NICOLET BANKSHARES INC
For the period ended Dec 31, 2024. Filed Feb 25, 2025.
View on SEC.govAbout this filing
A company's yearly report to the SEC, with audited financial statements. It is the fullest account a company gives of its business, its finances and the risks it sees.
FY2024 · Filed Feb 25, 2025
NIC$173.12+0.2%Stored close · as of Nov 6, 2026
What changed in Management’s Discussion and Analysis?
Read the current filingPrevious report: 10-K
Period ended 2023-12-31; filed 2024-02-28.
0001174850-24-000010
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsCurrent report: 10-K
Period ended 2024-12-31; filed 2025-02-25.
0001174850-25-000008
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of OperationsThe baseline is this issuer’s latest earlier reporting period of the same form that was filed before the current report. A previous 10-Q is a different quarter, not a year-over-year comparison. Amendments are excluded.
Compared 147 previous paragraphs and 144 current paragraphs.
74 unchanged; 56 reworded; 12 added; 15 removed; 2 previous and 2 current paragraphs rearranged.
Tables are not compared: 17 previous and 18 current tables excluded. Dates, whitespace, punctuation and numbering changes are ignored; changes to financial figures remain significant.
A changed paragraph is not evidence that risk increased or decreased. An unchanged paragraph does not establish that risk stayed the same.
Added paragraphs (12)
Current report
The U.S. economy proved to be quite resilient in 2024 with real GDP growth likely to come in around 2.5%, which defied all economic forecasts heading into the year. The primary drivers were overall employment remained quite strong, incomes continued to rise, consumer spending was robust, and productivity momentum continued. After many years of talk around a “hard landing,” or “soft landing,” it appears the Federal Reserve managed to hit the sweet spot of “no landing” as economic forecasts heading into 2025 show a continuation of these positive trends.
Current report
The Federal Reserve began to loosen its monetary policy during the year in an attempt to slow inflation. After a short period of sharp increases in interest rates in 2022 and 2023, the Fed cut rates by 50 bps in September, which was followed by two 25 bps cuts in November and December 2024. The decrease in rates appeared to have their intended effect, as inflation has come down from the mid-single digits in the beginning of the year, to 2.8% to close out the year in December. As inflation remains above the Fed’s 2% target, the market appears to believe rates may remain “higher for longer” until inflation drops closer to this level. As such, in early 2025, the market is expecting two 25bps rate cuts during the year. Furthermore, other economic indicators point to a slowing, but strong macroeconomic environment in 2025. Unemployment is expected to tick up, but remain below 5%. Consumer and business spending may slow, but still remain relatively strong despite higher interest rates. And productivity gains are expected to continue as new developments in AI and other technologies challenge businesses on how they invest for the future. Despite these tailwinds, there are several unknowns of a new administration that provide some level of economic uncertainty. While the general belief is this administration is more business friendly, and will usher in ideas that will increase business investment and growth (such as lower taxes, fewer regulations, and a more friendly M&A environment), there are others that leave questions on their effects (such as tariffs, trade policy, and mass deportations).
Current report
For the first time in several years, the outlook for the U.S. banking industry turned bullish. Immediately after the November 2024 elections, U.S. bank stocks jumped more than 10% the following day as investors believe the new administration would usher in policies that mean more bank M&A, and the fear of significant credit losses from commercial real estate began to subside. While bank stocks remain somewhat volatile given several moves made by the new administration, the overall mood has improved in the banking space. Banks will likely experience higher credit losses in 2025 than in prior years; however, they will likely be focused around certain banks that have higher CRE concentrations, or that lend in large urban markets (neither of which describe Nicolet). However, all banks look to benefit from regulatory reform that should lower costs throughout the industry. Additionally, bank M&A is expected to pick up after several years of tepid deal activity.
Current report
Nicolet’s Board and executive management see 2025 as a year of optionality for the Company. Nicolet came off of a record year of core earnings, capital levels have rebounded, and asset quality remains strong. Additionally, our commercial customers across our footprint continue to perform well, as they have shown remarkable resilience in the face of inflationary and employment pressures. There remains a general sense of cautious optimism across our markets. The potential pro-growth policies of the new presidential administration likely changed the outlook of the banking industry for the better. While still very early, the general feeling is that of less regulation, which could lead to higher revenues and more M&A in the industry. Additionally, fewer regulations and potential tax reform could spark growth and investment across small and medium sized businesses, which could benefit all community banks, including Nicolet. While there is some concern around how certain policies, namely higher tariffs and immigration, could negatively impact certain industries in our markets – specifically the dairy sector – it remains too early to forecast the extent at this point.
Current report
Nicolet’s optionality could take many forms, largely due to its healthy capital levels and continued strong earnings. The priorities, in no particular order, largely center on (1) funding organic growth, (2) M&A, (3) share repurchases, and (4) increased dividends. Organic growth, that is, growing by one customer at a time, has always been the bread and butter of Nicolet’s core strategy. The Company grew to roughly $750 million in its first 10 years through entirely organic means. As such, it remains very much in its DNA to continue this strategy. However, as economic and population growth in our core markets typically is only 1-3% each year, growing significantly more than these levels through organic means likely involves taking on more risk, being overly aggressive on interest rates, or both. Since Nicolet has typically avoided both of those organic growth strategies, management believes it can easily fund organic growth in the low-to-mid single digits, while continuing to build capital.
Current report
M&A has been a part of the core growth strategy of Nicolet since 2012. In early 2024, we were optimistic that we would have announced a merger at some point during the year. And while we had a number of conversations with potential partners, nothing materialized beyond high level discussions. Higher interest rates continue to make the accounting math behind M&A challenging, especially with those banks that have elevated levels of unrealized losses in their investment portfolios. Additionally, at $8.8 billion in assets, we remain thoughtful in the size of bank we may partner with as the $10 billion asset threshold looms, as does the new regulations that come with it. We still remain hopeful that we are able to announce an acquisition in 2025; however, any potential deal has to make financial and strategic sense for us, as well as make the overall company better. We are committed to not grow through acquisition just for the sake of it.
Current report
Share repurchases and increased dividends likely remain on the table for 2025. After nearly an 18-month hiatus, Nicolet begin repurchasing its own stock again in late 2024. Executive management and the Board determined robust capital levels and valuations warranted the repurchase of our own shares, as it reduces our share count and thereby increases earnings per share, all else equal. This activity continued into the first quarter of 2025, and will be continuously evaluated depending on the strategic priorities the Board and executive management see in front of them at the time. Likewise, the Board will assess the level of the $0.28 per share quarterly dividend at the May meeting as it did in 2024. In 2024, the Board increased the dividend $0.03 per share, or 12%.
Current report
Regardless of what strategic levers Nicolet’s Board and executive management decide to pull in 2025, the focus will remain on running a highly-profitable company that matters to its key constituents: customers, shareholders, and employees. The ultimate goal is to produce profitability metrics and shareholder returns that place us in the top quartile, if not top decile, of our peers. While Nicolet accomplished that in 2024, management understands the slate is wiped clean each year, and that it takes the efforts of our more than 950 employees to reproduce those results each year.
Current report
Note: Numbers may not sum due to rounding.
Current report
•Service charges on deposit accounts were $7 million, up $1 million (20%) over 2023, on growth in both accounts and account analysis fees.
Current report
•Occupancy, equipment and office expense was $35 million for 2024, down $1 million (3%) from 2023, due to lower occupancy expense and timing of supply purchases.
Current report
Total deposits were $7.4 billion at December 31, 2024, a $206 million (3%) increase over year-end 2023, with growth in money market and time deposits, partly offset by lower noninterest-bearing demand deposits. In addition, deposits continue to migrate to higher rate deposit products, and there has been a targeted shift to brokered funding to support loan growth.
Removed paragraphs (15)
Previous report
For 2023, economic growth was stronger than expected, driven by spending within the consumer sector. The labor market remained strong with competitive compensation and low unemployment putting pressure on business profit margins, as the higher payroll costs outpaced increases in revenue. Consumer spending was stronger than expected with continued demand for goods and services; however, consumer sentiment showed some indications of slowing near the end of the year from mounting pressures of higher interest rates, declining savings, rising cost of food and energy, and increasing credit card debt.
Previous report
The Federal Reserve tightened monetary policy to combat inflation by aggressively raising interest rates from a target range of 0.00%-0.25% in early March 2022 to 5.25%-5.50% at the end of 2023, and inflation did slow from the start of the year. Given the decreasing inflationary pressures, the Federal Reserve is likely finished with raising interest rates, and expectations are currently high that the Federal Reserve may cut rates beginning in mid-2024. Current projections are also indicating no recession for 2024 or 2025. However, short-term market risks could change the current outlook (e.g., if the Fed rate cuts do not happen as quickly as expected, a slow growth economy is vulnerable to external shocks, and corporate earnings growth is likely to prove disappointing).
Previous report
These ongoing macroeconomic challenges and uncertainties fueled additional concerns within the banking sector. During first quarter 2023, the banking industry experienced significant volatility with high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking system. The banking world continues to experience challenges from tightening credit conditions, indications of declining asset quality, slowing economic demand, interest rate risk management, and potential for higher capital requirements, which further complicates the current economic outlook. In addition, the ongoing geopolitical issues have the potential for further economic disruptions.
Previous report
Nicolet’s 2023 results were also impacted by the Wisconsin State Budget signed in July 2023 and retroactive to January 1, 2023, which included language that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on loans to existing Wisconsin-based business or agriculture purpose loans that are $5 million or less in balance on January 1, 2023, and to new loans that meet the criteria. The impact of this tax law change to Nicolet moving forward will be a reduction / elimination of State income taxes being expensed, resulting in an estimated effective tax rate of 19.5% (compared to a 25% effective tax rate previously). However, the elimination of State income tax expense also required a valuation allowance to be established for the State-related deferred tax asset as of the effective date of the legislation, and a one-time $9.1 million charge to state income tax expense was recognized in third quarter to establish this valuation allowance.
Previous report
After an unpredictable and volatile year for the banking industry in 2023, Nicolet is well positioned heading into 2024. Due to several strategic moves made during the past year, including the large balance sheet repositioning in March, as well as additional smaller securities and noncore investment sales during the year, Nicolet’s strong financial performance to close out the year provides for ample flexibility to assess and take advantage of opportunities that may arise in 2024 and beyond. Despite a difficult start to 2023, Nicolet’s core profitability improved each quarter during the year, which was led by a gradual improvement in the net interest margin. This contrasts with much of the banking industry, as many banks faced a decline in profitability due to higher funding costs and depressed margins. While Nicolet’s funding costs also continued to rise throughout much of 2023, its yield on its loan portfolio and earning assets grew at a faster pace as its largely fixed rate loan portfolio slowly repriced. Heading into 2024, the expectation is that the quarterly net interest margin will continue to improve, albeit at a slower pace that in 2023. Additionally, the outlook for interest rates has also changed with the Federal Reserve pausing rate hikes in the latter half of 2023 and signaling potential interest rate cuts beginning in mid-2024. Nicolet’s forecast for improved margin and higher net income during 2024 is largely agnostic to unchanged or a slight decline in interest rates. However, like the uncertainty caused by a rapid increase in rates from 2022 to 2023, additional uncertainty would remain should the Federal Reserve need to lower rates at a rapid pace.
Previous report
This past year was unique as it was the first full year since 2018 where Nicolet didn’t announce or close an acquisition. As an acquisitive organization, Nicolet is routinely involved in some stage of an acquisition at most times. However, 2023 presented some unique challenges to the bank M&A market, but also allowed the Board and executive management to take a much-needed “time out” from its acquisition strategy. First, the overall banking market was not conducive to M&A. The combination of a volatile stock market, and thus bank valuations, as well as the mark-to-market accounting challenges posed by a rapid increase in interest rates led to the slowest bank M&A year in decades. Additionally, the minor banking crisis that befell the industry in the Spring of 2023 also contributed to many banks focusing more on making internal investments, finding efficiencies, and strategic financial repositioning rather than the unique challenges of M&A. This self-imposed pause on M&A and inward focus was especially true at Nicolet, and came at a beneficial time as we were coming off back-to-back-to-back acquisitions of $1.0+ billion in asset banks in 2021 and 2022. Nicolet more than doubled in size since the end of 2019, and grew its employee base by more than 75% since 2020. Taking a pause from acquisitive growth allowed the Board and senior management the opportunity to conduct an in-depth review of the organization. The result was greater efficiency in, and the elimination of duplicative processes, roles, and systems. It also allowed Nicolet the opportunity to prepare for the near future, including the ability to eclipse the $10 billion asset threshold.
Previous report
Nicolet is poised to take advantage of opportunities in 2024. While much uncertainty remains, including significant geopolitical risks, continued inflationary pressures (albeit more muted), a weakening economy, and a pivotal election year, the banking industry is likely to experience continued volatility in 2024. However, as it relates to Nicolet, the Board and management remain optimistic for its near-term outlook. As we closed out 2023, we recorded the highest core net income quarter in Nicolet’s history, the net interest margin showed strong support during the last quarter, we ended the year with a tangible common equity ratio of nearly 8.0%, and asset quality remained remarkably resilient owing to the quality of the customers we serve in a lower-risk, more stable market of the Upper Midwest. Additionally, our share price outperformed most bank indices during the year, and we were able to maintain the well-deserved market premium in our valuation. All of these factors, coupled with a more favorable bank M&A environment potentially mean a return to M&A for Nicolet during 2024. While M&A discussions remain high level, and the Board remains highly selective in its potential targets, we are hopeful 2024 presents more opportunities to complement our sustained organic growth with highly accretive M&A. However, the Board and management plan to remain disciplined with pricing, as well as which geographical markets we may enter or expand in. Additionally, as an $8.5 billion asset bank, the size of the target is of utmost importance. Targeting a bank that is too small potentially creates a high opportunity cost by missing on a bank that is of more strategic importance to Nicolet. Additionally, acquiring a target that places Nicolet at or just over the $10 billion threshold also is much less appealing than slower organic growth. As such, while we may have regained our appetite for bank M&A, our list of potential M&A partners remains smaller than in the past. In the meantime, the Board expects to remain diligent as to how it allocates shareholder capital, whether it be through organic growth, M&A, share repurchases, an increase to the shareholder dividend, or most likely, some combination of the four.
Previous report
Tax-equivalent interest income was $385 million, up $109 million (40%) over 2022, comprised of $46 million higher volumes and $63 million higher average rates (mostly in the loan portfolio). Interest income on loans increased $98 million (40%) over 2022, due to higher average balances from the Charter acquisition and solid loan growth, as well as higher rates from the rising interest rate environment. Interest expense was $141 million for 2023, a $107 million increase over 2022, mostly due to a much higher cost of funds. Interest expense on deposits increased $104 million from 2022 due to the rising interest rate environment and the migration of customer deposits into higher rate deposit products.
Previous report
•Loan servicing rights (“LSR”) income includes agricultural loan servicing fees net of the related LSR amortization. LSR income increased $6 million over 2022 mostly due to lower amortization from the much slower prepayment speeds in the higher interest rate environment. See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the LSR asset.
Previous report
•Occupancy, equipment and office expense was $36 million for 2023, up $7 million (22%) from 2022, largely due to the expanded branch network with the Charter acquisition, as well as additional expense for software and technology solutions.
Previous report
•Other expense was$11 million for 2023, an increase of$2 million (17%) over 2022, mostly due to higher professional fees.
Previous report
Total deposits were $7.2 billion at December 31, 2023, up slightly ($19 million) over year-end 2022, and included a shift to higher rate deposit products (mostly to money market and time deposits).
Previous report
Business Combinations and Valuation of Loans Acquired in Business Combinations
Previous report
We account for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities, where it was not possible to estimate the acquisition date fair value upon consummation. Management finalizes the fair values of acquired assets and assumed liabilities within this 12-month period and management currently considers such values to be the Day 1 Fair Values for the acquisition transactions.
Previous report
In particular, the valuation of acquired loans involves significant estimates and assumptions based on information available as of the acquisition date. Loans acquired in a business combination are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.
Reworded paragraphs (56)
Previous wording
The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 and 2021 acquisitions. Nicolet acquired Charter Bankshares, Inc. (“Charter”) on August 26, 2022, County Bancorp, Inc. (“County”) on December 3, 2021, and Mackinac Financial Corporation (“Mackinac”) on September 3, 2021. Certain income statement results, average balances and related ratios for 2022 include partial contributions from Charter, while 2021 results include partial contributions from County and Mackinac, each from the respective acquisition date. Additional information on Nicolet’s recent acquisition activity is included in Note 2, “Acquisitions” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Current wording
The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 acquisition of Charter Bankshares, Inc. (“Charter”) on August 26, 2022. Certain income statement results, average balances and related ratios for 2022 include Charter contributions from the acquisition date. Additional information on Nicolet’s recent acquisition activity is included in Note 2, “Acquisition” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous wording
Net income for the year ended December 31, 2023 was $62 million and earnings per diluted common share was $4.08, compared to net income of $94 million and earnings per diluted common share of $6.56 for 2022. Net income for both years reflected non-core items and the related tax effect of each, including the first quarter U.S. Treasury securities sale loss (balance sheet repositioning), the change in Wisconsin state tax law during third quarter, gain on sale of Nicolet’s member interest in UFS, LLC, expected loss (provision expense) on a bank subordinated debt investment, an early contract termination charge, Day 2 credit provision expense required under the CECL model, merger-related expenses, branch optimization costs, as well as gains (losses) on other assets and investments. For the full year, non-core items negatively impacted diluted earnings per common share $2.64 for 2023 and $0.34 for 2022.
Current wording
Net income for the year ended December 31, 2024 was $124 million and earnings per diluted common share was $8.05, compared to net income of $62 million and earnings per diluted common share of $4.08 for 2023. 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 detailed in Table 1 below), as well as gains / (losses) on other assets and investments in all periods. For the full year, non-core items positively impacted diluted earnings per common share $0.22 for 2024 and negatively impacted diluted earnings per common share $2.64 for 2023.
Previous wording
At December 31, 2023, Nicolet had total assets of $8.5 billion, a decrease of $295 million (3%) from December 31, 2022. Total loans of $6.4 billion at December 31, 2023 increased $173 million (3%) from December 31, 2022, with strong organic loan growth. Total deposits of $7.2 billion increased slightly ($19 million) from December 31, 2022, while total borrowings decreased $375 million. Total stockholders’ equity was $1.0 billion at December 31, 2023, an increase of $66 million since December 31, 2022, mostly due to solid earnings, partly offset by payment of a quarterly common stock dividend (beginning in second quarter 2023).
Current wording
At December 31, 2024, Nicolet had total assets of $8.8 billion, an increase of $328 million (4%) from December 31, 2023. Total loans of $6.6 billion at December 31, 2024 increased $273 million (4%) from December 31, 2023, while total deposits of $7.4 billion increased $206 million (3%) from December 31, 2023. Total stockholders’ equity was $1.2 billion at December 31, 2024, an increase of $134 million since December 31, 2023, with solid earnings, stock option exercises, and improvement in the securities portfolio market valuation, partly offset by payment of the quarterly common stock dividend and common stock repurchases.
Previous wording
Nonperforming assets were $28 million and represented 0.33% of total assets at December 31, 2023, compared to $40 million or 0.46% at year-end 2022. The allowance for credit losses-loans increased to $64 million (1.00% of loans) at December 31, 2023, compared to $62 million (1.00% of loans) at December 31, 2022.
Current wording
Nonperforming assets were $29 million and represented 0.33% of total assets at December 31, 2024, compared to $28 million or 0.33% at year-end 2023. The allowance for credit losses-loans was $66 million (1.00% of loans) at December 31, 2024, compared to $64 million (1.00% of loans) at December 31, 2023.
Previous wording
(2) The adjusted net income measure and related reconciliation provide information useful to investors in understanding the operating performance and trends of Nicolet and also to aid investors in the comparison of Nicolet’s financial performance to the financial performance of peer banks.
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 Nicolet’s 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
(1) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets exclude goodwill and other intangibles, net. These non-GAAP financial ratios have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength.
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 non-GAAP financial ratios have been included as management considers them to be useful metrics 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, 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, 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
(3) Provision expense for 2023 is attributable to the expected loss on a bank subordinated debt investment, and the provision expense for 2022 and 2021 is attributable to the Day 2 allowance from acquisition transactions.
Current wording
(1) Provision expense for 2023 is attributable to the expected loss on a bank subordinated debt investment, and the provision expense for 2022 is attributable to the Day 2 allowance from an acquisition transaction.
Previous wording
2023 was not the year we thought it would be, but we certainly made the most of the year it became. Nicolet saw strong loan growth, solid growth in fee income, resilience in our credit quality, and a continued increase in quarterly net interest margin (increasing from a low of 2.91% for first quarter to 3.30% for fourth quarter), partly from the balance sheet repositioning in first quarter 2023. On March 7, 2023, Nicolet executed 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 to reposition the balance sheet for future growth. The $500 million portfolio yielded approximately 88 bps with scheduled maturities in 2024 and 2025 (or an average duration of 2 years). Proceeds from the sale were used to reduce existing FHLB borrowings with the remainder held in investable cash.
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
(4) The effective tax rate for periods prior to the January 1, 2023, effective date of the Wisconsin tax law change (as detailed further in the Overview section above) assumed an effective tax rate of 25%, and periods subsequent to the effective date assumed an effective tax rate of 19.5%.
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%.
Previous wording
Net interest income is the primary source of Nicolet’s revenue, and is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount, mix and composition of interest-earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies. Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and is used in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. Tables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread, and net interest margin.
Current wording
Net interest income is the primary source of Nicolet’s revenue, and is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and wholesale funding. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount, mix and composition of interest-earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies. Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and is used in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. Tables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread, and net interest margin.
Previous wording
The Federal Reserve raised short-term interest rates a total of 425 bps during 2022, increasing the Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Additional increases totaling 100 bps were made during 2023, resulting in a Federal Funds range of 5.25% to 5.50% as of December 31, 2023.
Current wording
The Federal Reserve raised short-term interest rates a total of 425 bps during 2022, and additional increases totaling 100 bps were made during 2023, resulting in a Federal Funds range of 5.25% to 5.50% as of December 31, 2023. In contrast, the Federal Reserve decreased short-term interest rates a total of 100 bps during the second half of 2024, resulting in a Federal Funds range of 4.25% to 4.50% as of December 31, 2024.
Previous wording
Tax-equivalent net interest income was $244 million for 2023, an increase of $2 million (1%) over 2022. The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $41 million, mostly from the full year impact of the Charter acquisition and loan growth) offset by net unfavorable rates (which decreased net interest income $40 million from higher deposit costs and the lag in repricing the loan portfolio to current market interest rates).
Current wording
Tax-equivalent net interest income was $270 million for 2024, an increase of $26 million (11%) over 2023. The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $22 million) and net favorable rates (which increased net interest income $5 million).
Previous wording
Average interest-earning assets increased to $7.7 billion for 2023, $564 million (8%) higher than 2022, primarily due to the timing of the acquisition of Charter (in August 2022). Average loans increased $1.0 billion (19%) to $6.2 billion, mostly due to the timing of the Charter acquisition (which added loans of $827 million at acquisition) and solid loan growth. Average investment securities decreased $512 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $99 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 81% loans, 15% investment securities, and 4% other interest-earning assets (mostly cash) for 2023, compared to 74%, 23%, and 3%, respectively, for 2022.
Current wording
Average interest-earning assets increased to $7.8 billion for 2024, $112 million (1%) higher than 2023. Average loans increased $271 million (4%) to $6.5 billion, on solid organic loan growth. Average investment securities decreased $226 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $67 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 84% loans, 11% investment securities, and 5% other interest-earning assets (mostly cash) for 2024, compared to 81%, 15%, and 4%, respectively, for 2023.
Previous wording
Average interest-bearing liabilities were $5.3 billion for 2023, an increase of $560 million (12%) from 2022, also primarily due to the timing of the Charter acquisition. Average interest-bearing core deposits increased $430 million and average brokered deposits grew $124 million, reflecting the impact of the Charter acquisition and brokered funding to support the loan growth. Wholesale funding increased $5 million. The mix of average interest-bearing liabilities was 83% core deposits, 11% brokered deposits, and 6% other funding for 2023, compared to 84% core deposits, 10% brokered deposits, and 6% other funding in 2022.
Current wording
Average interest-bearing liabilities were $5.6 billion for 2024, an increase of $286 million (5%) from 2023. Average interest-bearing core deposits increased $292 million and average brokered deposits grew $135 million, reflecting growth in higher cost deposit products and a shift in funding strategy. Wholesale funding decreased $142 million, 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, 13% brokered deposits, and 3% other funding for 2024, compared to 83% core deposits, 11% brokered deposits, and 6% other funding in 2023.
Previous wording
The interest rate spread decreased 80 bps between the periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate environment. The interest-earning asset yield increased 114 bps to 5.02% for 2023, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 84 bps to 5.48% for 2023, largely due to the repricing of new and renewed loans in a rising interest rate environment. The yield on investment securities increased 66 bps to 2.36%, and the yield on other interest-earning assets increased 337 to 5.28%. The cost of funds increased 194 bps to 2.65% for 2023, also reflecting the rising interest rate environment and the migration of customer deposits into higher rate deposit products. The contribution from net free funds increased 58 bps, mostly due to the higher value in a rising interest rate environment. As a result, the net interest margin was 3.18% for 2023, down 22 bps compared to 3.40% for 2022.
Current wording
The interest rate spread increased 26 bps between the years, as the repricing of liabilities slowed, while new and renewed loans continued to reprice in a higher interest rate environment. The interest-earning asset yield increased 64 bps to 5.66% for 2024, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 57 bps to 6.05% for 2024, largely due to the repricing of new and renewed loans, while the yield on investment securities increased 62 bps to 2.98%. The cost of funds increased 38 bps to 3.03% for 2024, also reflecting the rising interest rate environment and the migration of customer deposits into higher rate deposit products. The contribution from net free funds increased 3 bps, mostly due to the higher value in the current interest rate environment. As a result, the net interest margin was 3.47% for 2024, up 29 bps compared to 3.18% for 2023.
Previous wording
The provision for credit losses for 2023 was $5.0 million (comprised of $2.7 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). The 2022 provision for credit losses included $8 million for the required Day 2 ACL increase from the acquisition of Charter, and the remaining increase to support the strong loan growth. Comparatively, the 2021 provision for credit losses was largely due to the required Day 2 ACL increase from the acquisitions of County and Mackinac. Asset quality trends have been solid and net charge-offs were negligible for both years.
Current wording
The provision for credit losses for 2024 was $3.9 million (comprised of $3.8 million related to the ACL-Loans and $0.1 million for the ACL on unfunded commitments). The 2023 provision for credit losses was $5.0 million (comprised of $2.7 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). Comparatively, the 2022 provision for credit losses of $11.5 million was largely due to the required Day 2 ACL increase of $8 million from the acquisition of Charter, as well as solid loan growth. Asset quality trends have been solid and net charge-offs were negligible for all years.
Previous wording
Noninterest income was $36 million for 2023, a decrease of $22 million (38%) from 2022, primarily due to the balance sheet repositioning. Excluding net asset gains (losses), noninterest income for 2023 was $69 million, a $14 million (26%) increase over 2022. Notable contributions to the change in noninterest income were:
Current wording
Noninterest income was $82 million for 2024, an increase of $46 million from 2023, primarily due to the balance sheet repositioning in 2023 (which included the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million). Excluding net asset gains (losses), noninterest income for 2024 was $78 million, a $9 million (13%) increase over 2023. Notable contributions to the change in noninterest income were:
Previous wording
•Wealth management fee income was $24 million for 2023, up $3 million (14%) from 2022, on growth in accounts and assets under management.
Current wording
•Wealth management fee income was $27 million for 2024, up $4 million (16%) from 2023, on growth in accounts and assets under management.
Previous wording
•Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), 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 was $7 million for 2023, down $1 million (16%) between the years, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales. See also “Off-Balance Sheet
Current wording
•Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), 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 was $10 million for 2024, up $3 million (42%) between the years, mostly due to higher secondary market volumes and the related gains on sales. See also “Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous wording
•Card interchange income grew $1 million (12%) to $13 million in 2023 largely due to higher volume and activity.
Current wording
•Card interchange income grew $1 million (5%) to $14 million in 2024 largely due to higher volume and activity.
Previous wording
•BOLI income increased $1 million (18%) to $5 million for 2023, attributable to higher average balances from BOLI acquired with the Charter acquisition.
Current wording
•BOLI income increased $1 million (20%) to $5 million for 2024, attributable to higher average balances from the $11.5 million new BOLI purchased in mid-2024 and improvements in BOLI assets linked to market performance.
Previous wording
•Other income grew $1 million to $8 million for 2023, and included increases in card incentives income, swap fees, crop insurance sales and broker fees, as well as a gain on the early extinguishment of debt.
Current wording
•Other income grew $1 million to $9 million for 2024, and included increases in card incentives income and swap fees.
Previous wording
•Net asset losses of $33 million in 2023 were primarily attributable to losses of $38 million on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities executed in early March as part of a balance sheet repositioning, as well as net losses of $3 million on the sale of certain available for sale securities, partly offset by a $9 million gain on the sale of Nicolet’s member interest in UFS, LLC. Net asset gains in 2022 of $3 million were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations). Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Current wording
•Net asset gains of $4 million in 2024 were primarily attributable to gains of $2 million on the sale of available for sale securities and other investments, $1 million of favorable fair value marks on equity securities, and a $1 million gain on the early extinguishment on Nicolet subordinated notes. Net asset losses of $33 million in 2023 were primarily attributable to losses of $38 million on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities executed in early March as part of a balance sheet repositioning, as well as net losses of $3 million on the sale of certain available for sale securities, partly offset by a $9 million gain on the sale of Nicolet’s member interest in UFS, LLC. Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous wording
Noninterest expense was $186 million, an increase of $25 million (16%) over 2022. Personnel costs increased $10 million (12%), while non-personnel expenses combined increased $15 million (21%) over 2022. Notable contributions to the change in noninterest expense were:
Current wording
Noninterest expense was $191 million, an increase of $5 million (3%) over 2023. Personnel costs increased $9 million (9%), while non-personnel expenses combined decreased $4 million (4%) from 2023. Notable contributions to the change in noninterest expense were:
Previous wording
•Personnel expense was $99 million for 2023, an increase of $10 million (12%) over 2022. Salary expense increased $6 million (9%) over 2022, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up 8%, mostly due to the Charter acquisition), merit increases between the years, and investments in our wealth team, partly offset by lower incentive compensation commensurate with the lower current year earnings. Fringe benefits increased $4 million (32%) over 2022, reflecting higher overall health care expenses as well as the larger employee base. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan.
Current wording
•Personnel expense was $108 million for 2024, an increase of $9 million (9%) over 2023. Salary expense increased $3 million (5%) over 2023, reflecting merit increases between the years, while incentive compensation increased $5 million over 2023, commensurate with current year earnings. Fringe benefits increased $1 million (5%) over 2023. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan.
Previous wording
•Business development and marketing expense was $8 million for 2023, down $1 million (8%) from 2022, largely due to timing and extent of marketing donations, promotions, and media.
Current wording
•Business development and marketing expense was $8 million for 2024, up $1 million (7%) from 2023, on higher marketing (due to donations to support capital campaigns within our communities).
Previous wording
•Data processing expense was $20 million for 2023, up $5 million (37%) over 2022, mostly due to a $3 million early contract termination charge and volume-based increases in core processing charges.
Current wording
•Data processing expense was $18 million for 2024, down $2 million (11%) from 2023, mostly due to a $3 million early contract termination charge incurred in 2023.
Previous wording
•Intangible amortization increased $1 million (22%) between the years, due to higher amortization from the intangibles added with the Charter acquisition.
Current wording
•Intangible amortization decreased $1 million (15%) between the years, due to lower amortization from the aging intangibles.
Previous wording
Income tax expense was $25 million (effective tax rate of 29.0%) for 2023, compared to $31 million (effective tax rate of 25.0%) for 2022. The change in income tax expense was due to lower pretax earnings, and also included a $9 million charge to income tax expense to establish a tax valuation allowance related to the Wisconsin tax law change noted in the “Overview” section.
Current wording
Income tax expense was $31 million (effective tax rate of 20.0%) for 2024, compared to $25 million (effective tax rate of 29.0%) for 2023. The change in income tax was mostly due to higher pretax earnings in 2024, as well as the $9 million charge to income tax expense during 2023 to establish a tax valuation allowance related to the Wisconsin tax law change noted in the “Overview” section.
Previous wording
The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate. The Company had a $9 million valuation allowance at December 31, 2023, while no valuation allowance was determined to be necessary at December 31, 2022. Additional information on the subjectivity of income taxes is discussed further under “Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Current wording
The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate. The Company had a $16 million valuation allowance at December 31, 2024, compared to a valuation allowance of $9 million at December 31, 2023. Additional information on the subjectivity of income taxes is discussed further under “Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous wording
As noted in Table 6 above, the loan portfolio at December 31, 2023 was 76% commercial-based and 24% retail-based, compared to 78% commercial-based and 22% retail-based at December 31, 2022. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.
Current wording
As noted in Table 6 above, the loan portfolio at December 31, 2024 was 76% commercial-based and 24% retail-based, unchanged from December 31, 2023, with a slight shift in the underlying mix of each. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.
Previous wording
Total loans were $6.4 billion at December 31, 2023, an increase of $173 million (3%), compared to total loans of $6.2 billion at December 31, 2022, with growth in residential mortgage and agricultural loans. At December 31, 2023, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 20% of the total portfolio, followed by residential mortgage at 19% of the total 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 distribution of our commercial loan portfolio at December 31, 2023.
Current wording
Total loans were $6.6 billion at December 31, 2024, an increase of $273 million (4%), compared to total loans of $6.4 billion at December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. At December 31, 2024, agricultural and commercial and industrial loans represented the largest segments of Nicolet’s loan portfolio, with each at 20% of the total loan portfolio. The next largest segments were CRE investment and residential first mortgage, with each representing 18% of the total loan portfolio. The loan portfolio is widely diversified and included the following industries:
Previous wording
At December 31, 2023, the ACL-Loans was $64 million (representing 1.00% of period end loans) compared to $62 million (representing 1.00% of period end loans) at December 31, 2022. The increase in the ACL-Loans during 2023 was due to solid organic loan growth, while the increase in the ACL-Loans during 2022 was largely due to the acquisition of Charter, which added $8 million of provision for the Day 2 allowance and $2 million related to purchased credit deteriorated loans. Net charge-offs (0.01% of average loans) remain negligible. The components of the ACL-Loans are detailed further in Tables 8 and 9 below.
Current wording
At December 31, 2024, the ACL-Loans was $66 million (representing 1.00% of period end loans) compared to $64 million (representing 1.00% of period end loans) at December 31, 2023. The increase in the ACL-Loans during both 2024 and 2023 was due to solid organic loan growth. Net charge-offs remain negligible. The components of the ACL-Loans are detailed further in Tables 8 and 9 below.
Previous wording
The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9. The largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24% , 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023. In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 26% and 21%, respectively, of the ACL-Loans at December 31, 2022. This change in allocated ACL-Loans was attributable to the change in loan portfolio composition, as well as changes in current and forecasted risk trends within loan categories.
Current wording
The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9. The largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 24%, and 22%, respectively, of the ACL-Loans at December 31, 2024. In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24%, 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023. This change in allocated ACL-Loans was attributable to changes in current and forecasted risk trends within loan categories, as well as changes in loan portfolio composition.
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. At December 31, 2023, nonperforming assets were $28 million and represented 0.33% of total assets, compared to $40 million or 0.46% of total assets at December 31, 2022. The reduction in nonperforming assets between the years was mostly due to the sale of specific nonaccrual loans.
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. At December 31, 2024, nonperforming assets were $29 million and represented 0.33% of total assets, compared to $28 million or 0.33% of total assets at December 31, 2023.
Previous wording
The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the ACL-Loans. Potential problem loans are generally defined by management to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that Nicolet expects losses to occur, but that management recognizes a higher degree of risk associated with these loans. The loans that have been reported as potential problem loans are predominantly commercial-based loans covering a diverse range of businesses and real estate property types. Potential problem loans were $68 million and $53 million at December 31, 2023 and 2022, respectively, with the increase primarily due to the downgrade of one commercial credit relationship. Potential problem loans require heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
Current wording
The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the ACL-Loans. Potential problem loans are generally defined to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that Nicolet expects losses to occur, but that management recognizes a higher degree of risk associated with these loans. The loans that have been reported as potential problem loans are predominantly commercial-based loans covering a diverse range of businesses and real estate property types. Potential problem loans were $68 million at both December 31, 2024 and 2023, respectively. Potential problem loans require heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
Previous wording
The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to Nicolet. All investment securities are classified at the time of purchase as available for sale (“AFS”) or held to maturity (“HTM”). In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting
Current wording
The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to Nicolet. All investment securities are classified at the time of purchase as available for sale (“AFS”) or held to maturity (“HTM”). In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous wording
At December 31, 2023, the investment securities portfolio totaled $803 million (representing 9% of total assets), all classified as securities AFS, compared to investment securities of $1.6 billion (representing 18% of total assets) at December 31, 2022, comprised of $918 million securities AFS and $679 million securities HTM. The primary change in the investment securities portfolio during 2023 was related to the first quarter sale of $500 million (par value) U.S. Treasury HTM securities for a pre-tax loss of $38 million or an after-tax loss of $28 million to reposition the balance sheet for future growth. As a result of the sale of securities previously classified as HTM, the remaining unsold portfolio of HTM securities (with a book value of $177 million) was reclassified to AFS (with a carrying value of approximately $157 million). The unrealized loss on this portfolio of $20 million (at the time of reclassification) increased the balance of accumulated other comprehensive loss $15 million, net of the deferred tax effect, and is subject to future market changes with the rest of the AFS portfolio. The fair value of the total securities AFS portfolio was an unrealized loss of $73 million at December 31, 2023, a slight improvement from the unrealized loss of $79 million at December 31, 2022.
Current wording
At December 31, 2024, the investment securities portfolio totaled $806 million (representing 9% of total assets), compared to investment securities of $803 million (representing 9% of total assets) at December 31, 2023, all classified as securities AFS. The investment securities portfolio increased slightly from December 31, 2023, and included a shift in mix, from corporate debt securities and state, county, and municipals to mortgage-backed securities. The fair value of the total securities AFS portfolio was an unrealized loss of $66 million at December 31, 2024, compared to an unrealized loss of $73 million at December 31, 2023.
Previous wording
Nicolet also had other investments of $58 million and $65 million at December 31, 2023 and 2022, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies. The FHLB and Federal Reserve investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus not liquid, have no ready market or quoted market value, and are carried at cost. The private company equity investments have no quoted market prices, and are carried at cost less impairment charges, if any. The other investments are evaluated periodically for impairment, considering financial condition and other available relevant information.
Current wording
Nicolet also had other investments of $61 million and $58 million at December 31, 2024 and 2023, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies. The FHLB and Federal Reserve investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus not liquid, have no ready market or quoted market value, and are carried at cost. The private company equity investments have no quoted market prices, and are carried at cost less impairment charges, if any. The other investments are evaluated periodically for impairment, considering financial condition and other available relevant information.
Showing the first 40 of 56 pairs. Open the source sections for the rest.
Rearranged current paragraphs (2)
Current report — wording carried from elsewhere
Table 1A: Reconciliation of Non-GAAP Financial Measures
Current report — wording carried from elsewhere
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 distribution of our commercial loan portfolio at December 31, 2024.
Rearranged previous paragraphs (2)
Previous report — wording carried elsewhere
Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Previous report — wording carried elsewhere
Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.