CONFIDENTIAL
Paul O’Connor
Managing Director
312-269-0346
paul.oconnor@ryanbeck.com
December 9, 2004
Fairness Review
For Nicolet Bankshares, Inc.
Private and Confidential
The attached materials have been compiled and prepared by Ryan Beck & Co., Inc. solely for
the use and information of the board of directors and management of Nicolet Bankshares, Inc.
Such materials are not intended for viewing by any other person or party for any purpose, and
no such review should be undertaken without the prior written consent of Ryan Beck & Co., Inc.
through one or more of its authorized officers.
Portions of the information contained herein are not publicly available and are not intended for
public dissemination. The public disclosure or personal use of such information may be
actionable under applicable federal and/or state securities laws.
Table of Contents
Page 3
1.
Transaction Summary
2.
Nicolet Bankshares, Inc. Overview
3.
Valuation of Nicolet Bankshares, Inc.
n
Discounted Dividend Analysis
n
Peer Group Comparison
4.
Control Premium Valuation
5.
Repurchase Analysis
6.
Conclusion
7.
Ryan Beck Relationship
8.
Fairness Opinion Letter
Tab 1
Transaction Summary
Nicolet Bankshares, Inc. (“NBIC” or “Nicolet”) has engaged Ryan Beck & Co. to
assist it in de-registering from the SEC. NBIC intends to de-register from the SEC
due to the costs associated with SEC filing requirements and Sarbanes Oxley.
Additionally, being a registered company has brought very limited benefit to NBIC
relative to the trading in its stock. It is management’s assessment that Nicolet can
serve its customers and enhance its returns to shareholders better without the
burdens placed upon it by the SEC.
Nicolet management realizes that its projected asset growth rate may require it to
raise additional capital in the future. If additional capital is needed, management
has determined that it will first raise trust preferred capital and then, if necessary,
common equity through a private placement with existing shareholders.
NBIC is represented by Powell Goldstein Frazer & Murphy LLP, Atlanta, Georgia,
and Ryan Beck is represented by Pitney Hardin.
Page 5
Transaction Summary
The objective will be accomplished by using a cash-out merger to reduce the number of
current shareholders to below 300 (the “Transaction”).
NBIC has requested our opinion as investment bankers of the fair value of
233,229 shares, the amount to be repurchased as part of the cash-out merger, of
Nicolet Bankshares, Inc. common stock. The number of shares to be eliminated
through the Transaction is equal to approximately 8.0% of the outstanding
shares. The consummation of the Transaction will reduce Nicolet’s shareholder
base by 266 shareholders, a 53.0% reduction in the number of current
shareholders. The Transaction will target shareholders owning less than 1,500
shares.
The fair value range that we provide will be used by Nicolet’s Board of Directors
to support their determination of an offer price for its shareholders that will be
cashed-out as a result of the Transaction.
We believe we have followed the court rulings for determining fair value to arrive
at our range. However, courts have not provided a precise formula. It is
ultimately the responsibility of the board to set the cash-out merger price.
Page 6
Transaction Summary
Page 7
Transaction Summary
We have been advised by Nicolet’s Wisconsin counsel, Liebman, Conway,
Olejniczak & Jerry S.C. (“Liebman”), that Nicolet shareholders are entitled to
statutory dissenters rights under the cash-out merger plan. According to
Liebman, under Chapter 180, subchapter XIII, a shareholder may dissent from
and obtain payment of the “fair value” of his or her shares in the event of
certain corporate actions.
Liebman stated that “Fair Value” is defined in Section 180.1301(4), Wisconsin
Statutes as:
“Fair Value,” with respect to a dissenter’s shares other than a business
combination, means the value of the shares immediately before the effectuation
of the control action to which the dissenter objects, excluding any appreciation
or depreciation in anticipation of the corporate action unless exclusion would be
inequitable. “Fair Value,” with respect to a dissenter’s shares in a business
combination means market value, as define in Section 180.1130(9)(a)1-4.”
According to Liebman, Section 180.1130(9)(a)4, Wisconsin Statutes provides
that with regard to shares that are not listed on an exchange or quoted on a
quotation system, as is the case with Nicolet, market value means: “… fair
market value as determined in good faith by the Board of Directors of the
resident domestic corporation.”
Since the Transaction is not voluntary, the valuation criteria must reflect the
June 2000 decision by the Wisconsin Supreme Court in the JMO-W Inc. v.
SSM Healthcare Systems case. The Supreme Court of Wisconsin ruled that
“Where there is no objective market data available, the appraisal process is
not intended to reconstruct the pro forma sale, but to assume that the
shareholder was willing to maintain his investment position, however slight,
had the merger not occurred… To fail to accord to a minority shareholder the
full proportionate value of his shares imposes a penalty for lack of control, and
unfairly enriches the majority shareholders who may reap a windfall from the
appraisal process by cashing out a dissenting shareholder, a clearly
undesirable result.”
Transaction Summary
Page 8
As part of our analysis, we asked Nicolet’s Wisconsin legal counsel whether
Wisconsin Statutes and/or Wisconsin published court decisions specifically
addresses the applicability of a control premium in connection with the
determination of fair value under Wisconsin law. According to Nicolet’s
Wisconsin legal counsel, it has conducted a cursory review of Wisconsin
statutes and published Wisconsin Court decisions and found no Wisconsin
Statute or published Wisconsin Court decision that addresses the applicability
of a control premium with respect to fair value. We have prepared our fair
value valuation assuming a control premium but not an acquisition premium.
Transaction Summary
Page 9
As part of the valuation process, Ryan Beck has:
Performed a thorough due diligence of the company to identify the company’s
strengths/weaknesses and future prospects.
Discussed with management the financial condition, businesses, assets, earnings
and management’s views about the future performance of the company.
Reviewed certain publicly available financial information, both audited and
unaudited, as well as other internally generated financial reports.
Reviewed certain financial forecasts and projections of Nicolet Bankshares
prepared by its management.
Reviewed certain information about the market prices and trading history of the
common stock of Nicolet Bankshares.
Reviewed certain aspects of the financial performance of Nicolet Bankshares and
compared it to similar available financial and stock trading data for a peer group of
selected financial institutions.
Reviewed the terms and conditions of the plan to reduce the number of
shareholders to below 300.
Page 10
Transaction Summary
The entire cost of this transaction will be financed with senior debt. The cost
of the debt is estimated at the three year forward rate for one-month LIBOR
(4.40%) plus 200 bps equaling 6.40%. There is no agreed upon repayment
schedule, however management has indicated that they will pay down the
debt based upon the level of excess cash generated from year to year.
One-time expenses have been estimated and included in the total cost of the
cash-out merger. They are summarized as follows:
Legal: $35,000
Accounting: $5,000
Ryan Beck: $75,000
Printing: $5,000
Other: $5,000
Total: $125,000
Page 11
Transaction Summary
Page 12
Transaction Summary
Nicolet Bankshares has provided an estimated range of cost savings related
to the de-registration of their securities with $400,000 being at the low end and
$700,000 being at the high end. We have chosen to include the low end of
that range to be conservative in our analysis.
By factoring in a control premium to the fair market value of Nicolet common
stock, we were able to determine a fair value range of $17.25 to $18.75 per
share. The last traded price was $15.00 per share. As previously stated,
Nicolet does not trade on any exchange, the OTC Bulletin Board or the Pink
Sheets. Management has kept a record of trades of which it is aware. During
the last twelve months, 25,660 shares (0.87% of outstanding shares) have
traded. All shares have been exchanged at $15.00 per share.
Transaction Summary
(1) Based on the closing share price of $15.00 on November 30th, 2004, the last trade date.
Page 13
Transaction Valuation Summary
(dollars in thousands except per share data)
Repurchase Amount:
7.89%
(as a % of shares outstanding)
Current
(1)
15.00%
20.00%
25.00%
Nicolet Bankshares Repurchase Price
$15.00
$17.25
$18.00
$18.75
Cost of Repurchase
$4,148
$4,323
$4,498
Shares Repurchased
233
233
233
Price/ 2005 Diluted Est. EPS
15.0x
15.5x
16.2x
16.9x
EPS Accretion
11.09%
10.93%
10.77%
Price/ Book Value
133.56%
161.68%
169.73%
177.87%
Price/ Tangible Book Value
134.77%
163.35%
171.49%
179.74%
Tangible Equity/ Assets
8.81%
7.68%
7.64%
7.60%
Leverage Ratio
10.91%
8.03%
7.99%
7.94%
Tier 1 Risk-Based Capital Ratio
12.38%
11.08%
11.03%
10.98%
Total Risk-Based Capital Ratio
13.57%
12.21%
12.16%
12.11%
ROAE (based on 2005 net income)
9.24%
10.84%
10.89%
10.94%
Premium to Last Trade
Tab 2
Nicolet Bankshares, Inc. Overview
Corporate Summary
Page 15
Nicolet Bankshares, Inc.
http://www.nicoletbank.com/
Bank
Green Bay, WI
Number of Branches
2
States of Operation
WI(2)
Pricing
11/30/04 Closing Price
$15.00
Insider Ownership
40.60%
Market Capitalization
$44MM
Institutional Ownership
0.00%
LTM Price Range
NA
Retail Ownership
59.40%
Current Dividend Yield
0.00%
Top 5 Institutional Holders
Quarterly Dividend Rate
$0.000
LTM Dividend Payout Ratio
0.00%
Price/2004E EPS
30.00x
Price/LTM EPS
41.66x
Price/Book
133.56%
Price/Tangible Book
134.77%
Balance Sheet
Profitability - LTM
Asset Quality
Net Loans
$296,967
Return on Assets
0.31%
NPLs/Loans
0.33%
Investment Securities
32,760
Return on Equity
3.25%
Reserve/NPLs
373.63%
Total Intangible Assets
298
Net Interest Margin
2.91%
Reserves/Loans
1.22%
Total Assets
373,673
Non Interest Income/Tot Rev
24.69%
NPAs/Assets
0.28%
Efficiency Ratio
64.57%
Deposits
326,697
Yield on Int Earn Assets
NA
Balance Sheet Ratios
Borrowings
11,419
Cost of Int Bear Liabilities
NA
Equity/Assets
8.89%
Total Liabilities
339,957
Yield/Cost Spread
NA
Tangible Equity/Assets
8.82%
Intangibles/Equity
0.90%
Trust Preferred
6,000
Share Information
Borrowings/Assets
3.06%
Preferred Equity
0
Shares Outstanding
2,957,654
Tier 1 Leverage Ratio
10.45%
Common Equity
33,217
Shares Subject to Options
205,750
Tier 1 Capital Ratio
12.38%
Total Equity
33,217
Weighted Average Exercise Price
$10.31
Total Capital Ratio
13.57%
Loan Composition
1-4 Family Loans
18.22%
5+ Family Loans
0.05%
Const & Dev Loans
15.34%
Commercial Real Estate Loans
24.71%
Consumer Loans
2.08%
Commercial Loans
39.59%
Deposit Composition
Non-Interest Bearing Deposits
10.66%
Transaction Accounts
18.90%
MMDA & Savings
15.28%
CD's > $100,000
58.43%
Total CD's
65.82%
Core Deposits
41.57%
Note: Dollars in thousands except per share data, data is as of or for the period ended 09/30/04.
Ownership Profile
Ownership Profile
Insider
Ownership
40.6%
Retail Ownership
59.4%
Institutional
Ownership
0.0%
Loan Composition
Commercial Real
Estate Loans
24.7%
Consumer Loans
2.1%
Commercial Loans
39.6%
1-4 Family Loans
18.2%
Const & Dev Loans
15.3%
5+ Family Loans
0.1%
Deposit Composition
Transaction
Accounts
18.9%
Total CD's
65.8%
MMDA & Savings
15.3%
Financial Highlights
Page 16
(Dollars in Thousands)
As of for the 12
months ended
2000
2001
2002
2003
9/30/2004
Balance Sheet Highlights
Total Assets
$44,677
$171,124
$248,406
$336,954
$373,673
Asset Growth Rate (%)
NA
283.02
45.16
35.65
20.84
Total Loans
$25,582
$126,468
$215,390
$263,595
$302,699
Loan Growth Rate (%)
NA
394.36
70.31
22.38
17.62
Loans/Assets (%)
57.26
73.90
86.71
78.23
81.01
Total Deposits
$27,132
$149,579
$205,132
$288,640
$326,697
Deposit Growth Rate (%)
NA
451.3
37.14
40.71
19.98
Loans/Deposits (%)
94.29
84.55
105.00
91.32
92.65
Performance Measures
Net Income
-$1,183
$70
$58
$978
$1,062
ROAA (%)
NA
0.06
0.03
0.33
0.31
ROAE (%)
NA
0.41
0.24
3.37
3.25
Noninterest Income/AA (%)
NA
0.47
0.76
0.99
0.94
Noninterest Expense/AA (%)
NA
2.97
2.45
2.47
2.51
Net Interest Margin (%)
NA
3.05
2.67
2.87
2.91
Efficiency Ratio (%)
302.33
87.22
76.81
67.40
64.57
Capitalization
Equity Capital
$17,290
$17,300
$31,248
$32,229
$33,217
Equity Capital/Total Assets (%)
38.70
10.11
12.58
9.56
8.89
Tang Equity/Tang Assets (%)
38.70
10.11
12.58
9.47
8.82
Tier 1 Risk Based Capital Ratio (%)
58.16
13.76
13.86
11.53
12.38
Total Risk Based Capital Ratio (%)
56.91
12.59
15.05
12.66
13.57
Leverage Ratio (%)
104.73
10.69
11.07
10.12
10.45
As of or for the years ended December 31,
Financial Highlights
Page 17
(Dollars in Thousands)
As of for the 12
months ended
2000
2001
2002
2003
9/30/2004
Loan Composition
Constr & Dev/Tot Lns (%)
0.84
14.27
12.37
13.39
15.34
1-4 Family/Tot Lns (%)
6.27
15.31
16.78
18.94
18.22
Multifamily/Tot Lns (%)
0.00
0.06
0.25
0.17
0.05
Cmrcl RE Loans/Tot Lns (%)
32.00
29.87
28.66
28.64
24.71
Total RE Loans/Tot Lns (%)
39.11
59.52
58.12
61.44
58.32
Tot C&I Loans/Tot Lns (%)
59.71
38.88
39.94
36.36
39.59
Tot Consumer Loans/Tot Lns (%)
1.18
1.55
1.48
2.03
2.08
Deposit Composition
Nonint Bear Deps/Total Deposits (%)
11.43
7.06
7.97
14.75
10.66
Trans Accts/Total Deposits (%)
19.12
11.46
11.47
21.22
34.18
Retail CDs/Total Deposits (%)
2.65
3.72
6.77
7.38
7.40
Jumbo CDs/Total Deposits (%)
59.41
78.27
72.37
59.85
58.43
Asset Quality
NPLs/ Total Loans (%)
0.00
0.00
1.06
0.92
0.33
NPAs/Total Assets (%)
0.00
0.00
0.92
0.72
0.28
NPAs + 90s/Total Assets (%)
0.00
0.00
0.92
0.72
0.28
Reserves/Loans (%)
1.56
1.27
1.23
1.18
1.22
Reserves/NPAs (%)
NA
NA
115.70
128.67
360.19
NCOs/Average Loans (%)
NA
0.00
NA
0.77
0.80
As of or for the years ended December 31,
Ownership Profile
Page 18
Total Insider Ownership of Nicolet Bankshares, Inc.:
40.6%
All Directors and Executive Officers
of the Company
Shares Held
% Held
Robert Atwell
106,000
3.3
Michael Daniels
102,789
3.2
Wendell Ellsworth
97,577
3.1
Jacqui Engebos
23,333
0.7
Deanna Favre
87,500
2.7
Michael Felhofer
67,500
2.1
James Halron
57,500
1.8
Philip Hendrickson
105,000
3.3
Andrew Hetzel, Jr.
100,000
3.1
Terrence Lemerond
117,500
3.7
Donald Long, Jr.
71,900
2.3
Susan Merkatoris
6,000
0.2
Wade Micoley
107,450
3.4
Ronald Miller
77,500
2.4
Sandra Renard
100,000
3.1
Robert Weyers
65,500
2.1
Totals:
1,293,049
40.6
Source: March 23, 2004 Proxy Statement
Tab 3
Valuation of Nicolet Bankshares, Inc.
Discounted Dividend Analysis
Peer Group Comparison
Discounted Dividend Analysis
Page 21
Discounted Dividend Analysis
Nicolet Bankshares Provided Assumptions:
5 years of earnings projections were provided:
2005: $3.0 million
2006: $3.5 million
2007: $4.0 million
2008: $4.6 million
2009: $5.3 million
Resulting 5-year CAGR from earnings projections of 15.0%
We note that management’s earnings estimates are aggressive in relation to
historical results. Their projections show an expanding net interest margin, lower
provision for loan losses and minimal increase in operating expenses. Additionally,
management has willingly tied a portion of its incentive pay to meeting the earnings
projections.
Asset growth rate of 12.0%.
Tax rate of 28%.
Page 22
Discounted Dividend Analysis
Discounted Dividend Analysis Assumptions Cont.
A minimum capital ratio of 7.0% to reflect NBIC’s asset growth rate and increased regulatory
scrutiny.
To derive an appropriate discount rate range, we first looked at Nicolet’s current ROAE.
Nicolet’s current ROAE of 3.25%, driven by their significant growth and limited profitability, is
not a reasonable proxy for a discount rate in this analysis. Therefore, we reviewed a peer
group of banks with assets between $200 million and $1 billion to determine an appropriate
discount rate range. The median ROAE range for the group was 11.0% - 13.0%.
The terminal multiple range of 13.0x – 15.0x is based on historical trading multiples of the
banking industry.
Discounted Dividend Analysis
Page 23
(Dollars in thousands, except per share data)
MAINTAIN TANGIBLE EQUITY RATIO OF 7.00%.
NICOLET BANKSHARES, INC. EARNINGS AS ESTIMATES
ASSUMES NO RESTRUCTURING CHARGE
Five Year Projections
2005
2006
2007
2008
2009
Beginning Equity (a)
$25,923
$28,936
$32,318
$36,113
$40,372
Unadjusted Net Income (a,b)
3,042
3,475
3,997
4,596
5,285
After Tax Income Impact (c)
(184)
(180)
(178)
(178)
(182)
Synergies/Restructuring Charge (d)
0
0
0
0
0
Adjusted Net Income (e)
$2,858
$3,295
$3,819
$4,418
$5,103
Dividends (f)
155
86
(23)
(159)
(277)
Ending Equity
28,936
32,318
36,113
40,372
45,198
Intangibles (g)
228
158
88
18
0
Ending Tangible Equity
$28,708
$32,160
$36,025
$40,354
$45,198
Net Change in Equity (h)
155
86
(23)
(159)
(277)
Cumulative Change in Equity
(7,139)
(7,052)
(7,076)
(7,235)
(7,512)
Total Assets (a,b)
$410,345
$459,587
$514,737
$576,506
$645,686
Asset Growth Rate
9.81%
12.00%
12.00%
12.00%
12.00%
Net Income Growth Rate (i)
NM
15.31%
15.88%
15.68%
15.51%
Return on Average Assets
0.74%
0.80%
0.82%
0.84%
0.86%
Adjusted ROAA
0.70%
0.76%
0.78%
0.81%
0.84%
Adjusted ROAE
10.42%
10.76%
11.16%
11.55%
11.93%
Equity / Assets
7.05%
7.03%
7.02%
7.00%
7.00%
Tangible Equity/ Tangible Assets
7.00%
7.00%
7.00%
7.00%
7.00%
Discounted Dividend Analysis
Page 24
Aggregate Net Present Value - Per Share (j)
Discount Rate:
11.00%
12.00%
13.00%
Terminal Year
13.00
$15.61
$15.06
$14.53
Multiple of
Earnings
14.00
$16.58
$15.99
$15.42
Adj. for Goodwill
Amortization (k)
15.00
$17.56
$16.91
$16.31
Discounted Dividend Analysis
Page 25
Footnotes
Methodology:
The Discounted Dividend Analysis produces values given earnings estimates and projections of achievable synergies, over a range
of discount rates and terminal year earnings multiples. An initial dividend for tangible capital in excess of a specified target is assumed; earnings in
subsequent years are adjusted to reflect the opportunity cost of this distribution. Earnings in excess of those required to maintain
Nicolet Bankshares, Inc.'s tangible equity ratio at the specified targets are dividendable. It should be noted that "Synergies" is defined as cost
savings and revenue enhancements which are assumed to approximate 0.00% of Nicolet Bankshares, Inc.'s non-interest expenses in 2006.
* Present value = NPV of dividend stream plus terminal year multiple applied to net income less intangible amortization.
(a) Beginning equity for Nicolet Bankshares, Inc. represents total equity for the period ended September 30, 2004, after an initial dividend to reduce
Nicolet Bankshares, Inc.'s tangible equity to assets to specified target tangible capital levels.
(b) Earnings assumption based on Nicolet Bankshares, Inc. projections for 2005, and are assumed to grow at 15.00% per annum thereafter.
Asset projections are assumed to grow at an annual rate of 12.00%.
(c) Assumes a pre-tax rate of 3.50% is earned/(lost) on any capital retained/(dividended) in excess of assumed regular dividend payout.
Assumes a tax rate of 28.00%.
(d) No synergies/revenue enhancements are assumed.
(e) Adjusted for income impact of paying dividends in excess of assumed regular dividend payout ratio.
(f) Assumed to pay the maximum dividend possible while maintaining a tangible equity/asset ratio of 7.00%.
(g) Intangibles assumed to be amortized at a rate of $70,000 per year.
(h) Represents dividends paid in excess of estimated payout ratio of 0.00%.
(i) Includes income impact of cumulative increase (decrease) in equity.
(j) Per share data is based on 3,030,700 diluted shares outstanding, assuming options are cashed out at $15.99 per share.
(k) The terminal year multiple, when applied to terminal year adjusted earnings produces a value which approximates
the net present value of the earnings in perpetuity, given certain assumptions regarding growth rates and discount rates.
Peer Group Comparison
Peer Group Comparison
Page 27
We chose the following peer group based upon these parameters:
Publicly traded.
Comparable profitability – LTM ROAA between 0.00% and 0.50%.
Comparable asset quality – NPL’s/Loans < 0.50%
Assets between $200 million and $700 million.
Excludes companies that have entered into an agreement to be
acquired.
Query resulted in 16 companies.
Page 28
(1) For the latest 12 months period.
(2) The highest rank is 1 (from best performer in category to worst).
Nicolet
Bankshares,
Inc.
(1)
Peer
Median
(1)
Rank
(2)
# in
Sample
Capitalization
Total Assets (000s)
$373,673
$293,770
5
17
Total Deposits (000s)
326,697
233,219
4
17
Total Shareholders' Equity (000s)
33,217
26,696
7
17
Total Equity / Assets
8.89
%
8.51
%
8
17
Tangible Equity / Tangible Assets
8.82
7.43
7
17
Leverage Ratio
10.45
9.17
6
17
Tier I Capital / Risk-Adj Assets
12.38
10.70
6
17
Total Capital / Risk-Adj Assets
13.57
11.69
6
17
Asset Quality
Non-Performing Loans / Loans
0.33
0.14
14
17
Non-Performing Loans + 90 Days Past Due / Loans
0.33
0.19
13
17
Loan Loss Reserves / NPLs
373.63
481.09
7
11
Loan Loss Reserves / NPLs + 90 Days Past Due
373.63
526.18
10
15
Loan Loss Reserves / Loans
1.22
1.13
8
17
Non-Performing Assets / Assets
0.28
0.20
10
17
Non-Performing Assets + 90 Days Past Due / Assets
0.28
0.20
10
17
Non-Performing Assets / Equity
3.10
1.89
10
17
Loan & Deposit Composition
Total Loans / Total Assets
81.01
69.18
2
17
Total Loans / Deposits
92.65
91.68
9
17
1-4 Family Loans / Total Loans
18.22
17.24
9
17
5+ Family Loans / Total Loans
0.05
0.99
15
17
Construction & Developmental Loans / Total Loans
15.34
14.46
8
17
Other Real Estate Loans / Total Loans
24.71
38.17
13
17
Real Estate Loans/Total Loans
58.32
72.28
13
17
Consumer Loans / Total Loans
2.08
1.95
9
17
Commercial Loans / Total Loans
39.59
18.70
1
17
Non-Interest Bearing Deposits/Total Deposits
10.66
22.05
15
17
Transaction Accounts/Total Deposits
34.18
68.15
17
17
Total CD's/Total Deposits
65.82
31.85
17
17
Time Deposits > $100,000 / Total Deposits
58.43
12.93
17
17
Peer Group Comparison
Page 29
(1) For the latest 12 months period.
(2) The highest rank is 1 (from best performer in category to worst).
Nicolet
Bankshares,
Inc.
(1)
Peer
Median
(1)
Rank
(2)
# in
Sample
Performance
Return on Average Assets
0.31
%
0.34
%
12
17
Return on Average Equity
3.25
4.64
10
17
Net Interest Margin
2.91
3.54
15
17
Non Interest Income / Average Assets
0.94
0.64
7
17
Non Interest Expense/Avg Assets
2.51
3.42
3
17
Salary Expense/Total Revenue
36.10
43.58
2
17
Efficiency Ratio
64.57
83.48
1
17
Growth Rates
Asset Growth
20.84
12.13
6
17
Loan Growth Rate
17.62
22.19
10
17
Deposit Growth Rate
19.98
11.56
7
17
Revenue Growth Rate
28.35
5.62
3
14
EPS Growth Rate
11.87
(36.25)
2
10
Market Statistics
Stock Price at November 30, 2004
$15.00
Price / LTM EPS
41.66
x
30.38
x
4
12
Price / 2004E EPS
30.00
34.87
2
2
Price / 2005E EPS
15.00
24.74
3
3
Price / Book Value
133.56
%
138.89
%
12
16
Price / Tangible Book Value
134.77
150.43
14
16
Market Capitalization ($M)
$44.36
$36.26
8
17
Dividend Yield
0.00
%
0.00
%
8
17
Peer Group Comparison
Page 30
Peer Group Comparison
Number
States
Total
of
of
Assets
Short Name
Ticker
State
Offices
Operation
($000)
Bank Holdings (The)
TBHS
NV
4
NV(3),CA(1)
244,041
Carrollton Bancorp
CRRB
MD
12
MD(12)
306,614
Community Bank Shares of Indiana, Inc.
CBIN
IN
16
IN(11),KY(5)
566,552
Community Bank, National Association
CMYC
PA
12
PA(12)
314,116
Community Shores Bank Corporation
CSHB
MI
3
MI(3)
203,373
Cowlitz Bancorporation
CWLZ
WA
8
WA(5),OR(3)
268,439
FirstFed Bancorp, Inc.
FFDB
AL
8
AL(8)
212,274
Long Island Financial Corporation
LICB
NY
12
NY(12)
537,886
Millennium Bankshares Corporation
MBVA
VA
6
VA(6)
349,870
Monarch Bank
MNRK
VA
5
VA(5)
216,677
National Mercantile Bancorp
MBLA
CA
4
CA(4)
405,458
North State Bancorp
NSBC
NC
3
NC(3)
298,619
Old Florida Bankshares, Inc.
OFBS
FL
3
FL(3)
203,092
Rancho Bank
RBSD
CA
4
CA(4)
222,838
Sterling Bank
STNJ
NJ
6
NJ(6)
288,920
Vail Banks, Inc.
VAIL
CO
23
CO(23)
624,982
Average
8
328,984
Median
6
293,770
Nicolet Bankshares, Inc.
WI
2
WI(2)
373,673
Page 31
In reviewing Nicolet’s financial performance against this peer group, the
results have shown that NBIC ranks in the middle overall with respect to
balance sheet statistics and performance measures.
We noted that there were only two estimates in the peer group for 2004 EPS
and three estimates for 2005 EPS. Therefore, we did not recognize the
implied values for Nicolet on these bases.
The average of the implied values for Nicolet produced by the peer group is
$14.43 per share.
Peer Group Comparison
Price/
LTM EPS
Price/BV
Price/TBV
Average
Group Median
30.38x
1.39x
1.50x
Nicolet
$0.36
$11.23
$11.13
Implied Value Per Share
$10.94
$15.60
$16.74
$14.43
Page 32
Market Value Conclusion
Implied Value Per Share
Discounted Dividend Analysis
$15.99
Peer Group Analysis
$14.43
Trading History
$15.00
Average
$15.14
By taking the average of the implied values produced from the discounted
dividend analysis, the peer group analysis and the recent trading history of
Nicolet common stock, we believe that the fair market value of Nicolet
common stock is $15.14 per share.
Tab 4
Control Premium Valuation
Page 34
A typical control premium falls in the range of 10.0% - 20.0% of current
fair market value. Applying this range to the fair market value of
Nicolet’s common stock established in the previous section results in
the following per share values.
Current market value = $15.14
Implied value per share based on:
10% Premium = $16.65
15% Premium = $17.41
20% Premium = $18.17
Control Premium Valuation
Page 35
Based on Nicolet’s most recent trading price of $15.00, the Company is
trading at 15.0x 2005E EPS. We have assumed a terminal multiple
range of 15.5x – 17.5x to factor in a control premium.
Incorporating a control premium into to the terminal multiple range
while keeping all other assumptions the same produced the following
per share price range.
Control Premium Valuation – Discounted Dividend Analysis
Aggregate Net Present Value - Per Share (j)
Discount Rate:
11.00%
12.00%
13.00%
Terminal Year
15.50
$18.04
$17.38
$16.75
Multiple of
Earnings
16.50
$19.01
$18.31
$17.64
Adj. for Goodwill
Amortization (k)
17.50
$19.98
$19.24
$18.53
Page 36
Control Premium Valuation – Discounted Dividend Analysis
(Dollars in thousands, except per share data)
MAINTAIN TANGIBLE EQUITY RATIO OF 7.00%.
NICOLET BANKSHARES, INC. EARNINGS AS ESTIMATES
ASSUMES NO RESTRUCTURING CHARGE
Five Year Projections
2005
2006
2007
2008
2009
Beginning Equity (a)
$25,923
$28,936
$32,318
$36,113
$40,372
Unadjusted Net Income (a,b)
3,048
3,475
3,997
4,596
5,285
After Tax Income Impact (c)
(184)
(180)
(178)
(178)
(182)
Synergies/Restructuring Charge (d)
0
0
0
0
0
Adjusted Net Income (e)
$2,864
$3,295
$3,819
$4,418
$5,103
Dividends (f)
149
87
(23)
(159)
(277)
Ending Equity
28,936
32,318
36,113
40,372
45,198
Intangibles (g)
228
158
88
18
0
Ending Tangible Equity
$28,708
$32,160
$36,025
$40,354
$45,198
Net Change in Equity (h)
149
87
(23)
(159)
(277)
Cumulative Change in Equity
(7,145)
(7,058)
(7,081)
(7,240)
(7,517)
Total Assets (a,b)
$410,345
$459,587
$514,737
$576,506
$645,686
Asset Growth Rate
9.81%
12.00%
12.00%
12.00%
12.00%
Net Income Growth Rate (i)
NM
15.07%
15.89%
15.68%
15.52%
Return on Average Assets
0.74%
0.80%
0.82%
0.84%
0.86%
Adjusted ROAA
0.70%
0.76%
0.78%
0.81%
0.84%
Adjusted ROAE
10.44%
10.76%
11.16%
11.55%
11.93%
Equity / Assets
7.05%
7.03%
7.02%
7.00%
7.00%
Tangible Equity/ Tangible Assets
7.00%
7.00%
7.00%
7.00%
7.00%
Page 37
Control Premium Valuation – Discounted Dividend Analysis
Footnotes
Methodology:
The Discounted Dividend Analysis produces values given earnings estimates and projections of achievable synergies, over a range
of discount rates and terminal year earnings multiples. An initial dividend for tangible capital in excess of a specified target is assumed; earnings in
subsequent years are adjusted to reflect the opportunity cost of this distribution. Earnings in excess of those required to maintain
Nicolet Bankshares, Inc.'s tangible equity ratio at the specified targets are dividendable. It should be noted that "Synergies" is defined as cost
savings and revenue enhancements which are assumed to approximate 0.00% of Nicolet Bankshares, Inc.'s non-interest expenses in 2006.
* Present value = NPV of dividend stream plus terminal year multiple applied to net income less intangible amortization.
(a) Beginning equity for Nicolet Bankshares, Inc. represents total equity for the period ended September 30, 2004, after an initial dividend to reduce
Nicolet Bankshares, Inc.'s tangible equity to assets to specified target tangible capital levels.
(b) Earnings assumption based on Nicolet Bankshares, Inc. projections for 2005, and are assumed to grow at 15.00% per annum thereafter.
Asset projections are assumed to grow at an annual rate of 12.00%.
(c) Assumes a pre-tax rate of 3.50% is earned/(lost) on any capital retained/(dividended) in excess of assumed regular dividend payout.
Assumes a tax rate of 28.00%.
(d) No synergies/revenue enhancements are assumed.
(e) Adjusted for income impact of paying dividends in excess of assumed regular dividend payout ratio.
(f) Assumed to pay the maximum dividend possible while maintaining a tangible equity/asset ratio of 7.00%.
(g) Intangibles assumed to be amortized at a rate of $70,000 per year.
(h) Represents dividends paid in excess of estimated payout ratio of 0.00%.
(i) Includes income impact of cumulative increase (decrease) in equity.
(j) Per share data is based on 3,047,537 diluted shares outstanding, assuming options are cashed out at $18.31 per share.
(k) The terminal year multiple, when applied to terminal year adjusted earnings produces a value which approximates
the net present value of the earnings in perpetuity, given certain assumptions regarding growth rates and discount rates.
Tab 5
Repurchase Analysis
Repurchase Analysis
Page 39
Financials as of 09/30/04.
7.89%
7.89%
7.89%
Repurchase Data
Current
Repurchase Price
$15.00
$17.25
$18.00
$18.75
Premium to Market Price
15.00%
20.00%
25.00%
Source of Cash and Amount
Debt
$4,148
$4,323
$4,498
After-tax Cost of Cash
2.52%
2.52%
2.52%
2.52%
After-tax Cost of Debt
4.61%
4.61%
4.61%
4.61%
Shares Repurchased
233
233
233
Basic Shares Outstanding
2,958
2,724
2,724
2,724
Diluted Shares Outstanding
3,022
2,789
2,789
2,789
Discounted Cash Flow Value of Common Stock
$18.31
$20.61
$20.53
$20.46
Weighted Average Value per Share
$20.34
$20.33
$20.33
Internal Rate of Return*
13.94%
12.55%
11.24%
*Terminal Value Multiple of Earnings of 16.50x is Assumed
Income Statement Data
Net Income (2005 Est. of $1 per share)
$3,022
$3,022
$3,022
$3,022
Income Adjustment 1/
76
72
67
Proforma Net Income
3,098
3,093
3,089
Balance Sheet Data
Assets
373,673
374,525
374,350
374,175
Average Assets
355,314
356,165
355,990
355,815
Risk-adjusted Assets
313,100
313,814
313,667
313,520
Equity
33,217
29,068
28,893
28,718
Goodwill and Intangible Assets
298
298
298
298
Tangible Equity
32,919
28,771
28,596
28,421
Average Equity
32,723
28,574
28,399
28,225
Trust Preferred
6,000
6,000
6,000
6,000
Senior Debt
-
5,000
5,000
5,000
Diluted Share Data
Basic Shares Outstanding
2,958
2,724
2,724
2,724
Diluted Shares Outstanding
3,022
2,789
2,789
2,789
Footnotes
1/ Includes estimated cost savings of $400,000 pre-tax.
(dollars in thousands except per share data)
Repurchased at Price of
Proforma for Stock Repurchase of
Repurchase Analysis
Page 40
Current
7.89%
7.89%
7.89%
Repurchase Price
$15.00
$17.25
$18.00
$18.75
Market Value Data
Price / 2005 Diluted Est. EPS (x)
15.0
15.5
16.2
16.9
Price / Stated Book - Current & Pro Forma 1/
133.56%
161.68%
169.73%
177.87%
Price / Tangible Book - Current & Pro Forma 1/
134.77%
163.35%
171.49%
179.74%
Market Capitalization 1/
$44,365
$46,996
$49,039
$51,083
Fully Diluted Per Share Data
Diluted Net Income (2005 Est.) 2/
$1.00
$1.11
$1.11
$1.11
Percent Change
11.09%
10.93%
10.77%
Stated Book Value
$11.23
$10.67
$10.61
$10.54
Percent Change
-5.00%
-5.57%
-6.14%
Tangible Book Value
$11.13
$10.56
$10.50
$10.43
Percent Change
-5.12%
-5.70%
-6.27%
Ratios
Equity/Assets
8.89%
7.76%
7.72%
7.68%
Tangible Equity/Assets
8.81%
7.68%
7.64%
7.60%
Leverage Ratio
10.91%
8.03%
7.99%
7.94%
Tier 1 Ratio
12.38%
11.08%
11.03%
10.98%
Total Capital Ratio
13.57%
12.21%
12.16%
12.11%
ROAA (based on 2005 net income)
0.85%
0.87%
0.87%
0.87%
ROAE (based on 2005 net income)
9.24%
10.84%
10.89%
10.94%
Footnotes
Note: Company earnings estimate used.
1/ Assumes stock price stays at repurchase price.
2/ Includes estimated cost savings of $400,000 pre-tax.
(dollars in thousands except per share data)
Proforma for Stock Repurchase of
Tab 6
Conclusion
Page 42
Summary of Control Premium Values
High
Low
Midpoint
Discounted Dividend Analysis
$19.98
$16.75
$18.31
Stock Price Premium Analysis
10%
15%
20%
Current Market Value - $15.14
$16.65
$17.41
$18.17
Page 43
Conclusion
Our opinion is directed to the Board of Directors of Nicolet solely for their
use in valuing Nicolet common stock. We have not considered, nor are we
expressing any opinion herein with respect to the price at which Nicolet
common stock will trade subsequent to the share repurchase and de-
registration from the SEC.
It is the opinion of Ryan Beck that:
THE FAIR VALUE OF THE 233,229 SHARES, THE AMOUNT TO BE
REPURCHASED AS PART OF THE CASH-OUT MERGER, OF NICOLET
BANKSHARES, INC. COMMON STOCK IS WITHIN A RANGE OF
$17.25 AND $18.75 PER SHARE.
Tab 7
Ryan Beck Relationship
Ryan Beck has not had a prior Investment Banking relationship with Nicolet
Bankshares. Ryan Beck’s research department does not provide published
investment analysis on Nicolet Bankshares. Ryan Beck does not act as a market
maker in Nicolet Bankshares common stock.
In the ordinary course of our business as a broker-dealer, we may actively trade
equity securities of Nicolet Bankshares for our own account and the account of our
customers and, accordingly, may at any time hold long or short positions in such
securities.
Page 45
Relationship with Ryan Beck
Tab 8
Fairness Opinion Letter