government agency securities	$	16,596	$	—	$	208	$	16,388
State, county and municipals	158,652		248		1,355		157,545
Mortgage-backed securities	147,721		1,277		1,487		147,511
Corporate debt securities	84,753		1,598		102		86,249
Total	$	407,722	$	3,123	$	3,152	$	407,693



	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 represents 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.



	March 31, 2019
	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
U.S. government agency securities	$	—	$	—	$	16,388	$	208	$	16,388	$	208	3
State, county and municipals	4,428		8		114,613		1,347		119,041		1,355		340
Mortgage-backed securities	10,311		16		82,041		1,471		92,352		1,487		190
Corporate debt securities	—		—		5,999		102		5,999		102		3
Total	$	14,739	$	24	$	219,041	$	3,128	$	233,780	$	3,152	536



	December 31, 2018
	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
U.S. government agency securities	$	—	$	—	$	21,649	$	818	$	21,649	$	818	3
State, county and municipals	16,136		98		130,975		3,154		147,111		3,252		440
Mortgage-backed securities	20,568		132		89,189		2,902		109,757		3,034		204
Corporate debt securities	51,592		677		9,757		416		61,349		1,093		33
Total	$	88,296	$	907	$	251,570	$	7,290	$	339,866	$	8,197	680

As of March 31, 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 three months ended March 31, 2019 or 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.



	March 31, 2019
(in thousands)	Amortized Cost		Fair Value
Due in less than one year	$	20,418	$	20,401
Due in one year through five years	181,031		181,210
Due after five years through ten years	52,144		51,918
Due after ten years	6,408		6,653
	260,001		260,182
Mortgage-backed securities	147,721		147,511
Securities AFS	$	407,722	$	407,693

Proceeds and realized gains / losses from the sale of securities AFS were as follows.



	Three Months Ended March 31,
(in thousands)	2019			2018
Gross gains	$	133		$	—
Gross losses	(120		)	—
Gains (losses) on sales of securities AFS, net	$	13		$	—
Proceeds from sales of securities AFS	$	8,076		$	—

Note 5 – Loans, Allowance for Loan Losses, and Credit Quality

The loan composition is summarized as follows.



	March 31, 2019					December 31, 2018
(in thousands)	Amount			% of Total		Amount			% of Total
Commercial & industrial	$	711,505		32	%	$	684,920		32	%
Owner-occupied commercial real estate (“CRE”)	439,440			20		441,353			20
Agricultural (“AG”) production	35,143			2		35,625			2
AG real estate	53,935			2		53,444			2
CRE investment	342,343			16		343,652			16
Construction & land development	82,308			4		80,599			4
Residential construction	34,425			2		30,926			1
Residential first mortgage	350,661			16		357,841			17
Residential junior mortgage	113,628			5		111,328			5
Retail & other	26,300			1		26,493			1
Loans	2,189,688			100	%	2,166,181			100	%
Less allowance for loan losses (“ALLL”)	13,370					13,153
Loans, net	$	2,176,318				$	2,153,028
Allowance for loan losses to loans	0.61		%			0.61		%

As a further breakdown, loans are summarized by originated and acquired as follows.



	March 31, 2019										December 31, 2018
(in thousands)	Originated Amount			% of Total		Acquired Amount			% of Total		Originated Amount			% of Total		Acquired Amount			% of Total
Commercial & industrial	$	594,419		39	%	$	117,086		18	%	$	568,100		38	%	$	116,820		17	%
Owner-occupied CRE	290,387			19		149,053			22		283,531			19		157,822			23
AG production	10,934			1		24,209			4		11,113			1		24,512			4
AG real estate	32,868			2		21,067			3		31,374			2		22,070			3
CRE investment	171,009			11		171,334			26		171,087			12		172,565			25
Construction & land development	68,396			5		13,912			2		66,478			4		14,121			2
Residential construction	34,310			2		115			—		30,926			2		—			—
Residential first mortgage	219,115			14		131,546			20		220,368			15		137,473			20
Residential junior mortgage	82,860			5		30,768			5		78,379			5		32,949			5
Retail & other	24,243			2		2,057			—		23,809			2		2,684			1
Loans	1,528,541			100	%	661,147			100	%	1,485,165			100	%	681,016			100	%
Less ALLL	11,669					1,701					11,448					1,705
Loans, net	$	1,516,872				$	659,446				$	1,473,717				$	679,311
ALLL to loans	0.76		%			0.26		%			0.77		%			0.25		%
As a percent of total loans	70		%			30		%			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.

A roll forward of the allowance for loan losses is summarized as follows.



	Three Months Ended						Year Ended
(in thousands)	March 31, 2019			March 31, 2018			December 31, 2018
Beginning balance	$	13,153		$	12,653		$	12,653
Provision for loan losses	200			510			1,600
Charge-offs	(10		)	(430		)	(1,213		)
Recoveries	27			32			113
Net (charge-offs) recoveries	17			(398		)	(1,100		)
Ending balance	$	13,370		$	12,765		$	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 – Three Months Ended March 31, 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
ALLL:
Beginning balance	$	5,271		$	2,847		$	121		$	301		$	1,470		$	510		$	211		$	1,646		$	472		$	304		$	13,153
Provision	(49		)	20			120			19			77			11			22			(20		)	19			(19		)	200
Charge-offs	—			—			—			—			—			—			—			—			—			(10		)	(10		)
Recoveries	16			1			—			—			—			—			—			—			2			8			27
Net (charge-offs) recoveries	16			1			—			—			—			—			—			—			2			(2		)	17
Ending balance	$	5,238		$	2,868		$	241		$	320		$	1,547		$	521		$	233		$	1,626		$	493		$	283		$	13,370
As % of ALLL	39.2		%	21.5		%	1.8		%	2.4		%	11.6		%	3.9		%	1.7		%	12.2		%	3.7		%	2.0		%	100.0		%
ALLL:
Individually evaluated	$	—		$	—		$	152		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	152
Collectively evaluated	5,238			2,868			89			320			1,547			521			233			1,626			493			283			13,218
Ending balance	$	5,238		$	2,868		$	241		$	320		$	1,547		$	521		$	233		$	1,626		$	493		$	283		$	13,370
Loans:
Individually evaluated	$	3,973		$	3,041		$	1,100		$	950		$	1,670		$	578		$	—		$	2,675		$	230		$	12		$	14,229
Collectively evaluated	707,532			436,399			34,043			52,985			340,673			81,730			34,425			347,986			113,398			26,288			2,175,459
Total loans	$	711,505		$	439,440		$	35,143		$	53,935		$	342,343		$	82,308		$	34,425		$	350,661		$	113,628		$	26,300		$	2,189,688
Less ALLL	5,238			2,868			241			320			1,547			521			233			1,626			493			283			13,370
Net loans	$	706,267		$	436,572		$	34,902		$	53,615		$	340,796		$	81,787		$	34,192		$	349,035		$	113,135		$	26,017		$	2,176,318

As a further breakdown, the ALLL is summarized by originated and acquired as follows.



	Originated – Three Months Ended March 31, 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
ALLL:
Beginning balance	$	4,683		$	2,439		$	110		$	255		$	1,230		$	431		$	211		$	1,400		$	408		$	281		$	11,448
Provision	(46		)	32			118			18			88			13			(12		)	(8		)	20			(18		)	205
Charge-offs	—			—			—			—			—			—			—			—			—			(10		)	(10		)
Recoveries	16			1			—			—			—			—			—			—			1			8			26
Net (charge-offs) recoveries	16			1			—			—			—			—			—			—			1			(2		)	16
Ending balance	$	4,653		$	2,472		$	228		$	273		$	1,318		$	444		$	199		$	1,392		$	429		$	261		$	11,669
As % of ALLL	39.9		%	21.2		%	2.0		%	2.3		%	11.3		%	3.8		%	1.7		%	11.9		%	3.7		%	2.2		%	100.0		%
ALLL:
Individually evaluated	$	—		$	—		$	152		$	—		$	—		$	—		$	—		$	—		$	—		$	—		$	152
Collectively evaluated	4,653			2,472			76			273			1,318			444			199			1,392			429			261			11,517
Ending balance	$	4,653		$	2,472		$	228		$	273		$	1,318		$	444		$	199		$	1,392		$	429		$	261		$	11,669
Loans:
Individually evaluated	$	1,210		$	1,890		$	1,100		$	893		$	—		$	—		$	—		$	—		$	—		$	—		$	5,093
Collectively evaluated	593,209			288,497			9,834			31,975			171,009			68,396			34,310			219,115			82,860			24,243			1,523,448
Total loans	$	594,419		$	290,387		$	10,934		$	32,868		$	171,009		$	68,396		$	34,310		$	219,115		$	82,860		$	24,243		$	1,528,541
Less ALLL	4,653			2,472			228			273			1,318			444			199			1,392			429			261			11,669

Closing Price ($)	Shares Out (MM)	Market Cap ($MM)
$61.66	9	$579

10-Q	2019-03-31	Quarter: 2019-03-31
10-K	2018-12-31	Annual: 2018-12-31
10-Q	2018-09-30	Quarter: 2018-09-30
10-Q	2018-06-30	Quarter: 2018-06-30
10-Q	2018-03-31	Quarter: 2018-03-31
10-K	2017-12-31	Annual: 2017-12-31
10-Q	2017-09-30	Quarter: 2017-09-30
10-Q	2017-06-30	Quarter: 2017-06-30
10-Q	2017-03-31	Quarter: 2017-03-31
10-K	2016-12-31	Annual: 2016-12-31
10-Q	2016-09-30	Quarter: 2016-09-30
10-Q	2016-06-30	Quarter: 2016-06-30
10-Q	2016-03-31	Quarter: 2016-03-31
10-K	2015-12-31	Annual: 2015-12-31
10-Q	2015-09-30	Quarter: 2015-09-30
10-Q	2015-06-30	Quarter: 2015-06-30
10-Q	2015-03-31	Quarter: 2015-03-31
10-K	2014-12-31	Annual: 2014-12-31
10-Q	2014-09-30	Quarter: 2014-09-30
10-Q	2014-06-30	Quarter: 2014-06-30
10-Q	2014-03-31	Quarter: 2014-03-31
10-K	2013-12-31	Annual: 2013-12-31

8-K	2019-05-16	Shareholder Vote
8-K	2019-05-13	Regulation FD
8-K	2019-04-16	Earnings, Exhibits
8-K	2019-01-15	Earnings, Officers, Exhibits
8-K	2018-10-16	Earnings, Exhibits
8-K	2018-07-17	Earnings, Exhibits
8-K	2018-05-08	Shareholder Vote
8-K	2018-04-17	Earnings, Exhibits
8-K	2018-01-16	Earnings, Exhibits

TFX	Teleflex	13,910
SID	National Steel	4,870
ACIA	Acacia Communications	2,230
HRTX	Heron Therapeutics	1,450
LLEX	Lilis Energy	104
HDSN	Hudson Technologies	81
AEZS	AEterna Zentaris	51
CYTR	Cytrx	18
UUP	Invesco DB US Dollar Index Bullish Fund	0
PFBX	Peoples Financial	0

EX-31.1	ncbs-03312019x10qxexhibit311.htm
EX-31.2	ncbs-03312019x10qxexhibit312.htm
EX-32.1	ncbs-03312019x10qxexhibit321.htm
EX-32.2	ncbs-03312019x10qxexhibit322.htm