NICOLET BANKSHARES INC Annual Report - A Year of Growth and Strategic Vision

Business Overview

Nicolet Bankshares, Inc. (the "Company") is the parent company of Nicolet National Bank (the "Bank"). It provides a wide range of commercial and retail banking services to businesses and individuals, primarily across Wisconsin and Michigan's Upper Peninsula. These services include commercial and industrial loans, commercial real estate loans, agricultural loans, residential mortgages, and various consumer loans. Nicolet National Bank also offers deposit products like checking, savings, and money market accounts, alongside wealth management, treasury management, and other financial services. Nicolet's strategy centers on community-based banking, building strong customer relationships, and using technology to deliver efficient, accessible financial solutions.

Nicolet Bankshares closed out 2025 with a strong performance, showcasing robust growth in its core lending business, healthy asset quality, and a clear strategic direction. The company significantly increased profitability, driven by expanding interest income and effective expense management, all while laying the groundwork for a major acquisition.

Key Financial Highlights for 2025

• Solid Profit Growth: Net income climbed to $120 million, up from $105 million last year. This resulted in diluted earnings per share (EPS) of $8.50, an increase from $7.50 in 2024, enhancing shareholder value.
• Revenue Expansion: Total revenue, which includes interest earned on loans and investments, plus fees and other income, reached $295 million, up from $260 million in 2024.
• Strong Net Interest Income (NII): The bank's main source of income, NII, grew to $250 million from $220 million in 2024. This growth came from a larger loan portfolio and a slightly improved Net Interest Margin (NIM) of 3.50% (up from 3.40%), showing the bank effectively managed its lending and borrowing costs.
• Operational Efficiency: The efficiency ratio, which measures how much it costs to generate a dollar of revenue, improved slightly to 52% from 53% in 2024, demonstrating disciplined cost control.

Expanding Lending and Maintaining Quality

Nicolet Bankshares significantly expanded its loan portfolio, a key sign of its growth and ability to generate interest income.

• Overall Loan Growth: Its total loan portfolio grew by approximately $330 million, from $5.74 billion in 2024 to $6.07 billion in 2025. Growth occurred across various segments:
  • Commercial Loans: Business-focused lending grew significantly. Commercial & Industrial loans reached $1.33 billion (from $1.30 billion), Owner-Occupied Commercial Real Estate stood at $1.03 billion (from $1.00 billion), Agricultural loans grew to $350 million (from $330 million), and Other Commercial Real Estate loans rose to $1.40 billion (from $1.35 billion). Construction and land development loans also increased to $500 million (from $480 million).
  • Residential Loans: Home lending also expanded. Residential Construction Loans reached $130 million (from $120 million), Residential First Lien mortgages totaled $1.10 billion (from $1.05 billion), and Residential Junior Lien loans were $130 million (from $120 million).
  • Other Consumer Loans: "Retail & Other" loans, covering personal and auto loans, increased to $300 million (from $290 million).

Despite this significant growth, the bank maintained excellent asset quality:

• Healthy Loan Quality: Loans 30-89 days past due remained stable at $2 million, and loans 90+ days past due remained at $1 million.
• Low Non-Performing Assets (NPAs): The ratio of non-performing assets to total assets improved slightly to 0.35% in 2025, down from 0.40% in 2024, reflecting effective risk management.
• Adequate Allowance for Credit Losses (ACL): The allowance for credit losses stood at 1.20% of total loans, providing a strong buffer against potential loan defaults. While net charge-offs (loans deemed uncollectible) slightly increased to 0.15% of average loans (from 0.12% in 2024), this is typical for a growing portfolio.

Stable Funding and Investment Portfolio

Nicolet Bankshares continued to benefit from a stable and affordable funding base.

• Strong Deposit Base: Total deposits grew to $7.0 billion by year-end 2025 (up from $6.5 billion in 2024). Approximately $6.5 billion of these were "core deposits"—stable, lower-cost funds from checking, savings, and money market accounts—a reliable and efficient source for the bank's lending activities.
• Consistent Investment Strategy: The bank's investment portfolio, mainly U.S. Treasury bonds and mortgage-backed securities, remained largely stable at approximately $1.5 billion. This portfolio provides a consistent yield, contributes to interest income, and offers liquidity.

Capital and Liquidity Management

Nicolet Bankshares maintained strong capital levels, ensuring financial stability, capacity for future growth, and careful liquidity management.

• Strong Capital Ratios: The Common Equity Tier 1 (CET1) ratio stood at 11.5% (compared to 11.8% in 2024), and the Total Capital ratio was 14.0% (compared to 14.3% in 2024). These ratios are comfortably above regulatory minimums, showing the bank's resilience and ability to absorb potential losses.
• Shareholder Dividends: The company continued to return value to its shareholders, paying $1.60 per share in 2025 dividends, an increase from $1.50 per share in 2024.
• Liquidity Position: The Company maintains a strong liquidity position, supported by its robust core deposit base, diversified funding sources, and an easily marketable investment portfolio. It managed cash and cash equivalents to meet daily operational needs and maintain appropriate reserve levels. The Company also accesses various backup funding sources, including advances from the Federal Home Loan Bank and federal funds lines of credit, to ensure enough liquidity in various market conditions.
• Debt Management: Beyond deposits, the Company's funding strategy may include borrowings from the Federal Home Loan Bank and, periodically, issuing subordinated debt or other wholesale funding instruments to optimize its capital structure and support growth. The financial statements typically provide specific details on these debt instruments.

Competitive Position

Nicolet Bankshares operates in a highly competitive financial services industry. Competitors include large regional and national banks, smaller community banks, credit unions, and non-bank financial companies. It competes on factors like interest rates, fees, product offerings, customer service, and convenience.

Nicolet differentiates itself through its community-focused approach, strong local relationships, personalized service, and efficient decision-making processes. The strategic acquisition of MidWestOne Financial Group Inc. aims to significantly enhance its competitive scale, expand its geographic footprint, and diversify its customer base, enabling it to better compete with larger institutions while retaining its community banking values.

Risk Factors

Investing in Nicolet Bankshares involves certain risks, including:

• Interest Rate Risk: Fluctuations in interest rates can significantly impact the Company's net interest income, as changes may affect interest earned on assets differently than interest paid on liabilities.
• Credit Risk: The risk of loan defaults or deteriorating borrower credit quality could increase provisions for credit losses and reduce profitability. This risk is central to the lending business.
• Economic Conditions: Adverse changes in local, regional, national, or global economic conditions, such as recessions, high unemployment, or inflation, could harm loan demand, asset quality, and overall financial performance.
• Regulatory and Compliance Risk: The Company is subject to extensive regulation and oversight. Changes in laws, regulations, or policies could increase compliance costs, limit business activities, or impose penalties.
• Operational Risk: Risks stemming from inadequate or failed internal processes, people, and systems, or from external events, including fraud, cybersecurity breaches, and system failures.
• Competition: Intense competition in the financial services industry could limit growth, reduce market share, or compress margins.
• Acquisition and Integration Risk: The planned acquisition of MidWestOne Financial Group Inc. involves significant risks, including potential integration difficulties, failure to achieve anticipated synergies, losing key employees or customers, and unexpected liabilities.
• Cybersecurity Risk: The Company faces risks from cyberattacks, data breaches, and other security incidents that could compromise customer information, disrupt operations, or damage its reputation.

Strategic Outlook: A Transformative Acquisition

A significant strategic development for Nicolet Bankshares is the planned acquisition of MidWestOne Financial Group Inc., expected to close in early 2026.

• Strategic Rationale: This acquisition is a pivotal move to significantly expand Nicolet's market presence, increase its asset base to over $10 billion, and enhance its competitive position in key Midwestern markets. It should create greater scale, drive operational efficiencies, and diversify the bank's revenue streams.
• Expected Impact: Management anticipates the merger will boost earnings per share within the first year post-closing, driven by identified cost savings and new revenue opportunities.
• Key Considerations: While promising, investors should note that such large acquisitions involve integration risks, potential regulatory hurdles, and challenges in retaining customers and employees. Successfully executing this merger will be crucial for Nicolet's future performance.

Future Outlook

Nicolet Bankshares ended 2025 with solid financial results, a growing, healthy loan portfolio, and a clear strategic vision for significant expansion. Looking ahead, its primary focus will be on successfully integrating MidWestOne Financial Group Inc., aiming to achieve the anticipated benefits and expand its market reach. Management will continue monitoring economic conditions, interest rate trends, and the competitive landscape to adapt its strategies. The Company remains committed to disciplined growth, strong asset quality, and delivering long-term value to shareholders.