See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Consolidated Statements of Income

(In thousands, except share and per share data) (Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Interest income:
Loans, including loan fees $ 27,329 $ 21,049 $ 73,098 $ 49,455
Investment securities:
Taxable 1,114 902 3,422 2,068
Non-taxable 604 493 1,761 1,146
Other interest income 407 351 1,136 906
Total interest income 29,454 22,795 79,417 53,575
Interest expense:
Money market and NOW accounts 1,380 631 2,755 1,726
Savings and time deposits 984 719 2,461 2,102
Short-term borrowings - - 72 5
Notes payable 81 6 133 230
Junior subordinated debentures 459 376 1,284 926
Subordinated notes 159 159 477 477
Total interest expense 3,063 1,891 7,182 5,466
Net interest income 26,391 20,904 72,235 48,109
Provision for loan losses 975 450 1,875 1,350
Net interest income after provision for loan losses 25,416 20,454 70,360 46,759
Noninterest income:
Service charges on deposit accounts 1,238 1,051 3,367 2,514
Mortgage income, net 1,774 2,010 4,022 3,713
Trust services fee income 1,479 1,373 4,431 4,000
Brokerage fee income 1,500 992 4,192 2,090
Bank owned life insurance 459 318 1,314 880
Rent income 285 285 852 820
Investment advisory fees 92 146 357 341
Gain on sale or writedown of assets, net 1,305 453 2,071 548
Other income 2,032 1,904 5,412 3,874
Total noninterest income 10,164 8,532 26,018 18,780
Noninterest expense:
Personnel 11,488 10,516 32,404 24,748
Occupancy, equipment and office 3,559 3,018 9,613 7,324
Business development and marketing 1,113 985 3,359 2,353
Data processing 2,238 1,831 6,428 4,408
FDIC assessments 205 247 582 629
Intangibles amortization 1,173 1,172 3,514 2,295
Other expense 1,086 1,250 3,598 4,799
Total noninterest expense 20,862 19,019 59,498 46,556

Income before income tax expense 14,718 9,967 36,880 18,983
Income tax expense 5,132 3,438 12,605 6,432
Net income 9,586 6,529 24,275 12,551
Less: net income attributable to noncontrolling interest 74 65 228 176
Net income attributable to Nicolet Bankshares, Inc. 9,512 6,464 24,047 12,375
Less: preferred stock dividends - 247 - 633
Net income available to common shareholders $ 9,512 $ 6,217 $ 24,047 $ 11,742

Basic earnings per common share $ 0.97 $ 0.72 $ 2.58 $ 1.76
Diluted earnings per common share $ 0.91 $ 0.69 $ 2.45 $ 1.67
Weighted average common shares outstanding:
Basic 9,836,646 8,607,719 9,316,814 6,689,367
Diluted 10,408,683 8,969,735 9,820,724 7,024,169


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Interest income:
Loans, including loan fees	$	52,954	$	35,111	$	104,253	$	68,973
Investment securities:
Taxable	5,135		2,060		10,262		3,874
Tax-exempt	647		520		1,322		1,065
Other interest income	790		616		1,607		1,271
Total interest income	59,526		38,307		117,444		75,183
Interest expense:
Deposits	2,410		2,433		4,602		5,355
Short-term borrowings	28		—		28		—
Long-term borrowings	2,004		303		3,935		616
Total interest expense	4,442		2,736		8,565		5,971
Net interest income	55,084		35,571		108,879		69,212
Provision for credit losses	750		—		1,050		500
Net interest income after provision for credit losses	54,334		35,571		107,829		68,712
Noninterest income:
Trust services fee income	2,004		1,906		4,015		3,681
Brokerage fee income	2,988		2,991		6,676		5,784
Mortgage income, net	2,205		5,599		5,458		12,829
Service charges on deposit accounts	1,536		1,136		3,013		2,227
Card interchange income	2,950		2,266		5,531		4,193
BOLI income	768		559		1,701		1,086
Asset gains (losses), net	1,603		4,192		2,916		4,903
Other income	77		1,529		764		2,601
Total noninterest income	14,131		20,178		30,074		37,304
Noninterest expense:
Personnel	19,681		17,084		40,872		32,200
Occupancy, equipment and office	6,891		4,053		13,835		8,190
Business development and marketing	2,057		1,210		3,888		2,199
Data processing	3,596		2,811		6,983		5,469
Intangibles amortization	1,347		790		2,771		1,642
FDIC assessments	480		480		960		1,075
Merger-related expense	555		656		653		656
Other expense	1,931		3,663		4,126		5,397
Total noninterest expense	36,538		30,747		74,088		56,828
Income before income tax expense	31,927		25,002		63,815		49,188
Income tax expense	7,942		6,718		15,666		12,665
Net income	$	23,985	$	18,284	$	48,149	$	36,523
Earnings per common share:
Basic	$	1.79	$	1.85	$	3.56	$	3.67
Diluted	$	1.73	$	1.77	$	3.43	$	3.52
Weighted average common shares outstanding:
Basic	13,402,455		9,901,614		13,524,919		9,949,359
Diluted	13,852,179		10,325,699		14,035,086		10,364,629

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Consolidated Statements of Comprehensive Income

(Loss)

(In thousands) (Unaudited)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Net income $ 9,586 $ 6,529 $ 24,275 $ 12,551
Other comprehensive income, net of tax:
Unrealized gains on securities AFS:
Net unrealized holding gains (losses) arising during the period 834 (984 ) 5,685 2,257
Reclassification adjustment for net gains included in net income (1,221 ) (37 ) (1,220 ) (77 )
Income tax benefit (expense) 125 397 (1,741 ) (851 )
Total other comprehensive income (loss) (262 ) (624 ) 2,724 1,329
Comprehensive income $ 9,324 $ 5,905 $ 26,999 $ 13,880


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2021		2022		2021
Net income	$	23,985	$	18,284	$	48,149	$	36,523
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities AFS:
Net unrealized holding gains (losses)	(23,520)		1,862		(63,468)		(5,507)
Net realized (gains) losses included in income	—		—		(15)		—
Income tax (expense) benefit	6,350		(503)		17,140		1,486
Total other comprehensive income (loss)	(17,170)		1,359		(46,343)		(4,021)
Comprehensive income (loss)	$	6,815	$	19,643	$	1,806	$	32,502

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements ~~Continued:~~

Continued:

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Consolidated ~~Statement~~Statements of Stockholders’ Equity

(In thousands) (Unaudited)

Nicolet Bankshares, Inc. Stockholders’ Equity
Common
Stock Additional
Paid-In
Capital Retained
Earnings Accumulated
Other
Comprehensive
Income (loss) Noncontrolling
Interest Total
Balance December 31, 2016 $ 86 $ 209,700 $ 68,888 $ (2,727 ) $ 418 $ 276,365
Comprehensive income:
Net income - - 24,047 - 228 24,275
Other comprehensive income - - - 2,724 - 2,724
Stock compensation expense - 1,871 - - - 1,871
Exercise of stock options, net 1 1,285 - - - 1,286
Issuance of common stock - 175 - - - 175
Issuance of common stock in acquisitions, net of capitalized issuance costs of $186 13 62,047 - - - 62,060
Purchase and retirement of common stock (2 ) (7,682 ) - - - (7,684 )
Balance, September 30, 2017 $ 98 $ 267,396 $ 92,935 $ (3 ) $ 646 $ 361,072



	Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances at March 31, 2022	$	135	$	524,478	$	337,768	$	(26,071)	$	836,310
Comprehensive income:
Net income, three months ended June 30, 2022	—		—		23,985		—		23,985
Other comprehensive income (loss)	—		—		—		(17,170)		(17,170)

Stock-based compensation expense	—		2,154		—		—		2,154
Exercise of stock options, net	—		190		—		—		190
Issuance of common stock	—		197		—		—		197
Purchase and retirement of common stock	(1)		(6,278)		—		—		(6,279)

Balances at June 30, 2022	$	134	$	520,741	$	361,753	$	(43,241)	$	839,387
Balances at March 31, 2021	$	100	$	271,388	$	271,191	$	7,367	$	550,046
Comprehensive income:
Net income, three months ended June 30, 2021	—		—		18,284		—		18,284
Other comprehensive income (loss)	—		—		—		1,359		1,359
Stock-based compensation expense	—		2,055		—		—		2,055
Exercise of stock options, net	—		64		—		—		64
Issuance of common stock	—		111		—		—		111
Purchase and retirement of common stock	(2)		(12,522)		—		—		(12,524)

Balances at June 30, 2021	$	98	$	261,096	$	289,475	$	8,726	$	559,395
Balances at December 31, 2021	$	140	$	575,045	$	313,604	$	3,102	$	891,891
Comprehensive income:
Net income, six months ended June 30, 2022	—		—		48,149		—		48,149
Other comprehensive income (loss)	—		—		—		(46,343)		(46,343)

Stock-based compensation expense	—		3,953		—		—		3,953
Exercise of stock options, net	1		2,076		—		—		2,077
Issuance of common stock	—		372		—		—		372
Purchase and retirement of common stock	(7)		(60,705)		—		—		(60,712)

Balances at June 30, 2022	$	134	$	520,741	$	361,753	$	(43,241)	$	839,387
Balances at December 31, 2020	$	100	$	273,390	$	252,952	$	12,747	$	539,189
Comprehensive income:
Net income, six months ended June 30, 2021	—		—		36,523		—		36,523
Other comprehensive income (loss)	—		—		—		(4,021)		(4,021)
Stock-based compensation expense	—		3,396		—		—		3,396
Exercise of stock options, net	—		1,225		—		—		1,225
Issuance of common stock	—		232		—		—		232
Purchase and retirement of common stock	(2)		(17,147)		—		—		(17,149)


Balances at June 30, 2021	$	98	$	261,096	$	289,475	$	8,726	$	559,395

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements ~~Continued:~~

Continued:

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Consolidated Statements of Cash Flows

~~(In thousands)~~ (Unaudited)

Nine Months Ended September 30,
2017 2016
Cash Flows From Operating Activities, net of effects of business combinations:
Net income $ 24,275 $ 12,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion 7,038 4,227
Provision for loan losses 1,875 1,350
Increase in cash surrender value of life insurance (1,314 ) (880 )
Stock compensation expense 1,871 1,123
Gain on sale or writedown of assets, net (2,071 ) (548 )
Gain on sale of loans held for sale, net (3,614 ) (3,713 )
Proceeds from sale of loans held for sale 164,726 179,967
Origination of loans held for sale (164,806 ) (179,581 )
Net change in:
Accrued interest receivable and other assets 239 1,182
Accrued interest payable and other liabilities 1,733 (3,888 )
Net cash provided by operating activities 29,952 11,790
Cash Flows From Investing Activities, net of effects of business combinations:
Net decrease in certificates of deposit in other banks 1,490 239
Net decrease (increase) in loans (126,499 ) 15,582
Purchases of securities AFS (49,119 ) (57,510 )
Proceeds from sales of securities AFS 10,798 30,319
Proceeds from calls and maturities of securities AFS 34,426 22,962
Purchase of other investments (3,256 ) (3,745 )
Proceeds from sales of other investments 6,519 -
Net increase in premises and equipment (2,958 ) (3,802 )
Proceeds from sales of other real estate and other assets 3,410 1,661
Purchase of BOLI (70 ) (20,000 )
Proceeds from redemption of BOLI - 21,549
Intangible from acquired customer relationships (870 ) -
Net cash received in business combination 9,119 66,517
Net cash provided (used) by investing activities (117,010 ) 73,772
Cash Flows From Financing Activities, net of effects of business combinations:
Net increase in deposits 22,054 55,332
Net increase (decrease) in short-term borrowings 12,900 (49,087 )
Proceeds from notes payable 30,000 -
Repayments of notes payable (4,487 ) (56,519 )
Redemption of preferred stock - (12,200 )
Purchase and retirement of common stock (7,462 ) (3,046 )
Capitalized issuance costs, net (186 ) (260 )
Proceeds from issuance of common stock 175 101
Proceeds from exercise of common stock options, net 1,064 1,502
Cash dividends paid on preferred stock - (633 )
Net cash provided (used) by financing activities 54,058 (64,810 )
Net increase (decrease) in cash and cash equivalents (33,000 ) 20,752
Cash and cash equivalents:
Beginning $ 129,103 $ 83,619
Ending $ 96,103 $ 104,371
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 7,117 $ 5,787
Cash paid for taxes 8,805 7,150
Transfer of loans and bank premises to other real estate owned 828 33
Capitalized mortgage servicing rights 679 492
Transfer of loans from held for sale to held for investment 3,236 -
Acquisitions
Fair value of assets acquired 439,000 1,035,000
Fair value of liabilities assumed 398,000 937,000
Net assets acquired 41,000 98,000


(In thousands)	Six Months Ended June 30,
	2022		2021
Cash Flows From Operating Activities:
Net income	$	48,149	$	36,523
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion	11,804		5,204
Provision for credit losses	1,050		500
Increase in cash surrender value of life insurance	(1,701)		(1,086)
Stock-based compensation expense	3,953		3,396
Asset (gains) losses, net	(2,916)		(4,903)
Gain on sale of loans held for sale, net	(3,468)		(12,133)
Net change due to:
Proceeds from sale of loans held for sale	150,037		367,215
Origination of loans held for sale	(146,891)		(347,161)
Accrued interest receivable and other assets	8,112		(2,001)
Accrued interest payable and other liabilities	(18,787)		(2,539)
Net cash provided by (used in) operating activities	49,342		43,015
Cash Flows From Investing Activities:
Net (increase) decrease in loans	(359,145)		(30,451)
Net (increase) decrease in certificates of deposit in other banks	6,427		6,134
Purchases of securities AFS	(8,017)		(88,204)
Purchases of securities HTM	(56,479)		—
Proceeds from sales of securities AFS	3,400		—
Proceeds from calls and maturities of securities AFS	47,052		58,349
Proceed from calls and maturities of securities HTM	12,509		—
Purchases of other investments	(11,303)		(1,710)
Proceeds from sales of other investments	1,734		822

Proceeds from redemption of BOLI	117		—
Net (increase) decrease in premises and equipment	(6,173)		(3,694)
Net (increase) decrease in other real estate and other assets	9,836		1,165
Net cash (paid) received in branch sale	147,833		—

Net cash provided by (used in) investing activities	(212,209)		(57,589)
Cash Flows From Financing Activities:
Net increase (decrease) in deposits	(173,145)		28,813

Proceeds from long-term borrowings	—		5,000
Repayments of long-term borrowings	(20,000)		(14,000)
Purchase and retirement of common stock	(60,712)		(17,149)

Proceeds from issuance of common stock	372		232
Proceeds from exercise of stock options	2,077		1,225

Net cash provided by (used in) financing activities	(251,408)		4,121
Net increase (decrease) in cash and cash equivalents	(414,275)		(10,453)
Cash and cash equivalents:
Beginning	595,292		802,859
Ending *	$	181,017	$	792,406
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	11,367	$	6,436
Cash paid for taxes	19,610		19,416
Transfer of loans and bank premises to other real estate owned	432		302
Capitalized mortgage servicing rights	1,685		2,294

* There was no restricted cash in cash and cash equivalents at June 30, 2022, while cash and cash equivalents at June 30, 2021, included restricted cash of $1.9 millionpledged as collateral on interest rate swaps. No reserve balance was required with the Federal Reserve Bank at either June 30, 2022 or June 30, 2021.

See accompanying notes to unaudited consolidated financial statements.

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation

General

In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly ~~Nicolet Bankshares, Inc. (the “Company”) and its subsidiaries,~~the consolidated balance sheets, statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, as of and for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances ~~are~~have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.

These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2021.

Critical Accounting Policies and Estimates

Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for ~~loan~~credit losses, valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for ~~loan~~credit losses, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in ~~acquisitions;~~acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~Recent~~2021.

Future Accounting ~~Developments Adopted~~

Pronouncements

In ~~December 2016,~~March 2022, the FASB issued ASU 2022-02, Financial ~~Accounting Standards Board~~Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (“~~FASB”~~TDRs”) ~~issued~~and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The ASU also requires public business entities to expand the vintage disclosures to include gross charge-offs by year of origination. The updated guidance ~~to Accounting Standards Update (“ASU”) 2016-19,~~~~Technical Corrections and Improvements~~~~intended to make changes to clarify the Accounting Standards Codification or correct unintended application~~is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. Adoption of ~~guidance that~~this amendment is not expected to have a significant effect on current accounting practice. The ASU is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2016. The impact of the new guidance did not have a material impact on the Company’s consolidated financial ~~statements.~~

statements; though, it will result in new disclosures of gross charge-offs by year of origination and on the types of loan modifications to borrowers experiencing financial difficulties. Current TDR disclosures will be also removed.

In March ~~2016,~~2020, the FASB issued ~~updated guidance to~~ ASU ~~2016-09,~~~~Stock Compensation Improvements to Employee Share-Based Payment Activity~~ ~~intended to simplify and improve several aspects~~2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for ~~share-based payment~~(or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions ~~including the income tax consequences, classification of such awards as either equity or liabilities and classification on the statement of cash flows.~~affected by reference rate reform if certain criteria are met. The updated guidance is effective for ~~interim~~all entities as of March 12, 2020 through December 31, 2022. The Company continues to work through the cessation of LIBOR, including the modification of its loans and ~~annual reporting periods beginning after December 15, 2016.~~other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the reference rate reform transition guidance, as applicable, and does not expect such adoption to have a material impact on its consolidated financial statements ~~include~~or financial disclosures. The Company will continue to assess the impact ofas the new guidance. The Company adopted the pronouncement as required on January 1, 2017, prospectively, which included a reduction to income tax expense of $14,000 and $176,000 for the three months and nine months ended Septemberreference rate transition approaches June 30, ~~2017, respectively, for deductions attributable to exercised stock options and vesting of restricted stock.~~

2023.

~~Note 1 – Basis of Presentation, continued~~

~~Operating Segment~~

While the chief decision makers monitor the revenue streams of the various products and services, and evaluate costs, balance sheet positions and quality, all such products, services and activities are directly or indirectly related to the business of community banking, with no regular, formal or material segment delineations. Operations are managed and financial performance is evaluated on a company-wide basis, and accordingly, all the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications

Certain amounts in the ~~2016~~2021 consolidated financial statements have been reclassified to conform to the ~~2017~~2022 presentation.

These reclassifications were not material and did not impact previously reported net income or comprehensive income.

Note 2 – Acquisitions

~~First Menasha Bancshares,~~

Completed Acquisitions:

County Bancorp, Inc. (“~~First Menasha”~~County”):

On ~~April 28, 2017, the Company consummated~~December 3, 2021, Nicolet completed its merger with ~~First Menasha~~County, pursuant to the Agreement and Plan of Merger ~~by and between the Company and First Menasha~~ dated ~~November 3, 2016,~~June 22, 2021 (the ~~“Merger~~“County Merger Agreement”), ~~whereby First Menasha was~~at which time County merged with and into ~~the Company,~~Nicolet, and ~~The First National Bank-Fox Valley,~~Investors Community Bank, the wholly owned ~~commercial~~ bank subsidiary of ~~First Menasha serving the Fox Valley area of Wisconsin,~~County, was merged with and into Nicolet National Bank (the “Bank”)~~. The system integration was completed,~~, the wholly owned bank subsidiary of Nicolet.

Pursuant to the County Merger Agreement, each share of County common stock issued and five branches of First Menasha opened on May 1, 2017, as Nicolet National Bank branches, expanding its presence into Calumet and Winnebago Counties, Wisconsin. Concurrently, Nicolet closed one of its Calumet County locations, bringingoutstanding immediately prior to the ~~Bank’s footprint to 38 branches as of September 30, 2017.~~

~~The purpose~~effective time of the merger was converted into the right to ~~continue Nicolet’s interest in strategic growth, consistent with its plan~~receive, at the election of the shareholder, either cash of $37.18 or 0.48 shares of Nicolet common stock, subject to ~~improve profitability through efficiency, leverage~~proration procedures such that 1,237,000 shares of County common stock were exchanged for cash, and the ~~strengths~~remaining shares were exchanged for Nicolet common stock. As a result, Nicolet issued approximately 2.4 million shares of ~~each bank across the combined customer base,~~Nicolet common stock for stock consideration of $176 million and ~~add shareholder value.~~cash consideration of $48 million, or a total purchases price of $224 million. With the County merger, Nicolet became the ~~leading community bank to serve~~premier agriculture lender throughout Wisconsin.

A summary of the ~~Fox Valley area~~assets acquired and liabilities assumed in the County transaction, as of ~~Wisconsin.~~

~~Pursuant to~~ the ~~Merger Agreement,~~acquisition date, including the ~~final~~ purchase price ~~consisted~~allocation was as follows.


(In millions, except share data)	Acquired from County		Fair Value Adjustments		Estimated Fair Value
Assets Acquired:
Cash and cash equivalents	$	20	$	—	$	20
Investment securities	301		(1)		300
Loans	1,015		(1)		1,014
ACL-Loans	(11)		8		(3)
Premises and equipment	21		(4)		17
BOLI	33		—		33
Core deposit intangible	—		7		7
Loan servicing rights	20		—		20
Other assets	6		(2)		4
Total assets	$	1,405	$	7	$	1,412
Liabilities Assumed:
Deposits	$	1,027	$	3	$	1,030
Borrowings	218		1		219
Other liabilities	8		—		8
Total liabilities	$	1,253	$	4	$	1,257
Net assets acquired					$	155
Purchase Price:
Nicolet common stock issued (in shares)					2,366,243
Value of Nicolet common stock consideration					$	176
Cash consideration paid					48
Total purchase price					$	224
Write-off prior investment in County					(1)
Goodwill					$	70

The Company purchased loans through the acquisition of ~~issuing 1,309,885 shares~~County for which there was, at the date of ~~the Company’s common stock (given the final stock-for-stock exchange ratio~~acquisition, more than insignificant deterioration of ~~3.126 except for First Menasha shares owned by the Company immediately prior to the time~~credit quality since origination (purchased credit deteriorated loans or “PCD” loans). The carrying amount of the merger), for common stock consideration of $62.2 million (based on $47.52 per share, the volume weighted average closing price of the Company’s common stock over the preceding 20 trading day period) plus cash consideration of $19.3 million. Approximately $0.2 million in direct stock issuance costs for the merger were incurred and charged against additional paid in capital.

~~Upon consummation, the Company added $480 million in assets, $351 million in~~these loans ~~$375 million in deposits, $4 million in core deposit intangible, and $41 million of goodwill.~~ at acquisition was as follows.


(In thousands)	December 3, 2021
Purchase price of PCD loans at acquisition	$	64,948
Allowance for credit losses on PCD loans at acquisition	3,262
Par value of PCD acquired loans at acquisition	$	68,210

The Company accounted for the ~~transaction~~County acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of ~~First Menasha~~County prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective estimated fair values at the date of acquisition. The estimated fair ~~values may be subject to refinement~~value was determined with the assistance of third party valuations, appraisals, and third party advisors. Goodwill arising as ~~additional information relative~~a result of the County acquisition is not deductible for tax purposes.

Mackinac Financial Corporation (“Mackinac”): On September 3, 2021, Nicolet completed its merger with Mackinac, pursuant to the closing date fair values becomes available through the measurement period of approximately one year from consummation. During the third quarter of 2017, adjustments were made based on additional information. Goodwill was increased by $1.0 million to account for the gain in the Company’s pre-acquisition equity interest holding in First Menasha, resulting in a $1.2 million gain in pre-tax earnings.

~~Financial advisor business acquired:~~

During the first quarter of 2016, Nicolet agreed in a private transaction to hire a select group of financial advisors and purchase their respective books of business, as well as their operating platform, to enhance the leadership and future growthterms of the ~~Company’s wealth management business. The transaction~~Agreement and Plan of Merger dated April 12, 2021 (the “Mackinac Merger Agreement”), at which time Mackinac merged with and into Nicolet, and mBank, the wholly owned bank subsidiary of Mackinac, was ~~effected in phases~~merged with and ~~completed April 1, 2016. The Company paid $4.9 million total initial~~into the Bank.

Pursuant to the Mackinac Merger Agreement, Mackinac shareholders received fixed consideration ~~including $0.8 million cash, $2.6 million~~of 0.22 shares of Nicolet common stock and ~~recorded a $1.5 million earn-out liability payable to one principal~~$4.64 in cash for each share of Mackinac common stock owned, resulting in the ~~future. The Company initially recorded $0.4~~issuance of approximately 2.3 million of goodwill, $0.2 million of fixed assets, and $4.3 million of customer relationship intangibles (a portion amortizing straight-line over 10 years and a portion over 15 years). During the third quarter of 2017, the previously variable earn-out liability was agreed to be modified to a fixed amount. Therefore, the earn-out liability was adjusted to $2.4 million, with a corresponding $0.9 million increase in the customer relationship intangible, being amortized over the original term. The transaction impacts the income statement primarily within brokerage income, personnel expense, and intangibles amortization.

~~Note 2 – Acquisitions, continued~~

~~Baylake Corp. (“Baylake”):~~

On April 29, 2016, the Company consummated its merger with Baylake. The system integration was completed, and 21 branches of Baylake opened, on May 2, 2016, as branches of the Bank, expanding its presence into Door, Kewaunee, and Manitowoc Counties, Wisconsin. The Company closed one of its Brown County locations concurrently with the Baylake merger, and closed an additional six branches in the fourth quarter of 2016.

The purpose of the Baylake merger was for strategic reasons beneficial to the Company. The acquisition was consistent with its plan to drive growth and efficiency through increased scale, leverage the strengths of each bank across the combined customer base, enhance profitability, and add liquidity and shareholder value.

~~Baylake shareholders received 0.4517~~ shares of ~~the Company’s~~Nicolet common stock for each outstanding share of Baylake common stock (except for Baylake shares pre-owned by the Company at the time of the merger), and cash in lieu of any fractional share. Pre-existing Baylake equity awards (restricted stock units and stock options) immediately vested upon consummation of the merger. The Company issued 0.4517 shares of its common stock for each vesting Baylake restricted stock unit, and Nicolet assumed, after appropriate adjustment by the 0.4517 exchange ratio, all pre-existing Baylake stock options. As a result, the Company issued 4,344,243 shares of the Company’s common stock, for common stock consideration of ~~$163.3~~$180 million ~~(based on $37.58 per share, the volume weighted average closing~~and cash consideration of $49 million, or a total purchase price of $229 million. The Mackinac merger expanded Nicolet prominently into Northern Michigan and the ~~Company’s common stock over~~Upper Peninsula of Michigan, and added to Nicolet’s presence in upper northeastern Wisconsin.

A summary of the ~~preceding 20 trading day period)~~assets acquired and ~~recorded an additional $1.2 million consideration~~liabilities assumed in the Mackinac transaction, as of the acquisition date, including the purchase price allocation was as follows.


(In millions, except share data)	Acquired from Mackinac		Fair Value Adjustments		Estimated Fair Value
Assets Acquired:
Cash and cash equivalents	$	448	$	—	$	448
Investment securities	104		—		104
Loans	930		10		940
ACL-Loans	(6)		4		(2)
Premises and equipment	24		(3)		21
BOLI	16		—		16
Goodwill	20		(20)		—
Other intangibles	4		3		7
Other assets	25		(3)		22
Total assets	$	1,565	$	(9)	$	1,556
Liabilities Assumed:
Deposits	$	1,365	$	1	$	1,366
Borrowings	28		1		29
Other liabilities	13		1		14
Total liabilities	$	1,406	$	3	$	1,409
Net assets acquired					$	147
Purchase Price:
Nicolet common stock issued (in shares)					2,337,230
Value of Nicolet common stock consideration					$	180
Cash consideration paid					49
Total purchase price					$	229
Write-off prior investment in Mackinac					(2)
Goodwill					$	84

The Company purchased loans through the acquisition of Mackinac for which there was, at the ~~assumed stock options. Approximately $0.3 million in direct stock issuance costs for the merger were incurred and charged against additional paid in capital.~~

date of acquisition, more than insignificant deterioration of credit quality since origination (purchased credit deteriorated loans or “PCD” loans). The carrying amount of these loans at acquisition was as follows.


(In thousands)	September 3, 2021
Purchase price of PCD loans at acquisition	$	10,605
Allowance for credit losses on PCD loans at acquisition	1,896
Par value of PCD acquired loans at acquisition	$	12,501

The Company accounted for the ~~transaction~~Mackinac acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of ~~Baylake~~Mackinac prior to the consummation date were not included in the accompanying consolidated financial statements.

The ~~fair value of the~~accounting required assets ~~acquired~~purchased and liabilities assumed ~~on April 29, 2016~~to be recorded at their respective estimated fair values at the date of acquisition. The estimated fair value was determined with the assistance of third party valuations, appraisals, and third party advisors. Goodwill arising as ~~follows:~~

(in millions) As recorded by
Baylake Corp Fair Value
Adjustments As Recorded
by Nicolet
Cash, cash equivalents and securities available for sale $ 262 $ 1 $ 263
Loans 710 (19 ) 691
Other real estate owned 3 (2 ) 1
Core deposit intangible 1 16 17
Fixed assets and other assets 71 (8 ) 63
Total assets acquired $ 1,047 $ (12 ) $ 1,035

Deposits $ 822 $ - $ 822
Junior subordinated debentures, borrowings and other liabilities 116 (1 ) 115
Total liabilities acquired $ 938 $ (1 ) $ 937

Excess of assets acquired over liabilities acquired $ 109 $ (11 ) $ 98
Less: purchase price 164
Goodwill $ 66

a result of the Mackinac acquisition is not deductible for tax purposes.

Summary Unaudited Pro Forma Information: The following unaudited pro forma information ~~presents the results of operations for the three and nine months ended September 30, 2016, as if the Baylake acquisition had occurred January 1 of that year. These unaudited pro forma results are~~is presented for illustrative purposes only, and ~~are~~gives effect to the acquisitions of County and Mackinac as if the acquisitions had occurred on January 1, 2021, the beginning of the earliest period presented. The pro forma information should not ~~intended to represent or~~ be relied upon as being indicative of the ~~actual~~historical results of operations the companies would have had if the acquisitions had occurred before such periods or the future results of operations that the companies will experience as a result of the mergers. The pro forma information, although helpful in illustrating the financial characteristics of the combined company under one set of assumptions, does not reflect the benefits of expected cost savings, opportunities to earn additional revenue, the impact of restructuring and merger-related expenses, or other factors that ~~would~~may result as a consequence of the mergers and, accordingly, does not attempt to predict or suggest future results.


	Three Months Ended		Six Months Ended
(In thousands, except per share data)	June 30, 2021		June 30, 2021
Total revenue, net of interest expense	$	85,562	$	166,870
Net income	$	27,960	$	44,621
Diluted earnings per common share	$	1.86	$	2.96

Pending Acquisition:

Charter Bankshares, Inc. (“Charter”): On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”) pursuant to which Charter will merge with and into Nicolet. Pursuant to the terms and subject to the conditions set forth in the Charter Merger Agreement, at the effective time of the merger, Charter shareholders will have ~~been achieved had~~the right to receive 15.458 shares of Nicolet common stock and $475 in cash for each share of Charter common stock. As a result, Nicolet expects to issue approximately 1.26 million shares of Nicolet common stock and $38.8 million in cash for the acquisition ~~occurred at~~of Charter. At March 31, 2022, Charter had total assets of $1.1 billion. As of July 12, 2022, Nicolet received all regulatory approvals for the ~~beginning~~Charter merger. The merger is expected to close in the third quarter of ~~each period presented, nor are they intended~~2022, subject to ~~represent or be indicative of future results of operations.~~

(in thousands, except per share data) Three Months Ended
September 30, 2016 Nine Months Ended
September 30, 2016
Total revenues, net of interest expense $ 29,436 $ 82,870
Net income 6,827 17,042
Diluted earnings per share 0.74 1.85

customary closing conditions.

Note 3 – Earnings per Common Share

Basic earnings per common share are calculated by dividing net income ~~available to common shareholders~~ by the weighted average number of common shares outstanding during the period. Diluted earnings per common share isare calculated by dividing net income ~~available to common shareholders~~ by the weighted average number of shares adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock), if any. Presented below are the calculations for basic and diluted earnings per common share.

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
(In thousands except per share data)
Net income, net of noncontrolling interest $ 9,512 $ 6,464 $ 24,047 $ 12,375
Less: preferred stock dividends - 247 - 633
Net income available to common shareholders $ 9,512 $ 6,217 $ 24,047 $ 11,742
Weighted average common shares outstanding 9,837 8,608 9,317 6,689
Effect of dilutive stock instruments 572 362 504 335
Diluted weighted average common shares outstanding 10,409 8,970 9,821 7,024
Basic earnings per common share* $ 0.97 $ 0.72 $ 2.58 $ 1.76
Diluted earnings per common share* $ 0.91 $ 0.69 $ 2.45 $ 1.67


	Three Months Ended June 30,				Six Months Ended June 30,
(In thousands, except per share data)	2022		2021		2022		2021
Net income	$	23,985	$	18,284	$	48,149	$	36,523
Weighted average common shares outstanding	13,402		9,902		13,525		9,949
Effect of dilutive common stock awards	450		424		510		416
Diluted weighted average common shares outstanding	13,852		10,326		14,035		10,365
Basic earnings per common share*	$	1.79	$	1.85	$	3.56	$	3.67
Diluted earnings per common share*	$	1.73	$	1.77	$	3.43	$	3.52

*Cumulative quarterly per share performance may not equal annual per share totals due to the effects of the amount and timing of capital increases. When computing earnings per share for an interim period, the denominator is based on the ~~weighted-average~~weighted average shares outstanding during the interim period, and not on an annualized ~~weighted-average~~weighted average basis. Accordingly, the sum of the ~~quarters'~~ earnings per share data for the quarters will not necessarily equal the year to date earnings per share data.

~~There were no~~

For both the three and six months ended June 30, 2022 and June 30, 2021, options ~~outstanding at September 30, 2017 or September 30, 2016 that were~~to purchase approximately 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive.

Note 4 – ~~Stock-based~~Stock-Based Compensation

The Company may grant stock options and restricted stock under its stock-based compensation plans to certain officers, employees and directors. These plans are administered by a committee of the Board of Directors, and at June 30, 2022, approximately 0.8 million shares were available for grant under these stock-based compensation plans.

A Black-Scholes model is utilized to estimate the fair value of stock ~~options and~~option grants, while the market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards. The weighted average assumptions used in the Black-Scholes model for valuing stock option grants for the six months ended June 30, 2022 and 2021 were as ~~follows:~~

Nine Months Ended
September 30, 2017 Year Ended
December 31, 2016
Dividend yield 0 % 0 %
Expected volatility 25 % 25 %
Risk-free interest rate 2.13 % 1.52 %
Expected average life 7 years 7 years
Weighted average per share fair value of options $ 15.44 $ 11.04

follows.


	Six Months Ended June 30,
	2022			2021
Dividend yield	—		%	—		%
Expected volatility	30		%	30		%
Risk-free interest rate	1.77		%	1.16		%
Expected average life	7 years			7 years
Weighted average per share fair value of options	$	32.99		$	26.55

~~Note 4 – Stock-based Compensation, continued~~

~~Activity in~~

A summary of the Company’s ~~Stock Incentive Plans~~stock option activity is summarized ~~in the following tables:~~

Option Shares
Stock Options
Outstanding Weighted-
Average
Exercise Price Exercisable
Shares Weighted-
Average
Exercise
Price
Balance – December 31, 2015 746,004 $ 21.56 325,979 $ 19.09
Granted⁽¹⁾ 170,500 36.86
Options assumed in acquisition 91,701 21.03
Exercise of stock options* (84,723 ) 20.98
Forfeited (1,456 ) 21.71
Balance – December 31, 2016 922,026 24.39 439,639 $ 19.97
Granted⁽²⁾ 814,500 48.86
Exercise of stock options* (65,833 ) 19.52
Forfeited (400 ) 16.50
Balance – September 30, 2017 1,670,293 $ 36.51 471,043 $ 21.49

below.


Stock Options	Option Shares Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2021	1,833,246	$	57.69
Granted	30,429	93.68
Exercise of stock options *	(65,411)	41.32
Forfeited	(8,100)	77.56
Outstanding - June 30, 2022	1,790,164	$	58.81	6.2	$	27,369
Exercisable - June 30, 2022	1,207,235	$	50.84	5.1	$	26,444

*The terms of the stock option agreements permit having a number of shares of stock withheld, the fair market value of which as of the date of exercise is sufficient to satisfy the exercise price and/or tax withholding ~~requirements, and accordingly 4,443~~requirements. For the six months ended June 30, 2022, 6,073 such shares were ~~surrendered during~~withheld by the nine months ended September 30, 2017 and 10,244 shares were surrendered during the year ended December 31, 2016. These stock options were considered exercised and then surrendered and are included in the Exercise of stock option line.

⁽¹⁾ ~~The weighted average per share fair value of options granted was $11.04 for the period.~~

⁽²⁾ ~~The weighted average per share fair value of options granted was $15.44 for the period.~~

~~The following options were outstanding at September 30, 2017:~~

Number of Shares Weighted-Average Exercise
Price Weighted-Average
Remaining Life (Years)
Outstanding Exercisable Outstanding Exercisable Outstanding Exercisable
$9.19 – $20.00 257,750 238,000 $ 16.30 $ 16.28 3.78 3.71
$20.01 – $25.00 241,455 110,055 23.68 23.54 6.54 5.89
$25.01 – $30.00 153,724 71,524 26.00 26.11 6.91 6.44
$30.01 – $40.00 202,864 51,464 35.88 34.76 8.64 8.27
$40.01 – $49.30 814,500 - 48.86 - 9.63 -
1,670,293 471,043 $ 36.51 $ 21.49 7.91 5.14

Company.

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock options. The ~~total~~ intrinsic value of options exercised infor the ~~first nine~~six months ~~of 2017,~~ended June 30, 2022 and ~~full year of 2016~~2021 was approximately ~~$1.8~~$3.3 million and ~~$1.3~~$1.5 million, respectively.

Restricted Stock Weighted-
Average Grant
Date Fair Value Restricted
Shares
Outstanding
Balance – December 31, 2015 $ 18.70 36,690
Granted 33.68 31,466
Vested* 23.58 (25,207 )
Forfeited - -
Balance – December 31, 2016 26.80 42,949
Granted - -
Vested * 22.47 (15,346 )
Forfeited 16.50 (130 )
Balance – September 30, 2017 $ 29.27 27,473

A summary of the Company’s restricted stock activity is summarized below.


Restricted Stock	Weighted Average Grant Date Fair Value		Restricted Shares Outstanding
Outstanding - December 31, 2021	$	71.42	25,801
Granted	77.06		8,424
Vested *	71.63		(12,449)
Forfeited	56.01		(600)
Outstanding - June 30, 2022	$	73.98	21,176

*The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, ~~4,553~~393 shares were surrendered during the ~~nine~~six months ended ~~September~~June 30, ~~2017 and 7,851 shares were surrendered during the twelve months ended December 31, 2016.~~

2022.

~~Note 4 – Stock-based Compensation, continued~~

The Company recognized approximately ~~$1.9~~$3.3 million and ~~$1.1~~$2.7 million of stock-based ~~employee~~ compensation expense ~~during~~(included in personnel on the ~~nine~~consolidated statements of income) for the six months ended ~~September~~June 30, ~~2017~~2022 and ~~2016,~~2021, respectively, associated with its common stock ~~equity awards.~~awards granted to officers and employees. In addition, during the six months ended June 30, 2022, the Company recognized approximately $0.6 million of director expense (included in other expense on the consolidated statements of income) for restricted stock grants totaling 8,424 shares with immediate vesting to directors, while during first half 2021, the Company recognized approximately $0.7 million of director expense for restricted stock grants totaling 8,562 shares with immediate vesting to directors, in each case representing the annual stock retainer fee paid to external board members for that year. As of ~~September~~June 30, ~~2017,~~2022, there was approximately ~~$15.2~~$14.2 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the ~~weighted average~~ remaining vesting period of approximately four years.

The Company

recognized a tax benefit of approximately $0.4 million and $0.3 million for the six months ended June 30, 2022 and 2021, respectively, for the tax impact of stock option exercises and vesting of restricted stock.

Note 5 – Securities ~~Available~~and Other Investments

Securities

Securities are classified as AFS or HTM on the consolidated balance sheets at the time of purchase. AFS securities include those securities that the Company intends to hold for ~~Sale~~

~~Amortized costs~~an indefinite period of time, but not necessarily to maturity, and are carried at fair value on the consolidated balance sheets. HTM securities include those securities which the Company has both the positive intent and ability to hold to maturity, and are carried at amortized cost on the consolidated balance sheets. Premiums and discounts on investment securities are amortized or accreted into interest income over the estimated life of the related securities using the effective interest method.

The amortized cost and fair ~~values~~value of securities ~~available for sale~~AFS and HTM are summarized as ~~follows:~~

September 30, 2017
(in thousands) Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
U.S. government sponsored enterprises $ 26,394 $ - $ 122 $ 26,272
State, county and municipals 189,226 521 1,031 188,716
Mortgage-backed securities 159,113 261 1,438 157,936
Corporate debt securities 32,203 541 - 32,744
Equity securities 1,288 1,261 - 2,549
$ 408,224 $ 2,584 $ 2,591 $ 408,217

December 31, 2016
(in thousands) Amortized Cost Gross
Unrealized
Gains Gross
Unrealized
Losses Fair Value
U.S. government sponsored enterprises $ 1,981 $ - $ 18 $ 1,963
State, county and municipals 191,721 160 4,638 187,243
Mortgage-backed securities 161,309 242 2,422 159,129
Corporate debt securities 12,117 52 - 12,169
Equity securities 2,631 2,152 - 4,783
$ 369,759 $ 2,606 $ 7,078 $ 365,287

follows.


	June 30, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Fair Value as % of Total
Securities AFS:
U.S. government agency securities	$	191,976	$	—	$	8,127	$	183,849	23	%
State, county and municipals	298,822		38		27,358		271,502		33	%
Mortgage-backed securities	246,198		2		19,952		226,248		28	%
Corporate debt securities	135,486		65		3,902		131,649		16	%
Total securities AFS	$	872,482	$	105	$	59,339	$	813,248	100	%
Securities HTM:
U.S. government agency securities	$	507,766	$	25	$	30,348	$	477,443	74	%
State, county and municipals	44,230		4		2,541		41,693		6	%
Mortgage-backed securities	143,816		—		12,719		131,097		20	%

Total securities HTM	$	695,812	$	29	$	45,608	$	650,233	100	%


	December 31, 2021
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Fair Value as % of Total
Securities AFS:
U.S. government agency securities	$	192,506	$	6	$	1,235	$	191,277	21	%
State, county and municipals	311,717		3,222		2,202		312,737		34	%
Mortgage-backed securities	270,017		3,090		1,845		271,262		29	%
Corporate debt securities	143,172		3,459		246		146,385		16	%
Total securities AFS	$	917,412	$	9,777	$	5,528	$	921,661	100	%
Securities HTM:
U.S. government agency securities	$	508,810	$	—	$	2,740	$	506,070	78	%
State, county and municipals	42,876		10		173		42,713		7	%
Mortgage-backed securities	100,117		89		595		99,611		15	%
Total securities HTM	$	651,803	$	99	$	3,508	$	648,394	100	%

All mortgage-backed securities included in the tables above were issued by U.S. government agencies and corporations. Investment securities with a carrying value of $781 million and $277 million, as of June 30, 2022 and December 31, 2021, respectively, were pledged as collateral to secure public deposits, as applicable, and for liquidity or other purposes as required by regulation. Accrued interest on investment securities totaled $5 million at both June 30, 2022 and December 31, 2021, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

The following table ~~represents~~presents gross unrealized losses and the related estimated fair value of investment securities ~~available~~ for ~~sale,~~which an allowance for credit losses has not been recorded, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss ~~position, at September~~position.


	June 30, 2022
	Less than 12 months				12 months or more				Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities
Securities AFS:
U.S. government agency securities	$	183,739	$	8,127	$	—	$	—	$	183,739	$	8,127	12
State, county and municipals	231,716		22,805		25,953		4,553		257,669		27,358		403
Mortgage-backed securities	204,256		16,398		21,567		3,554		225,823		19,952		370
Corporate debt securities	101,597		3,902		—		—		101,597		3,902		63
Total	$	721,308	$	51,232	$	47,520	$	8,107	$	768,828	$	59,339	848
Securities HTM:
U.S. government agency securities	$	466,941	$	30,348	$	—	$	—	$	466,941	$	30,348	6
State, county and municipals	34,537		2,541		—		—		34,537		2,541		60
Mortgage-backed securities	131,053		12,719		—		—		131,053		12,719		110

Total	$	632,531	$	45,608	$	—	$	—	$	632,531	$	45,608	176


	December 31, 2021
	Less than 12 months				12 months or more				Total
($ in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Number of Securities
Securities AFS:
U.S. government agency securities	$	190,432	$	1,235	$	—	$	—	$	190,432	$	1,235	11
State, county and municipals	103,950		2,119		1,777		83		105,727		2,202		132
Mortgage-backed securities	137,561		1,616		6,068		229		143,629		1,845		159
Corporate debt securities	23,267		246		—		—		23,267		246		13
Total	$	455,210	$	5,216	$	7,845	$	312	$	463,055	$	5,528	315
Securities HTM:
U.S. government agency securities	$	505,938	$	2,740	$	—	$	—	$	505,938	$	2,740	9
State, county and municipals	30,898		173		—		—		30,898		173		46
Mortgage-backed securities	69,333		595		—		—		69,333		595		72
Total	$	606,169	$	3,508	$	—	$	—	$	606,169	$	3,508	127

Quarterly, the Company evaluates securities AFS in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value. As of June 30, ~~2017~~2022 and December 31, ~~2016.~~

September 30, 2017
Less than 12 months 12 months or more Total
(in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
U.S. government sponsored enterprises $ 26,272 $ 122 $ - $ - $ 26,272 $ 122
State, county and municipals 63,924 352 46,677 679 110,601 1,031
Mortgage-backed securities 94,850 747 35,475 691 130,325 1,438
$ 185,046 $ 1,221 $ 82,152 $ 1,370 $ 267,198 $ 2,591

December 31, 2016
Less than 12 months 12 months or more Total
(in thousands) Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses Fair
Value Unrealized
Losses
U.S. government sponsored enterprises $ 1,963 $ 18 $ - $ - $ 1,963 $ 18
State, county and municipals 167,457 4,629 1,300 9 168,757 4,638
Mortgage-backed securities 134,770 2,311 3,653 111 138,423 2,422
$ 304,190 $ 6,958 $ 4,953 $ 120 $ 309,143 $ 7,078

~~Note 5 – Securities Available~~2021, no allowance for ~~Sale, continued~~

~~At September 30, 2017 the Company had $2.6 million of gross unrealized~~credit losses ~~related to 507 securities. As of September 30, 2017, the~~on securities AFS was recognized. The Company does not consider its securities AFS with unrealized losses to be ~~other-than-temporarily impaired~~attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and ~~current~~ market conditions subsequent to purchase, not credit deterioration. Furthermore, the Company does not have the intent to sell any of these securities AFS and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost.

The Company ~~has~~also evaluates securities HTM quarterly to determine whether an allowance for credit losses is necessary. In making this determination, management considers the ~~ability~~facts and ~~intent~~circumstances of the underlying investment securities. The U.S. government agency securities include U.S. Treasury Notes which are guaranteed by the U.S. government. For the state, county and municipal securities, management considers issuer bond ratings, historical loss rates by bond ratings, whether issuers continue to ~~hold its~~make timely principal and interest payments per the contractual terms of the investment securities, ~~to maturity. There~~internal forecasts, and whether or not such investment securities provide insurance, other credit enhancement, or are pre-refunded by the issuers. For the mortgage-backed securities, all such securities were issued by U.S. government agencies and corporations,

which are currently explicitly or implicitly guaranteed by the U.S. government and have a long history of no ~~other-than-temporary impairments charged to earnings during~~credit losses. Therefore, management determined no allowance for credit losses was necessary for the ~~nine-month periods ending September 30, 2017 or September 30, 2016.~~

securities HTM.

The amortized cost and fair ~~values~~value of investment securities ~~available for sale at September 30, 2017~~ by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment ~~penalties. Fair values of~~penalties; as this is particularly inherent in mortgage-backed securities, these securities are ~~estimated based on financial models~~not included in the maturity categories below.


As of June 30, 2022	Securities AFS				Securities HTM
(in thousands)	Amortized Cost		Fair Value		Amortized Cost		Fair Value
Due in less than one year	$	106,281	$	105,073	$	6,626	$	6,616
Due in one year through five years	251,475		242,694		507,447		476,632
Due after five years through ten years	192,260		173,265		32,711		30,751
Due after ten years	76,268		65,968		5,212		5,137
	626,284		587,000		551,996		519,136
Mortgage-backed securities	246,198		226,248		143,816		131,097
Total investment securities	$	872,482	$	813,248	$	695,812	$	650,233

Proceeds and realized gains or losses from the sale of AFS securities were as follows.


	Six Months Ended June 30,
(in thousands)	2022		2021
Gross gains	$	20	$	—
Gross losses	(5)		—
Gains (losses) on sales of securities AFS, net	$	15	$	—
Proceeds from sales of securities AFS	$	3,400	$	—

Other Investments

Other investments include “restricted” equity securities, equity securities with readily determinable fair values, and private company securities. As a member of the Federal Reserve Bank System and the Federal Home Loan Bank (“FHLB”) System, Nicolet is required to maintain an investment in the capital stock of these entities. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no ready market exists for these stocks, and they have no quoted market value, these investments are carried at cost. Also included are investments in other private companies that do not have quoted market prices, ~~paid for the same or similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair~~which are carried at cost less impairment charges, if any. The carrying value.

September 30, 2017
(in thousands) Amortized Cost Fair Value
Due in less than one year $ 13,262 $ 13,261
Due in one year through five years 96,098 96,410
Due after five years through ten years 130,477 129,769
Due after ten years 7,986 8,292
247,823 247,732
Mortgage-backed securities 159,113 157,936
Equity securities 1,288 2,549
Securities available for sale $ 408,224 $ 408,217

~~Proceeds from sales~~ of securities available for sale during the first nine months of 2017 and 2016 were approximately $10.8 million and $30.3 million, respectively. During the first nine months of 2017, gross gains and losses realized were $1.2 million and $7,000, respectively, while gross gains and gross losses were $90,000 and $13,000, respectively, for the comparable nine months of 2016.

other investments are summarized as follows.


	June 30, 2022		December 31, 2021
(in thousands)	Amount		Amount
Federal Reserve Bank stock	$	29,024	$	20,973
Federal Home Loan Bank (“FHLB”) stock	9,771		10,545
Equity securities with readily determinable fair values	4,793		5,660
Other investments	9,681		6,830
Total other investments	$	53,269	$	44,008

Note 6 – Loans, Allowance for ~~Loan~~Credit Losses - Loans, and Credit Quality

The loan composition ~~as of September 30, 2017 and December 31, 2016~~ is summarized as follows.

Total
September 30, 2017 December 31, 2016
(in thousands) Amount
% of
Total
Amount % of
Total
Commercial & industrial $ 625,729 30.5 % $ 428,270 27.3 %
Owner-occupied commercial real estate (“CRE”) 428,054 20.9 360,227 23.0
Agricultural (“AG”) production 36,352 1.8 34,767 2.2
AG real estate 48,443 2.4 45,234 2.9
CRE investment 303,448 14.8 195,879 12.5
Construction & land development 87,649 4.3 74,988 4.8
Residential construction 33,163 1.6 23,392 1.5
Residential first mortgage 363,116 17.7 300,304 19.1
Residential junior mortgage 102,654 5.0 91,331 5.8
Retail & other 22,514 1.0 14,515 0.9
Loans 2,051,122 100.0 % 1,568,907 100.0 %
Less allowance for loan losses 12,610 11,820
Loans, net $ 2,038,512 $ 1,557,087
Allowance for loan losses to loans 0.61 % 0.75 %

Originated
September 30, 2017 December 31, 2016
(in thousands) Amount
% of
Total
Amount % of
Total
Commercial & industrial $ 470,700 40.4 % $ 330,073 36.6 %
Owner-occupied CRE 221,556 19.0 182,776 20.3
AG production 11,605 1.0 9,192 1.0
AG real estate 23,876 2.0 18,858 2.1
CRE investment 98,328 8.4 72,930 8.1
Construction & land development 55,387 4.7 44,147 4.9
Residential construction 27,129 2.3 20,768 2.3
Residential first mortgage 180,509 15.5 164,949 18.3
Residential junior mortgage 60,207 5.2 48,199 5.3
Retail & other 17,092 1.5 10,095 1.1
Loans 1,166,389 100.0 % 901,987 100.0 %
Less allowance for loan losses 10,406 9,449
Loans, net $ 1,155,983 $ 892,538
Allowance for loan losses to loans 0.89 % 1.05 %

Acquired
September 30, 2017 December 31, 2016
(in thousands) Amount
% of
Total
Amount % of
Total
Commercial & industrial $ 155,029 17.5 % $ 98,197 14.7 %
Owner-occupied CRE 206,498 23.3 177,451 26.6
AG production 24,747 2.8 25,575 3.8
AG real estate 24,567 2.8 26,376 4.0
CRE investment 205,120 23.2 122,949 18.4
Construction & land development 32,262 3.7 30,841 4.6
Residential construction 6,034 0.7 2,624 0.4
Residential first mortgage 182,607 20.6 135,355 20.3
Residential junior mortgage 42,447 4.8 43,132 6.5
Retail & other 5,422 0.6 4,420 0.7
Loans 884,733 100.0 % 666,920 100.0 %
Less allowance for loan losses 2,204 2,371
Loans, net $ 882,529 $ 664,549
Allowance for loan losses to loans 0.25 % 0.36 %


	June 30, 2022					December 31, 2021
(in thousands)	Amount			% of Total		Amount			% of Total
Commercial & industrial	$	1,118,360		23	%	$	1,042,256		23	%
Owner-occupied commercial real estate (“CRE”)	790,680			16		787,189			17
Agricultural	967,192			19		794,728			17
CRE investment	818,562			16		818,061			18
Construction & land development	228,575			5		213,035			5
Residential construction	69,423			1		70,353			1
Residential first mortgage	785,591			16		713,983			15
Residential junior mortgage	148,732			3		131,424			3
Retail & other	51,539			1		50,807			1
Loans	4,978,654			100	%	4,621,836			100	%
Less allowance for credit losses - Loans (“ACL-Loans”)	50,655					49,672
Loans, net	$	4,927,999				$	4,572,164
Allowance for credit losses - Loans to loans	1.02		%			1.07		%

~~Note 6 – Loans,~~

Commercial and industrial loans included $1 million and $25 million of PPP loans at June 30, 2022 and December 31, 2021, respectively. Accrued interest on loans totaled $11 million at both June 30, 2022 and December 31, 2021, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

Allowance for ~~Loan~~Credit Losses ~~and Credit Quality, continued~~

~~Practically all~~- Loans:

The majority of the Company’s loans, commitments, ~~financial letters of credit~~ and ~~standby~~ letters of credit have been granted to customers in the Company’s market area. Although the Company has a diversified loan portfolio, the credit risk in the loan portfolio is largely influenced by general economic conditions and trends of the counties and markets in which the debtors operate, and the resulting impact on the operations of borrowers or on the value of underlying collateral, if any.

~~The~~

A roll forward of the allowance for ~~loan~~credit losses - loans is summarized as follows.


	Three Months Ended				Six Months Ended				Year Ended
(in thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021		December 31, 2021
Beginning balance	$	49,906	$	32,626	$	49,672	$	32,173	$	32,173
ACL on PCD loans acquired	—		—		—		—		5,159
Provision for credit losses	600		—		900		500		12,500
Charge-offs	(42)		(235)		(142)		(329)		(513)
Recoveries	191		170		225		217		353
Net (charge-offs) recoveries	149		(65)		83		(112)		(160)
Ending balance	$	50,655	$	32,561	$	50,655	$	32,561	$	49,672

The following tables present the balance and ~~lease losses (“ALLL”)~~activity in the ACL-Loans by portfolio segment.


	Six Months Ended June 30, 2022
(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total
ACL-Loans *
Beginning balance	$	12,613		$	7,222		$	9,547		$	8,462		$	1,812		$	900		$	6,844		$	1,340		$	932		$	49,672
ACL on PCD loans	—			—			—			—			—			—			—			—			—			—
Provision	1,048			(261)			505			(416)			(59)			6			(291)			186			182			900
Charge-offs	—			(36)			—			—			—			—			—			—			(106)			(142)
Recoveries	30			—			—			169			—			—			5			1			20			225
Net (charge-offs) recoveries	30			(36)			—			169			—			—			5			1			(86)			83
Ending balance	$	13,691		$	6,925		$	10,052		$	8,215		$	1,753		$	906		$	6,558		$	1,527		$	1,028		$	50,655
As % of ACL-Loans	27		%	14		%	20		%	16		%	3		%	2		%	13		%	3		%	2		%	100		%

*The PPP loans are fully guaranteed by the SBA; thus, no ACL-Loans has been allocated to these loans.


	Year Ended December 31, 2021
(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total
ACL-Loans *
Beginning balance	$	11,644		$	5,872		$	1,395		$	5,441		$	984		$	421		$	4,773		$	1,086		$	557		$	32,173
ACL on PCD loans	723			1,045			2,585			415			103			—			272			13			3			5,159
Provision	196			305			5,615			2,608			725			479			1,892			237			443			12,500
Charge-offs	(242)			—			(48)			(4)			—			—			(113)			—			(106)			(513)
Recoveries	292			—			—			2			—			—			20			4			35			353
Net (charge-offs) recoveries	50			—			(48)			(2)			—			—			(93)			4			(71)			(160)
Ending balance	$	12,613		$	7,222		$	9,547		$	8,462		$	1,812		$	900		$	6,844		$	1,340		$	932		$	49,672
As % of ACL-Loans	25		%	14		%	19		%	17		%	4		%	2		%	14		%	3		%	2		%	100		%

The ACL-Loans represents management’s estimate of ~~probable and inherent~~expected credit losses in the Company’s loan portfolio at the balance sheet date. ~~In general, estimating~~To assess the ~~amount~~appropriateness of the ~~ALLL is a function~~ACL-Loans, management applies an allocation methodology which focuses on evaluation of ~~a number of~~qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to ~~changes in~~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 ~~net charge-offs,~~segment; (iv) trends in past due and ~~impaired~~nonperforming 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 the level of potential problem loans, all of which may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses could be required that could adversely affect our earnings or financial position in future periods. Allocations to the ALLL may be made for specific loans but the entire ALLL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

The allocation methodology used by the Company includes specific allocations for impaired loans evaluated individually for impairment based on collateral values and for the remaining loan portfolio collectively evaluated for impairment primarily based on historical loss rates and(x) other qualitative ~~factors. Loan charge-offs~~ and ~~recoveries are based on actual amounts charged-off or recovered by loan category.~~ quantitative factors which could affect expected credit losses. Assessing these numerous factors involves significant judgment.

Management allocates the ~~ALLL~~ACL-Loans by pools of risk within each loan ~~portfolio.~~

portfolio segment. The allocation methodology consists of the following ~~tables present the balance~~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 ~~activity~~other loans with evidence of credit deterioration. The specific reserve in the ~~ALLL~~ACL-Loans for these credit deteriorated loans is equal to the aggregate collateral or discounted cash flow shortfall. Management allocates the ACL-Loans with historical loss rates by ~~portfolio~~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 ~~recorded investment in loans by portfolio at~~ACL-Loans using the qualitative factors mentioned above. Consideration is given to those current qualitative or ~~for~~environmental factors that are likely to cause estimated credit losses as of the ~~nine months ended September 30, 2017:~~

TOTAL – Nine Months Ended September 30, 2017
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 3,919 $ 2,867 $ 150 $ 285 $ 1,124 $ 774 $ 304 $ 1,784 $ 461 $ 152 $ 11,820
Provision 2,183 (253 ) 16 (17 ) 132 (19 ) (137 ) (124 ) 4 90 1,875
Charge-offs (1,097 ) - - - - (13 ) - (8 ) - (38 ) (1,156 )
Recoveries 20 29 - - 1 - - 6 2 13 71
Net charge-offs (1,077 ) 29 - - 1 (13 ) - (2 ) 2 (25 ) (1,085 )
Ending balance $ 5,025 $ 2,643 $ 166 $ 268 $ 1,257 $ 742 $ 167 $ 1,658 $ 467 $ 217 $ 12,610
As percent of ALLL 39.9 % 21.0 % 1.3 % 2.1 % 10.0 % 5.9 % 1.3 % 13.1 % 3.7 % 1.7 % 100.0 %

ALLL:
Individually evaluated $ 226 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 226
Collectively evaluated 4,799 2,643 166 268 1,257 742 167 1,658 467 217 12,384
Ending balance $ 5,025 $ 2,643 $ 166 $ 268 $ 1,257 $ 742 $ 167 $ 1,658 $ 467 $ 217 $ 12,610

Loans:
Individually evaluated $ 5,071 $ 1,116 $ - $ 218 $ 4,845 $ 723 $ 80 $ 1,619 $ 60 $ - $ 13,732
Collectively evaluated 620,658 426,938 36,352 48,225 298,603 86,926 33,083 361,497 102,594 22,514 2,037,390
Total loans $ 625,729 $ 428,054 $ 36,352 $ 48,443 $ 303,448 $ 87,649 $ 33,163 $ 363,116 $ 102,654 $ 22,514 $ 2,051,122

Less ALLL $ 5,025 $ 2,643 $ 166 $ 268 $ 1,257 $ 742 $ 167 $ 1,658 $ 467 $ 217 $ 12,610
Net loans $ 620,704 $ 425,411 $ 36,186 $ 48,175 $ 302,191 $ 86,907 $ 32,996 $ 361,458 $ 102,187 $ 22,297 $ 2,038,512

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.

~~Note 6 – Loans,~~ Allowance for ~~Loan~~Credit Losses-Unfunded Commitments:

In addition to the ACL-Loans, the Company has established an ACL-Unfunded commitments, classified in accrued interest payable and other liabilities on the consolidated balance sheets. This reserve is maintained at a level that management believes is sufficient to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans. The reserve for unfunded commitments was $2.6 million at June 30, 2022 and $2.4 million at December 31, 2021.

Provision for Credit Losses:

The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and ~~Credit Quality, continued~~

Originated – Nine Months Ended September 30, 2017
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 3,150 $ 2,263 $ 122 $ 222 $ 893 $ 656 $ 266 $ 1,372 $ 373 $ 132 $ 9,449
Provision 2,128 (167 ) 19 (11 ) 140 (20 ) (135 ) (44 ) 13 82 2,005
Charge-offs (1,043 ) - - - - - - (8 ) - (38 ) (1,089 )
Recoveries 1 24 - - - - - 1 2 13 41
Net charge-offs (1,042 ) 24 - - - - - (7 ) 2 (25 ) (1,048 )
Ending balance $ 4,236 $ 2,120 $ 141 $ 211 $ 1,033 $ 636 $ 131 $ 1,321 $ 388 $ 189 $ 10,406
As percent of ALLL 40.7 % 20.4. % 1.4 % 2.0 % 9.9 % 6.1 % 1.3 % 12.7 % 3.7 % 1.8 % 100.0 %

ALLL:
Individually evaluated $ 226 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 226
Collectively evaluated 4,010 2,120 141 211 1,033 636 131 1,321 388 189 10,180
Ending balance $ 4,236 $ 2,120 $ 141 $ 211 $ 1,033 $ 636 $ 131 $ 1,321 $ 388 $ 189 $ 10,406

Loans:
Individually evaluated $ 615 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 615
Collectively evaluated 470,085 221,556 11,605 23,876 98,328 55,387 27,129 180,509 60,207 17,092 1,165,774
Total loans $ 470,700 $ 221,556 $ 11,605 $ 23,876 $ 98,328 $ 55,387 $ 27,129 $ 180,509 $ 60,207 $ 17,092 $ 1,166,389

Less ALLL $ 4,236 $ 2,120 $ 141 $ 211 $ 1,033 $ 636 $ 131 $ 1,321 $ 388 $ 189 $ 10,406
Net loans $ 466,464 $ 219,436 $ 11,464 $ 23,665 $ 97,295 $ 54,751 $ 26,998 $ 179,188 $ 59,819 $ 16,903 $ 1,155,983

Acquired – Nine Months Ended September 30, 2017
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 769 $ 604 $ 28 $ 63 $ 231 $ 118 $ 38 $ 412 $ 88 $ 20 $ 2,371
Provision 55 (86 ) (3 ) (6 ) (8 ) 1 (2 ) (80 ) (9 ) 8 (130 )
Charge-offs (54 ) - - - - (13 ) - - - - (67 )
Recoveries 19 5 - - 1 - - 5 - - 30
Net charge-offs (35 ) 5 - - 1 (13 ) - 5 - - (37 )
Ending balance $ 789 $ 523 $ 25 $ 57 $ 224 $ 106 $ 36 $ 337 $ 79 $ 28 $ 2,204
As percent of ALLL 35.8 % 23.7 % 1.1 % 2.6 % 10.2 % 4.8 % 1.6 % 15.3 % 3.6 % 1.3 % 100.0 %

Loans:
Individually evaluated $ 4,456 $ 1,116 $ - $ 218 $ 4,845 $ 723 $ 80 $ 1,619 $ 60 $ - $ 13,117
Collectively evaluated 150,573 205,382 24,747 24,349 200,275 31,539 5,954 180,988 42,387 5,422 871,616
Total loans $ 155,029 $ 206,498 $ 24,747 $ 24,567 $ 205,120 $ 32,262 $ 6,034 $ 182,607 $ 42,447 $ 5,422 $ 884,733

Less ALLL $ 789 $ 523 $ 25 $ 57 $ 224 $ 106 $ 36 $ 337 $ 79 $ 28 $ 2,204
Net loans $ 154,240 $ 205,975 $ 24,722 $ 24,510 $ 204,896 $ 32,156 $ 5,998 $ 182,270 $ 42,368 $ 5,394 $ 882,529

off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in management’s judgment, is necessary to absorb expected credit losses over the lives of the respective financial instruments. See Note ~~6 – Loans, Allowance~~5 for ~~Loan Losses, and Credit Quality, continued~~

additional information regarding the ACL related to investment securities. The following table presents the components of the provision for credit losses.


	Three Months Ended				Six Months Ended				Year Ended
(in thousands)	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021		December 31, 2021
Provision for credit losses on:
Loans	$	600	$	—	$	900	$	500	$	12,500
Unfunded Commitments	150		—		150		—		2,400
Investment securities	—		—		—		—		—
Total	$	750	$	—	$	1,050	$	500	$	14,900

Collateral Dependent Loans:

A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance ~~and activity in~~sheet date, with consideration for estimated selling costs if satisfaction of the ~~ALLL~~loan depends on the sale of the collateral. The following tables present collateral dependent loans by portfolio segment and ~~the recorded investment in~~collateral type, including those loans with and without a related allowance allocation.


June 30, 2022	Collateral Type
(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	$	—	$	2,196	$	2,196	$	1,425	$	771	$	197
Owner-occupied CRE	6,562		—		6,562		4,489		2,073		403
Agricultural	14,236		6,522		20,758		14,604		6,154		309
CRE investment	2,265		—		2,265		419		1,846		289
Construction & land development	1,009		—		1,009		1,009		—		—
Residential construction	—		—		—		—		—		—
Residential first mortgage	—		—		—		—		—		—
Residential junior mortgage	—		—		—		—		—		—
Retail & other	—		—		—		—		—		—
Total loans	$	24,072	$	8,718	$	32,790	$	21,946	$	10,844	$	1,198


December 31, 2021	Collateral Type
(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	$	—	$	2,296	$	2,296	$	1,842	$	454	$	258
Owner-occupied CRE	3,537		—		3,537		1,315		2,222		552
Agricultural	19,637		8,518		28,155		25,310		2,845		841
CRE investment	3,000		—		3,000		1,684		1,316		407
Construction & land development	1,038		—		1,038		655		383		211
Residential construction	—		—		—		—		—		—
Residential first mortgage	473		—		473		473		—		—
Residential junior mortgage	—		—		—		—		—		—
Retail & other	—		—		—		—		—		—
Total loans	$	27,685	$	10,814	$	38,499	$	31,279	$	7,220	$	2,269

Past Due and Nonaccrual Loans:

The following tables present past due loans by portfolio ~~at or for the nine months ended September 30, 2016.~~

TOTAL – Nine Months Ended September 30, 2016
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 3,721 $ 1,933 $ 85 $ 380 $ 785 $ 1,446 $ 147 $ 1,240 $ 496 $ 74 $ 10,307
Provision 745 710 40 (77 ) 23 (586 ) 176 188 42 89 1,350
Charge-offs (279 ) (61 ) - - - - - - (53 ) (39 ) (432 )
Recoveries 17 3 - - 221 - - 5 7 3 256
Net charge-offs (262 ) (58 ) - - 221 - - 5 (46 ) (36 ) (176 )
Ending balance $ 4,204 $ 2,585 $ 125 $ 303 $ 1,029 $ 860 $ 323 $ 1,433 $ 492 $ 127 $ 11,481
As percent of ALLL 36.6 % 22.5 % 1.1 % 2.6 % 9.0 % 7.5 % 2.8 % 12.5 % 4.3 % 1.1 % 100.0 %

ALLL:
Individually evaluated $ 96 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 96
Collectively evaluated 4,108 2,585 125 303 1,029 860 323 1,433 492 127 11,385
Ending balance $ 4,204 $ 2,585 $ 125 $ 303 $ 1,029 $ 860 $ 323 $ 1,433 $ 492 $ 127 $ 11,481

Loans:
Individually evaluated $ 662 $ 2,666 $ 53 $ 240 $ 13,466 $ 722 $ 287 $ 2,303 $ 181 $ - $ 20,580
Collectively evaluated 423,128 359,888 34,024 45,431 184,418 67,439 27,044 282,350 95,720 14,102 1,533,544
Total loans $ 423,790 $ 362,554 $ 34,077 $ 45,671 $ 197,884 $ 68,161 $ 27,331 $ 284,653 $ 95,901 $ 14,102 $ 1,554,124

Less ALLL $ 4,204 $ 2,585 $ 125 $ 303 $ 1,029 $ 860 $ 323 $ 1,433 $ 492 $ 127 $ 11,481
Net loans $ 419,586 $ 359,969 $ 33,952 $ 45,368 $ 196,855 $ 67,301 $ 27,008 $ 283,220 $ 95,409 $ 13,975 $ 1,542,643

Originated – Nine Months Ended September 30, 2016
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 3,135 $ 1,567 $ 71 $ 299 $ 646 $ 1,381 $ 147 $ 987 $ 418 $ 63 $ 8,714
Provision 426 408 29 (73 ) (70 ) (633 ) 130 85 16 80 398
Charge-offs (262 ) (3 ) - - - - - - (53 ) (38 ) (356 )
Recoveries - 3 - - 221 - - - 6 2 232
Net charge-offs (262 ) - - - 221 - - - (47 ) (36 ) (124 )
Ending balance $ 3,299 $ 1,975 $ 100 $ 226 $ 797 $ 748 $ 277 $ 1,072 $ 387 $ 107 $ 8,988
As percent of ALLL 36.7 % 22.0 % 1.1 % 2.5 % 8.9 % 8.3 % 3.1 % 11.9 % 4.3 % 1.2 % 100.0 %

ALLL:
Individually evaluated $ 96 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 96
Collectively evaluated 3,203 1,975 100 226 797 748 277 1,072 387 107 8,892
Ending balance $ 3,299 $ 1,975 $ 100 $ 226 $ 797 $ 748 $ 277 $ 1,072 $ 387 $ 107 $ 8,988

Loans:
Individually evaluated $ 319 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ 319
Collectively evaluated 321,203 181,107 8,857 18,222 72,182 34,916 20,964 138,103 47,346 9,179 852,079
Total loans $ 321,522 $ 181,107 $ 8,857 $ 18,222 $ 72,182 $ 34,916 $ 20,964 $ 138,103 $ 47,346 $ 9,179 $ 852,398

Less ALLL $ 3,299 $ 1,975 $ 100 $ 226 $ 797 $ 748 $ 277 $ 1,072 $ 387 $ 107 $ 8,988
Net loans $ 318,223 $ 179,132 $ 8,757 $ 17,996 $ 71,385 $ 34,168 $ 20,687 $ 137,031 $ 46,959 $ 9,072 $ 843,410

segment.


	June 30, 2022
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	2,114		$	1,784		$	1,114,462		$	1,118,360
Owner-occupied CRE	165			5,183			785,332			790,680
Agricultural	129			21,054			946,009			967,192
CRE investment	287			3,617			814,658			818,562
Construction & land development	—			1,044			227,531			228,575
Residential construction	994			—			68,429			69,423
Residential first mortgage	1,427			3,580			780,584			785,591
Residential junior mortgage	126			221			148,385			148,732
Retail & other	146			97			51,296			51,539
Total loans	$	5,388		$	36,580		$	4,936,686		$	4,978,654
Percent of total loans	0.1		%	0.7		%	99.2		%	100.0		%

~~Note 6 – Loans, Allowance for Loan Losses, and Credit Quality, continued~~

Acquired – Nine Months Ended September 30, 2016
(in thousands)
ALLL: Commercial
& industrial Owner-
occupied
CRE AG
production AG real
estate CRE
investment Construction
& land
development Residential
construction Residential
first
mortgage Residential
junior
mortgage Retail
& other Total
Beginning balance $ 586 $ 366 $ 14 $ 81 $ 139 $ 65 $ - $ 253 $ 78 $ 11 $ 1,593
Provision 319 302 11 (4 ) 93 47 46 103 26 9 952
Charge-offs (17 ) (58 ) - - - - - - - (1 ) (76 )
Recoveries 17 - - - - - - 5 1 1 24
Net charge-offs - (58 ) - - - - - 5 1 - (52 )
Ending balance $ 905 $ 610 $ 25 $ 77 $ 232 $ 112 $ 46 $ 361 $ 105 $ 20 $ 2,493
As percent of ALLL 36.3 % 24.5 % 1.0 % 3.1 % 9.3 % 4.5 % 1.8 % 14.5 % 4.2 % 0.8 % 100.0 %

Loans:
Individually evaluated $ 343 $ 2,666 $ 53 $ 240 $ 13,466 $ 722 $ 287 $ 2,303 $ 181 $ - $ 20,261
Collectively evaluated 101,925 178,781 25,167 27,209 112,236 32,523 6,080 144,247 48,374 4,923 681,465
Total loans $ 102,268 $ 181,447 $ 25,220 $ 27,449 $ 125,702 $ 33,245 $ 6,367 $ 146,550 $ 48,555 $ 4,923 $ 701,726

Less ALLL $ 905 $ 610 $ 25 $ 77 $ 232 $ 112 $ 46 $ 361 $ 105 $ 20 $ 2,493
Net loans $ 101,363 $ 180,837 $ 25,195 $ 27,372 $ 125,470 $ 33,133 $ 6,321 $ 146,189 $ 48,450 $ 4,903 $ 699,233


	December 31, 2021
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	94		$	1,908		$	1,040,254		$	1,042,256
Owner-occupied CRE	—			4,220			782,969			787,189
Agricultural	108			28,367			766,253			794,728
CRE investment	114			4,119			813,828			818,061
Construction & land development	—			1,071			211,964			213,035
Residential construction	246			—			70,107			70,353
Residential first mortgage	2,592			4,132			707,259			713,983
Residential junior mortgage	23			243			131,158			131,424
Retail & other	115			94			50,598			50,807
Total loans	$	3,292		$	44,154		$	4,574,390		$	4,621,836
Percent of total loans	0.1		%	0.9		%	99.0		%	100.0		%

~~Note 6 – Loans, Allowance for Loan Losses, and Credit Quality, continued~~

The following table presents nonaccrual loans by portfolio ~~segment in total and then as a further breakdown by originated or acquired as of September 30, 2017 and December 31, 2016.~~

Total Nonaccrual Loans
(in thousands) September 30,
2017 % to Total December 31,
2016 % to Total
Commercial & industrial $ 5,078 35.2 % $ 358 1.8 %
Owner-occupied CRE 1,276 8.8 2,894 14.3
AG production 2 - 9 0.1
AG real estate 186 1.3 208 1.0
CRE investment 4,537 31.4 12,317 60.6
Construction & land development 723 5.0 1,193 5.9
Residential construction 80 0.6 260 1.3
Residential first mortgage 2,301 16.0 2,990 14.7
Residential junior mortgage 239 1.7 56 0.3
Retail & other - - - -
Nonaccrual loans - Total $ 14,422 100.0 % $ 20,285 100.0 %

Originated
(in thousands) September 30,
2017 % to Total December 31,
2016 % to Total
Commercial & industrial $ 615 62.3 % $ 4 1.6 %
Owner-occupied CRE 38 3.8 42 16.3
AG production 2 0.2 7 2.7
AG real estate - - - -
CRE investment - - - -
Construction & land development - - - -
Residential construction - - - -
Residential first mortgage 333 33.7 204 79.4
Residential junior mortgage - - - -
Retail & other - - - -
Nonaccrual loans - Originated $ 988 100.0 % $ 257 100.0 %

Acquired
(in thousands) September 30,
2017 % to Total December 31,
2016 % to Total
Commercial & industrial $ 4,463 33.2 % $ 354 1.8 %
Owner-occupied CRE 1,238 9.2 2,852 14.2
AG production - - 2 0.1
AG real estate 186 1.4 208 1.0
CRE investment 4,537 33.8 12,317 61.4
Construction & land development 723 5.4 1,193 6.0
Residential construction 80 0.6 260 1.3
Residential first mortgage 1,968 14.6 2,786 13.9
Residential junior mortgage 239 1.8 56 0.3
Retail & other - - - -
Nonaccrual loans – Acquired $ 13,434 100.0 % $ 20,028 100.0 %

segment.


	June 30, 2022					December 31, 2021
(in thousands)	Nonaccrual Loans			% of Total		Nonaccrual Loans			% of Total
Commercial & industrial	$	1,784		5	%	$	1,908		4	%
Owner-occupied CRE	5,183			14		4,220			10
Agricultural	21,054			58		28,367			64
CRE investment	3,617			10		4,119			9
Construction & land development	1,044			2		1,071			3
Residential construction	—			—		—			—
Residential first mortgage	3,580			10		4,132			9
Residential junior mortgage	221			1		243			1
Retail & other	97			—		94			—
Nonaccrual loans	$	36,580		100	%	$	44,154		100	%
Percent of total loans	0.7		%			0.9		%

~~Note 6 – Loans, Allowance for Loan Losses, and~~

Credit Quality ~~continued~~

Information:

The following tables present total ~~past due~~ loans by ~~portfolio segment as~~risk categories and year of ~~September~~origination. Loans acquired from Mackinac and County have been included in the June 30, ~~2017~~2022 and December 31, ~~2016:~~

September 30, 2017
(in thousands) 30-89 Days
Past Due
(accruing) 90 Days &
Over or
nonaccrual Current Total
Commercial & industrial $ 303 $ 5,078 $ 620,348 $ 625,729
Owner-occupied CRE 229 1,276 426,549 428,054
AG production - 2 36,350 36,352
AG real estate - 186 48,257 48,443
CRE investment - 4,537 298,911 303,448
Construction & land development 38 723 86,888 87,649
Residential construction 1,085 80 31,998 33,163
Residential first mortgage 537 2,301 360,278 363,116
Residential junior mortgage 23 239 102,392 102,654
Retail & other 4 - 22,510 22,514
Total loans $ 2,219 $ 14,422 $ 2,034,481 $ 2,051,122
As a percent of total loans 0.1 % 0.7 % 99.2 % 100.0 %

December 31, 2016
(in thousands) 30-89 Days
Past Due
(accruing) 90 Days &
Over or
nonaccrual Current Total
Commercial & industrial $ 22 $ 358 $ 427,890 $ 428,270
Owner-occupied CRE 268 2,894 357,065 360,227
AG production - 9 34,758 34,767
AG real estate - 208 45,026 45,234
CRE investment - 12,317 183,562 195,879
Construction & land development - 1,193 73,795 74,988
Residential construction - 260 23,132 23,392
Residential first mortgage 486 2,990 296,828 300,304
Residential junior mortgage 200 56 91,075 91,331
Retail & other 15 - 14,500 14,515
Total loans $ 991 $ 20,285 $ 1,547,631 $ 1,568,907
As a percent of total loans 0.1 % 1.3 % 98.6 % 100.0 %

2021 tables based upon the actual origination date.


June 30, 2022	Amortized Cost Basis by Origination Year
(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving to Term		TOTAL
Commercial & industrial
Grades 1-4	$	150,560	$	235,065	$	115,457	$	85,568	$	55,138	$	86,868	$	331,520	$	—	$	1,060,176
Grade 5	5,978		4,207		10,982		2,421		711		4,507		19,006		—		47,812
Grade 6	167		1,095		121		577		466		399		514		—		3,339
Grade 7	48		28		3,409		625		658		1,214		1,051		—		7,033
Total	$	156,753	$	240,395	$	129,969	$	89,191	$	56,973	$	92,988	$	352,091	$	—	$	1,118,360
Owner-occupied CRE
Grades 1-4	$	78,180	$	154,736	$	90,071	$	92,236	$	82,271	$	240,560	$	7,573	$	—	$	745,627
Grade 5	822		4,977		2,225		5,709		2,962		11,048		14		—		27,757
Grade 6	—		—		—		1,832		683		283		—		—		2,798
Grade 7	—		—		6,299		161		—		8,038		—		—		14,498
Total	$	79,002	$	159,713	$	98,595	$	99,938	$	85,916	$	259,929	$	7,587	$	—	$	790,680
Agricultural
Grades 1-4	$	166,648	$	154,216	$	96,285	$	28,045	$	20,248	$	148,562	$	198,551	$	—	$	812,555
Grade 5	2,268		15,504		3,951		2,115		775		52,536		20,284		—		97,433
Grade 6	—		329		33		34		—		3,291		337		—		4,024
Grade 7	6,935		4,364		1,634		2,350		3,794		23,126		10,977		—		53,180
Total	$	175,851	$	174,413	$	101,903	$	32,544	$	24,817	$	227,515	$	230,149	$	—	$	967,192
CRE investment
Grades 1-4	$	88,371	$	172,181	$	133,305	$	113,059	$	50,947	$	215,573	$	10,035	$	—	$	783,471
Grade 5	276		4,359		2,554		2,144		449		17,477		—		—		27,259
Grade 6	—		—		—		1,203		1,097		1,445		206		—		3,951
Grade 7	—		—		—		75		138		3,447		221		—		3,881
Total	$	88,647	$	176,540	$	135,859	$	116,481	$	52,631	$	237,942	$	10,462	$	—	$	818,562
Construction & land development
Grades 1-4	$	42,613	$	91,176	$	43,458	$	9,649	$	11,607	$	12,645	$	13,434	$	—	$	224,582
Grade 5	—		1,566		—		516		843		24		—		—		2,949
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		—		1,044		—		—		1,044
Total	$	42,613	$	92,742	$	43,458	$	10,165	$	12,450	$	13,713	$	13,434	$	—	$	228,575
Residential construction
Grades 1-4	$	24,350	$	41,888	$	1,252	$	150	$	340	$	1,043	$	400	$	—	$	69,423
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	24,350	$	41,888	$	1,252	$	150	$	340	$	1,043	$	400	$	—	$	69,423
Residential first mortgage
Grades 1-4	$	152,844	$	236,331	$	135,176	$	70,033	$	25,878	$	155,087	$	1,378	$	4	$	776,731
Grade 5	—		706		519		1,950		—		776		—		—		3,951
Grade 6	—		—		—		729		—		—		—		—		729
Grade 7	—		—		290		353		218		3,319		—		—		4,180
Total	$	152,844	$	237,037	$	135,985	$	73,065	$	26,096	$	159,182	$	1,378	$	4	$	785,591
Residential junior mortgage
Grades 1-4	$	3,720	$	3,861	$	4,980	$	2,057	$	1,769	$	2,874	$	125,271	$	3,951	$	148,483
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		28		—		79		142		—		249
Total	$	3,720	$	3,861	$	4,980	$	2,085	$	1,769	$	2,953	$	125,413	$	3,951	$	148,732
Retail & other
Grades 1-4	$	6,572	$	9,676	$	5,085	$	3,855	$	1,265	$	24,174	$	804	$	—	$	51,431
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		11		2		37		58		—		—		108
Total	$	6,572	$	9,676	$	5,096	$	3,857	$	1,302	$	24,232	$	804	$	—	$	51,539

Total loans	$	730,352	$	1,136,265	$	657,097	$	427,476	$	262,294	$	1,019,497	$	741,718	$	3,955	$	4,978,654


December 31, 2021	Amortized Cost Basis by Origination Year
(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving to Term		TOTAL
Commercial & industrial
Grades 1-4	$	282,369	$	146,131	$	99,702	$	69,478	$	50,557	$	71,247	$	288,115	$	—	$	1,007,599
Grade 5	1,685		1,905		4,369		5,809		4,860		2,097		8,408		—		29,133
Grade 6	598		54		16		687		67		91		391		—		1,904
Grade 7	—		440		692		337		976		743		432		—		3,620
Total	$	284,652	$	148,530	$	104,779	$	76,311	$	56,460	$	74,178	$	297,346	$	—	$	1,042,256
Owner-occupied CRE
Grades 1-4	$	154,578	$	94,300	$	105,226	$	92,128	$	75,583	$	202,816	$	6,945	$	—	$	731,576
Grade 5	7,753		3,019		6,529		2,543		2,515		13,905		656		—		36,920
Grade 6	—		—		1,642		—		20		805		—		—		2,467
Grade 7	—		3,124		1,914		—		3,526		6,672		990		—		16,226
Total	$	162,331	$	100,443	$	115,311	$	94,671	$	81,644	$	224,198	$	8,591	$	—	$	787,189
Agricultural
Grades 1-4	$	128,404	$	87,844	$	28,416	$	22,887	$	36,298	$	86,104	$	235,743	$	—	$	625,696
Grade 5	14,796		4,183		2,391		915		3,912		48,373		26,778		—		101,348
Grade 6	38		38		36		—		86		1,049		85		—		1,332
Grade 7	3,284		3,971		3,490		4,201		7,215		31,672		12,519		—		66,352
Total	$	146,522	$	96,036	$	34,333	$	28,003	$	47,511	$	167,198	$	275,125	$	—	$	794,728
CRE investment
Grades 1-4	$	192,274	$	139,127	$	136,306	$	56,148	$	65,026	$	162,991	$	11,289	$	—	$	763,161
Grade 5	11,081		3,001		6,497		3,945		6,726		17,527		—		—		48,777
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		456		141		1,352		3,943		231		—		6,123
Total	$	203,355	$	142,128	$	143,259	$	60,234	$	73,104	$	184,461	$	11,520	$	—	$	818,061
Construction & land development
Grades 1-4	$	81,891	$	72,415	$	12,547	$	19,511	$	1,184	$	11,274	$	10,943	$	—	$	209,765
Grade 5	640		—		521		919		—		119		—		—		2,199
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		17		1,054		—		—		1,071
Total	$	82,531	$	72,415	$	13,068	$	20,430	$	1,201	$	12,447	$	10,943	$	—	$	213,035
Residential construction
Grades 1-4	$	58,352	$	9,998	$	155	$	344	$	1,072	$	380	$	—	$	—	$	70,301
Grade 5	—		—		52		—		—		—		—		—		52
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	58,352	$	9,998	$	207	$	344	$	1,072	$	380	$	—	$	—	$	70,353
Residential first mortgage
Grades 1-4	$	256,082	$	152,932	$	168,705	$	22,568	$	20,147	$	82,479	$	1,840	$	4	$	704,757
Grade 5	713		529		3,094		—		—		1,508		—		—		5,844
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		560		225		73		2,524		—		—		3,382
Total	$	256,795	$	153,461	$	172,359	$	22,793	$	20,220	$	86,511	$	1,840	$	4	$	713,983
Residential junior mortgage
Grades 1-4	$	3,194	$	3,139	$	3,021	$	1,501	$	512	$	1,969	$	115,817	$	1,426	$	130,579
Grade 5	—		—		29		—		—		—		439		—		468
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		172		—		23		44		138		—		377
Total	$	3,194	$	3,139	$	3,222	$	1,501	$	535	$	2,013	$	116,394	$	1,426	$	131,424
Retail & other
Grades 1-4	$	13,676	$	6,886	$	5,826	$	2,053	$	1,882	$	20,102	$	275	$	—	$	50,700
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		24		2		19		—		62		—		—		107
Total	$	13,676	$	6,910	$	5,828	$	2,072	$	1,882	$	20,164	$	275	$	—	$	50,807

Total loans	$	1,211,408	$	733,060	$	592,366	$	306,359	$	283,629	$	771,550	$	722,034	$	1,430	$	4,621,836

The following tables present total loans by risk categories.


	June 30, 2022
(in thousands)	Grades 1- 4			Grade 5			Grade 6			Grade 7			Total
Commercial & industrial	$	1,060,176		$	47,812		$	3,339		$	7,033		$	1,118,360
Owner-occupied CRE	745,627			27,757			2,798			14,498			790,680
Agricultural	812,555			97,433			4,024			53,180			967,192
CRE investment	783,471			27,259			3,951			3,881			818,562
Construction & land development	224,582			2,949			—			1,044			228,575
Residential construction	69,423			—			—			—			69,423
Residential first mortgage	776,731			3,951			729			4,180			785,591
Residential junior mortgage	148,483			—			—			249			148,732
Retail & other	51,431			—			—			108			51,539
Total loans	$	4,672,479		$	207,161		$	14,841		$	84,173		$	4,978,654
Percent of total	93.8		%	4.2		%	0.3		%	1.7		%	100.0		%


	December 31, 2021
(in thousands)	Grades 1- 4			Grade 5			Grade 6			Grade 7			Total
Commercial & industrial	$	1,007,599		$	29,133		$	1,904		$	3,620		$	1,042,256
Owner-occupied CRE	731,576			36,920			2,467			16,226			787,189
Agricultural	625,696			101,348			1,332			66,352			794,728
CRE investment	763,161			48,777			—			6,123			818,061
Construction & land development	209,765			2,199			—			1,071			213,035
Residential construction	70,301			52			—			—			70,353
Residential first mortgage	704,757			5,844			—			3,382			713,983
Residential junior mortgage	130,579			468			—			377			131,424
Retail & other	50,700			—			—			107			50,807
Total loans	$	4,294,134		$	224,741		$	5,703		$	97,258		$	4,621,836
Percent of total	92.9		%	4.9		%	0.1		%	2.1		%	100.0		%

An internal loan review function rates loans using a grading system based on different risk categories. Loans with a Substandard grade are considered to have a greater risk of loss and may be assigned allocations for loss based on specific review of the weaknesses observed in the individual credits. Such loans are monitored by the loan review function to help ensure early identification of any deterioration. A description of the loan risk categories used by the Company ~~follows:~~

follows.

Grades 1-4, Pass: Credits exhibit adequate cash flows, appropriate management and financial ratios within industry norms and/or are supported by sufficient collateral. Some credits in these rating categories may require a need for monitoring but elements of concern are not severe enough to warrant an elevated rating.

Grade 5, Watch: Credits with this rating are adequately secured and performing but are being monitored due to the presence of various short-term weaknesses which may include unexpected, short-term adverse financial performance, managerial problems, potential impact of a decline in the entire industry or local economy and delinquency issues. Loans to individuals or loans supported by guarantors with marginal net worth or collateral may be included in this rating category.

Grade 6, Special Mention: Credits with this rating have potential weaknesses that, without the Company’s attention and correction may result in deterioration of repayment prospects. These assets are considered Criticized Assets. Potential weaknesses may include adverse financial trends for the borrower or industry, repeated lack of compliance with Company requests, increasing debt to net worth, serious management conditions and decreasing cash flow.

Grade 7, Substandard: Assets with this rating are characterized by the distinct possibility the Company will sustain some loss if deficiencies are not corrected. All foreclosures, liquidations, and ~~non-accrual~~nonaccrual loans are considered to be categorized in this rating, regardless of collateral sufficiency.

~~8 Doubtful: Assets with this rating exhibit all the weaknesses as one rated Substandard with the added characteristic that such weaknesses make collection or liquidation in full highly questionable.~~

~~Note 6 –~~

Troubled Debt Restructurings:

Loans ~~Allowance for Loan Losses, and Credit Quality, continued~~

~~9 Loss: Assets in this category~~ are considered ~~uncollectible. Pursuing any recovery or salvage value is impractical but does not preclude partial recovery in the future.~~

~~The following tables present total loans by loan grade as of September 30, 2017 and December 31, 2016:~~

September 30, 2017
(in thousands) Grades 1- 4 Grade 5 Grade 6 Grade 7 Grade 8 Grade 9 Total
Commercial & industrial $ 594,129 $ 15,356 $ 4,585 $ 11,659 $ - $ - $ 625,729
Owner-occupied CRE 402,021 22,058 1,348 2,627 - - 428,054
AG production 31,245 4,067 - 1,040 - - 36,352
AG real estate 40,982 4,845 - 2,616 - - 48,443
CRE investment 288,346 9,191 - 5,911 - - 303,448
Construction & land development 85,932 627 17 1,073 - - 87,649
Residential construction 33,083 - - 80 - - 33,163
Residential first mortgage 356,985 2,207 779 3,145 - - 363,116
Residential junior mortgage 102,281 17 - 356 - - 102,654
Retail & other 22,514 - - - - - 22,514
Total loans $ 1,957,518 $ 58,368 $ 6,729 $ 28,507 $ - $ - $ 2,051,122
Percent of total 95.4 % 2.9 % 0.3 % 1.4 % - - 100.0 %

December 31, 2016
(in thousands) Grades 1- 4 Grade 5 Grade 6 Grade 7 Grade 8 Grade 9 Total
Commercial & industrial $ 401,954 $ 16,633 $ 2,133 $ 7,550 $ - $ - $ 428,270
Owner-occupied CRE 340,846 14,758 193 4,430 - - 360,227
AG production 31,026 3,191 70 480 - - 34,767
AG real estate 41,747 2,727 - 760 - - 45,234
CRE investment 173,652 8,137 - 14,090 - - 195,879
Construction & land development 69,097 4,318 - 1,573 - - 74,988
Residential construction 22,030 1,102 - 260 - - 23,392
Residential first mortgage 295,109 1,348 192 3,655 - - 300,304
Residential junior mortgage 91,123 - 114 94 - - 91,331
Retail & other 14,515 - - - - - 14,515
Total loans $ 1,481,099 $ 52,214 $ 2,702 $ 32,892 $ - $ - $ 1,568,907
Percent of total 94.4 % 3.3 % 0.2 % 2.1 % - - 100.0 %

Management considers a loan to be impaired when it is probable the Company will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement. For determining the adequacy of the ALLL, management defines impaired loans as nonaccrual credit relationships over $250,000, all loans determined to be troubled debt restructurings ~~plus additional loans with impairment risk characteristics. At the time an individual loan goes into nonaccrual status, however, management evaluates~~if concessions have been granted to borrowers who are experiencing financial difficulties. The following table presents the loan ~~for impairment~~composition of nonaccrual and ~~possible charge-off regardless~~performing TDRs.


	June 30, 2022						December 31, 2021
(in thousands)	Performing		Nonaccrual		Total		Performing		Nonaccrual		Total
Commercial & industrial	$	—	$	194	$	194	$	—	$	197	$	197
Owner-occupied CRE	1,710		2,770		4,480		3,466		2,888		6,354
Agricultural	—		14,525		14,525		—		16,835		16,835
CRE investment	—		—		—		918		—		918
Construction & land development	—		308		308		—		308		308
Residential first mortgage	—		14		14		913		15		928
Residential junior mortgage	—		—		—		146		—		146
Total	$	1,710	$	17,811	$	19,521	$	5,443	$	20,243	$	25,686

The following table presents the number of loans modified in a TDR, pre-modification loan ~~size.~~

~~In determining the appropriateness of the ALLL, management includes allocations for specifically identified impaired loans~~balance, and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and another component primarily based on other qualitative factors. Impaired loans are individually assessed and are measured based on the present value of expected future cash flows discounted at the loan’s effectivepost-modification loan balance by loan composition.


	June 30, 2022					December 31, 2021
($ in thousands)	Number of Loans	Pre-Modification Balance		Current Balance		Number of Loans	Pre-Modification Balance		Current Balance
Commercial & industrial	2	$	200	$	194	2	$	200	$	197
Owner-occupied CRE	5	5,138		4,480		6	6,913		6,354
Agricultural	26	16,237		14,525		31	17,228		16,835
CRE investment	—	—		—		1	919		918
Construction & land development	1	533		308		1	533		308
Residential first mortgage	1	17		14		2	931		928
Residential junior mortgage	—	—		—		1	166		146
Total	35	$	22,125	$	19,521	44	$	26,890	$	25,686

TDR concessions may include payment schedule modifications, interest rate concessions, maturity date extensions, bankruptcies, or ~~as a practical expedient, at the loan’s observable market price or the fair value~~some combination of ~~the collateral if the loan is collateral dependent.~~

Loans that are determined not to be impaired are collectively evaluated for impairment, stratified by type and allocated loss ranges based on the Company’s actual historical loss ratios for each strata, and adjustments are also provided for certain current environmental and qualitative factors. An internal loan review function rates loans using a grading system based on nine different categories. Loans with grades of seven or higher (“classified loans”) represent loans with a greater risk of loss and may be assigned allocations for loss based on specific review of the weaknesses observed in the individual credits if classified as impaired. Classified loans are constantly monitored by the loan review function to ensure early identification of any deterioration.

~~Note 6 – Loans, Allowance for Loan Losses, and Credit Quality, continued~~

~~The following tables present impaired loans and then as a further breakdown by originated or acquired as of September 30, 2017 and December 31, 2016.~~

Total Impaired Loans – September 30, 2017
(in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
Commercial & industrial $ 5,071 $ 12,275 $ 226 $ 5,057 $ 469
Owner-occupied CRE 1,116 2,793 - 1,185 96
AG production - 15 - - -
AG real estate 218 308 - 229 25
CRE investment 4,845 8,863 - 5,099 353
Construction & land development 723 1,189 - 743 44
Residential construction 80 983 - 94 27
Residential first mortgage 1,619 2,971 - 1,699 121
Residential junior mortgage 60 500 - 64 6
Retail & Other - 14 - - -
Total $ 13,732 $ 29,911 $ 226 $ 14,170 $ 1,141

Originated Impaired Loans – September 30, 2017
(in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
Commercial & industrial $ 615 $ 615 $ 226 $ 615 $ 91
Owner-occupied CRE - - - - -
AG production - - - - -
AG real estate - - - - -
CRE investment - - - - -
Construction & land development - - - - -
Residential construction - - - - -
Residential first mortgage - - - - -
Residential junior mortgage - - - - -
Retail & Other - - - - -
Total $ 615 $ 615 $ 226 $ 615 $ 91

Acquired Impaired Loans – September 30, 2017
(in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
Commercial & industrial $ 4,456 $ 11,660 $ - $ 4,442 $ 378
Owner-occupied CRE 1,116 2,793 - 1,185 96
AG production - 15 - - -
AG real estate 218 308 - 229 25
CRE investment 4,845 8,863 - 5,099 353
Construction & land development 723 1,189 - 743 44
Residential construction 80 983 - 94 27
Residential first mortgage 1,619 2,971 - 1,699 121
Residential junior mortgage 60 500 - 64 6
Retail & Other - 14 - - -
Total $ 13,117 $ 29,296 $ - $ 13,555 $ 1,050

~~Note 6 – Loans, Allowance for Loan Losses, and Credit Quality, continued~~

Total Impaired Loans – December 31, 2016
(in thousands) Recorded
Investment Unpaid
Principal
Balance Related
Allowance Average
Recorded
Investment Interest
Income
Recognized
Commercial & industrial $ 338 $ 720 $ - $ 348 $ 34
Owner-occupied CRE 2,588 4,661 - 2,700 271
AG production 41 163 - 48 6
AG real estate 240 332 - 245 26
CRE investment 12,552 19,695 - 12,982 1,051
Construction & land development 694 2,122 - 752 112
Residential construction 261 1,348 - 287 82
Residential first mortgage 2,204 3,706 - 2,312 190
Residential junior mortgage 299 639 - 209 17
Retail & Other - 36 - - -
Total $ 19,217 $ 33,422 $ - $ 19,883 $ 1,789

~~There were no originated impaired loans as of December 31, 2016. All loans in the table above were acquired loans.~~

In April 2017, the First Menasha merger added purchased credit impaired loans at a fair value of $5.4 million, net of an initial $5.9 million non-accretable mark. Also, during the third quarter a loan of $3.1 million was acquired, net of an initial $2.4 million non-accretable mark. Including these credit impaired loans acquired in the First Menasha merger and third quarter acquisition, total purchased credit impaired loans acquired in aggregate were initially recorded at a fair value of $43.6 million on their respective acquisition dates, net of an initial $34.4 million non-accretable mark and a zero accretable mark. At September 30, 2017, $12.3 million of the $43.6 million remain in impaired loans and $0.8 million of acquired loans have subsequently become impaired, bringing acquired impaired loans to $13.1 million.

Non-accretable discount on purchase credit impaired (“PCI”) loans: Nine Months Ended Year ended
(in thousands) September 30, 2017 December 31, 2016
Balance at beginning of period $ 14,327 $ 4,229
Acquired balance, net 8,352 13,923
Accretion to loan interest income (5,925 ) (3,458 )
Disposals of loans (1,121 ) (367 )
Balance at end of period $ 15,633 $ 14,327

~~Troubled Debt Restructurings~~

During the quarter ended September 30, 2017, there were two additional loans that were restructured. One loan was an existing PCI loan which was restructured as part of a new agreement with a loan amount of $3.5 million. The other loan was an acquired loan for $0.7 million in which terms were extended subsequent to acquisition. At September 30, 2017, there were seven loans classified as troubled debt restructurings totaling $5.2 million. These seven loans had a combined premodification balance of $5.2 million. There were no other loans which were modified and classified as troubled debt restructurings at September 30, 2017.concessions. There were no loans which were classified as troubled debt restructurings during the previous twelve months that subsequently defaulted asduring 2021 or through June 30, 2022. As of ~~September~~June 30, ~~2017. Loans which~~2022, there were ~~considered~~no commitments to lend additional funds to debtors whose terms have been modified in troubled debt restructurings by First Menasha and Baylake prior to acquisition are not required to be classified as troubled debt restructurings in the Company’s consolidated financial statements unless and until such loans subsequently meet criteria to be classified as such, since acquired loans were recorded at their estimated fair values at the time of the acquisition.

restructurings.

Note 7 – Goodwill ~~Intangible Assets~~ and ~~Mortgage~~Other Intangibles and Servicing Rights

Management periodically reviews the carrying value of its ~~long-lived and~~ intangible assets to determine if any impairment has occurred, in which case an impairment charge would be recorded as an expense in the period of impairment, or whether changes in circumstances have occurred that would require a revision to the remaining useful life ~~which~~that would ~~impact~~affect expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give rise to the intangible. ~~The Company’s annual assessments indicated~~Management regularly monitors economic factors for potential impairment indications on the value of our franchise, stability of deposits, and the wealth client base, underlying our goodwill, core deposit intangible, and customer list intangibles, and determined no ~~impairment charge on~~impairments were indicated. A summary of goodwill orand other intangibles was ~~required for 2016 or the first nine months of 2017.~~

as follows.



(in thousands)	June 30, 2022		December 31, 2021
Goodwill	$	317,189	$	317,189
Core deposit intangibles	16,928		19,445
Customer list intangibles	2,604		2,858
Other intangibles	19,532		22,303
Goodwill and other intangibles, net	$	336,721	$	339,492

~~Note 7 –~~

Goodwill ~~Intangible Assets and Mortgage Servicing Rights, continued~~

~~Goodwill~~: ~~Goodwill was $107.4 million at September 30, 2017 and $66.7 million at December 31, 2016. There was an addition to the carrying amount~~A summary of goodwill ~~in the second quarter of 2017 of $39.7 million related to the First Menasha merger. In accordance with business combination accounting standards, an additional increase to~~was as follows. During 2021, goodwill ~~of $1.0 million occurred in the third quarter of 2017~~increased due to the ~~Company recording its previously held equity interest in First Menasha at its then acquisition date fair value, resulting in a $1.2 million gain in pre-tax earnings.~~acquisitions of Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.

Six Months Ended Year Ended
(in thousands) June 30, 2022 December 31, 2021
Goodwill:
Goodwill at beginning of year $ 317,189 $ 163,151
Acquisitions — 154,038
Goodwill at end of period $ 317,189 $ 317,189
Other intangible assets: Other intangible assets, consisting of core deposit intangibles ~~(related to branch or bank acquisitions)~~ and customer list intangibles, ~~(related to the customer relationships acquired in the 2016 financial advisor business acquisition),~~ are amortized over their estimated finite lives. ~~There~~A summary of other intangible assets was ~~an addition of $3.7 million to the~~as follows. During 2021, core deposit intangibles ~~related~~increased due to the ~~First Menasha merger in the second quarter~~acquisitions of 2017. The customer relationship intangible was increased $0.9 million in the third quarter of 2017 due to a modification to the contingent earn-out payment, fixing the previously variable earn-out payment on a portion of the purchase price.Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.

(in thousands) September 30, 2017 December 31, 2016
Core deposit intangibles:
Gross carrying amount $ 29,015 $ 25,345
Accumulated amortization (11,469 ) (8,244 )
Net book value $ 17,546 $ 17,101
Additions during the period $ 3,670 $ 17,259
Amortization during the period $ 3,225 $ 3,189

Customer list intangibles:
Gross carrying amount $ 5,233 $ 4,363
Accumulated amortization (558 ) (269 )
Net book value $ 4,675 $ 4,094
Additions during the period $ 870 $ 4,363
Amortization during the period $ 289 $ 269

Six Months Ended Year Ended
(in thousands) June 30, 2022 December 31, 2021
Core deposit intangibles:
Gross carrying amount $ 41,360 $ 41,360
Accumulated amortization (24,432) (21,915)
Net book value $ 16,928 $ 19,445
Additions during the period $ — $ 13,595
Amortization during the period $ 2,517 $ 2,987
Customer list intangibles:
Gross carrying amount $ 5,523 $ 5,523
Accumulated amortization (2,919) (2,665)
Net book value $ 2,604 $ 2,858
Amortization during the period $ 254 $ 507

Mortgage ~~servicing rights~~~~: A summary of the mortgage~~ servicing rights (“MSR”) ~~asset, which is~~: Mortgage servicing rights are amortized in proportion to and over the period of estimated net servicing income, and assessed for impairment at each reporting date, with the amortization recorded in mortgage income, net, in the consolidated statements of income. Mortgage servicing rights are carried at the lower of the initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other assets in the consolidated balance ~~sheets, for~~sheets. A summary of the ~~nine months ended September 30, 2017 and year ended December 31, 2016~~changes in the mortgage servicing rights asset was as ~~follows:~~

(in thousands) September 30, 2017 December 31, 2016
Mortgage servicing rights (MSR) asset:
MSR asset at beginning of year $ 1,922 $ 193
Capitalized MSR 679 1,023
MSR asset acquired 874 885
Amortization during the period (339 ) (179 )
Valuation allowance at end of period - -
Net book value at end of period $ 3,136 $ 1,922

Fair value of MSR asset at end of period $ 4,116 $ 2,013
Residential mortgage loans serviced for others 509,897 $ 295,353
Net book value of MSR asset to loans serviced for others 0.62 % 0.65 %

follows.


	Six Months Ended			Year Ended
(in thousands)	June 30, 2022			December 31, 2021
Mortgage servicing rights asset:
MSR asset at beginning of year	$	13,636		$	10,230
Capitalized MSR	1,685			4,329
MSR asset acquired	—			1,322
Amortization during the period	(1,413)			(2,245)
MSR asset at end of period	$	13,908		$	13,636
Valuation allowance at beginning of year	$	(1,200)		$	(1,000)
Additions	—			(500)
Reversals	700			300
Valuation allowance at end of period	$	(500)		$	(1,200)
MSR asset, net	$	13,408		$	12,436
Fair value of MSR asset at end of period	$	15,699		$	15,599
Residential mortgage loans serviced for others	$	1,611,794		$	1,583,577
Net book value of MSR asset to loans serviced for others	0.83		%	0.79		%

The Company periodically evaluates its mortgage servicing rights asset for impairment. At each reporting date, impairment is assessed based on an estimated fair value using estimated prepayment speeds of the underlying mortgage loans serviced and ~~stratifications~~stratification based on the risk characteristics of the underlying loans ~~serviced~~ (predominantly loan type and note interest rate). ~~No valuation or impairment charge~~See Note 9 for additional information on the fair value of the MSR asset.

Loan servicing rights (“LSR”): The Company acquired an LSR asset in connection with its acquisition of County on December 3, 2021 (see Note 2 for additional information on the County acquisition). The LSR asset was ~~recorded~~$15 million at June 30, 2022, and related to approximately $604 million of unpaid principal balances of loans serviced for ~~2016 or year~~others. The LSR asset will be

amortized on an accelerated basis over the estimated remaining loan service period as the Company does not expect to ~~date 2017.~~

add new loans to this servicing portfolio. See Note 9 for additional information on the fair value of the LSR asset.

~~Note 7 – Goodwill, Intangible Assets and Mortgage Servicing Rights, continued~~

The following table shows the estimated future amortization expense for amortizing intangible assets and the servicing assets. The projections are based on existing asset balances, the current interest rate environment and prepayment speeds as of ~~the September~~June 30, ~~2017.~~2022. The actual amortization expense the Company recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements and events or circumstances that indicate the carrying amount of an asset may not be recoverable.

(in thousands) Core deposit
intangibles Customer list
intangibles MSR asset
Year ending December 31,
2017 (remaining three months) $ 1,070 $ 112 $ 136
2018 3,915 449 544
2019 3,337 449 544
2020 2,657 449 677
2021 2,167 449 301
Thereafter 4,400 2,767 934
Total $ 17,546 $ 4,675 $ 3,136


(in thousands)	Core deposit intangibles		Customer list intangibles		MSR asset		LSR asset
Year ending December 31,
2022 (remaining six months)	$	2,300	$	253	$	1,107	$	4,175
2023	3,910		483		2,691		6,345
2024	3,135		449		2,587		3,673
2025	2,385		449		1,828		1,020
2026	1,659		249		1,351		—
2027	1,346		166		1,351		—
Thereafter	2,193		555		2,993		—
Total	$	16,928	$	2,604	$	13,908	$	15,213

Note 8 – ~~Notes Payable~~

~~The~~Short and Long-Term Borrowings

Short-Term Borrowings:

Short-term borrowings include any borrowing with an original maturity of one year or less. At both June 30, 2022 and December 31, 2021, the Company ~~had the following long-term notes payable (notes~~did not have any outstanding short-term borrowings.

Long-Term Borrowings:

Long-term borrowings include any borrowing with an original ~~maturities of~~maturity greater than one ~~year):~~

(in thousands) September 30, 2017 December 31, 2016
Federal Home Loan Bank (“FHLB”) advances $ 41,571 $ 1,000
Notes payable $ 41,571 $ 1,000

year. The ~~Company’s~~ components of long-term borrowings were as follows.


(in thousands)	June 30, 2022		December 31, 2021
FHLB advances	$	5,000	$	25,000
Junior subordinated debentures	39,305		38,885
Subordinated notes	152,658		153,030
Total long-term borrowings	$	196,963	$	216,915

FHLB Advances: The Federal Home Loan Bank (“FHLB”) advances bear fixed rates, require interest-only monthly payments, and have ~~maturities ranging from December 2017 to November 2022.~~maturity dates through March 2025. The weighted average ~~rates~~rate of the FHLB advances ~~were 1.65%~~was 1.55% at ~~September~~June 30, ~~2017~~2022 and ~~1.17%~~0.59% at December 31, 2016. FHLB advances are collateralized by a blanket lien on qualifying first mortgages, home equity loans, multi-family loans and certain farmland loans which totaled $330.7 million and $283.8 million at September 30, 2017 and December 31, 2016, respectively.

~~The following table shows the maturity schedule of the notes payable as of September 30, 2017:~~

Maturing in (in thousands)
2017 (remaining three months) $ 5,018
2018 1,000
2019 -
2020 10,000
2021 -
2022 25,553
$ 41,571

The Company has a $10 million line of credit with a third party bank, bearing a variable rate of interest based on one-month LIBOR plus a margin, but subject to a floor rate, with quarterly payments of interest only. At September 30, 2017, the available line was $10 million, the rate was one-month LIBOR plus 2.25% with a 3.25% floor. The outstanding balance was zero at September 30, 2017 and December 31, 2016, and the line was not used during 2017 or 2016.

~~Note 9 –~~ 2021.

Junior Subordinated Debentures

~~At September 30, 2017 and December 31, 2016,~~: Each of the ~~Company’s carrying value of~~ junior subordinated debentures was $29.5 million and $24.7 million, respectively. At September 30, 2017 and December 31, 2016, $28.3 million and $23.6 million, respectively, of guaranteed preferred beneficial interests (“trust preferred securities”) qualify as Tier 1 capital under the Federal Reserve Bank guidelines.

The following table shows the breakdown of junior subordinated debentures as of September 30, 2017 and December 31, 2016. Interest on all debentures is current. Any applicable discounts (initially recordedissued to ~~carry~~ an acquired debenture at its then estimated fair market value) are being accreted to interest expense over the remaining life of the debentures. All the debentures below are currently callable and may be redeemed in part or in full plus any accrued but unpaid interest.

~~Note 9 – Junior Subordinated Debentures, continued~~

Junior Subordinated Debentures
(in thousands) Maturity
Date Par 9/30/2017
Unamortized
Discount 9/30/2017
Carrying
Value 12/31/2016
Carrying
Value
2004 Nicolet Bankshares Statutory Trust⁽¹⁾ 7/15/2034 $ 6,186 $ - $ 6,186 $ 6,186
2005 Mid-Wisconsin Financial Services, Inc.⁽²⁾ 12/15/2035 10,310 (3,620 ) 6,690 6,540
2006 Baylake Corp.⁽³⁾ 9/30/2036 16,598 (4,415 ) 12,183 12,006
2004 First Menasha Bancshares, Inc.⁽⁴⁾ 3/17/2034 5,155 (717 ) 4,438 -
Total $ 38,249 $ (8,752 ) $ 29,497 $ 24,732

⁽¹⁾

~~The interest rate is 8.00% fixed.~~

⁽²⁾

The debentures, assumed in April 2013 as the result of acquisition, have a floating rate of the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rates were 2.75% and 2.39% as of September 30, 2017 and December 31, 2016, respectively.

⁽³⁾

The debentures, assumed in April 2016 as a result of acquisition, have a floating rate of the three-month LIBOR plus 1.35%, adjusted quarterly. The interest rates were 2.69% and 2.35% as of September 30, 2017 and December 31, 2016, respectively.

⁽⁴⁾

~~The debentures, assumed in April 2017 as the result of acquisition, have a floating rate of the three-month LIBOR plus 2.79%, adjusted quarterly. The interest rate was 4.11% as of September 30, 2017.~~

~~Underlying respective~~underlying statutory ~~trusts~~trust (the “statutory trusts”), which issued trust preferred securities and common ~~securities. The~~securities and used the proceeds from the issuance of the common and the trust preferred securities ~~were used by each trust~~ to purchase the junior subordinated debentures of the Company. The debentures represent the sole asset of the statutory trusts. All of the common securities of the statutory trusts are owned by the Company. The statutory trusts are not included in the consolidated financial statements. The net effect of all the documents entered into with respect to the trust preferred securities is that the Company, through payments on its debentures, is liable for the distributions and other payments required on the trust preferred securities.

~~Note 10 –~~ Interest on all debentures is current. Any applicable discounts (initially recorded to carry an acquired debenture at its then estimated fair value) are being accreted to interest expense over the remaining life of the debenture. All the junior subordinated debentures are currently callable and may be redeemed in part or in full, at par, plus any accrued but unpaid interest. At June 30, 2022 and December 31, 2021, approximately $38 million and $37 million, respectively, of trust preferred securities qualify as Tier 1 capital.

Subordinated Notes

(the “Notes”): In ~~2015~~July 2021, the Company ~~placed an aggregate~~completed the private placement of ~~$12~~$100 million in fixed-to-floating rate subordinated notes due in 2031, with a fixed annual rate of 3.125% for the first five years, and will reset quarterly thereafter to the then current three-month Secured Overnight Financing Rate (“SOFR”) plus 237.5 basis points. The Notes due in ~~private placements~~2031 are redeemable beginning July 15, 2026 and quarterly thereafter on any interest payment date.

In December 2021, Nicolet assumed two subordinated note issuances at a premium as the result of the County acquisition. One issuance was $30 million in fixed-to-floating rate subordinated notes due in 2028, with ~~certain accredited investors. All Notes were issued with 10-year maturities, have~~ a fixed annual interest rate of ~~5% payable~~5.875%

for the first five years, and will reset quarterly thereafter to the then current three-month LIBOR plus 2.88% The second issuance was $22 million in fixed-to-floating rate subordinated notes due in 2030, with a fixed annual interest rate of 7.00% for the first five years, and will reset quarterly thereafter to the then current SOFR plus 687.5 basis points. The Notes due in 2028 are ~~callable~~redeemable beginning June 1, 2023, and quarterly thereafter on ~~or after~~any interest payment date, while the ~~fifth anniversary of their respective issuances dates,~~Notes due in 2030 are redeemable beginning June 30, 2025, and quarterly thereafter on any interest payment date. All Notes qualify ~~for~~as Tier 2 capital for regulatory purposes. ~~At September 30, 2017,~~

The following table shows the ~~carrying value~~breakdown of ~~these~~junior subordinated ~~notes was $11.9 million.~~

~~The $180,000~~debentures and subordinated notes.


		As of June 30, 2022								As of December 31, 2021
(in thousands)	Maturity Date	Interest Rate		Par		Unamortized Premium /(Discount) / Debt Issue Costs (1)		Carrying Value		Interest Rate		Carrying Value
Junior Subordinated Debentures:
Mid-Wisconsin Statutory Trust I (2)	12/15/2035	3.26	%	$	10,310	$	(2,674)	$	7,636	1.63	%	$	7,537
Baylake Capital Trust II (3)	9/30/2036	3.60	%	16,598		(3,292)		13,306		1.57	%	13,187
First Menasha Statutory Trust (4)	3/17/2034	4.82	%	5,155		(509)		4,646		3.01	%	4,624
County Bancorp Statutory Trust II (5)	9/15/2035	3.36	%	6,186		(1,044)		5,142		1.73	%	5,061
County Bancorp Statutory Trust III (6)	6/15/2036	3.52	%	6,186		(987)		5,199		1.89	%	5,121
Fox River Valley Capital Trust (7)	5/30/2033	6.40	%	3,610		(234)		3,376		6.40	%	3,355
Total				$	48,045	$	(8,740)	$	39,305			$	38,885
Subordinated Notes:
Subordinated Notes due 2031	7/15/2031	3.13	%	$	100,000	$	(838)	$	99,162	3.13	%	$	99,057
County Subordinated Notes due 2028	6/1/2028	5.88	%	30,000		280		30,280		5.88	%	30,402
County Subordinated Notes due 2030	6/30/2030	7.00	%	22,400		816		23,216		7.00	%	23,571
Total				$	152,400	$	258	$	152,658			$	153,030

(1) Represents the remaining unamortized premium or discount on debt ~~issuance costs associated with~~issuances assumed in acquisitions, and represents the $12 million Notes are being amortized on a straight line basis over the first five years, representing the no-call periods, as additional interest expense. As of September 30, 2017 and December 31, 2016, respectively, $88,000 and $115,000, of unamortized debt ~~issuance~~issue costs ~~remain and are reflected~~for the debt issued directly by Nicolet.

(2) The debentures, assumed in April 2013 as the result of an acquisition, have a floating rate of three-month LIBOR plus 1.43%, adjusted quarterly.

(3) The debentures, assumed in April 2016 as a ~~reduction to~~result of an acquisition, have a floating rate of three-month LIBOR plus 1.35%, adjusted quarterly.

(4) The debentures, assumed in April 2017 as the ~~carrying value~~result of an acquisition, have a floating rate of three-month LIBOR plus 2.79%, adjusted quarterly.

(5) The debentures, assumed in December 2021 as the ~~outstanding debt.~~

result of an acquisition, have a floating rate of three-month LIBOR plus 1.53%, adjusted quarterly.

(6) The debentures, assumed in December 2021 as the result of an acquisition, have a floating rate of three-month LIBOR plus 1.69%, adjusted quarterly.

(7) The debentures, assumed in December 2021 as the result of an acquisition, have a floating rate of 5-year LIBOR plus 3.40%, which resets every five years.

Note 119 – Fair Value Measurements

Fair value represents the estimated price at which an orderly transaction to sell an asset or transfer a liability would take place between market participants at the measurement date under current market conditions (i.e., an exit price concept), and is a market-based measurement versus an entity-specific measurement.

~~As provided for by accounting standards, the~~ The Company records and/or discloses certain financial instruments on a fair value basis. These financial assets and financial liabilities are measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the observability of the assumptions used to determine fair value. ~~These~~Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect assumptions of the reporting entity about how market participants would price the asset or liability based on the best information available under the circumstances. The three fair value levels are:

•Level 1 -– quoted market prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement ~~date;~~ date

•Level 2 -– inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or ~~indirectly;~~ indirectly

•Level 3 – significant unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market ~~activity.~~ activity

In instances where the fair value measurement is based on inputs from different levels, the level within which the entire fair value measurement will be categorized is based on the lowest level input that is significant to the fair value measurement in its ~~entirety; this~~entirety. This assessment of the significance of an input requires management judgment.

Disclosure of the fair value of financial instruments, whether recognized or not recognized in the balance sheet, is required for those instruments for which it is practicable to estimate that value, with the exception of certain financial instruments and all nonfinancial instruments as provided for by the accounting standards. For financial instruments recognized at fair value in the consolidated balance sheets, the fair value disclosure requirements also apply.

Recurring basis fair value measurements:

The following table presents the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented. During the second quarter of 2017, three securities classified as Level 3 were acquired with the First Menasha acquisition with a fair value of $0.2 million. The remaining changes in Level 3 were due to pay downs.

Fair Value Measurements Using
Measured at Fair Value on a Recurring Basis: Total Level 1 Level 2 Level 3
(in thousands)
U.S. government sponsored enterprises $ 26,272 $ - $ 26,272 $ -
State, county and municipals 188,716 - 188,057 659
Mortgage-backed securities 157,936 - 157,929 7
Corporate debt securities 32,744 - 24,254 8,490
Equity securities 2,549 2,549 - -
Securities AFS, September 30, 2017 $ 408,217 $ 2,549 $ 396,512 $ 9,156

(in thousands)
U.S. government sponsored enterprises $ 1,963 $ - $ 1,963 $ -
State, county and municipals 187,243 - 186,717 526
Mortgage-backed securities 159,129 - 159,076 53
Corporate debt securities 12,169 - 3,640 8,529
Equity securities 4,783 4,783 - -
Securities AFS, December 31, 2016 $ 365,287 $ 4,783 $ 351,396 $ 9,108


(in thousands)			Fair Value Measurements Using
Measured at Fair Value on a Recurring Basis:	Total		Level 1		Level 2		Level 3
June 30, 2022
U.S. government agency securities	$	183,849	$	—	$	183,849	$	—
State, county and municipals	271,502		—		269,621		1,881
Mortgage-backed securities	226,248		—		225,268		980
Corporate debt securities	131,649		—		127,056		4,593
Securities AFS	$	813,248	$	—	$	805,794	$	7,454
Other investments (equity securities)	$	4,793	$	4,793	$	—	$	—
Derivative assets	—		—		—		—
Derivative liabilities	—		—		—		—
December 31, 2021
U.S. government agency securities	$	191,277	$	—	$	191,277	$	—
State, county and municipals	312,737		—		310,316		2,421
Mortgage-backed securities	271,262		—		270,260		1,002
Corporate debt securities	146,385		—		141,743		4,642
Securities AFS	$	921,661	$	—	$	913,596	$	8,065
Other investments (equity securities)	$	5,660	$	5,660	$	—	$	—
Derivative assets	1,064		—		1,064		—
Derivative liabilities	1,064		—		1,064		—

The following is a description of the valuation methodologies used by the Company for the ~~Securities AFS~~assets and liabilities measured at fair value on a recurring basis, noted in the tables ~~of this footnote.~~above. Where quoted market prices on securities exchanges are available, the ~~investment is~~investments are classified as Level 1. Level 1 investments primarily include exchange-traded equity ~~securities available for sale.~~securities. If quoted market prices are not available, fair value is generally determined using prices obtained from independent pricing vendors who use pricing models (with typical inputs including benchmark yields, reported trades for similar securities, issuer spreads or relationship to other benchmark quoted securities), or discounted cash flows, and are classified as Level 2. Examples of these investments include ~~mortgage-related~~U.S. government agency securities, ~~and~~mortgage-backed securities, obligations of state, county and ~~municipals.~~municipals, and certain corporate debt securities. Finally, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, investments are classified within Level 3 of the hierarchy. Examples of these include private ~~municipal bonds and~~ corporate debt securities, which ~~include~~are primarily trust preferred security ~~investments.~~investments, as well as certain municipal bonds and mortgage-backed securities. At ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, it was determined that carrying value was the best approximation of fair value for ~~all of the~~these Level 3 securities, based primarily on the internal analysis on these securities.

The fair value of the derivative assets and liabilities is determined using a discounted cash flow analysis of the expected cash flows of each derivative, which considers the contractual terms of the underlying derivative financial instrument and observable market-based inputs, such as interest rate curves.

The following table presents the changes in Level 3 securities AFS measured at fair value on a recurring basis.

~~Note 11 – Fair Value Measurements, continued~~


	Six Months Ended		Year Ended
Level 3 Fair Value Measurements:	June 30, 2022		December 31, 2021
Balance at beginning of year	$	8,065	$	3,130
Acquired balance	—		4,935
Maturities / Paydowns	(442)		—
Unrealized gain / (loss)	(169)		—
Balance at end of period	$	7,454	$	8,065

Nonrecurring basis fair value measurements:

The following table presents the Company’s ~~impaired loans and other real estate owned (“OREO”)~~assets measured at fair value on a nonrecurring basis, ~~for~~aggregated by level in the ~~periods presented.~~

~~Measured at Fair Value on a Nonrecurring Basis~~

Fair Value Measurements Using
(in thousands) Total Level 1 Level 2 Level 3
September 30, 2017:
Impaired loans $ 13,506 $ - $ - $ 13,506
OREO 1,314 - - 1,314
December 31, 2016:
Impaired loans $ 19,217 $ - $ - $ 19,217
OREO 2,059 - - 2,059

fair value hierarchy within which those measurements fall.


(in thousands)			Fair Value Measurements Using
Measured at Fair Value on a Nonrecurring Basis:	Total		Level 1		Level 2		Level 3
June 30, 2022
Collateral dependent loans	$	31,592	$	—	$	—	$	31,592
Other real estate owned (“OREO”)	5,006		—		—		5,006
MSR asset	13,408		—		—		13,408
LSR asset	15,213		—		—		15,213
December 31, 2021
Collateral dependent loans	$	36,230	$	—	$	—	$	36,230
OREO	11,955		—		—		11,955
MSR asset	12,436		—		—		12,436
LSR asset	20,055		—		—		20,055

The following is a description of the valuation methodologies used by the Company for the items noted in the table ~~above, including the general classification of such instruments in the fair value hierarchy.~~above. For ~~individually evaluated impaired~~collateral dependent loans, the ~~amount of impairment~~estimated fair value is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral with consideration for ~~collateral-dependent loans,~~estimated selling costs if satisfaction of the loan depends on the sale of the collateral, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell.

~~Note 11 – Fair Value Measurements, continued~~

~~Financial instruments:~~

~~The carrying amounts and estimated fair values of the Company’s financial instruments at September 30, 2017 and December 31, 2016 are shown below.~~

September 30, 2017
(in thousands) Carrying
Amount Estimated
Fair Value Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 96,103 $ 96,103 $ 96,103 $ - $ -
Certificates of deposit in other banks 2,494 2,495 - 2,495 -
Securities AFS 408,217 408,217 2,549 396,512 9,156
Other investments 14,931 14,931 - 13,236 1,695
Loans held for sale 6,963 7,089 - 7,089 -
Loans, net 2,038,512 2,030,248 - - 2,030,248
BOLI 63,989 63,989 63,989 - -
MSR asset 3,136 4,116 - - 4,116

Financial liabilities:
Deposits $ 2,366,951 $ 2,366,199 $ - $ - $ 2,366,199
Short-term borrowings 12,900 12,900 12,900 - -
Notes payable 41,571 41,708 - 41,708 -
Junior subordinated debentures 29,497 28,907 - - 28,907
Subordinated notes 11,912 11,417 - - 11,417

December 31, 2016
(in thousands) Carrying
Amount Estimated
Fair Value Level 1 Level 2 Level 3
Financial assets:
Cash and cash equivalents $ 129,103 $ 129,103 $ 129,103 $ - $ -
Certificates of deposit in other banks 3,984 3,992 - 3,992 -
Securities AFS 365,287 365,287 4,783 351,396 9,108
Other investments 17,499 17,499 - 15,779 1,720
Loans held for sale 6,913 6,968 - 6,968 -
Loans, net 1,557,087 1,568,676 - - 1,568,676
BOLI 54,134 54,134 54,134 - -
MSR asset 1,922 2,013 - - 2,013

Financial liabilities:
Deposits $ 1,969,986 $ 1,969,973 $ - $ - $ 1,969,973
Notes payable 1,000 1,002 - 1,002 -
Junior subordinated debentures 24,732 24,095 - - 24,095
Subordinated notes 11,885 11,459 - - 11,459

~~Not all the financial instruments listed in the table above are subject to the disclosure provisions of Accounting Standards Codification (“ASC”) 820,~~~~Fair Value Measurements and Disclosures,~~as certain assets and liabilities result in their carrying value approximating fair value. These include cash and cash equivalents, BOLI, short-term borrowings, and nonmaturing deposits. For those financial instruments not previously disclosed the following is a description of the evaluation methodologies used.

~~Certificates of deposits in other banks:~~ ~~Fair values are estimated using discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and represents a Level 2 measurement.~~

~~Note 11 – Fair Value Measurements, continued~~

~~Other investments:~~ The carrying amount of Federal Reserve Bank, Bankers Bank, Farmer Mac, and FHLB stock is a reasonably accepted fair value estimate given their restricted nature. Fair value is the redeemable (carrying) value based on the redemption provisions of the instruments which is considered a Level 2 measurement. The carrying amount of the remaining other investments (particularly common stocks of companies or other banks that are not publicly traded) approximates their fair value, determined primarily by analysis of company financial statements and recent capital issuances of the respective companies or banks, if any, and represents a Level 3 measurement.

~~Loans held for sale:~~The fair value estimation process for the loans held for sale portfolio is segregated by loan type. The estimated fair value was based on what secondary markets are currently offering for portfolios with similar characteristics and represents a Level 2 measurement.

~~Loans, net~~: For variable-rate loans that reprice frequently and with no significant change in credit risk or other optionality, fair values are based on carrying values. Fair values for all other loans are estimated by discounting contractual cash flows using estimated market discount rates, which reflect the credit and interest rate risk inherent in the loan. Collateral-dependent impaired loans are included in loans, net. The fair value of loans is considered to be a Level 3 measurement due to internally developed discounted cash flow measurements.

~~Mortgage servicing rights asset:~~ To estimate the fair value of the MSR asset, the underlying serviced loan pools are stratified by interest rate tranche and term of the loan, and a valuation model is used to calculate the present value of the expected future cash flows for each stratum. ~~When the carrying~~The fair value of the ~~MSR~~LSR asset ~~related to~~is determined by stratifying the rights into tranches based on the predominant characteristics, such as interest rate, loan type, and investor type, and a ~~stratum exceeds its fair value, the stratum is recorded at fair value. The~~ valuation model ~~incorporates~~is used to calculate the present value of the expected future cash flows for each tranche. The servicing valuation models incorporate assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, ancillary income, default rates and losses, and prepayment speeds. Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value. ~~As a result, the fair value measurement of mortgage servicing rights is considered a Level 3 measurement~~

Financial instruments:

The carrying amounts and ~~represents an income approach to fair value.~~

~~Deposits~~: The fair value of deposits with no stated maturity (such as demand deposits, savings, interest and non-interest checking, and money market accounts) is, by definition, equal to the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered in the market place on certificates of similar remaining maturities. Use of internal discounted cash flows provides a Level 3 fair value measurement.

~~Notes payable~~: The fair value of the Federal Home Loan Bank advances is obtained from the Federal Home Loan Bank which uses a discounted cash flow analysis based on current market rates of similar maturity debt securities and represents a Level 2 measurement. The fair values of any remaining notes payable are estimated using discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and credit quality which represents a Level 3 measurement.

~~Junior subordinated debentures and subordinated notes~~: The fair values of these debt instruments utilize a discounted cash flow analysis based on an estimate of current interest rates being offered by instruments with similar terms and credit quality. Since the market for these instruments is limited, the internal evaluation represents a Level 3 measurement.

~~Off-balance-sheet instruments~~: At September 30, 2017 and December 31, 2016, the estimated fair value of letters of credit, loan commitments on which the committed interest rate is less than the current market rate, and of outstanding mandatory commitments to sell mortgages into the secondary market were not significant.

~~Limitations~~: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments ~~in which case fair values may be based on estimates using present value or other~~are shown below.


June 30, 2022
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	181,017	$	181,017	$	181,017	$	—	$	—
Certificates of deposit in other banks	15,502		15,462		—		15,462		—
Securities AFS	813,248		813,248		—		805,794		7,454
Securities HTM	695,812		650,233		—		650,233		—
Other investments, including equity securities	53,269		53,269		4,793		39,387		9,089
Loans held for sale	5,084		5,190		—		5,190		—
Loans, net	4,927,999		4,818,422		—		—		4,818,422
MSR asset	13,408		15,699		—		—		15,699
LSR asset	15,213		15,213		—		—		15,213
Accrued interest receivable	16,008		16,008		16,008		—		—
Financial liabilities:
Deposits	$	6,286,266	$	6,281,308	$	—	$	—	$	6,281,308

Long-term borrowings	196,963		192,447		—		5,001		187,446
Accrued interest payable	2,668		2,668		2,668		—		—


December 31, 2021
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	595,292	$	595,292	$	595,292	$	—	$	—
Certificates of deposit in other banks	21,920		22,236		—		22,236		—
Securities AFS	921,661		921,661		—		913,596		8,065
Securities HTM	651,803		648,394		—		648,394		—
Other investments, including equity securities	44,008		44,008		5,660		32,110		6,238
Loans held for sale	6,447		6,616		—		6,616		—
Loans, net	4,572,164		4,606,851		—		—		4,606,851
MSR asset	12,436		15,599		—		—		15,599
LSR asset	20,055		20,055		—		—		20,055
Accrued interest receivable	15,277		15,277		15,277		—		—
Financial liabilities:
Deposits	$	6,465,916	$	6,463,064	$	—	$	—	$	6,463,064

Long-term borrowings	216,915		216,092		—		25,097		190,995
Accrued interest payable	3,078		3,078		3,078		—		—

The valuation ~~techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of~~methodologies for the financial instruments ordisclosed in the above table are described in Note 18, Fair Value Measurements, in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021.

Note 10 – Other Assets and Other Liabilities Held for Sale

On September 7, 2021, Nicolet entered into a Purchase and Assumption Agreement (the “Birmingham Agreement”) with Bank of Ann Arbor to sell Nicolet’s Birmingham, Michigan branch, including legacy mBank’s asset-based lending team (the “Birmingham Sale”). Pursuant to the terms of the Birmingham Agreement, Bank of Ann Arbor agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, personal property and other ~~factors. Those techniques are significantly affected by~~fixed assets associated with the ~~assumptions used, including~~Birmingham branch. The combined loan and deposit balances of the ~~discount rate~~Birmingham branch (excluding certain loans and ~~estimate~~deposits not subject to the Birmingham Agreement) were approximately $199 million and $51 million, respectively, as of ~~future cash flows. Subsequent changes in assumptions could significantly affect the estimates.~~

December 31, 2021. The Birmingham Sale closed on January 21, 2022.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) is a bank holding company headquartered in Green Bay, ~~Wisconsin, providing~~Wisconsin. Nicolet provides a diversified range of traditional banking and wealth management services to individuals and businesses in its market area and through the 38 branch offices of its banking subsidiary, Nicolet National Bank (the “Bank”), in ~~northeastern~~Northeast and ~~central~~Central Wisconsin, Northern Michigan and ~~Menominee,~~the upper peninsula of Michigan.

~~Overview~~

~~At September 30, 2017, Nicolet Bankshares, Inc.~~ In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, all references to “we,” “us” and its subsidiaries (“Nicolet” or the “Company”) had total assets of $2.8 billion, loans of $2.0 billion, deposits of $2.4 billion and total stockholders’ equity of $360 million, representing increases over December 31, 2016 of 24%, 31%, 20% and 31% in assets, loans, deposits and total equity, respectively. This balance sheet growth was predominately attributable“our” refer to the April 28, 2017 acquisition of First Menasha Bancshares, Inc. (“First Menasha”), which added assets of $480 million (about 20% of Nicolet’s pre-merger asset size), loans of $351 million, deposits of $375 million, core deposit intangible of $4 million and goodwill of $41 million (as of the consummation date and based on estimated fair values), for a total purchase price that included the issuance of $62 million of common equity (or 1.3 million shares) and $19 million of cash, and which is further described in Note 2, “Acquisitions” of the notes to unaudited consolidated financial statements. In particular, organic loan growth has been strong since year end 2016, with loans, excluding $351 million of loans at acquisition of First Menasha, up $131 million or 8%.

For the nine months ended September 30, 2017, net income was $24.0 million (94% above the comparable period of 2016), and net income available to common shareholders was $24.0 million or $2.45 per diluted common share. Evaluation of financial performance between 2017 and 2016 periods was impacted in general from the timing of the 2017 acquisition and the 2016 acquisitions, and inclusion of non-recurring merger-based expenses and integration costs, as described more fully under the section “Management’s Discussion and Analysis.”

Nicolet’s profitability is significantly dependent upon net interest income (interest income earned on loans and other interest-earning assets such as investments, net of interest expense on deposits and other borrowed funds), and noninterest income sources (including but not limited to service charges on deposits, trust and brokerage fees, mortgage income from sales of residential mortgages into the secondary market and related servicing fees, and other fees or revenue from financial services provided to customers or ancillary to loans and deposits), offset by the level of the provision for loan losses, noninterest expenses (largely employee compensation and overhead expenses tied to processing and operating the Bank’s business), and income taxes. Business volumes and pricing drive revenue potential and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth and competitive conditions within the marketplace.

Company.

Forward-Looking Statements

Statements made in this document and in any documents that are incorporated by reference which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995, including any statements regarding descriptions of management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Forward-looking statements are based on current management expectations and, by their nature, are subject to risks and uncertainties. These statements are neither statements of historical fact nor assurance of future performance and generally may be identified by the use of words such as “believe,” “expect,” “anticipate,” “plan,” “estimate,” “should,” “will,” “intend,” or similar expressions. Forward-looking statements include discussions of strategy, financial projections, guidance and estimates (including their underlying assumptions), statements regarding plans, objectives, expectations or consequences of various transactions or events (including the expected closing date of the merger with Charter Bankshares, Inc. (“Charter”) and number of shares to be issued in connection with that merger), and statements about our future performance, operations, products and services, and should be viewed with caution. Shareholders should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those ~~expressed in~~implied or anticipated by the statements. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements ~~contained in this document. These~~whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s 2021 Annual Report on Form 10-K include, but are not necessarily limited to the following:

operating, legal and regulatory risks, including the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations promulgated thereunder, as well as the rules by the Federal bank regulatory agencies to implement the Basel III capital accord;

~~economic, political and competitive forces affecting Nicolet’s banking and wealth management businesses;~~

~~changes in interest rates, monetary policy and general economic conditions, which may impact Nicolet’s net interest income;~~

~~potential difficulties in integrating the operations of Nicolet with those of acquired entities, if any;~~

~~compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Nicolet may pursue or implement; and~~

~~the risk that Nicolet’s analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.~~

•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;

•changes in interest rates, monetary policy and general economic conditions, which may impact Nicolet’s net interest income;

•potential difficulties in identifying and integrating the operations of future acquisition targets with those of Nicolet;

•the impact of purchase accounting with respect to our merger activities, or any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;

•cybersecurity risks and the vulnerability of our network and online banking portals, and the systems or parties with whom we contract, to unauthorized access, computer viruses, phishing schemes, spam attacks, human error, natural disasters, power loss and other security breaches that could adversely affect our business and financial performance or reputation;

•changes in accounting standards, rules and interpretations and the related impact on Nicolet’s financial statements;

•compliance or operational risks related to new products, services, ventures, or lines of business, if any, that Nicolet may pursue or implement;

•changes in monetary and tax policies;

•changes occurring in business conditions and inflation;

•our ability to attract and retain key personnel;

•examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions;

•risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others;

•the potential effects of events beyond our control that may have a destabilizing effect on financial markets and the economy, such as weather events, natural disasters, epidemics and pandemics (including COVID-19), war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs;

•each of the factors and risks under Item 1A, “Risk Factors” of Nicolet’s 2021 Annual Report on Form 10-K and in subsequent filings we make with the SEC; and

•risks related to our proposed merger with Charter, including:

◦possible negative impact on our stock price and future business and financial results;

◦uncertainties while the merger is pending which could have a negative effect;

◦the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Charter Merger Agreement;

◦unexpected costs associated with the merger;

◦diversion of management’s attention from ongoing business operations and opportunities;

◦possible inability to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all;

◦failure to receive or satisfy required shareholder or other approvals, consents, waivers and/or non-objections or other conditions to the closing;

◦the impact of, or problems arising from the integration of the two companies;

◦the outcome of litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;

◦potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger; and

◦current or future adverse legislation or regulation.

•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.

These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements. Nicolet specifically disclaims any obligation to update factors or to publicly announce the results of revisions to any of the forward-looking statements or comments included herein to reflect future events or developments.

~~Branch Closures~~

In April 2017, Nicolet closed one branch in conjunction with the 2017 acquisition due to overlapping geography. In March 2017, Nicolet closed two branches, one in close proximity to another Nicolet branch and one that was an outlier branch. Nicolet closed seven branches in 2016 that were in close proximity to other Nicolet branches, one concurrent with the Baylake merger, one in October and five in December 2016. As a result, Nicolet operates 38 branches as of September 30, 2017. Nicolet started its effort to eliminate costs associated with branches in overlapping or outlier geographies in 2015 from its acquisition activity, and will continue to evaluate opportunities for efficiencies.

~~Critical Accounting Policies~~

The consolidated financial statements of Nicolet are prepared in conformity with U.S. GAAP and follow general practices within the industry in which it operates. This preparation requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the consolidated financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates that are particularly susceptible to significant change include the valuation of loans acquired in business combinations, as well as the determination of the allowance for loan losses and income taxes and, therefore, are critical accounting policies.

~~Valuation of Loans Acquired in Business Combinations~~

~~Acquisitions accounted for under ASC Topic 805,~~~~Business Combinations~~, require the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at estimated fair value on their purchase date. In particular, the valuation of acquired loans involves significant estimates, assumptions and judgment based on information available as of the acquisition date. Substantially all loans acquired in the transaction are evaluated either individually or in pools of loans with similar characteristics; and since the estimated fair value of acquired loans includes a credit consideration, no carryover of any previously recorded allowance for loan losses is recorded at acquisition. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.

In determining the Day 1 Fair Values of acquired loans, management calculates a non-accretable difference (the credit mark component of the acquired loans) and an accretable difference (the market rate or yield component of the acquired loans). The non-accretable difference is the difference between the undiscounted contractually required payments and the undiscounted cash flows expected to be collected in accordance with management’s determination of the Day 1 Fair Values. Subsequent decreases to the expected cash flows will generally result in a provision for loan losses. Subsequent increases in cash flows will result in a reversal of the provision for loan losses to the extent of prior charges and then an adjustment to the accretable and non-accretable differences, which would have a positive impact on interest income.

The accretable yield on acquired loans is the difference between the expected cash flows and the initial investment in the acquired loans. The accretable yield is recognized into earnings through interest income using the effective yield method over the term of the loans. Management separately monitors the acquired loan portfolio and periodically reviews loans contained within this portfolio against the factors and assumptions used in determining the Day 1 Fair Values.

~~Allowance for Loan Losses (“ALLL”)~~

The ALLL is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the ALLL. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. A provision for loan losses, which is a charge against earnings, is recorded to bring the ALLL to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the ALLL is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable 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 loan losses and therefore the appropriateness of the ALLL could change significantly.

The allocation methodology applied by Nicolet is designed to assess the appropriateness of the ALLL and includes allocations for specifically identified impaired 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 factors. The methodology includes evaluation and consideration of several factors, such as, but not limited to, management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and nonaccrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the ALLL is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the ALLL is appropriate at September 30, 2017. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the ALLL. These agencies may require Nicolet to make additions to the ALLL based on their judgments of collectability based on information available to them at the time of their examination. Acquired loans were purchased at fair value without any ALLL, and subsequent to acquisition such acquired loans will be evaluated and ALLL will be recorded on them to the extent necessary.

~~Income Taxes~~

The assessment of income tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

Nicolet files a consolidated federal income tax return and a combined state income tax return (both of which include Nicolet and its wholly owned subsidiaries). Accordingly, amounts equal to tax benefits of those companies having taxable federal losses or credits are reimbursed by the companies that incur federal tax liabilities. Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through provision for income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies. Nicolet may also recognize a liability for unrecognized tax benefits from uncertain tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the financial statements. Penalties related to unrecognized tax benefits are classified as income tax expense.

~~Management’s Discussion and Analysis~~

Overview

The following discussion is ~~Nicolet~~ management’s analysis of the consolidated financial condition as of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 and results of operations for the three and ~~nine-month~~six-month periods ended ~~September~~June 30, ~~2017~~2022 and ~~2016.~~2021. It should be read in conjunction with Nicolet’s audited consolidated financial statements ~~as of December 31, 2016 and 2015, and for the three years ended December 31, 2016,~~ included in Nicolet’s 2021 Annual Report on Form ~~10-K for the year ended December 31, 2016.~~

~~Evaluation of~~10-K.

Our financial performance and ~~average balances between 2017 and 2016 was~~certain balance sheet line items were impacted ~~in general from~~by the timing and ~~sizes~~size of ~~the 2017~~our 2021 acquisitions of Mackinac Financial Corporation (“Mackinac”) on September 3, 2021 and 2016 acquisitions. Since the balances and results of operations of the acquired entities are appropriately not included in the accompanying consolidated financial statements until their consummation dates,County Bancorp, Inc. (“County”) on December 3, 2021. Certain income statement results, ~~and~~ average balances and related ratios for ~~2017 included full contributions from the 2016 acquisitions and no or~~2021 include partial contributions from Mackinac and County, each from the ~~2017 acquisition. Similarly~~respective acquisition date. Additional information on our 2021 acquisition activity is included in Note 2, “Acquisitions” in the Notes to Unaudited Consolidated Financial Statements, under Part I, Item 1.

Economic Outlook

Growth in economic activity and demand for ~~2016 income statement~~goods and ~~average balance results,~~services, combined with labor shortages, supply chain complications and geopolitical matters, have contributed to rising inflation. In response, the ~~2016 acquisitions provided no~~Federal Reserve has raised interest rates from a target range of 0.00%-0.25% in early March 2022 to ~~partial contributions~~2.25%-2.50% at the end of July 2022. In addition, the Federal Reserve has signaled that it anticipates additional increases in the target range are likely to mitigate the hardships caused by the ongoing Russia-Ukraine conflict, continued supply chain disruptions, and increased inflationary pressure. The tightening of the Federal Reserve’s monetary policies, including these increases in the target range and the ~~2017 acquisition provided no contribution.~~

~~The inclusion~~tapering of the ~~Baylake~~Federal Reserve’s balance sheet, ~~(at about 83%~~combined with ongoing economic and political instability, increases the risk of ~~Nicolet’s then pre-merger asset size)~~an economic recession. While forecasts vary, many economists are projecting that U.S. economic growth will slow and ~~operational results for approximately eight months in 2016 (and approximately five months~~inflation will remain elevated in the ~~nine month period ended September 30, 2016) analytically explains most~~coming quarters, potentially resulting in a contraction of the ~~increase~~U.S. gross domestic output by 2023, if not earlier. The timing and impact of inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict.

Proposed Merger with Charter

On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”), a bank holding company headquartered in ~~certain average balances and income statement line items between 2017 and 2016 periods. To a lesser extent,~~Eau Claire, Wisconsin, with total assets of $1.1 billion at March 31, 2022. The merger is expected to close in the ~~inclusion~~third quarter of 2022, subject to customary closing conditions. Under the terms of the ~~First Menasha balance sheet (at about 20%~~Charter Merger Agreement, each outstanding share of ~~Nicolet’s then pre-merger asset size)~~Charter common stock will be converted into the right to receive 15.458 shares of Nicolet common stock and ~~operational results~~$475 in cash. As a result, we expect to issue approximately 1.26 million shares of Nicolet common stock and $38.8 million in cash for ~~approximately five~~the acquisition of ~~nine months in 2017 analytically explains a portion~~Charter.


Table 1: Earnings Summary and Selected Financial Data
	At or for the Three Months Ended															At or for the Six Months Ended
(In thousands, except per share data)	6/30/2022			3/31/2022			12/31/2021			9/30/2021			6/30/2021			6/30/2022			6/30/2021
Results of operations:
Net interest income	$	55,084		$	53,795		$	53,559		$	35,184		$	35,571		$	108,879		$	69,212
Provision for credit losses	750			300			8,400			6,000			—			1,050			500
Noninterest income	14,131			15,943			16,064			13,996			20,178			30,074			37,304
Noninterest expense	36,538			37,550			39,408			33,061			30,747			74,088			56,828
Income before income tax expense	31,927			31,888			21,815			10,119			25,002			63,815			49,188
Income tax expense	7,942			7,724			5,510			2,295			6,718			15,666			12,665
Net income	$	23,985		$	24,164		$	16,305		$	7,824		$	18,284		$	48,149		$	36,523
Earnings per common share:
Basic	$	1.79		$	1.77		$	1.29		$	0.75		$	1.85		$	3.56		$	3.67
Diluted	$	1.73		$	1.70		$	1.25		$	0.73		$	1.77		$	3.43		$	3.52
Common Shares:
Basic weighted average	13,402			13,649			12,626			10,392			9,902			13,525			9,949
Diluted weighted average	13,852			14,215			13,049			10,776			10,326			14,035			10,365
Outstanding (period end)	13,407			13,457			13,994			11,952			9,843			13,407			9,843
Period-End Balances:
Loans	$	4,978,654		$	4,683,315		$	4,621,836		$	3,533,198		$	2,820,331		$	4,978,654		$	2,820,331
Allowance for credit losses - loans	50,655			49,906			49,672			38,399			32,561			50,655			32,561
Total assets	7,370,252			7,320,212			7,695,037			6,407,820			4,587,347			7,370,252			4,587,347
Deposits	6,286,266			6,231,120			6,465,916			5,428,774			3,939,022			6,286,266			3,939,022
Stockholders’ equity (common)	839,387			836,310			891,891			729,278			559,395			839,387			559,395
Book value per common share	62.61			62.15			63.73			61.01			56.83			62.61			56.83
Tangible book value per common share (2)	37.49			37.03			39.47			38.43			39.18			37.49			39.18
Financial Ratios: (1)
Return on average assets	1.32		%	1.30		%	0.96		%	0.59		%	1.62		%	1.31		%	1.63		%
Return on average common equity	11.48			11.38			8.24			5.10			13.31			11.43			13.45
Return on average tangible common equity (2)	19.21			18.75			13.19			7.62			19.46			18.98			19.73
Stockholders' equity to assets	11.39			11.42			11.59			11.38			12.19			11.39			12.19
Tangible common equity to tangible assets (2)	7.15			7.14			7.51			7.48			8.74			7.15			8.74
Reconciliation of Non-GAAP Financial Measures:
Adjusted net income reconciliation (3)
Net income (GAAP)	$	23,985		$	24,164		$	16,305		$	7,824		$	18,284		$	48,149		$	36,523
Adjustments:
Provision expense related to merger	—			—			8,400			6,000			—			—			—
Assets (gains) losses, net	(1,603)			(1,313)			(465)			1,187			(4,192)			(2,916)			(4,903)
Merger-related expense	555			98			2,202			2,793			656			653			656
Branch closure expense	—			—			—			944			—			—			—
Adjustments subtotal	(1,048)			(1,215)			10,137			10,924			(3,536)			(2,263)			(4,247)
Tax on Adjustments (25% effective tax rate)	(262)			(304)			2,534			2,731			(884)			(566)			(1,062)
Adjustments, net of tax	(786)			(911)			7,603			8,193			(2,652)			(1,697)			(3,185)
Adjusted net income (Non-GAAP)	$	23,199		$	23,253		$	23,908		$	16,017		$	15,632		$	46,452		$	33,338
Adjusted diluted EPS (Non-GAAP)	$	1.67		$	1.64		$	1.83		$	1.49		$	1.51		$	3.31		$	3.22
Tangible Assets:
Total assets	$	7,370,252		$	7,320,212		$	7,695,037		$	6,407,820		$	4,587,347
Goodwill and other intangibles, net	336,721			338,068			339,492			269,954			173,711
Tangible assets	$	7,033,531		$	6,982,144		$	7,355,545		$	6,137,866		$	4,413,636
Tangible Common Equity:
Stockholders’ equity (common)	$	839,387		$	836,310		$	891,891		$	729,278		$	559,395
Goodwill and other intangibles, net	336,721			338,068			339,492			269,954			173,711
Tangible common equity	$	502,666		$	498,242		$	552,399		$	459,324		$	385,684
Average Tangible Common Equity:
Stockholders’ equity (common)	$	837,975		$	861,319		$	784,666		$	608,946		$	550,974		$	849,582		$	547,775
Goodwill and other intangibles, net	337,289			338,694			294,051			201,748			174,026			337,988			174,424
Average tangible common equity	$	500,686		$	522,625		$	490,615		$	407,198		$	376,948		$	511,594		$	373,351

(1) Income statement-related ratios for partial-year periods are annualized.

(2) The ratios of ~~the increase in certain~~tangible book value per common share, return on average ~~balances~~tangible common equity, and ~~income statement line items between 2017~~tangible common equity to tangible assets are non-GAAP financial measures that exclude goodwill and ~~2016 periods.~~other intangibles, net. These financial ratios have been included as management considers them to be useful metrics with which to analyze and evaluate financial condition and capital strength. See section “Non-GAAP Financial Measures” below.

(3) The ~~2016 financial advisory business acquisition primarily impacts the brokerage fee income, personnel expense and certain other expense line items. Last, the 2016 and 2017 acquisitions impacted pre-tax~~adjusted net income ~~by inclusion of non-recurring direct merger expenses of approximately $1.3 million~~measure is a non-GAAP financial measure that provides information that management believes is useful to investors in ~~2016 ($0.4 million, $0.4 million, $0.1 million~~understanding our operating performance and ~~$0.4 million in first through fourth quarters, respectively)~~trends and ~~$0.5 million in 2017 ($0.2 million and $0.3 million~~also aids investors in the ~~first~~comparison of our financial performance to the financial performance of peer banks. See section “Non-GAAP Financial Measures” below.

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 ~~second quarters, respectively), along~~“adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with ~~a $1.7 million lease termination charge~~the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in ~~second quarter 2016 related~~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 ~~Nicolet branch closed concurrent with~~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 ~~Baylake merger.~~

~~Nicolet remains focused on gaining efficiencies from its increased scale from~~financial performance of our peers and to evaluate our performance in a manner similar to management, the ~~acquisitions,~~financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as ~~well as on organic growth~~follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our ~~expanded markets~~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 ~~brokerage services.~~

the table above.

Performance Summary

~~Nicolet reported net~~

Net income ~~of $24.0~~was $48.1 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017, a 94% increase over $12.4~~2022, compared to $36.5 million for the six months ended June 30, 2021. Earnings per diluted common share was $3.43 for the first six months of 2022, compared to $3.52 for the first six months of 2021.

•Net interest income was $108.9 million for the first ~~nine~~six months of ~~2016.~~2022, up $39.7 million (57%) over the first six months of 2021. Interest income grew $42.3 million attributable to favorable volumes (mostly higher loan volumes), partly offset by net unfavorable rates (as loans reprice at varying intervals to reflect the recent Federal Reserve interest rate increases). Interest expense increased $2.6 million between the six-month periods mostly from the larger funding base. Net ~~income available to common shareholders~~interest margin was ~~$24.0 million, or $2.45 per diluted common share~~3.29% for the ~~first nine~~six months ~~of 2017. Comparatively, after $633,000 of preferred stock dividends, net income available~~ended June 30, 2022, compared to ~~common shareholders was $11.7 million, or $1.67 per diluted common share~~3.38% for the ~~first nine~~six months of 2016. Beginning March 1, 2016, the annual dividend rate on preferred stock moved from 1% to 9% in accordance with the contractual terms. Nicolet redeemed its outstanding preferred stock in full in September 2016, explaining the difference in preferred stock dividends between the nine-month periods.

The results for the first nine months of 2017 include full contributions from the 2016 acquisitions and five months from First Menasha, while the comparative 2016 period includes approximately five months from the 2016 acquisitions and nothing from First Menasha.

Net interest income was $72.2 million for the first nine months of 2017, an increase of $24.1 million or 50% over the comparable period of 2016, including $4.5 million higher aggregate discount accretion income between the periods. The improvement was primarily the result of favorable volume and mix variances (driven by the addition of acquired net interest-earning assets albeit at lower yields, as well as organic growth), and net favorable rate variances, largely from higher earning asset yields partially offset by a higher cost of funds. On a tax-equivalent basis, the earning asset yield was 4.69% for the first nine months of 2017, 25 basis points (“bps”) higher than the comparable period in 2016, influenced by more earning assets in loans and investments than in low-earning cash and higher aggregate discount accretion income. The cost of funds was 0.56% for the first nine months of 2017, 2 bps lower than 2016, driven by a lower cost of deposits (largely due to the addition of Baylake deposits at lower rates) between the comparable periods. As a result, the interest rate spread was 4.13% for the first nine months of 2017, 27 bps higher than the comparable period in 2016. The net interest margin was 4.27%, 28 bps over the comparable period of 2016.

Noninterest income was $26.0 million for the first nine months of 2017, an increase of $7.2 million or 39% over the first nine months of 2016, aided largely by the 2016 acquisitions and, to a lesser extent, the 2017 acquisition. Excluding net gains on sale or write-down of assets from both periods, noninterest income increased $5.7 million or 31%. Brokerage fee income led the increase, growing $2.1 million or 101%, attributable to the 2016 financial advisor business acquisition and subsequent new growth. Between the nine-month periods, increases due primarily to higher volumes and activity were also experienced in service charges on deposits (up $0.9 million or 34%), net mortgage income (up $0.3 million or 8%), trust fee income (up $0.4 million or 11%), card interchange fees were up $1.2 million or 54% on higher volume and activity, and other income (up $0.4 million or 21%).

Noninterest expense for the first nine months of 2017 was $59.5 million (including $0.5 million attributable to non-recurring merger-based expenses) compared to $46.6 million for the comparable period in 2016 (including $2.6 million merger-related expenses). Excluding the noted merger-based expenses from both periods, noninterest expense increased approximately $15 million or 34%. The increase between the nine-month periods was primarily due to a larger operating base, attributable to the acquisitions. Personnel expense accounted for the majority of the increase in total expense, up $7.7 million or 31% over the first nine months of 2016, commensurate with the 32% increase in average full time equivalent employees for the comparable periods.

Loans were $2.05 billion at September 30, 2017, up $482 million or 31% from $1.57 billion at December 31, 2016, and up $497 million or 32% over September 30, 2016, largely driven by $351 million of loans acquired with First Menasha at acquisition. Excluding the impact of First Menasha, loans increased $131 million or 8% organically since year end 2016. Between the comparative nine-month periods, average loans were $1.84 billion yielding 5.26% in 2017, compared to $1.27 billion yielding 5.13% in 2016, a 45% increase in average balances. The 13 bps increase in loan yield was largely due to $4.5 million of higher aggregate discount accretion income on acquired loans between the nine-month periods (inclusive of $3.2 million higher discount income related to favorably resolved purchased credit impaired loans), partially offset by pressure on rates of new and renewing loans in the competitive rate environment.

Total deposits were $2.37 billion at September 30, 2017, up $397 million or 20% from $1.97 billion at December 31, 2016, and up $433 million or 22% over September 30, 2016, primarily due to $375 million of deposits acquired with First Menasha at acquisition). Excluding the impact of First Menasha, deposits increased $22 million or 1% since year end 2016. Between the comparative nine-month periods, average total deposits were up $631 million or 41%, attributable to the acquisitions, with noninterest-bearing demand deposits representing 24% and 23% of total deposits for the nine-month periods ended September 30, 2017 and 2016, respectively. Interest-bearing deposits cost 0.42% for the first nine months of 2017, down 1 bp from 0.43% for the same period in 2016, benefiting mostly from the lower-costing Baylake deposits acquired, offset partly by the higher-costing First Menasha deposits acquired, an increase in selected deposit rates that began in July 2017, and general rate pressures influenced by a 75 bps increase in the federal funds rate since January 1, 2016.

Asset quality measures remained strong with continued improvement. Nonperforming assets declined to $15.7 million at September 30, 2017, from $22.3 million at year end 2016 and $23.7 million a year ago. As a percentage of total assets, nonperforming assets were 0.55% at September 30, 2017, 0.97% at December 31, 2016, and 1.04% at September 30, 2016. The allowance for loan losses was $12.6 million at September 30, 2017 (representing 0.61% of loans), compared to $11.8 million at December 31, 2016 (representing 0.75% of loans), and $11.5 million at September 30, 2016 (representing 0.74% of loans). The decline in the ratio of the ALLL to loans primarily resulted from recording the acquired loan portfolios at fair value with no carryover of allowance at the time of each merger. The provision for loan losses was $1.9 million with net charge-offs of $1.1 million for the first nine months of 2017, versus provision of $1.4 million and $0.2 million of net charge-offs for the comparable 2016 period.

ended June 30, 2021. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest ~~Income~~

~~Nicolet’s earnings are substantially dependent on net interest income. Net interest~~Income.”

•Noninterest income is the primary source of Nicolet’s revenue and is the difference between interest income earned on interest earning assets, such as loans and investments, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies.

~~Net interest income in the consolidated statements of income (which excludes any taxable equivalent adjustment)~~ was $72.2 million in the first nine months of 2017, $24.1 million or 50% higher than $48.1 million in the first nine months of 2016, including $4.5 million higher aggregate discount accretion between the periods and impacted by the timing of the acquisitions (with 2017 including five months of First Menasha and full contribution from Baylake, while the 2016 period included only five months from Baylake). Taxable equivalent adjustments (adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that been subject to a 35% tax rate) were $1.8 million and $1.3$30.1 million for the first ~~nine~~six months of ~~2017~~2022, down $7.2 million (19%) from the comparable 2021 period, with lower net mortgage income and ~~2016, respectively, resulting~~other income partly offset by growth in ~~taxable equivalent net interest~~most other noninterest income categories. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”

•Noninterest expense was $74.1 million, $17.3 million (30%) higher than the first six months of ~~$74.0~~2021. Personnel costs increased $8.7 million, and ~~$49.4~~non-personnel expenses combined increased $8.6 million ~~respectively.~~

~~Taxable equivalent~~(35%) over the comparable 2021 period. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”

•Nonperforming assets were $42 million, representing 0.56% of total assets at June 30, 2022, compared to 0.73% at December 31, 2021 and 0.21% at June 30, 2021. For additional information regarding nonperforming assets, see “Balance Sheet Analysis – Nonperforming Assets.”

•At June 30, 2022, assets were $7.4 billion, down $0.3 billion (4%) from December 31, 2021, mostly cash and cash equivalents. Total assets increased $2.8 billion (61%) from June 30, 2021, mainly due to the acquisitions of Mackinac and County. For additional balance sheet discussion see “Balance Sheet Analysis.”

•At June 30, 2022, loans were $5.0 billion, $357 million (8%) higher than December 31, 2021 on solid loan growth. Total loans were $2.2 billion (77%) higher than June 30, 2021, largely due to the acquisitions of Mackinac and County. On average, loans grew $1.9 billion (67%) over the first six months of 2021. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”

•Total deposits were $6.3 billion at June 30, 2022, a decrease of $180 million (3%) from December 31, 2021 on lower core customer deposits. Total deposits were $2.3 billion (60%) higher than June 30, 2021, largely due to the Mackinac and County acquisitions. Year-to-date average deposits were $2.4 billion (62%) higher than the first six months of 2021. For additional information regarding deposits, see “Balance Sheet Analysis – Deposits.”

INCOME STATEMENT ANALYSIS

Net Interest Income

Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and its use in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources.

The tax-equivalent adjustments bring tax-exempt interest to a level that would yield the same after-tax income by applying the effective Federal corporate tax rates to the underlying assets. 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.

Table ~~1: Year-To-Date~~2: Average Balance Sheet and Net Interest Income Analysis

For the Nine Months Ended September 30,
2017 2016
(in thousands) Average
Balance Interest Average
Rate Average
Balance Interest Average
Rate
ASSETS
Earning assets
Loans, including loan fees (1)(2) $ 1,842,695 $ 73,377 5.26 % $ 1,274,405 $ 49,634 5.13 %
Investment securities
Taxable 236,275 3,422 1.93 % 147,720 2,068 1.87 %
Tax-exempt (2) 160,815 3,267 2.71 % 122,850 2,265 2.46 %
Other interest-earning assets 51,803 1,136 2.92 % 87,840 906 1.38 %
Total interest-earning assets 2,291,588 $ 81,202 4.69 % 1,632,815 $ 54,873 4.44 %
Cash and due from banks 76,992 43,001
Other assets 211,546 147,070
Total assets $ 2,580,126 $ 1,822,886
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings $ 249,099 $ 271 0.15 % $ 184,156 $ 166 0.12 %
Interest-bearing demand 419,266 1,590 0.51 % 310,801 1,310 0.56 %
MMA 581,277 1,165 0.27 % 421,920 415 0.13 %
Core CDs and IRAs 288,524 1,568 0.73 % 249,788 1,657 0.89 %
Brokered deposits 120,782 622 0.69 % 28,897 280 1.29 %
Total interest-bearing deposits 1,658,948 5,216 0.42 % 1,195,562 3,828 0.43 %
Other interest-bearing liabilities 62,414 1,966 4.17 % 52,470 1,638 4.11 %
Total interest-bearing liabilities 1,721,362 7,182 0.56 % 1,248,032 5,466 0.58 %
Noninterest-bearing demand 516,412 348,765
Other liabilities 19,079 16,779
Total equity 323,273 209,310
Total liabilities and stockholders’ equity $ 2,580,126 $ 1,822,886

Net interest income and rate spread $ 74,020 4.13 % $ 49,407 3.86 %
Net interest margin 4.27 % 3.99 %

~~(1)~~

~~Nonaccrual loans 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 35% and adjusted for the disallowance of interest expense.~~

- Tax-Equivalent Basis


	For the Six Months Ended June 30,
	2022						2021
(in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS
Interest-earning assets
Commercial PPP Loans	$	9,395	$	1,390	29.41	%	$	206,066	$	8,813	8.51	%
All other commercial-based loans	3,970,704		86,208		4.32	%	2,142,902		49,086		4.56	%
Retail-based loans	783,974		16,720		4.27	%	498,536		11,114		4.46	%
Total loans, including loan fees (1)(2)	4,764,073		104,318		4.36	%	2,847,504		69,013		4.83	%
Investment securities:
Taxable	1,388,630		10,262		1.48	%	391,601		3,874		1.98	%
Tax-exempt (2)	185,689		2,022		2.18	%	141,412		1,509		2.13	%
Total investment securities	1,574,319		12,284		1.56	%	533,013		5,383		2.02	%
Other interest-earning assets	306,662		1,607		1.05	%	719,036		1,271		0.35	%
Total non-loan earning assets	1,880,981		13,891		1.48	%	1,252,049		6,654		1.06	%
Total interest-earning assets	6,645,054		$	118,209	3.54	%	4,099,553		$	75,667	3.68	%
Other assets, net	750,693						421,866
Total assets	$	7,395,747					$	4,521,419
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings	$	831,335	$	339	0.08	%	$	561,392	$	172	0.06	%
Interest-bearing demand	1,020,273		1,499		0.30	%	665,646		1,429		0.43	%
Money market accounts (“MMA”)	1,482,431		823		0.11	%	851,655		227		0.05	%
Core time deposits	563,846		833		0.30	%	313,123		1,536		0.99	%
Total interest-bearing core deposits	3,897,885		3,494		0.18	%	2,391,816		3,364		0.28	%
Brokered deposits	441,316		1,108		0.51	%	285,029		1,991		1.41	%
Total interest-bearing deposits	4,339,201		4,602		0.21	%	2,676,845		5,355		0.40	%
Wholesale funding	214,767		3,963		3.69	%	47,487		616		2.58	%
Total interest-bearing liabilities	4,553,968		8,565		0.38	%	2,724,332		5,971		0.44	%
Noninterest-bearing demand deposits	1,950,528						1,209,718
Other liabilities	41,669						39,594
Stockholders’ equity	849,582						547,775
Total liabilities and stockholders’ equity	$	7,395,747					$	4,521,419
Interest rate spread					3.16	%					3.24	%
Net free funds					0.13	%					0.14	%
Tax-equivalent net interest income and net interest margin			$	109,644	3.29	%			$	69,696	3.38	%
Tax-equivalent adjustment			$	765					$	484
Net interest income			$	108,879					$	69,212

(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.

Table 2: ~~Year-To-Date Volume/Rate Variance~~

~~Comparison of the nine months ended September 30, 2017 versus the nine months ended September 30, 2016 follows:~~

Increase (decrease)
Due to Changes in
(in thousands) Volume Rate Net
Earning assets

Loans⁽¹⁾⁽²⁾ $ 22,613 $ 1,130 $ 23,743
Investment securities
Taxable 1,382 (28 ) 1,354
Tax-exempt⁽²⁾ 752 250 1,002
Other interest-earning assets (234 ) 464 230

Total interest-earning assets $ 24,513 $ 1,816 $ 26,329

Interest-bearing liabilities
Savings deposits $ 66 $ 39 $ 105
Interest-bearing demand 421 (141 ) 280
MMA 200 550 750
Core CDs and IRAs 234 (323 ) (89 )
Brokered deposits 525 (183 ) 342

Total interest-bearing deposits 1,446 (58 ) 1,388
Other interest-bearing liabilities 412 (84 ) 328

Total interest-bearing liabilities 1,858 (142 ) 1,716
Net interest income $ 22,655 $ 1,958 $ 24,613

~~(1)~~

~~Nonaccrual loans are included in the daily average loan balances outstanding.~~

~~(2)~~

~~The yield on tax-exempt loans~~Average Balance Sheet and ~~tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 35% and adjusted for the disallowance of interest expense.~~

~~Table 3: Quarterly~~ Net Interest Income Analysis

For the Three Months Ended September 30,
2017 2016
(in thousands) Average
Balance Interest Average
Rate Average
Balance Interest Average
Rate
ASSETS
Earning assets
Loans, including loan fees⁽¹⁾⁽²⁾ $ 2,035,277 $ 27,420 5.29 % $ 1,562,151 $ 21,138 5.32 %
Investment securities
Taxable 248,579 1,114 1.79 % 199,843 902 1.80 %
Tax-exempt⁽²⁾ 160,965 1,107 2.75 % 152,959 969 2.53 %
Other interest-earning assets 60,252 407 2.69 % 84,782 351 1.66 %
Total interest-earning assets 2,505,073 $ 30,048 4.72 % 1,999,735 $ 23,360 4.57 %
Cash and due from banks 54,925 59,573
Other assets 265,544 206,774
Total assets $ 2,825,542 $ 2,266,082
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings $ 268,552 $ 129 0.19 % $ 216,055 $ 60 0.11 %
Interest-bearing demand 441,409 758 0.68 % 367,854 451 0.49 %
MMA 606,737 622 0.41 % 539,160 180 0.13 %
Core CDs and IRAs 297,318 595 0.79 % 300,827 583 0.77 %
Brokered deposits 172,200 260 0.60 % 29,639 76 1.02 %
Total interest-bearing deposits 1,786,216 2,364 0.53 % 1,453.535 1,350 0.37 %
Other interest-bearing liabilities 68,123 699 4.04 % 39,898 541 5.35 %
Total interest-bearing liabilities 1,854,339 3,063 0.65 % 1,493,433 1,891 0.50 %
Noninterest-bearing demand 591,013 464,131
Other liabilities 21,962 22,616
Total equity 358,228 285,902
Total liabilities and stockholders’ equity $ 2,825,542 $ 2,266,082
Net interest income and rate spread $ 26,985 4.07 % $ 21,469 4.07 %
Net interest margin 4.24 % 4.19 %

~~(1)~~

~~Nonaccrual loans 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 35% and adjusted for the disallowance of interest expense.~~

- Tax-Equivalent Basis (Continued)


	For the Three Months Ended June 30,
	2022						2021
(in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS
Interest-earning assets
Commercial PPP Loans	$	5,333	$	13	0.93	%	$	205,639	$	4,862	9.35	%
All other commercial-based loans	4,033,469		44,388		4.35	%	2,159,774		24,645		4.51	%
Retail-based loans	799,733		8,583		4.29	%	503,692		5,622		4.47	%
Total loans, including loan fees (1)(2)	4,838,535		52,984		4.34	%	2,869,105		35,129		4.85	%
Investment securities:
Taxable	1,390,642		5,135		1.48	%	400,646		2,060		2.06	%
Tax-exempt (2)	182,385		991		2.17	%	136,986		734		2.15	%
Total investment securities	1,573,027		6,126		1.56	%	537,632		2,794		2.08	%
Other interest-earning assets	168,082		790		1.87	%	702,657		616		0.35	%
Total non-loan earning assets	1,741,109		6,916		1.59	%	1,240,289		3,410		1.10	%
Total interest-earning assets	6,579,644		$	59,900	3.61	%	4,109,394		$	38,539	3.72	%
Other assets, net	693,575						418,445
Total assets	$	7,273,219					$	4,527,839
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings	$	841,109	$	234	0.11	%	$	586,590	$	92	0.06	%
Interest-bearing demand	988,820		798		0.32	%	657,979		670		0.41	%
MMA	1,424,995		500		0.14	%	846,114		104		0.05	%
Core time deposits	532,179		325		0.24	%	297,047		657		0.89	%
Total interest-bearing core deposits	3,787,103		1,857		0.20	%	2,387,730		1,523		0.26	%
Brokered deposits	423,372		553		0.52	%	253,816		910		1.44	%
Total interest-bearing deposits	4,210,475		2,410		0.23	%	2,641,546		2,433		0.37	%
Wholesale funding	214,975		2,032		3.77	%	43,325		303		2.76	%
Total interest-bearing liabilities	4,425,450		4,442		0.40	%	2,684,871		2,736		0.41	%
Noninterest-bearing demand deposits	1,977,569						1,256,251
Other liabilities	32,225						35,743
Stockholders’ equity	837,975						550,974
Total liabilities and stockholders’ equity	$	7,273,219					$	4,527,839
Interest rate spread					3.21	%					3.31	%
Net free funds					0.13	%					0.14	%
Tax-equivalent net interest income and net interest margin			$	55,458	3.34	%			$	35,803	3.45	%
Tax-equivalent adjustment			$	374					$	232
Net interest income			$	55,084					$	35,571

(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.

Table ~~4: Quarterly~~3: Volume/Rate Variance

~~Comparison~~ - Tax-Equivalent Basis


	For the Three Months Ended June 30, 2022 Compared to June 30, 2021:						For the Six Months Ended June 30, 2022 Compared to June 30, 2021:
	Increase (Decrease) Due to Changes in						Increase (Decrease) Due to Changes in
(in thousands)	Volume		Rate		Net (1)		Volume		Rate		Net (1)
Interest-earning assets
Commercial PPP Loans	$	(2,519)	$	(2,330)	$	(4,849)	$	(14,193)	$	6,770	$	(7,423)
All other commercial-based loans	21,272		(1,529)		19,743		50,668		(13,546)		37,122
Retail-based loans	3,161		(200)		2,961		6,071		(465)		5,606
Total loans (2)	21,914		(4,059)		17,855		42,546		(7,241)		35,305
Investment securities:
Taxable	3,104		(29)		3,075		6,303		85		6,388
Tax-exempt (2)	247		10		257		481		32		513
Total investment securities	3,351		(19)		3,332		6,784		117		6,901
Other interest-earning assets	(71)		245		174		25		311		336
Total non-loan earning assets	3,280		226		3,506		6,809		428		7,237
Total interest-earning assets	$	25,194	$	(3,833)	$	21,361	$	49,355	$	(6,813)	$	42,542
Interest-bearing liabilities
Savings	$	51	$	91	$	142	$	99	$	68	$	167
Interest-bearing demand	288		(160)		128		611		(541)		70
MMA	107		289		396		242		354		596
Core time deposits	323		(655)		(332)		770		(1,473)		(703)
Total interest-bearing core deposits	769		(435)		334		1,722		(1,592)		130
Brokered deposits	409		(766)		(357)		769		(1,652)		(883)
Total interest-bearing deposits	1,178		(1,201)		(23)		2,491		(3,244)		(753)
Wholesale funding	1,628		101		1,729		3,202		145		3,347
Total interest-bearing liabilities	2,806		(1,100)		1,706		5,693		(3,099)		2,594
Net interest income	$	22,388	$	(2,733)	$	19,655	$	43,662	$	(3,714)	$	39,948

(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship of ~~the three months ended September 30, 2017 versus the three months ended September 30, 2016 follows:~~

Increase (decrease)
Due to Changes in
(in thousands) Volume Rate Net
Earning assets

Loans (1) (2) $ 6,462 $ (180 ) $ 6,282
Investment securities
Taxable 182 30 212
Tax-exempt(2) 52 86 138
Other interest-earning assets (144 ) 200 56

Total interest-earning assets $ 6,552 $ 136 $ 6,688

Interest-bearing liabilities
Savings deposits $ 17 $ 52 $ 69
Interest-bearing demand 103 204 307
MMA 25 417 442
Core CDs and IRAs (7 ) 19 12
Brokered deposits 228 (44 ) 184

Total interest-bearing deposits 366 648 1,014
Other interest-bearing liabilities 143 15 158

Total interest-bearing liabilities 509 663 1,172
Net interest income $ 6,043 $ (527 ) $ 5,516

~~(1)~~

~~Nonaccrual loans 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 35%~~dollar amounts of change in each.

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

~~Table 5: Interest Rate Spread, Margin and Average Balance Mix — Taxable Equivalent Basis~~

Nine Months Ended September 30,
2017 2016
(in thousands) Average
Balance % of
Earning
Assets Yield/Rate Average
Balance % of
Earning
Assets Yield/Rate
Total loans $ 1,842,695 80.4 % 5.26 % $ 1,274,405 78.0 % 5.13 %
Securities and other earning assets 448,893 19.6 % 2.32 % 358,410 22.0 % 1.95 %
Total interest-earning assets $ 2,291,588 100.0 % 4.69 % $ 1,632,815 100.0 % 4.44 %

Interest-bearing liabilities $ 1,721,362 75.1 % 0.56 % $ 1,248,032 76.4 % 0.58 %
Noninterest-bearing funds, net 570,226 24.9 % 384,783 23.6 %
Total funds sources $ 2,291,588 100.0 % 0.56 % $ 1,632,815 100.0 % 0.43 %
Interest rate spread 4.13 % 3.86 %
Contribution from net free funds 0.14 % 0.13 %
Net interest margin 4.27 % 3.99 %

~~Taxable-equivalent net interest income was $74.0 million and $49.4 million~~ for the ~~nine months~~disallowance of 2017 and 2016, respectively, up $24.6 million or 50%, with $22.7 million from net favorable volume and mix variances (due to the addition of acquired net interest-earning assets, as well as organic growth), and $1.9 million from net favorable rate variances (from bothinterest expense.

The Federal Reserve raised short-term interest rates 25 bps in March 2022, followed by a lower cost of funds and higher earning asset yield) between the periods. Taxable equivalent interest income on earning assets increased $26.3 million or 48% between the nine-month periods, with $23.7 million more interest from loans ($22.6 million from greater volume and $1.1 million from rates (with $4.5 million in higher aggregate discount accretion income, including $3.2 million higher discount income related to favorably resolved purchased credit impaired loans, more than offsetting lower underlying loan yields mainly from the acquired portfolios)), $2.4 million more interest from total investments (mostly volume-based), and $0.2 million more interest from other earning assets. Interest expense increased $1.7 million, led by $1.9 million higher interest on interest-bearing liabilities due to volume and mix variances (mostly acquired deposits and a higher proportion of brokered deposits), partially offset by $0.2 million of net favorable rate variances due to lower cost funding (largely from lower-costing Baylake deposits acquired, offset partly by higher-costing First Menasha deposits acquired, an50 bps increase in ~~select deposit rates that began in July 2017,~~May 2022 and ~~general rate pressures influenced by~~ a 75 bps increase in ~~the federal funds rate~~June 2022, for a total increase in short-term interest rates of 150 bps since ~~January 1, 2016).~~

year-end 2021. Prior to this, short-term interest rates remained steady since March 2020.

~~The taxable-equivalent~~Tax-equivalent net interest ~~margin~~income was ~~4.27%~~$109.6 million for the first ~~nine~~six months of ~~2017, up 28 bps versus~~2022, comprised of net interest income of $108.9 million ($39.7 million or 57% higher than the first ~~nine~~six months of ~~2016.~~2021), and a $0.8 million tax-equivalent adjustment. The $39.9 million increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $43.7 million, mostly from interest-earning asset volumes added with the Mackinac and County acquisitions, as well as solid loan growth and strategic investment purchases) and net unfavorable rates (which decreased net interest income $3.7 million from competitive pricing pressure and the lag in repricing to current market interest rates).

Average interest-earning assets increased to $6.6 billion, up $2.5 billion (62%) over the 2021 comparable period, primarily due to the acquisitions of Mackinac and County (in September 2021 and December 2021, respectively). Between the comparable first half periods, average loans increased $1.9 billion (67%), mostly due to the Mackinac and County acquisitions, which added loans of $0.9 billion and $1.0 billion, respectively, at acquisition. In addition, average loans reflected strong organic loan growth and the repurchase of previously participated agricultural loans, which more than offset the reduction in PPP loans from continued loan forgiveness. Average investment securities increased $1.0 billion between the comparable first half periods, partly due to the acquisitions of Mackinac and County, and partly due to the strategic re-investment of approximately $0.5 billion excess cash liquidity into U.S. Treasury securities of varying yields and durations during fourth quarter 2021. Other interest-earning assets declined $0.4 billion with the additional assets added with the 2021 acquisitions, more than offset by lower cash mostly from the re-investment of excess cash liquidity noted above. As a result, the mix of average interest-earning assets shifted to 72% loans, 24% investments and 4% other interest-earning assets (mostly cash) for first half 2022, compared to 69%, 13% and 18%, respectively, for first half 2021.

Average interest-bearing liabilities were $4.6 billion for first half 2022, an increase of $1.8 billion (67%) over first half 2021, primarily due to the acquisitions of Mackinac and County. Average interest-bearing core deposits increased $1.5 billion and average brokered deposits increased $156 million between the comparable first half periods largely due to the Mackinac and County acquisitions. Other interest-bearing liabilities grew $167 million between the comparable first half periods, partly due to the private placement of $100 million in fixed-to-floating rate subordinated notes in July 2021, and partly due to wholesale funding acquired with the Mackinac and County acquisitions. The mix of average interest-bearing liabilities was 86% core deposits, 10% brokered deposits and 4% other funding for the first half 2022, compared to 88%, 10% and 2%, respectively, for the first half 2021.

Between the comparable first half periods, the interest rate spread ~~increased 27~~decreased 8 bps. The first half 2022 interest-earning asset yield declined 14 bps to 3.54%, reflecting the decline in the average yield of loans and investment securities, as well as the changing mix of interest-earning assets (mostly the reduction in cash due to the re-investment of excess cash liquidity noted above). The loan yield declined 47 bps to 4.36% between the comparable first half periods, ~~with a favorable increase in~~largely due to the ~~earning asset~~impact of the low interest rate environment through early 2022 and competitive pricing pressures on new, renewed, and variable rate loans, while the yield ~~(up 25~~on investment securities declined 46 bps to ~~4.69% for first nine months~~1.56%, also attributable to the low interest rate environment through early 2022, as well as the strategic re-investment of ~~2017), and an improvement in the~~cash into lower yielding U.S. Treasury securities. The 2022 cost of funds ~~(down 2~~declined 6 bps to ~~0.56% for the first nine months of 2017).~~0.38%, largely from lower rates on core interest-bearing deposits and brokered deposits. The contribution from net free funds ~~increased by~~decreased 1 ~~bp,~~bps, due mostly ~~due~~ to ~~lower costs on~~ the funding side of the balance sheet. Since January 1, 2016, the Federal Reserve raised short-term interest rates by 75 bps to 125 bps as of September 30, 2017 (up 25 bps in each of December 2016, March 2017 and June 2017). These increases have impacted the rate earned on cash and the cost of shorter-term deposits and borrowings, but have not significantly influenced rates further out on the yield curve; and thus, have only minimally impacted new investment yields or new loan pricing. Additionally, while both 2017 and 2016 periods are experiencing favorable income from discount accretion on acquired loans, particularly where such loans pay or resolve at better than their carrying values, such favorable interest flow can be sporadic and will diminish over time.

~~The earning asset yield was influenced largely by the mix of underlying earning assets, particularly carrying a higher proportion of loans and investments (each at higher yields~~reduced value in the ~~2017 period than the 2016 period) and a lower proportion of low-earning cash. Loans, investments and other~~low interest earning assets (mostly low-earning cash) represented 80%, 18% and 2% of average earning assets, respectively, for the first nine months of 2017, and 78%, 17%, and 5%, respectively, for the comparable 2016 period. Loans yielded 5.26% and 5.13%, respectively, for the first nine months of 2017 and 2016, while non-loan earning assets combined yielded 2.32% and 1.95%, respectively, for the periods. The 13 bps increase in loan yield between the nine-month periods was largely due to the higher aggregate discount accretion on acquired loans between periods, more than offsetting lower underlying loan yields mainly from the acquired loan portfolios and competitive pricing.

Average interest-earning assets were $2.29 billion for the first nine months of 2017, $659 million, or 40% higher than the first nine months of 2016, largely attributable to acquired balances as well as strong organic loan growth. The change consisted of a $568 million increase in average loans (up 45% to $1.8 billion), a $127 million increase in investment securities (up 47% to $397 million) and a $36 million decrease in other interest-earning assets, predominantly low earning cash.

Nicolet’s cost of funds decreased 2 bps to 0.56% for the first nine months of 2017 compared to a year ago. The average cost of interest-bearing deposits (which represented 96% of average interest-bearing liabilities for the nine months ended September 30, 2017 and 2016), was 0.42% for the first nine months of 2017, down 1 bp from the first nine months of 2016, largely benefiting from the lower-costing Baylake deposits acquired,rate environment, though offset partly by the ~~higher-costing First Menasha deposits acquired, an~~52% increase in ~~select~~average net free funds (largely from higher average noninterest-bearing demand deposits and stockholders’ equity) between the first half periods. As a result, the tax-equivalent net interest margin was 3.29% for first half 2022, down 9 bps compared to 3.38% for first half 2021.

Tax-equivalent interest income was $118.2 million for first half 2022, up $42.5 million from first half 2021, comprised of $49.4 million higher volumes, partly offset by lower average rates. Interest income on loans increased $35.3 million over first half 2021, mostly due to higher average balances from the Mackinac and County acquisitions, as well as solid loan growth. Between the comparable first half periods, interest income on investment securities grew $6.9 million, also attributable to the Mackinac and County acquisitions, as well as the re-investment of excess cash liquidity (noted above). Interest expense increased to $8.6 million for first half 2022, up $2.6 million compared to first half 2021, comprised of $5.7 million higher volumes, partly offset by $3.1 million from lower overall cost of funds. Interest expense on deposits decreased $0.8 million (14%) from first half 2021 given higher average interest-bearing deposit ~~rates that began in July 2017, and general~~balances at a lower cost as product rate ~~pressures influenced by a 75 bps increase~~changes were made during 2021 in the ~~federal~~low rate environment, and brokered deposits cost less largely from maturities of higher-costing term brokered funds ~~rate since January 1, 2016.~~

~~Average~~procured under competitive conditions in mid-2020 during the pandemic. Interest expense on other interest-bearing liabilities ~~were $1.72 billion for~~increased between the comparable first ~~nine months of 2017, up $473 million or 38%~~half periods, mostly due to higher average balances from the ~~comparable period in 2016, predominantly attributable to~~July 2021 subordinated notes issuance, as well as wholesale funding acquired ~~balances. Interest-bearing deposits represented 96% of average interest-bearing liabilities~~with the 2021 acquisitions.

Provision for the first nine months of 2017 and 2016, while the mix of average interest-bearing deposits moved from higher costing core CDs to lower costing transaction accounts, improving the overall deposit cost slightly between the nine-month periods. Average brokered deposits were $121Credit Losses

The provision for credit losses was $1.1 million for the ~~first nine~~six months ended June 30, 2022 (comprised of ~~2017, up $92~~$0.9 million ~~or 318% from~~related to the ~~comparable period in 2016, with average yields declining from 1.29%~~ACL-Loans and $0.2 million for the ACL on unfunded commitments), compared to ~~0.69%. The increase in brokered deposits was partly due~~$0.5 million for the six months ended June 30, 2021 (all related to ~~brokered deposits assumed in~~ the ~~2017 acquisition. The Company has reduced yields on these brokered deposits by repricing to market rates.~~

~~Provision for Loan Losses~~

ACL-Loans).

The provision for loan losses for the nine months ended September 30, 2017 and 2016 was $1.9 million and $1.4 million, respectively, exceeding net charge offs of $1.1 million and $0.2 million, respectively. Asset quality measures have been strong and improving with continued resolutions of problem loans. The ALLL was $12.6 million (0.61% of loans) at September 30, 2017, compared to $11.8 million (0.75% of loans) at December 31, 2016 and $11.5 million (0.74% of loans) at September 30, 2016. The decline in the ratio was a result of recording the acquired loan portfolios at fair value with no carryover of allowance at the time of each merger.

~~The provision for loan~~credit losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the ~~adequacy~~appropriateness of the ~~ALLL.~~ACL-Loans and unfunded commitments. The ~~adequacy~~appropriateness of the ~~ALLL~~ACL-Loans is affected by changes in the size and character of the loan portfolio, changes in levels of ~~impaired~~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~~expected credit losses. The ACL for unfunded commitments is affected by many of the same factors as the ACL-Loans, as well as funding assumptions relative to lines of credit. See also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures. For additional information regarding asset quality and the ~~ALLL,~~ACL-Loans, see ~~“Balance Sheet Analysis~~“BALANCE SHEET ANALYSIS — Loans,” “— Allowance for ~~Loan and Lease~~Credit Losses - Loans,” and “— ~~Impaired Loans and~~ Nonperforming Assets.”

Noninterest Income

Table 6:4: Noninterest Income

For the three months ended September 30, For the nine months ended September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
(in thousands)
Service charges on deposit accounts $ 1,238 $ 1,051 $ 187 17.8 % $ 3,367 $ 2,514 $ 853 33.9 %
Mortgage income, net 1,774 2,010 (236 ) (11.7 ) 4,022 3,713 309 8.3
Trust services fee income 1,479 1,373 106 7.7 4,431 4,000 431 10.8
Brokerage fee income 1,500 992 508 51.2 4,192 2,090 2,102 100.6
BOLI income 459 318 141 44.3 1,314 880 434 49.3
Rent income 285 285 - - 852 820 32 3.9
Investment advisory fees 92 146 (54 ) (37.0 ) 357 341 16 4.7
Gain on sale or write-down of assets, net 1,305 453 852 188.1 2,071 548 1,523 277.9
Card interchange income 1,224 922 302 32.8 3,378 2,199 1,179 53.6
Other income 808 982 (174 ) (17.7 ) 2,034 1,675 359 21.4
Total noninterest income $ 10,164 $ 8,532 $ 1,632 19.1 % $ 26,018 $ 18,780 $ 7,238 38.5 %
Noninterest income without net gains $ 8,859 $ 8,079 $ 780 9.7 % $ 23,947 $ 18,232 $ 5,715 31.3 %
Components of the gain on sale or write-down of assets, net:
Gain on sale of AFS securities, net $ 1,221 $ 37 $ 1,184 3200.0 % $ 1,220 $ 77 $ 1,143 1,484.4 %
Gain on sale of OREO, net 84 439 (355 ) (80.9 ) 253 582 (329 ) (56.5 )
Write-down of OREO - - - - (126 ) - (126 ) N/M
Gain/(loss) on sale or disposition of assets, net - (23 ) 23 N/M 724 (111 ) 835 752.3
Gain on sale or write-down of assets, net $ 1,305 $ 453 $ 852 188.1 % $ 2,071 $ 548 $ 1,523 277.9 %


	Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)	2022		2021		$ Change		% Change		2022		2021		$ Change		% Change
Trust services fee income	$	2,004	$	1,906	$	98	5	%	$	4,015	$	3,681	$	334	9	%
Brokerage fee income	2,988		2,991		(3)		—		6,676		5,784		892		15
Mortgage income, net	2,205		5,599		(3,394)		(61)		5,458		12,829		(7,371)		(57)
Service charges on deposit accounts	1,536		1,136		400		35		3,013		2,227		786		35
Card interchange income	2,950		2,266		684		30		5,531		4,193		1,338		32
BOLI income	768		559		209		37		1,701		1,086		615		57
LSR income, net	(143)		—		(143)		N/M		(525)		—		(525)		N/M
Other income	220		1,529		(1,309)		(86)		1,289		2,601		(1,312)		(50)
Noninterest income without net gains	12,528		15,986		(3,458)		(22)		27,158		32,401		(5,243)		(16)
Asset gains (losses), net	1,603		4,192		(2,589)		(62)		2,916		4,903		(1,987)		(41)
Total noninterest income	$	14,131	$	20,178	$	(6,047)	(30)	%	$	30,074	$	37,304	$	(7,230)	(19)	%
Trust services fee income & Brokerage fee income combined	$	4,992	$	4,897	$	95	2	%	$	10,691	$	9,465	$	1,226	13	%

N/M means not ~~meaningful~~

~~Comparison of the nine months ending September 30, 2017 versus 2016~~

meaningful.

Noninterest income was ~~$26.0~~$30.1 million for ~~the~~ first ~~nine months~~half 2022, a decrease of ~~2017,~~$7.2 million (19%) compared to ~~$18.8~~$37.3 million for ~~the~~ first ~~nine months of 2016, aided largely~~half 2021, with lower net mortgage income and other income partly offset by ~~the 2016 acquisitions and, to a lesser extent, the 2017 acquisition. Excluding net gains on sale or write-down of assets from both nine-month periods,~~growth in most other noninterest income ~~increased $5.7~~categories.

Trust services fee income and brokerage fee income combined were $10.7 million, ~~or 31.3%.~~

~~The 2017 activity in net gain on sale or write-down of assets consisted of a~~up $1.2 million ~~gain to record~~(13%) over first half 2021, consistent with the ~~fair value of Nicolet’s pre-acquisition interest~~growth in ~~First Menasha, a $0.3 million net gain on the sale of OREO, a $0.1 million write-down of OREO properties,~~accounts and ~~a $0.7 million gain on the sale or disposition of~~ assets (consisting of $0.9 million of gain from the sale two vacated bank branches, a $0.4 million loss from the transfer of bank branches to OREO, and a $0.2 million gain from the sale of an other investment). The 2016 activity included gains of $0.6 million from the sale of OREO properties.

Service charges on deposit accounts were $3.4 million for the first nine months of 2017, up $0.9 million or 33.9% over the first nine months of 2016, resulting from an increased number of accounts mostly attributable to the bank acquisitions and an increase to the fee charged on overdrafts implemented in May 2017.

under management, though tempered by unfavorable market-related declines.

Mortgage income represents net gains received from the sale of residential real estate loans ~~service-released and service-retained~~ into the secondary market, capitalized mortgage servicing rights (“~~MSRs”~~MSR”), servicing fees ~~offsetting~~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, and to a smaller degree some related income.~~any. Net mortgage income ~~increased $0.3~~of $5.5 million, ~~or 8.3%~~decreased $7.4 million (57%) between the comparable ~~nine-month~~six-month periods, mostly due to ~~greater~~the rising interest rate environment reducing secondary market volumes and the related gains on sales. Gains on sales and capitalized gains combined decreased $8.1 million and the fair value of the mortgage ~~production~~derivatives decreased $0.4 million, while MSR impairment was $1.2 million favorable on slower paydown activity. See also “Lending-Related Commitments” and ~~sales aided by a broader geographic footprint~~Note 7, “Goodwill and ~~increased net servicing fees~~Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the ~~growing portfolio of mortgage loans serviced for others.~~

~~Trust service fees~~MSR asset.

Service charges on deposit accounts were up ~~$0.4~~$0.8 million ~~or 10.8%~~to $3.0 million for the six months ended June 30, 2022, mostly due to the larger deposit base from the 2021 acquisitions.

Card interchange income grew $1.3 million (32%) between the ~~nine-month~~comparable six-month periods due to higher assets under management. Between the nine-month periods, brokerage fees were up significantly, up $2.1 million or 100.6%, attributable to the 2016 financial advisor business acquisition as well as subsequent new growthvolume and ~~pricing.~~

activity.

BOLI income was up ~~$0.4~~$0.6 million ~~or 49.3%~~ between the ~~nine-month~~comparable six-month periods, ~~commensurate~~attributable to higher average balances from BOLI acquired with the ~~growth in average BOLI investments, including additional insurance purchases in 2016. Card interchange~~2021 acquisitions.

Loan servicing rights (“LSR”) income includes agricultural loan servicing fees were up $1.2 million or 53.6% on higher volume and activity. Other noninterest income was $2.0 million, up $0.4 million or 21.4% over the comparable period of 2016 with income from equity in UFS, a data processing company acquired in the Baylake merger, up $0.3 million.

~~Noninterest Expense~~

~~Table 7: Noninterest Expense~~

For the three months ended September 30, For the nine months ended September 30,
2017 2016 $ Change % Change 2017 2016 $ Change % Change
(in thousands)
Personnel $ 11,488 $ 10,516 $ 972 9.2 % $ 32,404 $ 24,748 $ 7,656 30.9 %
Occupancy, equipment and office 3,559 3,018 541 17.9 9,613 7,324 2,289 31.3
Business development and marketing 1,113 985 128 13.0 3,359 2,353 1,006 42.8
Data processing 2,238 1,831 407 22.2 6,428 4,408 2,020 45.8
FDIC assessments 205 247 (42 ) (17.0 ) 582 629 (47 ) (7.5 )
Intangibles amortization 1,173 1,172 1 0.1 3,514 2,295 1,219 53.1
Other expense 1,086 1,250 (164 ) (13.1 ) 3,598 4,799 (1,201 ) (25.0 )
Total noninterest expense $ 20,862 $ 19,019 $ 1,843 9.7 % $ 59,498 $ 46,556 $ 12,942 27.8 %
Non-personnel expenses $ 9,374 $ 8,503 $ 871 10.2 % $ 27,094 $ 21,808 $ 5,286 24.2 %

~~Comparison~~net of the ~~nine months ending September 30, 2017 versus 2016~~

~~Total noninterest expense was $59.5~~related LSR amortization. Nicolet is not adding new loans to this servicing portfolio and repurchased approximately $100 million of these previously participated loans during second quarter 2022; thus, the LSR amortization is currently outpacing the loan servicing fees. See also Note 7, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on the LSR asset.

Other income of $1.3 million for the six months ended June 30, 2022 was down $1.3 million from the comparable 2021 period, largely due to unfavorable changes in the fair value of nonqualified deferred compensation plan assets from the recent market declines, partly offset by new revenue from crop insurance sales (related to the County acquisition). See also “Noninterest Expense” for discussion on the offsetting fair value change to the nonqualified deferred compensation plan liabilities.

Net asset gains of $2.9 million for first ~~nine months of 2017 (including $0.5 million~~half 2022 were primarily attributable to ~~non-recurring, merger-based~~gains on sales of other real estate owned (mostly closed bank branch locations), while net asset gains of $4.9 million for first half 2021 were primarily attributable to favorable fair value marks on equity securities.

Noninterest Expense

Table 5: Noninterest Expense


	Three Months Ended June 30,								Six Months Ended June 30,
($ in thousands)	2022		2021		Change		% Change		2022		2021		Change		% Change
Personnel	$	19,681	$	17,084	$	2,597	15	%	$	40,872	$	32,200	$	8,672	27	%
Occupancy, equipment and office	6,891		4,053		2,838		70		13,835		8,190		5,645		69
Business development and marketing	2,057		1,210		847		70		3,888		2,199		1,689		77
Data processing	3,596		2,811		785		28		6,983		5,469		1,514		28
Intangibles amortization	1,347		790		557		71		2,771		1,642		1,129		69
FDIC assessments	480		480		—		—		960		1,075		(115)		(11)
Merger-related expense	555		656		(101)		(15)		653		656		(3)		—
Other expense	1,931		3,663		(1,732)		(47)		4,126		5,397		(1,271)		(24)
Total noninterest expense	$	36,538	$	30,747	$	5,791	19	%	$	74,088	$	56,828	$	17,260	30	%
Non-personnel expenses	$	16,857	$	13,663	$	3,194	23	%	$	33,216	$	24,628	$	8,588	35	%
Average full-time equivalent (“FTE”) employees	850		570		280		49	%	842		564		278		49	%

Noninterest expense was $74.1 million, an increase of $17.3 million (30%) over first half 2021. Personnel costs increased $8.7 million (27%), while non-personnel expenses ~~such as legal and conversion processing costs),~~combined increased $8.6 million (35%) compared to ~~$46.6~~first half 2021.

Personnel expense was $40.9 million for the six months ended June 30, 2022, an increase of $8.7 million from the comparable period in ~~2016 (including $2.6 million merger-related expenses, of which $1.7 million was a lease termination charge). Excluding the noted merger-based expenses from both periods, noninterest~~2021. Salary expense increased ~~approximately $15.0~~$11.0 million ~~or 34.2%, primarily attributable to~~(60%) over first half 2021, reflecting higher salaries from the larger ~~operating~~employee base ~~as a result of the 2016 and 2017 acquisitions.~~

~~Personnel expense was $32.4 million for the first nine months of 2017,~~(with average full-time equivalent employees up ~~$7.7 million or 30.9% compared to the first nine months of 2016, largely~~49%, mostly due to the ~~expanded workforce, with average full time equivalent employees up 32% (from 393 to 519 for the first nine months of 2016 and 2017, respectively). Also contributing to the increase were~~2021 acquisitions) as well as merit increases between the ~~periods, incentives timing, equity grants~~years. Salary expense also reflected increases in hourly pay and base salaries effective at the end of March 2022, which benefited 67% of our employee base. Fringe benefits increased $1.6 million (35%) over first half 2021, mostly due to the larger employee base. Personnel expense was also impacted by the change in the ~~second quarter~~fair value of ~~2017, and higher health and other benefits costs.~~

nonqualified deferred compensation plan liabilities from the recent market declines. See also “Noninterest Income” for discussion on the offsetting fair value change to the nonqualified deferred compensation plan assets.

Occupancy, equipment and office expense was ~~$9.6~~$13.8 million for ~~the~~ first ~~nine months of 2017,~~half 2022, up ~~$2.3~~$5.6 million ~~or 31.3%~~(69%) compared to ~~2016, primarily~~first half 2021, largely due to the ~~result of~~expanded branch network with the ~~larger operating base~~Mackinac and County acquisitions, as well as additional expense for software ~~needs, offset partly by branch closure savings.~~

and technology solutions.

Business development and marketing expense ~~increased $1.0~~was $3.9 million, ~~or 42.8%~~up $1.7 million (77%), between the comparable ~~nine-month~~six-month periods, largely due to the higher travel and entertainment expenses, as well as additional marketing donations, promotions, and media to support our expanded branch network and community base.

Data processing expense was $7.0 million, up $1.5 million (28%) between the comparable six-month periods, mostly due to volume-based increases in core processing charges, including the larger operating base following the Mackinac and ~~branding efforts influencing additional marketing, promotions and media.~~

~~Data processing expenses, which are primarily volume-based, rose $2.0~~County acquisitions.

Intangibles amortization increased $1.1 million ~~or 45.8%~~ between the ~~nine-month~~comparable first half periods ~~predominantly attributable~~due to higher amortization from the intangibles added with the 2021 acquisitions.

Other expense was $4.1 million, down $1.3 million (24%) between the comparable six-month periods, mostly due to a $2.1 million contract termination charge incurred in 2021 and lower professional fees (related to the acquisitions, higher card processing, and expanded functionalities. Intangible amortization increased $1.2 million, due exclusively to timing of and the addition of intangibles recorded as part of the acquisitions.

~~Other noninterest expense decreased $1.2 million or 25.0% between the nine-month periods, due primarily to $2.1 million lower merger-related expenses, partially~~2021 subordinated notes issuance), partly offset by ~~a $0.9 million increase in all other~~ costs ~~which were largely a function of~~to carry closed bank branches and overall higher ~~other~~expenses related to our larger operating costs associated with size (such as OREO expenses, legal, audit and bank insurance costs) and a $0.4 million increase in 2017 associated with implementing the customer relationship system that began in the fourth quarter of 2016.

base.

Income Taxes

~~For the nine-month periods ending September 30, 2017 and 2016, income~~

Income tax expense was ~~$12.6~~$15.7 million ~~and $6.4~~(effective tax rate of 24.5%) for first half 2022, compared to $12.7 million ~~respectively. The increase~~(effective tax rate of 25.7%) for the comparable period of 2021.

Income Statement Analysis – Three Months Ended June 30, 2022 versus Three Months Ended June 30, 2021

Net income was primarily attributable to higher pre-tax income between the two periods. Included in 2017 is a tax benefit of $0.2 million related to the exercise of stock options and restricted stock vesting in accordance with ASU 2016-09. U.S. GAAP requires that deferred income taxes 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. No valuation allowance was determined to be necessary as of September 30, 2017 or December 31, 2016.

~~Comparison of the three months ending September 30, 2017 versus 2016~~

~~Nicolet reported net income of $9.5~~$24.0 million for the three months ended ~~September~~June 30, ~~2017, up $3.0 million or 47% over $6.5~~2022, compared to $18.3 million for the ~~comparable period of 2016. Net income available to common shareholders for the third quarter of 2017 was $9.5 million, or $0.91~~three months ended June 30, 2021. Earnings per diluted common share was $1.73 for second quarter 2022, compared to ~~net income available to common shareholders of $6.2 million, or $0.69 per diluted common share,~~$1.77 for ~~the third~~second quarter ~~of 2016.~~

2021.

~~Pre-tax earnings of the third quarter of 2016 was negatively impacted by $0.1 million merger-based expenses compared to no merger-based expense in the third quarter of 2017.~~

~~Net~~Tax-equivalent net interest income ~~in the consolidated statements~~was $55.5 million for second quarter 2022, comprised of income (which excludes any taxable equivalent adjustment) was $26.4 million in the third quarter of 2017 versus $20.9 million in the third quarter of 2016, including $0.4 million higher aggregate discount income between the periods. Taxable equivalent adjustments (adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that been subject to a 35% tax rate) were $0.6 million in each of the three months ended September 30, 2017 and 2016, resulting in taxable equivalent net interest income of ~~$27.0~~$55.1 million ($19.5 million or 55% over second quarter 2021), and ~~$21.5~~a tax-equivalent adjustment of $0.4 million. Tax-equivalent interest income increased $21.4 million ~~respectively. Taxable equivalent~~between the second quarter periods, with $25.2 million from stronger volumes (led by average loans which grew $2.0 billion or 69% over second quarter 2021, mostly due to the acquisitions of Mackinac and County), partly offset by $3.8 million from lower yields. Average investment securities increased $1.0 billion between the comparable second quarter periods, partly due to the acquisitions of Mackinac and County, and partly due to the strategic re-investment of approximately $0.5 billion excess cash liquidity into U.S. Treasury securities of varying yields and durations during fourth quarter 2021. Interest expense increased $1.7 million from second quarter 2021, with the impact of the higher average deposit balances partly offset a lower overall cost on deposits. For additional information regarding average balances, net interest income and net interest margin, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”

The net interest margin for ~~third~~second quarter ~~2017~~2022 was ~~up $5.5 million or 26% versus third~~3.34%, down from 3.45% for second quarter ~~2016, with $6.0 million~~2021, influenced by timing of recent interest rate increases and the ~~increase due to net favorable volume variances (predominately~~changing balance sheet mix. The yield on interest-earning assets of 3.61% declined 11 bps from second quarter 2021. The yield on loans was 4.34%, 51 bps lower than second quarter 2021, largely due to the ~~First Menasha assets included~~impact of the low interest rate environment throughout 2021 and competitive pricing pressures on new, renewed, and variable loans, as well as the continued reduction in ~~2017 but not in 2016), and $0.5 million lower net interest income from net unfavorable rate variances (especially from higher costing deposits).~~

~~The earning asset yield was 4.72% for third quarter 2017, 15 bps higher than third quarter 2016, mainly~~PPP loans due to a higher mix of loans as a percent of earning assets. Loans earned 5.29% and represented 81% of average earning assets for third quarter 2017, compared to 5.32% and 78%, respectively, for third quarter 2016. The 3 bps decrease in loan yield between the three-month periods was negatively impacted by the underlying rate pressure on loan yields from competition and the flatter yield curve environment, partially offset by higher aggregate discount accretion on loans. Non-loan earning assets which earn less than loan assets represented 19% of average earning assets for third quarter 2017 (including higher low-earning cash) and earned 2.24%, versus 22% of earning assets yielding 2.03% for third quarter 2016.

forgiveness. The cost of funds of 0.40% declined 1 bps between the comparable quarters mostly due to lower rates on core interest-bearing deposits and brokered deposits.

Provision for credit losses was ~~0.65%~~$0.8 million for ~~third~~second quarter ~~2017, 15 bps~~2022 (comprised of $0.6 million related to the ACL-Loans, and $0.2 million for the ACL on unfunded commitments), compared to no provision for credit losses for second quarter 2021. The 2022 provision for credit losses was attributable to strong loan growth, solid asset quality trends, and negligible net charge-offs, while the 2021 provision for credit losses was due to improving asset quality trends and minimal net charge-offs. For additional information regarding the allowance for credit losses-loans and asset quality, see “BALANCE SHEET ANALYSIS — Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS — Nonperforming Assets.”

Noninterest income was $14.1 million for second quarter 2022, a decrease of $6.0 million (30%) from second quarter 2021. Net mortgage income of $2.2 million for second quarter 2022 was down $3.4 million (61%) from second quarter 2021, primarily due to the rising interest rate environment reducing secondary market volumes and the related gains on sales. Trust services fee income and brokerage fee income combined was up $0.1 million (2%), consistent with the growth in accounts and assets under management, though tempered by unfavorable market-related declines. Service charges on deposit accounts grew $0.4 million to $1.5 million for second quarter 2022, mostly due to the larger deposit base from the 2021 acquisitions. Card interchange income grew $0.7 million (30%) due to higher ~~than third~~volume and activity. Other income declined $1.3 million from second quarter ~~2016, driven by~~2021, largely due to unfavorable changes in the fair value of nonqualified deferred compensation plan assets from the recent market declines. Net asset gains of $1.6 million in second quarter 2022 were were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations), while net asset gains of $4.2 million in second quarter 2021 were primarily attributable to favorable fair value marks on equity securities. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

Noninterest expense was $36.5 million for second quarter 2022, an increase ~~in the cost~~ of ~~deposits (up 16 bps to 0.53% for third~~$5.8 million (19%) from second quarter ~~2017), mostly from higher-costing First Menasha deposits acquired and an~~2021, including a $2.6 million increase in ~~select deposit rates that began~~personnel expense and a $3.2 million increase in ~~July 2017.~~non-personnel expenses. The ~~cost~~increase in personnel was due to higher salaries and fringe benefits from the larger employee base, partly offset by the change in fair value of ~~other interest-bearing~~nonqualified deferred compensation plan liabilities ~~decreased 131 bps~~from recent market declines. Occupancy, equipment, and office of $6.9 million was up $2.8 million (70%), largely due to ~~4.04%~~the expanded branch network with the Mackinac and County acquisitions, as well as additional expense for software and technology solutions. Business development and marketing of $2.1 million increased $0.8 million over second quarter 2021, largely due to higher travel and entertainment expenses, as well as additional marketing donations, promotions, and media to support our expanded branch network and community base. Data processing expense was $3.6 million, up $0.8 million (28%) between the ~~third~~comparable second quarter periods, mostly due to volume-based increases in core processing charges, including the larger operating base following the Mackinac and County acquisitions. Other expense was $1.9 million, down $1.7 million between the comparable second quarter periods, mostly due to a ~~higher proportion of lower-cost, shorter term funding~~$2.1 million contract termination charge incurred in ~~the mix.~~

~~Noninterest income was $10.2 million for third~~second quarter ~~2017, up $1.6 million over the third quarter 2016. Noninterest income without net gains was up $0.8 million or 10%, with service charges on deposits up $0.2 million (given the larger deposit base),~~2021 and ~~trust and brokerage~~lower professional fees ~~up $0.6 million combined (mostly attributable~~(related to the ~~2016 financial advisor business acquisition~~2021 subordinated notes issuance), partly offset by costs to carry closed bank branches and ~~market improvements). Card interchange~~overall higher expenses related to our larger operating base. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

Income tax expense for second quarter 2022 was $7.9 million, with an effective tax rate of 24.9%, compared to income ~~was up~~tax expense of $6.7 million and an effective tax rate of 26.9% for second quarter 2021.

BALANCE SHEET ANALYSIS

At June 30, 2022, period end assets were $7.4 billion, a decrease of $0.3 ~~million~~billion (4%) from December 31, 2021, on ~~greater activity. Other income decreased $0.2~~lower cash and cash equivalents from the decline in deposits and stock repurchase activity, as well as $200 million ~~between the third quarter periods, although there was an increase in UFS, Inc. income of $0.1 million. Net gain on sale or write-down~~ of assets related to the sale of the Birmingham branch in January 2022. Total loans increased ~~by $0.9~~$357 million ~~between~~from December 31, 2021, with solid organic loan growth in agricultural, commercial and industrial, and residential first mortgage loans, as well as the ~~third quarter periods,~~repurchase of approximately $100 million previously participated agricultural loans. Total deposits of $6.3 billion at June 30, 2022, decreased $180 million from December 31, 2021, due to the repricing of acquired deposits to current market rates and a reduction in retail deposits. Total stockholders’ equity was $839 million at June 30, 2022, a decrease of $53 million since December 31, 2021, mostly due to ~~a $1.2 million gain to record~~stock repurchase activity and unfavorable changes in the fair value of ~~Nicolet’s pre-acquisition interest in First Menasha in the third quarter of 2017.~~

~~Noninterest expense was $20.9 million for the third quarter of 2017,~~securities AFS, partly offset by current year earnings.

Compared to June 30, 2021, assets were $7.4 billion, up ~~$1.8 million or 9.7%~~$2.8 billion (61%) from third quarter 2016. There were no non-recurring merger-based expenses in the third quarter 2017 compared to $0.1 million in the third quarter of 2016. Excluding the noted merger-based expenses, noninterest expense increased approximately $1.9 million or 10.2%. Salaries and employee benefits for the third quarter of 2017 were $11.5 million, $1.0 million or 9.2% higher than the third quarter of 2016, due to merit increases, higher equity award costs, and an increase in average full time equivalent employees attributable to the 2017 acquisition. Occupancy, equipment and office expense was $0.6 million higherJune 30, 2021, largely due to the ~~larger operating base~~acquisitions of Mackinac and ~~software needs. Data processing was $0.4 million higher than third quarter 2016~~County in second half 2021. Total loans increased $2.2 billion and total deposits increased $2.3 billion from ~~increased accounts, higher card processing costs and expanded functionalities.~~

~~The provision for loan losses was $1.0 million and $0.5 million for third quarter 2017 and 2016, respectively. Net charge-offs for the quarter ending September~~June 30, ~~2017 were $1.1 million (due~~2021, also largely due to the ~~charge off~~acquisitions of ~~a large commercial loan) compared~~Mackinac and County. Stockholders’ equity increased $280 million from June 30, 2021, primarily due to a net recovery of $0.1 million for the third quarter of 2016. At September 30, 2017, the ALLL was $12.6 million (or 0.61% of total loans) compared to $11.5 million (or 0.74% of total loans) at September 30, 2016. The declinecommon stock issued in the ~~ratio was a result of recording~~Mackinac and County acquisitions and net income, partially offset by stock repurchases over the ~~First Menasha loan portfolio at~~year and negative net fair value ~~with no carryover of their~~investment changes.

Loans

In addition to the discussion that follows, see also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on loans. For additional information regarding the allowance ~~at the time of the merger.~~

~~Income tax expense was $5.1 million~~for credit losses and ~~$3.4 million~~nonperforming assets see also “BALANCE SHEET ANALYSIS – Allowance for ~~the third quarters of 2017~~Credit Losses - Loans” and ~~2016, respectively. The effective tax rates were 34.9% for third quarter 2017 and 34.5% for third quarter 2016.~~

~~BALANCE~~“BALANCE SHEET ANALYSIS

~~Loans~~

– Nonperforming Assets.”

Nicolet services a diverse customer base throughout Northeast and Central Wisconsin, Northern Michigan and ~~in Menominee, Michigan including~~ the ~~following industries: manufacturing, agriculture, wholesaling, retail, service, and businesses supporting, among others, the general building and paper industries. It continues to~~Upper Peninsula of Michigan. We concentrate ~~its efforts in~~on originating loans in ~~its~~our local markets and assisting ~~its~~ current loan customers. It actively utilizes government loan programs such as those provided by the U.S. Small Business Administration to help customers weather current economic conditions and position their businesses for the future.

Nicolet’s primary lending function is to make 1) commercial loans, consisting of commercial and industrial business loans, agricultural (“AG”) production, and owner-occupied commercial real estate (“CRE”) loans; 2) CRE loans, consisting of commercial investment real estate loans, AG real estate, and construction and land development loans; 3) residential real estate loans, including residential first mortgages, residential junior mortgages (such as home equity loans and lines), and residential construction loans; and 4) retail and other loans. Using these four broad groups the mix of loans at September 30, 2017 was 53% commercial, 22% CRE loans, 24% residential real estate, and 1% retail and other loans; and grouped further the loan mix was 75% commercial-based and 25% retail-based.

Total loans were $2.1 billion at September 30, 2017 compared to $1.6 billion at December 31, 2016. Compared to September 30, 2016, loans grew $497 million or 32%, primarily as a result of the $351 million loans added from First Menasha at acquisition in April 2017 and also through strong organic growth. On average, loans were $1.8 billion and $1.3 billion for the first nine months of 2017 and 2016, respectively, up 45%, largely attributable to the timing of inclusion of acquired loans. At the time of the merger, the acquired First MenashaThe loan portfolio ~~was somewhat similar~~is widely diversified by types of borrowers, industry groups, and market areas.

An active credit risk management process is used to ~~Nicolet’s pre-merger loan mix, with the most notable differences being a higher mix in CRE investment~~ensure that sound and ~~a lower mix in commercial~~consistent credit decisions are made. The credit management process is regularly reviewed and ~~industrial loans. The majority of organic growth experienced in the first nine months of 2017~~ has been ~~in commercial and industrial loans.~~

~~Table 8: Period End Loan Composition~~

September 30, 2017 December 31, 2016 September 30, 2016
Amount % of
Total Amount % of
Total Amount % of
Total
Commercial & industrial $ 625,729 30.5 % $ 428,270 27.3 % $ 423,790 27.3 %
Owner-occupied CRE 428,054 20.9 360,227 23.0 362,554 23.3
AG production 36,352 1.8 34,767 2.2 34,077 2.2
AG real estate 48,443 2.4 45,234 2.9 45,671 2.9
CRE investment 303,448 14.8 195,879 12.5 197,884 12.7
Construction & land development 87,649 4.3 74,988 4.8 68,161 4.4
Residential construction 33,163 1.6 23,392 1.5 27,331 1.8
Residential first mortgage 363,116 17.7 300,304 19.1 284,653 18.3
Residential junior mortgage 102,654 5.0 91,331 5.8 95,901 6.2
Retail & other 22,514 1.0 14,515 0.9 14,102 0.9
Total loans $ 2,051,122 100.0 $ 1,568,907 100.0 % $ 1,554,124 100.0 %

~~Broadly, loans were 75% commercial-based and 25% retail-based at September 30, 2017 compared~~modified over the past several years to ~~73% commercial-based and 27% retail-based at December 31, 2016. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of~~further strengthen the broader list of factors that could impact a commercial borrower negatively as well as the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis.

Commercial and industrial loans consist primarily of commercial loans to small businesses within a diverse range of industries and, to a lesser degree, to municipalities. The credit risk related to commercial and industrial 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. Commercial and industrial loans increased $197 million to $626 million since year end 2016, largely attributable to acquired First Menasha loans and strong organic growth. Commercial and industrial loans continue to be the largest segment of Nicolet’s portfolio and increased to 30.5% of the total portfolio at September 30, 2017, up from 27.3% at December 31, 2016.

Owner-occupied CRE loans decreased to 20.9% of loans at September 30, 2017 from 23.0% at December 31, 2016. Owner-occupied CRE loans primarily consist of loans within a diverse range of industries secured by business real estate that is occupied by borrowers (i.e. who operate their businesses out of the underlying collateral) and who may also have commercial and industrial loans. The credit risk related to owner-occupied CRE loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations, or on the value of underlying collateral.

AG production and AG real estate loans combined consist of loans secured by farmland and related farming operations. The credit risk related to agricultural loans is largely influenced by the prices farmers can get for their production and/or the underlying value of the farmland. In total, agricultural loans increased $5 million since year end 2016, representing 4.2% of total loans at September 30, 2017, versus 5.1% at December 31, 2016.

The CRE investment loan classification primarily includes commercial-based mortgage loans that are secured by non-owner occupied, nonfarm/nonresidential real estate properties, and multi-family residential properties. Lending in this segment has been focused on loans that are secured by commercial income-producing properties as opposed to speculative real estate development. The balance of these loans increased $108 million since year end 2016, largely attributable to the acquired First Menasha loan mix, representing 14.8% of total loans at September 30, 2017 compared to 12.5% of total loans at December 31, 2016.

Loans in the construction and land development portfolio provide financing for the development of commercial income properties, multi-family residential development, and land designated for future development. Nicolet controls the credit risk on these types of loans by making loans in familiar markets, reviewing the merits of individual projects, controlling loan structure, and monitoring the progress of projects through the analysis of construction advances. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationships on an ongoing basis. Lending on originated loans in this category has remained relatively steady as a percent of loans. Since December 31, 2016, balances have increased $13 million, and this category represented 4.3% and 4.8% of total loans at September 30, 2017 and year-end 2016, respectively.

On a combined basis, Nicolet’s residential real estate loans represent 24.3% of total loans at September 30, 2017, down from 26.4% at December 31, 2016. Residential first mortgage loans include conventional first-lien home mortgages. Residential junior mortgage real estate loans consist mainly of home equity lines and term loans secured by junior mortgage liens. Across the industry, home equities generally involve loans that are in second or junior lien positions, but Nicolet has secured many such loans in a first lien position, further mitigating the portfolio risks. Nicolet has not experienced significant losses in its residential real estate loans; however, if market values in the residential real estate markets decline, particularly in Nicolet’s market area, rising loan-to-value ratios could cause an increase in the provision for loan losses. As part of its management of originating residential mortgage loans, the vast majority of Nicolet’s long-term, fixed-rate residential real estate mortgage loans are sold in the secondary market without retaining the servicing rights. Mortgage loans retained in the portfolio are typically of high quality and have historically had low net charge off rates.

Loans in the retail and other classification represent less than 1% of the total loan portfolio, and include predominantly short-term and other personal installment loans not secured by real estate. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and/or guaranty positions. The loan balances in this portfolio increased $8 million from December 31, 2016 to September 30, 2017.

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 ~~adequate ALLL,~~appropriate ACL-Loans, and sound nonaccrual and charge-off policies. ~~An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. The credit management process is regularly reviewed and~~

Table 6: Period End Loan Composition


	June 30, 2022				December 31, 2021				June 30, 2021
(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Commercial & industrial	$	1,118,360	23	%	$	1,042,256	23	%	$	886,456	31	%
Owner-occupied CRE	790,680		16		787,189		17		520,299		18
Agricultural	967,192		19		794,728		17		110,664		4
Commercial	2,876,232		58		2,624,173		57		1,517,419		53
CRE investment	818,562		16		818,061		18		505,588		18
Construction & land development	228,575		5		213,035		5		140,588		5
Commercial real estate	1,047,137		21		1,031,096		23		646,176		23
Commercial-based loans	3,923,369		79		3,655,269		80		2,163,595		76
Residential construction	69,423		1		70,353		1		46,646		2
Residential first mortgage	785,591		16		713,983		15		471,354		17
Residential junior mortgage	148,732		3		131,424		3		104,218		4
Residential real estate	1,003,746		20		915,760		19		622,218		23
Retail & other	51,539		1		50,807		1		34,518		1
Retail-based loans	1,055,285		21		966,567		20		656,736		24
Total loans	$	4,978,654	100	%	$	4,621,836	100	%	$	2,820,331	100	%

As noted in Table 6 above, the ~~process has been modified over the past several years to further strengthen the controls.~~

~~The~~ loan portfolio ~~is widely diversified by types of borrowers, industry groups,~~at June 30, 2022, was 79% commercial-based and ~~market areas. Significant loan concentrations~~21% retail-based. Commercial-based loans are considered to ~~exist~~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 ~~financial institution when there are amounts loaned~~borrower’s operations or on the value of underlying collateral, if any.

At June 30, 2022, loans were $5.0 billion, $357 million higher than December 31, 2021. The increase in loans was due to ~~multiple numbers~~strong growth in most loan categories, including commercial loans up $276 million (11%), primarily agricultural and commercial and industrial loans, partly offset by continued reductions in PPP loans from loan forgiveness (down $24 million). The growth in commercial loans also included the repurchase of ~~borrowers engaged in similar activities that would cause them~~approximately $100 million previously participated agricultural loans. Excluding the repurchased agricultural loans, the organic commercial loan growth was $176 million (7%) from December 31, 2021. Commercial and industrial loans continue to be ~~similarly impacted by economic or other conditions. At September 30, 2017, no significant industry concentrations existed in~~the largest segment of Nicolet’s portfolio and represented 23% of the total portfolio at June 30, 2022.

Residential real estate loans of $1.0 billion grew $88 million from year-end 2021, primarily in ~~excess of 25%~~ARM products, to represent 20% of total ~~loans. Nicolet has also developed guidelines to manage its exposure to various types~~loans at June 30, 2022. Residential first mortgage loans include conventional first-lien home mortgages, while residential junior mortgage loans consist mainly of ~~concentration risks.~~

home equity lines and term loans secured by junior mortgage liens. As part of our management of residential mortgage loans, the majority of Nicolet’s long-term, fixed-rate residential first mortgage loans are sold in the secondary market with servicing rights retained. Nicolet’s mortgage loans are typically of high quality and have historically had low net charge-off rates.

Retail and other loans were up slightly ($1 million) from year-end 2021, representing approximately 1% of the total loan portfolio, and include predominantly short-term and other personal installment loans not secured by real estate.

Allowance for ~~Loan and Lease~~Credit Losses

- Loans

In addition to the discussion that follows, see also Note ~~1, “Basis of Presentation,” and Note~~ 6, “Loans, Allowance for ~~Loan~~Credit Losses - Loans, and Credit Quality,” in the ~~notes~~Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the ~~unaudited consolidated financial statements and the “Critical Accounting Policies” within management’s discussion and analysis.~~

allowance for credit losses.

Credit risks within the loan portfolio are inherently different for each loan type as ~~described~~summarized under ~~“Balance Sheet Analysis-Loans.~~“BALANCE SHEET ANALYSIS — Loans.” A discussion of the loan portfolio credit risk can be found in the “Loans” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2021 Annual Report on Form 10-K. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ~~on-going~~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.

For additional information regarding nonperforming assets see also “BALANCE SHEET ANALYSIS – Nonperforming Assets.”

The ~~ALLL is established through a provision for loan losses charged to expense to appropriately provide for potential~~ACL-Loans represents management’s estimate of expected credit losses in the existing loan portfolio. Loans are charged off against the ALLL when management believes that the collection of principal is unlikely. The level of the ALLL represents management’s estimate of an amount of reserves that provides for estimated probable credit losses in theCompany’s loan portfolio at the balance sheet date. To assess the ~~ALLL,~~appropriateness of the ACL-Loans, management applies an allocation methodology ~~is applied by Nicolet~~ 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 ~~nonperforming~~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 ~~and forecasted~~ economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect ~~potential~~expected credit losses. ~~Nicolet’s methodology reflects guidance by regulatory agencies to all financial institutions.~~

Assessing these numerous factors involves significant judgment; therefore, management considers the ACL-Loans a critical accounting estimate.

Management allocates the ~~ALLL~~ACL-Loans by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve ~~for the estimated shortfall~~ is established for ~~all~~individually evaluated credit deteriorated loans, ~~determined to be impaired.~~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 ~~ALLL~~ACL-Loans for these credit deteriorated loans is equal to the aggregate collateral or discounted cash flow ~~shortfall calculated from~~shortfall. Management allocates the impairment analyses. Loans measured for impairment include nonaccrual loans, non-performing troubled debt-restructurings (“restructured loans”), or other loans determined to be impaired by management. Second, Nicolet’s management allocates ALLLACL-Loans with historical loss rates by loan segment. The loss factors are measured on a quarterly basis and applied ~~in the methodology are periodically re-evaluated~~to each loan segment based on current loan balances and adjusted to reflect changes in historical loss levels on an annual basis. The look-back period on which the average historical loss rates are determined is a rolling 20-quarter (5 year) average. Lastly,projected for their expected remaining life. Next, management allocates ~~ALLL to~~ the ~~remaining loan portfolio~~ACL-Loans using the qualitative factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience of each loan segment. ~~Management conducts its allocation methodology on both~~Lastly, management considers reasonable and supportable forecasts to assess the ~~originated loans and on~~collectability of future cash flows.

At June 30, 2022, the ~~acquired loans separately to account for differences, such as different loss histories and qualitative factors, between the two segments.~~

~~Management performs ongoing intensive analyses~~ACL-Loans was $51 million (representing 1.02% 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 ALLL.

Consolidated net income and stockholders’ equity could be affected if management’s estimate of the ALLL necessary to cover expected losses is subsequently materially different, requiring a change in the level of provision for loan losses to be recorded. While management uses currently available information to recognize losses on loans, future adjustments to the ALLL may be necessary based on newly received appraisals, updated commercial customer financial statements, rapidly deteriorating customer cash flow, and changes in economic conditions that affect Nicolet’s customers. As an integral part of their examination process, federal regulatory agencies also review the ALLL. Such agencies may require additions to the ALLL or may require that certain loan balances be charged-off or downgraded into criticized 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.

~~At September 30, 2017, the ALLL was $12.6 million~~period end loans) compared to ~~$11.8~~$50 million at December 31, 2016. The nine-month increase was a result of a 2017 provision of $1.9 million exceeding 2017 net charge offs of $1.1 million. Comparatively, the provision for loan losses in the first nine months of 2016 was $1.4 million2021 and net charge offs were $0.2 million. Annualized net charge offs as a percent of average loans were 0.08% in the first nine months of 2017 compared to 0.02% for the first nine months of 2016 and 0.02% for the entire 2016 year. Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, accrued interest, and related expenses. The level of the provision for loan losses is directly correlated to the assessment of the adequacy of the allowance, including, but not limited to, consideration of the amount of net charge-offs, loan growth, levels of nonperforming loans, and trends in the risk profile of the loan portfolio.

The ratio of the ALLL as a percentage of period-end loans was 0.61% at September 30, 2017 (with a 0.89% ratio on originated loans and a 0.25% ratio on acquired loans) compared to 0.75% at December 31, 2016 (with a 1.05% ratio on originated loans and a 0.36% ratio on acquired loans). The ALLL to loans ratio is impacted by the accounting treatment of Nicolet’s 2013, 2016 and 2017 bank acquisitions, which combined at their acquisition dates added no ALLL to the numerator and $1.3 billion of loans into the denominator. Acquired loans were $885 million and $667$33 million at ~~September~~June 30, ~~2017 and December 31, 2016, respectively, representing 43% of total loans at both September 30, 2017 and December 31, 2016.~~2021. The ~~change in the ALLL to loans ratio was driven by the~~ increase in the ~~denominator~~ACL-Loans from ~~acquired loans~~year-end 2021 is reflective of strong loan growth, solid asset quality trends, and negligible net charge-offs. The increase in ~~2016~~the ACL-Loans from June 30, 2021 was largely due to the acquisitions of Mackinac and ~~2017.~~

County, which combined added $12 million of provision for the Day 2 allowance and $5 million related to purchased credit deteriorated loans. The ~~largest portions~~components of the ALLL were allocated to commercial & industrial (“C&I”) loans and owner-occupied CRE loans combined, representing 60.9% and 57.5% of the ALLL at September 30, 2017 and December 31, 2016, respectively. Most notably since December 31, 2016, the increased allocations to C&I (from 33.2% to 39.9%), and the decreased allocation in owner-occupied CRE investment (from 24.3% to 21.0%) was largely the result of changes to allowance allocations in conjunction with changes in past due and loss histories and balance mix changes. The large $1.0 million charge-off in the third quarter of 2017 was an originated C&I loan.

~~Table 9: Loan Loss Experience~~

For the nine months ended Year ended
(in thousands) September 30,
2017 September 30,
2016 December 31,
2016
Allowance for loan losses (ALLL):
Balance at beginning of period $ 11,820 $ 10,307 $ 10,307
Provision for loan losses 1,875 1,350 1,800
Charge-offs (1,156 ) 432 (584 )
Recoveries 71 (256 ) 297
Net charge-offs (1,085 ) 176 (287 )
Balance at end of period $ 12,610 $ 11,481 $ 11,820

Net loan charge-offs (recoveries):
Commercial & industrial $ 1,077 $ 262 $ 253
Owner-occupied CRE (29 ) 58 103
Agricultural production - - -
Agricultural real estate - - -
CRE investment (1 ) (221 ) (221 )
Construction & land development 13 - -
Residential construction - - -
Residential first mortgage 2 (5 ) 49
Residential junior mortgage (2 ) 46 49
Retail & other 25 36 54
Total net loans charged-off $ 1,085 $ 176 $ 287

ALLL to total loans 0.61 % 0.74 % 0.75 %
ALLL to net charge-offs 1,162.2 % 6,523.3 % 4,118.5 %
Net charge-offs to average loans, annualized 0.08 % 0.02 % 0.02 %

~~The allocation of the ALLL is based on Nicolet’s estimate of loss exposure by category of loans and is shown~~ACL-Loans are detailed further in Table ~~10 for September 30, 2017 and December 31, 2016.~~

7 below.

Table ~~10: Allocation of the~~7: Allowance for ~~Loan~~Credit Losses

(in thousands) September 30, 2017 % of Loan
Type to
Total
Loans December 31, 2016 % of Loan
Type to
Total
Loans
ALLL allocation
Commercial & industrial $ 5,025 30.5 % $ 3,919 27.3 %
Owner-occupied CRE 2,643 20.9 2,867 23.0
Agricultural production 166 1.8 150 2.2
Agricultural real estate 268 2.4 285 2.9
CRE investment 1,257 14.8 1,124 12.5
Construction & land development 742 4.3 774 4.8
Residential construction 167 1.6 304 1.5
Residential first mortgage 1,658 17.7 1,784 19.1
Residential junior mortgage 467 5.0 461 5.8
Retail & other 217 1.0 152 0.9
Total ALLL $ 12,610 100.0 % $ 11,820 100.0 %

ALLL category as a percent of total ALLL:
Commercial & industrial 39.9 % 33.2 %
Owner-occupied CRE 21.0 24.3
Agricultural production 1.3 1.3
Agricultural real estate 2.1 2.4
CRE investment 10.0 9.5
Construction & land development 5.9 6.5
Residential construction 1.3 2.6
Residential first mortgage 13.1 15.1
Residential junior mortgage 3.7 3.9
Retail & other 1.7 1.2
Total ALLL 100.0 % 100.0 %

~~Impaired~~ - Loans ~~and~~


	Six Months Ended						Year Ended
(in thousands)	June 30, 2022			June 30, 2021			December 31, 2021
ACL-Loans:
Balance at beginning of period	$	49,672		$	32,173		$	32,173
ACL on PCD loans acquired	—			—			5,159
Provision for credit losses	900			500			12,500
Charge-offs	(142)			(329)			(513)
Recoveries	225			217			353
Net (charge-offs) recoveries	83			(112)			(160)
Balance at end of period	$	50,655		$	32,561		$	49,672
Net loan (charge-offs) recoveries:
Commercial & industrial	$	30		$	(36)		$	50
Owner-occupied CRE	(36)			—			—
Agricultural	—			(48)			(48)
CRE investment	169			(2)			(2)
Construction & land development	—			—			—
Residential construction	—			—			—
Residential first mortgage	5			12			(93)
Residential junior mortgage	1			3			4
Retail & other	(86)			(41)			(71)
Total net (charge-offs) recoveries	$	83		$	(112)		$	(160)
Ratios:
ACL-Loans to total loans	1.02		%	1.15		%	1.07		%
Net charge-offs to average loans, annualized	(0.00)		%	0.01		%	0.01		%

Nonperforming Assets

As part of its overall credit risk management process, ~~Nicolet’s~~ management ~~has been~~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 ~~ensure that~~identify problem loans ~~are identified~~ early and minimize the risk of ~~loss is minimized.~~

loss. Management continues to actively work with customers and monitor credit risk from the ongoing disruptions related to the pandemic, as well as economic, political, and social turmoil. See also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for further disclosures on credit quality. For additional information see also “BALANCE SHEET ANALYSIS – Loans” and “BALANCE SHEET ANALYSIS – Allowance for Credit Losses-Loans.”

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans ~~including those defined as impaired under current accounting standards,~~ 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. Nonaccrual loans were $14.4 million (consisting of $1.0 million originated loans and $13.4 million acquired loans) at September 30, 2017 compared to $20.3 million at December 31, 2016 (consisting of $0.3 million originated loans and $20.0 million acquired loans). Nonperforming assets ~~(which~~ include nonperforming loans and other real estate owned ~~“OREO”~~(“OREO”). At June 30, 2022, nonperforming assets were ~~$15.7~~$42 million ~~at September 30, 2017~~and represented 0.56% of total assets, compared to ~~$22.3~~$56 million or 0.73% of total assets at December 31, 2016. OREO was $1.3 million at September 30, 2017, down from $2.1 million at year end 2016, the majority of which is closed bank branch property. Nonperforming assets as a percent of total assets were 0.55% at September 30, 2017 compared to 0.97% at December 31, 2016.

2021.

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 ~~adequacy~~appropriate level of the ~~ALLL.~~ACL-Loans. Potential problem loans are generally defined by management to include loans rated as Substandard by management but that are in performing status; however, there are circumstances present which might adversely affect the ability of the borrower to comply with present repayment terms. 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 ~~$14.1~~$48 million ~~(0.7%~~(1.0% of loans) and ~~$12.6~~$53 million ~~(0.8%~~(1.1% of loans) at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, respectively. Potential problem loans require a heightened management review of the pace at which a credit may deteriorate, the 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 ~~11:~~8: Nonperforming Assets

(in thousands) September 30,
2017 December 31,
2016 September 30,
2016
Nonaccrual loans:
Commercial & industrial $ 5,078 $ 358 $ 680
Owner-occupied CRE 1,276 2,894 2,986
AG production 2 9 23
AG real estate 186 208 208
CRE investment 4,537 12,317 13,216
Construction & land development 723 1,193 1,220
Residential construction 80 260 287
Residential first mortgage 2,301 2,990 2,656
Residential junior mortgage 239 56 212
Retail & other — — —
Total nonaccrual loans 14,422 20,285 21,488
Accruing loans past due 90 days or more — — —
Total nonperforming loans $ 14,422 $ 20,285 $ 21,488
OREO:
Commercial & industrial $ — $ 64 $ 64
Owner-occupied CRE 25 304 278
CRE investment 160 — —
Construction & land development 90 623 651
Residential real estate owned — 29 109
Bank property real estate owned 1,039 1,039 1,087
Total OREO 1,314 2,059 2,189
Total nonperforming assets $ 15,736 $ 22,344 $ 23,677
Total restructured loans accruing $ — $ — $ —
Ratios
Nonperforming loans to total loans 0.70 % 1.29 % 1.38 %
Nonperforming assets to total loans plus OREO 0.77 % 1.42 % 1.52 %
Nonperforming assets to total assets 0.55 % 0.97 % 1.04 %
ALLL to nonperforming loans 87.4 % 58.3 % 53.4 %
ALLL to total loans 0.61 % 0.75 % 0.74 %

~~Table 12: Investment Securities Portfolio~~

September 30, 2017 December 31, 2016
(in thousands) Amortized
Cost Fair
Value %of
Fair
Value Amortized
Cost Fair
Value %of
Fair
Value
U.S. government sponsored enterprises $ 26,394 $ 26,272 6 % $ 1,981 $ 1,963 1 %
State, county and municipals 189,226 188,716 46 191,721 187,243 51
Mortgage-backed securities 159,113 157,936 39 161,309 159,129 44
Corporate debt securities 32,203 32,744 8 12,117 12,169 3
Equity securities 1,288 2,549 1 2,631 4,783 1
Total $ 408,224 $ 408,217 100 % $ 369,759 $ 365,287 100 %

At September 30, 2017 the total carrying value of investment securities was $408.2 million, up from $365.3 million at December 31, 2016, and represented 14.3% and 15.9% of total assets at September 30, 2017 and December 31, 2016, respectively. The increase since year end 2016 was largely attributable to investment securities added from First Menasha at acquisition in April 2017 as well as purchase activity. At September 30, 2017, the securities portfolio did not contain securities of any single issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of stockholders’ equity.


(in thousands)	June 30, 2022			December 31, 2021			June 30, 2021
Nonperforming loans:
Commercial & industrial	$	1,784		$	1,908		$	1,110
Owner-occupied CRE	5,183			4,220			1,625
Agricultural	21,054			28,367			1,820
Commercial	28,021			34,495			4,555
CRE investment	3,617			4,119			743
Construction & land development	1,044			1,071			326
Commercial real estate	4,661			5,190			1,069
Commercial-based loans	32,682			39,685			5,624
Residential construction	—			—			—
Residential first mortgage	3,580			4,132			1,135
Residential junior mortgage	221			243			113
Residential real estate	3,801			4,375			1,248
Retail & other	97			94			60
Retail-based loans	3,898			4,469			1,308
Total nonaccrual loans	36,580			44,154			6,932
Accruing loans past due 90 days or more	—			—			—
Total nonperforming loans	$	36,580		$	44,154		$	6,932
Nonaccrual loans (included above) covered by guarantees	$	4,883		$	6,776		$	1,201
OREO:
Commercial real estate owned	$	628		$	1,549		$	—
Residential real estate owned	—			99			—
Bank property real estate owned	4,378			10,307			2,895
Total OREO	5,006			11,955			2,895
Total nonperforming assets	$	41,586		$	56,109		$	9,827
Performing troubled debt restructurings	$	1,710		$	5,443		$	3,879
Ratios:
Nonperforming loans to total loans	0.73		%	0.96		%	0.25		%
Nonperforming assets to total loans plus OREO	0.83		%	1.21		%	0.35		%
Nonperforming assets to total assets	0.56		%	0.73		%	0.21		%
ACL-Loans to nonperforming loans	138		%	112		%	470		%

In addition to securities available for sale, Nicolet has other investments, consisting of capital stock in the Federal Reserve and the FHLB (required as members of the Federal Reserve Bank System and the Federal Home Loan Bank System), and the Federal Agricultural Mortgage Corporation, as well as equity investments in other privately-traded 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 remaining investments have no quoted market prices, and are carried at cost less other than temporary impairment (“OTTI”) charges, if any. Nicolet’s management evaluates all these other investments periodically for impairment, considering financial condition and other available relevant information. Other investments totaled $14.9 million at September 30, 2017 and $17.5 million at December 31, 2016, with the decline primarily attributable to redeemed FHLB stock. One equity investment had an OTTI charge of $0.5 million recorded in the fourth quarter of 2016. There were no OTTI charges recorded in 2017.

~~Table 13: Investment Securities Portfolio Maturity Distribution~~

As of September 30, 2017
Within
One Year After One
but Within
Five Years After Five
but Within
Ten Years After
Ten Years Mortgage-
related
and Equity
Securities Total
Amortized
Cost Total
Fair
Value
Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount Yield Amount
(in thousands)
U.S. government sponsored enterprises $ — — % $ 10,406 0.1 % $ 15,988 0.1 % $ — — % $ — — % $ 26,394 0.3 % $ 26,272
State and county municipals (1) 13,262 2.5 74,612 2.8 100,339 2.5 1,013 2.9 — — 189,226 2.6 188,716
Mortgage-backed securities — — — — — — — — 159,113 2.9 159,113 3.0 157,936
Corporate debt securities — — 11,080 4.2 14,150 2.9 6,973 5.8 — — 32,203 3.9 32,744
Equity securities — — — — — — — — 1,288 2.4 1,288 2.4 2,549

Total amortized cost $ 13,262 2.5 % $ 96,098 2.7 % $ 130,477 2.2 % $ 7,986 5.4 % $ 160,401 2.9 % $ 408,224 2.7 % $ 408,217
Total fair value and carrying value $ 13,261 $ 96,410 $ 129,769 $ 8,292 $ 160,485 $ 408,217

As a percent of total fair value 3 % 24 % 32 % 2 % 39 % 100 %

Deposits

~~(1)~~

~~The yield on tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 35% adjusted for the disallowance of interest expense.~~

~~Deposits~~

Deposits represent Nicolet’s largest source of funds. ~~Nicolet competes with other bank~~Total deposits of $6.3 billion at June 30, 2022, decreased $180 million from December 31, 2021, including a $219 million reduction in core customer deposits and ~~nonbank institutions for~~a $39 million increase in brokered deposits. The net decrease in deposits ~~as well as with~~from year-end 2021 was due to the repricing of acquired deposits to current market rates and a ~~growing number of non-deposit investment alternatives available~~reduction in retail deposits. Compared to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives. Included inJune 30, 2021, total deposits increased $2.3 billion (60%), largely due to the Mackinac and County acquisitions. The deposit composition is presented in Table ~~14 are brokered deposits of $126 million at September 30, 2017 and $21 million at December 31, 2016.~~

9 below.

Table ~~14: Deposits~~

September 30, 2017 December 31, 2016
(in thousands) Amount % of
Total Amount % of
Total
Demand $ 638,447 27.0 % $ 482,300 24.5 %
Money market and NOW accounts 1,107,360 46.8 964,509 49.0
Savings 274,828 11.6 221,282 11.2
Time 346,316 14.6 301,895 15.3
Total deposits $ 2,366,951 100.0 % $ 1,969,986 100.0 %

Total deposits were $2.4 billion at September 30, 2017, up $397 million or 20% since December 31, 2016, largely attributable to the $375 million deposits added from First Menasha at acquisition in April 2017. On average for the first nine months of 2017, total deposits were $2.2 billion, up $631 million, or 41%, from the comparable 2016 period, largely attributable to the inclusion of acquired Baylake deposits for all of 2017 versus five of nine months in 2016 and acquired First Menasha deposits for five months of 2017 versus no months in 2016. On average, the mix of deposits changed between the comparable nine-month periods, with 2017 carrying more in brokered deposits, demand (i.e. noninterest bearing) deposits and money market and NOW accounts, and less in savings and time deposits.

9: Period End Deposit Composition


	June 30, 2022				December 31, 2021				June 30, 2021
(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Noninterest-bearing demand	$	2,045,732	33	%	$	1,975,705	31	%	$	1,324,994	34	%
Money market and interest-bearing demand	2,642,510		42	%	2,834,824		44	%	1,512,753		38	%
Savings	858,160		13	%	803,197		12	%	599,461		15	%
Time	739,864		12	%	852,190		13	%	501,814		13	%
Total deposits	$	6,286,266	100	%	$	6,465,916	100	%	$	3,939,022	100	%
Brokered transaction accounts	$	265,240	4	%	$	234,306	4	%	$	34,067	1	%
Brokered and listed time deposits	218,198		4	%	209,857		3	%	216,273		5	%
Total brokered deposits	$	483,438	8	%	$	444,163	7	%	$	250,340	6	%
Customer transaction accounts	$	5,281,162	84	%	$	5,379,420	83	%	$	3,403,141	87	%
Customer time deposits	521,666		8	%	642,333		10	%	285,541		7	%
Total customer deposits (core)	$	5,802,828	92	%	$	6,021,753	93	%	$	3,688,682	94	%

~~Table 15: Average Deposits~~

For the nine months ended
September 30, 2017 September 30, 2016
(in thousands) Amount % of
Total Amount % of
Total
Demand $ 516,412 23.7 % $ 348,765 22.6 %
Money market and NOW accounts 1,064,585 48.9 732,721 47.4
Savings 249,099 11.5 184,156 11.9
Time 345,264 15.9 278,685 18.1
Total $ 2,175,360 100.0 % $ 1,544,327 100.0 %

~~Table 16: Maturity Distribution of Certificates of Deposit of $100,000 or More~~

(in thousands) September 30,
2017
3 months or less $ 19,226
Over 3 months through 6 months 25,973
Over 6 months through 12 months 44,218
Over 12 months 71,655
Total $ 161,072

~~Other Funding Sources~~

Other funding sources included short-term borrowings ($12.9 million at September 30, 2017 and zero at December 31, 2016) and long-term borrowings (totaling $83.0 million at September 30, 2017 and $37.6 million at December 31, 2016). Short-term borrowings, when used, consist mainly of federal funds purchased, overnight borrowings with correspondent financial institutions, FHLB advances with original maturities of one year or less, and customer repurchase agreements maturing in less than six months. Long-term borrowings include notes payable (consisting of FHLB advances with original maturities greater than one year), junior subordinated debentures (largely qualifying as Tier 1 capital for regulatory purposes, given their long maturity dates, even though they are redeemable in whole or in part at par), and subordinated debt (issued in 2015 with 10-year maturities, callable on or after the fifth anniversary date of their respective issuance dates, and qualifying as Tier 2 capital for regulatory purposes). Further information regarding these long-term borrowings is included in Note 8 – Notes Payable, Note 9 – Junior Subordinated Debentures, and Note 10 – Subordinated Notes in the notes to the unaudited consolidated financial statements. Given the high level of deposits to assets, other funding sources are currently utilized modestly, mainly for their capital equivalent characteristics and term funding.

At September 30, 2017, additional funding sources consist of a $10 million available and unused line of credit at the holding company, $158 million of available and unused federal funds purchased lines, and remaining available total borrowing capacity at the FHLB of $115 million.

~~Off-Balance Sheet Obligations~~

Lending-Related Commitments

As of ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016,~~2021, Nicolet had the following off-balance sheet lending-related commitments.

Table 10: Commitments


(in thousands)	June 30, 2022		December 31, 2021
Commitments to extend credit	$	1,564,644	$	1,433,881
Financial standby letters of credit	19,100		13,562
Performance standby letters of credit	8,049		7,336

Interest rate lock commitments ~~that did not appear on its balance sheet:~~

~~Table 17: Commitments~~

September 30, December 31,
2017 2016
(in thousands)
Commitments to extend credit — fixed and variable rate $ 660,578 $ 554,980
Financial letters of credit 9,381 12,444
Standby letters of credit 8,006 4,898

~~Interest~~to originate residential mortgage loans held for sale (included above in commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale are considered derivative instruments (“mortgage derivatives”) and the notional amounts represented $16 million and $15 million, respectively, at June 30, 2022. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale ~~are considered derivative instruments and~~ represented ~~$32.2~~$50 million and ~~$5.9~~$1 million, respectively, at ~~September~~December 31, 2021. The net fair value of these mortgage derivatives combined was a gain of $103,000 at June 30, ~~2017. Fair value approximates the notional amounts.~~

2022 compared to a gain of $149,000 at December 31, 2021.

Liquidity Management

Liquidity management refers to the ability to ensure that cash is available in a timely and cost-effective manner to meet cash flow requirements of depositors and borrowers and to meet other commitments as they fall due, including the ability to ~~pay dividends to shareholders,~~ service debt, invest in subsidiaries, repurchase common stock, and satisfy other operating requirements.

Funds are available from a number of basic banking activity sources including, but not limited to, the core deposit ~~base, the~~base; repayment and maturity of ~~loans,~~loans; investment securities calls, maturities, and ~~sales,~~sales; and ~~funds obtained through~~procurement of additional brokered ~~deposits. All investment securities are classified as available for sale and are reported at fair value on the consolidated balance sheet. Approximately $77 million~~deposits or other wholesale funding. At June 30, 2022, approximately 52% of the ~~$408 million~~$1.5 billion investment securities portfolio ~~at September 30, 2017~~ was pledged as collateral to secure public deposits, ~~short term borrowings, repurchase agreements,~~as applicable, and for liquidity or ~~for~~ other purposes as required by ~~law. Other~~regulation. Additional funding sources at June 30, 2022, consist of available and unused Federal funds lines, borrowing capacity at the FHLB of $840 million, and borrowing capacity in the brokered deposit market.

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, repayment of debt, or investment in other strategic actions such as mergers or acquisitions. At June 30, 2022, the Parent Company had $47 million in cash. Additional cash sources available to the Parent Company include ~~short-term borrowings, federal funds purchased,~~access to the public or private markets to issue new equity, subordinated notes or other debt. During 2021, Nicolet completed the private placement of $100 million in fixed-to-floating rate subordinated notes (the “Notes”) due in 2031. (See Note 8, “Short and ~~long-term borrowings.~~

Long-Term Borrowings” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on the Notes). Dividends from the Bank and, to a lesser extent, stock option exercises, also represent significant sources of cash flows for the Parent Company.

Cash and cash equivalents at ~~September~~June 30, ~~2017~~2022 and December 31, ~~2016~~2021 were ~~$96~~$181 million and ~~$129~~$595 million, respectively. ~~These levels have decreased through the first nine months of 2017 with $117 million net~~The decrease in cash ~~used by investing activities (mostly due to a net increase in loans~~ and ~~securities), partially offset by $30~~cash equivalents since year-end 2021 included $49 million net cash provided by operating activities ~~and $54~~(mostly earnings), $212 million net cash ~~provided~~used in investing activities (with strong loan growth partly offset by net cash received from the Birmingham branch sale), and $251 million net cash used in financing activities (mostly ~~due~~ to ~~a net increase in deposits)~~fund deposit outflows and common stock repurchases). ~~Nicolet’s~~Management believes its liquidity resources were sufficient as of ~~September~~June 30, ~~2017~~2022 to fund loans, accommodate deposit ~~trends~~cycles and ~~cycles,~~trends, and to meet other cash needs as necessary.

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~~our financial strategy and risk management, ~~Nicolet attempts~~we attempt to understand and manage the impact of fluctuations in market interest rates on ~~its~~our 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 of directors’ Asset and Liability Committee.

To understand and manage the impact of fluctuations in market interest rates on net interest income, ~~Nicolet measures its~~we measure our 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.

~~Nicolet~~

Among other scenarios, we assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps ~~decrease~~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 earlier and reflect the changed 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 ~~this analysis on~~ financial data at ~~September~~June 30, ~~2017,~~2022 and December 31, 2021, the projected changes in net interest income over a one-year time horizon, versus the baseline, ~~was -0.5%, -0.2%, 0.3% and 0.6% for the -200, -100, +100 and +200 bps scenarios, respectively; such~~are presented in Table 11 below. The results are within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps.

Table 11: Interest Rate Sensitivity


	June 30, 2022		December 31, 2021
200 bps decrease in interest rates	(1.3)	%	(0.3)	%
100 bps decrease in interest rates	(0.4)	%	(0.3)	%
100 bps increase in interest rates	—	%	(0.1)	%
200 bps increase in interest rates	(0.1)	%	(0.3)	%

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 impact the Bank’s customers, 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 for 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~~guidelines. The capital position and strategies are actively ~~reviews capital strategies~~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.

For details on the change in capital see “BALANCE SHEET ANALYSIS.”

At September 30, 2017, Nicolet’s capital structure consisted of $360.4 million of common stock equity compared to $275.9 million of common equity at December 31, 2016. Nicolet’s common equity, representing 12.7% of total assets at September 30, 2017The Company’s and ~~12.0% at December 31, 2016, continues to reflect capacity to capitalize on opportunities. Nicolet’s common stock was accepted by shareholders as~~ the ~~primary consideration in the recent 2017 and 2016 acquisitions, as described in Note 2 – “Acquisitions,” in the notes to the unaudited consolidated financial statements.~~

On April 28, 2017 as part of the First Menasha merger, Nicolet issued 1.3 million shares of common stock for common stock consideration of $62.2 million. On April 29, 2016 as part of the Baylake merger, Nicolet issued 4.3 million shares of common stock for common stock consideration of $163.3 million, and recorded $1.2 million consideration for assumed stock options. In connection with the financial advisor business acquisition that completed on April 1, 2016, Nicolet issued $2.6 million in common stock consideration. Book value per common share increased 14% to $36.78 at September 30, 2017 from $32.26 at year end 2016 aided mostly by the common equity issued in the 2017 acquisition and retained earnings exceeding stock purchases.

~~As shown in Table 18, Nicolet’s~~Bank’s regulatory capital ratios remain ~~well~~ above minimum regulatory ~~ratios. Also, at September~~ratios, including the capital conservation buffer. At June 30, ~~2017,~~2022, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action ~~framework with hurdles of 10.0%, 8.0%, 6.5% and 5.0%, respectively.~~framework. This strong base of capital has allowed Nicolet to be opportunistic in the current environment and in strategic growth.

The primary source of income and funds for the parent company is dividends from the Bank. Dividends declared by the Bank that exceed the retained net income for the most current year plus retained net income for the preceding two years must be approved by federal regulatory agencies. At September 30, 2017, the Bank could pay dividends of approximately $13.9 million without seeking regulatory approval. During 2016, the Bank paid $35.5 million of dividends (which included a special dividend of $15 million out of Bank surplus) to the parent company, and paid $10 million of dividends during the first nine months of 2017. On October 17, 2017, the Bank declared and paid a $12 million dividend to the Company.

A summary of ~~Nicolet’s~~the Company’s and ~~Nicolet National~~the Bank’s regulatory capital amounts and ratios, as ~~of September 30, 2017 and December 31, 2016~~well as selected capital metrics are presented in the following table.

Table ~~18:~~12: Capital

Actual For Capital
Adequacy Purposes To Be Well
Capitalized
Under Prompt
Corrective Action
Provisions (2)
(in thousands) Amount Ratio (1) Amount Ratio (1) Amount Ratio (1)
As of September 30, 2017:
Company
Total capital $ 293,800 12.8 % $ 183,929 8.0 %
Tier 1 capital 269,277 11.7 137,947 6.0
CET 1 capital 240,351 10.5 103,460 4.5
Leverage 269,277 10.0 108,169 4.0

Bank
Total capital $ 279,665 12.2 % $ 183,696 8.0 % $ 229,620 10.0 %
Tier 1 capital 267,055 11.6 137,772 6.0 183,696 8.0
CET 1 capital 267,055 11.6 103,329 4.5 149,253 6.5
Leverage 267,055 9.9 108,053 4.0 135,067 5.0

As of December 31, 2016:
Company
Total capital $ 249,723 13.9 % $ 144,195 8.0 %
Tier 1 capital 226,018 12.5 108,146 6.0
CET 1 capital 202,313 11.2 81,110 4.5
Leverage 226,018 10.3 87,566 4.0

Bank
Total capital $ 217,682 12.1 % $ 144,322 8.0 % $ 180,403 10.0 %
Tier 1 capital 205,862 11.4 108,242 6.0 144,322 8.0
CET 1 capital 205,862 11.4 81,181 4.5 117,262 6.5
Leverage 205,862 9.4 87,329 4.0 109,161 5.0

~~(1)~~

The total capital ratio is defined as Tier1 capital plus Tier 2 capital divided by total risk-weighted assets. The Tier 1 capital ratio is defined as Tier1 capital divided by total risk-weighted assets. CET 1 capital ratio is defined as Tier 1 capital, with deductions for goodwill and other intangible assets (other than mortgage servicing assets), net of associated deferred tax liabilities, and limitations on the inclusion of deferred tax assets, mortgage servicing assets and investments in other financial institutions, in each case as provided further in the rules, divided by total risk-weighted assets. The leverage ratio is defined as Tier 1 capital divided by the most recent quarter’s average total assets, adjusted in accordance with regulatory guidelines.

~~(2)~~

~~Prompt corrective action provisions are not applicable at the bank holding company level.~~

At or for the Six Months Ended At or for the
Year Ended
($ in thousands) June 30, 2022 December 31, 2021
Company Stock Repurchases: *
Common stock repurchased during the period (dollars) $ 60,697 $ 61,464
Common stock repurchased during the period (full shares) 661,662 793,064
Company Risk-Based Capital:
Total risk-based capital $ 791,903 $ 793,410
Tier 1 risk-based capital 597,957 604,199
Common equity Tier 1 capital 560,433 567,095
Total capital ratio 13.4 % 13.8 %
Tier 1 capital ratio 10.1 % 10.5 %
Common equity tier 1 capital ratio 9.5 % 9.9 %
Tier 1 leverage ratio 8.5 % 9.4 %
Bank Risk-Based Capital:
Total risk-based capital $ 731,419 $ 700,869
Tier 1 risk-based capital 690,132 664,688
Common equity Tier 1 capital 690,132 664,688
Total capital ratio 12.4 % 12.2 %
Tier 1 capital ratio 11.7 % 11.6 %
Common equity tier 1 capital ratio 11.7 % 11.6 %
Tier 1 leverage ratio 9.9 % 10.3 %
* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.
In ~~July 2013,~~managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the ~~Federal Reserve Board~~market, and alternative uses of capital (such as the ~~OCC issued final rules implementing the Basel III regulatory capital framework~~level of organic growth or acquisition opportunities) in light of strategic plans. During first half 2022, $61 million was utilized to repurchase and ~~related Dodd-Frank Act changes. The final rules took effect for the Company and Bank on January 1, 2015, subject~~cancel 661,662 shares of common stock, pursuant to a transition period for certain parts of the rules. The rules permitted certain banking organizations to retain, through a one-time election, the existing treatment for accumulated other comprehensive income. Nicolet and the Bank made the election in 2015 to retain the existing treatment for accumulated other comprehensive income.

~~The tables above calculate and present regulatory capital based upon the new regulatory capital ratio requirements~~our common stock repurchase program. At June 30, 2022, there remains $48 million authorized under Basel III that became effective on January 1, 2015. Beginning in 2016, an additional capital conservation buffer was added to the minimum requirements for capital adequacy purposes, subject to a three year phase-in period. The capital conservation buffer will be fully phased-in on January 1, 2019 at 2.5 percent. A banking organization with a conservation buffer of less than 2.5 percent (or the required phase-in amount in years prior to 2019) will be subject to limitations on capital distributions, including dividend payments and certain discretionary bonus payments to executive officers. At the present time, the ratios for the Company and Bank are sufficient to meet the fully phased-in conservation buffer.

~~Future Accounting Pronouncements~~

~~In May 2014, the FASB issued ASU 2014-09,~~~~Revenue from Contracts with Customers (Topic 606).~~The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expectsthis repurchase program, as modified, to be ~~entitled~~utilized from time-to-time to repurchase shares in ~~exchange for those goods and services.~~ the open market, through block transactions or in private transactions.

Critical Accounting Estimates

In ~~August 2015,~~preparing the FASB issued an amendment to defer the effective date for all entities by one year. The updated guidance is effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Since a significant number of business transactions are not subject to the guidance, it is not expected to have a material impact on the Company’s financial statements when it goes into effect the first quarter of 2018.

~~In August 2017, the FASB issued updated guidance to ASU 2017-12,~~~~Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities.~~ASU 2017-12 expands the activities that qualify for hedge accounting and simplifies the rules for reporting hedging transactions. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently assessing the impact of the new guidance on its consolidated financial statements, management is required to make estimates and ~~it is not expected to have a significant impact on its consolidated financial statements because~~assumptions that affect the ~~Company does not have any significant derivatives~~reported amounts of assets and ~~does not currently apply hedge accounting to derivatives.~~

~~In May 2017, the FASB issued updated guidance to ASU 2017-09,~~~~Compensation - Stock Compensation (Topic 718).~~~~ASU 2017-09 applies to entities that change the terms or conditions of a share-based payment award to provide clarity and reduce diversity in practice~~liabilities as well as cost and complexity when applying the guidance in Topic 718 to the modification to the terms and conditions of a share-based payment award. The updated guidance is effective for interim and annual reporting periods beginning after December 15, 2017, with early adoption permitted. The Company is currently assessing the impact of the ~~new guidance~~date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the determination of the allowance for credit losses, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions. A discussion of these estimates can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 2021 Annual Report on ~~its consolidated financial statements.~~

Form 10-K. There have been no changes in the Company’s determination of critical accounting policies and estimates since December 31, 2021.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk at June 30, 2022, from that presented in our 2021 Annual Report on Form 10-K. See section “Interest Rate Sensitivity Management” and Impact of Inflation” within Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I, Item 2.

2, for our interest rate sensitivity position at June 30, 2022.

ITEM 4. CONTROLS AND PROCEDURES

(a) Disclosure Controls and Procedures. Management, under the supervision, and with the participation, of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this ~~report, management, under the supervision and with the participation of our President and Chief Executive Officer and Chief~~report.

(b) Changes in Internal Control Over Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term in Rule 13a-15(e) and 15d-15(e) under the Exchange Act pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of such evaluation, the President and Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and proceduresReporting. There were ~~effective.~~

~~There have been~~ no changes in the Company’s internal ~~controls or, to the Company’s knowledge,~~control over financial reporting (as such term is defined in ~~other factors~~Exchange Act Rule 13a-15(f)) during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We and our subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in any legal proceedings that are expected to have a material adverse effect on our results of operations or financial position.

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Following are~~

Issuer Purchases of Equity Securities

The following table contains information regarding purchases of Nicolet’s ~~monthly~~ common stock ~~purchases~~made during the ~~third~~second quarter of ~~2017.~~

Total Number of
Shares Purchased (a) Average Price
Paid per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs(a)
(#) ($) (#) (#)
Period

July 1 – July 31, 2017 338 $ 54.82 — 458,000
August 1– August 31, 2017 49,699 $ 53.45 49,699 408,000
September 1 – September 30, 2017 17,316 $ 54.14 16,846 391,000
Total 67,353 $ 53.63 66,545 391,000

~~(a)~~

During the third quarter of 2017, the Company repurchased 0 and 808 shares for minimum tax withholding settlements on restricted stock and net settlements of stock options, respectively. These purchases do not count against the maximum number of shares that may yet be purchased under the board of directors’ authorization.

~~(b)~~

During early 2014, a common stock repurchase program was approved which authorized, with subsequent modifications the use of up to $30 million to repurchase up to 1,050,000 shares of outstanding common stock. At September 30, 2017, approximately $8.6 million remained available to repurchase up to 391,000 common shares. Using the closing stock price on September 30, 2017 of $57.53, a total of approximately 149,000 shares of common stock could be repurchased under this plan. Nicolet resumed repurchases of its shares under this program during the second quarter of 2017.

2022 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.


	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b)
	(#)	($)		(#)	(#)
Period
April 1 – April 30, 2022	68,132	$	92.38	67,949
May 1 – May 31, 2022	—	$	—	—
June 1 – June 30, 2022	—	$	—	—
Total	68,132	$	92.38	67,949	667,000

a.During second quarter 2022, the Company withheld 183 common shares for minimum tax withholding settlements on restricted stock. These are not considered “repurchases” and, therefore, do not count against the maximum number of shares that may yet be purchased under the board of directors’ authorization.

b.The board of directors approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to $276 million to repurchase outstanding shares of common stock. This common stock repurchase program was last modified on April 19, 2022, and has no expiration date. At June 30, 2022, approximately $48 million remained available under this common stock repurchase program, or approximately 667,000 shares of common stock (based upon the closing stock price of $72.34 on June 30, 2022).

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

~~None.~~

None.

ITEM 6. EXHIBITS

The following exhibits are filed herewith:

~~Exhibit~~
Exhibit Number						Description
~~31.1~~2.1						Agreement and Plan of Merger By and Between Nicolet Bankshares, Inc. and Charter Bankshares, Inc., dated March 29, 2022(1)
31.1						Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002
31.2						Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002
32.1						Certification of CEO Pursuant to 18 ~~U.S.C~~U.S.C. Section 1350 as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2						Certification of CFO Pursuant to 18 ~~U.S.C~~U.S.C. Section 1350 as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101*101.INS						The XBRL Instance Document does not appear in the Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets, (ii) Consolidated Statements of Income, (iii) Consolidated Statements of Comprehensive Income, (iv) Consolidated Statements of Stockholders’ Equity, (v) Consolidated Statement of Cash Flows,Date File because its XBRL tags are embedded within the Inline XBRL document (2)
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and ~~(vi) Notes to Consolidated Financial Statements tagged as blocks of text.~~contained in Exhibit 101)

*Indicates information that is furnished and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12

(1) Incorporated by reference to the exhibit of the ~~Securities Act~~same number in the Registrant’s Current Report on Form 8-K filed on March 30, 2022.

(2) Includes the following financial information included in the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of ~~1933, is deemed not filed for purposes~~Income, (iii) the Consolidated Statements of ~~section 18~~Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the ~~Securities Exchange Act~~Consolidated Statements of ~~1934,~~Cash Flows, and ~~otherwise is not subject~~(vi) Notes to ~~liability under these sections.~~

Unaudited Consolidated Financial Statements.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


			NICOLET BANKSHARES, INC.

~~November 3, 2017~~August 8, 2022			/s/ ~~Robert B. Atwell~~Michael E. Daniels
			~~Robert B. Atwell~~Michael E. Daniels
			~~Chairman,~~ President and Chief Executive Officer

~~November 3, 2017~~August 8, 2022			/s/ ~~Ann K. Lawson~~H. Phillip Moore, Jr.
			~~Ann K. Lawson~~H. Phillip Moore, Jr.
			Chief Financial Officer


Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	NIC	New York Stock Exchange


Large accelerated filer¨	☐	Accelerated filerx	☒

Non-accelerated filer¨	☐	Smaller reporting company¨	☐
		~~(Do not check if a smaller reporting company)~~
Emerging growth company	☐

		~~PAGE~~
~~PART I~~	~~FINANCIAL INFORMATION~~
					PAGE
PART I			FINANCIAL INFORMATION

			Item 1.	Financial Statements:

				Consolidated Balance Sheets ~~September 30, 2017 (unaudited) and December 31, 2016~~	3

				Consolidated Statements of Income ~~Three Months and Nine Months ended September 30, 2017 and 2016 (unaudited)~~	4

				Consolidated Statements of Comprehensive Income ~~Three Months and Nine Months ended September 30, 2017 and 2016 (unaudited)~~ (Loss)	5

				Consolidated ~~Statement~~Statements of ~~Changes in~~ Stockholders’ Equity ~~Nine Months Ended September 30, 2017 (unaudited)~~	6

				Consolidated Statements of Cash Flows ~~Nine Months Ended September 30, 2017 and 2016 (unaudited)~~	7

				Notes to Unaudited Consolidated Financial Statements	~~8-31~~8

			Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	~~32-55~~30

			Item 3.	Quantitative and Qualitative Disclosures About Market Risk	5547

			Item 4.	Controls and Procedures	~~55-56~~47

PART II			OTHER INFORMATION

			Item 1.	Legal Proceedings	5649

			Item 1A.	Risk Factors	5649

			Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	5649

			Item 3.	Defaults Upon Senior Securities	5649

			Item 4.	Mine Safety Disclosures	5649

			Item 5.	Other Information	5649

			Item 6.	Exhibits	5750

				Signatures	5751

	September 30, 2017 (Unaudited)			December 31, 2016 (Audited)
Assets
Cash and due from banks	$	64,075		$	68,056
Interest-earning deposits		31,297			60,320
Federal funds sold		731			727
Cash and cash equivalents		96,103			129,103
Certificates of deposit in other banks		2,494			3,984
Securities available for sale (“AFS”)		408,217			365,287
Other investments		14,931			17,499
Loans held for sale		6,963			6,913
Loans		2,051,122			1,568,907
Allowance for loan losses		(12,610	)		(11,820	)
Loans, net		2,038,512			1,557,087
Premises and equipment, net		47,432			45,862
Bank owned life insurance (“BOLI”)		63,989			54,134
Goodwill and other intangibles		129,588			87,938
Accrued interest receivable and other assets		37,501			33,072
Total assets	$	2,845,730		$	2,300,879

Liabilities and Stockholders’ Equity
Liabilities:
Demand	$	638,447		$	482,300
Money market and NOW accounts		1,107,360			964,509
Savings		274,828			221,282
Time		346,316			301,895
Total deposits		2,366,951			1,969,986
Short-term borrowings		12,900			-
Notes payable		41,571			1,000
Junior subordinated debentures		29,497			24,732
Subordinated notes		11,912			11,885
Accrued interest payable and other liabilities		21,827			16,911
Total liabilities		2,484,658			2,024,514

Stockholders’ Equity:
Common stock		98			86
Additional paid-in capital		267,396			209,700
Retained earnings		92,935			68,888
Accumulated other comprehensive loss (“AOCI”)		(3	)		(2,727	)
Total Nicolet Bankshares, Inc. stockholders’ equity		360,426			275,947
Noncontrolling interest		646			418
Total stockholders’ equity and noncontrolling interest		361,072			276,365
Total liabilities, noncontrolling interest and stockholders’ equity	$	2,845,730		$	2,300,879
Preferred shares authorized (no par value)		10,000,000			10,000,000
Preferred shares issued and outstanding		-			-
Common shares authorized (par value $0.01 per share)		30,000,000			30,000,000
Common shares outstanding		9,798,724			8,553,292
Common shares issued		9,826,197			8,596,241


	June 30, 2022		December 31, 2021
	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	96,189	$	209,349
Interest-earning deposits	84,828		385,943

Cash and cash equivalents	181,017		595,292
Certificates of deposit in other banks	15,502		21,920
Securities available for sale (“AFS”), at fair value	813,248		921,661
Securities held to maturity (“HTM”), at amortized cost	695,812		651,803
Other investments	53,269		44,008
Loans held for sale	5,084		6,447
Other assets held for sale	—		199,833
Loans	4,978,654		4,621,836
Allowance for credit losses - loans (“ACL-Loans”)	(50,655)		(49,672)
Loans, net	4,927,999		4,572,164
Premises and equipment, net	96,656		94,566
Bank owned life insurance (“BOLI”)	136,060		134,476
Goodwill and other intangibles, net	336,721		339,492
Accrued interest receivable and other assets	108,884		113,375
Total assets	$	7,370,252	$	7,695,037

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits	$	2,045,732	$	1,975,705
Interest-bearing deposits	4,240,534		4,490,211
Total deposits	6,286,266		6,465,916

Long-term borrowings	196,963		216,915
Other liabilities held for sale	—		51,586
Accrued interest payable and other liabilities	47,636		68,729
Total liabilities	6,530,865		6,803,146

Stockholders’ Equity:
Common stock	134		140
Additional paid-in capital	520,741		575,045
Retained earnings	361,753		313,604
Accumulated other comprehensive income (loss)	(43,241)		3,102
Total stockholders’ equity	839,387		891,891
Total liabilities and stockholders’ equity	$	7,370,252	$	7,695,037

Preferred shares authorized (no par value)	10,000,000		10,000,000
Preferred shares issued and outstanding	—		—
Common shares authorized (par value $0.01 per share)	30,000,000		30,000,000
Common shares outstanding	13,407,375		13,994,079
Common shares issued	13,428,551		14,019,880

	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017		2016
Interest income:
Loans, including loan fees	$	27,329	$	21,049	$	73,098	$	49,455
Investment securities:
Taxable		1,114		902		3,422		2,068
Non-taxable		604		493		1,761		1,146
Other interest income		407		351		1,136		906
Total interest income		29,454		22,795		79,417		53,575
Interest expense:
Money market and NOW accounts		1,380		631		2,755		1,726
Savings and time deposits		984		719		2,461		2,102
Short-term borrowings		-		-		72		5
Notes payable		81		6		133		230
Junior subordinated debentures		459		376		1,284		926
Subordinated notes		159		159		477		477
Total interest expense		3,063		1,891		7,182		5,466
Net interest income		26,391		20,904		72,235		48,109
Provision for loan losses		975		450		1,875		1,350
Net interest income after provision for loan losses		25,416		20,454		70,360		46,759
Noninterest income:
Service charges on deposit accounts		1,238		1,051		3,367		2,514
Mortgage income, net		1,774		2,010		4,022		3,713
Trust services fee income		1,479		1,373		4,431		4,000
Brokerage fee income		1,500		992		4,192		2,090
Bank owned life insurance		459		318		1,314		880
Rent income		285		285		852		820
Investment advisory fees		92		146		357		341
Gain on sale or writedown of assets, net		1,305		453		2,071		548
Other income		2,032		1,904		5,412		3,874
Total noninterest income		10,164		8,532		26,018		18,780
Noninterest expense:
Personnel		11,488		10,516		32,404		24,748
Occupancy, equipment and office		3,559		3,018		9,613		7,324
Business development and marketing		1,113		985		3,359		2,353
Data processing		2,238		1,831		6,428		4,408
FDIC assessments		205		247		582		629
Intangibles amortization		1,173		1,172		3,514		2,295
Other expense		1,086		1,250		3,598		4,799
Total noninterest expense		20,862		19,019		59,498		46,556

Income before income tax expense		14,718		9,967		36,880		18,983
Income tax expense		5,132		3,438		12,605		6,432
Net income		9,586		6,529		24,275		12,551
Less: net income attributable to noncontrolling interest		74		65		228		176
Net income attributable to Nicolet Bankshares, Inc.		9,512		6,464		24,047		12,375
Less: preferred stock dividends		-		247		-		633
Net income available to common shareholders	$	9,512	$	6,217	$	24,047	$	11,742

Basic earnings per common share	$	0.97	$	0.72	$	2.58	$	1.76
Diluted earnings per common share	$	0.91	$	0.69	$	2.45	$	1.67
Weighted average common shares outstanding:
Basic		9,836,646		8,607,719		9,316,814		6,689,367
Diluted		10,408,683		8,969,735		9,820,724		7,024,169

	Nine Months Ended September 30,
	2017			2016
Cash Flows From Operating Activities, net of effects of business combinations:
Net income	$	24,275		$	12,551
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretion		7,038			4,227
Provision for loan losses		1,875			1,350
Increase in cash surrender value of life insurance		(1,314	)		(880	)
Stock compensation expense		1,871			1,123
Gain on sale or writedown of assets, net		(2,071	)		(548	)
Gain on sale of loans held for sale, net		(3,614	)		(3,713	)
Proceeds from sale of loans held for sale		164,726			179,967
Origination of loans held for sale		(164,806	)		(179,581	)
Net change in:
Accrued interest receivable and other assets		239			1,182
Accrued interest payable and other liabilities		1,733			(3,888	)
Net cash provided by operating activities		29,952			11,790
Cash Flows From Investing Activities, net of effects of business combinations:
Net decrease in certificates of deposit in other banks		1,490			239
Net decrease (increase) in loans		(126,499	)		15,582
Purchases of securities AFS		(49,119	)		(57,510	)
Proceeds from sales of securities AFS		10,798			30,319
Proceeds from calls and maturities of securities AFS		34,426			22,962
Purchase of other investments		(3,256	)		(3,745	)
Proceeds from sales of other investments		6,519			-
Net increase in premises and equipment		(2,958	)		(3,802	)
Proceeds from sales of other real estate and other assets		3,410			1,661
Purchase of BOLI		(70	)		(20,000	)
Proceeds from redemption of BOLI		-			21,549
Intangible from acquired customer relationships		(870	)		-
Net cash received in business combination		9,119			66,517
Net cash provided (used) by investing activities		(117,010	)		73,772
Cash Flows From Financing Activities, net of effects of business combinations:
Net increase in deposits		22,054			55,332
Net increase (decrease) in short-term borrowings		12,900			(49,087	)
Proceeds from notes payable		30,000			-
Repayments of notes payable		(4,487	)		(56,519	)
Redemption of preferred stock		-			(12,200	)
Purchase and retirement of common stock		(7,462	)		(3,046	)
Capitalized issuance costs, net		(186	)		(260	)
Proceeds from issuance of common stock		175			101
Proceeds from exercise of common stock options, net		1,064			1,502
Cash dividends paid on preferred stock		-			(633	)
Net cash provided (used) by financing activities		54,058			(64,810	)
Net increase (decrease) in cash and cash equivalents		(33,000	)		20,752
Cash and cash equivalents:
Beginning	$	129,103		$	83,619
Ending	$	96,103		$	104,371
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	7,117		$	5,787
Cash paid for taxes		8,805			7,150
Transfer of loans and bank premises to other real estate owned		828			33
Capitalized mortgage servicing rights		679			492
Transfer of loans from held for sale to held for investment		3,236			-
Acquisitions
Fair value of assets acquired		439,000			1,035,000
Fair value of liabilities assumed		398,000			937,000
Net assets acquired		41,000			98,000

(in millions)	As recorded by Baylake Corp		Fair Value Adjustments			As Recorded by Nicolet
Cash, cash equivalents and securities available for sale	$	262	$	1		$	263
Loans		710		(19	)		691
Other real estate owned		3		(2	)		1
Core deposit intangible		1		16			17
Fixed assets and other assets		71		(8	)		63
Total assets acquired	$	1,047	$	(12	)	$	1,035

Deposits	$	822	$	-		$	822
Junior subordinated debentures, borrowings and other liabilities		116		(1	)		115
Total liabilities acquired	$	938	$	(1	)	$	937

Excess of assets acquired over liabilities acquired	$	109	$	(11	)	$	98
Less: purchase price							164
Goodwill						$	66

(in thousands, except per share data)	Three Months Ended September 30, 2016		Nine Months Ended September 30, 2016
Total revenues, net of interest expense	$	29,436	$	82,870
Net income		6,827		17,042
Diluted earnings per share		0.74		1.85

	Nine Months Ended September 30, 2017			Year Ended December 31, 2016
Dividend yield		0	%		0	%
Expected volatility		25	%		25	%
Risk-free interest rate		2.13	%		1.52	%
Expected average life		7 years			7 years
Weighted average per share fair value of options	$	15.44		$	11.04

	Option Shares Stock Options Outstanding			Weighted- Average Exercise Price		Exercisable Shares		Weighted- Average Exercise Price
Balance – December 31, 2015		746,004		$	21.56		325,979	$	19.09
Granted⁽¹⁾		170,500			36.86
Options assumed in acquisition		91,701			21.03
Exercise of stock options*		(84,723	)		20.98
Forfeited		(1,456	)		21.71
Balance – December 31, 2016		922,026			24.39		439,639	$	19.97
Granted⁽²⁾		814,500			48.86
Exercise of stock options*		(65,833	)		19.52
Forfeited		(400	)		16.50
Balance – September 30, 2017		1,670,293		$	36.51		471,043	$	21.49

	Number of Shares				Weighted-Average Exercise Price				Weighted-Average Remaining Life (Years)
	Outstanding		Exercisable		Outstanding		Exercisable		Outstanding		Exercisable
$9.19 – $20.00		257,750		238,000	$	16.30	$	16.28		3.78		3.71
$20.01 – $25.00		241,455		110,055		23.68		23.54		6.54		5.89
$25.01 – $30.00		153,724		71,524		26.00		26.11		6.91		6.44
$30.01 – $40.00		202,864		51,464		35.88		34.76		8.64		8.27
$40.01 – $49.30		814,500		-		48.86		-		9.63		-
		1,670,293		471,043	$	36.51	$	21.49		7.91		5.14

Restricted Stock	Weighted- Average Grant Date Fair Value		Restricted Shares Outstanding
Balance – December 31, 2015	$	18.70		36,690
Granted		33.68		31,466
Vested*		23.58		(25,207	)
Forfeited		-		-
Balance – December 31, 2016		26.80		42,949
Granted		-		-
Vested *		22.47		(15,346	)
Forfeited		16.50		(130	)
Balance – September 30, 2017	$	29.27		27,473

	September 30, 2017
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government sponsored enterprises	$	26,394	$	-	$	122	$	26,272
State, county and municipals		189,226		521		1,031		188,716
Mortgage-backed securities		159,113		261		1,438		157,936
Corporate debt securities		32,203		541		-		32,744
Equity securities		1,288		1,261		-		2,549
	$	408,224	$	2,584	$	2,591	$	408,217

	December 31, 2016
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
U.S. government sponsored enterprises	$	1,981	$	-	$	18	$	1,963
State, county and municipals		191,721		160		4,638		187,243
Mortgage-backed securities		161,309		242		2,422		159,129
Corporate debt securities		12,117		52		-		12,169
Equity securities		2,631		2,152		-		4,783
	$	369,759	$	2,606	$	7,078	$	365,287

	TOTAL – Nine Months Ended September 30, 2017
(in thousands) ALLL:	Commercial & industrial			Owner- occupied CRE			AG production			AG real estate			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total
Beginning balance	$	3,919		$	2,867		$	150		$	285		$	1,124		$	774		$	304		$	1,784		$	461		$	152		$	11,820
Provision		2,183			(253	)		16			(17	)		132			(19	)		(137	)		(124	)		4			90			1,875
Charge-offs		(1,097	)		-			-			-			-			(13	)		-			(8	)		-			(38	)		(1,156	)
Recoveries		20			29			-			-			1			-			-			6			2			13			71
Net charge-offs		(1,077	)		29			-			-			1			(13	)		-			(2	)		2			(25	)		(1,085	)
Ending balance	$	5,025		$	2,643		$	166		$	268		$	1,257		$	742		$	167		$	1,658		$	467		$	217		$	12,610
As percent of ALLL		39.9	%		21.0	%		1.3	%		2.1	%		10.0	%		5.9	%		1.3	%		13.1	%		3.7	%		1.7	%		100.0	%

ALLL:
Individually evaluated	$	226		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	-		$	226
Collectively evaluated		4,799			2,643			166			268			1,257			742			167			1,658			467			217			12,384
Ending balance	$	5,025		$	2,643		$	166		$	268		$	1,257		$	742		$	167		$	1,658		$	467		$	217		$	12,610

Loans:
Individually evaluated	$	5,071		$	1,116		$	-		$	218		$	4,845		$	723		$	80		$	1,619		$	60		$	-		$	13,732
Collectively evaluated		620,658			426,938			36,352			48,225			298,603			86,926			33,083			361,497			102,594			22,514			2,037,390
Total loans	$	625,729		$	428,054		$	36,352		$	48,443		$	303,448		$	87,649		$	33,163		$	363,116		$	102,654		$	22,514		$	2,051,122

Less ALLL	$	5,025		$	2,643		$	166		$	268		$	1,257		$	742		$	167		$	1,658		$	467		$	217		$	12,610
Net loans	$	620,704		$	425,411		$	36,186		$	48,175		$	302,191		$	86,907		$	32,996		$	361,458		$	102,187		$	22,297		$	2,038,512

	Total Nonaccrual Loans
(in thousands)	September 30, 2017		% to Total			December 31, 2016		% to Total
Commercial & industrial	$	5,078		35.2	%	$	358		1.8	%
Owner-occupied CRE		1,276		8.8			2,894		14.3
AG production		2		-			9		0.1
AG real estate		186		1.3			208		1.0
CRE investment		4,537		31.4			12,317		60.6
Construction & land development		723		5.0			1,193		5.9
Residential construction		80		0.6			260		1.3
Residential first mortgage		2,301		16.0			2,990		14.7
Residential junior mortgage		239		1.7			56		0.3
Retail & other		-		-			-		-
Nonaccrual loans - Total	$	14,422		100.0	%	$	20,285		100.0	%

	Originated
(in thousands)	September 30, 2017		% to Total			December 31, 2016		% to Total
Commercial & industrial	$	615		62.3	%	$	4		1.6	%
Owner-occupied CRE		38		3.8			42		16.3
AG production		2		0.2			7		2.7
AG real estate		-		-			-		-
CRE investment		-		-			-		-
Construction & land development		-		-			-		-
Residential construction		-		-			-		-
Residential first mortgage		333		33.7			204		79.4
Residential junior mortgage		-		-			-		-
Retail & other		-		-			-		-
Nonaccrual loans - Originated	$	988		100.0	%	$	257		100.0	%

	Acquired
(in thousands)	September 30, 2017		% to Total			December 31, 2016		% to Total
Commercial & industrial	$	4,463		33.2	%	$	354		1.8	%
Owner-occupied CRE		1,238		9.2			2,852		14.2
AG production		-		-			2		0.1
AG real estate		186		1.4			208		1.0
CRE investment		4,537		33.8			12,317		61.4
Construction & land development		723		5.4			1,193		6.0
Residential construction		80		0.6			260		1.3
Residential first mortgage		1,968		14.6			2,786		13.9
Residential junior mortgage		239		1.8			56		0.3
Retail & other		-		-			-		-
Nonaccrual loans – Acquired	$	13,434		100.0	%	$	20,028		100.0	%

	September 30, 2017
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	303		$	5,078		$	620,348		$	625,729
Owner-occupied CRE		229			1,276			426,549			428,054
AG production		-			2			36,350			36,352
AG real estate		-			186			48,257			48,443
CRE investment		-			4,537			298,911			303,448
Construction & land development		38			723			86,888			87,649
Residential construction		1,085			80			31,998			33,163
Residential first mortgage		537			2,301			360,278			363,116
Residential junior mortgage		23			239			102,392			102,654
Retail & other		4			-			22,510			22,514
Total loans	$	2,219		$	14,422		$	2,034,481		$	2,051,122
As a percent of total loans		0.1	%		0.7	%		99.2	%		100.0	%

	December 31, 2016
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	22		$	358		$	427,890		$	428,270
Owner-occupied CRE		268			2,894			357,065			360,227
AG production		-			9			34,758			34,767
AG real estate		-			208			45,026			45,234
CRE investment		-			12,317			183,562			195,879
Construction & land development		-			1,193			73,795			74,988
Residential construction		-			260			23,132			23,392
Residential first mortgage		486			2,990			296,828			300,304
Residential junior mortgage		200			56			91,075			91,331
Retail & other		15			-			14,500			14,515
Total loans	$	991		$	20,285		$	1,547,631		$	1,568,907
As a percent of total loans		0.1	%		1.3	%		98.6	%		100.0	%

	Total Impaired Loans – September 30, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial & industrial	$	5,071	$	12,275	$	226	$	5,057	$	469
Owner-occupied CRE		1,116		2,793		-		1,185		96
AG production		-		15		-		-		-
AG real estate		218		308		-		229		25
CRE investment		4,845		8,863		-		5,099		353
Construction & land development		723		1,189		-		743		44
Residential construction		80		983		-		94		27
Residential first mortgage		1,619		2,971		-		1,699		121
Residential junior mortgage		60		500		-		64		6
Retail & Other		-		14		-		-		-
Total	$	13,732	$	29,911	$	226	$	14,170	$	1,141

	Originated Impaired Loans – September 30, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial & industrial	$	615	$	615	$	226	$	615	$	91
Owner-occupied CRE		-		-		-		-		-
AG production		-		-		-		-		-
AG real estate		-		-		-		-		-
CRE investment		-		-		-		-		-
Construction & land development		-		-		-		-		-
Residential construction		-		-		-		-		-
Residential first mortgage		-		-		-		-		-
Residential junior mortgage		-		-		-		-		-
Retail & Other		-		-		-		-		-
Total	$	615	$	615	$	226	$	615	$	91

	Acquired Impaired Loans – September 30, 2017
(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
Commercial & industrial	$	4,456	$	11,660	$	-	$	4,442	$	378
Owner-occupied CRE		1,116		2,793		-		1,185		96
AG production		-		15		-		-		-
AG real estate		218		308		-		229		25
CRE investment		4,845		8,863		-		5,099		353
Construction & land development		723		1,189		-		743		44
Residential construction		80		983		-		94		27
Residential first mortgage		1,619		2,971		-		1,699		121
Residential junior mortgage		60		500		-		64		6
Retail & Other		-		14		-		-		-
Total	$	13,117	$	29,296	$	-	$	13,555	$	1,050

Non-accretable discount on purchase credit impaired (“PCI”) loans:	Nine Months Ended			Year ended
(in thousands)	September 30, 2017			December 31, 2016
Balance at beginning of period	$	14,327		$	4,229
Acquired balance, net		8,352			13,923
Accretion to loan interest income		(5,925	)		(3,458	)
Disposals of loans		(1,121	)		(367	)
Balance at end of period	$	15,633		$	14,327

Maturing in	(in thousands)
2017 (remaining three months)	$	5,018
2018		1,000
2019		-
2020		10,000
2021		-
2022		25,553
	$	41,571

	For the Nine Months Ended September 30,
	2017							2016
(in thousands)	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
ASSETS
Earning assets
Loans, including loan fees (1)(2)	$	1,842,695	$	73,377		5.26	%	$	1,274,405	$	49,634		5.13	%
Investment securities
Taxable		236,275		3,422		1.93	%		147,720		2,068		1.87	%
Tax-exempt (2)		160,815		3,267		2.71	%		122,850		2,265		2.46	%
Other interest-earning assets		51,803		1,136		2.92	%		87,840		906		1.38	%
Total interest-earning assets		2,291,588	$	81,202		4.69	%		1,632,815	$	54,873		4.44	%
Cash and due from banks		76,992							43,001
Other assets		211,546							147,070
Total assets	$	2,580,126						$	1,822,886
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings	$	249,099	$	271		0.15	%	$	184,156	$	166		0.12	%
Interest-bearing demand		419,266		1,590		0.51	%		310,801		1,310		0.56	%
MMA		581,277		1,165		0.27	%		421,920		415		0.13	%
Core CDs and IRAs		288,524		1,568		0.73	%		249,788		1,657		0.89	%
Brokered deposits		120,782		622		0.69	%		28,897		280		1.29	%
Total interest-bearing deposits		1,658,948		5,216		0.42	%		1,195,562		3,828		0.43	%
Other interest-bearing liabilities		62,414		1,966		4.17	%		52,470		1,638		4.11	%
Total interest-bearing liabilities		1,721,362		7,182		0.56	%		1,248,032		5,466		0.58	%
Noninterest-bearing demand		516,412							348,765
Other liabilities		19,079							16,779
Total equity		323,273							209,310
Total liabilities and stockholders’ equity	$	2,580,126						$	1,822,886

Net interest income and rate spread			$	74,020		4.13	%			$	49,407		3.86	%
Net interest margin						4.27	%						3.99	%

	Increase (decrease) Due to Changes in
(in thousands)	Volume			Rate			Net
Earning assets

Loans⁽¹⁾⁽²⁾	$	22,613		$	1,130		$	23,743
Investment securities
Taxable		1,382			(28	)		1,354
Tax-exempt⁽²⁾		752			250			1,002
Other interest-earning assets		(234	)		464			230

Total interest-earning assets	$	24,513		$	1,816		$	26,329

Interest-bearing liabilities
Savings deposits	$	66		$	39		$	105
Interest-bearing demand		421			(141	)		280
MMA		200			550			750
Core CDs and IRAs		234			(323	)		(89	)
Brokered deposits		525			(183	)		342

Total interest-bearing deposits		1,446			(58	)		1,388
Other interest-bearing liabilities		412			(84	)		328

Total interest-bearing liabilities		1,858			(142	)		1,716
Net interest income	$	22,655		$	1,958		$	24,613

	September 30, 2017					December 31, 2016					September 30, 2016
	Amount		% of Total			Amount		% of Total			Amount		% of Total
Commercial & industrial	$	625,729		30.5	%	$	428,270		27.3	%	$	423,790		27.3	%
Owner-occupied CRE		428,054		20.9			360,227		23.0			362,554		23.3
AG production		36,352		1.8			34,767		2.2			34,077		2.2
AG real estate		48,443		2.4			45,234		2.9			45,671		2.9
CRE investment		303,448		14.8			195,879		12.5			197,884		12.7
Construction & land development		87,649		4.3			74,988		4.8			68,161		4.4
Residential construction		33,163		1.6			23,392		1.5			27,331		1.8
Residential first mortgage		363,116		17.7			300,304		19.1			284,653		18.3
Residential junior mortgage		102,654		5.0			91,331		5.8			95,901		6.2
Retail & other		22,514		1.0			14,515		0.9			14,102		0.9
Total loans	$	2,051,122		100.0		$	1,568,907		100.0	%	$	1,554,124		100.0	%

	For the nine months ended						Year ended
(in thousands)	September 30, 2017			September 30, 2016			December 31, 2016
Allowance for loan losses (ALLL):
Balance at beginning of period	$	11,820		$	10,307		$	10,307
Provision for loan losses		1,875			1,350			1,800
Charge-offs		(1,156	)		432			(584	)
Recoveries		71			(256	)		297
Net charge-offs		(1,085	)		176			(287	)
Balance at end of period	$	12,610		$	11,481		$	11,820

Net loan charge-offs (recoveries):
Commercial & industrial	$	1,077		$	262		$	253
Owner-occupied CRE		(29	)		58			103
Agricultural production		-			-			-
Agricultural real estate		-			-			-
CRE investment		(1	)		(221	)		(221	)
Construction & land development		13			-			-
Residential construction		-			-			-
Residential first mortgage		2			(5	)		49
Residential junior mortgage		(2	)		46			49
Retail & other		25			36			54
Total net loans charged-off	$	1,085		$	176		$	287

ALLL to total loans		0.61	%		0.74	%		0.75	%
ALLL to net charge-offs		1,162.2	%		6,523.3	%		4,118.5	%
Net charge-offs to average loans, annualized		0.08	%		0.02	%		0.02	%

(in thousands)	September 30, 2017			% of Loan Type to Total Loans			December 31, 2016			% of Loan Type to Total Loans
ALLL allocation
Commercial & industrial	$	5,025			30.5	%	$	3,919			27.3	%
Owner-occupied CRE		2,643			20.9			2,867			23.0
Agricultural production		166			1.8			150			2.2
Agricultural real estate		268			2.4			285			2.9
CRE investment		1,257			14.8			1,124			12.5
Construction & land development		742			4.3			774			4.8
Residential construction		167			1.6			304			1.5
Residential first mortgage		1,658			17.7			1,784			19.1
Residential junior mortgage		467			5.0			461			5.8
Retail & other		217			1.0			152			0.9
Total ALLL	$	12,610			100.0	%	$	11,820			100.0	%

ALLL category as a percent of total ALLL:
Commercial & industrial		39.9	%					33.2	%
Owner-occupied CRE		21.0						24.3
Agricultural production		1.3						1.3
Agricultural real estate		2.1						2.4
CRE investment		10.0						9.5
Construction & land development		5.9						6.5
Residential construction		1.3						2.6
Residential first mortgage		13.1						15.1
Residential junior mortgage		3.7						3.9
Retail & other		1.7						1.2
Total ALLL		100.0	%					100.0	%

	As of September 30, 2017
	Within One Year						After One but Within Five Years						After Five but Within Ten Years						After Ten Years						Mortgage- related and Equity Securities						Total Amortized Cost					Total Fair Value
	Amount			Yield			Amount			Yield			Amount			Yield			Amount			Yield			Amount			Yield			Amount		Yield			Amount
(in thousands)
U.S. government sponsored enterprises	$	—			—	%	$	10,406			0.1	%	$	15,988			0.1	%	$	—			—	%	$	—			—	%	$	26,394		0.3	%	$	26,272
State and county municipals (1)		13,262			2.5			74,612			2.8			100,339			2.5			1,013			2.9			—			—			189,226		2.6			188,716
Mortgage-backed securities		—			—			—			—			—			—			—			—			159,113			2.9			159,113		3.0			157,936
Corporate debt securities		—			—			11,080			4.2			14,150			2.9			6,973			5.8			—			—			32,203		3.9			32,744
Equity securities		—			—			—			—			—			—			—			—			1,288			2.4			1,288		2.4			2,549

Total amortized cost	$	13,262			2.5	%	$	96,098			2.7	%	$	130,477			2.2	%	$	7,986			5.4	%	$	160,401			2.9	%	$	408,224		2.7	%	$	408,217
Total fair value and carrying value	$	13,261					$	96,410					$	129,769					$	8,292					$	160,485										$	408,217

As a percent of total fair value		3	%					24	%					32	%					2	%					39	%										100	%

(in thousands)	September 30, 2017
3 months or less	$	19,226
Over 3 months through 6 months		25,973
Over 6 months through 12 months		44,218
Over 12 months		71,655
Total	$	161,072

	September 30,		December 31,
	2017		2016
(in thousands)
Commitments to extend credit — fixed and variable rate	$	660,578	$	554,980
Financial letters of credit		9,381		12,444
Standby letters of credit		8,006		4,898

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions (2)
(in thousands)	Amount		Ratio (1)			Amount		Ratio (1)			Amount		Ratio (1)
As of September 30, 2017:
Company
Total capital	$	293,800		12.8	%	$	183,929		8.0	%
Tier 1 capital		269,277		11.7			137,947		6.0
CET 1 capital		240,351		10.5			103,460		4.5
Leverage		269,277		10.0			108,169		4.0

Bank
Total capital	$	279,665		12.2	%	$	183,696		8.0	%	$	229,620		10.0	%
Tier 1 capital		267,055		11.6			137,772		6.0			183,696		8.0
CET 1 capital		267,055		11.6			103,329		4.5			149,253		6.5
Leverage		267,055		9.9			108,053		4.0			135,067		5.0

As of December 31, 2016:
Company
Total capital	$	249,723		13.9	%	$	144,195		8.0	%
Tier 1 capital		226,018		12.5			108,146		6.0
CET 1 capital		202,313		11.2			81,110		4.5
Leverage		226,018		10.3			87,566		4.0

Bank
Total capital	$	217,682		12.1	%	$	144,322		8.0	%	$	180,403		10.0	%
Tier 1 capital		205,862		11.4			108,242		6.0			144,322		8.0
CET 1 capital		205,862		11.4			81,181		4.5			117,262		6.5
Leverage		205,862		9.4			87,329		4.0			109,161		5.0


	At or for the Six Months Ended			At or for the Year Ended
($ in thousands)	June 30, 2022			December 31, 2021
Company Stock Repurchases: *
Common stock repurchased during the period (dollars)	$	60,697		$	61,464
Common stock repurchased during the period (full shares)	661,662			793,064
Company Risk-Based Capital:
Total risk-based capital	$	791,903		$	793,410
Tier 1 risk-based capital	597,957			604,199
Common equity Tier 1 capital	560,433			567,095
Total capital ratio	13.4		%	13.8		%
Tier 1 capital ratio	10.1		%	10.5		%
Common equity tier 1 capital ratio	9.5		%	9.9		%
Tier 1 leverage ratio	8.5		%	9.4		%
Bank Risk-Based Capital:
Total risk-based capital	$	731,419		$	700,869
Tier 1 risk-based capital	690,132			664,688
Common equity Tier 1 capital	690,132			664,688
Total capital ratio	12.4		%	12.2		%
Tier 1 capital ratio	11.7		%	11.6		%
Common equity tier 1 capital ratio	11.7		%	11.6		%
Tier 1 leverage ratio	9.9		%	10.3		%
* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.