Transcript
Coming up, a brand-new NFL offseason-inspired episode of Plugged In with one of my favorite Cheeseheads. But first, I need to say hello to our very own Dandy Don Meredith. That’s right, Steve Williams, you’re finally getting the introduction you’ve been waiting for ever since we started this series.
All it took was a guest from Green Bay to get it done. We’re in a competitive football mood today, so give me a fist bump and help me welcome Mike Daniels, chairman and CEO of Nicolet Bankshares. For those listening, Nicolet is the second-largest bank headquartered in Wisconsin, and it’s a company Mike co-founded in 2000.
If you walk the story forward from there, Nicolet is now a roughly $8.5 billion-asset bank, publicly traded on the New York Stock Exchange under the ticker NIC.
I want to wake up the listeners right now. We have a video version of this podcast, but I’d encourage everyone to look at Mike’s first-quarter investor deck. He has a great slide showing total return since inception, more than 700%, and it’s well above the S&P and the KBW Regional Bank Index. I thought it was a Bitcoin chart at first, Mike. It’s a killer commercial community bank in the Midwest, and we’re going to talk about how you do that because people don’t always realize those kinds of high-returning, consistent banking franchises still exist.
It’s a wonderful chart. If you’re not watching the video, go download the investor deck. Steve is excited, as you can tell, and so am I. Mike is one of the genuinely great guys in banking, and he also holds some incriminating evidence on me as a Patriots fan.
I do.
Mike sits on the board of the Green Bay Packers, and he was kind enough to take me to Lambeau for a behind-the-scenes look at the stadium, the team and the town. We had a great time. We broke out the beers, had cheese curds and sweet Old Fashioneds. The quid pro quo, of course, is that he now has a picture of me wearing a foam cheesehead and posing like it’s my team. My Patriots friends are surely going to be offended when they see it.
Or they’re going to convert.
I think we can draft off the success of both the Packers and Nicolet to get this conversation rolling. Navigating banking isn’t for the faint of heart. Protecting the business while looking for new avenues for growth and change is part of the course right now. As much as we’re laughing with you, Mike, Steve and I are excited to have you here. Thanks for doing this.
Thanks for having me. I’m looking forward to it. Believe it or not, I watch your guys’ podcasts.
One of our listeners. Longtime listener, first-time caller.
You just doubled your listenership.
Since you’ve listened before, you know we like to find musical inspiration for these conversations. We could go with Thin Lizzy and The Boys Are Back in Town. But because we have Green Bay on the mind, we probably have to bring in Lil Wayne and Green and Yellow. There’s too much profanity for me to quote it appropriately, but in the spirit of “Go Pack Go,” let’s talk about team building and succession planning.
You have a unique perspective as both a bank founder and a Packers board member. The Packers are searching for a new CEO, and you’ve spent your career building a team at Nicolet. How do you think about building a team and planning for the future?
Particularly as a founder, it’s very personal. Everything that happens here, you take responsibility for and you take personally. What creates success is a simple premise we had more than 20 years ago: you have to matter to your customers, matter to your community and matter to one another, and create an environment of shared success.
You build that around people. You build it by believing that people grow when they’re allowed to make mistakes within the scope of their jobs. If they make the same mistake a thousand times, that may be a problem. But otherwise, if you want scalability, people have to be able to matter to customers, matter to their communities, matter to one another and create shared success.
That leads to another question. How does a bank stay entrepreneurial as it grows in both size and complexity? It’s easy to talk about, but you’re living it every day.
It’s one of our core values. When Bob and I founded the bank, we tried to come up with something simple that people could rally around. We have five core-value words, followed by the word “be,” which calls people to action. When I get a chance to talk to new employees during onboarding or at employee meetings, I tell them those core values don’t have to mean exactly the same thing to everyone, but everybody should be within a standard deviation of one another.
A lot of people say the key is people, but you have to actually mean it. That means trusting people and empowering them, because the customer can tell.
You’ve probably become a home for some great bankers and great talent. How do you make sure that as you grow and bring in bankers from regional banks and national banks, you don’t dilute the culture? How do you keep people embedded in those values as the bank approaches $10 billion?
There’s no doubt that when we bring somebody in from a big bank, there’s a level of deprogramming that occurs. We were midsize-bank guys when we left to start this company. It sounds great when you tell somebody they’re going to have the ability to make decisions, but another big word comes with that: accountability.
You have to be accountable for the decisions you make, willing to own them and willing to admit mistakes. Bad news needs to travel faster than good news.
It comes with a high degree of intentionality. A couple years ago, I was at one of those CEO gatherings where everybody went around the room and was asked what their biggest competitive advantage was and what their biggest threat or weakness was. Mine was the same answer for both: cultural consistency.
That takes intentionality every single day. We talk about it every day. I even talk about it quarterly with analysts because I want to remind them why we do what we do. The results are the scorecard, but they’re not why a thousand people show up across our footprint every day. The “why” is what gets lost.
That’s something that can be uniquely true about midsize entrepreneurial banks. People matter to one another, but they can also be entrepreneurial and speak the truth. In some big organizations, it can feel like watching six different political camps present PowerPoints that aren’t sincere with one another. You lose that. I like your word “intentionality” when it comes to culture.
Very intentional.
I promised this would be NFL-inspired, and we are in the offseason. The Packers are intentional about how they draft. They don’t always chase the splashy first-round wide receiver. They’ve had a formula that works. I see a parallel with Nicolet. You’re bringing in talent regularly and helping people fit into the fabric of the team.
Other banks bring in high performers with high potential too, but it doesn’t always work out. Being deliberate, like you talked about, is hugely important. It doesn’t happen overnight. Mike models the behavior, but having walked the halls with his team, they seem to be in lockstep. They know the bank’s focus and how they’re trying to do right by customers and communities.
A lot of it is that they know why they show up every day.
Exactly. To do those things and create shared success, it can’t be “you win, I lose” or “I win, you lose.” It’s about what we’re doing together and whether we want the place where we live to be better.
I promised some songs, and this feels like an AC/DC For Those About to Rock moment. We can also bring in Ozzy Osbourne and Crazy Train, which my New England Patriots use as an intro song. It starts with “All aboard,” and Mike has done a great job of getting people aboard.
That brings us to franchise value. How do you build franchise value while also building the balance sheet? There’s the question of what drives value today, how you earn the right to remain independent while being a proper steward of capital, and how you deal with a challenging rate environment and pressure on earnings. It all comes back to building franchise value and building the balance sheet. How do you think about that?
So much of the pressure, particularly as a public company, is quarter to quarter. What did you do this quarter? That’s what analysts want to talk about.
From our standpoint, we make decisions with the long-term outcome and the long-term good of the franchise in mind. We understand there’s a price to independence as a public company. You have to earn it every day.
We’ve publicly stated that we’re going to be a top-quartile, if not top-decile, performer and earn the right to be Nicolet Bank every day. If we don’t, we don’t want to be a zombie bank. We don’t want to simply exist or exist for a product. There are only so many ways to package a checking account, a loan product or a service.
I recently talked about this at one of our all-employee communication forums. At its heart, a bank is built on promises. We have roughly $5 billion of promises to give people their money back if they come in and ask. We have roughly $6.5 billion of promises that people are going to pay us back.
What is all of that built on? Shared success in the communities across our footprint. It’s incumbent on us to empower our people to matter throughout that footprint. That’s how you build franchise value and why we want these banks to exist and earn the right to keep that grassroots model alive for a long time.
For listeners, Nicolet was trading this morning at about a 12.7 P/E in an environment where many peers are closer to eight or nine, with an ROA around 1.23% in the first quarter. What’s also interesting is the way you look at different areas of the business and let strong leaders grow them.
You have a significant dairy-lending business, a strong wealth-management business and a mortgage business dealing with a tougher market. That gives the franchise some diversification.
A little bit. We don’t necessarily look at them as separate lines of business. It starts with our compensation structure. We don’t pay commissions across any of those businesses. Everyone is base plus bonus, and it starts with the success of the company.
Our Wisconsin license plate says “America’s Dairyland,” so when we had the opportunity to acquire a bank with a large dairy business, it fit nicely. These are owner-operated businesses of many different sizes. The only difference is that they have to show up 24/7, 365 days a year because cows don’t take a break. They have to be milked every day.
About 95% of our dairy production goes into cheese, and cheese is the growing dairy vertical. That’s why, when Al was here, all I did was feed him a lot of fried cheese.
It was delicious. We can do that again.
Our wealth business also ties nicely into our owner-managed C&I book, which is a little over half of our loan portfolio. That can include retirement-plan services, fiduciary and trust work, investment management, business succession, transfers and estate-planning needs.
The greatest success is when all of those businesses consider that customer their customer. That’s when you know you’ve hit the jackpot and created shared success.
Steve, if you and I were driving around in your old beat-up car and popped a tape into the deck, you’d probably have some Bachman-Turner Overdrive ready to go. You Ain’t Seen Nothing Yet feels appropriate here.
As Mike is talking, I think we should ask about this very focused, relationship-based approach to banking and how it ties to relationship pricing. Everybody talks about relationship banking, but my understanding is that it’s genuinely embedded in Nicolet’s culture, especially the relationship-pricing discipline. In a world without the buoyant growth we saw for the last 15 years, that’s going to be increasingly important.
It’s about making sure you don’t do things that put you at odds with your customer base. The easiest example in this environment is deposit specials. We don’t run them.
At the end of 2022, we came out of strategic planning with a goal to grow deposits aggressively. We decided we were going to lead with our money market. If you look at our funding costs today, our deposit costs are higher than the peer group because we repriced the whole portfolio before the industrywide run-up. We were already going after deposits before everybody else became focused on the same thing.
But we weren’t running a “new money only” special. Relationship pricing means you don’t make a loan simply because it’s a good transaction. A lot of CRE can be more transactional. We have a different outlook, which is one reason CRE is a relatively small part of what we do. There has to be a relationship component or an opportunity for a great relationship, whether that is wealth, personal banking, business banking or something else.
We want to close the loop as much as we can. If you help somebody start and grow a business and ultimately sell that business, why would you want that money to leave? You want to remain their provider and trusted adviser across the relationship.
The same philosophy applies to mortgage. Our mortgage people carry the licenses they need, but they’re bankers. They’re in offices. They have deposit goals. They have wealth goals.
So you don’t have the mercenary model. The question is how you holistically serve the customer rather than yourself.
Exactly.
I said if Steve and I were in a jalopy heading down the street, what would we be listening to? Mike and I would probably prefer a golf cart after a nice drive on a long par five with some Marshall Tucker Band playing. Can’t You See seems like the right song for our last big question.
What are the major challenges you see over the next three years for banks around your size and somewhat larger? Let’s say institutions under $50 billion.
I don’t think it’s a one-size-fits-all answer. It depends on where you are. I spoke at an investment banking event and used the line, “Hope is not a strategy,” but it seems to be the strategy for a lot of people right now.
Some of this goes back to having a long-term focus and making decisions for more than the quarter. On March 7 last year, we sold about $500 million of Treasuries. Then SVB happened on March 10. We had a press release teed up, but it never went out because suddenly the entire conversation was about bond math and bank failures.
The real challenge everyone faced was the velocity at which rates moved, not simply the fact that they moved. If it had been a more normal, stair-step rate cycle, things would have been different.
At the start of the year, the market was pricing in six or seven rate cuts. In our own forecast, we put in two, with one not until December. We did that in November. Whether rates stay higher for longer, move 50 basis points up or 50 down, it should have very little impact on us. We probably have one of the more transparent balance sheets.
I’m a huge fan of community banking. We’ve done 10 or 11 M&A transactions, and when we talk to another bank, we don’t frame it as, “We want to buy your company.” We ask what your shareholders and ours can do together and what the combined organization could create.
If you earn the right to remain who you are, more power to you. But for some institutions, time is on their side, and for others, a higher-for-longer environment is not on their side.
The regulatory environment isn’t going to get easier either. At $8.5 billion, we look at $10 billion as a “when,” not an “if.” We’re preparing for that now. We’re going to have a CFPB readiness audit because we want to identify the gaping holes in the work we’ve done before we cross the threshold rather than after.
There may be haves and have-nots. I don’t think CNBC or anyone else necessarily helps when they start talking broadly about fear or predicting waves of bank failures. We saw that last March. People live in a 140-character world, whether it’s Twitter or other social platforms, and very few people go back and back-test what was actually said.
We saw New York Community Bank come out and be more transparent in an earnings call, and it helped because they finally got beyond the 140-character version of the story.
We’re also roughly 700 days into a negative yield curve. To Mike’s point, some banks are really starting to unravel in that environment. Others that stayed within their lanes are going to be fine.
My takeaway is that culture can become a huge part of the next wave of consolidation. Mike and Nicolet can be an acquirer of choice because of that.
You have to lean in. You have to lean into your own institution, your people, your community and your customers. You have to have the dialogue. We have a saying: be comfortable being uncomfortable. Not every conversation is comfortable, but some uncomfortable conversations are necessary.
Real community banking tends to shine when there are problems. At a certain size, organizations can become so internally focused on figuring out what’s happening inside that they forget to lean into the customer and community.
I’d like you to lean in for one last thing as we wrap up. Take your Nicolet hat off and put your Packers board-member hat on. Give me a few predictions.
First, who will be the most popular player riding a bike during summer camp?
Jordan Love. He was the guest speaker at a charity function last night and absolutely killed it. He’s quickly becoming a fan favorite.
To your earlier point about the Green Bay Packers and the way they draft quarterbacks, they’ve had a process of letting a young quarterback sit behind a perennial Hall of Fame-caliber quarterback. I don’t know whether we’re going to be three-for-three, but the early signs certainly don’t look poor.
What’s the best non-Jordan storyline going into the season?
The first thing everybody wants to know is who is going to be the next leader of the Green Bay Packers from the CEO standpoint. We have a great one right now. Mark Murphy has done a tremendous amount.
The NFL is a big business, the Green Bay Packers are a big business, and the growth the organization has seen during his tenure has been significant. The investment the Packers have made in Green Bay, including the Titletown District, has been tremendous.
I’m very fortunate to be on the board, and I’m on the CEO search committee, which is kind of fun. Those are big shoes to fill. There haven’t been many people to lead the franchise in the modern era. Today, that role takes a special person because you are effectively the owner representative. You stand alongside people like Arthur Blank and Jerry Jones, and you’re the voice of the smallest city with an NFL franchise.
I think the CEO transition will be a major storyline as it plays out going into the season.
Last one. Who’s winning the Super Bowl?
What do you think I’m going to say?
I’m thinking my favorite new jersey, Drake Maye, brings the Patriots back to glory.
No, no. That’s part of the problem. All these teams draft rookie quarterbacks and throw them right in. The Patriots’ general manager comes from the Wolf tree.
Eliot Wolf, Ron Wolf’s son.
Exactly. So maybe the Packers approach gives you a chance.
There are 32 cities and fan bases across the NFL with the same irrational exuberance you have right now, and only one of them is going to be right.
We hope they’re all going to get Plugged In with us because this has been fun. I want to give Dandy Don a shout-out in Arizona and Mike over in Wisconsin. I’m Al Dominic. Thanks again for joining Cornerstone Advisors and the Plugged In series.
I appreciate you guys. It’s really good to see you. Thanks for having me.
Enjoying Plugged In?
Subscribe on your favorite platform