NICOLET BANKSHARES, INC. ANNOUNCES THIRD QUARTER 2023 RESULTS

• Net income of $17 million or adjusted net income (non-GAAP) of $23 million for third quarter 2023, compared to net income of $23 million in prior quarter, and net income of $19 million or adjusted net income (non-GAAP) of $25 million for third quarter 2022
• Net income of $31 million and adjusted net income (non-GAAP) of $73 million for first nine months of 2023, compared to $67 million and adjusted net income (non-GAAP) of $71 million for first nine months of 2022, significantly impacted by first quarter balance sheet repositioning
• Change in Wisconsin tax law resulted in one-time $9.1 million charge to state income tax expense in current quarter with expected lower effective tax rate in future periods
• Quarterly net interest margin of 3.16%, an increase of 2 bps over second quarter
• Wealth assets under management increased 24% from year-end 2022

GREEN BAY, Wis., Oct. 24, 2023 /PRNewswire/ -- Nicolet Bankshares, Inc. (NYSE: NIC) ("Nicolet") announced third quarter 2023 net income of $17 million and earnings per diluted common share of $1.14, compared to net income of $23 million and earnings per diluted common share of $1.51 for second quarter 2023, and net income of $19 million and earnings per diluted common share of $1.29 for third quarter 2022. Net income for the nine months ended September 30, 2023 was $31 million and earnings per diluted common share of $2.05, compared to net income of $67 million and earnings per diluted common share of $4.72 for the nine months ended September 30, 2022.

On July 1, 2023, Wisconsin's Governor signed the State Budget, retroactive to January 1, 2023, which included language that provides financial institutions with an exemption from state taxable income for interest, fees, and penalties earned on loans to existing Wisconsin-based business or agriculture purpose loans that are $5 million or less in balance on January 1, 2023, and to new loans that meet the criteria. The impact to Nicolet moving forward will be a reduction / elimination of State income taxes being expensed, resulting in an estimated effective tax rate of 19.5% (compared to a 25% effective tax rate previously). However, the elimination of State income tax expense will also cause a valuation allowance to be set up for the State-related deferred tax asset as of the effective date of the legislation, requiring a one-time $9.1 million charge to state income tax expense in the third quarter.

Net income reflected certain non-core items and the related tax effect of each, including the first quarter U.S. Treasury securities sale loss, change in Wisconsin tax law, expected loss (provision expense) on the Signature Bank sub debt investment (acquired in an acquisition), merger-related expenses, Day 2 credit provision expense required under the CECL model, as well as gains / (losses) on other assets and investments. These non-core items negatively impacted earnings per diluted common share $0.40 for third quarter 2023, $0.02 for second quarter 2023, and $0.45 for third quarter 2022. For the nine months ended September 30, 2023, these non-core items negatively impacted earnings per diluted common share $2.82, and negatively impacted earnings per diluted common share $0.33 for the comparable nine-month period of 2022.

"Our recent quarterly results continue to show Nicolet's resilience in a challenging operating environment," said Mike Daniels, President and CEO of Nicolet. "We have a saying at Nicolet - 'control what you can control.' This quarter, our core operations, which we can control, are solid and driven by top-line revenue growth, an increase in core deposits, and another positive movement in our net interest margin. Our customers continue to perform remarkably well despite the macroeconomic headwinds of a tight labor market and higher costs due to inflation. We are encouraged by the momentum we have heading into the final quarter of the year."

Daniels continued, "The passage of the 2024 Wisconsin State Budget with the state tax exemption for community banks will have a meaningful impact on the earnings for Wisconsin banks this year and going forward. I want to thank our state lawmakers for recognizing the value and importance of Wisconsin community banks and for putting positive actions behind their words."

Nicolet's financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet's August 2022 acquisition of Charter Bankshares, Inc. ("Charter"). Certain income statement results, average balances, and related ratios for 2022 include contributions from Charter from the acquisition date. At acquisition, Charter added assets of $1.1 billion, loans of $827 million, and deposits of $869 million.

Balance Sheet Review
At September 30, 2023, period end assets were $8.4 billion, a decrease of $66 million (1%) from June 30, 2023, mostly maturities and paydowns of investment securities, partly offset by higher cash balances. Total loans increased slightly ($16 million) from June 30, 2023, with growth in residential real estate and agriculture loans, offset by slowing commercial loan demand. Total deposits of $7.2 billion at September 30, 2023, decreased $16 million from June 30, 2023, with lower customer transaction account balances and a reduction in noncore deposits, offset by growth in customer time deposits. Total borrowings declined $50 million due to the maturity of a short-term FHLB advance. Total capital was $974 million at September 30, 2023, a decrease of $3 million since June 30, 2023, with earnings more than offset by unfavorable market valuations on available for sale securities.

Asset Quality
Nonperforming assets were $32 million and represented 0.37% of total assets at September 30, 2023, compared to $27 million or 0.32% at June 30, 2023, and $40 million or 0.45% at September 30, 2022. The allowance for credit losses-loans was $63 million and represented 1.01% of total loans at September 30, 2023, compared to $63 million (or 1.01% of total loans) at June 30, 2023, and $60 million (or 1.01% of total loans) at September 30, 2022. Asset quality trends remain solid and loan net charge-offs were negligible.

Income Statement Review - Quarter
Net income was $17 million and adjusted net income (non-GAAP) was $23 million for third quarter 2023, compared to net income of $23 million for second quarter 2023.

Net interest income was $61 million for third quarter 2023, up $2 million from second quarter 2023, the net effect of higher interest income and higher interest expense. The higher interest income was largely attributable to the repricing of new and renewed loans in a rising interest rate environment along with a shift of maturing investments (mostly U.S. Treasury securities) into investable cash balances at higher rates. The increase in interest expense was due to both higher average balances and higher average rates, reflecting the rising interest rate environment as well as a shift to higher rate deposit products (mostly time deposits). The net interest margin for third quarter 2023 was 3.16%, up 2 bps from 3.14% for second quarter 2023. The yield on interest-earning assets increased 25 bps (to 5.15%) due to the maturity of U.S. Treasury securities reinvested as investable cash, as well as the rising interest rate environment, while the cost of funds increased 29 bps (to 2.83%) for third quarter 2023, attributable mainly to the repricing of deposits and funding in the higher interest rate environment.

Noninterest income of $17 million for third quarter 2023 was minimally changed from second quarter 2023. Excluding net asset gains (losses), noninterest income for third quarter 2023 was $17 million, a $1 million decrease from second quarter 2023. The sequential quarter decrease included an unfavorable change in the fair value of nonqualified deferred compensation plan assets, partly offset by higher wealth revenue (from growth in accounts and assets under management, though tempered by unfavorable market-related changes) and net mortgage income.

Noninterest expense of $46 million for third quarter 2023, increased $1 million compared to second quarter 2023. Personnel expense was minimally changed with higher salaries, incentives, and health insurance substantially offset by a decrease in the fair value of nonqualified deferred compensation plan liabilities. Non-personnel expenses increased 4% between the sequential quarters, mostly higher data processing (volume-based system processing) and office expense.

Income tax expense was $15 million (effective tax rate 46.09%) for third quarter 2023, compared to $8 million (effective tax rate 25.85%) for second quarter 2023. The change in income tax expense included a $9.1 million charge to income tax expense to establish a tax valuation allowance, partly offset by a $3.0 million reduction to income tax expense to reverse amounts recorded in the first half of 2023, both related to the Wisconsin tax law change noted above.

Subsequent Event
On October 2, 2023, Nicolet sold its member interest in UFS, LLC for proceeds of $10 million and a pre-tax gain of approximately $9 million. This gain on sale will be realized during fourth quarter 2023.

About Nicolet Bankshares, Inc.
Nicolet Bankshares, Inc. is the bank holding company of Nicolet National Bank, a growing, full-service, community bank providing services ranging from commercial, agricultural and consumer banking to wealth management and retirement plan services. Founded in Green Bay in 2000, Nicolet National Bank operates branches in Wisconsin, Michigan, and Minnesota. More information can be found at www.nicoletbank.com.

Use of Non-GAAP Financial Measures
This communication contains non-GAAP financial measures, such as non-GAAP adjusted net income, non-GAAP adjusted earnings per diluted common share, tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets. Management believes such measures to be helpful to management, investors and others in understanding Nicolet's results of operations or financial position. When non-GAAP financial measures are used, the comparable GAAP financial measures, as well as the reconciliation of the non-GAAP measures to the GAAP financial measures, are provided. See "Reconciliation of Non-GAAP Financial Measures (Unaudited)" below. The non-GAAP net income measure and related reconciliation provide information useful to investors in understanding the operating performance and trends of Nicolet and also aid investors in comparing Nicolet's financial performance to the financial performance of peer banks. Management considers non-GAAP financial ratios to be critical metrics with which to analyze and evaluate financial condition and capital strengths. While non-GAAP financial measures are frequently used by stakeholders in the evaluation of a corporation, they have limitations as analytical tools and should not be considered in isolation or as a substitute for analyses of results as reported under GAAP.

Forward Looking Statements "Safe Harbor" Statement Under the Private Securities Litigation Reform Act of 1995
Certain statements contained in this communication, which are not statements of historical fact, constitute "forward-looking" statements within the meaning of the Private Securities Litigation Reform Act. Forward-looking statements generally can be identified by words or phrases such as, without limitation, "anticipate," "believe," "aim," "can," "conclude," "continue," "could," "estimate," "expect," "foresee," "goal," "intend," "may," "might," "outlook," "possible," "plan," "predict," "project," "potential," "seek," "should," "target," "will," "will likely," "would," or the negative of these terms or other comparable terminology, as well as similar expressions, and in this press release include our statements about our expected future effective tax rate.

Forward-looking statements are not historical facts but instead express only management's beliefs regarding future results or events, many of which, by their nature, are inherently uncertain and outside of management's control. It is possible that actual results and outcomes may differ, possibly materially, from the anticipated results or outcomes indicated in these forward-looking statements. Risks, uncertainties and other factors that could cause the actual results to differ materially from the statements, include, but are not limited to future legislative changes to the taxes imposed upon Nicolet. Additional factors which could affect the forward looking statements can be found in Nicolet's 2022 Annual Report on Form 10-K, as well subsequent filings with the SEC and are available on the SEC's website at www.sec.gov.

Any forward-looking statements included in this press release are made as of the date hereof and are based on information available to management at that time. Except as required by law, Nicolet disclaims any obligation to update or revise any forward-looking statement contained in this press release to reflect new information or events or circumstances that occur after the date the forward-looking statements were made.