NICOLET BANKSHARES INC

Previous wording

Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements are neither statements of historical fact nor assurance of future performance and generally may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions or events, and statements about our future performance, operations, products and services, and should be viewed with caution. Investors should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those implied or anticipated by the statements. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s 2023 Annual Report on Form 10-K include, but are not necessarily limited to the following:

Current wording

Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance, or with respect to expectations regarding the economic factors such as inflation and changes in interest rates. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements are neither statements of historical fact nor assurance of future performance and generally may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Forward-looking statements (including their underlying assumptions) should be viewed with caution. Investors should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those implied or anticipated by any forward-looking statements. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s 2023 Annual Report on Form 10-K include, but are not necessarily limited to the following:

Previous wording

The following discussion is management’s analysis of Nicolet’s consolidated financial condition as of March 31, 2024 and December 31, 2023 and results of operations for the three-month periods ended March 31, 2024 and 2023. It should be read in conjunction with our audited consolidated financial statements included in Nicolet’s 2023 Annual Report on Form 10-K.

Current wording

The following discussion is management’s analysis of Nicolet’s consolidated financial condition as of June 30, 2024 and December 31, 2023 and results of operations for the three and six-month periods ended June 30, 2024 and 2023. It should be read in conjunction with our audited consolidated financial statements included in Nicolet’s 2023 Annual Report on Form 10-K.

Previous wording

(3) The adjusted net income measure is a non-GAAP financial measure that provides information that management believes is useful to investors in understanding our operating performance and trends and also aids investors in the comparison of our financial performance to the financial performance of peer banks. See section “Non-GAAP Financial Measures” below.

Current wording

(1) The adjusted net income and diluted EPS measures are non-GAAP financial measures that provide information that management believes is useful to investors in understanding our operating performance and trends and also aids investors in the comparison of our financial performance to the financial performance of peer banks. See section “Non-GAAP Financial Measures” below for a reconciliation of these financial measures.

Previous wording

(2) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures that exclude goodwill and other intangibles, net. These financial ratios have been included as management considers them to be useful metrics with which to analyze and evaluate our financial condition and capital strength. See section “Non-GAAP Financial Measures” below.

Current wording

(2) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets are non-GAAP financial measures that exclude goodwill and other intangibles, net. These financial ratios have been included as management considers them to be useful metrics with which to analyze and evaluate financial condition and capital strength. See section “Non-GAAP Financial Measures” below for a reconciliation of these financial measures.

Previous wording

Management believes that the presentation of these non-GAAP financial measures (a) are important metrics used to analyze and evaluate our financial condition and capital strength and provide important supplemental information that contributes to a proper understanding of our operating performance and trends, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to compare our financial performance to the financial performance of our peers and to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented in the table above.

Current wording

Management believes that the presentation of these non-GAAP financial measures (a) are important metrics used to analyze and evaluate our financial condition and capital strength and provide important supplemental information that contributes to a proper understanding of our operating performance and trends, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to compare our financial performance to the financial performance of our peers and to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our presentation to investors of our performance. However, we acknowledge that these non-GAAP financial measures have a number of limitations. Limitations associated with non-GAAP financial measures include the risk that persons might disagree as to the appropriateness of items comprising these measures and that different companies might calculate these measures differently. These disclosures should not be considered an alternative to our GAAP results. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures is presented in the table below.

Previous wording

Nicolet’s 2023 results were significantly impacted by the first quarter 2023 balance sheet repositioning, which included the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million with the net proceeds used to reduce FHLB borrowings and the remainder held in investable cash. In addition, in July 2023 a new Wisconsin tax law was signed which provided financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on specific loans to existing Wisconsin-based business or agriculture purpose loans. This tax law change to Nicolet moving forward will be a reduction / elimination of State income taxes being expensed; however, it also required a $9.1 million valuation allowance to be established for the State-related deferred tax asset as of the effective date of the legislation. While both provided a drag to 2023 earnings, each also serve as a tailwind for first quarter 2024 and beyond.

Current wording

(2) Includes the gains / (losses) on other assets and investments, as well as the impact of the March 2023 balance sheet repositioning which included the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million, with the net proceeds used to reduce FHLB borrowings and the remainder held in investable cash.

Previous wording

(6) The adjusted net income reconciliation for first and second quarter 2023 is as originally reported, and has not been restated to reflect the $3 million excess tax expense of those quarters that was subsequently reversed in third quarter 2023 due to the Wisconsin tax law change. Thus, the adjusted net income reconciliation for the quarters of 2023 will not sum to the full year impact.

Current wording

(3) In July 2023, a new Wisconsin tax law change was signed which provided financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on specific loans to existing Wisconsin-based business or agriculture purpose loans. The effective tax rate for periods prior to July 1, 2023, effective date of this tax law change, assumed an effective tax rate of 25%, and periods subsequent to the effective date assumed an effective tax rate of 19.5%. The adjusted net income reconciliation for first and second quarter 2023 is as originally reported, and has not been restated to reflect the $3 million excess tax expense of those quarters that was subsequently reversed in third quarter 2023 due to the Wisconsin tax law change. Thus, the adjusted net income reconciliation for the quarters of 2023 will not sum to the full year impact.

Previous wording

Net income reflected certain non-core items and the related tax effect of each, including the first quarter 2023 balance sheet repositioning and third quarter 2023 change in Wisconsin state tax law, as well as gains / (losses) on other assets and investments in all periods. These non-core items positively impacted earnings per diluted common share $0.10 for first quarter 2024 and $0.17 for fourth quarter 2023, and negatively impacted earnings per diluted common share $2.06 for first quarter 2023.

Current wording

Net income reflected non-core items and the related tax effect of each, including the first quarter 2023 balance sheet repositioning and third quarter 2023 change in Wisconsin tax law (as detailed in section Non-GAAP Financial Measures above), as well as gains / (losses) on other assets and investments in all periods. These non-core items positively impacted earnings per diluted common share $0.13 for the six months ended June 30, 2024 and negatively impacted earnings per diluted common share $2.07 for the six months ended June 30, 2023.

Previous wording

•Noninterest income was $19.4 million for first quarter 2024, a $41.3 million favorable change compared to first quarter 2023. Excluding net asset gains (losses), noninterest income for first quarter 2024 was $17.5 million, a $0.9 million increase over first quarter 2023. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

Current wording

•Noninterest income was $39 million for the first six months of 2024, a $44 million favorable change from the comparable 2023 period, primarily due to the first quarter 2023 balance sheet repositioning (noted above). Excluding net asset gains (losses), noninterest income for the first six months of 2024 was $37 million, a $3 million increase over the first six months of 2023. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”

Previous wording

•Noninterest expense was $47.1 million for first quarter 2024, an increase of $2.3 million (5%) over first quarter 2023. Personnel costs increased $2.2 million (9%), while non-personnel expenses combined increased $0.1 million compared to first quarter 2023. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

Current wording

•Noninterest expense was $94 million, $4 million (5%) higher than the first six months of 2023. Personnel costs increased $5 million, while non-personnel expenses combined decreased slightly (1%) from the comparable 2023 period. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”

Previous wording

•At March 31, 2024, loans were $6.4 billion, an increase of $44 million (1%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. For additional information regarding loans, see “BALANCE SHEET ANALYSIS — Loans.”

Current wording

•At June 30, 2024, loans were $6.5 billion, up $175 million from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. On average, loans grew $228 million (4%) over the first six months of 2023. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”

Previous wording

(2)Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.

Current wording

(1)Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.

Previous wording

(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each.

Current wording

(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amount of change in each.

Previous wording

Tax-equivalent net interest income was $63 million for the three months ended March 31, 2024, an increase of $6 million (10%) over the three months ended March 31, 2023. The $6 million increase in tax-equivalent net interest income was attributable to favorable volumes and favorable rates, which added $2 million and $4 million, respectively, to net interest income.

Current wording

Tax-equivalent net interest income was $129 million for the six months ended June 30, 2024, an increase of $12 million (10%) over the six months ended June 30, 2023. The $12 million increase in tax-equivalent net interest income was mostly attributable to favorable rates (which added $18 million to net interest income), partly offset by unfavorable volumes.

Previous wording

Average interest-earning assets decreased $201 million to $7.6 billion from the comparable 2023 period, primarily due to the first quarter 2023 balance sheet repositioning (as discussed in further detail under “Performance Summary” above). Between the comparable three-month periods, average loans increased $197 million (3%), on solid organic loan growth. Average investment securities decreased $624 million between the comparable three-month periods, while other interest-earning assets increased $225 million, with both attributable to the first quarter 2023 balance sheet repositioning. As a result, the mix of average interest-earning assets shifted to 84% loans, 12% investments and 4% other interest-earning assets (mostly cash) for first quarter 2024, compared to 79%, 19% and 2%, respectively, for first quarter 2023.

Current wording

Average interest-earning assets increased $18 million to $7.7 billion over the comparable 2023 period, with solid loan growth partly offset by lower investment securities due to the first quarter 2023 balance sheet repositioning (as discussed in further detail under “Performance Summary” above). Between the comparable six-month periods, average loans increased $228 million (4%), on solid organic loan growth. Average investment securities decreased $404 million between the comparable six-month periods, while other interest-earning assets increased $194 million, with both attributable to the first quarter 2023 balance sheet repositioning. As a result, the mix of average interest-earning assets shifted to 84% loans, 11% investments and 5% other interest-earning assets (mostly cash) for the first half of 2024, compared to 81%, 17% and 2%, respectively, for the first half of 2023.

Previous wording

Average interest-bearing liabilities were $5.5 billion for first quarter 2024, an increase of $119 million (2%) over first quarter 2023. Average interest-bearing core deposits increased $339 million and average brokered deposits increased $114 million between the comparable three-month periods, reflecting growth in higher cost deposit products. Wholesale funding decreased $334 million between the comparable three-month periods, due to the first quarter 2023 balance sheet repositioning. The mix of average interest-bearing liabilities was 85% core deposits, 12% brokered deposits and 3% wholesale funding for first quarter 2024, compared to 80%, 11%, and 9%, respectively, for first quarter 2023.

Current wording

Average interest-bearing liabilities were $5.6 billion for the first half of 2024, an increase of $283 million (5%) over the first half of 2023. Average interest-bearing core deposits increased $363 million and average brokered deposits increased $152 million between the comparable six-month periods, reflecting growth in higher cost deposit products. Wholesale funding decreased $232 million between the comparable six-month periods, mostly due to the repayment of FHLB borrowings as part of the first quarter 2023 balance sheet repositioning. The mix of average interest-bearing liabilities was 84% core deposits, 14% brokered deposits and 2% wholesale funding for the first half of 2024, compared to 81%, 11%, and 8%, respectively, for the first half of 2023.

Previous wording

The interest rate spread increased 24 bps between the comparable three-month periods, as the repricing of liabilities has slowed (with fewer interest rate increases during 2023 and none in 2024), while new and renewed loans continue to reprice in a higher interest rate environment. The interest-earning asset yield increased 95 bps to 5.44% for the first three months of 2024, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 70 bps to 5.81% between the comparable three-month periods, largely due to the repricing of new and renewed loans, while the yield on investment securities increased 87 bps to 2.80%. The cost of funds increased 71 bps to 3.01% for first quarter 2024, also reflecting the higher interest rate environment as well as a migration of customer deposits into higher rate deposit products. The contribution from net free funds increased 11 bps, mostly due to the higher value in the current interest rate environment. As a result, the tax-equivalent net interest margin was 3.26% for first quarter 2024, up 35 bps compared to 2.91% for first quarter 2023.

Current wording

The interest rate spread increased 20 bps between the comparable six-month periods, as the repricing of liabilities has slowed (with fewer interest rate increases during 2023 and none in 2024), while new and renewed loans continue to reprice in a higher interest rate environment. The interest-earning asset yield increased 83 bps to 5.52% for the first six months of 2024, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 67 bps to 5.90% between the comparable six-month periods, largely due to the repricing of new and renewed loans, while the yield on investment securities increased 82 bps to 2.89%. The cost of funds increased 63 bps to 3.05% for the first half of 2024, also reflecting the higher interest rate environment as well as a migration of customer deposits into higher rate deposit products. The contribution from net free funds increased 9 bps, mostly due to the higher value in the current interest rate environment. As a result, the tax-equivalent net interest margin was 3.31% for the first half of 2024, a 29 bps increase over 3.02% for the first half of 2023.

Previous wording

Tax-equivalent interest income was $105 million for first quarter 2024, up $17 million from the comparable period of 2023, comprised of $3 million higher volumes and $14 million higher average rates. Interest income on loans increased $15 million over first quarter 2023, due to higher rates from the rising interest rate environment, as well as solid loan growth. Interest expense increased to $41 million for first quarter 2024, up $11 million compared to first quarter 2023, mostly due to a higher cost of funds.

Current wording

Tax-equivalent interest income was $214 million for the first half of 2024, up $33 million from the comparable period of 2023, comprised of $34 million higher average rates, partly offset by $1 million lower volume. Interest income on loans increased $29 million over the first half of 2023, mostly due to higher rates from the rising interest rate environment, as well as solid loan growth. Interest expense increased to $85 million for the first half of 2024, up $21 million compared to the first half of 2023, mostly due to a higher cost of funds, as well as growth in deposits.

Previous wording

The provision for credit losses was $0.8 million for the three months ended March 31, 2024 (entirely related to the ACL-Loans), compared to $3.1 million for the three months ended March 31, 2023 (comprised of $0.8 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). The provision for credit losses on loans was attributable to growth and changes in the underlying loan portfolio, while the 2023 provision for credit losses on securities AFS was due to the expected loss on a bank subordinated debt investment which was fully charged-off during first quarter 2023.

Current wording

The provision for credit losses was $2.1 million for the six months ended June 30, 2024 (entirely related to the ACL-Loans), compared to $3.5 million for the six months ended June 30, 2023 (comprised of $1.2 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). The provision for credit losses on loans was attributable to growth and changes in the underlying loan portfolio, while the 2023 provision for credit losses on securities AFS was due to the expected loss on a bank subordinated debt investment which was fully charged-off during first quarter 2023.

Previous wording

Noninterest income was $19.4 million for the first three months of 2024, a favorable change of $41.3 million compared to the first three months of 2023, primarily due to the 2023 balance sheet repositioning. Excluding net asset gains (losses), noninterest income for the first three months of 2024 was $17.5 million, a $0.9 million (5%) increase over the comparable period in 2023.

Current wording

Noninterest income was $39.0 million for the first six months of 2024, a favorable change of $44.0 million compared to the first six months of 2023, primarily due to the 2023 balance sheet repositioning. Excluding net asset gains (losses), noninterest income for the first six months of 2024 was $36.5 million, a $2.7 million (8%) increase over the comparable period in 2023.

Previous wording

Wealth management fee income was $6.5 million, up $1.0 million (18%) from the first three months of 2023, on growth in accounts and assets under management (up 8% from year-end 2023), including favorable market-related changes.

Current wording

Wealth management fee income was $13.2 million, up $1.8 million (16%) from the first six months of 2023, on growth in accounts and assets under management, including favorable market-related changes.

Previous wording

Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSR”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any. Net mortgage income of $1.4 million, decreased $0.1 million (7%) between the comparable three-month periods, due to changes in the MSR valuation (first quarter 2023 included a $0.5 million recovery to the MSR valuation versus none in first quarter 2024), partly offset by higher secondary market volumes and the related gains on sales. See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the MSR asset.

Current wording

Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSR”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any. Net mortgage income of $4.0 million, increased $0.7 million (22%) between the comparable six-month periods, mostly due to higher secondary market volumes and the related gains on sales, partly offset by changes in the MSR valuation (first half 2023 included a $0.5 million recovery to the MSR valuation versus none in first half 2024). See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the MSR asset.

Previous wording

Other income of $2.4 million for the three months ended March 31, 2024 was up $0.6 million from the comparable 2023 period, largely due to card incentive income.

Current wording

Other income of $4.3 million for the six months ended June 30, 2024 was up $0.6 million from the comparable 2023 period, largely due to card incentive income.

Previous wording

Net asset gains of $1.9 million for the first three months of 2024 were primarily attributable to a $1.0 million gain on sale of an investment security and $0.9 million gain on the early extinguishment of Nicolet subordinated notes, while net asset losses of $38.5 million for the first three months of 2023 were primarily attributable to losses on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities as part of a balance sheet repositioning.

Current wording

Net asset gains of $2.5 million for the first six months of 2024 were primarily attributable to gains of $1.6 million on sales of investments and $0.9 million gain on the early extinguishment of Nicolet subordinated notes, while net asset losses of $38.8 million for the first six months of 2023 were primarily attributable to losses on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities as part of a balance sheet repositioning.

Previous wording

Noninterest expense was $47.1 million, an increase of $2.3 million (5%) over the first three months of 2023. Personnel costs increased $2.2 million (9%), while non-personnel expenses combined increased $0.1 million compared to the first three months of 2023.

Current wording

Noninterest expense was $94.0 million, an increase of $4.2 million (5%) over the first six months of 2023. Personnel costs increased $4.6 million (9%), while non-personnel expenses combined decreased $0.4 million (1%) compared to the first six months of 2023.

Previous wording

Personnel expense was $26.5 million for the three months ended March 31, 2024, an increase of $2.2 million from the comparable period in 2023. Salary expense increased $1.0 million (5%) over the first three months of 2023, reflecting merit increases between the years, higher incentives commensurate with current period earnings, and a slightly larger employee base (with average full-time equivalent employees up 1%). Fringe benefits increased $1.2 million over the first three months of 2023, mostly due to higher overall health care expenses. Salary expense was also impacted by the change in the fair value of nonqualified deferred compensation plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the nonqualified deferred compensation plan assets.

Current wording

Personnel expense was $52.8 million for the six months ended June 30, 2024, an increase of $4.6 million from the comparable period in 2023. Salary expense increased $2.5 million (6%) over the first six months of 2023, reflecting merit increases between the years, higher incentives commensurate with current period earnings, and a slightly larger employee base (with average full-time equivalent employees up 1%). Fringe benefits increased $2.1 million over the first six months of 2023, mostly due to higher overall health care expenses. Salary expense was also impacted by the change in the fair value of nonqualified deferred compensation plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the nonqualified deferred compensation plan assets.

Previous wording

Data processing expense was $4.3 million, up $0.3 million (7%) between the comparable three-month periods, mostly due to volume-based increases in core, brokerage, and card processing charges.

Current wording

Data processing expense was $8.6 million, up $0.3 million (4%) between the comparable six-month periods, mostly due to volume-based increases in core and brokerage processing charges.

Previous wording

Intangibles amortization decreased $0.3 million between the comparable three-month periods due to lower amortization from the aging intangibles.

Current wording

Intangibles amortization decreased $0.6 million between the comparable six-month periods due to lower amortization from the aging intangibles.

Previous wording

Other expense was $2.4 million, down $0.4 million (13%) between the comparable three-month periods, mostly due to lower professional fees.

Current wording

Other expense was $5.2 million, down $0.5 million (9%) between the comparable six-month periods, mostly due to lower professional fees.

Previous wording

Income tax expense was $6.5 million (effective tax rate of 19.1%) for the first three months of 2024, compared to income tax benefit of $4.2 million (effective tax rate of 32.0%) for the comparable period of 2023. The change in income tax was mostly due to the first quarter 2023 pretax loss, and also reflects the lower effective tax rate beginning in the second half of 2023 related to the Wisconsin tax law change noted above in the “Performance Summary” section.

Current wording

Income tax expense was $14.0 million (effective tax rate of 19.7%) for the first six months of 2024, compared to income tax expense of $3.7 million (effective tax rate of 21.2%) for the comparable period of 2023. The change in income tax was mostly due to the lower pretax earnings in 2023, and also reflects the lower effective tax rate beginning in the second half of 2023 related to the Wisconsin tax law change noted above in the “Performance Summary” section.

Previous wording

At March 31, 2024, period end assets were $8.4 billion, down slightly ($22 million) from December 31, 2023, mostly lower cash balances, partly offset by growth in loans. Total loans increased $44 million (1%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. Total deposits of $7.2 billion at March 31, 2024, decreased $32 million from December 31, 2023, mostly noninterest-bearing demand deposits. Total stockholders’ equity was $1.1 billion at March 31, 2024, an increase of $25 million over December 31, 2023, with earnings partly offset by the quarterly dividend payment.

Current wording

At June 30, 2024, period end assets were $8.6 billion, an increase of $88 million (1.0%) from December 31, 2023, mostly from solid growth in loans, partly offset by lower cash balances. Total loans increased $175 million (3%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. Total deposits of $7.2 billion at June 30, 2024, increased $43 million from December 31, 2023, with growth in time and money market deposits partly offset by lower noninterest-bearing demand deposits. Total stockholders’ equity was $1.1 billion at June 30, 2024, an increase of $52 million over December 31, 2023, with strong earnings partly offset by the quarterly dividend payment.

Previous wording

Compared to March 31, 2023, assets increased $254 million (3%), with growth in loans and cash balances partly offset by investment securities maturities and paydowns. Total loans increased $174 million (3%), primarily in residential mortgage and agricultural loans, while total deposits increased $237 million from March 31, 2023, with growth in time and money market deposits partly offset by lower noninterest-bearing demand deposits. Stockholders’ equity increased $102 million from March 31, 2023, with solid net income and favorable net fair value investment changes partly offset by dividend payments.

Current wording

Compared to June 30, 2023, assets increased $74 million (1%), with growth in loans partly offset by investment securities maturities and paydowns, as well as lower cash balances. Total loans increased $306 million (5%), primarily in residential mortgage and agricultural loans, while total deposits increased $42 million from June 30, 2023, with growth in time and money market deposits partly offset by lower noninterest-bearing demand deposits. Stockholders’ equity increased $114 million from June 30, 2023, with solid net income and favorable net fair value investment changes partly offset by dividend payments.

Previous wording

Total loans of $6.4 billion at March 31, 2024, increased $44 million (1%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. At March 31, 2024, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 20% of the total portfolio, followed by agricultural and CRE investment at 19% and 18%, respectively, of the loan portfolio. The loan portfolio is widely diversified and included the following industries: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the industry distribution of our commercial loan portfolio at March 31, 2024.

Current wording

Total loans of $6.5 billion at June 30, 2024, increased $175 million (3%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. At June 30, 2024, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 21% of the total portfolio, followed by agricultural and CRE investment at 19% and 18%, respectively, of the loan portfolio. The loan portfolio is widely diversified and included the following industries: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the industry distribution of our commercial loan portfolio at June 30, 2024.

Previous wording

The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the overall appropriateness of the ACL-Loans, management applies an allocation methodology which focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonaccrual loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and (x)

Current wording

The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the overall appropriateness of the ACL-Loans, management applies an allocation methodology which focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonaccrual loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect expected credit losses. Assessing these numerous factors involves significant judgment; therefore, management considers the ACL-Loans a critical accounting estimate.

Previous wording

At March 31, 2024, the ACL-Loans was $64 million (representing 1.01% of period end loans), minimally changed from $64 million (or 1.00% of period end loans) at December 31, 2023 and up from $62 million (or 1.00% of period end loans) at March 31, 2023. The components of the ACL-Loans are detailed further in Table 8 below.

Current wording

At June 30, 2024, the ACL-Loans was $65 million (representing 1.00% of period end loans), compared to $64 million (or 1.00% of period end loans) at December 31, 2023 and $63 million (or 1.01% of period end loans) at June 30, 2023. The components of the ACL-Loans are detailed further in Table 8 below.

Previous wording

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans and loans 90 days or more past due but still accruing interest. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately. Nonperforming assets include nonperforming loans and other real estate owned (“OREO”). At March 31, 2024, nonperforming assets were $28 million and represented 0.33% of total assets, unchanged from December 31, 2023, and down from $41 million or 0.50% of total assets at March 31, 2023.

Current wording

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans and loans 90 days or more past due but still accruing interest. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately. Nonperforming assets include nonperforming loans and other real estate owned (“OREO”). At June 30, 2024, nonperforming assets were $29 million and represented 0.34% of total assets, compared to $28 million or 0.33% of total assets at December 31, 2023, and $27 million or 0.32% of total assets at June 30, 2023.

Previous wording

Deposits represent Nicolet’s largest source of funds, which provide a stable and lower-cost funding source. Deposit levels may be impacted by competition with other bank and nonbank institutions, as well as with a number of non-deposit investment alternatives available to depositors. Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher rate deposit products or non-deposit investment alternatives.

Current wording

Deposits represent Nicolet’s largest source of funds, and provide a stable, lower-cost funding source. Deposit levels may be impacted by competition with other bank and nonbank institutions, as well as with a number of non-deposit investment alternatives available to depositors. Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher rate deposit products or non-deposit investment alternatives.

Previous wording

Total deposits of $7.2 billion at March 31, 2024, decreased $32 million from December 31, 2023, mostly noninterest-bearing demand deposits from seasonal trends as well as some migration to higher rate deposit products. Core deposit balances of $6.4 billion at March 31, 2024, decreased $200 million from December 31, 2023, while brokered deposits increased $168 million. Compared to March 31, 2023, total deposits increased $237 million, the net of a $260 million increase in brokered deposits and a $23 million decrease in core deposits. The deposit composition is presented in Table 10 below.

Current wording

Total deposits of $7.2 billion at June 30, 2024, increased $43 million from December 31, 2023, with growth in money market and time deposits, partly offset by lower noninterest-bearing demand deposits from seasonal trends as well as some migration to higher rate deposit products. Core deposit balances of $6.4 billion at June 30, 2024, decreased $149 million from December 31, 2023, while brokered deposits increased $192 million. Compared to June 30, 2023, total deposits increased $42 million, the net of a $68 million increase in brokered deposits and a $26 million decrease in core deposits. The deposit composition is presented in Table 10 below.

Previous wording

Total estimated uninsured deposits were $2.1 billion (representing 29% of total deposits) at March 31, 2024, unchanged from $2.1 billion (representing 29% of total deposits) at December 31, 2023.

Current wording

Total estimated uninsured deposits were $2.1 billion (representing 30% of total deposits) at June 30, 2024, compared to $2.1 billion (representing 29% of total deposits) at December 31, 2023.

Previous wording

Liquidity management refers to the ability to ensure that adequate liquid funds are available to meet the current and future cash flow obligations arising in the daily operations of the Company. These cash flow obligations include the ability to meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to stockholders (if any), and satisfy other operating expenses. The Company’s most liquid assets are cash and due from banks and interest-earning deposits, which totaled $427 million and $491 million at March 31, 2024 and December 31, 2023, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.

Current wording

Liquidity management refers to the ability to ensure that adequate liquid funds are available to meet the current and future cash flow obligations arising in the daily operations of the Company. These cash flow obligations include the ability to meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to stockholders (if any), and satisfy other operating expenses. The Company’s most liquid assets are cash and due from banks and interest-earning deposits, which totaled $409 million and $491 million at June 30, 2024 and December 31, 2023, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.