10-Q: Nicolet Bankshares Q3 2025 Earnings Surge, Merger Ahead

Nicolet Bankshares reports strong third-quarter earnings growth and announces a definitive merger agreement with MidWest One Financial Group, Inc.

Summary

• Net income for the nine months ended September 30, 2025, was $110.362 million, an increase from $89.579 million for the same period in 2024.
• Diluted earnings per common share (EPS) for the nine months ended September 30, 2025, was $7.14, up from $5.84 in the prior year.
• Net interest income increased by 15% to $225.579 million for the nine months ended September 30, 2025, compared to $196.515 million in 2024.
• Total assets reached $9.029 billion at September 30, 2025, a 3% increase from $8.797 billion at December 31, 2024.
• Total loans grew by 4% to $6.875 billion at September 30, 2025, from $6.627 billion at December 31, 2024.
• Total deposits increased by 3% to $7.611 billion at September 30, 2025, from $7.404 billion at December 31, 2024, driven by core deposit growth.
• Nicolet Bankshares, Inc. entered into a definitive merger agreement with MidWest One Financial Group, Inc. on October 23, 2025, in an all-stock transaction.
• At September 30, 2025, MidWest One had total assets of $6.2 billion, loans of $4.4 billion, deposits of $5.5 billion, and equity of $606 million.

Sentiment

Score: 8

Explanation: Strong financial performance across key metrics (net income, EPS, net interest income, NIM, asset quality) combined with a strategic merger announcement indicates a very positive outlook and operational strength.

Positives

• Net income for Q3 2025 was $41.735 million, a 28.3% increase from $32.516 million in Q3 2024.
• Diluted EPS for Q3 2025 was $2.73, a 29.9% increase from $2.10 in Q3 2024.
• Net interest income increased by $29 million (15%) for the nine months ended September 30, 2025, compared to the prior year.
• Net interest margin improved to 3.72% for the nine months ended September 30, 2025, up from 3.42% in 2024.
• Total loans increased by $248 million (4%) from December 31, 2024, primarily in commercial and industrial loans.
• Total deposits increased by $208 million (3%) from December 31, 2024, with core deposits growing by $353 million.
• Noninterest income (excluding net asset gains/losses) increased by $4.0 million (7%) for the nine months ended September 30, 2025.
• Wealth management fee income grew by $1.2 million (6%) to $21.4 million for the nine months ended September 30, 2025.
• Mortgage income, net, increased by $1.6 million (23%) to $8.4 million for the nine months ended September 30, 2025.
• Nonperforming assets decreased to 0.31% of total assets at September 30, 2025, from 0.33% at December 31, 2024.
• The Allowance for Credit Losses (ACL-Loans) to nonperforming loans ratio improved to 250% at September 30, 2025, from 233% at December 31, 2024.
• The company's and the Bank's regulatory capital ratios remain above minimum regulatory ratios, qualifying the Bank as 'well-capitalized'.
• Accumulated other comprehensive income (loss) improved from $(48,568) thousand at December 31, 2024, to $(29,255) thousand at September 30, 2025.

Negatives

• Other interest-earning assets yield decreased by 78 basis points to 4.55% for the nine months ended September 30, 2025, consistent with Federal Reserve interest rate cuts.
• Net asset gains (losses) were $0.741 million for the nine months ended September 30, 2025, significantly lower than $3.702 million for the comparable period in 2024.
• LSR income, net, decreased by $0.666 million (20%) for the nine months ended September 30, 2025.
• Other noninterest income decreased by $0.916 million (14%) for the nine months ended September 30, 2025, largely due to the timing of card incentive income.
• Common stock repurchases totaled $76.561 million for the nine months ended September 30, 2025, reducing additional paid-in capital and common stock outstanding.
• Potential problem loans increased to $79 million at September 30, 2025, from $68 million at December 31, 2024.

Risks

• Inability to meet expectations regarding the timing of the proposed MidWest One merger.
• Failure to obtain necessary approvals by stockholders of Nicolet or MidWest One for the proposed merger.
• Inability to obtain required governmental approvals for the proposed transaction on the expected timeline or at all, potentially affected by government shutdowns.
• Failure to satisfy other conditions to completion of the proposed MidWest One merger, or any unexpected delay in closing the proposed transaction or the occurrence of any event, change or other circumstances that could give rise to the termination of the MidWest One merger agreement.
• The outcome of any legal or regulatory proceedings or governmental inquiries or investigations that may be currently pending or later instituted against Nicolet or MidWest One that relate to the proposed MidWest One merger.
• Strategic, market, operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically.
• Economic, market, political and competitive forces affecting Nicolet's banking and wealth management businesses.
• Potential fluctuations or unanticipated changes in the interest rate environment, monetary or tax policy or general economic conditions, including interest rate changes made by the Federal Reserve and the related cash flow reassessments, which may reduce Nicolet's net interest income, net interest margin, and/or the volumes and values of loans made or held as well as the value of other financial assets.
• Potential difficulties in identifying and completing future merger or acquisition opportunities, including the proposed merger with MidWest One, as well as the ability to successfully expand and integrate any businesses acquired.
• Cybersecurity risks and the vulnerability of the network and online banking portals, and the systems or parties with whom the company contracts, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches.
• Changes in accounting standards, rules and interpretations (including effects of assumptions underlying purchase accounting) and any resulting impact on Nicolet's financial statements.
• Compliance or operational risks related to new products, services, ventures, or lines of business.
• The risk that substantial expenditures may be required to keep pace with regulatory initiatives and the rapid technological changes in the financial services market.
• The ability to attract and retain key personnel.
• Examinations by regulatory authorities, including the possibility that they may require increases to the allowance for credit losses, asset write-downs, or other actions.
• Adverse results (including judgments, costs, fines, reputational harm, inability to obtain necessary approvals and/or other negative effects) from current or future litigation, legislation, regulatory proceedings, examinations, investigations, or similar matters or developments related thereto, such as potential effects of the federal One Big Beautiful Bill Act.
• The potential effects of events beyond control that may have a destabilizing effect on financial markets and the economy, such as inflation and recessions, weather events, climate change, natural disasters, epidemics and pandemics, war or terrorist activities, disruptions in supply chains, transportation, essential utility outages or trade disputes and related tariffs.
• The risk that Nicolet's analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
• Combining Nicolet and MidWest One may be more difficult, costly or time-consuming than expected, and the anticipated benefits and cost savings of the merger may not be realized.
• The integration process could result in the loss of key employees, the disruption of either company's ongoing businesses or inconsistencies in standards, controls, procedures and policies.
• Business disruptions could cause Nicolet and/or MidWest One to lose customers or cause customers to move their business to competing financial institutions.
• Integration efforts between the two companies will divert management attention and resources.
• Combining the boards of directors and executive leadership of the combined companies could require the reconciliation of differing priorities and philosophies.
• Regulatory approvals may not be received, may take longer than expected, or may impose conditions that are not presently anticipated or that could have an adverse effect on the combined company.
• The merger agreement may be terminated, leading to substantial incurred expenses without realizing expected benefits, negative reactions from financial markets, customers, and employees, and potential litigation or a termination fee of $35 million.
• Stockholder litigation could prevent or delay the completion of the merger or otherwise negatively impact the business and operations of Nicolet.

Future Outlook

The merger with MidWest One Financial Group, Inc. is expected to close in the first half of 2026, subject to customary closing conditions, including regulatory and stockholder approvals. The company will continue to manage interest rate risk, credit risk, and liquidity risk. Future amortization expense for intangible assets and servicing assets is estimated, but actuals may differ based on acquisitions, sales, interest rates, prepayment speeds, and market conditions.

Management Comments

• Management believes that any liability resulting from legal proceedings would not have a material adverse effect on our financial position or results of operations.
• Management performs ongoing intensive analysis of the loan portfolio to allow for early identification of customers experiencing financial difficulties, maintains prudent underwriting standards, understands the economy of its markets, and considers the trend of deterioration in loan quality in establishing the level of the Allowance for Credit Losses-Loans.
• Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies.
• Management intends to maintain an optimal capital and leverage mix for growth and shareholder return.
• Management does not believe that regulatory restrictions on dividends from the Bank will adversely affect its ability to meet its cash obligations.
• Management is committed to an aggressive problem loan identification philosophy.
• Management concluded no impairment was indicated for the nine months ended September 30, 2025, and the year ended December 31, 2024, regarding goodwill and other intangibles.
• Management believes that it is more likely than not that we will not have to sell any securities available for sale with unrealized losses before a recovery of cost.

Industry Context

The banking industry is navigating a dynamic interest rate environment, with the Federal Reserve having decreased short-term interest rates by 100 bps in the second half of 2024 and another 25 bps in Q3 2025, impacting net interest margins and deposit costs. Consolidation continues in the banking sector, as evidenced by Nicolet's proposed all-stock merger with MidWest One Financial Group, Inc., a common strategy for regional banks to achieve scale and expand market presence. The emphasis on core deposit growth and reduction of brokered deposits reflects a broader industry trend towards stable, lower-cost funding sources amidst competitive pressures. The focus on credit risk management and allowance for credit losses is standard for financial institutions, especially given potential economic uncertainties.

Comparison to Industry Standards

• The company utilizes 'Peer Bank Average ROAA Percentile' as a performance metric for executive compensation, defining 'Peer Bank' as exchange-traded depository institutions and their holding companies headquartered in the United States with greater than $1 billion in assets.
• The company changed its net interest margin calculation methodology to 'actual / actual' to be more consistent with the methodology typically used by peer banks.
• The company's capital ratios qualify it as 'well-capitalized under the prompt-corrective action framework', which is a regulatory standard.

Corporate Governance

Legal Proceedings

• Nicolet is party to various pending and threatened claims and legal proceedings arising in the normal course of business activities, some of which may involve claims for substantial amounts.
• Management continuously assesses potential liability and establishes accruals for probable losses that can be reasonably estimated.
• Management believes that any liability resulting from such proceedings would not have a material adverse effect on the financial position or results of operations.

Stakeholder Impact

• Shareholders: Positive impact from strong earnings, EPS growth, improved capital ratios, and the strategic merger which could enhance long-term value. Potential dilution from the all-stock merger (0.3175 shares of Nicolet for each MidWest One share). Risk of share price decline if merger fails or integration is difficult.
• Employees: Potential for loss of key employees during integration of MidWest One. Stock-based compensation plans are in place for officers and employees.
• Customers: Potential for disruption of ongoing businesses or inconsistencies in standards/policies during merger integration, leading to loss of customers to competitors. Expansion of services and market reach through the merger.
• Regulators: Merger requires approvals from Federal Reserve Board and other authorities, with potential for conditions or delays. Company maintains capital ratios above minimum regulatory requirements.

Next Steps

• Complete the merger with MidWest One Financial Group, Inc. in the first half of 2026, subject to regulatory and stockholder approvals.
• Integrate MidWest One's branches and operations into Nicolet's current operations.
• Continue to monitor and manage interest rate risk, credit risk, and liquidity risk.
• Recognize unrecognized compensation cost related to equity award grants over the remaining vesting period of approximately four years.
• Utilize the remaining $19 million authorized under the common stock repurchase program.

Key Dates

Recommendation

The company demonstrated robust financial performance in Q3 2025 and year-to-date, with significant growth in net income, EPS, net interest income, and an improved net interest margin. Asset quality remains strong, and capital ratios exceed regulatory requirements. The announced all-stock merger with MidWest One Financial Group, Inc. represents a strategic move to expand market presence and asset base, offering substantial growth potential. While integration risks exist, the overall financial health and strategic direction suggest a positive outlook for long-term investors.

Keywords

Banking, Financial Services, Regional Bank, Commercial Banking, Wealth Management, Mortgage Banking, SEC Filing, 10-Q, Earnings Report, Merger, Acquisition, MidWest One, Loan Growth, Deposit Growth, Net Interest Income, Net Interest Margin, Asset Quality, Capital Ratios, Stock Repurchase, Wisconsin, Michigan, Minnesota