NICOLET BANKSHARES INC

Previous wording

•operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;

Current wording

•strategic, market, operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;

Previous wording

•changes in accounting standards, rules and interpretations and the related impact on Nicolet’s financial statements;

Current wording

•changes in accounting standards, rules and interpretations (including effects of assumptions underlying purchase accounting) and any resulting impact on Nicolet’s financial statements;

Previous wording

•the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as inflation and recessions, weather events, natural disasters, epidemics and pandemics, terrorist activities, wars or other foreign conflicts, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs;

Current wording

•the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as inflation and recessions, weather events, climate change, natural disasters, epidemics and pandemics, war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs; and

Previous wording

The following discussion is management’s analysis of Nicolet’s consolidated financial condition as of September 30, 2024 and December 31, 2023 and results of operations for the three and nine-month periods ended September 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.

Current wording

The following discussion is management’s analysis of Nicolet’s consolidated financial condition as of March 31, 2025 and December 31, 2024 and results of operations for the three-month periods ended March 31, 2025 and 2024. It should be read in conjunction with our audited consolidated financial statements included in Nicolet’s 2024 Annual Report on Form 10-K.

Previous 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.

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

(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.

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 our 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 below.

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 above.

Previous wording

Net income was $90 million (or earnings per diluted common share of $5.84) for the nine months ended September 30, 2024, compared to net income of $31 million (or earnings per diluted common share of $2.05) for the nine months ended September 30, 2023, with 2023 significantly impacted by the first quarter balance sheet repositioning (as detailed in Table 1A, Reconciliation of Non-GAAP Financial Measures above).

Current wording

Table 1A: Reconciliation of Non-GAAP Financial Measures

Previous 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.

Current wording

(2) Includes the gains /(losses) on other assets and investments.

Previous 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.

Current wording

(3) Assumes an effective tax rate of 19.5%.

Previous wording

•At September 30, 2024, loans were $6.6 billion, an increase of $203 million from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. On average, loans grew $256 million (4%) over the first nine months of 2023. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”

Current wording

•At March 31, 2025, loans were $6.7 billion, an increase of $119 million (2%) from December 31, 2024, mostly in commercial and industrial loans. For additional information regarding loans, see “BALANCE SHEET ANALYSIS — Loans.”

Previous wording

•Noninterest income was $61 million for the first nine months of 2024, a $50 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 nine months of 2024 was $58 million, a $7 million increase over the first nine months of 2023. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”

Current wording

•Noninterest income was $18.2 million for first quarter 2025, $1.2 million lower than first quarter 2024, largely due to changes in asset gains (losses). Noninterest income excluding net asset gains (losses) for first quarter 2025 was $18.6 million, a $1.1 million (6%) increase over first quarter 2024. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

Previous wording

•Noninterest expense was $143 million, $8 million (6%) higher than the first nine months of 2023. Personnel costs increased $10 million, while non-personnel expenses combined decreased $2 million (3%) from the comparable 2023 period. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”

Current wording

•Noninterest expense was $47.8 million for first quarter 2025, an increase of $0.6 million (1%) over first quarter 2024. Personnel costs were minimally changed, while non-personnel expenses combined increased $0.6 million compared to first quarter 2024. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

Previous 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.

Current 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.

Previous wording

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

Current wording

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

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, while the Federal Reserve decreased short-term interest rates in September 2024, resulting in a Federal Funds range of 4.75% to 5.00% at September 30, 2024.

Current wording

At the beginning of 2024, the Federal Funds range was 5.25% to 5.50%. 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% at December 31, 2024. There were no changes to the Federal Funds range during first quarter 2025.

Previous wording

Tax-equivalent net interest income was $198 million for the nine months ended September 30, 2024, an increase of $19 million (11%) over the nine months ended September 30, 2023. The $19 million increase in tax-equivalent net interest income was mostly attributable to favorable rates (which added $24 million to net interest income), partly offset by unfavorable volumes.

Current wording

Tax-equivalent net interest income was $72 million for the three months ended March 31, 2025, an increase of $8 million (13%) over the three months ended March 31, 2024. The $8 million increase in tax-equivalent net interest income was attributable to favorable rates (which added $6 million to net interest income), as well as favorable volumes.

Previous wording

Average interest-earning assets increased $61 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 nine-month periods, average loans increased $256 million (4%), on solid organic loan growth. Average investment securities decreased $298 million between the comparable nine-month periods, while other interest-earning assets increased $103 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 nine months of 2024, compared to 81%, 15% and 4%, respectively, for the first nine months of 2023.

Current wording

Average interest-earning assets increased $450 million (6%) to $8.1 billion over the comparable 2024 period, due primarily to loan growth. Between the comparable three-month periods, average loans increased $311 million (5%), mainly from organic loan growth. Average investment securities were minimally changed (up $1 million) between the comparable three-month periods, while other interest-earning assets increased $137 million (mostly cash). The mix of average interest-earning assets was 83% loans, 11% investments and 6% other interest-earning assets (mostly cash) for first quarter 2025, compared to 84%, 12% and 4%, respectively, for first quarter 2024.

Previous wording

Average interest-bearing liabilities were $5.6 billion for the first nine months of 2024, an increase of $278 million (5%) over the first nine months of 2023. Average interest-bearing core deposits increased $319 million and average brokered deposits increased $140 million between the comparable nine-month periods, reflecting growth in higher cost deposit products and a shift in funding strategy. Wholesale funding decreased $181 million between the comparable nine-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 nine months of 2024, compared to 82%, 12%, and 6%, respectively, for the first nine months of 2023.

Current wording

Average interest-bearing liabilities were $6.0 billion for the first three months of 2025, an increase of $443 million (8%) over the first three months of 2024. Average interest-bearing core deposits increased $337 million and average brokered deposits increased $110 million between the comparable three-month periods, reflecting growth in higher cost deposit products and a shift in funding strategy. Wholesale funding decreased $4 million between the comparable three-month periods. The mix of average interest-bearing liabilities was 84% core deposits, 13% brokered deposits and 3% wholesale funding for first quarter 2025, compared to 85%, 12%, and 3%, respectively, for first quarter 2024.

Previous wording

The interest rate spread increased 22 bps between the comparable nine-month periods, as the repricing of liabilities has slowed, while new and renewed loans continue to reprice in a higher interest rate environment. The interest-earning asset yield increased 73 bps to 5.58% for the first nine 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 62 bps to 5.95% between the comparable nine-month periods, largely due to the repricing of new and renewed loans, while the yield on investment securities increased 73 bps to 2.95%. The cost of funds increased 51 bps to 3.07% for the first nine months 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 6 bps, mostly due to the higher value in the current interest rate environment. As a result, the tax-equivalent net interest margin was 3.35% for the first nine months of 2024, a 28 bps increase over 3.07% for the first nine months of 2023.

Current wording

The interest rate spread increased 35 bps between the comparable three-month periods, mostly from the repricing of new and renewed loans. The loan yield improved 19 bps to 6.08% between the comparable three-month periods, largely due to the repricing of new and renewed loans, and the yield on investment securities increased 34 bps to 3.14%, while the yield on other interest-earning assets (mostly cash) decreased 76 bps to 4.58%, consistent with the Federal Reserve interest rate cuts in 2024. The cost of interest-bearing liabilities decreased 18 bps to 2.83% for the first three months of 2025, mostly due to lower deposit costs. As a result, the tax-equivalent net interest margin was 3.58% for first quarter 2025, a 25 bps increase over 3.33% for first quarter 2024.

Previous wording

Tax-equivalent interest income was $327 million for the first nine months of 2024, up $46 million from the comparable period of 2023, comprised of $43 million higher average rates and $3 million higher average volume. Interest income on loans increased $42 million over the first nine months of 2023, mostly due to higher rates from the rising interest rate environment, as well as solid loan growth. Interest expense increased to $129 million for the first nine months of 2024, up $27 million compared to the first nine months of 2023, mostly due to a higher cost of funds, as well as growth in deposits.

Current wording

Tax-equivalent interest income was $113 million for the first three months of 2025, up $9 million from the comparable period of 2024, comprised of $3 million higher average rates and $6 million higher average volume. Interest income on loans increased $7 million over first quarter 2024, due to both higher rates and loan growth. Interest expense was minimally changed at approximately $42 million for both first quarter periods, with the higher interest expense from deposit growth largely offset by lower deposit rates.

Previous wording

The provision for credit losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the appropriateness of the ACL. The appropriateness of the ACL-Loans is affected by changes in the size and character of the loan portfolio, changes in levels of collateral dependent and other nonperforming loans, historical losses and delinquencies in each portfolio segment, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing and future economic conditions, the fair value of underlying collateral, and other factors which could affect expected credit losses. The ACL for securities is affected by risk of the underlying issuer, while the ACL for unfunded commitments is affected by many of the same factors as the ACL-Loans, as well as funding assumptions relative to lines of credit. See also Note 5, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures. For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” “— Allowance for Credit Losses - Loans,” and “— Nonperforming Assets.”

Current wording

The provision for credit losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the appropriateness of the ACL. The appropriateness of the ACL-Loans is affected by changes in the size and character of the loan portfolio, changes in levels of collateral dependent and other nonperforming loans, historical losses and delinquencies in each portfolio segment, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing and future economic conditions, the fair value of underlying collateral, and other factors which could affect expected credit losses. The ACL for securities is affected by the risk of the underlying issuer, while the ACL for unfunded commitments is affected by many of the same factors as the ACL-Loans, as well as funding assumptions relative to lines of credit. See also Note 5, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures. For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” “— Allowance for Credit Losses - Loans,” and “— Nonperforming Assets.”

Previous wording

Wealth management fee income was $20.2 million, up $2.8 million (16%) from the first nine months of 2023, including favorable market-related changes, as well as growth in accounts and assets under management.

Current wording

Wealth management fee income was $7.0 million, up $0.5 million (8%) from the first three months of 2024, including favorable market-related changes, as well as 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 (“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 $6.9 million, increased $1.5 million (29%) between the comparable nine-month periods, mostly due to higher secondary market volumes and the related gains on sales, partly offset by changes in the MSR valuation (2023 included a $0.5 million recovery to the MSR valuation while 2024 included a $0.1 million addition to the MSR valuation). 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 $1.9 million, increased $0.6 million (41%) between the comparable three-month periods, mostly due to 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.

Previous wording

Services charges on deposit accounts were $5.3 million, up $0.8 million (18%) from the first nine months of 2023, on growth in both accounts and account analysis fees.

Current wording

Services charges on deposit accounts were $2.0 million, up $0.4 million (28%) from the first three months of 2024, on growth in both accounts and account analysis fees.

Previous wording

Other income of $6.4 million for the nine months ended September 30, 2024 was up $0.8 million from the comparable 2023 period, largely due to card incentive income.

Current wording

Other income of $1.8 million for the three months ended March 31, 2025 was down $0.7 million from the comparable 2024 period, largely due to card incentive income.

Previous wording

Net asset gains of $3.7 million for the first nine months of 2024 included gains of $1.6 million on sales of investments, a $1.3 million gain on the early extinguishment of Nicolet subordinated notes, and $0.7 million of favorable fair value marks on equity securities. Net asset losses of $38.8 million for the first nine 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 losses of $0.4 million for the first three months of 2025 were mostly due to unfavorable fair value marks on equity securities. 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 a $0.9 million gain on the early extinguishment of Nicolet subordinated notes.

Previous wording

Data processing expense was $13.1 million, up $0.2 million (2%) between the comparable nine-month periods, mostly due to volume-based increases in core and brokerage processing charges.

Current wording

Data processing expense was $4.5 million, up $0.3 million (6%) between the comparable three-month periods, mostly due to volume-based increases in core and brokerage processing charges.

Previous wording

Intangibles amortization decreased $0.9 million between the comparable nine-month periods due to lower amortization from the aging intangibles.

Current wording

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

Previous wording

Income tax expense was $22.3 million (effective tax rate of 20.0%) for the first nine months of 2024, compared to income tax expense of $18.4 million (effective tax rate of 37.3%) for the comparable period of 2023. The change in income tax was mostly due to the lower pretax earnings in 2023, as well as the $9.1 million charge to income tax expense during 2023 to establish a tax valuation allowance related to the Wisconsin tax law change noted above in the “Performance Summary” section. In addition, the Wisconsin tax law change resulted in a lower effective tax rate beginning in the second half of 2023.

Current wording

Income tax expense was $7.6 million (effective tax rate of 18.8%) for the first three months of 2025, compared to income tax expense of $6.5 million (effective tax rate of 19.1%) for the comparable period of 2024. The change in income tax expense was mostly due to the lower pretax earnings in 2024.

Previous wording

At September 30, 2024, period end assets were $8.6 billion, an increase of $168 million (2%) from December 31, 2023, mostly from solid growth in loans, partly offset by lower cash balances. Total loans increased $203 million (3%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. Total deposits of $7.3 billion at September 30, 2024, increased $62 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 September 30, 2024, an increase of $110 million over December 31, 2023, with solid earnings and improvements in the securities portfolio valuation partly offset by the quarterly common stock dividend.

Current wording

At March 31, 2025, period end assets were $9.0 billion, an increase of $178 million (2%) from December 31, 2024, mostly from loan growth. Total loans increased $119 million (2%) from December 31, 2024, mostly in commercial and industrial loans. Total deposits were $7.6 billion at March 31, 2025, an increase of $169 million (2%) from December 31, 2024, including a $107 million increase in brokered deposits and a $62 million increase in customer (core) deposits. Total stockholders’ equity was $1.2 billion at March 31, 2025, an increase of $10 million over December 31, 2024, with solid earnings and favorable movements in the securities portfolio market valuation partly offset by common stock repurchases and the quarterly common stock dividend.

Previous wording

As noted in Table 6 above, the loan portfolio at September 30, 2024, was 76% commercial-based and 24% retail-based. 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 March 31, 2025, was 77% commercial-based and 23% retail-based. 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 of $6.6 billion at September 30, 2024, increased $203 million (3%) from December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. At September 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% 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 September 30, 2024.

Current wording

Total loans of $6.7 billion at March 31, 2025, increased $119 million (2%) from December 31, 2024, mostly in commercial and industrial loans. At March 31, 2025, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 21% of the total portfolio, followed by agricultural loans at 20% 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, 2025.

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) 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.

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 a 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 September 30, 2024, the ACL-Loans was $66 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 September 30, 2023. The components of the ACL-Loans are detailed further in Table 8 below.

Current wording

At March 31, 2025, the ACL-Loans was $67 million (representing 1.00% of period end loans), compared to $66 million (or 1.00% of period end loans) at December 31, 2024 and $64 million (or 1.01% of period end loans) at March 31, 2024. 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 September 30, 2024, nonperforming assets were $26 million and represented 0.31% of total assets, compared to $28 million or 0.33% of total assets at December 31, 2023, and $32 million or 0.37% of total assets at September 30, 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 March 31, 2025, nonperforming assets were $29 million and represented 0.33% of total assets, unchanged from December 31, 2024, and $28 million or 0.33% of total assets at March 31, 2024.

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 $66 million (1% of loans) and $68 million (1% of loans) at September 30, 2024 and December 31, 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.

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 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 $70 million (1% of loans) and $68 million (1% of loans) at March 31, 2025 and December 31, 2024, 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 the underlying real estate or collateral values.

Previous wording

Total deposits of $7.3 billion at September 30, 2024, increased $62 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 $6.6 billion at September 30, 2024, decreased $32 million from December 31, 2023, while brokered deposits increased $94 million. Compared to September 30, 2023, total deposits increased $78 million, the net of a $106 million increase in brokered deposits and a $28 million decrease in core deposits. The deposit composition is presented in Table 10 below.

Current wording

Total deposits of $7.6 billion at March 31, 2025, increased $169 million (2%) from December 31, 2024. Core deposit balances of $6.7 billion at March 31, 2025, increased $62 million from December 31, 2024, while brokered deposits increased $107 million. Compared to March 31, 2024, total deposits increased $406 million, including a $332 million increase in core deposits and a $74 million increase in brokered 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 September 30, 2024, compared to $2.1 billion (representing 29% of total deposits) at December 31, 2023.

Current wording

Total estimated uninsured deposits were $2.3 billion (representing 30% of total deposits) at March 31, 2025, compared to $2.2 billion (representing 30% of total deposits) at December 31, 2024.

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 $428 million and $491 million at September 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.

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 $572 million and $536 million at March 31, 2025 and December 31, 2024, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.