# NICOLET BANKSHARES INC (NIC) FY 2024 MD&A

Verbatim Item 7 Management's Discussion and Analysis from NICOLET BANKSHARES INC's 10-K for fiscal year 2024.

SEC filing source: https://www.sec.gov/Archives/edgar/data/1174850/000117485025000008/nic-20241231.htm
Accession: 0001174850-25-000008
Filing date: 2025-02-25
Report date: 2024-12-31
Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary.
Confidence: high

Company profile: /company/NIC/
All MD&A years: /company/NIC/mda/
Previous year: /company/NIC/mda/fy2023/ (FY 2023)
Next year: /company/NIC/mda/fy2025/ (FY 2025)

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is management’s analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of Nicolet. It should be read in conjunction with the consolidated financial statements and footnotes presented elsewhere in this report.

The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 acquisition of Charter Bankshares, Inc. (“Charter”) on August 26, 2022. Certain income statement results, average balances and related ratios for 2022 include Charter contributions from the acquisition date. Additional information on Nicolet’s recent acquisition activity is included in Note 2, “Acquisition” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

The detailed financial discussion that follows focuses on 2024 results compared to 2023. 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. Historical results of operations are not necessarily predictive of future results.

Overview

Economic Outlook and Recent Industry Developments

The U.S. economy proved to be quite resilient in 2024 with real GDP growth likely to come in around 2.5%, which defied all economic forecasts heading into the year. The primary drivers were overall employment remained quite strong, incomes continued to rise, consumer spending was robust, and productivity momentum continued. After many years of talk around a “hard landing,” or “soft landing,” it appears the Federal Reserve managed to hit the sweet spot of “no landing” as economic forecasts heading into 2025 show a continuation of these positive trends.

The Federal Reserve began to loosen its monetary policy during the year in an attempt to slow inflation. After a short period of sharp increases in interest rates in 2022 and 2023, the Fed cut rates by 50 bps in September, which was followed by two 25 bps cuts in November and December 2024. The decrease in rates appeared to have their intended effect, as inflation has come down from the mid-single digits in the beginning of the year, to 2.8% to close out the year in December. As inflation remains above the Fed’s 2% target, the market appears to believe rates may remain “higher for longer” until inflation drops closer to this level. As such, in early 2025, the market is expecting two 25bps rate cuts during the year. Furthermore, other economic indicators point to a slowing, but strong macroeconomic environment in 2025. Unemployment is expected to tick up, but remain below 5%. Consumer and business spending may slow, but still remain relatively strong despite higher interest rates. And productivity gains are expected to continue as new developments in AI and other technologies challenge businesses on how they invest for the future. Despite these tailwinds, there are several unknowns of a new administration that provide some level of economic uncertainty. While the general belief is this administration is more business friendly, and will usher in ideas that will increase business investment and growth (such as lower taxes, fewer regulations, and a more friendly M&A environment), there are others that leave questions on their effects (such as tariffs, trade policy, and mass deportations).

For the first time in several years, the outlook for the U.S. banking industry turned bullish. Immediately after the November 2024 elections, U.S. bank stocks jumped more than 10% the following day as investors believe the new administration would usher in policies that mean more bank M&A, and the fear of significant credit losses from commercial real estate began to subside. While bank stocks remain somewhat volatile given several moves made by the new administration, the overall mood has improved in the banking space. Banks will likely experience higher credit losses in 2025 than in prior years; however, they will likely be focused around certain banks that have higher CRE concentrations, or that lend in large urban markets (neither of which describe Nicolet). However, all banks look to benefit from regulatory reform that should lower costs throughout the industry. Additionally, bank M&A is expected to pick up after several years of tepid deal activity.

2024 Highlights

Net income for the year ended December 31, 2024 was $124 million and earnings per diluted common share was $8.05, compared to net income of $62 million and earnings per diluted common share of $4.08 for 2023. Net income reflected certain non-core items and the related tax effect of each, including the first quarter 2023 balance sheet repositioning and third quarter 2023 change in Wisconsin state tax law (as detailed in Table 1 below), as well as gains / (losses) on other assets and investments in all periods. For the full year, non-core items positively impacted diluted earnings per common share $0.22 for 2024 and negatively impacted diluted earnings per common share $2.64 for 2023.

At December 31, 2024, Nicolet had total assets of $8.8 billion, an increase of $328 million (4%) from December 31, 2023. Total loans of $6.6 billion at December 31, 2024 increased $273 million (4%) from December 31, 2023, while total deposits of $7.4 billion increased $206 million (3%) from December 31, 2023. Total stockholders’ equity was $1.2 billion at December 31, 2024, an

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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.

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.

Nicolet’s Board and executive management see 2025 as a year of optionality for the Company. Nicolet came off of a record year of core earnings, capital levels have rebounded, and asset quality remains strong. Additionally, our commercial customers across our footprint continue to perform well, as they have shown remarkable resilience in the face of inflationary and employment pressures. There remains a general sense of cautious optimism across our markets. The potential pro-growth policies of the new presidential administration likely changed the outlook of the banking industry for the better. While still very early, the general feeling is that of less regulation, which could lead to higher revenues and more M&A in the industry. Additionally, fewer regulations and potential tax reform could spark growth and investment across small and medium sized businesses, which could benefit all community banks, including Nicolet. While there is some concern around how certain policies, namely higher tariffs and immigration, could negatively impact certain industries in our markets – specifically the dairy sector – it remains too early to forecast the extent at this point.

Nicolet’s optionality could take many forms, largely due to its healthy capital levels and continued strong earnings. The priorities, in no particular order, largely center on (1) funding organic growth, (2) M&A, (3) share repurchases, and (4) increased dividends. Organic growth, that is, growing by one customer at a time, has always been the bread and butter of Nicolet’s core strategy. The Company grew to roughly $750 million in its first 10 years through entirely organic means. As such, it remains very much in its DNA to continue this strategy. However, as economic and population growth in our core markets typically is only 1-3% each year, growing significantly more than these levels through organic means likely involves taking on more risk, being overly aggressive on interest rates, or both. Since Nicolet has typically avoided both of those organic growth strategies, management believes it can easily fund organic growth in the low-to-mid single digits, while continuing to build capital.

M&A has been a part of the core growth strategy of Nicolet since 2012. In early 2024, we were optimistic that we would have announced a merger at some point during the year. And while we had a number of conversations with potential partners, nothing materialized beyond high level discussions. Higher interest rates continue to make the accounting math behind M&A challenging, especially with those banks that have elevated levels of unrealized losses in their investment portfolios. Additionally, at $8.8 billion in assets, we remain thoughtful in the size of bank we may partner with as the $10 billion asset threshold looms, as does the new regulations that come with it. We still remain hopeful that we are able to announce an acquisition in 2025; however, any potential deal has to make financial and strategic sense for us, as well as make the overall company better. We are committed to not grow through acquisition just for the sake of it.

Share repurchases and increased dividends likely remain on the table for 2025. After nearly an 18-month hiatus, Nicolet begin repurchasing its own stock again in late 2024. Executive management and the Board determined robust capital levels and valuations warranted the repurchase of our own shares, as it reduces our share count and thereby increases earnings per share, all else equal. This activity continued into the first quarter of 2025, and will be continuously evaluated depending on the strategic priorities the Board and executive management see in front of them at the time. Likewise, the Board will assess the level of the $0.28 per share quarterly dividend at the May meeting as it did in 2024. In 2024, the Board increased the dividend $0.03 per share, or 12%.

Regardless of what strategic levers Nicolet’s Board and executive management decide to pull in 2025, the focus will remain on running a highly-profitable company that matters to its key constituents: customers, shareholders, and employees. The ultimate goal is to produce profitability metrics and shareholder returns that place us in the top quartile, if not top decile, of our peers. While Nicolet accomplished that in 2024, management understands the slate is wiped clean each year, and that it takes the efforts of our more than 950 employees to reproduce those results each year.

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Table 1: Earnings Summary and Selected Financial Data

[[GREPCENT_TABLE]]
[["","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 (\u201cEPS\u201d):"],["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","","","$","6,180,499"],["Allowance for credit losses - loans (\u201cACL-Loans\u201d)","66,322","","","63,610","","","61,829"],["Total assets","8,796,795","","","8,468,678","","","8,763,969"],["Deposits","7,403,684","","","7,197,800","","","7,178,921"],["Stockholders\u2019 equity (common)","1,172,898","","","1,039,007","","","972,529"],["Book value per common share","$","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\u2019 equity to assets","13.33","","","12.27","","","11.10"],["Tangible common equity to tangible assets (2)","9.33","","","7.98","","","6.82"]]
[[/GREPCENT_TABLE]]

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

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

Non-GAAP Financial Measures

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

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

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Table 1A: Reconciliation of Non-GAAP Financial Measures

[[GREPCENT_TABLE]]
[["","At and for the years ended December 31,"],["(in thousands, except per share data)","2024","","2023","","2022"],["Adjusted net income reconciliation:"],["Net income (GAAP)","$","124,059","","","$","61,516","","","$","94,260"],["Adjustments:"],["Provision expense (1)","\u2014","","","2,340","","","8,000"],["Assets (gains) losses, net (2)","(4,212)","","","32,808","","","(3,130)"],["Merger-related expense","\u2014","","","189","","","1,664"],["Contract termination charge","\u2014","","","2,689","","","\u2014"],["Adjustments subtotal","(4,212)","","","38,026","","","6,534"],["Tax on Adjustments (3)","(821)","","","7,415","","","1,634"],["Tax impact of Wisconsin tax law change (3)","\u2014","","","9,118","","","\u2014"],["Adjusted net income (Non-GAAP)","$","120,668","","","$","101,245","","","$","99,161"],["Diluted EPS:"],["Diluted EPS (GAAP)","$","8.05","","","$","4.08","","","$","6.56"],["Adjusted Diluted EPS (Non-GAAP)","$","7.83","","","$","6.72","","","$","6.90"],["Tangible assets:"],["Total assets","$","8,796,795","","","$","8,468,678","","","$","8,763,969"],["Goodwill and other intangibles, net","388,140","","","394,366","","","402,438"],["Tangible assets","$","8,408,655","","","$","8,074,312","","","$","8,361,531"],["Tangible common equity:"],["Stockholders\u2019 equity (common)","$","1,172,898","","","$","1,039,007","","","$","972,529"],["Goodwill and other intangibles, net","388,140","","","394,366","","","402,438"],["Tangible common equity","$","784,758","","","$","644,641","","","$","570,091"],["Tangible average common equity:"],["Average stockholders\u2019 equity (common)","$","1,100,396","","","$","979,366","","","$","886,385"],["Average goodwill and other intangibles, net","391,343","","","398,106","","","361,471"],["Average tangible common equity","$","709,053","","","$","581,260","","","$","524,914"]]
[[/GREPCENT_TABLE]]

Note: Numbers may not sum due to rounding.

(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.

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

(3) In July 2023, a new Wisconsin tax law change was signed which provided financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on specific loans to existing Wisconsin-based business or agriculture purpose loans. The effective tax rate for periods prior to July 1, 2023,effective date of this tax law change, assumed an effective tax rate of 25%, and periods subsequent to the effective date assumed an effective tax rate of 19.5%.

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. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount, mix and composition of interest-earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies. Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and is used in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. Tables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread, and net interest margin.

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

[[GREPCENT_TABLE]]
[["","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\u2019 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 (\u201cMMA\u201d)","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\u2019 equity","1,100,396","","","","","","","979,366","","","","","","","886,385"],["Total liabilities and stockholders\u2019 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","%"]]
[[/GREPCENT_TABLE]]

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

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

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

[[GREPCENT_TABLE]]
[["(in thousands)","2024 Compared to 2023Increase (Decrease) Due to Changes in","","2023 Compared to 2022Increase (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"]]
[[/GREPCENT_TABLE]]

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

(3)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.

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. In contrast, the Federal Reserve decreased short-term interest rates a total of 100 bps during the second half of 2024, resulting in a Federal Funds range of 4.25% to 4.50% as of December 31, 2024.

Tax-equivalent net interest income was $270 million for 2024, an increase of $26 million (11%) over 2023. The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $22 million) and net favorable rates (which increased net interest income $5 million).

Average interest-earning assets increased to $7.8 billion for 2024, $112 million (1%) higher than 2023. Average loans increased $271 million (4%) to $6.5 billion, on solid organic loan growth. Average investment securities decreased $226 million largely from the first quarter 2023 balance sheet repositioning, while other interest-earning assets increased $67 million, mostly investable cash. As a result, the mix of average interest-earning assets shifted to 84% loans, 11% investment securities, and 5% other interest-earning assets (mostly cash) for 2024, compared to 81%, 15%, and 4%, respectively, for 2023.

Average interest-bearing liabilities were $5.6 billion for 2024, an increase of $286 million (5%) from 2023. Average interest-bearing core deposits increased $292 million and average brokered deposits grew $135 million, reflecting growth in higher cost deposit products and a shift in funding strategy. Wholesale funding decreased $142 million, mostly due to the repayment of FHLB borrowings as part of the first quarter 2023 balance sheet repositioning. The mix of average interest-bearing liabilities was 84% core deposits, 13% brokered deposits, and 3% other funding for 2024, compared to 83% core deposits, 11% brokered deposits, and 6% other funding in 2023.

The interest rate spread increased 26 bps between the years, as the repricing of liabilities slowed, while new and renewed loans continued to reprice in a higher interest rate environment. The interest-earning asset yield increased 64 bps to 5.66% for 2024, due to the changing mix of interest-earning assets (noted above), as well as the higher interest rate environment. The loan yield improved 57 bps to 6.05% for 2024, largely due to the repricing of new and renewed loans, while the yield on investment securities increased 62 bps to 2.98%. The cost of funds increased 38 bps to 3.03% for 2024, also reflecting the rising interest rate environment and the migration of customer deposits into higher rate deposit products. The contribution from net free funds increased 3 bps, mostly due to the higher value in the current interest rate environment. As a result, the net interest margin was 3.47% for 2024, up 29 bps compared to 3.18% for 2023.

35

Provision for Credit Losses

The provision for credit losses for 2024 was $3.9 million (comprised of $3.8 million related to the ACL-Loans and $0.1 million for the ACL on unfunded commitments). The 2023 provision for credit losses was $5.0 million (comprised of $2.7 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS). Comparatively, the 2022 provision for credit losses of $11.5 million was largely due to the required Day 2 ACL increase of $8 million from the acquisition of Charter, as well as solid loan growth. Asset quality trends have been solid and net charge-offs were negligible for all years.

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. The appropriateness of the ACL-Loans is affected by changes in the size and character of the loan portfolio, changes in levels of collateral-dependent and other nonperforming loans, historical losses and delinquencies in each portfolio segment, the risk inherent in specific loans, concentrations of loans to specific borrowers or industries, existing and future economic conditions, the fair value of underlying collateral, and other factors which could affect potential credit losses. 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

[[GREPCENT_TABLE]]
[["(in thousands)","Years Ended December 31,","","Change From Prior Year"],["","2024","","2023","","2022","","$ Change2024","","% Change2024","","$ Change2023","","% Change2023"],["Trust services fee income","$","10,085","","","$","8,614","","","$","7,947","","","$","1,471","","","17","%","","$","667","","","8","%"],["Brokerage fee income","17,367","","","15,133","","","12,923","","","2,234","","","15","%","","2,210","","","17","%"],["Wealth management fee income","27,452","","","23,747","","","20,870","","","3,705","","","16","%","","2,877","","","14","%"],["Mortgage income, net","10,177","","","7,164","","","8,497","","","3,013","","","42","%","","(1,333)","","","(16)","%"],["Service charges on deposit accounts","7,184","","","5,976","","","6,104","","","1,208","","","20","%","","(128)","","","(2)","%"],["Card interchange income","13,661","","","12,991","","","11,643","","","670","","","5","%","","1,348","","","12","%"],["Bank owned life insurance (\u201cBOLI\u201d) income","5,448","","","4,524","","","3,818","","","924","","","20","%","","706","","","18","%"],["Deferred compensation plan asset market valuations","1,198","","","1,937","","","(2,040)","","","(739)","","","(38)","%","","3,977","","","N/M"],["LSR income, net","4,405","","","4,425","","","(1,366)","","","(20)","","","\u2014","%","","5,791","","","N/M"],["Other income","8,530","","","8,016","","","7,264","","","514","","","6","%","","752","","","10","%"],["Noninterest income without net gains","78,055","","","68,780","","","54,790","","","9,275","","","13","%","","13,990","","","26","%"],["Asset gains (losses), net","4,212","","","(32,808)","","","3,130","","","37,020","","","N/M","","(35,938)","","","N/M"],["Total noninterest income","$","82,267","","","$","35,972","","","$","57,920","","","$","46,295","","","129","%","","$","(21,948)","","","(38)","%"],["N/M means not meaningful."]]
[[/GREPCENT_TABLE]]

Comparison of 2024 versus 2023

Noninterest income was $82 million for 2024, an increase of $46 million from 2023, primarily due to the balance sheet repositioning in 2023 (which included the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million). Excluding net asset gains (losses), noninterest income for 2024 was $78 million, a $9 million (13%) increase over 2023. Notable contributions to the change in noninterest income were:

•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. Net mortgage income was $10 million for 2024, up $3 million (42%) between the years, mostly due to higher secondary market volumes and the related gains on sales. See also “Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

•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. 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. Net asset losses of $33 million in 2023 were primarily attributable to losses of $38 million on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities executed in early March as part of a balance sheet repositioning, as well as net losses of $3 million on the sale of certain available for sale securities, partly offset by a $9 million gain on the sale of Nicolet’s member interest in UFS, LLC. Additional information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

Noninterest Expense

Table 5: Noninterest Expense

[[GREPCENT_TABLE]]
[["($ in thousands)","Years Ended December 31,","","Change From Prior Year"],["","2024","","2023","","2022","","Change2024","","% Change2024","","Change2023","","% Change2023"],["Personnel","$","108,414","","","$","99,109","","","$","88,713","","","$","9,305","","","9","%","","$","10,396","","","12","%"],["Occupancy, equipment and office","35,136","","","36,222","","","29,722","","","(1,086)","","","(3)","%","","6,500","","","22","%"],["Business development and marketing","8,330","","","7,790","","","8,472","","","540","","","7","%","","(682)","","","(8)","%"],["Data processing","17,754","","","19,892","","","14,518","","","(2,138)","","","(11)","%","","5,374","","","37","%"],["Intangibles amortization","6,876","","","8,072","","","6,616","","","(1,196)","","","(15)","%","","1,456","","","22","%"],["FDIC assessments","4,003","","","3,999","","","1,920","","","4","","","\u2014","%","","2,079","","","108","%"],["Merger-related expense","\u2014","","","189","","","1,664","","","(189)","","","(100)","%","","(1,475)","","","(89)","%"],["Other expense","10,840","","","10,593","","","9,019","","","247","","","2","%","","1,574","","","17","%"],["Total noninterest expense","$","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","","","\u2014","%","","72","","","8","%"]]
[[/GREPCENT_TABLE]]

Comparison of 2024 versus 2023

Noninterest expense was $191 million, an increase of $5 million (3%) over 2023. Personnel costs increased $9 million (9%), while non-personnel expenses combined decreased $4 million (4%) from 2023. Notable contributions to the change in noninterest expense were:

•Personnel expense was $108 million for 2024, an increase of $9 million (9%) over 2023. Salary expense increased $3 million (5%) over 2023, reflecting merit increases between the years, while incentive compensation increased $5 million over 2023, commensurate with current year earnings. Fringe benefits increased $1 million (5%) over 2023. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan.

•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.

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. 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. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate. The Company had a $16 million valuation allowance at December 31, 2024, compared to a valuation allowance of $9 million at December 31, 2023. Additional information on the subjectivity of income taxes is discussed further under “Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

BALANCE SHEET ANALYSIS

Loans

Nicolet services a diverse customer base primarily throughout Wisconsin, Michigan and Minnesota. The Company concentrates on originating loans in its local markets and assisting current loan customers. Nicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”). In addition to the discussion that follows, accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional loan related 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.

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

Table 6: Period End Loan Composition

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

As noted in Table 6 above, the loan portfolio at December 31, 2024 was 76% commercial-based and 24% retail-based, unchanged from December 31, 2023, with a slight shift in the underlying mix of each. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any.

Total loans were $6.6 billion at December 31, 2024, an increase of $273 million (4%), compared to total loans of $6.4 billion at December 31, 2023, with growth in agricultural, commercial and industrial, and residential real estate loans. At December 31, 2024, agricultural and commercial and industrial loans represented the largest segments of Nicolet’s loan portfolio, with each at 20% of the total loan portfolio. The next largest segments were CRE investment and residential first mortgage, with each representing 18% of the total loan portfolio. The loan portfolio is widely diversified and included the following industries:

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.

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.

[[GREPCENT_TABLE]]
[["(in thousands)","Loan Maturity"],["","One Year or Less","","After One Year to Five Years","","After Five Years to Fifteen Years","","After Fifteen Years","","Total"],["Commercial & industrial","$","541,948","","","$","665,448","","","$","105,773","","","$","6,594","","","$","1,319,763"],["Owner-occupied CRE","197,945","","","580,072","","","130,746","","","31,604","","","940,367"],["Agricultural","505,889","","","461,631","","","320,859","","","33,659","","","1,322,038"],["CRE investment","229,552","","","788,954","","","179,186","","","24,134","","","1,221,826"],["Construction & land development","72,310","","","115,708","","","39,740","","","11,936","","","239,694"],["Residential construction *","78,891","","","5,589","","","716","","","10,914","","","96,110"],["Residential first mortgage","72,428","","","229,325","","","156,481","","","737,924","","","1,196,158"],["Residential junior mortgage","27,138","","","14,438","","","35,233","","","157,825","","","234,634"],["Retail & other","33,413","","","10,260","","","7,953","","","4,368","","","55,994"],["Total loans","$","1,759,514","","","$","2,871,425","","","$","976,687","","","$","1,018,958","","","$","6,626,584"],["Percent by maturity distribution","27","%","","43","%","","15","%","","15","%","","100","%"],["Fixed rate loans:"],["Commercial & industrial","$","106,404","","","$","517,875","","","$","39,178","","","$","3,164","","","$","666,621"],["Owner-occupied CRE","177,861","","","526,247","","","50,982","","","6,511","","","761,601"],["Agricultural","267,721","","","403,498","","","282,242","","","26,091","","","979,552"],["CRE investment","187,832","","","666,184","","","93,940","","","134","","","948,090"],["Construction & land development","26,255","","","88,027","","","12,117","","","435","","","126,834"],["Residential construction *","58,448","","","5,319","","","570","","","5,969","","","70,306"],["Residential first mortgage","67,799","","","216,816","","","118,951","","","289,885","","","693,451"],["Residential junior mortgage","3,263","","","6,578","","","4,692","","","297","","","14,830"],["Retail & other","2,213","","","9,944","","","7,361","","","3,758","","","23,276"],["Total fixed rate loans","$","897,796","","","$","2,440,488","","","$","610,033","","","$","336,244","","","$","4,284,561"],["Floating rate loans:"],["Commercial & industrial","$","435,544","","","$","147,573","","","$","66,595","","","$","3,430","","","$","653,142"],["Owner-occupied CRE","20,084","","","53,825","","","79,764","","","25,093","","","178,766"],["Agricultural","238,168","","","58,133","","","38,617","","","7,568","","","342,486"],["CRE investment","41,720","","","122,770","","","85,246","","","24,000","","","273,736"],["Construction & land development","46,055","","","27,681","","","27,623","","","11,501","","","112,860"],["Residential construction *","20,443","","","270","","","146","","","4,945","","","25,804"],["Residential first mortgage","4,629","","","12,509","","","37,530","","","448,039","","","502,707"],["Residential junior mortgage","23,875","","","7,860","","","30,541","","","157,528","","","219,804"],["Retail & other","31,200","","","316","","","592","","","610","","","32,718"],["Total floating rate loans","$","861,718","","","$","430,937","","","$","366,654","","","$","682,714","","","$","2,342,023"]]
[[/GREPCENT_TABLE]]

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

Allowance for Credit Losses - Loans

In addition to the discussion that follows, accounting policies for the allowance for credit losses - loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional ACL-Loans 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.

Credit risks within the loan portfolio are inherently different for each loan type. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, interest, and related expenses. For additional information regarding nonperforming assets see “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. To assess the overall appropriateness of the ACL-Loans, management applies an allocation methodology which focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonaccrual loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect expected credit losses. Assessing these factors involves significant judgment; therefore, management considers the ACL-Loans a critical accounting estimate, as further discussed under “Critical Accounting Estimates – Allowance for Credit Losses - Loans.”

Management allocates the ACL-Loans by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve is established for individually evaluated credit deteriorated loans, which management defines as nonaccrual credit relationships over $250,000, collateral dependent loans, purchased credit deteriorated loans, and other loans with evidence of credit deterioration. The specific reserve in the ACL-Loans for these credit deteriorated loans is equal to the aggregate collateral or discounted cash flow shortfall. Second, management allocates the ACL-Loans with historical loss rates by loan segment. The loss factors are measured on a quarterly basis and applied to each loan segment based on current loan balances and projected for their expected remaining life. Next, management allocates the ACL-Loans using the qualitative and environmental factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses at the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.

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

At December 31, 2024, the ACL-Loans was $66 million (representing 1.00% of period end loans) compared to $64 million (representing 1.00% of period end loans) at December 31, 2023. The increase in the ACL-Loans during both 2024 and 2023 was due to solid organic loan growth. Net charge-offs remain negligible. The components of the ACL-Loans are detailed further in Tables 8 and 9 below.

41

Table 8: Allowance for Credit Losses - Loans

[[GREPCENT_TABLE]]
[["(in thousands)","Years Ended December 31,"],["","2024","","2023","","2022"],["Allowance for credit losses - loans:"],["Beginning balance","$","63,610","","","$","61,829","","","$","49,672"],["ACL on PCD loans acquired","\u2014","","","\u2014","","","1,937"],["Net charge-offs:"],["Commercial & industrial","(867)","","","80","","","(86)"],["Owner-occupied CRE","124","","","(526)","","","(555)"],["Agricultural","\u2014","","","(63)","","","\u2014"],["CRE investment","\u2014","","","\u2014","","","169"],["Construction & land development","\u2014","","","\u2014","","","\u2014"],["Residential construction","\u2014","","","\u2014","","","\u2014"],["Residential first mortgage","33","","","(2)","","","(57)"],["Residential junior mortgage","9","","","(95)","","","1"],["Retail & other","(337)","","","(263)","","","(202)"],["Total net charge-offs","(1,038)","","","(869)","","","(730)"],["Provision for credit losses","3,750","","","2,650","","","10,950"],["Ending balance of ACL-Loans","$","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","\u2014","%","","0.01","%","","\u2014","%"],["CRE investment","\u2014","%","","\u2014","%","","(0.02)","%"],["Construction & land development","\u2014","%","","\u2014","%","","\u2014","%"],["Residential construction","\u2014","%","","\u2014","%","","\u2014","%"],["Residential first mortgage","\u2014","%","","\u2014","%","","0.01","%"],["Residential junior mortgage","\u2014","%","","0.05","%","","\u2014","%"],["Retail & other","0.60","%","","0.48","%","","0.38","%"],["Total net charge-offs to average loans","0.02","%","","0.01","%","","0.01","%"]]
[[/GREPCENT_TABLE]]

The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9. The largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 24%, and 22%, respectively, of the ACL-Loans at December 31, 2024. In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans, agricultural, and CRE investment loans, representing 24%, 20%, and 20%, respectively, of the ACL-Loans at December 31, 2023. This change in allocated ACL-Loans was attributable to changes in current and forecasted risk trends within loan categories, as well as changes in loan portfolio composition.

Table 9: Allocation of the Allowance for Credit Losses - Loans

[[GREPCENT_TABLE]]
[["","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","%","","$","16,350","","","21","%","","26","%"],["Owner-occupied CRE","5,362","","","14","%","","8","%","","9,082","","","15","%","","14","%","","9,138","","","15","%","","15","%"],["Agricultural","9,957","","","20","%","","15","%","","12,629","","","18","%","","20","%","","9,762","","","18","%","","16","%"],["CRE investment","14,616","","","18","%","","22","%","","12,693","","","18","%","","20","%","","12,744","","","19","%","","21","%"],["Construction & land development","2,658","","","4","%","","4","%","","2,440","","","5","%","","4","%","","2,572","","","5","%","","4","%"],["Residential construction","1,234","","","1","%","","2","%","","916","","","1","%","","\u2014","%","","1,412","","","2","%","","2","%"],["Residential first mortgage","12,590","","","18","%","","19","%","","7,320","","","19","%","","12","%","","6,976","","","16","%","","11","%"],["Residential junior mortgage","2,827","","","4","%","","4","%","","2,098","","","3","%","","4","%","","1,846","","","3","%","","3","%"],["Retail & other","931","","","1","%","","2","%","","1,207","","","1","%","","2","%","","1,029","","","1","%","","2","%"],["Total ACL-Loans","$","66,322","","","100","%","","100","%","","$","63,610","","","100","%","","100","%","","$","61,829","","","100","%","","100","%"]]
[[/GREPCENT_TABLE]]

Nonperforming Assets

As part of its overall credit risk management process, management is committed to an aggressive problem loan identification philosophy. This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to identify problem loans early and minimize the risk of loss. Management continues to actively work with customers and

42

monitor credit risk from the ongoing macroeconomic challenges. 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.

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

The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the ACL-Loans. Potential problem loans are generally defined to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms. The decision of management to include performing loans in potential problem loans does not necessarily mean that Nicolet expects losses to occur, but that management recognizes a higher degree of risk associated with these loans. The loans that have been reported as potential problem loans are predominantly commercial-based loans covering a diverse range of businesses and real estate property types. Potential problem loans were $68 million at both December 31, 2024 and 2023, respectively. Potential problem loans require heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

Table 10: Nonperforming Assets

[[GREPCENT_TABLE]]
[["(in thousands)","December 31, 2024","","December 31, 2023","","December 31, 2022"],["Nonperforming loans:"],["Commercial & industrial","$","8,534","","","$","4,046","","","$","3,328"],["Owner-occupied CRE","4,547","","","4,399","","","5,647"],["Agricultural","9,969","","","12,185","","","20,416"],["CRE investment","1,688","","","1,453","","","3,832"],["Construction & land development","\u2014","","","161","","","771"],["Residential construction","\u2014","","","\u2014","","","\u2014"],["Residential first mortgage","3,370","","","4,059","","","3,780"],["Residential junior mortgage","185","","","150","","","224"],["Retail & other","126","","","172","","","82"],["Total nonaccrual loans","28,419","","","26,625","","","38,080"],["Accruing loans past due 90 days or more","\u2014","","","\u2014","","","\u2014"],["Total nonperforming loans","$","28,419","","","$","26,625","","","$","38,080"],["OREO:"],["Commercial real estate owned","$","80","","","$","305","","","$","628"],["Residential real estate owned","16","","","154","","","\u2014"],["Bank property real estate owned","597","","","808","","","1,347"],["Total OREO","693","","","1,267","","","1,975"],["Total nonperforming assets (NPAs)","$","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","%"]]
[[/GREPCENT_TABLE]]

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. The portfolio is structured with minimal credit exposure to Nicolet. All investment securities are classified at the time of purchase as available for sale (“AFS”) or held to maturity (“HTM”). In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

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. The investment securities portfolio increased slightly from December 31, 2023, and included a shift in mix, from corporate debt securities and state, county, and municipals to mortgage-backed securities. The fair value of the total securities AFS portfolio was an unrealized loss of $66 million at December 31, 2024, compared to an unrealized loss of $73 million at December 31, 2023.

Nicolet also had other investments of $61 million and $58 million at December 31, 2024 and 2023, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies. The FHLB and Federal Reserve investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus not liquid, have no ready market or quoted market value, and are carried at cost. The private company equity investments have no quoted market prices, and are carried at cost less impairment charges, if any. The other investments are evaluated periodically for impairment, considering financial condition and other available relevant information.

Table 11: Investment Securities Portfolio Maturity Distribution (1)

[[GREPCENT_TABLE]]
[["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. Treasury securities","$","\u2014","","","\u2014","%","","$","15,795","","","2.6","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","\u2014","","","\u2014","%","","$","15,795","","","2.6","%","","$","14,028"],["U.S. government agency securities","40","","","2.8","%","","1,954","","","5.5","%","","3,297","","","9.0","%","","272","","","9.1","%","","\u2014","","","\u2014","%","","5,563","","","7.7","%","","5,520"],["State, county and municipals","16,129","","","2.7","%","","119,743","","","2.3","%","","91,712","","","2.8","%","","83,347","","","3.7","%","","\u2014","","","\u2014","%","","310,931","","","2.9","%","","284,703"],["Mortgage-backed securities","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","\u2014","","","\u2014","%","","455,386","","","3.2","%","","455,386","","","3.2","%","","421,953"],["Corporate debt securities","707","","","7.7","%","","8,995","","","3.8","%","","65,747","","","4.7","%","","9,734","","","5.7","%","","\u2014","","","\u2014","%","","85,183","","","4.8","%","","80,211"],["Total amortized cost","$","16,876","","","3.2","%","","$","146,487","","","2.5","%","","$","160,756","","","3.7","%","","$","93,353","","","3.9","%","","$","455,386","","","2.8","%","","$","872,858","","","3.2","%","","$","806,415"],["Total fair value","$","16,778","","","","","$","135,348","","","","","$","146,277","","","","","$","86,059","","","","","$","421,953","","","","","","","","","$","806,415"],["","2","%","","","","17","%","","","","18","%","","","","11","%","","","","52","%","","","","","","","","100","%"]]
[[/GREPCENT_TABLE]]

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

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. Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher rate deposit products or non-deposit investment alternatives. Additional disclosures on deposits are included in Note 8, “Deposits,” in the Notes to Consolidated Financial Statements, under Part II, Item 8. See Table 2 for information on average deposit balances and deposit rates.

Table 12: Period End Deposit Composition

[[GREPCENT_TABLE]]
[["(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","%"]]
[[/GREPCENT_TABLE]]

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. In addition, deposits continue to migrate to higher rate deposit products, and there has been a targeted shift to brokered funding to support loan growth.

On average, deposits grew $128 million (2%) between 2024 and 2023 (as detailed in Table 2), primarily in brokered funding. Average customer deposits (core) decreased $8 million, while average brokered deposits increased $135 million (22%) over the prior year.

At December 31, 2024, Nicolet had $325 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, 2024.

Table 13: Maturity Distribution of Uninsured Time Deposits

[[GREPCENT_TABLE]]
[["(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"]]
[[/GREPCENT_TABLE]]

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.

Other Funding Sources

Other funding sources include short-term and long-term borrowings. Short-term borrowings (with an original contractual maturity of one year or less) generally may consist of short-term FHLB advances, customer repurchase agreements or federal funds purchased. Long-term borrowings (with an original contractual maturity of over one year) include FHLB advances, junior subordinated debentures, and subordinated notes. 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. 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.

RISK MANAGEMENT AND CAPITAL

Liquidity Management

Liquidity management refers to the ability to ensure that adequate liquid funds are available to meet the current and future cash flow obligations arising in the daily operations of the Company. These cash flow obligations include the ability to meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to stockholders (if any), and satisfy other operating expenses. The Company’s most liquid assets are cash and due from banks and interest-earning deposits, which totaled $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.

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). 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. 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. Liquidity sources available to the Company at December 31, 2024, are presented in Table 14 below.

45

Table 14: Liquidity Sources

[[GREPCENT_TABLE]]
[["(in millions)","December 31, 2024"],["Fed Funds Lines","$","175"],["Brokered Capacity","1,100"],["Total Uncollateralized Lines","1,275"],["FHLB Borrowing Availability (1)","629"],["Fed Discount Window","11"],["Total Collateralized Lines","640"],["Total Liquidity Funding Availability","$","1,915"],["(1) Excludes outstanding FHLB borrowings of $5 million at December 31, 2024."]]
[[/GREPCENT_TABLE]]

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

Interest Rate Sensitivity Management and Impact of Inflation

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

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

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

Among other scenarios, 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. 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. The results were in compliance with Nicolet’s policy guidelines.

Table 15: Interest Rate Sensitivity

[[GREPCENT_TABLE]]
[["","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","%"]]
[[/GREPCENT_TABLE]]

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.

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

Capital

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

Capital balances and changes in capital are presented in the Consolidated Statements of Changes in Stockholders’ Equity in Part II, Item 8. Further discussion of capital components is included in Note 12, “Stockholders’ Equity,” and a summary of dividend restrictions, as well as regulatory capital amounts and ratios for Nicolet and the Bank is presented in Note 17, “Regulatory Capital Requirements,” of the Notes to Consolidated Financial Statements under Part II, Item 8.

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. 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.

Table 16: Capital

[[GREPCENT_TABLE]]
[["($ 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."]]
[[/GREPCENT_TABLE]]

In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities, dividends, or repayment of equity-equivalent debt) in light of strategic plans. Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At 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.

Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations

Nicolet is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. 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. Further information and discussion of these commitments is included in Note 14, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements, under Part II, Item 8.

The table below outlines the principal amounts and timing of Nicolet’s 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. Further discussion of the nature of each obligation is included in the referenced note of the Notes to Consolidated Financial Statements, under Part II, Item 8.

Table 17: Contractual Obligations

[[GREPCENT_TABLE]]
[["(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","","","$","38"],["Long-term borrowings","9","","161,387","","","5,000","","","\u2014","","","\u2014","","","156,387"],["Operating leases","5","","9,562","","","2,233","","","4,034","","","2,188","","","1,107"],["Total long-term contractual obligations","","","$","1,897,771","","","$","1,292,904","","","$","253,006","","","$","194,329","","","$","157,532"]]
[[/GREPCENT_TABLE]]

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. These estimates and assumptions are based on historical experience, current information, and other factors deemed to be relevant; accordingly, as this information changes, actual results could differ from those estimates. Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could have a material impact on the financial statements. The accounting 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.

Allowance for Credit Losses - Loans

Management’s evaluation process used to determine the appropriateness of the ACL-Loans is inherently subjective as it requires material estimates and assumptions. This evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect our estimate of lifetime expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the ACL-Loans could change significantly.

The allowance methodology applied by Nicolet is designed to assess the appropriateness of the ACL-Loans and includes allocations for individually evaluated credit-deteriorated loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative and environmental factors. The methodology includes evaluation and consideration of several factors, including but not limited to: management’s ongoing review and grading of the loan portfolio, evaluation of facts and issues related to specific loans, consideration of historical loan loss and delinquency experience on each portfolio segment, trends in past due and nonaccrual loans, the risk characteristics of specific loans or various loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, the fair value of underlying collateral, existing economic conditions, and other qualitative and quantitative factors which could affect expected credit losses. In addition, the model considers reasonable and supportable economic forecasts to assess the collectability of future cash flows. While management uses the best information available to make its evaluation, future adjustments to the ACL-Loans may be necessary if there are significant changes in economic conditions (both current and forecast) or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the ACL-Loans is made for analytical purposes and is not necessarily indicative of the trend of future credit losses in any particular loan category. The ACL-Loans is available to absorb losses from any segment of the loan portfolio. Management believes the ACL-Loans is

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appropriate at December 31, 2024. The allowance analysis is reviewed by the Board on a quarterly basis in compliance with regulatory requirements.

Consolidated net income and stockholders’ equity could be affected if management’s estimate of the ACL-Loans necessary to cover expected credit losses is subsequently materially different, requiring a change in the level of provision for credit losses to be recorded. 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. As an integral part of their examination process, federal regulatory agencies also review the ACL-Loans. Such agencies may require additions to the ACL-Loans or may require that certain loan balances be charged-off or downgraded into classified loan categories when their credit evaluations differ from those of management based on their judgments about information available to them at the time of their examination.

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. Management must make conclusions and estimates about the application of these innately intricate laws, related regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities.