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What changed in NICOLET BANKSHARES INC's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of NICOLET BANKSHARES INC's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+307 added−315 removedSource: 10-K (2025-02-25) vs 10-K (2024-02-28)

Top changes in NICOLET BANKSHARES INC's 2024 10-K

307 paragraphs added · 315 removed · 226 edited across 8 sections

Item 1. Business

Business — how the company describes what it does

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Biggest changeThe Parent Company is a Wisconsin corporation, originally incorporated on April 5, 2000 as Green Bay Financial Corporation, a Wisconsin corporation, to serve as the holding company for and the sole shareholder of Nicolet National Bank. The Parent Company amended and restated its articles of incorporation and changed its name to Nicolet Bankshares, Inc. on March 14, 2002.
Biggest changeThe Parent Company (which adopted its current name in 2002) is a Wisconsin corporation, originally incorporated on April 5, 2000, to serve as the holding company for and the sole shareholder of Nicolet National Bank. Nicolet elected to become a financial holding company in 2008.
To assist employees reach their goals, Nicolet offers competitive wages and a comprehensive financial benefit package that includes offerings such as (1) a 401(k) plan with a dollar-for-dollar match of employee contributions up to 6%, (2) health savings accounts for employees who elect to participate in high-deductible health plans, (3) flexible spending accounts, (4) profit sharing contributions to the 401(k) plan, (5) Nicolet paid life insurance, (6) an employee stock purchase plan, and (7) discounted wealth services.
To assist employees reach their goals, Nicolet offers competitive wages and a comprehensive financial benefit package that includes offerings such as (1) a 401(k) plan with a dollar-for-dollar match of employee contributions up to 6%, (2) health savings accounts for employees who elect to participate in high-deductible health plans, (3) flexible spending accounts, (4) profit sharing contributions to the 401(k) plan, (5) paid life insurance, (6) an employee stock purchase plan, and (7) discounted wealth services.
Each Nicolet employee has a life outside of the workplace, and Nicolet seeks to provide support for all their life events by offering additional benefits such as (1) health, dental, hearing, and vision plans, (2) voluntary insurance plans to address hospital indemnity, critical illness, disability, and accidental injury, (3) paid time off for vacation, short-term sickness, and long-term sickness, (4) financial assistance for adoption, (5) grief support, (6) an employee assistance plan, (7) religious observance leave, (8) fraud protection services, and (9) other unpaid leave when necessary.
Each employee has a life outside of the workplace, and Nicolet seeks to provide support for all their life events by offering additional benefits such as (1) health, dental, hearing, and vision plans, (2) voluntary insurance plans to address hospital indemnity, critical illness, disability, and accidental injury, (3) paid time off for vacation, short-term sickness, and long-term sickness, (4) financial assistance for adoption, (5) grief support, (6) an employee assistance plan, (7) religious observance leave, (8) fraud protection services, and (9) other unpaid leave when necessary.
The Financial Institution Reform Recovery and Enforcement Act (“FIRREA”) expanded and increased civil and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain “institution-affiliated parties.” Institution-affiliated parties primarily include management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs.
The Financial Institution Reform Recovery and Enforcement Act (“FIRREA”) expanded and increased civil and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain “institution-affiliated parties.” Institution-affiliated parties primarily include management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys, accountants and others who participate in the conduct of the financial institution’s affairs.
Nicolet employs seasoned banking and wealth management professionals with experience in its market areas and who are active in their communities. We believe our emphasis on meeting customer needs in a relationship-focused manner, combined with local decision making on extensions of credit, distinguishes Nicolet from its competitors, particularly in the case of large financial 6 institutions.
Nicolet employs seasoned banking and wealth management professionals with experience in its market areas and who are active in their communities. We believe our emphasis on meeting customer needs in a relationship-focused manner, combined with local decision making on extensions of credit, distinguishes Nicolet from its competitors, particularly in the case of large financial institutions.
These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be over $1.9 million per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. 10 Community Reinvestment Act.
These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be over $1.9 million per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. Community Reinvestment Act.
A “well-capitalized” bank is one that is not required to meet and maintain a specific capital level for any capital measure pursuant to any written agreement, order, capital directive, or prompt corrective action directive, and has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 8%, a CET1 capital ratio of at least 6.5%, and a Tier 1 leverage ratio of at least 5%.
A “well-capitalized” bank is one that is not required to meet and maintain a specific capital level for any capital measure pursuant to any written agreement, order, capital directive, or prompt corrective action directive, and has a total risk-based capital ratio of at 9 least 10%, a Tier 1 risk-based capital ratio of at least 8%, a CET1 capital ratio of at least 6.5%, and a Tier 1 leverage ratio of at least 5%.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and 9 certain other restrictions on its business. See “Prompt Corrective Action” below. Prompt Corrective Action.
Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. See “Prompt Corrective Action” below. Prompt Corrective Action.
Depository institutions with less than $10 billion in assets, such as the Bank, are subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. As the Bank approaches the $10 billion asset threshold, the Bank is preparing to be examined by the CFPB. UDAP and UDAAP.
Depository institutions with less than $10 billion in assets, such as the Bank, are subject to rules promulgated by the CFPB but will continue to be examined and supervised by federal banking regulators for consumer compliance purposes. As the Bank approaches the $10 billion asset threshold, the Bank is preparing to be examined by the CFPB. 11 UDAP and UDAAP.
Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the 11 discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.
Under federal regulations, banking organizations are required to notify their primary federal regulator as soon as possible and no later than 36 hours after the discovery of a “computer-security incident” that rises to the level of a “notification incident” within the meaning attributed to those terms by the federal regulation.
Nicolet believes it further distinguishes itself by providing a range of products and services characteristic of a large financial institution while providing the personalized service and convenience characteristic of a local, community bank. Supervision and Regulation We are extensively regulated, supervised and examined under federal and state law.
Nicolet believes it further distinguishes itself by providing a range of products and services characteristic of a large financial institution while providing the personalized service and convenience characteristic of a local, community bank. 6 Supervision and Regulation We are extensively regulated, supervised and examined under federal and state law.
Nicolet regularly analyzes its pay practices to ensure fair and equitable pay practice among our diverse employee population. Be Responsive Nicolet conducts an annual employee survey to identify benefits that are most meaningful to employees, which changes with employee demographics and locations of Nicolet’s branches.
Nicolet regularly analyzes its pay practices to ensure fair and equitable pay practice among our diverse employee population. Be Responsive Nicolet conducts an annual employee survey to identify benefits that are most meaningful to employees, which changes with employee demographics and locations of its branches.
Under Wisconsin law and the Dodd-Frank Act, and with the prior approval of the OCC, the Bank may open branch offices within or outside of Wisconsin, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.
Under Wisconsin law and the Dodd-Frank Act, and with the prior approval of the OCC, the Bank may 8 open branch offices within or outside of Wisconsin, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.
Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company to engage in activities that are financial in nature or incidental or complementary to financial activities. Those activities include, among other activities, certain insurance, advisory and security activities.
Provisions of the Gramm-Leach-Bliley Act have 7 expanded the permissible activities of a bank holding company that qualifies as a financial holding company to engage in activities that are financial in nature or incidental or complementary to financial activities. Those activities include, among other activities, certain insurance, advisory and security activities.
The full effects on the Bank of these changes to the CRA rules will depend on the regulatory interpretation of this federal rulemaking and cannot be predicted at this time. Management will continue to evaluate the changes to the CRA’s regulations and their impact to the Bank. Payment of Dividends.
The full effects on the Bank of these changes to the CRA rules will depend on the regulatory interpretation of this 10 federal rulemaking and cannot be predicted at this time. Management will continue to evaluate the changes to the CRA’s regulations and their impact to the Bank. Payment of Dividends.
As the percentage of 7 ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
As the percentage of ownership increases, fewer indicia of control are permitted without falling outside of the presumption of noncontrol. These indicia of control include nonvoting equity ownership, director representation, management interlocks, business relationship and restrictive contractual covenants.
We file or furnish to the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, proxy statements and annual reports to shareholders and, from time to time, registration statements and other documents.
We file with or furnish to the SEC annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports, proxy statements and annual reports to shareholders and, from time to time, registration statements and other documents.
Under Federal Reserve policy and the Dodd-Frank Act, Nicolet is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy or the related rules, Nicolet might not be inclined to provide it.
Support of Subsidiary Institutions . Under Federal Reserve policy and the Dodd-Frank Act, Nicolet is expected to act as a source of financial strength for the Bank and to commit resources to support the Bank. This support may be required at times when, without this Federal Reserve policy or the related rules, Nicolet might not be inclined to provide it.
At December 31, 2023, the Parent Company also wholly owns a registered investment advisory firm, Nicolet Advisory Services, LLC (“Nicolet Advisory”), that provides brokerage and investment advisory services to customers, and Nicolet Insurance Services, LLC (“Nicolet Insurance”), to facilitate the delivery of a crop insurance product associated with Nicolet’s agricultural lending.
At December 31, 2024, the Parent Company also wholly owns a registered investment advisory firm, Nicolet Advisory Services, LLC (“Nicolet Advisory”), that provides brokerage and investment advisory services to customers, and Nicolet Insurance Services, LLC (“Nicolet Insurance”), to facilitate the delivery of a crop insurance product associated with Nicolet’s agricultural lending.
The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved in the transaction and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed below.
The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved in the transaction and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed below. Change in Control .
Additionally, trust, brokerage and other investment management services predominantly for individuals and retirement plan services for business customers are offered. Nicolet delivers its products and services principally through 56 bank branch locations, online banking, mobile banking and an interactive website. Nicolet’s call center also services customers.
Additionally, trust, brokerage and other investment management services predominantly for individuals and retirement plan services for business customers are offered. Nicolet delivers its products and services principally through 57 bank branch locations, online banking, mobile banking and an interactive website. Nicolet’s call center also services customers.
As of December 31, 2023, the Bank satisfied the requirements of “well-capitalized” under the regulatory framework for prompt corrective action. See Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for regulatory capital ratios of Nicolet and the Bank.
As of December 31, 2024, the Bank satisfied the requirements of “well-capitalized” under the regulatory framework for prompt corrective action. See Note 17, “Regulatory Capital Requirements,” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for regulatory capital ratios of Nicolet and the Bank.
The proposed rules identified general principles for the OCC’s review of applications under the Bank Merger Act, including indicators for applications likely consistent with approval and applications that raise supervisory or regulatory concerns, additional considerations regarding financial stability managerial and financial resources, and convenience and needs statutory factors, and clarify the OCC’s decision process for extending the public comment period or holding a public meeting under the Bank Merger Act.
The rules and policy statement identified general principles for the OCC’s review of applications under the Bank Merger Act, including indicators for applications likely consistent with approval and applications that raise supervisory or regulatory concerns, additional considerations regarding financial stability, managerial and financial resources, and convenience and needs statutory factors, and clarify the OCC’s decision process for extending the public comment period or holding a public meeting under the Bank Merger Act.
Other than the Bank, these subsidiaries are closely related to or incidental to the business of banking and none are individually or collectively significant to Nicolet’s financial position or results as of December 31, 2023.
Other than the Bank, these subsidiaries are closely related to or incidental to the business of banking and none are individually or collectively significant to Nicolet’s financial position or results as of December 31, 2024.
Since its opening in late 2000, though more prominently since 2013, Nicolet has supplemented its organic growth with branch purchase and acquisition transactions. Merger and acquisition (“M&A”) activity has continued to be a source of strong growth for Nicolet, including the successful completion of ten acquisitions since 2012.
Since its opening in late 2000, though more prominently since 2013, Nicolet has supplemented its organic growth with several acquisition transactions. Merger and acquisition (“M&A”) activity has continued to be a source of strong growth for Nicolet, including the successful completion of ten acquisitions since 2012.
Nicolet also offers tuition reimbursement to all employees who wish to pursue their education in a field of study related to their position. Market Area and Competition The Bank is a full-service community bank, providing services ranging from commercial, agricultural, and consumer banking to wealth management and retirement plan services. Nicolet primarily operates in Wisconsin, Michigan, and Minnesota.
Nicolet continues to offer tuition reimbursement to all employees who wish to pursue their education in a field of study related to their position. Market Area and Competition The Bank is a full-service community bank, providing services ranging from commercial, agricultural, and consumer banking to wealth management and retirement plan services. Nicolet primarily operates in Wisconsin, Michigan, and Minnesota.
There are statutory and regulatory requirements applicable to the payment of dividends and other distributions by the Bank, as well as by the Parent Company to its shareholders. In 2023, we began paying dividends on our common stock. During 2023, 2022, and 2021, the Bank paid dividends to the Parent Company of $70 million, $70 million, and $60 million, respectively.
There are statutory and regulatory requirements applicable to the payment of dividends and other distributions by the Bank, as well as by the Parent Company to its shareholders. In 2023, we began paying dividends on our common stock. During 2024, 2023, and 2022, the Bank paid dividends to the Parent Company of $100 million, $70 million, and $70 million, respectively.
These documents are available free of charge to the public on or through the “Investor Relations” section of our website as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. These filings are available to the public on the Internet at the SEC’s website at www.sec.gov.
These documents are available free of charge to the public on or through the “Investor Relations” section of our website as soon as reasonably practicable after we electronically file them with, or furnish it to, the SEC. These filings also are available to the public on the Internet at the SEC’s website at www.sec.gov.
At December 31, 2023 the Bank’s commercial real estate lending levels are below the guidance levels noted above. Enforcement Powers .
At December 31, 2024, the Bank’s commercial real estate lending levels are below the guidance levels noted above. Enforcement Powers .
In addition, Nicolet employees donated over $180,000 to the Nicolet Foundation (which was matched by Nicolet) and donated to local non-profits - all of whom are nominated by employees and selected by a committee of employees. Be Entrepreneurial Nicolet encourages employees to develop their professional skills and advance in their career.
In addition, employees donated over $190,000 to the Nicolet Foundation (which was matched by Nicolet) and donated to local non-profits - all of whom are nominated by employees and selected by a committee of employees. Be Entrepreneurial We encourage employees to develop their professional skills and advance in their career.
In 2023, 29% of all job opportunities were filled by internal mobility. To support the continued training of employees, Nicolet opened a new training facility during 2023 that will be used to expand its learning and development options for all employees, including in person or virtual options.
In 2024, 20% of all job opportunities were filled by internal mobility. To support the continued training of employees, Nicolet recently opened a new training facility that will be used to expand its learning and development options for all employees, including in person or virtual options.
Nicolet also partners with local civic organizations, schools, professional associations, and other organizations to attract, recruit, retain, engage, support, develop, and advance diverse employees. As of December 31, 2023, Nicolet had 976 total employees, of which, approximately 65% were women and 35% were men. In addition, 45% of all officer-titled employees were women.
Nicolet also partners with local civic organizations, schools, professional associations, and other organizations to attract, recruit, retain, engage, support, develop, and advance diverse employees. As of December 31, 2024, Nicolet had 978 total employees, of which, approximately 64% were women and 36% were men. In addition, 45% of all officer-titled employees were women.
At December 31, 2023, Nicolet had total assets of $8.5 billion, loans of $6.4 billion, deposits of $7.2 billion and total stockholders’ equity of $1.0 billion. For the year ended December 31, 2023, Nicolet earned net income of $62 million, or $4.08 per diluted common share.
At December 31, 2024, Nicolet had total assets of $8.8 billion, loans of $6.6 billion, deposits of $7.4 billion and total stockholders’ equity of $1.2 billion. For the year ended December 31, 2024, Nicolet earned net income of $124 million, or $8.05 per diluted common share.
In order to remain a financial holding company, Nicolet must continue to be considered well managed and well capitalized by the Federal Reserve, and the Bank must continue to be considered well managed and well capitalized by the OCC and have at least a “satisfactory” rating under the Community Reinvestment Act. Support of Subsidiary Institutions .
In order to remain a financial holding company, Nicolet must continue to be considered well managed and well capitalized by the Federal Reserve, and the Bank must continue to be considered well managed and well capitalized by the Office of the Comptroller of the Currency (the “OCC”) and have at least a “satisfactory” rating under the Community Reinvestment Act.
During 2023, the Parent Company declared quarterly cash dividends on its common stock totaling $0.75 per share. The Holding Company did not pay cash dividends on its common stock in 2022 or 2021. Stock Buybacks and Other Capital Redemptions.
During 2024 and 2023, the Parent Company declared quarterly cash dividends on its common stock totaling $1.09 and $0.75 per share, respectively. The Holding Company did not pay cash dividends on its common stock prior to 2023. Stock Buybacks and Other Capital Redemptions.
Because the Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations and the FDIC also has examination authority and back-up enforcement power over the Bank.
Because the Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations and the FDIC also has examination authority and back-up enforcement power over the Bank. The Bank is also subject to numerous state and federal statutes and regulations that affect Nicolet, its business, activities, and operations. Mergers.
Be Memorable Nicolet encourages employees to be a memorable part of their communities. In 2023, Nicolet employees reported almost 18,000 total volunteer hours in their respective communities.
Be Memorable We encourage employees to be a memorable part of their communities. In 2024, employees reported almost 18,500 total volunteer hours in their respective communities.
Products and Services Overview Nicolet’s principal business is banking, consisting of lending and deposit gathering, as well as ancillary banking-related products and services, to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage 4 such banking products and services.
For information on recent transactions, see Note 2, “Acquisition,” of the Notes to Consolidated Financial Statements under Part II, Item 8. 4 Products and Services Overview Nicolet’s principal business is banking, consisting of lending and deposit gathering, as well as ancillary banking-related products and services, to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage such banking products and services.
At December 31, 2023, the Bank wholly owns an investment subsidiary based in Nevada, an entity that owns the building in which Nicolet is headquartered, and a subsidiary that provides a web-based investment management platform for financial advisor trades and related activity.
At December 31, 2024, the Bank wholly owns an investment subsidiary based in Nevada and an entity that owns the building in which Nicolet is headquartered.
Nicolet markets its services to owner-managed companies, the individual owners of these businesses, and other residents within its market area, which at December 31, 2023 is through 56 branches located principally within the geographic area of its branch locations. The financial services industry is highly competitive.
Nicolet markets its services to owner-managed companies, the individual owners of these businesses, and other residents within its market areas. At December 31, 2024, our network consisted of 57 branches located principally within our geographic market areas. The financial services industry is highly competitive. Nicolet competes for loans, deposits and wealth management or financial services in all its principal markets.
The Bank is also subject to numerous state and federal statutes and regulations that affect Nicolet, its business, activities, and operations. 8 Mergers. As a national bank, under the National Bank Act and the Bank Merger Act, the Bank is required to obtain the approval of the OCC prior to merging another institution into the Bank.
As a national bank, under the National Bank Act and the Bank Merger Act, the Bank is required to obtain the approval of the OCC prior to merging another institution into the Bank.
Removed
It subsequently became the holding company for Nicolet National Bank upon the completion of the bank’s reorganization into a holding company structure on June 6, 2002. Nicolet elected to become a financial holding company in 2008.
Added
For example, in response to the 2024 survey results, Nicolet created a new Employee Engagement Committee to increase employee interaction and support a sense of belonging. In 2024, Nicolet also appointed a new Chief Experience Officer, who conducted listening sessions throughout the year with the focus of prioritizing Nicolet’s culture and core values throughout its footprint.
Removed
For information on recent transactions, see Note 2, “Acquisitions,” of the Notes to Consolidated Financial Statements under Part II, Item 8.
Added
Be Personal Employees are more than their contributions at work.
Removed
For example, in response to the 2023 survey results, Nicolet made significant additions to its onboarding process and training resources for employees and managers to increase employee confidence and engagement while reducing employee turnover. Be Personal Employees are more than their contributions at work.
Added
On September 17, 2024, the OCC approved a final rule updating its regulations for business combinations involving national banks and a policy statement clarifying its review of applications under the Bank Merger Act.
Removed
Nicolet is also committed to maintaining a workplace that values and promotes diversity, inclusion, equal employment opportunities, and a culture that is free of harassment or hostility.
Added
Under the Trump Administration, it is anticipated that these final rules and policy statement may be further modified.
Removed
In 2022, Nicolet’s Board of Directors adopted the “You Be You” Policy (available on our website under the “About Us” section), setting out its expectation that each employee will act with respectfulness, cultural awareness, and inclusivity toward others by fostering a collaborative work environment, providing a safe space for all employees to express themselves, and encouraging employees to be open and curious about others’ experiences and perspectives.
Removed
Nicolet competes for loans, deposits and wealth management or financial services in all its principal markets.
Removed
On July 9, 2021, President Biden issued an Executive Order on Promoting Competition in the American Economy.
Removed
Among other initiatives, the Executive Order encouraged the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act and the Bank Merger Act, which similarly requires the approval of the federal banking agencies prior to the consummation of any merger involving a bank, and adopt a plan for revitalization of such practices.
Removed
On January 29, 2024, the Office of the Comptroller of the Currency (the “OCC”) proposed to update its rules on business combinations involving national banks.
Removed
There are many steps that must be taken by the agencies before any formal changes to the framework for evaluating bank mergers can be finalized and the prospects for such action are uncertain at this time; however, the adoption of more expansive or prescriptive standards may have an impact on our acquisition activities. Change in Control .
Removed
As noted above, President Biden has encouraged the federal banking agencies to review their current merger oversight practices under the Bank Holding Company Act and the Bank Merger Act, and the OCC has proposed rulemaking to update its rules for business combinations.

Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeSuch a recession or any other adverse changes in business and economic conditions generally or specifically in the markets in which we operate could affect our business, including causing one or more of the following negative developments: • a decrease in the demand for loans and other products and services offered by us; • a decrease in the value of the collateral securing our residential or commercial real estate loans; • a permanent impairment of our assets; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of NPAs, net charge-offs and provision for credit losses.
Biggest changeSuch a decrease in consumer deposits could cause one or more of the following negative developments: • an increase in rates on deposits in an attempt to attract new customers and to persuade existing customers to leave their deposits in their accounts; • a decrease in the value of our pre-existing variable rate loans; • a comparative increase in our pre-existing fixed rate debt; or • an increase in the number of customers or other counterparties who default on their loans or other obligations to us, which could result in a higher level of nonperforming assets (“NPAs”), net charge-offs and provision for credit losses. 17 Risks Associated with Monetary Events The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve.
Actions could be taken that would further limit the amount of interest or fees we can charge, further restrict our ability to collect on loans or realize on collateral, affect the terms or profitability of the products and services we offer, or materially and adversely affect us in other ways.
Actions could be taken that would further limit the amount of interest or fees we can charge, further restrict our ability to collect loans or realize on collateral, affect the terms or profitability of the products and services we offer, or materially and adversely affect us in other ways.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; • a provision requiring that any merger or share exchange involving Nicolet be approved by either: (i) two-thirds of the Nicolet directors then in office and a majority of Nicolet’s outstanding shares of common stock; or (ii) a majority of the Nicolet directors then in officer and two-thirds of Nicolet’s outstanding shares of common stock; 25 • a provision restricting removal of directors except for cause and upon the approval of a majority of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chief executive officer pursuant to a resolution adopted by a majority of the board of directors or the holders of 10% of the outstanding shares of Nicolet’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
These provisions include: • a provision allowing the Board to consider the interests of our employees, customers, suppliers and creditors when considering an acquisition proposal; • a provision that all amendments to the articles and bylaws must be approved by a majority of the outstanding shares of our capital stock entitled to vote; • a provision requiring that any merger or share exchange involving Nicolet be approved by either: (i) two-thirds of the Nicolet directors then in office and a majority of Nicolet’s outstanding shares of common stock; or (ii) a majority of the Nicolet directors then in office and two-thirds of Nicolet’s outstanding shares of common stock; • a provision restricting removal of directors except for cause and upon the approval of a majority of the outstanding shares of our capital stock entitled to vote; • a provision that any special meeting of shareholders may be called only by the chief executive officer pursuant to a resolution adopted by a majority of the Board or the holders of 10% of the outstanding shares of Nicolet’s capital stock entitled to vote; and • a provision establishing certain advance notice procedures for matters to be considered at an annual meeting of shareholders.
Failure 12 to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability which, in turn, could have a material adverse effect on our business, financial condition and results of operations. We may also be affected by the marketplace loosening of credit underwriting standards and structures.
Failure to perform in any of these areas could significantly weaken our competitive position, which could adversely affect our growth and profitability which, in turn, could have a material adverse effect on our business, financial condition and results of operations. We may also be affected by the marketplace loosening of credit underwriting standards and structures.
In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. 17 Lending activities are inherently risky. When we lend money or commit to lend, we incur credit risk or the risk of loss if borrowers do not repay their loans or other credit obligations.
In our business some level of credit charge-offs is unavoidable and overall levels of credit charge-offs can vary substantially over time. Lending activities are inherently risky. When we lend money or commit to lend, we incur credit risk or the risk of loss if borrowers do not repay their loans or other credit obligations.
In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control.
In addition, our ability to raise funds is strongly affected by the general state of the U.S. and world economies and financial markets as well as the policies and 21 capabilities of the U.S. government and its agencies, and may remain or become increasingly difficult due to economic and other factors beyond our control.
These risks include, without limitation, the following: • our inability to identify and expand into suitable markets; • our inability to identify and acquire suitable sites for new branches and service locations; • our inability to identify and execute potential acquisition targets; • our inability to develop accurate estimates and judgments to evaluate asset values and credit, operations, management and market risks with respect to an acquired branch or institution, a new branch office or a new market; • our inability to realize certain assumptions and estimates to preserve the expected financial benefits of the transaction; • our inability to avoid the diversion of our management’s attention from existing operations during the negotiation of a transaction; • our inability to manage successful entry into new markets where we have limited or no direct prior experience; • our inability to obtain regulatory and other approvals, or obtain such approvals without restrictive conditions; • our inability to integrate the acquired business’ operations, clients, and properties quickly and cost-effectively; • our inability to manage cultural assimilation risks associated with growth through acquisitions, which can be an often-overlooked and often-critical failure point in mergers; • our inability to combine the franchise values of businesses that we acquire with those of ours without significant loss from re-branding and other similar changes; or • our inability to retain core clients and key associates.
These risks include, without limitation, the following: • our inability to identify and expand into suitable markets; • our inability to identify and acquire suitable sites for new branches and service locations; • our inability to identify and execute potential acquisition targets; • our inability to develop accurate estimates and judgments to evaluate asset values and credit, operations, management and market risks with respect to an acquired branch or institution, a new branch office or a new market; • our inability to realize certain assumptions and estimates to preserve the expected financial benefits of the transaction; • our inability to avoid the diversion of our management’s attention from existing operations during the negotiation of a transaction; • our inability to manage successful entry into new markets where we have limited or no direct prior experience; • our inability to obtain regulatory and other approvals, or obtain such approvals without restrictive conditions; • our inability to integrate the acquired business’ operations, clients, and properties quickly and cost-effectively; • our inability to manage cultural assimilation risks associated with growth through acquisitions, which can be an often-overlooked and often-critical failure point in mergers; • our inability to combine the franchise values of businesses that we acquire with those of ours without significant loss of employees or customers from re-branding and other similar changes; or • any inability to retain core clients and key associates.
If funding for these lending programs or federal spending generally is reduced as part of the appropriations process or by administrative decision, demand for our services may be reduced. Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity.
If funding for these lending programs or federal spending generally is reduced as part of the 20 appropriations process or by administrative decision, demand for our services may be reduced. Any of these developments could have a material adverse effect on our financial condition, results of operations or liquidity.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material 21 adverse effect on our results of operations or financial condition.
Any such event or failure to manage our liquidity effectively could affect our competitive position, increase our borrowing costs and the interest rates we pay on deposits, limit our access to the capital markets and have a material adverse effect on our results of operations or financial condition.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies whose securities are publicly traded in the U.S. securities 19 markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties.
We are subject to many banking, deposit, insurance, securities brokerage and underwriting, and consumer lending regulations in addition to the rules applicable to all companies whose securities are publicly traded in the U.S. securities markets. Failure to comply with applicable regulations could result in financial, structural, and operational penalties.
Replacing these third-party vendors could also create significant delay and 15 expense. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.
Replacing these third-party vendors could also create significant delay and expense. Because our information technology and telecommunications systems interface with and depend on third-party systems, we could experience service denials if demand for such services exceeds capacity or such third-party systems fail or experience interruptions.
Failure to implement effective controls and procedures or circumvention of our controls and procedures could harm our business, results of operations and financial condition or cause us to fail to meet our public reporting obligations. Geographic and Climate Risks We are subject to risks of operating in various jurisdictions.
Failure to implement effective controls and procedures or circumvention of our controls and procedures could harm our business, results of operations and financial condition or cause us to fail to meet our public reporting obligations. 23 Geographic and Climate Risks We are subject to risks of operating in various jurisdictions.
If the Bank is not permitted to pay cash dividends to the Holding Company, it is unlikely that we would be able to continue to pay dividends on our common stock or to pay interest on our indebtedness. 24 Holders of our indebtedness have rights that are senior to those of our common shareholders.
If the Bank is not permitted to pay cash dividends to the Holding Company, it is unlikely that we would be able to continue to pay dividends on our common stock or to pay interest on our indebtedness. Holders of our indebtedness have rights that are senior to those of our common shareholders.
While we have selected these vendors carefully, we do not control their actions. The failure of these systems, or the termination of a third-party software license or service agreement on which any of these systems is based, could interrupt our operations.
While we have selected these vendors carefully, we do not control their actions. The failure of these systems, or the termination of a third-party 15 software license or service agreement on which any of these systems is based, could interrupt our operations.
These types of loans are typically larger than residential real estate loans or consumer loans. During periods of lower economic growth or challenging economic periods, small to medium-sized businesses may be impacted more severely and more quickly than larger businesses.
These types of loans are typically larger than 18 residential real estate loans or consumer loans. During periods of lower economic growth or challenging economic periods, small to medium-sized businesses may be impacted more severely and more quickly than larger businesses.
Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated. 14 Our ability to conduct and grow our businesses is dependent in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
Our anti-fraud measures are both preventive and, when necessary, responsive; however, some level of fraud loss is unavoidable, and the risk of a major loss cannot be eliminated. 14 Our ability to conduct and grow our businesses depend in part upon our ability to create, maintain, expand, and evolve an appropriate operational and organizational infrastructure, manage expenses, and recruit and retain personnel with the ability to manage a complex business.
It is also not uncommon for other financial institutions to deploy this strategy as well and there is a risk that teams of our employees may be recruited by other financial institutions. Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
It is also common for other financial institutions to deploy this strategy as well and there is a risk that teams of our employees may be recruited by other financial institutions. Additionally, operating our technology systems requires employees with specialized skills that are not readily available in the general employee candidate pool.
Moreover, revenue growth in some business lines increasingly depends upon top talent . In recent years the cost to us of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. We have assembled a management team which has substantial background and experience in banking and financial services in our markets.
Moreover, revenue growth in some business lines increasingly depends upon top talent . In recent years, our cost of hiring and retaining top revenue-producing talent has increased, and that trend is likely to continue. We have assembled a management team which has substantial background and experience in banking and financial services in our markets.
As of December 31, 2023, approximately 76% of our loan portfolio consisted of commercial-related loans, including commercial and industrial loans, owner-occupied CRE, AG production and AG real estate, CRE investment, and construction and land-development loans. Our borrowers under these loans tend to be small to medium-sized businesses.
As of December 31, 2024, approximately 76% of our loan portfolio consisted of commercial-related loans, including commercial and industrial loans, owner-occupied CRE, AG production and AG real estate, CRE investment, and construction and land-development loans. Our borrowers under these loans tend to be small to medium-sized businesses.
The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently. Moreover, the importance of specific risks may grow or diminish as circumstances change.
The following paragraphs highlight certain specific important risk areas related to regulatory matters currently. These paragraphs do not describe these risks exhaustively, and they do not describe all such risks that we face currently. Moreover, the importance of specific risks will grow or diminish as circumstances change.
Although our current strategy is expected to evolve as business conditions change, in 2024 our strategy is to continue to invest resources in our banking businesses and operations as we continue the integration of the businesses and operations of our recent acquisitions, and seek to exploit opportunities for cost and revenue synergies.
Although our current strategy is expected to evolve as business conditions change, our current strategy is to continue to invest resources in our banking businesses and operations as we continue the integration of the businesses and operations of recent 12 acquisitions, and seek to exploit opportunities for cost and revenue synergies.
The holders of our common stock receive dividends only if and when declared by the Nicolet board of directors out of legally available funds. Prior to 2023, Nicolet’s board of directors had not declared a dividend on the common stock since our inception in 2000.
The holders of our common stock receive dividends only if and when declared by the Nicolet board of directors (the “Board”) out of legally available funds. Prior to 2023, the Board had not declared a dividend on the common stock since our inception in 2000.
Any determination relating to the continuation or any change in dividend policy will be made at the discretion of Nicolet’s board of directors and will depend on a number of factors, including the company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the board of directors may deem relevant.
Any 24 determination relating to the continuation or any change in dividend policy will be made at the discretion of the Board and will depend on a number of factors, including the Company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the Board may deem relevant.
Efforts to make systems more robust may make them less adaptable, and vice-versa . Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain client service and compliance at high quality and low cost.
Efforts to make systems more robust may make them less adaptable, and vice-versa . Also, our efforts to control expenses, which is a significant priority for us, increases our operational challenges as we strive to maintain high quality client service and compliance.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally or that relates to parties with whom we have important relationships. Because we conduct most of our business under the “Nicolet” brand, negative public opinion about one business could affect our other businesses.
Negative public opinion could also result from adverse news or publicity that impairs the reputation of the financial services industry generally, such as recent bank failures, or that relates to parties with whom we have important relationships. Because we conduct most of our business under the “Nicolet” brand, negative public opinion about one business could affect our other businesses.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we integrate our recent acquisitions; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality in the context of significant loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; 13 • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change.
These risks include, without limitation, the following: • our inability to attract and retain clients in our banking market areas, particularly as we work to integrate entities that we acquire; • our inability to achieve and maintain growth in our earnings while pursuing new business opportunities; • our inability to maintain a high level of client service while optimizing our physical branch count due to changing client demand, all while expanding our remote banking services and expanding or enhancing our information processing, technology, compliance, and other operational infrastructures effectively and efficiently; • our inability to maintain loan quality while, at the same time, creating loan growth; • our inability to attract sufficient deposits and capital to fund anticipated loan growth; • our inability to maintain adequate common equity and regulatory capital while managing the liquidity and capital requirements associated with growth, especially organic growth and cash-funded acquisitions; • our inability to hire or retain adequate management personnel and systems to oversee and support such growth; • our inability to implement additional policies, procedures and operating systems required to support our growth; • our inability to manage effectively and efficiently the changes and adaptations necessitated by a complex, burdensome, and evolving regulatory environment Although we have in place strategies designed to achieve those elements that are significant to us at present, our challenge is to execute those strategies and adjust them, or adopt new strategies, as conditions change. 13 Industry Disruption Failure to keep pace with technological changes could adversely affect our business.
These restrictions and other consequences of public health issues have resulted in significant adverse effects for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and resulted in a significant number of layoffs and furloughs of employees nationwide and in the regions in which we operate.
These restrictions and other consequences of public health issues may result in significant adverse effects for many different types of businesses, including, among others, those in the hospitality (including hotels and lodging) and restaurant industries, and result in layoffs and furloughs of employees nationwide, including the regions in which we operate.
As of December 31, 2023, we had outstanding subordinated notes of approximately $121.4 million and outstanding trust preferred securities and associated junior subordinated debentures with an aggregate par principal amount of approximately $1.8 million and $48.0 million, respectively. The subordinated notes are senior to our common stock.
As of December 31, 2024, we had outstanding subordinated notes of approximately $115.2 million and outstanding trust preferred securities and associated junior subordinated debentures with an aggregate par principal amount of approximately $1.8 million and $48.0 million, respectively. The subordinated notes are senior to our common stock.
In response to the COVID-19 pandemic, the governments of the states in which we have branches, and most other states, periodically have taken preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
Governments of the states in which we have operations may take preventative or protective actions, such as imposing restrictions on travel and business operations, advising or requiring individuals to limit or forego their time outside of their homes, and ordering temporary closures of businesses that have been deemed to be non-essential.
Additionally, the use of artificial intelligence could exacerbate many of these risks.
Additionally, the use of artificial intelligence and quantum computing could exacerbate many of these risks.
Our credit risk and credit losses can increase if our loans become concentrated to borrowers engaged in the same or similar activities or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions.
We are exposed to higher credit and concentration risk from our commercial-related lending. Our credit risk and credit losses can increase if our loans become concentrated to borrowers engaged in the same or similar activities or to borrowers who as a group may be uniquely or disproportionately affected by economic or market conditions.
Failure to achieve one or more key elements needed for successful business acquisitions could adversely affect our business and earnings.
Failure to achieve one or more key elements needed for successful business acquisitions (including the integration of those businesses) could adversely affect our business and earnings.
Pandemics and widespread outbreaks of communicable diseases (such as COVID-19) have caused and may continue to cause significant disruption in the international and United States economies and financial markets and have had an adverse effect on our business and results of operations.
Pandemics and widespread outbreaks of communicable diseases may cause significant disruption in the international and United States economies and financial markets and could have an adverse effect on our business and results of operations.
Similarly, inventions based on blockchain technology eventually may be the foundation for greatly enhancing transactional security throughout the banking industry, but also eventually may reduce the need for banks as secure deposit-keepers and intermediaries. Operational Risks Fraud is a major, and increasing, operational risk for us and all banks.
Similarly, inventions based on blockchain technology eventually may be the foundation for greatly enhancing transactional security throughout the banking industry, but also eventually may reduce the need for banks as secure deposit-keepers and intermediaries.
If short-term interest rates rise, our results of operations may be negatively impacted if we are unable to increase the rates we charge on loans or earn on our investment securities in excess of the increases we must pay on deposits and our other funding sources.
Additionally, competitor pricing and the resulting negotiations that occur with our customers also impact the rates we collect on loans and pay on deposits. 22 If short-term interest rates rise, our results of operations may be negatively impacted if we are unable to increase the rates we charge on loans or earn on our investment securities in excess of the increases we must pay on deposits and our other funding sources.
Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and loss. The sophistication and methods used to perpetrate fraud continue to evolve as technology changes.
Operational Risks Fraud is a major, and increasing, operational risk for us and all banks. Two traditional areas, deposit fraud (check kiting, wire fraud, etc.) and loan fraud, continue to be major sources of fraud attempts and loss. The sophistication and methods used to perpetrate fraud continue to evolve as technology changes.
Additionally, the use of artificial intelligence could exacerbate many of these risks. We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
We may be required to spend significant capital and other resources to protect against the threat of security breaches and computer viruses, or to alleviate problems caused by security breaches or viruses.
The United States generally and the regions in which we operate specifically have recently experienced, for the first time in decades, significant inflationary pressures, evidenced by higher gas prices, higher food prices and other consumer items.
Inflationary pressures present a potential threat to our results of operations and financial condition. The United States generally and the regions in which we operate specifically have recently experienced, for the first time in decades, significant inflationary pressures, evidenced by higher gas prices, higher food prices and other consumer items.
Nicolet’s corporate organizational documents and the provisions of Wisconsin law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition of Nicolet that you may favor.
Nicolet’s corporate organizational documents and the provisions of Wisconsin law to which we are subject contain certain provisions that could have an anti-takeover effect and may delay, make more difficult or prevent an attempted acquisition of Nicolet that you may favor. 25 Nicolet’s amended and restated articles of incorporation, as amended (our “articles”), and bylaws, as amended (our “bylaws”), contain various provisions that could have an anti-takeover effect and may delay, discourage or prevent an attempted acquisition or change of control of Nicolet.
Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas. Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence.
Technology has helped us reduce costs and improve service, but also has weakened traditional geographic and relationship ties, and has allowed disruptors to enter traditional banking areas by providing payment and exchange services that compete directly with banks in ways not previously possible. Through digital marketing and service platforms, many banks are making client inroads unrelated to physical presence.
The spread of these diseases, including COVID variants, has caused illness and death resulting in quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions, and overall economic and financial market instability.
The spread of 19 these diseases may result in quarantines, cancellation of events and travel, business and school shutdowns, reduction in business activity and financial transactions, supply chain interruptions, and overall economic and financial market instability.
Furthermore, if charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL. Any increases in the ACL will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Any increases in the ACL will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Credit risk includes, among other things, the quality of our underwriting, the impact of increases in interest rates and changes in the economic conditions in the markets where we operate as well as across the United States. These conditions could adversely affect the ability of borrowers to repay outstanding loans or the value of the collateral securing these loans.
Credit risk includes, among other things, the quality of our underwriting, the impact of increases in interest rates and changes in the economic conditions in the markets where we operate as well as across the United States.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected.
In either event, if market interest rates should move contrary to our position, this “gap” may work against us, and our results of operations and financial condition may be negatively affected. A flat or inverted yield curve may reduce our net interest margin and adversely affect our loan and investment portfolios.
Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well. 20 Liquidity and Funding Risk Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity could materially impair our ability to fund our operations and jeopardize our results of operation, financial condition and cash flows.
Liquidity and Funding Risk Liquidity is essential to our business model and a lack of liquidity, or an increase in the cost of liquidity could materially impair our ability to fund our operations and jeopardize our results of operation, financial condition and cash flows.
The estimate that is consistently one of our most critical is the level of the allowance for credit losses. However, other estimates can be highly significant at discrete times or during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time.
However, other estimates can be highly significant at discrete times or during periods of varying length, for example the valuation (or impairment) of our deferred tax assets. Estimates are made at specific points in time. As actual events unfold, estimates are adjusted accordingly.
Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity. However, such unrealized losses do not affect our regulatory capital ratios.
As market interest rates have increased, we have experienced significant unrealized losses on our available for sale securities portfolio. Unrealized losses related to available for sale securities are reflected in accumulated other comprehensive income in our consolidated balance sheets and reduce the level of our book capital and tangible common equity.
Industry Disruption Failure to keep pace with technological changes could adversely affect our business. The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven innovations (such as the use of artificial intelligence and machine learning), products and services as well as evolving industry standards. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs.
We operate in markets in which natural disasters, including tornadoes, severe storms, fires, floods, hurricanes and earthquakes have occurred. Such natural disasters could significantly affect the local population and economies, the activities of many of our customers and clients, and our business, and could pose physical risks to our properties.
Such natural disasters could significantly affect the local population and economies, the activities of many of our customers and clients, and our business, and could pose physical risks to our properties.
Failure to maintain certain regulatory capital levels and ratios could result in regulatory actions that would be materially adverse to our shareholders. U.S. capital standards are discussed under the captions Capital Adequacy and Prompt Corrective Action in Part I, Item 1, and the caption “Capital” in Part II, Item 7, of this Report.
U.S. capital standards are discussed under the captions Capital Adequacy and Prompt Corrective Action in Part I, Item 1, and the caption “Capital” in Part II, Item 7, of this Report.
If we are required to materially increase our level of ACL for any reason, such increase could adversely affect our business, financial condition and results of operations . 18 In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management.
In addition, bank regulatory agencies periodically review our ACL and may require an increase in the provision for credit losses or the recognition of further loan charge-offs, based on judgments different than those of management. Furthermore, if charge-offs in future periods exceed the ACL, we will need additional provisions to increase the ACL.
Risks Related to Public Health Issues, Including COVID-19 Outbreaks of communicable diseases, such as COVID-19 and its variants, have led to periods of significant volatility in financial, commodities (including oil and gas) and other markets, adversely affected our ability to conduct normal business, adversely affected our clients, and are likely to harm our businesses, financial condition and results of operations.
Risks Related to Public Health Issues Pandemics and outbreaks of communicable diseases may lead to periods of significant volatility in financial and other markets, and could adversely affect our ability to conduct normal business, our clients, and could harm our businesses, financial condition and results of operations.
The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates. Historically, the yield curve is usually upward sloping (higher rates for longer terms).
The yield curve is a reflection of interest rates applicable to short and long-term debt. The yield curve is steep when short-term rates are much lower than long-term rates; it is flat when short-term rates and long-term rates are nearly the same; and it is inverted when short-term rates exceed long-term rates.
Management must make significant assumptions and estimates and exercise significant judgment in selecting and applying accounting and reporting policies. In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative.
In some cases, management must select a policy from two or more alternatives, any of which may be reasonable under the circumstances, which may result in reporting materially different results than would have been reported under a different alternative. The estimate that is consistently one of our most critical is the level of the allowance for credit losses.
Inflation represents a loss in purchasing power because the value of investments does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time. Accordingly, inflation can result in material adverse effects upon our customers, their businesses and, as a result, our financial position and results of operation.
Inflation represents a loss in purchasing power because the value of investments often does not keep up with inflation and erodes the purchasing power of money and the potential value of investments over time.
We actively monitor our available for sale securities portfolio and we do not currently anticipate the need to realize material losses from the sale of securities for liquidity purposes. Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost base, which may be at maturity.
Furthermore, we believe it is unlikely that we would be required to sell any such securities before recovery of their amortized cost base, which may be at maturity.
Through technological innovations and changes in client habits, the manner in which clients use financial services continues to change at a rapid pace. We provide a large number of services remotely (online and mobile), and physical branch utilization has been in long-term decline throughout the industry for many years.
Failure to keep pace with evolving habits of customers in how they use financial services could hinder ongoing customer acquisition and retention efforts. We provide a large number of services remotely (online and mobile), and physical branch utilization has been in long-term decline throughout the industry for many years.
Neither is a banking industry regulation, but both apply to banks in relation to certain clients.
Neither is a banking industry regulation, but both apply to banks in relation to certain clients. Further general regulation to protect data privacy appears likely, and banking industry regulations might be enlarged as well.
Moreover, the higher costs we must pay to hire and retain these experienced individuals could cause our noninterest expense levels to rise and negatively impact our results of operations. Risks From Changes in Economic Conditions Inflationary pressures present a potential threat to our results of operation and financial condition.
Moreover, the higher costs we must pay to hire and retain these experienced individuals could cause our noninterest expense levels to rise and negatively impact our results of operations. Our accounting estimates and risk management processes rely on analytical and forecasting models.
We cannot predict how long those conditions will exist. See Risks Associated with Monetary Events within this section of the Report for additional information. 22 Accounting and Tax Risks The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant assumptions, estimates and judgments that affect the financial statements.
Accounting and Tax Risks The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make significant assumptions, estimates and judgments that affect the financial statements. Management must make significant assumptions and estimates and exercise significant judgment in selecting and applying accounting and reporting policies.
Generally, in periods of economic downturns, including periods of rising interest rates and recessions, our realized credit losses increase, demand for our products and services declines, and the credit quality of our loan portfolio declines. Our success depends significantly upon local, national and global economic and political conditions, as well as governmental monetary policies and trade relations.
See Risks Associated With Monetary Events and Interest Rate and Yield Curve Risks in this Item 1A of this report. Generally, in periods of economic downturns, including periods of rising interest rates and recessions, our realized credit losses increase, demand for our products and services declines, and the credit quality of our loan portfolio declines.
For example, national monetary policy implemented by the Federal Reserve plays a significant role in the determination of interest rates. Additionally, competitor pricing and the resulting negotiations that occur with our customers also impact the rates we collect on loans and pay on deposits.
For example, national monetary policy implemented by the Federal Reserve plays a significant role in the determination of interest rates.
Risks Associated with Monetary Events The Federal Reserve has implemented significant economic strategies that have affected interest rates, inflation, asset values, and the shape of the yield curve. These strategies have had, and will continue to have, a significant impact on our business and on many of our clients.
These strategies have had, and will continue to have, a significant impact on our business and on many of our clients. In 2022 and much of 2023, in response to inflationary pressures, the Federal Reserve increased interest rates substantially. In 2024, in response to decreasing rates of inflation, the Federal Reserve decreased interest rates.
We are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies. 23 Natural disasters and weather-related events exacerbated by climate change could have a negative impact on our results of operations and financial condition.
As of December 31, 2024, approximately 36% of our loans were secured by commercial-based real estate, 14% of loans were secured by agriculture-based real estate, and 23% of our loans were secured by residential real estate. We are less able than larger institutions to spread the risks of unfavorable local economic conditions across a larger number of more diverse economies.
As of December 31, 2023, approximately 29% of our deposits were uninsured and we rely on these deposits for liquidity. A failure to maintain adequate liquidity could have a material adverse effect on our business, financial condition and results of operations.
As a result, in the event of financial distress, uninsured depositors historically have been more likely to withdraw their deposits. As of December 31, 2024, approximately 30% of our deposits were uninsured and we rely on these deposits for liquidity.
As discussed elsewhere in this Item 1A, inflationary 16 pressures have caused the Federal Reserve to recently increase interest rates and indicate its intention to continue to do so if inflationary pressures continue or return.
As discussed elsewhere in this Item 1A, inflationary pressures have lessened, which has caused the Federal Reserve to recently decrease interest rates. Decreases in interest rates in the past have led to increased consumer spending, which could lower consumer deposit amounts.
If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer. We are exposed to higher credit and concentration risk from our commercial-related lending.
Rising interest rates, inflation and a weakening economy could adversely affect the ability of some borrowers to repay outstanding loans as well as the value of the collateral securing some of these loans. If loan customers with significant loan balances fail to repay their loans, our results of operations, financial condition and capital levels will suffer.
Inflation also can and does generally lead to higher interest rates, which have their own separate risks. See Risks Associated With Monetary Events and Interest Rate and Yield Curve Risks in this Item 1A of this report.
Accordingly, inflation can result in material adverse effects upon our customers, their businesses (as a result of rising costs, including labor) and, as a result, our financial position and results of operation. Inflation also can and does generally lead to higher interest rates, which have their own separate risks.
However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years. A flat or inverted yield curve, which tends to decrease net interest margin, would adversely impact our lending businesses and investment portfolio. The Federal Reserve, consistent with long-term goals, has been raising rates in response to inflation.
Historically, the yield curve is usually upward sloping (higher rates for longer terms). However, the yield curve can be relatively flat or inverted (downward sloping), which has happened several times in the past few years, which is often seen as a bad sign for the economy.
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We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse effect on our business, financial condition and results of operations.
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In addition, larger institutions may have the advantage of being perceived by the public as more secure in times of financial uncertainty as evidenced by the migration of deposits to large banks in response to certain bank failures that occurred in 2023.
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Increases in interest rates in the past have led to recessions of various lengths and intensities and might lead to such a recession in the near future.
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If we are unable to provide enhancements and new features and integrations for our existing platform, develop new products that achieve market acceptance, or innovate quickly enough to keep pace with these rapid technological developments, our business could be harmed.
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In response to the recession in 2008 and the following uneven recovery, the Federal Reserve implemented a series of domestic monetary initiatives designed to lower interest rates and make credit easier to obtain. The Federal Reserve changed course in 2015, raising interest rates several times through 2018.
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Our success in the competitive environment in which we operate requires consistent investment of capital and human resources in innovation, particularly in light of the current “FinTech” environment, in which the financial services industry is undergoing rapid technological changes and financial institutions are investing significantly in evaluating new technologies, such as artificial intelligence, machine learning, blockchain and other distributed ledger technologies, and developing potentially industry-changing new products, services and industry standards.
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Following a substantial and broad stock market decline in 2019, and the onset of the COVID-19 pandemic, the Federal Reserve lowered interest rates, which, until 2022, remained at historically low levels. In 2022, however, in response to inflationary pressures, the Federal Reserve increased interest rates substantially.
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Our investment is directed at generating new products and services, and adapting existing products and services to the evolving standards and demands of the marketplace. Among other things, investing in innovation helps us maintain a mix of products and services that keeps pace with our competitors and achieve acceptable margins.
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In 2023, the Federal Reserve continued to increase interest rates, but in December 2023, indicated its intention to begin to decrease interest rates in 2024 in response to moderating rates of inflation.
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Additionally, as the Company grows through acquisitions and pursues new initiatives that improve our operations and cost structure, the Company is also expanding and improving its information technologies, resulting in a larger technological presence, utilization of “cloud” computing services, and corresponding exposure to cybersecurity risk.
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This has recently been accompanied by a surge in flu and other respiratory illnesses of varying seriousness and magnitude.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeTo our knowledge, no cybersecurity incidents or threats have resulted in a reportable event, and have not materially impacted Nicolet’s operations or financial condition. For additional discussion of cybersecurity risks, see Item 1A, “Risk Factors – Operational Risks.” Governance Our Chief Information Security Officer (“CISO”) is responsible for managing our information security team and implementing the Information Security Program.
Biggest changeFor additional discussion of cybersecurity risks, see Item 1A, “Risk Factors – Operational Risks.” Governance Our Chief Information Security Officer (“CISO”) is responsible for managing our information security team and implementing the Information Security Program, in conjunction with our CIO and Director of IT.
The underlying controls of this security program are based on the guidelines and frameworks provided by the Office of the Comptroller of the Currency (the “OCC”), the Federal Financial Institutions Examination Council (the “FFIEC”), and the National Institute of Standards and Technology (“NIST”), as well as industry best practices and standards.
The underlying controls of this security program are based on the guidelines and frameworks provided by the Office of the 26 Comptroller of the Currency (the “OCC”), the Federal Financial Institutions Examination Council (the “FFIEC”), and the National Institute of Standards and Technology (“NIST”), as well as industry best practices and standards.
Process and technology controls include identity, authentication, authorization, account management, and access, along with monitoring and logging for tracking events. 26 • Security Architecture & Engineering – Our security is tailored around industry best practices and guidance.
Process and technology controls include identity, authentication, authorization, account management, and access, along with monitoring and logging for tracking events. • Security Architecture & Engineering – Our security is tailored around industry best practices and guidance.
This committee includes members of information security, compliance, audit, human resources, legal, operations, banking, and wealth.
This committee includes members of information security, risk, compliance, audit, human resources, legal, operations, banking, and wealth.
Our management IT Steering Committee has established an Information Security Program, which includes appropriate security risk assessments, security monitoring, incident response, policies, operating standards, compliance, and employee training.
Our management Info Sec Steering Committee has established an Information Security Program, which includes appropriate security risk assessments, security monitoring, incident response, policies, operating standards, compliance, and employee training.
More frequent meetings may occur in accordance with the incident response plan to facilitate timely assessment, monitoring, and reporting. The Board is actively engaged in oversight of our cybersecurity practices, with the Audit & Compliance Committee having primary oversight responsibility.
More frequent meetings may occur in accordance with the incident response plan to facilitate timely assessment, monitoring, and reporting. The Board is actively engaged in oversight of our cybersecurity practices, with the Risk and Audit Committees having primary oversight responsibility.
The team includes information security professionals with varying degrees of education and experience, and many team members are subject to professional education and certification requirements. In particular, our CISO has substantial relevant experience in the areas of physical security, information security, and cybersecurity risk management. The management IT Steering Committee provides oversight and governance of the Information Security Program.
The team includes information security professionals with varying degrees of education and experience, and many team members are subject to professional education and certification requirements. In particular, our information security team has substantial relevant experience in the areas of information security and cybersecurity risk management. The management Info Sec Steering Committee provides oversight and governance of the Information Security Program.
These updates cover external cybersecurity hot topics and notable events, current and emerging threats, cybersecurity program achievements and progress on key initiatives, key performance indicators, key risk indicators and notable internal events. In addition, the Audit Committee receives prompt reporting and updates on significant cybersecurity-related incidents.
These updates cover external cybersecurity hot topics and notable events, current and emerging threats, cybersecurity program achievements and progress on key initiatives, key performance indicators, key risk indicators, and notable internal events.
The Audit & Compliance Committee reviews and approves the information security program on an annual basis, as well as receives management updates about information security matters on at least a quarterly basis. Additionally, the full Board receives regular presentations by our CISO regarding pertinent cyber and information security topics.
The Risk Committee reviews and approves the information security program on an annual basis, as well as receives management updates about information security matters on at least a quarterly basis. In addition, the Audit Committee receives prompt reporting and updates on IT audits and material cybersecurity-related incidents. The full Board receives regular presentations regarding pertinent cyber and information security topics.
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To our knowledge, no cybersecurity incidents or threats have resulted in a reportable event, and have not materially impacted Nicolet’s operations or financial condition.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeNone of the owned properties are subject to a mortgage or similar encumbrance. Two leased locations involve directors, with lease terms that management considers arms-length. For additional disclosure, see Note 15, “Related Party Transactions,” of the Notes to Consolidated Financial Statements under Part II, Item 8.
Biggest changeNone of the owned properties are subject to a mortgage or similar encumbrance. Two formerly leased locations involved directors, with lease terms that management considers arms-length. Both of these leases were terminated during 2024. For additional disclosure, see Note 15, “Related Party Transactions,” of the Notes to Consolidated Financial Statements under Part II, Item 8.
ITEM 2. PROPERTIES The corporate headquarters of both the Parent Company and the Bank are located at 111 North Washington Street, Green Bay, Wisconsin. At year-end 2023, including the main office, the Bank operated 56 bank branch locations, 44 of which are owned and 12 that are leased.
ITEM 2. PROPERTIES The corporate headquarters of both the Parent Company and the Bank are located at 111 North Washington Street, Green Bay, Wisconsin. At year-end 2024, including the main office, the Bank operated 57 bank branch locations, 46 of which are owned and 11 27 that are leased.

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeFor additional disclosure, see Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements under Part II, Item 8. 27 ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II
Biggest changeFor additional disclosure, see Note 14, “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements under Part II, Item 8. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changePeriod: Total Number of Shares Purchased (#) (a) Average Price Paid per Share ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (#) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (#) (b) October 1 – October 31, 2023 — $ — — November 1– November 30, 2023 4,587 $ 77.14 — December 1 – December 31, 2023 — $ — — Total 4,587 $ 77.14 — 571,200 (a) During fourth quarter 2023, the Company withheld 3,637 common shares for minimum tax withholding settlements on restricted stock and the Company withheld 950 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises.
Biggest changePeriod: Total Number of Shares Purchased (#) (a) Average Price Paid per Share ($) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (#) Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (#) (b) October 1 – October 31, 2024 932 $ 104.99 — November 1– November 30, 2024 11,901 $ 112.52 1,451 December 1 – December 31, 2024 91,080 $ 109.77 90,989 Total 103,913 $ 110.04 92,440 341,600 (a) During fourth quarter 2024, the Company withheld 2,347 common shares for minimum tax withholding settlements on restricted stock and the Company withheld 9,126 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises.
These are not considered “repurchases” and, therefore, do not count against the maximum number of shares that may yet be purchased under the board of directors’ authorization. (b) The board of directors approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to $276 million to repurchase outstanding shares of common stock.
These are not considered “repurchases” and, therefore, do not count against the maximum number of shares that may yet be purchased under the Board authorization. (b) The Board approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to $276 million to repurchase outstanding shares of common stock.
Stock Repurchases . The following table contains information regarding purchases of Nicolet’s common stock made during fourth quarter 2023 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
Stock Repurchases . The following table contains information regarding purchases of Nicolet’s common stock made during fourth quarter 2024 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
The graph assumes the value of the investment in the Company’s common stock and in each index was $100 on December 31, 2018. Historical stock price performance shown on the graph is not necessarily indicative of the future price performance.
The graph assumes the value of the investment in the Company’s common stock and in each index was $100 on December 31, 2019. Historical stock price performance shown on the graph is not necessarily indicative of the future price performance.
BMI Banks Index for the period of December 31, 2018 to December 31, 2023. The S&P U.S. BMI Banks Index tracks the performance of all U.S. domiciled bank companies with float-adjusted market capitalization of at least $100 million.
BMI Banks Index for the period of December 31, 2019 to December 31, 2024. The S&P U.S. BMI Banks Index tracks the performance of all U.S. domiciled bank companies with float-adjusted market capitalization of at least $100 million.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock . Nicolet’s common stock trades on the New York Stock Exchange under the symbol “NIC”. As of February 26, 2024, Nicolet had approximately 3,400 shareholders of record. Dividends . In 2023, we began paying dividends on our common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Stock. Nicolet’s common stock trades on the New York Stock Exchange under the symbol “NIC”. As of February 25, 2025, Nicolet had approximately 3,100 shareholders of record. Dividends . In 2023, we began paying dividends on our common stock.
Our Board declared quarterly cash dividends totaling $0.75 per share on our common stock in 2023. We currently intend to continue to pay comparable quarterly cash dividends on our common stock, subject to approval by our Board, although we may elect not to pay dividends or to change the amount of such dividends.
Our Board declared quarterly cash dividends totaling $1.09 per share on our common stock in 2024. We currently intend to continue to pay comparable quarterly cash dividends on our common stock, subject to approval by our Board, although we may elect not to pay dividends or to change the amount of such dividends.
At December 31, 2023, approximately $46 million remained available under this common stock repurchase program, or approximately 571,200 shares of common stock (based on the closing stock price of $80.48 on December 31, 2023). 28 Performance Graph The following graph shows the cumulative stockholder return on our common stock compared with the S&P 500 Index and the S&P U.S.
At December 31, 2024, approximately $36 million remained available under this common stock repurchase program, or approximately 341,600 shares of common stock (based on the closing stock price of $104.91 on December 31, 2024). 28 Performance Graph The following graph shows the cumulative stockholder return on our common stock compared with the S&P 500 Index and the S&P U.S.
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Period Ending Index 2018 2019 2020 2021 2022 2023 Nicolet Bankshares, Inc. $ 100.00 $ 151.33 $ 135.96 $ 175.72 $ 163.50 $ 166.65 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 S&P U.S. BMI Bank Index 100.00 137.36 119.83 162.92 135.13 147.41 Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 29
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Period Ending Index 2019 2020 2021 2022 2023 2024 Nicolet Bankshares, Inc. $ 100.00 $ 89.84 $ 116.11 $ 108.04 $ 110.13 $ 145.27 S&P 500 Index 100.00 118.40 152.39 124.79 157.59 197.02 S&P U.S. BMI Bank Index 100.00 87.24 118.61 98.38 107.32 143.68 Source: S&P Global Market Intelligence ITEM 6. [RESERVED] 29

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeIn the meantime, the Board expects to remain diligent as to how it allocates shareholder capital, whether it be through organic growth, M&A, share repurchases, an increase to the shareholder dividend, or most likely, some combination of the four. 32 Table 1: Earnings Summary and Selected Financial Data At and for the years ended December 31, (in thousands, except per share data) 2023 2022 2021 Results of operations: Net interest income $ 241,516 $ 239,961 $ 157,955 Provision for credit losses 4,990 11,500 14,900 Noninterest income 35,972 57,920 67,364 Noninterest expense 185,866 160,644 129,297 Income before income tax expense 86,632 125,737 81,122 Income tax expense 25,116 31,477 20,470 Net income $ 61,516 $ 94,260 $ 60,652 Earnings per common share: Basic $ 4.17 $ 6.78 $ 5.65 Diluted $ 4.08 $ 6.56 $ 5.44 Common shares: Basic weighted average 14,743 13,909 10,736 Diluted weighted average 15,071 14,375 11,145 Year-End Balances: Loans $ 6,353,942 $ 6,180,499 $ 4,621,836 Allowance for credit losses - loans (“ACL-Loans”) 63,610 61,829 49,672 Total assets 8,468,678 8,763,969 7,695,037 Deposits 7,197,800 7,178,921 6,465,916 Stockholders’ equity (common) 1,039,007 972,529 891,891 Book value per common share $ 69.76 $ 66.20 $ 63.73 Tangible book value per common share (1) $ 43.28 $ 38.81 $ 39.47 Financial Ratios: Return on average assets 0.73 % 1.20 % 1.15 % Return on average common equity 6.28 10.63 9.74 Return on average tangible common equity (1) 10.58 17.96 14.74 Stockholders’ equity to assets 12.27 11.10 11.59 Tangible common equity to tangible assets (1) 7.98 6.82 7.51 Reconciliation of Non-GAAP Financial Measures: Adjusted net income reconciliation: (2) Net income (GAAP) $ 61,516 $ 94,260 $ 60,652 Adjustments: Provision expense (3) 2,340 8,000 14,400 Assets (gains) losses, net 32,808 (3,130) (4,181) Merger-related expense 189 1,664 5,651 Contract termination charge 2,689 — — Branch closure expense — — 944 Adjustments subtotal 38,026 6,534 16,814 Tax on Adjustments 7,415 1,634 4,204 Tax impact of Wisconsin tax law change (4) 9,118 — — Adjusted net income (Non-GAAP) $ 101,245 $ 99,161 $ 73,263 Adjusted Diluted earnings per common share (Non-GAAP) $ 6.72 $ 6.90 $ 6.57 Tangible assets: Total assets $ 8,468,678 $ 8,763,969 $ 7,695,037 Goodwill and other intangibles, net 394,366 402,438 339,492 Tangible assets $ 8,074,312 $ 8,361,531 $ 7,355,545 Tangible common equity: Stockholders’ equity (common) $ 1,039,007 $ 972,529 $ 891,891 Goodwill and other intangibles, net 394,366 402,438 339,492 Tangible common equity $ 644,641 $ 570,091 $ 552,399 Tangible average common equity: Average stockholders’ equity (common) $ 979,366 $ 886,385 $ 622,903 Average goodwill and other intangibles, net 398,106 361,471 211,463 Average tangible common equity $ 581,260 $ 524,914 $ 411,440 (1) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets exclude goodwill and other intangibles, net.
Biggest changeWhile Nicolet accomplished that in 2024, management understands the slate is wiped clean each year, and that it takes the efforts of our more than 950 employees to reproduce those results each year. 31 Table 1: Earnings Summary and Selected Financial Data At and for the years ended December 31, (in thousands, except per share data) 2024 2023 2022 Results of operations: Net interest income $ 268,065 $ 241,516 $ 239,961 Provision for credit losses 3,850 4,990 11,500 Noninterest income 82,267 35,972 57,920 Noninterest expense 191,353 185,866 160,644 Income before income tax expense 155,129 86,632 125,737 Income tax expense 31,070 25,116 31,477 Net income (GAAP) $ 124,059 $ 61,516 $ 94,260 Earnings per Common Share (“EPS”): Basic EPS $ 8.24 $ 4.17 $ 6.78 Diluted EPS (GAAP) $ 8.05 $ 4.08 $ 6.56 Adjusted Net Income & Diluted EPS (Non-GAAP): Adjusted net income (Non-GAAP) (1) $ 120,668 $ 101,245 $ 99,161 Adjusted diluted EPS (Non-GAAP) (1) $ 7.83 $ 6.72 $ 6.90 Common shares: Basic weighted average 15,049 14,743 13,909 Diluted weighted average 15,416 15,071 14,375 Year-End Balances: Loans $ 6,626,584 $ 6,353,942 $ 6,180,499 Allowance for credit losses - loans (“ACL-Loans”) 66,322 63,610 61,829 Total assets 8,796,795 8,468,678 8,763,969 Deposits 7,403,684 7,197,800 7,178,921 Stockholders’ equity (common) 1,172,898 1,039,007 972,529 Book value per common share $ 76.38 $ 69.76 $ 66.20 Tangible book value per common share (2) $ 51.10 $ 43.28 $ 38.81 Financial Ratios: Return on average assets 1.45 % 0.73 % 1.20 % Return on average common equity 11.27 6.28 10.63 Return on average tangible common equity (2) 17.50 10.58 17.96 Stockholders’ equity to assets 13.33 12.27 11.10 Tangible common equity to tangible assets (2) 9.33 7.98 6.82 (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.
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.
Potential problem loans are generally defined to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms.
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 47 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.
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.
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 49 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.
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.
In addition to the discussion that follows, accounting policies for 43 loans and the ACL-Loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional credit quality disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, accounting policies for loans and the ACL-Loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional credit quality disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
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. Management continues to actively work with customers and monitor credit risk from the ongoing macroeconomic challenges.
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. Management continues to actively work with customers and 42 monitor credit risk from the ongoing macroeconomic challenges.
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.
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 Asset and Liability Committee.
Income Taxes Nicolet is subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different 50 interpretations.
Income Taxes Nicolet is subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations.
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, as more fully described in “Business—Regulation of the Bank – Payment of Dividends” and in Note 17, “Regulatory Capital Requirements,” in the Notes to the Consolidated Financial Statements under Part II, Item 8.
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, as more fully described in “Business—Regulation of the Bank – Payment of Dividends” under Part I, Item 1, and in Note 17, “Regulatory Capital Requirements,” in the Notes to the Consolidated Financial Statements under Part II, Item 8.
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 December 31, 2023 and 2022, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 15 below.
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 December 31, 2024 and 2023, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 15 below.
Among other scenarios, Nicolet 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 changed interest rate environment.
Among other scenarios, Nicolet 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.
While management uses currently available information to recognize expected credit losses on loans, future adjustments to the ACL-Loans may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flow, and changes in economic conditions or forecasts that affect Nicolet’s customers.
While management uses currently available information to recognize expected credit losses on loans, future adjustments to the ACL-Loans may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flows, and changes in economic conditions or forecasts that affect Nicolet’s customers.
Deposits Deposits represent Nicolet’s largest source of liquidity, which provide a stable and lower-cost funding source. Deposits 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, such as mutual funds, money market funds, annuities, and other brokerage investment products.
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, such as mutual funds, money market funds, annuities, and other brokerage investment products.
As of December 31, 2023, 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.
As of December 31, 2024, 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.
The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At December 31, 2023, 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.
The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At December 31, 2024, 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.
Asset quality trends have been solid and net charge-offs were negligible for both years. 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-Loans.
Asset quality trends have been solid and net charge-offs were negligible for all years. 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-Loans.
See Note 9, “Short and Long-Term Borrowings,” of the Notes to Consolidated Financial Statements under Part II, Item 8 for additional disclosures and see section “Liquidity Management,” for information on available funding sources at December 31, 2023.
See Note 9, “Short and Long-Term Borrowings,” of the Notes to Consolidated Financial Statements under Part II, Item 8 for additional disclosures and see section “Liquidity Management,” for information on available funding sources at December 31, 2024.
Table 11: Investment Securities Portfolio Maturity Distribution (1) Securities AFS at December 31, 2023 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Mortgage- backed Securities Total Amortized Cost Total Fair Value (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount U.S.
Table 11: Investment Securities Portfolio Maturity Distribution (1) Securities AFS at December 31, 2024 Within One Year After One but Within Five Years After Five but Within Ten Years After Ten Years Mortgage- backed Securities Total Amortized Cost Total Fair Value (in thousands) Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount U.S.
The amounts presented below exclude amounts due for interest, if applicable, and include any unamortized premiums / discounts or other similar carrying value adjustments. As of December 31, 2023, Nicolet had the following contractual obligations.
The amounts presented below exclude amounts due for interest, if applicable, and include any unamortized premiums / discounts or other similar carrying value adjustments. As of December 31, 2024, Nicolet had the following contractual obligations.
For additional information regarding nonperforming assets see “BALANCE SHEET ANALYSIS – Nonperforming Assets.” 41 The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date.
For additional information regarding nonperforming assets see “BALANCE SHEET ANALYSIS – Nonperforming Assets.” 40 The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date.
The loan portfolio is widely diversified and included the following industries: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the distribution of our commercial loan portfolio at December 31, 2023.
The loan portfolio is widely diversified and included the following industries: 38 manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the distribution of our commercial loan portfolio at December 31, 2024.
For a discussion of 2022 results compared to 2021, see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2023, which information under that caption is incorporated herein by reference.
For a discussion of 2023 results compared to 2022, see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023, filed with the SEC on February 28, 2024, which information under that caption is incorporated herein by reference.
Nicolet also had other investments of $58 million and $65 million at December 31, 2023 and 2022, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies.
Nicolet also had other investments of $61 million and $58 million at December 31, 2024 and 2023, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies.
At December 31, 2023, interest rate lock commitments to originate residential mortgage loans held for sale of $13 million (included in the commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale of $13 million are considered derivative instruments.
At December 31, 2024, interest rate lock commitments to originate residential mortgage loans held for sale of $13 million (included in the commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale of $12 million are considered derivative instruments.
The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At December 31, 2023, the Parent Company had $88 million in cash.
The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At December 31, 2024, the Parent Company had $189 million in cash.
Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At December 31, 2023, there remained $46 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.
Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At December 31, 2024, there remained $36 million authorized under this 47 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.
The Company’s most liquid assets are cash and due from banks and 46 interest-earning deposits, which totaled $491 million and $155 million at December 31, 2023 and 2022, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.
The Company’s most liquid assets are cash and due from banks and interest-earning deposits, which totaled $536 million and $491 million at December 31, 2024 and 2023, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.
Notable contributions to the change in noninterest income were: • Wealth management fee income was $24 million for 2023, up $3 million (14%) from 2022, on 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 (“MSRs”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any.
Notable contributions to the change in noninterest income were: • Wealth management fee income was $27 million for 2024, up $4 million (16%) from 2023, on 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 (“MSRs”), servicing fees net of MSR amortization, fair value marks on the mortgage interest rate lock commitments and forward commitments (“mortgage derivatives”), and MSR valuation changes, if any.
Comparison of 2023 versus 2022 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.
Comparison of 2024 versus 2023 The Federal Reserve raised short-term interest rates a total of 425 bps during 2022, and additional increases totaling 100 bps were made during 2023, resulting in a Federal Funds range of 5.25% to 5.50% as of December 31, 2023.
INCOME STATEMENT ANALYSIS Net Interest Income Net interest income is the primary source of Nicolet’s revenue, and is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings.
INCOME STATEMENT ANALYSIS Net Interest Income Net interest income is the primary source of Nicolet’s revenue, and is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and wholesale funding.
Table 15: Interest Rate Sensitivity December 31, 2023 December 31, 2022 200 bps decrease in interest rates (1.1) % (0.7) % 100 bps decrease in interest rates (0.6) % (0.4) % 100 bps increase in interest rates 0.6 % — % 200 bps increase in interest rates 1.2 % 0.1 % 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.
Table 15: Interest Rate Sensitivity December 31, 2024 December 31, 2023 200 bps decrease in interest rates (2.5) % (1.1) % 100 bps decrease in interest rates (1.3) % (0.6) % 100 bps increase in interest rates 1.3 % 0.6 % 200 bps increase in interest rates 2.6 % 1.2 % 46 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.
Income Taxes Income tax expense was $25 million (effective tax rate of 29.0%) for 2023, compared to $31 million (effective tax rate of 25.0%) for 2022.
Income Taxes Income tax expense was $31 million (effective tax rate of 20.0%) for 2024, compared to $25 million (effective tax rate of 29.0%) for 2023.
In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 26% and 21%, respectively, of the ACL-Loans at December 31, 2022. This change in allocated ACL-Loans was attributable to the change in loan portfolio composition, as well as changes in current and forecasted risk trends within loan categories.
In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24%, 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023. This change in allocated ACL-Loans was attributable to changes in current and forecasted risk trends within loan categories, as well as changes in loan portfolio composition.
Commercial Loan Portfolio by Industry Type (based on NAICS codes) 40 Table 7: Loan Maturity Distribution The following table presents the maturity distribution of the loan portfolio at December 31, 2023.
Commercial Loan Portfolio by Industry Type (based on NAICS codes) 39 Table 7: Loan Maturity Distribution The following table presents the maturity distribution of the loan portfolio at December 31, 2024.
Management believes the ACL-Loans is appropriate at December 31, 2023. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.
Management believes the ACL-Loans is 48 appropriate at December 31, 2024. The allowance analysis is reviewed by the Board on a quarterly basis in compliance with regulatory requirements.
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.
Potential problem loans were $68 million at both December 31, 2024 and 2023, respectively. Potential problem loans require heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
The largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24% , 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023.
The largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 24%, and 22%, respectively, of the ACL-Loans at December 31, 2024.
(3) Provision expense for 2023 is attributable to the expected loss on a bank subordinated debt investment, and the provision expense for 2022 and 2021 is attributable to the Day 2 allowance from acquisition transactions.
(1) Provision expense for 2023 is attributable to the expected loss on a bank subordinated debt investment, and the provision expense for 2022 is attributable to the Day 2 allowance from an acquisition transaction.
The components of the ACL-Loans are detailed further in Tables 8 and 9 below. 42 Table 8: Allowance for Credit Losses - Loans (in thousands) Years Ended December 31, 2023 2022 2021 Allowance for credit losses - loans: Beginning balance $ 61,829 $ 49,672 $ 32,173 ACL on PCD loans acquired — 1,937 5,159 Net charge-offs: Commercial & industrial 80 (86) 50 Owner-occupied CRE (526) (555) — Agricultural (63) — (48) CRE investment — 169 (2) Construction & land development — — — Residential construction — — — Residential first mortgage (2) (57) (93) Residential junior mortgage (95) 1 4 Retail & other (263) (202) (71) Total net charge-offs (869) (730) (160) Provision for credit losses 2,650 10,950 12,500 Ending balance of ACL-Loans $ 63,610 $ 61,829 $ 49,672 Ratio of net charge-offs to average loans by loan composition Commercial & industrial (0.01) % 0.01 % (0.01) % Owner-occupied CRE 0.05 % 0.06 % — % Agricultural 0.01 % — % 0.02 % CRE investment — % (0.02) % — % Construction & land development — % — % — % Residential construction — % — % — % Residential first mortgage — % 0.01 % 0.02 % Residential junior mortgage 0.05 % — % — % Retail & other 0.48 % 0.38 % 0.18 % Total net charge-offs to average loans 0.01 % 0.01 % 0.01 % The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9.
The components of the ACL-Loans are detailed further in Tables 8 and 9 below. 41 Table 8: Allowance for Credit Losses - Loans (in thousands) Years Ended December 31, 2024 2023 2022 Allowance for credit losses - loans: Beginning balance $ 63,610 $ 61,829 $ 49,672 ACL on PCD loans acquired — — 1,937 Net charge-offs: Commercial & industrial (867) 80 (86) Owner-occupied CRE 124 (526) (555) Agricultural — (63) — CRE investment — — 169 Construction & land development — — — Residential construction — — — Residential first mortgage 33 (2) (57) Residential junior mortgage 9 (95) 1 Retail & other (337) (263) (202) Total net charge-offs (1,038) (869) (730) Provision for credit losses 3,750 2,650 10,950 Ending balance of ACL-Loans $ 66,322 $ 63,610 $ 61,829 Ratio of net charge-offs to average loans by loan composition: Commercial & industrial 0.06 % (0.01) % 0.01 % Owner-occupied CRE (0.01) % 0.05 % 0.06 % Agricultural — % 0.01 % — % CRE investment — % — % (0.02) % Construction & land development — % — % — % Residential construction — % — % — % Residential first mortgage — % — % 0.01 % Residential junior mortgage — % 0.05 % — % Retail & other 0.60 % 0.48 % 0.38 % Total net charge-offs to average loans 0.02 % 0.01 % 0.01 % The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9.
Table 9: Allocation of the Allowance for Credit Losses - Loans December 31, 2023 December 31, 2022 December 31, 2021 (in thousands) Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Commercial & industrial $ 15,225 20 % 24 % $ 16,350 21 % 26 % $ 12,613 23 % 25 % Owner-occupied CRE 9,082 15 % 14 % 9,138 15 % 15 % 7,222 17 % 14 % Agricultural 12,629 18 % 20 % 9,762 18 % 16 % 9,547 17 % 19 % CRE investment 12,693 18 % 20 % 12,744 19 % 21 % 8,462 18 % 17 % Construction & land development 2,440 5 % 4 % 2,572 5 % 4 % 1,812 5 % 4 % Residential construction 916 1 % — % 1,412 2 % 2 % 900 1 % 2 % Residential first mortgage 7,320 19 % 12 % 6,976 16 % 11 % 6,844 15 % 14 % Residential junior mortgage 2,098 3 % 4 % 1,846 3 % 3 % 1,340 3 % 3 % Retail & other 1,207 1 % 2 % 1,029 1 % 2 % 932 1 % 2 % Total ACL-Loans $ 63,610 100 % 100 % $ 61,829 100 % 100 % $ 49,672 100 % 100 % Nonperforming Assets As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy.
Table 9: Allocation of the Allowance for Credit Losses - Loans December 31, 2024 December 31, 2023 December 31, 2022 (in thousands) Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Allocated Allowance % of Loan Portfolio ACL Category as a % of Total ACL Commercial & industrial $ 16,147 20 % 24 % $ 15,225 20 % 24 % $ 16,350 21 % 26 % Owner-occupied CRE 5,362 14 % 8 % 9,082 15 % 14 % 9,138 15 % 15 % Agricultural 9,957 20 % 15 % 12,629 18 % 20 % 9,762 18 % 16 % CRE investment 14,616 18 % 22 % 12,693 18 % 20 % 12,744 19 % 21 % Construction & land development 2,658 4 % 4 % 2,440 5 % 4 % 2,572 5 % 4 % Residential construction 1,234 1 % 2 % 916 1 % — % 1,412 2 % 2 % Residential first mortgage 12,590 18 % 19 % 7,320 19 % 12 % 6,976 16 % 11 % Residential junior mortgage 2,827 4 % 4 % 2,098 3 % 4 % 1,846 3 % 3 % Retail & other 931 1 % 2 % 1,207 1 % 2 % 1,029 1 % 2 % Total ACL-Loans $ 66,322 100 % 100 % $ 63,610 100 % 100 % $ 61,829 100 % 100 % Nonperforming Assets As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy.
Nonperforming assets were $28 million and represented 0.33% of total assets at December 31, 2023, compared to $40 million or 0.46% at year-end 2022. The allowance for credit losses-loans increased to $64 million (1.00% of loans) at December 31, 2023, compared to $62 million (1.00% of loans) at December 31, 2022.
Nonperforming assets were $29 million and represented 0.33% of total assets at December 31, 2024, compared to $28 million or 0.33% at year-end 2023. The allowance for credit losses-loans was $66 million (1.00% of loans) at December 31, 2024, compared to $64 million (1.00% of loans) at December 31, 2023.
Average investment securities decreased $512 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $99 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 81% loans, 15% investment securities, and 4% other interest-earning assets (mostly cash) for 2023, compared to 74%, 23%, and 3%, respectively, for 2022.
Average investment securities decreased $226 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $67 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 84% loans, 11% investment securities, and 5% other interest-earning assets (mostly cash) for 2024, compared to 81%, 15%, and 4%, respectively, for 2023.
In addition to the discussion that follows, the accounting policies related to these critical estimates are included in Note 1, “Nature of Business and Significant Accounting Policies,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
The accounting estimates we consider to be critical include the determination of the allowance for credit losses and income taxes. In addition to the discussion that follows, the accounting policies related to these critical estimates are included in Note 1, “Nature of Business and Significant Accounting Policies,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
(4) The effective tax rate for periods prior to the January 1, 2023, effective date of the Wisconsin tax law change (as detailed further in the Overview section above) assumed an effective tax rate of 25%, and periods subsequent to the effective date assumed an effective tax rate of 19.5%. 33 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 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.
Table 10: Nonperforming Assets (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Nonperforming loans: Commercial & industrial $ 4,046 $ 3,328 $ 1,908 Owner-occupied CRE 4,399 5,647 4,220 Agricultural 12,185 20,416 28,367 CRE investment 1,453 3,832 4,119 Construction & land development 161 771 1,071 Residential construction — — — Residential first mortgage 4,059 3,780 4,132 Residential junior mortgage 150 224 243 Retail & other 172 82 94 Total nonaccrual loans 26,625 38,080 44,154 Accruing loans past due 90 days or more — — — Total nonperforming loans $ 26,625 $ 38,080 $ 44,154 OREO: Commercial real estate owned $ 305 $ 628 $ 1,549 Residential real estate owned 154 — 99 Bank property real estate owned 808 1,347 10,307 Total OREO 1,267 1,975 11,955 Total nonperforming assets (NPAs) $ 27,892 $ 40,055 $ 56,109 Performing troubled debt restructurings $ — $ — $ 5,443 Ratios: Nonperforming loans to total loans 0.42 % 0.62 % 0.96 % NPAs to total loans plus OREO 0.44 % 0.65 % 1.21 % NPAs to total assets 0.33 % 0.46 % 0.73 % ACL-Loans to nonperforming loans 239 % 162 % 112 % ACL-Loans to total loans 1.00 % 1.00 % 1.07 % Investment Securities Portfolio The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income.
Table 10: Nonperforming Assets (in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Nonperforming loans: Commercial & industrial $ 8,534 $ 4,046 $ 3,328 Owner-occupied CRE 4,547 4,399 5,647 Agricultural 9,969 12,185 20,416 CRE investment 1,688 1,453 3,832 Construction & land development — 161 771 Residential construction — — — Residential first mortgage 3,370 4,059 3,780 Residential junior mortgage 185 150 224 Retail & other 126 172 82 Total nonaccrual loans 28,419 26,625 38,080 Accruing loans past due 90 days or more — — — Total nonperforming loans $ 28,419 $ 26,625 $ 38,080 OREO: Commercial real estate owned $ 80 $ 305 $ 628 Residential real estate owned 16 154 — Bank property real estate owned 597 808 1,347 Total OREO 693 1,267 1,975 Total nonperforming assets (NPAs) $ 29,112 $ 27,892 $ 40,055 Nonaccrual loans (included above) covered by guarantees $ 7,463 $ 5,785 $ 5,459 Ratios: Nonperforming loans to total loans 0.43 % 0.42 % 0.62 % NPAs to total loans plus OREO 0.44 % 0.44 % 0.65 % NPAs to total assets 0.33 % 0.33 % 0.46 % ACL-Loans to nonperforming loans 233 % 239 % 162 % ACL-Loans to total loans 1.00 % 1.00 % 1.00 % Investment Securities Portfolio The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income.
For the full year, non-core items negatively impacted diluted earnings per common share $2.64 for 2023 and $0.34 for 2022. At December 31, 2023, Nicolet had total assets of $8.5 billion, a decrease of $295 million (3%) from December 31, 2022.
For the full year, non-core items positively impacted diluted earnings per common share $0.22 for 2024 and negatively impacted diluted earnings per common share $2.64 for 2023. At December 31, 2024, Nicolet had total assets of $8.8 billion, an increase of $328 million (4%) from December 31, 2023.
(2) Short-term funding availability defined as funding that could be secured between 2 and 30 days. 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.
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.
For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” and “— Allowance for Credit Losses - Loans” and “—Nonperforming Assets.” Noninterest Income Table 4: Noninterest Income (in thousands) Years Ended December 31, Change From Prior Year 2023 2022 2021 $ Change 2023 % Change 2023 $ Change 2022 % Change 2022 Trust services fee income $ 8,614 $ 7,947 $ 7,774 $ 667 8 % $ 173 2 % Brokerage fee income 15,133 12,923 12,143 2,210 17 % 780 6 % Wealth management fee income 23,747 20,870 19,917 2,877 14 % 953 5 % Mortgage income, net 7,164 8,497 22,155 (1,333) (16) % (13,658) (62) % Service charges on deposit accounts 5,976 6,104 5,023 (128) (2) % 1,081 22 % Card interchange income 12,991 11,643 9,163 1,348 12 % 2,480 27 % Bank owned life insurance (“BOLI”) income 4,524 3,818 2,380 706 18 % 1,438 60 % Deferred compensation plan asset market valuations 1,937 (2,040) 609 3,977 N/M (2,649) N/M LSR income, net 4,425 (1,366) — 5,791 N/M (1,366) N/M Other income 8,016 7,264 3,936 752 10 % 3,328 85 % Noninterest income without net gains 68,780 54,790 63,183 13,990 26 % (8,393) (13) % Asset gains (losses), net (32,808) 3,130 4,181 (35,938) N/M (1,051) N/M Total noninterest income $ 35,972 $ 57,920 $ 67,364 $ (21,948) (38) % $ (9,444) (14) % N/M means not meaningful.
For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” and “— Allowance for Credit Losses - Loans” and “—Nonperforming Assets.” Noninterest Income Table 4: Noninterest Income (in thousands) Years Ended December 31, Change From Prior Year 2024 2023 2022 $ Change 2024 % Change 2024 $ Change 2023 % Change 2023 Trust services fee income $ 10,085 $ 8,614 $ 7,947 $ 1,471 17 % $ 667 8 % Brokerage fee income 17,367 15,133 12,923 2,234 15 % 2,210 17 % Wealth management fee income 27,452 23,747 20,870 3,705 16 % 2,877 14 % Mortgage income, net 10,177 7,164 8,497 3,013 42 % (1,333) (16) % Service charges on deposit accounts 7,184 5,976 6,104 1,208 20 % (128) (2) % Card interchange income 13,661 12,991 11,643 670 5 % 1,348 12 % Bank owned life insurance (“BOLI”) income 5,448 4,524 3,818 924 20 % 706 18 % Deferred compensation plan asset market valuations 1,198 1,937 (2,040) (739) (38) % 3,977 N/M LSR income, net 4,405 4,425 (1,366) (20) — % 5,791 N/M Other income 8,530 8,016 7,264 514 6 % 752 10 % Noninterest income without net gains 78,055 68,780 54,790 9,275 13 % 13,990 26 % Asset gains (losses), net 4,212 (32,808) 3,130 37,020 N/M (35,938) N/M Total noninterest income $ 82,267 $ 35,972 $ 57,920 $ 46,295 129 % $ (21,948) (38) % N/M means not meaningful.
At December 31, 2023, approximately 45% 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 December 31, 2023, are presented in Table 14 below.
At December 31, 2024, approximately 44% 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.
See also “Off-Balance Sheet 37 Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8. • Card interchange income grew $1 million (12%) to $13 million in 2023 largely due to higher volume and activity. • BOLI income increased $1 million (18%) to $5 million for 2023, attributable to higher average balances from BOLI acquired with the Charter acquisition. • The Company sponsors a nonqualifed deferred compensation (“NQDC”) plan for certain employees, that fluctuates based upon market valuations of the underlying plan assets.
See also “Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8. • Service charges on deposit accounts were $7 million, up $1 million (20%) over 2023, on growth in both accounts and account analysis fees. • Card interchange income grew $1 million (5%) to $14 million in 2024 largely due to higher volume and activity. • BOLI income increased $1 million (20%) to $5 million for 2024, attributable to higher average balances from the $11.5 million new BOLI purchased in mid-2024 and improvements in BOLI assets linked to market performance. 36 • The Company sponsors a nonqualifed deferred compensation (“NQDC”) plan for certain employees, that fluctuates based upon market valuations of the underlying plan assets.
Personnel costs increased $10 million (12%), while non-personnel expenses combined increased $15 million (21%) over 2022. Notable contributions to the change in noninterest expense were: • Personnel expense was $99 million for 2023, an increase of $10 million (12%) over 2022.
Personnel costs increased $9 million (9%), while non-personnel expenses combined decreased $4 million (4%) from 2023. Notable contributions to the change in noninterest expense were: • Personnel expense was $108 million for 2024, an increase of $9 million (9%) over 2023.
Total loans were $6.4 billion at December 31, 2023, an increase of $173 million (3%), compared to total loans of $6.2 billion at December 31, 2022, with growth in residential mortgage and agricultural loans.
Total loans were $6.6 billion at December 31, 2024, an increase of $273 million (4%), compared to total loans of $6.4 billion at December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans.
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. 34 Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis Years Ended December 31, (in thousands) 2023 2022 2021 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Interest-earning assets Total loans, including loan fees (1)(2) $ 6,233,623 $ 341,332 5.48 % $ 5,255,646 $ 243,819 4.64 % $ 3,183,681 $ 156,644 4.92 % Investment securities: Taxable 864,637 18,182 2.10 % 1,389,956 21,383 1.54 % 592,561 9,934 1.68 % Tax-exempt (2) 242,468 7,960 3.28 % 229,316 6,192 2.70 % 145,979 3,113 2.13 % Total investment securities 1,107,105 26,142 2.36 % 1,619,272 27,575 1.70 % 738,540 13,047 1.77 % Other interest-earning assets 331,111 17,494 5.28 % 232,531 4,437 1.91 % 797,196 2,909 0.36 % Total non-loan earning assets 1,438,216 43,636 3.03 % 1,851,803 32,012 1.73 % 1,535,736 15,956 1.04 % Total interest-earning assets 7,671,839 $ 384,968 5.02 % 7,107,449 $ 275,831 3.88 % 4,719,417 $ 172,600 3.66 % Other assets, net 735,723 730,246 552,046 Total assets $ 8,407,562 $ 7,837,695 $ 5,271,463 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities Savings $ 828,141 $ 9,891 1.19 % $ 875,530 $ 2,075 0.24 % $ 644,525 $ 382 0.06 % Interest-bearing demand 877,832 12,627 1.44 % 999,700 4,382 0.44 % 725,686 2,816 0.39 % Money market accounts (“MMA”) 1,868,867 49,937 2.67 % 1,553,131 6,696 0.43 % 994,866 613 0.06 % Core time deposits 842,586 27,218 3.23 % 558,840 2,171 0.39 % 364,069 2,846 0.78 % Total interest-bearing core deposits 4,417,426 99,673 2.26 % 3,987,201 15,324 0.38 % 2,729,146 6,657 0.24 % Brokered deposits 615,209 26,151 4.25 % 490,871 6,428 1.31 % 308,091 3,791 1.23 % Total interest-bearing deposits 5,032,635 125,824 2.50 % 4,478,072 21,752 0.49 % 3,037,237 10,448 0.34 % Wholesale funding 304,190 15,522 5.10 % 298,852 12,205 4.08 % 103,156 3,156 3.06 % Total interest-bearing liabilities 5,336,825 141,346 2.65 % 4,776,924 33,957 0.71 % 3,140,393 13,604 0.43 % Noninterest-bearing demand deposits 2,054,792 2,135,852 1,461,850 Other liabilities 36,579 38,534 46,317 Stockholders’ equity 979,366 886,385 622,903 Total liabilities and stockholders’ equity $ 8,407,562 $ 7,837,695 $ 5,271,463 Tax-equivalent net interest income and rate spread $ 243,622 2.37 % $ 241,874 3.17 % $ 158,996 3.23 % Tax-equivalent adjustment and net free funds 2,106 0.81 % 1,913 0.23 % 1,041 0.14 % Net interest income and net interest margin $ 241,516 3.18 % $ 239,961 3.40 % $ 157,955 3.37 % (1) Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.
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. 33 Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis Years Ended December 31, (in thousands) 2024 2023 2022 Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate Average Balance Interest Average Yield/Rate ASSETS Interest-earning assets Total loans, including loan fees (1)(2) $ 6,505,103 $ 393,551 6.05 % $ 6,233,623 $ 341,332 5.48 % $ 5,255,646 $ 243,819 4.64 % Investment securities: Taxable 703,907 20,193 2.87 % 863,864 18,182 2.10 % 1,389,956 21,383 1.54 % Tax-exempt (2) 176,969 6,044 3.42 % 243,241 7,960 3.27 % 229,316 6,192 2.70 % Total investment securities 880,876 26,237 2.98 % 1,107,105 26,142 2.36 % 1,619,272 27,575 1.70 % Other interest-earning assets 397,905 20,562 5.17 % 331,111 17,494 5.28 % 232,531 4,437 1.91 % Total non-loan earning assets 1,278,781 46,799 3.66 % 1,438,216 43,636 3.03 % 1,851,803 32,012 1.73 % Total interest-earning assets 7,783,884 $ 440,350 5.66 % 7,671,839 $ 384,968 5.02 % 7,107,449 $ 275,831 3.88 % Other assets, net 760,535 735,723 730,246 Total assets $ 8,544,419 $ 8,407,562 $ 7,837,695 LIABILITIES AND STOCKHOLDERS’ EQUITY Interest-bearing liabilities Savings $ 763,097 $ 9,973 1.31 % $ 828,141 $ 9,891 1.19 % $ 875,530 $ 2,075 0.24 % Interest-bearing demand 880,823 14,931 1.70 % 877,832 12,627 1.44 % 999,700 4,382 0.44 % Money market accounts (“MMA”) 1,959,879 54,570 2.78 % 1,868,867 49,937 2.67 % 1,553,131 6,696 0.43 % Core time deposits 1,105,695 47,201 4.27 % 842,586 27,218 3.23 % 558,840 2,171 0.39 % Total interest-bearing core deposits 4,709,494 126,675 2.69 % 4,417,426 99,673 2.26 % 3,987,201 15,324 0.38 % Brokered deposits 750,499 34,899 4.65 % 615,209 26,151 4.25 % 490,871 6,428 1.31 % Total interest-bearing deposits 5,459,993 161,574 2.96 % 5,032,635 125,824 2.50 % 4,478,072 21,752 0.49 % Wholesale funding 162,612 8,726 5.37 % 304,190 15,522 5.10 % 298,852 12,205 4.08 % Total interest-bearing liabilities 5,622,605 170,300 3.03 % 5,336,825 141,346 2.65 % 4,776,924 33,957 0.71 % Noninterest-bearing demand deposits 1,755,045 2,054,792 2,135,852 Other liabilities 66,373 36,579 38,534 Stockholders’ equity 1,100,396 979,366 886,385 Total liabilities and stockholders’ equity $ 8,544,419 $ 8,407,562 $ 7,837,695 Tax-equivalent net interest income and rate spread $ 270,050 2.63 % $ 243,622 2.37 % $ 241,874 3.17 % Tax-equivalent adjustment and net free funds 1,985 0.84 % 2,106 0.81 % 1,913 0.23 % Net interest income and net interest margin $ 268,065 3.47 % $ 241,516 3.18 % $ 239,961 3.40 % (1) Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.
Noninterest Expense Table 5: Noninterest Expense ($ in thousands) Years Ended December 31, Change From Prior Year 2023 2022 2021 Change 2023 % Change 2023 Change 2022 % Change 2022 Personnel $ 99,109 $ 88,713 $ 70,618 $ 10,396 12 % $ 18,095 26 % Occupancy, equipment and office 36,222 29,722 21,058 6,500 22 % 8,664 41 % Business development and marketing 7,790 8,472 5,403 (682) (8) % 3,069 57 % Data processing 19,892 14,518 11,990 5,374 37 % 2,528 21 % Intangibles amortization 8,072 6,616 3,494 1,456 22 % 3,122 89 % FDIC assessments 3,999 1,920 2,035 2,079 108 % (115) (6) % Merger-related expense 189 1,664 5,651 (1,475) (89) % (3,987) (71) % Other expense 10,593 9,019 9,048 1,574 17 % (29) — % Total noninterest expense $ 185,866 $ 160,644 $ 129,297 $ 25,222 16 % $ 31,347 24 % Non-personnel expenses $ 86,757 $ 71,931 $ 58,679 $ 14,826 21 % $ 13,252 23 % Average full-time equivalent employees 953 881 626 72 8 % 255 41 % Comparison of 2023 versus 2022 Noninterest expense was $186 million, an increase of $25 million (16%) over 2022.
Noninterest Expense Table 5: Noninterest Expense ($ in thousands) Years Ended December 31, Change From Prior Year 2024 2023 2022 Change 2024 % Change 2024 Change 2023 % Change 2023 Personnel $ 108,414 $ 99,109 $ 88,713 $ 9,305 9 % $ 10,396 12 % Occupancy, equipment and office 35,136 36,222 29,722 (1,086) (3) % 6,500 22 % Business development and marketing 8,330 7,790 8,472 540 7 % (682) (8) % Data processing 17,754 19,892 14,518 (2,138) (11) % 5,374 37 % Intangibles amortization 6,876 8,072 6,616 (1,196) (15) % 1,456 22 % FDIC assessments 4,003 3,999 1,920 4 — % 2,079 108 % Merger-related expense — 189 1,664 (189) (100) % (1,475) (89) % Other expense 10,840 10,593 9,019 247 2 % 1,574 17 % Total noninterest expense $ 191,353 $ 185,866 $ 160,644 $ 5,487 3 % $ 25,222 16 % Non-personnel expenses $ 82,939 $ 86,757 $ 71,931 $ (3,818) (4) % $ 14,826 21 % Average full-time equivalent employees 955 953 881 2 — % 72 8 % Comparison of 2024 versus 2023 Noninterest expense was $191 million, an increase of $5 million (3%) over 2023.
In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting 44 Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8. 43 At December 31, 2024, the investment securities portfolio totaled $806 million (representing 9% of total assets), compared to investment securities of $803 million (representing 9% of total assets) at December 31, 2023, all classified as securities AFS.
At December 31, 2023, Nicolet had $310 million of time deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. The following table provides information on the maturity distribution of those time deposits, including the portion of those time deposits in excess of the FDIC insurance limits (over $250,000) as of December 31, 2023.
The following table provides information on the maturity distribution of those time deposits, including the portion of those time deposits in excess of the FDIC insurance limits (over $250,000) as of December 31, 2024.
For a discussion of the regulatory restrictions applicable to the Company and the Bank, see section “Business-Regulation of Nicolet” and “Business-Regulation of the Bank,” included within Part I, Item 1.
For a discussion of the regulatory restrictions applicable to the Company and the Bank, see section “Business-Regulation of Nicolet” and “Business-Regulation of the Bank,” included within Part I, Item 1. A summary of Nicolet’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in Table 16.
(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. 35 Table 3: Volume/Rate Variance - Tax-Equivalent Basis (in thousands) 2023 Compared to 2022 Increase (Decrease) Due to Changes in 2022 Compared to 2021 Increase (Decrease) Due to Changes in Volume Rate Net (1) Volume Rate Net (1) Interest-earning assets Total loans, including loan fees (2) (3) $ 49,407 $ 48,106 $ 97,513 $ 95,449 $ (8,274) $ 87,175 Investment securities: Taxable (4,715) 1,514 (3,201) 10,595 854 11,449 Tax-exempt (3) 371 1,397 1,768 2,100 979 3,079 Total investment securities (4,344) 2,911 (1,433) 12,695 1,833 14,528 Other interest-earning assets 1,428 11,629 13,057 (480) 2,008 1,528 Total non-loan earning assets (2,916) 14,540 11,624 12,215 3,841 16,056 Total interest-earning assets $ 46,491 $ 62,646 $ 109,137 $ 107,664 $ (4,433) $ 103,231 Interest-bearing liabilities Savings $ (118) $ 7,934 $ 7,816 $ 181 $ 1,512 $ 1,693 Interest-bearing demand (596) 8,841 8,245 1,167 399 1,566 MMA 1,628 41,613 43,241 520 5,563 6,083 Core time deposits 1,625 23,422 25,047 1,128 (1,803) (675) Total interest-bearing core deposits 2,539 81,810 84,349 2,996 5,671 8,667 Brokered deposits 1,999 17,724 19,723 2,379 258 2,637 Total interest-bearing deposits 4,538 99,534 104,072 5,375 5,929 11,304 Total wholesale funding 618 2,699 3,317 7,897 1,152 9,049 Total interest-bearing liabilities 5,156 102,233 107,389 13,272 7,081 20,353 Net interest income $ 41,335 $ (39,587) $ 1,748 $ 94,392 $ (11,514) $ 82,878 (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.
(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. 34 Table 3: Volume/Rate Variance - Tax-Equivalent Basis (in thousands) 2024 Compared to 2023 Increase (Decrease) Due to Changes in 2023 Compared to 2022 Increase (Decrease) Due to Changes in Volume Rate Net (1) Volume Rate Net (1) Interest-earning assets Total loans, including loan fees (2) (3) $ 29,966 $ 22,253 $ 52,219 $ 49,407 $ 48,106 $ 97,513 Investment securities: Taxable (1,401) 3,412 2,011 (4,715) 1,514 (3,201) Tax-exempt (3) (2,250) 334 (1,916) 371 1,397 1,768 Total investment securities (3,651) 3,746 95 (4,344) 2,911 (1,433) Other interest-earning assets 3,653 (585) 3,068 1,428 11,629 13,057 Total non-loan earning assets 2 3,161 3,163 (2,916) 14,540 11,624 Total interest-earning assets $ 29,968 $ 25,414 $ 55,382 $ 46,491 $ 62,646 $ 109,137 Interest-bearing liabilities Savings $ (810) $ 892 $ 82 $ (118) $ 7,934 $ 7,816 Interest-bearing demand 43 2,261 2,304 (596) 8,841 8,245 MMA 2,487 2,146 4,633 1,628 41,613 43,241 Core time deposits 9,845 10,138 19,983 1,625 23,422 25,047 Total interest-bearing core deposits 11,565 15,437 27,002 2,539 81,810 84,349 Brokered deposits 6,130 2,618 8,748 1,999 17,724 19,723 Total interest-bearing deposits 17,695 18,055 35,750 4,538 99,534 104,072 Wholesale funding (9,401) 2,605 (6,796) 618 2,699 3,317 Total interest-bearing liabilities 8,294 20,660 28,954 5,156 102,233 107,389 Net interest income $ 21,674 $ 4,754 $ 26,428 $ 41,335 $ (39,587) $ 1,748 (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.
See Table 2 for information on average deposit balances and deposit rates. 45 Table 12: Period End Deposit Composition (in thousands) December 31, 2023 December 31, 2022 December 31, 2021 Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 1,958,709 27 % $ 2,361,816 33 % $ 1,975,705 31 % Interest-bearing demand 1,055,520 15 % 1,279,850 18 % 1,272,858 20 % Money market 1,891,287 26 % 1,707,619 24 % 1,561,966 24 % Savings 768,401 11 % 931,417 13 % 803,197 12 % Time 1,523,883 21 % 898,219 12 % 852,190 13 % Total deposits $ 7,197,800 100 % $ 7,178,921 100 % $ 6,465,916 100 % Brokered transaction accounts $ 166,861 2 % $ 252,829 3 % $ 234,306 4 % Brokered time deposits 448,582 6 % 339,066 5 % 209,857 3 % Total brokered deposits $ 615,443 8 % $ 591,895 8 % $ 444,163 7 % Customer transaction accounts $ 5,507,056 77 % $ 6,027,873 84 % $ 5,379,420 83 % Customer time deposits 1,075,301 15 % 559,153 8 % 642,333 10 % Total customer deposits (core) $ 6,582,357 92 % $ 6,587,026 92 % $ 6,021,753 93 % Total deposits were $7.2 billion at December 31, 2023, up slightly ($19 million) over year-end 2022, and included a shift to higher rate deposit products (mostly to money market and time deposits).
Table 12: Period End Deposit Composition (in thousands) December 31, 2024 December 31, 2023 December 31, 2022 Amount % of Total Amount % of Total Amount % of Total Noninterest-bearing demand $ 1,791,228 24 % $ 1,958,709 27 % $ 2,361,816 33 % Interest-bearing demand 1,168,560 16 % 1,055,520 15 % 1,279,850 18 % Money market 1,942,367 26 % 1,891,287 26 % 1,707,619 24 % Savings 774,707 11 % 768,401 11 % 931,417 13 % Time 1,726,822 23 % 1,523,883 21 % 898,219 12 % Total deposits $ 7,403,684 100 % $ 7,197,800 100 % $ 7,178,921 100 % Brokered transaction accounts $ 163,580 2 % $ 166,861 2 % $ 252,829 3 % Brokered time deposits 586,852 8 % 448,582 6 % 339,066 5 % Total brokered deposits $ 750,432 10 % $ 615,443 8 % $ 591,895 8 % Customer transaction accounts $ 5,513,282 75 % $ 5,507,056 77 % $ 6,027,873 84 % Customer time deposits 1,139,970 15 % 1,075,301 15 % 559,153 8 % Total customer deposits (core) $ 6,653,252 90 % $ 6,582,357 92 % $ 6,587,026 92 % 44 Total deposits were $7.4 billion at December 31, 2024, a $206 million (3%) increase over year-end 2023, with growth in money market and time deposits, partly offset by lower noninterest-bearing demand deposits.
Net asset gains in 2022 of $3 million were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations). Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.
The interest-earning asset yield increased 114 bps to 5.02% for 2023, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 84 bps to 5.48% for 2023, largely due to the repricing of new and renewed loans in a rising interest rate environment.
The interest rate spread increased 26 bps between the years, as the repricing of liabilities slowed, while new and renewed loans continued to reprice in a higher interest rate environment. The interest-earning asset yield increased 64 bps to 5.66% for 2024, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment.
See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. 38 • Occupancy, equipment and office expense was $36 million for 2023, up $7 million (22%) from 2022, largely due to the expanded branch network with the Charter acquisition, as well as additional expense for software and technology solutions. • Business development and marketing expense was $8 million for 2023, down $1 million (8%) from 2022, largely due to timing and extent of marketing donations, promotions, and media. • Data processing expense was $20 million for 2023, up $5 million (37%) over 2022, mostly due to a $3 million early contract termination charge and volume-based increases in core processing charges. • Intangible amortization increased $1 million (22%) between the years, due to higher amortization from the intangibles added with the Charter acquisition. • Other expense was $11 million for 2023, an increase of $2 million (17%) over 2022, mostly due to higher professional fees.
See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. • Occupancy, equipment and office expense was $35 million for 2024, down $1 million (3%) from 2023, due to lower occupancy expense and timing of supply purchases. • Business development and marketing expense was $8 million for 2024, up $1 million (7%) from 2023, on higher marketing (due to donations to support capital campaigns within our communities). • Data processing expense was $18 million for 2024, down $2 million (11%) from 2023, mostly due to a $3 million early contract termination charge incurred in 2023. • Intangible amortization decreased $1 million (15%) between the years, due to lower amortization from the aging intangibles.
A summary of Nicolet’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in Table 16. 48 Table 16: Capital ($ in thousands) December 31, 2023 December 31, 2022 Company Stock Repurchases: * Common stock repurchased during the year (dollars) $ 1,519 $ 61,464 Common stock repurchased during the year (shares) 26,853 793,064 Company Risk-Based Capital: Total risk-based capital $ 930,804 $ 889,763 Tier 1 risk-based capital 750,811 684,280 Common equity Tier 1 capital 712,040 646,341 Total capital ratio 13.0 % 12.3 % Tier 1 capital ratio 10.5 % 9.5 % Common equity tier 1 capital ratio 9.9 % 9.0 % Tier 1 leverage ratio 9.2 % 8.2 % Bank Risk-Based Capital: Total risk-based capital $ 827,341 $ 816,951 Tier 1 risk-based capital 768,726 764,090 Common equity Tier 1 capital 768,726 764,090 Total capital ratio 11.5 % 11.3 % Tier 1 capital ratio 10.7 % 10.6 % Common equity tier 1 capital ratio 10.7 % 10.6 % Tier 1 leverage ratio 9.4 % 9.1 % * Reflects only the common stock repurchased under board of director authorizations.
Table 16: Capital ($ in thousands) December 31, 2024 December 31, 2023 Company Stock Repurchases: * Common stock repurchased during the year (dollars) $ 10,134 $ 1,519 Common stock repurchased during the year (shares) 92,440 26,853 Company Risk-Based Capital: Total risk-based capital $ 1,062,458 $ 930,804 Tier 1 risk-based capital 882,056 750,811 Common equity Tier 1 capital 842,453 712,040 Total capital ratio 14.3 % 13.0 % Tier 1 capital ratio 11.9 % 10.5 % Common equity tier 1 capital ratio 11.4 % 9.9 % Tier 1 leverage ratio 10.5 % 9.2 % Bank Risk-Based Capital: Total risk-based capital $ 864,090 $ 827,341 Tier 1 risk-based capital 798,691 768,726 Common equity Tier 1 capital 798,691 768,726 Total capital ratio 11.7 % 11.5 % Tier 1 capital ratio 10.8 % 10.7 % Common equity tier 1 capital ratio 10.8 % 10.7 % Tier 1 leverage ratio 9.5 % 9.4 % * Reflects only the common stock repurchased under board of director authorizations.
Net mortgage income was $7 million for 2023, down $1 million (16%) between the years, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales.
Net mortgage income was $10 million for 2024, up $3 million (42%) between the years, mostly due to higher secondary market volumes and the related gains on sales.
The interest on all long-term borrowings is current. Short-term borrowings were $317 million (all in FHLB advances) at December 31, 2022, compared to none at December 31, 2023. Long-term borrowings were $167 million and $225 million at December 31, 2023 and 2022, respectively.
The interest on all long-term borrowings is current. There were no short-term borrowings outstanding at either December 31, 2024 or December 31, 2023. Long-term borrowings were $161 million and $167 million at December 31, 2024 and 2023, respectively.
The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized.
A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate.
Table 17: Contractual Obligations (in thousands) Note Maturity by Years Reference Total 1 or less 1-3 3-5 Over 5 Time deposits 8 $ 1,523,883 $ 1,171,328 $ 330,901 $ 21,544 $ 110 Long-term borrowings 9 166,930 — 5,000 — 161,930 Operating leases 5 11,641 2,486 4,170 3,143 1,842 Total long-term contractual obligations $ 1,702,454 $ 1,173,814 $ 340,071 $ 24,687 $ 163,882 Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes.
Table 17: Contractual Obligations (in thousands) Note Maturity by Years Reference Total 1 or less 1-3 3-5 Over 5 Time deposits 8 $ 1,726,822 $ 1,285,671 $ 248,972 $ 192,141 $ 38 Long-term borrowings 9 161,387 5,000 — — 156,387 Operating leases 5 9,562 2,233 4,034 2,188 1,107 Total long-term contractual obligations $ 1,897,771 $ 1,292,904 $ 253,006 $ 194,329 $ 157,532 Critical Accounting Estimates The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes.
The contribution from net free funds increased 58 bps, mostly due to the higher value in a rising interest rate environment. As a result, the net interest margin was 3.18% for 2023, down 22 bps compared to 3.40% for 2022.
The contribution from net free funds increased 3 bps, mostly due to the higher value in the current interest rate environment.
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. 39 Table 6: Period End Loan Composition December 31, 2023 December 31, 2022 December 31, 2021 (in thousands) Amount % of Total Amount % of Total Amount % of Total Commercial & industrial $ 1,284,009 20 % $ 1,304,819 21 % $ 1,042,256 23 % Owner-occupied CRE 956,594 15 % 954,599 15 % 787,189 17 % Agricultural 1,161,531 18 % 1,088,607 18 % 794,728 17 % Commercial 3,402,134 53 % 3,348,025 54 % 2,624,173 57 % CRE investment 1,142,251 18 % 1,149,949 19 % 818,061 18 % Construction & land development 310,110 5 % 318,600 5 % 213,035 5 % Commercial real estate 1,452,361 23 % 1,468,549 24 % 1,031,096 23 % Commercial-based loans 4,854,495 76 % 4,816,574 78 % 3,655,269 80 % Residential construction 75,726 1 % 114,392 2 % 70,353 1 % Residential first mortgage 1,167,109 19 % 1,016,935 16 % 713,983 15 % Residential junior mortgage 200,884 3 % 177,332 3 % 131,424 3 % Residential real estate 1,443,719 23 % 1,308,659 21 % 915,760 19 % Retail & other 55,728 1 % 55,266 1 % 50,807 1 % Retail-based loans 1,499,447 24 % 1,363,925 22 % 966,567 20 % Total loans $ 6,353,942 100 % $ 6,180,499 100 % $ 4,621,836 100 % As noted in Table 6 above, the loan portfolio at December 31, 2023 was 76% commercial-based and 24% retail-based, compared to 78% commercial-based and 22% retail-based at December 31, 2022.
Table 6: Period End Loan Composition December 31, 2024 December 31, 2023 December 31, 2022 (in thousands) Amount % of Total Amount % of Total Amount % of Total Commercial & industrial $ 1,319,763 20 % $ 1,284,009 20 % $ 1,304,819 21 % Owner-occupied CRE 940,367 14 % 956,594 15 % 954,599 15 % Agricultural 1,322,038 20 % 1,161,531 18 % 1,088,607 18 % Commercial 3,582,168 54 % 3,402,134 53 % 3,348,025 54 % CRE investment 1,221,826 18 % 1,142,251 18 % 1,149,949 19 % Construction & land development 239,694 4 % 310,110 5 % 318,600 5 % Commercial real estate 1,461,520 22 % 1,452,361 23 % 1,468,549 24 % Commercial-based loans 5,043,688 76 % 4,854,495 76 % 4,816,574 78 % Residential construction 96,110 1 % 75,726 1 % 114,392 2 % Residential first mortgage 1,196,158 18 % 1,167,109 19 % 1,016,935 16 % Residential junior mortgage 234,634 4 % 200,884 3 % 177,332 3 % Residential real estate 1,526,902 23 % 1,443,719 23 % 1,308,659 21 % Retail & other 55,994 1 % 55,728 1 % 55,266 1 % Retail-based loans 1,582,896 24 % 1,499,447 24 % 1,363,925 22 % Total loans $ 6,626,584 100 % $ 6,353,942 100 % $ 6,180,499 100 % As noted in Table 6 above, the loan portfolio at December 31, 2024 was 76% commercial-based and 24% retail-based, unchanged from December 31, 2023, with a slight shift in the underlying mix of each.
The 2022 provision for credit losses included $8 million for the required Day 2 ACL increase from the acquisition of Charter, and the remaining increase to support the strong loan growth. Comparatively, the 2021 provision for credit losses was largely due to the required Day 2 ACL increase from the acquisitions of County and Mackinac.
The 2023 provision for credit losses was $5.0 million (comprised of $2.7 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). Comparatively, the 2022 provision for credit losses of $11.5 million was largely due to the required Day 2 ACL increase of $8 million from the acquisition of Charter, as well as solid loan growth.
Total loans of $6.4 billion at December 31, 2023 increased $173 million (3%) from December 31, 2022, with strong organic loan growth. Total deposits of $7.2 billion increased slightly ($19 million) from December 31, 2022, while total borrowings decreased $375 million.
Total loans of $6.6 billion at December 31, 2024 increased $273 million (4%) from December 31, 2023, while total deposits of $7.4 billion increased $206 million (3%) from December 31, 2023.
At December 31, 2023, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 20% of the total portfolio, followed by residential mortgage at 19% of the total portfolio.
At December 31, 2024, agricultural and commercial and industrial loans represented the largest segments of Nicolet’s loan portfolio, with each at 20% of the total loan portfolio. The next largest segments were CRE investment and residential first mortgage, with each representing 18% of the total loan portfolio.
The 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.
At December 31, 2024, nonperforming assets were $29 million and represented 0.33% of total assets, compared to $28 million or 0.33% of total assets at December 31, 2023. 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.
Table 13: Maturity Distribution of Uninsured Time Deposits (in thousands) Time Deposits Over FDIC Insurance Limits Portion of Time Deposits in Excess of FDIC Insurance Limits 3 months or less $ 134,638 $ 77,638 Over 3 months through 6 months 85,408 49,908 Over 6 months through 12 months 85,939 43,188 Over 12 months 3,914 664 Total $ 309,899 $ 171,398 Estimated total uninsured deposits were $2.1 billion (representing 29% of total deposits) and $2.3 billion (representing 32% of total deposits) as of December 31, 2023 and 2022, respectively.
Table 13: Maturity Distribution of Uninsured Time Deposits (in thousands) Time Deposits Over FDIC Insurance Limits Portion of Time Deposits in Excess of FDIC Insurance Limits 3 months or less $ 63,169 $ 31,420 Over 3 months through 6 months 103,186 52,936 Over 6 months through 12 months 136,715 76,465 Over 12 months 21,936 10,436 Total $ 325,006 $ 171,257 Estimated total uninsured deposits were $2.2 billion (representing 30% of total deposits) and $2.1 billion (representing 29% of total deposits) as of December 31, 2024 and 2023, respectively.
The change in income tax expense was due to lower pretax earnings, and also included a $9 million charge to income tax expense to establish a tax valuation allowance related to the Wisconsin tax law change noted in the “Overview” section.
The change in income tax was mostly due to higher pretax earnings in 2024, as well as the $9 million charge to income tax expense during 2023 to establish a tax valuation allowance related to the Wisconsin tax law change noted in the “Overview” section. 37 The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required.
Total stockholders’ equity was $1.0 billion at December 31, 2023, an increase of $66 million since December 31, 2022, mostly due to solid earnings, partly offset by payment of a quarterly common stock dividend (beginning in second quarter 2023).
Total stockholders’ equity was $1.2 billion at December 31, 2024, an 30 increase of $134 million since December 31, 2023, with solid earnings, stock option exercises, and improvement in the securities portfolio market valuation, partly offset by payment of the quarterly common stock dividend and common stock repurchases.
Nicolet’s 2023 results were also impacted by the Wisconsin State Budget signed in July 2023 and retroactive to January 1, 2023, which included language that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on loans to existing Wisconsin-based business or agriculture purpose loans that are $5 million or less in balance on January 1, 2023, and to new loans that meet the criteria.
(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 $337 million increase in cash and cash equivalents since year-end 2022 included $108 million net cash provided by operating activities (mostly earnings) and $591 million net cash provided by investing activities (mostly investment sales from the balance sheet repositioning), partially offset by $363 million net cash used in financing activities (mostly repayment of FHLB advances from the balance sheet repositioning).
The $45 million increase in cash and cash equivalents since year-end 2023 included $134 million net cash provided by operating activities (mostly earnings) and $199 million net cash provided by financing activities (mostly deposit growth), partially offset by $288 million net cash used in investing activities (mostly loan growth).
The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 and 2021 acquisitions. Nicolet acquired Charter Bankshares, Inc. (“Charter”) on August 26, 2022, County Bancorp, Inc. (“County”) on December 3, 2021, and Mackinac Financial Corporation (“Mackinac”) on September 3, 2021.
The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 acquisition of Charter Bankshares, Inc. (“Charter”) on August 26, 2022. Certain income statement results, average balances and related ratios for 2022 include Charter contributions from the acquisition date.
See also “Noninterest Expense” for the offsetting fair value change to the NQDC plan liabilities and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. • Loan servicing rights (“LSR”) income includes agricultural loan servicing fees net of the related LSR amortization.
See also “Noninterest Expense” for the offsetting fair value change to the NQDC plan liabilities and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan. • Other income grew $1 million to $9 million for 2024, and included increases in card incentives income and swap fees. • Net asset gains of $4 million in 2024 were primarily attributable to gains of $2 million on the sale of available for sale securities and other investments, $1 million of favorable fair value marks on equity securities, and a $1 million gain on the early extinguishment on Nicolet subordinated notes.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For additional disclosure, see section, “Interest Rate Sensitivity Management and Impact of Inflation,” within Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part II, Item 7. 51
Biggest changeITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK For additional disclosure, see section, “Interest Rate Sensitivity Management and Impact of Inflation,” within Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part II, Item 7. 49

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