Nicolet(US:NIC)2019-10-18 18:27Financial Data and Key Metrics Changes - The adverse asset coverage ratio improved to 45.67% this quarter, attributed to rising milk prices, which are now in the $16 to $18 range compared to $15 to $16 a year ago [4][7] - A credit of $1.2 million was booked to the provision for loan losses this quarter due to a decrease in loans rated substandard and special mention [6] - Client deposits grew by $90 million this quarter, while wholesale funding decreased by $97 million [13][14] Business Line Data and Key Metrics Changes - Loan servicing income grew to $1.7 million this quarter, with an increase in loan sold and serviced by $41 million [13] - The net interest margin increased due to rising loan yields and flattening funding costs, although slight margin compression is expected in Q4 [15][16] Market Data and Key Metrics Changes - Stability in Wisconsin farmland values continues to positively impact the strength of the credit portfolio [8] - The bank is optimistic about the dairy sector, with most dairy farmers operating profitably at current milk price levels [32][60] Company Strategy and Development Direction - The company is updating its capital plan and considering a stock buyback plan for 2020, contingent on positive trends in milk prices and the adverse asset coverage ratio [9] - The focus remains on relationship lending and profitable pricing, with a target loan growth rate of 4% to 5% [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the dairy market, anticipating that if milk prices remain stable, the classified asset levels could improve significantly [32][76] - The management noted challenges due to adverse weather affecting harvests but remains hopeful for a successful crop completion [44] Other Important Information - The bank is undergoing an update to its stress testing model to enhance risk management and capital planning [95][96] - The recent regulatory exam was reported to have gone well, with positive feedback on credit management and asset coverage ratios [40][41] Q&A Session Summary Question: What are the expected expenses for the final quarter of the year? - Management indicated that employee compensation and benefits could increase by about $500,000, leading to an expense level of around $8.2 million to $8.3 million for Q4 [21][23] Question: What is the outlook for net interest margin? - Management expects a potential compression of 1% to 2% in the net interest margin due to loan yield pressures and ongoing rate cuts [26][27] Question: How did the recent regulatory exam go? - The exam was reported to have gone well, with positive feedback on credit management and asset coverage ratios [40][41] Question: What is the breakeven price level for milk? - The breakeven price level for farmers is estimated to be around $16 to $16.5 [90] Question: What are the key elements for considering a stock buyback? - The decision for a stock buyback will depend on maintaining milk prices and achieving a classified ratio under 50% for two consecutive quarters [71][72]