Nicolet Bankshares, Inc. (NIC) Earnings Call Transcript & Summary

Hello, and welcome to the Annual Meeting of Stockholders of Nicolet Bankshares, Inc. Please note that today's meeting is being recorded. It is now my pleasure to turn the meeting over to Bob Atwell, Chairman and CEO of Nicolet Bankshares. Mr. Atwell, the floor is yours.

Good afternoon, and thanks for joining us for the 2020 Annual Meeting of the Shareholders of Nicolet Bankshares, Inc. My name is Bob Atwell, and I want to welcome you to the shareholders' meeting under this virtual format. I want to note that we fully expect to return to our in-person meeting format at the Meyer Theatre in 2021, as we've always enjoyed the personal engagement and fellowship with so many of you over the years. Now before we begin, I'd like to take care of a few housekeeping items, given the unique nature of this meeting. First, there are a number of links available to you on the left side of your screen. These links will lead you to various documents, including our 2019 Form 10-K and our 2019 proxy statement. In addition, we released an updated letter to shareholders on April 21 that addressed our thinking at that time. The letter we included with the annual report was written in February. And as such, we thought an update was appropriate. We plan to address many of the same topics today. However, I want to encourage you to read the letter if you haven't already. Next, if you've logged into the website using your control number, you should be able to type in any questions you may have, which we will address towards the end of the meeting. For those of you logged in as guests and have a question you want addressed today, please send an e-mail to [email protected], and we will try to address it if we have time. And finally, a recording of this meeting will be available on the Investor Relations section of our website in the next day or so. I want to make a few introductions of the people that are physically in the room with us today. In addition to myself, I have Mike Daniels, CEO of Nicolet National Bank, who will also act as secretary of this meeting; and Ann Lawson, our Chief Financial Officer; as well as Eric Radzak, our Corporate Development Officer. We are all appropriately social-distanced. In addition, I know that we have many of our shareholders listening this evening. And I want to especially, from the bottom of our hearts, thank you for the work that you've done to stay engaged with our customers, to keep each other safe, productive, and hopefully, a little bit joyful from moment-to-moment and -- but mostly for putting your hearts into our customers in this time of need. We are exceptionally proud of our employees and of the people who lead the team. Now let's get to the business portion. The purpose of this meeting is threefold: to elect directors; to ratify the appointments of our independent registered accounting firm, Wipfli LLP; and to approve, through advisory vote, Nicolet's named executive officer compensation. Copies of the notice for this meeting, the proxy statement and the form of the proxy were sent to shareholders on or about March 20, 2020. Only shareholders of record as of March 5, 2020, which is the record date of this meeting, are entitled to vote on the matters presented for approval. The first order of business is to see if we have a quorum. Ann Lawson, our CFO, will serve as inspector of elections. And she has informed me that the company has received proxies representing over 8.7 million shares or more than 83% of the company's outstanding common stock. Because that number is in excess of the number necessary to constitute a quorum, this meeting is properly convened. If you have already returned the proxy, your votes have been tabulated. If there are any registered shareholders who have not yet voted and who would like to do so or any registered shareholder would like to change their vote, please do so by clicking on the appropriate link on the left-hand side of your screen. As a reminder, if you've logged in as a guest, voting at this time is not available. The inspector of elections will tabulate the final votes and will submit a report on the number of shares represented and voted shortly. If you plan to vote your shares at the meeting, please do so now. While any votes are being tabulated, we will continue the business portion of this meeting. The minutes of the last meeting. There is a link to the minutes from the 2019 Annual Meeting held May 13, 2019. And at this point, I will now entertain a motion to approve the minutes from the 2019 meeting of shareholders. I have a motion from John Dykema and a second from Terry Fulwiler. A motion to approve the minutes from the 2019 Annual Meeting Of Shareholders has been made and seconded and has passed. The next order of business is a description of the proposals to be voted on at today's meeting. First is the election of directors, proposal #1. Proposal 1 is the election of directors. Our roll call of directors indicate that all directors are present on this call. I would like to take a quick moment to thank all of them for their guidance and direction, especially over the past few months. As a reminder, the 12 nominees are myself, Rachel Campos-Duffy; Michael Daniels, John Dykema; Terrence Fulwiler, Christopher Ghidorzi; Andrew Hetzel, Jr.; Don Long, Jr., Dustin McClone, Susan Merkatoris, Oliver Pierce Smith; and Robert J. Weyers. I am advised that no other nominations may properly come before this meeting, and the results of the voting will be announced shortly. At this time, it's my -- with mixed emotions that I want to recognize Randy Rose has departed from the Board or is departing from the Board. It's mixed only in the sense that I know he wanted to go, and I know that we'll miss him a lot. Randy joined the Board 8 years ago. He's an experienced and a successful CEO, a great strategic thinker, a calm voice of strength and good cheer. He certainly pushed for improvements where he saw they were needed and just was a model of a thoughtful leader on our Comp Committee and our Nominating Committee and throughout his Board engagements. Randy, we are deeply grateful for your service. Proposal 2 is the ratification of the appointment of our independent registered public accounting firm. The ratification vote is described in detail in the proxy statement for this meeting, and I will now entertain a motion that the filing resolution be adopted. Resolved that shareholders approved the appointment of Wipfli LLP as the independent registered public accounting firm for the company for the fiscal year ended 12/31/2020, as described in Proposal 2 of the company's 2020 proxy statement. I have a motion from Andy Hetzel and a second from Pierce Smith. Thank you. The motion has been made and seconded. Our last order of business, Proposal 3, is a nonbinding advisory vote required by the Exchange Act to approve Nicolet's named executive officers' compensation. Full details of Nicolet's named executive officers' compensation can be found in the executive compensation discussion and analysis section, the compensation tables and narrative discussion in our proxy statement. The Compensation Committee will take into account the outcome of this advisory vote when considering future executive compensation arrangements. I will now entertain a motion that the following resolution be adopted. Resolved that the shareholders approve the compensation of Nicolet's named executive officers as disclosed pursuant to the compensation of the SEC in the compensation discussion and analysis, the compensation tables and narrative discussion. I have a motion from Chris Ghidorzi and a second from DJ Long. Thank you. The motion has been made and seconded. The polls are now closed. You can now complete the voting on the election of directors, the ratification vote on the appointment of our independent registered accounting firm and the advisory vote to approve Nicolet's named executive officers' compensation. While we're tabulating the final votes here, just a brief look ahead at the balance of the meeting. We will have a discussion from Ann Lawson, our CFO, on the results and her thoughts on the outlook. I will provide some perspective. Mike Daniels will be talking about what we've been doing to keep our employees safe and our customers served. And we'll close with some final thoughts and then answer the questions that we have received. So the results of the voting are now available from the inspector of elections. I can report that the 12 nominees all received votes in excess of 94% of the outstanding shares voted and that there were no competing nominees for any given seat on the Board. Ratification vote on the appointment of our independent registered accounting firm received in excess of 97% of the shares that voted. And the advisory approval of our named executive officers received in excess of 74% of the shares that voted. Therefore, all director nominees are elected. The appointment of Wipfli LLP as our independent registered accounting firm is approved and ratified. And the advisory vote on Nicolet's named executive officers' compensation is approved. Unless there is other business to discuss, this concludes the business portion to be transacted at this meeting. And I will now entertain a motion for adjournment. I have a motion from Bob Weyers and a second from Chris Ghidorzi. A motion to adjourn has been made and seconded. And this concludes the business portion of the meeting of shareholders. I would now like to turn it over to Ann Lawson, our CFO.

Thanks. Good evening. I will talk briefly about 2019 and first quarter '20 results. And while they may not feel very relevant today under the circumstances, I feel it is important to remember that this is what we are capable of. So let's start with some good news. Nicolet's 2019 results were outstanding. We demonstrated growth and exceptional profitability. We also maintained consistent asset quality and built on our capital strength. There were 2 larger transactions in 2019 to mention upfront. In November, we completed the stock-for-stock merger of Oshkosh-based Choice Bancorp, which added about 12% to our premerger size. We also had 2 actions in the second quarter that netted us a $5.4 million contribution to net income and nearly $0.55 to EPS. We completed a partial sale of our equity interest in UFS, a data processing company, at a healthy premium. After that sale, our Board approved retirement-related compensation, benefiting all employees, which is consistent with our philosophy of aligning outcomes to our customers, shareholders and employees. Let's look at growth. Nicolet ended the year at $3.6 billion in assets for a 16% increase year-over-year. We saw 19% growth in period-end loans, 13% in deposits year-over-year. The organic -- or the underlying organic growth, excluding Choice, was 4% for average loans over 2018 and 2% for average deposits, very reflective of our markets overall. And equity grew 34%, mostly from our earnings and stock issued in the merger. Net income was $54.6 million, 33% higher than last year, with diluted earnings per share up similarly to $5.52. Now Choice had minimal impact on the earnings because it was added so late in the year. However, removing the UFS and comp actions of second quarter, net income and EPS were still up 20% and 21% over last year. Continuous profitability, returns on assets over 1.25% and returns on tangible common equity above 15% are signs of a solidly performing top-quartile bank. We delivered 1.75% ROA and return on tangible common equity of 18.5%, continuing our trend as a high-performing bank. So we've demonstrated growth and profitability. To address soundness, our soundness philosophy has always been one of preparedness. That is we're always looking forward and considering how we can be best positioned to capitalize on future opportunities or weather through turbulent times. Soundness couldn't be any more important today. We are in a 2020 recession. The health pandemic remains unsettled. And no one knows how far-reaching or prolonged the effects will be. When we talk about soundness, we mean 4 things. The quality of earnings means making money from our fundamental products and services less the cost to deliver them efficiently. It's about having diverse revenue streams, being relevant to community and customer needs. And it means staying viable with continued investment in new offerings, technology and in good people who lead us forward. We've entered 2020 with a sound fundamental business model that performs. Our brand loyalty is evident in our stable core deposits, loan growth and strong wealth and mortgage business. Quality of our loan assets is the driver of asset quality. If loan quality weakens, it may lead to a heavier provision for potential loan losses and perhaps real charge-offs. If we learned anything from the 2008 to '10 financial crisis, it was to get ahead of issues with customers and have the hard conversations. We are coming off of a long period of low charge-offs and low nonperforming assets. Today, we have a good understanding of our loan mix, which includes nearly 15% of our -- of the hardest hit industries under the stay-at-home orders. We significantly increased our first quarter loan loss provision amid all this uncertainty because it is likely we will see deterioration over future quarters. But just how much is unknown. I do know our bankers engaged immediately with our customers, both commercial and retail. Relief efforts have already included various loan modifications as well as facilitating lending to a mass of our business customers under the PPP, Paycheck Protection Program. And I also know this proactivity will better serve our customers and our eventual results. Liquidity. There's nothing more fundamental than a bank having liquidity to meet the demands of its customers and support our operations. We are fortunate that core deposit base fully funds our loan, which means we entered this difficult time with almost all of our other funding sources untapped and available for emerging needs of our customers. We started in March of this year, but before the government stimulus to add significantly to the liquid cash position of the bank going from 5% of assets at year-end to 6.5% at March 31. And finally, capital strength is extremely important to provide a buffer when risks are high and times are volatile. Pre-COVID, we had started to take questions from Wall Street analysts about what are you going to do with your capital seems to be building. Our answer had been, we continue to be acquisitive and we might do an all-cash deal. We would say we've been in a long recovery period. So you just don't know when the downturn might come. While that time is now, we do have one all-cash acquisition announced for 2020. That's Advantage Community Bank in Dorchester to close in August. And the downturn is here and our capital is strong. We start the year with equity of assets of over 14%, tangible equity to tangible assets of over 10% and all our regulatory capital ratios exceeding the top hurdle levels. In just the past 3 years, while assets grew 55%, total equity increased 87% to $516 million due to the strong cumulative earnings, our stock issued in mergers and a proactive capital management awareness. So in summary, 2019 is just a fantastic year. Quickly to first quarter. Net income was $10.6 million. EPS was $0.98. Our annualized ROA was 1.19%. And return on tangible common equity was 12.2%. The first quarter actually did start much like '19, especially with momentum in mortgage revenue from significant refinance activity, which is still continuing. And our balance sheet, compared to year-end, showed normal activity as well, except for the build of liquidity I mentioned earlier. The evolving pandemic in March, however, made the Fed take emergency action, reducing rates by 150 bps. It tanked the stock market, and it has disrupted many businesses with the safer-at-home mandates. This has triggered rising concerns across our industry about loan quality. We booked a preventive provision of $3 million for the quarter. For perspective, we provided $1.2 million for all of 2019. A special subtotal used in the last financial crisis called pretax preprovision earnings is going to become relevant again to help us assess bank performance before the loan loss provisioning. Our PTPP for the first quarter was $17 million, 22% stronger than first quarter last year, but down a bit from fourth quarter. I'll finish with this. There are a lot of things we don't know about the future. We do know that our 2020 results and our balance sheet will not be what we initially thought they'd be. We assure you that we will remain responsive and flexible to the events before us, and we will do what is right under the circumstances to best serve our employees, customers and you, our shareholders. Bob, that's mine.

Thank you very much, Ann. So 2020 is obviously very different from 2019 and equally different from the budget we went into 2020 with. By early March, we began responding to this reality, focusing then, as we are now, on the safety of our employees and maintaining the service to our customers. During the last week of March, we were trying to evaluate the effectiveness on our earnings, our liquidity, our asset quality and our overall strategy. Ann mentioned the rate cuts impact of that on our margins; the increased provisioning, which is really the wildcard in where the income statement will go going forward. And then we took steps to reduce expenses, both in the first quarter and continue to evaluate ways to get more efficient and effective going into the future. We still don't have good visibility into the rest of 2020. But I want to emphasize that from a capital, from an earnings, from a liquidity and from an asset quality standpoint, we are exceptionally well prepared to deal with these events, and not just to deal with these events, but to deal with the opportunity that always arises in the wake of such turmoil. So that's sort of the metric side of it. But really, I want to emphasize that this is a very seasoned, tested and cohesive management team. The leadership team has been in place for the entire 20 years of Nicolet's existence. And as we face the sort of unprecedented uncertainty of these times, we know that past performance is no guarantee, but it's likely the best data that one can have. And I want to take just a minute to focus on where we've been over 20 years. Nicolet was launched into the bursting of the dot-com or the tech bubble. And we've weathered the shock of the 9/11 and the impact of that on financial markets and on the economy. But perhaps our finest moments were preparation for the financial crisis of 2008-'10 and the rapid response within it and then emerging from that to really strengthen and mature the franchise through a string of very successful acquisitions. From an investment point of view, Nicolet has consistently outperformed in both up markets and down markets. The 20-year stock chart shows that Nicolet's shareholders are up 435% since the bank's inception. During that same period, the broad market equity index, the S&P 500, is up 106%. The SNL U.S. Bank Index is down 8% over that 20-year period, while Nicolet is up 435%. If you look over a 5- year period, Nicolet is up 84.4%, while the S&P is up 38% and the SNL Bank Index is down 4.4%. And the last chart that I'll show you is not as happy one, but it still shows our relative performance in difficult times. Since the inception of 2020, Nicolet is down 27.3% and the SNL U.S. Bank Index is down 37.7%. So as our customer base goes, so goes Nicolet. We tend to both lead and try to elevate, but we are a sincere reflection of what's happening in and among our customer base. So where is Wisconsin now? Wisconsin is rapidly coming back up. We don't see a V-shaped recession. We don't see that rapid a recovery. It is more likely to be an 18-month period of coming back up. The objective of our statewide safer-at-home program was to flatten the curve of the coronavirus so that we could preserve and have available capacity in our hospitals to deal with the critically ill. Green Bay has about 40 patients across all 4 of our hospitals, as we speak. And it's been in the 40 to 45 range for a number of days. We'll leave it to historians to sift through whether the low hospital census is evidence of the success of the safer-at-home policy or perhaps of its over-execution. The reality is, along with flattening the virus, the economy has been flat and pushed into negative territory. Unemployment in Wisconsin is approaching 20% and will likely keep rising. And GDP is estimated to be down dramatically in the second quarter. Private and public organizations are facing a wave of red ink. We see this in the university system, in the hospitals that serve our markets. And of course, in the businesses, people are dealing with a crisis beyond any of their downside planning models. Federal stimulus, which has been massive and will have long-term consequences for the economy, at this time, what it's doing is buying time to figure out if and how these organizations will have a future. PPP and other funds, the Payroll Protection Plan and other federal fundings bought the short window to make really hard decisions. And many of these businesses must ramp up now or perhaps they never will. We're very pleased that even this week, widespread population testing is beginning in the state. Without such testing, all of the ratios that we hear about the mortality rates, the infection rates, the cure rates, the asymptomatic spread rates, they're all of limited accuracy, because without a meaningful denominator, it's tough to make sense of the data. 1 month ago, tests were only being done for people with multiple symptoms. As recently as 2 weeks ago, we were hearing from health care officials that population testing in the workplace simply could not be done anytime soon. Today, anyone can be tested for free in Brown County without symptoms. And there are developments underway to provide widespread workplace testing. In a nutshell, we are moving from our safer-at-home policy to safe-at-work, safe-at-school. Threefold strategy to protect the vulnerable, to identify and isolate the carriers and get back to work is what's happening. The UW System meeting last Thursday evening, both UW President, Ray Cross; and UW-Madison Chancellor Becky Blank made clear that we will have students and faculty on campus for the fall semester across 13 campuses and that there will be ubiquitous testing. I greatly appreciate the fact that they have set forth this as a reality that must be achieved. And what's true with universities needs to be true in the workplace. So as I mentioned, we don't see a V-shaped recovery. Our customers are dealing with some supply chain issues, although in reality, they've not been as bad as we might have feared. There are workforce issues with people's comfort level with coming back to work, having the capacity to actually produce to meet demand. And then, of course, there are issues surrounding the demand for their products. It varies widely by industry. Some types of companies are doing exceptionally well. Others are facing a grim future. We know that we will face -- so the PPP work we've done, which is outstanding, the micro-grant program, which Mike will discuss, the things that we're doing day-to-day to reach out and talk to our customers have been really outstanding. But we know that the hard decisions, the difficult conversations are still looming. We face them with a seasoned team. And it's a seasoned team that's serious about talent development. I could not be more pleased with how this team has performed. When the financial crisis of 2008 hit 12 years ago, we were a much smaller organization and we didn't have the depth of talent that we have today. Mike Daniels really set the tone for how we're responding day-to-day in this crisis. He leads our team through an 8:00 a.m. phone call every morning. We hear, primarily, Mike orchestrates the call, but what we hear is from an exceptional leadership team across the organization talking about the day-to-day issues they face and soliciting and providing appropriate input to their colleagues. I want to mention some of those people to highlight their experience, but also to recognize their phenomenal work. Eric Witczak is our EVP of really a lot of the organization chart reports to Eric, retail, mortgage and a host of other areas. He's a 20-year veteran of Nicolet. We worked together before on previous employment and is doing an outstanding job. Brad Hutjens is our Chief Credit Officer, a 17-year veteran of Nicolet. Mike Vogel heads our Commercial area, another 17-year Nicolet veteran. Ann Lawson, our CFO, is 11 years. Kristi Hansen runs operations, a critical area. P.J. -- and Kristi has been here 8 years. P.J. Madson has been here 4 years and came in to lead our Wealth Management area. He's done a great job of continuing to engage with a large group of our customers who entrust us with their investable assets. And Kate Lombardi is a 16-year veteran of Nicolet. She's our HR Director and also serves as an in-house legal counsel. So as we face this challenging and highly uncertain future, we do so with a stress-tested high-performance team. And I know that people like and respect each other and are very dedicated to the core values of the organization. And I really want to touch on those core values before I move to the next section. And I think the most critical thing about our philosophy and our core values is the way we think about our customers and our market. And we say frequently at these meetings that our purpose, not just at these meetings, but at all of our engagements with our people, our purpose is to serve our customers. It doesn't mean we're a doormat, that we do whatever they want. But it means we're not confused about the reason we exist. And we say that and we tell you every year what it means, but it's important to stress, it's not just a sentiment, it's a concrete reality that's borne out in our actions. And I guess, I'd like to say it this way as we face the future, we mentioned that sort of as our customer base goes, so goes Nicolet. We know that every dime this organization has made is derived from the work of our customers and from the work of their employees. The money we lend does not create their work. It facilitates their work. It's actually their work that repays the debt. We guard your investment well. For most of our investors, Nicolet has been one of the best investments they've made. Key to this is the skill of our team at their craft, but at the heart of it is that level of dedication to the customer and the reality that we mean it, and they know we mean it. So that really protects and enhances their investment. I'd like to ask Mike to talk some more specifics about what we've been doing to keep our people safe, to maintain our service levels and to support our customers through this most difficult time.

Thanks, Bob. Around about the second week of March when the COVID-19 pandemic started happening, we started having a regular conversation. And then on March 18, we implemented a social distancing protocol, which was about a week before the Governor's safer-at-home protocol in which we divided our management team and created redundancy within our operation. Our branch lobbies became only available through appointment-only. We ran drive-through only. And then subsequently, we've temporarily closed 13 other offices effectively April 20, as not only abundance of caution, but to increase our social distancing efforts and to keep our employees safe. Currently, we have 275 people showing up across our footprint at physical locations, 200 working remotely. And we continue to pay all employees regardless of whether they're working or not. We have approximately 120 that are not currently working for a variety of reasons, whether it be temporarily closed office or maybe they're in the high-risk area. They are still getting paid as well. We also have a special essential on-site bonus for any employee underneath $60,000 a year that is required to show up in a physical location to help us serve our customers and our communities where they're getting paid $40 a day as well. From a customer standpoint, there's been a lot of things happening. I'll talk about PPP and some of the other programs in a minute. But to date, on the commercial side, our commercial customers who have been impacted by COVID-19, we've done approximately 650 loan modifications for about $426 million. We're processing deferred mortgage payments on our affected retail customers on our mortgages. And we've also automatically qualified all our Real Reward and Saver accounts for April and May. Back to you for Ann and Bob and everybody, for that matter of fact, talking about the SBA Paycheck Protection Program. When that hit the ground running, April 3, we were all over it, and in the first round, did about $310 million for 1,700 different customers. On April 10, when the PPP program included sole proprietors, we began processing those applications. And as everyone is aware, around Thursday morning at 9:30 on April 16, it ran out of money. Phase 2 has since started back up, and we processed close to 2,400 applications for an excess of $340 million. But more importantly, close to 40,000 jobs have been affected by the PPP loans in which we processed. Coming out of the PPP and given the volume, we made the decision to start the Nicolet small business grant program. And that was one of the things we found is on the smaller end of our businesses across our footprint. The PPP program did actually give them what they needed. And that was because many of them were deemed nonessential, were closed. And further forgiveness, it really didn't help them to weather the times, given the 8-week time period from when your PPP was funded. So anyone who went through that process, and it was for Nicolet customers only, we issued a grant versus doing a PPP for up to $5,000. And the customer could -- we process a PPP if they wanted to go through that process. But if they qualified for the grant, we offered them the grant, which was no reporting, no monitoring, no repayment. And we've done 325 of those before the program ended for $1.250 million. The most important thing to remember there is that $1.250 million is not a government program. It's not government money. Those are Nicolet dollars that we put behind our customer base. You heard Bob say it earlier, every penny this bank has made in the communities it serves, we thought this is an appropriate return of that capital to that customer base in those communities to help those small businesses weather the storm of the COVID-19 pandemic. We continue to now put together a reopening plan that includes not only our offices, but a lot of our redundant areas and how we will bring them back together as the safer-at-home is lifted and as we move forward through the COVID-19 pandemic. We're in the middle of those conversations, but I do anticipate that some of our offices coming online, beginning with a staggered approach, but the first happening the Tuesday after Memorial Day most likely, which is May 26.

Thank you, Mike. I understand that the live feed of the meeting just started a little while ago, and I want to apologize to all of you that were listening to nothing. Our provider, for reasons we don't understand, was unable to make the live feed available till now. There will be a recording of the entire meeting. We elected not to go back and begin again the live portion, but the recording will be available shortly of the entire meeting. So my closing comments are really that we talked earlier about the stock price, but it's important to realize it's the fundamentals that drive the stock price. It's the health and the wellbeing of our customer base. And then it's really our performance on loan quality, on capital and the profitability of the organization that drive that outcome for shareholders. First slide on loan quality just shows, since 2007, how our Nicolet performance on nonperforming assets, which is sort of the most common measure of asset quality, how our performance stacks up compared to Midwest banks and Wisconsin banks in our size range. And we've had much lower levels of problem loans as that chart shows. And so that's both the strength of our underwriting, but another thing about loan quality is it isn't just a point in time, it's how you handle people and how do you handle people especially when there's problems and when there's trouble. Part of our culture is we go toward the problem, not away from it. We're well aware that the decisions that we make to either support or not support people in challenged circumstances can affect -- does affect their outcome and ours. Sometimes, we need to be patient and give people time. Other times, people aren't being realistic about the issues they're facing and we have to have the fortitude to continue to press on those things until we arrive at a point where we can bring the matter to resolution. And we're, hopefully, as is usually the case, we can continue to support them. The next chart shows that our capital levels are -- and I think this is true across the industry. I can't stress this enough when people ask about the health of the banking industry these days. We can't speak for the health of the entire industry, but we can tell you that capital levels are generally much higher, and certainly, our capital level is much higher as well. And lastly, not unrelated to capital is, Ann mentioned the pretax pre-provision income. This is sort of the core earnings stream that comes from the work that we do day in and day out to support our customers. And the profitability of the bank is very strong. It reflects the strength of our customer base, the quality of our customer base and the quality of our hundreds of employees who get up in the morning and do a really nice job of serving them. So as we look at the balance of the year, tremendous amount of uncertainty. We've, over the years, shown that we know how to make good decisions in an uncertain environment. We know that leadership entails -- frequently entails making decisions with less information than you'd like and exercising good judgment in times of uncertainty. And we have a track record for doing that. And we remind ourselves quite frequently in these times that we're not going to just survive these times, we're going to help our customers get through them and get back up. And we're going to have our eye on the horizon for where the opportunities are in the aftermath. We will continue to place the health and the safety of our employees and our customers front and center in what we do. We're as prepared as a bank can be for this period of exceptional disruption in terms of our asset quality, our capital and our earnings. Capital levels remain strong. Liquidity is ample. We're closely monitoring, and not just monitoring, we're engaging with our customers. We're calling them and we're talking to them, which is really critical. And our core profitability is very strong. M&A activity, which has been very successful for us over the years, we're sure that in the wake of these circumstances, like many -- most organizations, there's going to be a push for consolidation to gain efficiency, to gain strength and to react to the unprecedented times we're in. So we expect to be exceptionally well positioned for that activity. It is -- these are very difficult times. There's not a lot of activity going on right now across the industry with M&A because with all this uncertainty, it's very difficult to price anything. That's evident in any discussions that we're having with other financial institutions. So we are -- we really hope to be celebrating our 20th anniversary in a little bit of a different fashion at this meeting. We look forward to spending time with you at the Meyer Theatre. We know that we'll have occasion to connect again, and we do look forward to that. It's been a great journey for 20 years. We wish we weren't in these times, but we can't imagine owners, customers and people that we would rather face these circumstances with. So with that, we'll try to address any questions we have. Eric, did we get any in over the web?

Any -- okay. We have a -- really 2 questions came in. Can you discuss the micro-grant program in more detail? Did this program replace the PPP? And were all small businesses eligible? Mike, I don't want to waste another time to talk about the micro-grant program. It's just a -- and Mike deserves the credit for really seeing -- having the insight. But tell us again about the micro-grant program.

Well, so it was for -- you had to be a Nicolet customer, which means you had to have your deposit account with us. It would be a small business Nicolet customer. And it was not -- you could not do the grant and the PPP. It was one or the other. And the reason -- the timing, particularly with round 1 with the surge of applications that happened, the first 1,700, the time from getting an E-Tran approval number to getting the people money was 10 days to 2 weeks. And these smaller businesses, many of -- as I said earlier, who deemed themselves nonessential or who were deemed nonessential under the Safer at Home Act, needed the money and they needed it quick. And whether or not it was for payroll, to pay rent, to pay suppliers, just to try to continue to remain viable while they were either closed or even partially opened. Our average grant size was $3,850. Like I said, there's no repayment on it. And we did 325 of them for $1.250 million. But the one requirement was, it was a -- you did have to be a Nicolet small business customer and you had to talk to your banker and go through the steps of the PPP process, and then you could do one or the other. And 325 people chose to take the grant. And we are -- we want to not only talk the talk when times are good, but walk the walk when times are bad. So to support our small business customer base across our footprint was something we felt very important.

Thank you, Mike. So the other question is, how has our institutional ownership affected the share price? Or is it still more heavily influenced by local shareholders? Just to refresh, approximately 25% of our shares are held by institutional investors. Of that, about half of them are essentially index holders, meaning we're in the Russell 2000, and they construct an index fund and essentially need to own us as part of their overall strategy. And the other half are more bank specialty-type funds. So the bulk of our ownership, that 75%, is local ownership, a lot of its Board members, employees, insiders, former Board members. I kind of lost track of that number, but it's still a big chunk of the 75%. Ann was more comfortable making numbers up. I'd ask her to, but it's a big chunk of the 75%. The rest are people who've been with us, either from our original share offerings or from having joined us through the acquisition of their bank in exchange for stock in Nicolet. In any event, we think that how has the institutional presence, well, it has certainly increased the liquidity for any of our shareholders that want to exit. But I would say what I think it's really done is it's caused our stock price that you look at to fluctuate more with broader capital market flows than if we were thinly traded more closely held banks. So I think you see our stock price move more with the market. I think we showed really clearly earlier on in the meeting that it does move over the long-term horizon. We outperformed in both up markets and down markets. But we will see our stock trade much more closely with other bank stocks than we have in the past. It's given us -- the presence of the institutional investors in that liquidity has given us a great currency with which to do acquisitions. And -- but I guess, in many ways, it's -- at 70, when I look at our continued outperformance, a portion of that is that 75% of our local ownership that understands what we're doing have been here for the long run that are truly -- well, often customers, brand advocates for us, and they're truly investors. It's a long-term play for them. They understand the mission, the culture of the organization, and they participate in it as investors. They're not just kind of trading in and out of it based on market movements. So I really love the structure of our ownership at this point, and we serve all shareholders with sincerity. But I'd be lying if I didn't say we particularly treasure the people who put us in business in the first place and sustain us through their commitment through doing business with us and telling their friends and neighbors about the experience they've had doing that. Any other questions come in while we were answering those, Eric? If not, thank you, again, for attending the meeting of shareholders. I apologize again that for the technical problems we had. I don't really have an explanation for how our provider put us in that spot, but it is what it is. And please go back and listen to the first part of the meeting. And as always, don't hesitate to e-mail Mike, myself and Eric Radzak and his Investor Relations, along with other things. And we really, truly, from the bottom of our hearts, thank you for your support. And we look forward to seeing you in person again when conditions permit. So this concludes the meeting.

This concludes the meeting. You may now disconnect.