Nicolet Bankshares Inc: Form 10-Q for the period ended Jun 30, 2025

Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) is a bank holding company headquartered in Green Bay, Wisconsin. Nicolet provides a diversified range of traditional banking and wealth management services to individuals and businesses in its market area and through the branch offices of its banking subsidiary, Nicolet National Bank (the “Bank”), primarily in Wisconsin, Michigan, and Minnesota. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, all references to “we,” “us” and “our” refer to the Company.

Forward-Looking Statements

Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance, or with respect to expectations regarding the economic factors such as inflation and changes in interest rates. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements are neither statements of historical fact nor assurance of future performance and generally may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Forward-looking statements (including their underlying assumptions) should be viewed with caution. Investors should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those implied or anticipated by any forward-looking statements. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s 2024 Annual Report on Form 10-K include, but are not necessarily limited to the following:

• strategic, market, operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;
• economic, market, political and competitive forces affecting Nicolet’s banking and wealth management businesses;
• potential fluctuations or unanticipated changes in the interest rate environment, monetary or tax policy or general economic conditions, including interest rate changes made by the Federal Reserve and the related cash flow reassessments, which may reduce Nicolet’s net interest income, net interest margin, and / or the volumes and values of loans made or held as well as the value of other financial assets;
• potential difficulties in identifying and completing future merger or acquisition opportunities, as well as our ability to successfully expand and integrate any businesses we acquire;
• cybersecurity risks and the vulnerability of our network and online banking portals, and the systems or parties with whom we contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches that could adversely affect our business and financial performance or reputation;
• changes in accounting standards, rules and interpretations (including effects of assumptions underlying purchase accounting) and any resulting impact on Nicolet’s financial statements;
• compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Nicolet may pursue or implement;
• the risk that we may be required to make substantial expenditures to keep pace with regulatory initiatives and the rapid technological changes in the financial services market;
• our ability to attract and retain key personnel;
• examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions;
• adverse results (including judgments, costs, fines, reputational harm, inability to obtain necessary approvals and / or other negative effects) from current or future litigation, legislation, regulatory proceedings, examinations, investigations, or similar matters or developments related thereto, such as potential effects of the federal One Big Beautiful Bill Act on us or our customers;
• 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
• the risk that Nicolet’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.

These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements.

Overview

The following discussion is management’s analysis of Nicolet’s consolidated financial condition as of June 30, 2025 and December 31, 2024 and results of operations for the three and six-month periods ended June 30, 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.

(In thousands, except per share data)

Note: Numbers may not sum due to rounding.

(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.

(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 “Non-GAAP Financial Measures” below for a reconciliation of these financial measures.

(3) Income statement-related ratios for partial-year periods are annualized.

Non-GAAP Financial Measures

We identify “tangible book value per common share,” “return on average tangible common equity,” “tangible common equity to tangible assets” “adjusted net income,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in effect in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures, ratios or statistical measures calculated using exclusively financial measures calculated in accordance with GAAP.

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.

(In thousands, except per share data)

Note: Numbers may not sum due to rounding.

(1) 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.

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

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

(4) 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 financial measures have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength.

Performance Summary

Net income was $69 million (or earnings per diluted common share of $4.42) for the six months ended June 30, 2025, compared to net income of $57 million (or earnings per diluted common share of $3.74) for the six months ended June 30, 2024.

• Net interest income was $146 million for the first six months of 2025, up $18 million (14%) over the first six months of 2024. Interest income grew $17 million mostly due to the repricing of new and renewed loans, while interest expense decreased $1 million between the comparable six-month periods. Net interest margin was 3.65% for the six months ended June 30, 2025, compared to 3.37% for the six months ended June 30, 2024. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest Income.”
• Noninterest income was $39 million for the first six months of 2025, minimally changed from the first six months of 2024. Excluding net asset gains (losses), noninterest income for the first six months of 2025 was $39 million, a $3 million increase over the first six months of 2024. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”
• Noninterest expense was $98 million, $4 million (4%) higher than the first six months of 2024. Personnel costs increased $3 million, while non-personnel expenses combined increased $1 million (2%) from the comparable 2024 period. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”
• Nonperforming assets were $29 million, and represented 0.32% of total assets at June 30, 2025, compared to $29 million or 0.33% of total assets at December 31, 2024. For additional information regarding nonperforming assets, see “Balance Sheet Analysis – Nonperforming Assets.”
• At June 30, 2025, assets were $8.9 billion, an increase of $134 million (2%) from December 31, 2024, mostly from solid loan growth, partly offset by lower cash balances. For additional balance sheet discussion see “Balance Sheet Analysis.”
• At June 30, 2025, loans were $6.8 billion, an increase of $213 million from December 31, 2024, mostly in commercial and industrial loans. On average, loans grew $324 million (5%) over the first six months of 2024. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”
• Total deposits of $7.5 billion at June 30, 2025, increased $138 million from December 31, 2024, with growth in interest-bearing demand and time deposits, as well as some continued migration to higher rate deposit products. Year-to-date average deposits were $327 million (5%) higher than the first six months of 2024. For additional information regarding deposits, see “Balance Sheet Analysis – Deposits.”

INCOME STATEMENT ANALYSIS

Net Interest Income

Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and its use in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. The tax-equivalent adjustments bring tax-exempt interest to a level that would yield the same after-tax income by applying the effective Federal corporate tax rates to the underlying assets. 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.

Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis

(in thousands)

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

(2) The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense.

(3) Loan purchase accounting accretion included in Total loans interest above, and the related impact to net interest margin.

(4) Loan nonaccrual interest included in Total loans interest above, and the related impact to net interest margin.

Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis (Continued)

(in thousands)

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

(2) The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense.

(3) Loan purchase accounting accretion included in Total loans interest above, and the related impact to net interest margin.

(4) Loan nonaccrual interest included in Total loans interest above, and the related impact to net interest margin.

Table 3: Volume/Rate Variance - Tax-Equivalent Basis

(in thousands)

(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.

(2) The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense.

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 the first half of 2025.

Tax-equivalent net interest income was $147 million for the six months ended June 30, 2025, an increase of $18 million (14%) over the six months ended June 30, 2024. The $18 million increase in tax-equivalent net interest income was attributable to both favorable rates and favorable volumes, which added $12 million and $6 million to net interest income, respectively.

Average interest-earning assets increased $429 million (6%) to $8.1 billion over the comparable 2024 period, due primarily to loan growth. Between the comparable six-month periods, average loans increased $324 million (5%), from organic loan growth. Average investment securities were minimally changed (up $10 million) between the comparable six-month periods, while other interest-earning assets increased $94 million (mostly cash). The mix of average interest-earning assets was unchanged between the comparable six-month periods, and was comprised of 84% loans, 11% investments and 5% other interest-earning assets (mostly cash).

Average interest-bearing liabilities were $6.0 billion for the first six months of 2025, an increase of $378 million (7%) over the first six months of 2024, due primarily to deposit growth. Average interest-bearing core deposits increased $337 million and average brokered deposits increased $47 million between the comparable six-month periods, reflecting growth in higher cost deposit products and a shift in funding strategy. Wholesale funding decreased $5 million between the comparable six-month periods. The mix of average interest-bearing liabilities was also unchanged between the comparable six-month periods, and was comprised of 84% core deposits, 13% brokered deposits and 3% wholesale funding.

The interest rate spread increased 36 bps between the comparable six-month periods, mostly from the repricing of new and renewed loans, as the loan yield improved 17 bps to 6.15% between the comparable six-month periods. The yield on investment securities increased 32 bps to 3.21%, while the yield on other interest-earning assets (mostly cash) decreased 75 bps to 4.57%, consistent with the Federal Reserve interest rate cuts in 2024. The cost of interest-bearing liabilities decreased 21 bps to 2.84% for the first half of 2025, mostly due to lower deposit costs. As a result, the tax-equivalent net interest margin was 3.65% for the first half of 2025, a 28 bps increase over 3.37% for the first half of 2024.

Tax-equivalent interest income was $231 million for the first half of 2025, up $17 million from the comparable period of 2024, comprised of $12 million higher average volume and $5 million higher average rates. Interest income on loans increased $15 million over the first half of 2024, due to both loan growth and higher rates. Interest expense was minimally changed at approximately $84 million for both first half periods, with the higher interest expense from deposit growth largely offset by lower deposit rates.

Provision for Credit Losses

The provision for credit losses was $2.6 million for the six months ended June 30, 2025, compared to $2.1 million for the six months ended June 30, 2024, with the increase for both periods attributable to growth and changes in the underlying loan portfolio.

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.”

Noninterest Income

Table 4: Noninterest Income

(in thousands)

N/M means not meaningful.

Noninterest income was $38.9 million for the first half of 2025, $0.2 million lower than the first half of 2024, largely due to changes in asset gains (losses). Noninterest income excluding net asset gains (losses) for the first half of 2025 was $39.4 million, a $2.9 million (8%) increase over the first half of 2024.

Wealth management fee income was $13.8 million, up $0.6 million (5%) from the first six months of 2024, including favorable market-related changes, as well as growth in accounts and assets under management.

Mortgage income includes net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSR”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any. Net mortgage income of $4.8 million, increased $0.8 million (21%) between the comparable six-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.

Services charges on deposit accounts were $4.0 million, up $0.6 million (17%) from the first six months of 2024, on growth in both accounts and account analysis fees.

The Company sponsors a nonqualified deferred compensation (“NQDC”) plan for certain employees, the value of which fluctuates based upon changes in market valuations of the underlying plan assets. See also “Noninterest Expense” for the offsetting fair value change to the nonqualified deferred compensation plan liabilities.

Other income of $3.4 million for the six months ended June 30, 2025 was down $0.9 million from the comparable 2024 period, largely due to card incentive income.

Net asset losses of $0.6 million for the first six months of 2025 were mostly due to unfavorable fair value marks on equity securities. Net asset gains of $2.5 million for the first six months of 2024 were primarily attributable to gains of $1.6 million on sales of investments and a $0.9 million gain on the early extinguishment of Nicolet subordinated notes.

Noninterest Expense

Table 5: Noninterest Expense

($ in thousands)

Noninterest expense was $97.7 million for the first half of 2025, an increase of $3.7 million (4%) over the first half of 2024. Personnel costs increased $2.8 million (5%), while non-personnel expenses combined increased $0.9 million (2%) compared to the first half of 2024.

Personnel expense was $55.6 million for the six months ended June 30, 2025, an increase of $2.8 million (5%) from the comparable period in 2024, reflecting merit increases between the years and higher incentives commensurate with current period earnings.

Occupancy, equipment and office expense was $18.4 million for the six months ended June 30, 2025, up $0.8 million (5%) from the comparable period in 2024, mostly due to additional expense for software and technology solutions.

Business development and marketing was $3.7 million for the first half of 2025, a reduction of $0.5 million from the comparable period in 2024, reflective of the timing and extent of marketing campaigns, promotions, and media.

Data processing expense was $9.2 million, up $0.7 million (8%) between the comparable six-month periods, mostly due to volume-based increases in core and card processing charges.

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

Other expense was $5.7 million, up $0.5 million (10%) between the comparable six-month periods, mostly due to higher audit-related expenses.

Income Taxes

Income tax expense was $16.3 million (effective tax rate of 19.2%) for the first six months of 2025, compared to income tax expense of $14.0 million (effective tax rate of 19.7%) for the comparable period of 2024. The change in income tax expense was mostly due to the higher pretax earnings in 2025.

Income Statement Analysis – Three Months Ended June 30, 2025 versus Three Months Ended June 30, 2024

Net income was $36.0 million for the three months ended June 30, 2025, compared to net income of $29.3 million for the three months ended June 30, 2024. Earnings per diluted common share was $2.34 for second quarter 2025, compared to $1.92 for second quarter 2024.

Tax-equivalent net interest income was $75.6 million for second quarter 2025, an increase of $9.7 million from second quarter 2024. Interest income increased $8.7 million over second quarter 2024, while interest expense decreased $1.0 million from second quarter 2024. The increase in interest income was mostly attributable to strong loan growth (average loans increased $337 million or 5% over second quarter 2024) as well as higher yields (mostly from the repricing of new and renewed loans). Average investment securities increased $19 million between the comparable second quarter periods, while other interest-earning assets increased $51 million (primarily investable cash) between the comparable second quarter periods. The $1.0 million decrease in interest expense from second quarter 2024, was mostly attributable to lower deposit costs, partly offset by deposit growth. For additional information regarding average balances, net interest income and net interest margin, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”

The net interest margin for second quarter 2025 was 3.72%, up 30 bps compared to 3.42% for second quarter 2024. The yield on interest-earning assets of 5.82% increased 14 bps from second quarter 2024, while the cost of funds of 2.86% decreased 23 bps between the comparable quarters.

Provision for credit losses was $1.1 million for second quarter 2025, compared to $1.4 million provision for credit losses for second quarter 2024. For additional information regarding the allowance for credit losses-loans and asset quality, see “BALANCE SHEET ANALYSIS — Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS — Nonperforming Assets.”

Noninterest income was $20.6 million for second quarter 2025, an increase of $1.0 million (5%) from second quarter 2024. Noninterest income excluding net asset gains (losses) for second quarter 2025 was $20.8 million, a $1.8 million (10%) increase over second quarter 2024, mostly from favorable movements in the market valuations of the NQDC plan assets. Net mortgage income of $2.9 million, increased $0.3 million (10%) between the comparable second quarter periods, while BOLI income of $1.4 million, increased $0.2 million (17%) over second quarter 2024, on higher average balances from the $11.5 million new BOLI purchased in mid-2024 and improvements in BOLI assets linked to market performance. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

Noninterest expense was $49.9 million for second quarter 2025, an increase of $3.1 million (7%) from second quarter 2024. Personnel expense increased $2.8 million mostly due to higher salaries and incentives, as well as the offsetting market valuation change of the NQDC plan liabilities. The increase in non-personnel expenses was mostly due to higher office expense for software and technology solutions and data processing, partly offset by lower business development and marketing. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

Income tax expense was $8.7 million (effective tax rate of 19.5%) for second quarter 2025, compared to $7.5 million (effective tax rate of 20.3%) for second quarter 2024.

BALANCE SHEET ANALYSIS

At June 30, 2025, period end assets were $8.9 billion, an increase of $134 million (2%) from December 31, 2024, mostly from loan growth. Total loans increased $213 million (3%) from December 31, 2024, mostly in commercial and industrial loans. Total deposits were $7.5 billion at June 30, 2025, an increase of $138 million (2%) from December 31, 2024, including an $8 million increase in brokered deposits and a $130 million increase in customer (core) deposits. Total stockholders’ equity was $1.2 billion at June 30, 2025, an increase of $17 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.

Loans

Nicolet services a diverse customer base primarily throughout Wisconsin, Michigan and Minnesota. We concentrate on originating loans in our local markets and assisting current loan customers. Nicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”).

An active credit risk management process is used to ensure that sound and consistent credit decisions are made. The credit management process is regularly reviewed and has been modified over the past several years to further strengthen the controls. Factors that are important to managing overall credit quality are sound loan underwriting and administration, systematic monitoring of existing loans and commitments, effective loan review on an ongoing basis, early problem loan identification and remedial action to minimize losses, an appropriate ACL-Loans, and sound nonaccrual and charge-off policies.

For additional disclosures on loans, see also Note 5, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1. For information regarding the allowance for credit losses and nonperforming assets see “BALANCE SHEET ANALYSIS – Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS – Nonperforming Assets.” A detailed discussion of the loan portfolio accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2024 Annual Report on Form 10-K.

Table 6: Period End Loan Composition

(in thousands)

As noted in Table 6 above, the loan portfolio at June 30, 2025, 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.

Total loans of $6.8 billion at June 30, 2025, increased $213 million (3%) from December 31, 2024, mostly in commercial and industrial loans. At June 30, 2025, commercial and industrial loans and agricultural loans represented the largest segments of Nicolet’s loan portfolio, with each at 20% of the total 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: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the industry distribution of our commercial loan portfolio at June 30, 2025.

Commercial Loan Portfolio by Industry Type (based on NAICS codes)

The following tables present the maturity distribution of the loan portfolio.

Table 7**: Loan Maturity Distribution**

(in thousands)

(in thousands)

* The residential construction loans with a loan maturity after five years represent a construction to permanent loan product.

Allowance for Credit Losses - Loans

For additional disclosures on the allowance for credit losses, see Note 5, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1. A detailed discussion of the loan portfolio accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2024 Annual Report on Form 10-K.

Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, interest, and related expenses. For additional information regarding nonperforming assets see also “BALANCE SHEET ANALYSIS – Nonperforming Assets.”

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.

Management performs ongoing intensive analysis of the loan portfolio to allow for early identification of customers experiencing financial difficulties, maintains prudent underwriting standards, understands the economy of its markets, and considers the trend of deterioration in loan quality in establishing the level of the ACL-Loans. In addition, various regulatory agencies periodically review the ACL-Loans, and may require the Company to make additions to the ACL-Loans or may require that certain loan balances be charged off or downgraded into classified loan categories when their credit evaluations differ from those of management based on their judgments of collectability from information available to them at the time of their examination.

At June 30, 2025, the ACL-Loans was $68 million and represented 1.00% of period end loans, compared to $66 million (or 1.00% of period end loans) at December 31, 2024 and $65 million (or 1.00% of period end loans) at June 30, 2024. The components of the ACL-Loans are detailed further in Table 8 below.

Table 8: Allowance for Credit Losses - Loans

(in thousands)

Nonperforming Assets

As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy. This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to identify problem loans early and minimize the risk of loss. For additional disclosures on credit quality, see 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 information on loans see “BALANCE SHEET ANALYSIS – Loans” and for additional information on the ACL-Loans see “BALANCE SHEET ANALYSIS – Allowance for Credit Losses-Loans.”

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans and loans 90 days or more past due but still accruing interest. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal payments. Additionally, whenever management becomes aware of facts or circumstances that may adversely impact the collectability of principal or interest on loans, it is management’s practice to place such loans on nonaccrual status immediately. Nonperforming assets include nonperforming loans and other real estate owned (“OREO”). At June 30, 2025, nonperforming assets were $29 million and represented 0.32% of total assets, down slightly from 0.33% of total assets at December 31, 2024, and 0.34% of total assets at June 30, 2024.

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 $77 million (1% of loans) and $68 million (1% of loans) at June 30, 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.

Table 9: Nonperforming Assets

(in thousands)

43

Deposits

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

Total deposits of $7.5 billion at June 30, 2025, increased $138 million (2%) from December 31, 2024. Core deposit balances of $6.8 billion at June 30, 2025, increased $130 million from December 31, 2024, while brokered deposits increased $8 million. Compared to June 30, 2024, total deposits increased $301 million, including a $350 million increase in core deposits and a $49 million decrease in brokered deposits. The deposit composition is presented in Table 10 below.

Table 10: Period End Deposit Composition

(in thousands)

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

Liquidity Management

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 $423 million and $536 million at June 30, 2025 and December 31, 2024, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.

The $113 million decrease in cash and cash equivalents since year-end 2024 included $81 million net cash provided by operating activities (mostly earnings), $238 million net cash used in investing activities (mostly to fund loan growth) and $44 million net cash provided by financing activities (with deposit growth offset by repayments of borrowings and common stock repurchases). As of June 30, 2025, management believed that adequate liquidity existed to meet all projected cash flow obligations.

Nicolet’s primary sources of funds include the core deposit base, repayment and maturity of loans, investment securities calls, maturities, and sales, and procurement of brokered deposits or other wholesale funding. At June 30, 2025, approximately 51% of the investment securities portfolio was pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by regulation. Liquidity sources available to the Company at June 30, 2025, are presented in Table 11 below.

Table 11: Liquidity Sources

(in millions)

Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies. The Parent Company uses cash for normal expenses, dividend payments, debt service requirements, and, when opportune, for common stock repurchases, repayment of debt, or investment in other strategic actions such as mergers or acquisitions. At June 30, 2025, the Parent Company had $136 million in cash. Additional cash sources available to the Parent Company include access to the public or private markets to issue new equity, subordinated notes or other debt. Dividends from the Bank and, to a lesser extent, stock option exercises, represent significant sources of cash flows for the Parent Company. The Bank is required by federal law to obtain prior approval of the OCC for payments of dividends if the total of all dividends declared by the Bank in any year will exceed certain thresholds. Management does not believe that regulatory restrictions on dividends from the Bank will adversely affect its ability to meet its cash obligations.

Interest Rate Sensitivity Management and Impact of Inflation

A reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield, is highly important to Nicolet’s business success and profitability. As an ongoing part of our financial strategy and risk management, we attempt to understand and manage the impact of fluctuations in market interest rates on our net interest income. The consolidated balance sheet consists mainly of interest-earning assets (loans, investments and cash) which are primarily funded by interest-bearing liabilities (deposits and borrowings). Such financial instruments have varying levels of sensitivity to changes in market rates of interest. Market rates are highly sensitive to many factors beyond our control, including but not limited to general economic conditions and policies of government and regulatory authorities. Our operating income and net income depend, to a substantial extent, on “rate spread” (i.e., the difference between the income earned on loans, investments and other earning assets and the interest expense paid to obtain deposits and other funding liabilities).

Asset-liability management policies establish guidelines for acceptable limits on the sensitivity to changes in interest rates on earnings and market value of assets and liabilities. Such policies are set and monitored by management and the Board of Directors’ Asset and Liability Committee.

To understand and manage the impact of fluctuations in market interest rates on net interest income, we measure our overall interest rate sensitivity through a net interest income analysis, which calculates the change in net interest income in the event of hypothetical changes in interest rates under different scenarios versus a baseline scenario. Such scenarios can involve static balance sheets, balance sheets with projected growth, parallel (or non-parallel) yield curve slope changes, immediate or gradual changes in market interest rates, and one-year or longer time horizons. The simulation modeling uses assumptions involving market spreads, prepayments of rate-sensitive instruments, renewal rates on maturing or new loans, deposit retention rates, and other assumptions.

Among other scenarios, we assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps change in market rates (parallel to the change in prime rate) over a one-year time horizon to a static (flat) balance sheet. The results provided include the liquidity measures mentioned above and reflect the current interest rate environment. The interest rate scenarios are used for analytical purposes only and do not necessarily represent management’s view of future market interest rate movements. Based on financial data at June 30, 2025 and December 31, 2024, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 12 below. The results are in compliance with Nicolet’s policy guidelines.

Table 12: Interest Rate Sensitivity

45

Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.

The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, investments, loans, deposits, and borrowings, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. Inflation may also have impacts on the Bank’s customers, on businesses and consumers and their ability or willingness to invest, save or spend, and potentially on their ability to repay loans. As such, there would likely be impacts on the general appetite for banking products and the credit health of the Bank’s customer base.

Capital

Management regularly reviews the adequacy of its capital to ensure that sufficient capital is available for current and future needs and is in compliance with regulatory guidelines. The capital position and strategies are actively reviewed in light of perceived business risks associated with current and prospective earning levels, liquidity, asset quality, economic conditions in the markets served, and level of returns available to shareholders. Management intends to maintain an optimal capital and leverage mix for growth and shareholder return. For details on the change in capital see “BALANCE SHEET ANALYSIS.”

The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At June 30, 2025, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in strategic growth. A summary of the Company’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in the following table.

Table 13: Capital

($ in thousands)

In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities, dividends, or repayment of equity-equivalent debt) in light of strategic plans. Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At June 30, 2025, there remained $40 million authorized under this repurchase program, as modified, to be utilized from time-to-time to repurchase shares in the open market, through block transactions or in private transactions.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on historical experience, current information, and other factors deemed to be relevant; accordingly, as this information changes, actual results could differ from those estimates. Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the financial statements. The accounting estimate we consider to be critical is the determination of the allowance for credit losses. A discussion of this estimate can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2024 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting policies and estimates since December 31, 2024.

There have been no material changes in our market risk at June 30, 2025, from that presented in our 2024 Annual Report on Form 10-K. See section “Interest Rate Sensitivity Management and Impact of Inflation” within Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I, Item 2, for our interest rate sensitivity position at June 30, 2025.

(a) Disclosure Controls and Procedures. Management, under the supervision, and with the participation, of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f)) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.