See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC. ~~AND SUBSIDIARIES~~

Consolidated Statements of Income

(Loss)

(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 March 31,
	2023		2022
Interest income:
Loans, including loan fees	$	79,142	$	51,299
Investment securities:
Taxable	4,961		5,127
Tax-exempt	1,737		675
Other interest income	1,536		817
Total interest income	87,376		57,918
Interest expense:
Deposits	24,937		2,192
Short-term borrowings	3,212		—
Long-term borrowings	2,506		1,931
Total interest expense	30,655		4,123
Net interest income	56,721		53,795
Provision for credit losses	3,090		300
Net interest income after provision for credit losses	53,631		53,495
Noninterest income:
Wealth management fee income	5,512		5,699
Mortgage income, net	1,466		3,253
Service charges on deposit accounts	1,480		1,477
Card interchange income	3,033		2,581
BOLI income	1,200		933
Deferred compensation plan asset market valuations	946		(467)
LSR income, net	1,155		(382)
Asset gains (losses), net	(38,468)		1,313
Other income	1,832		1,536
Total noninterest income	(21,844)		15,943
Noninterest expense:
Personnel	24,328		21,191
Occupancy, equipment and office	8,783		6,944
Business development and marketing	2,121		1,831
Data processing	3,988		3,387
Intangibles amortization	2,161		1,424
FDIC assessments	540		480
Merger-related expense	163		98
Other expense	2,791		2,195
Total noninterest expense	44,875		37,550
Income (loss) before income tax expense	(13,088)		31,888
Income tax expense (benefit)	(4,190)		7,724
Net income (loss)	$	(8,898)	$	24,164
Earnings (loss) per common share:
Basic	$	(0.61)	$	1.77
Diluted	$	(0.61)	$	1.70
Weighted average common shares outstanding:
Basic	14,694,451		13,648,745
Diluted	14,694,451		14,214,752

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 March 31,
	2023		2022
Net income (loss)	$	(8,898)	$	24,164
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities AFS:
Net unrealized holding gains (losses)	15,294		(39,948)
Net realized (gains) losses included in income	213		(15)
Reclassification adjustment for securities transferred from held to maturity to available for sale	(20,434)		—
Income tax (expense) benefit	1,330		10,790
Total other comprehensive income (loss)	(3,597)		(29,173)
Comprehensive income (loss)	$	(12,495)	$	(5,009)

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 December 31, 2022	$	147	$	621,988	$	407,864	$	(57,470)	$	972,529
Comprehensive income:
Net income (loss), three months ended March 31, 2023	—		—		(8,898)		—		(8,898)
Other comprehensive income (loss)	—		—		—		(3,597)		(3,597)

Stock-based compensation expense	—		1,424		—		—		1,424
Exercise of stock options, net	—		148		—		—		148
Issuance of common stock	—		186		—		—		186


Balances at March 31, 2023	$	147	$	623,746	$	398,966	$	(61,067)	$	961,792
Balances at December 31, 2021	$	140	$	575,045	$	313,604	$	3,102	$	891,891
Comprehensive income:
Net income, three months ended March 31, 2022	—		—		24,164		—		24,164
Other comprehensive income (loss)	—		—		—		(29,173)		(29,173)

Stock-based compensation expense	—		1,799		—		—		1,799
Exercise of stock options, net	1		1,886		—		—		1,887
Issuance of common stock	—		175		—		—		175
Purchase and retirement of common stock	(6)		(54,427)		—		—		(54,433)

Balances at March 31, 2022	$	135	$	524,478	$	337,768	$	(26,071)	$	836,310

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)	Three Months Ended March 31,
	2023		2022
Cash Flows From Operating Activities:
Net income (loss)	$	(8,898)	$	24,164
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretion	4,197		6,769
Provision for credit losses	3,090		300
Increase in cash surrender value of life insurance	(1,087)		(933)
Stock-based compensation expense	1,424		1,799
Asset (gains) losses, net	38,468		(1,313)
Gain on sale of loans held for sale, net	(612)		(2,377)
Net change due to:
Proceeds from sale of loans held for sale	17,789		86,478
Origination of loans held for sale	(20,861)		(88,304)
Accrued interest receivable and other assets	(2,326)		6,786
Accrued interest payable and other liabilities	(15,642)		(11,426)
Net cash provided by (used in) operating activities	15,542		21,943
Cash Flows From Investing Activities:
Net (increase) decrease in loans	(41,764)		(64,669)
Net (increase) decrease in certificates of deposit in other banks	1,225		2,228
Purchases of securities AFS	—		(5,017)
Purchases of securities HTM	—		(38,856)
Proceeds from sales of securities AFS	22,565		3,400
Proceeds from sales of securities HTM	460,051		—
Proceeds from calls and maturities of securities AFS	42,028		29,511
Proceeds from calls and maturities of securities HTM	2,916		5,430
Purchases of other investments	(3,801)		(10,953)
Proceeds from sales of other investments	11,108		775

Proceeds from redemption of BOLI	117		117
Net (increase) decrease in premises and equipment	(5,646)		(1,953)
Net (increase) decrease in other real estate and other assets	—		3,075
Net cash (paid) received in branch sale	—		147,833

Net cash provided by (used in) investing activities	488,799		70,921
Cash Flows From Financing Activities:
Net increase (decrease) in deposits	(250,218)		(229,862)
Net increase (decrease) in short-term borrowings	(267,000)		—

Repayments of long-term borrowings	(28,000)		(10,000)
Purchase and retirement of common stock	—		(54,433)

Proceeds from issuance of common stock	186		175
Proceeds from exercise of stock options	148		1,887

Net cash provided by (used in) financing activities	(544,884)		(292,233)
Net increase (decrease) in cash and cash equivalents	(40,543)		(199,369)
Cash and cash equivalents:
Beginning	154,723		595,292
Ending *	$	114,180	$	395,923
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	$	30,825	$	5,170
Cash paid for taxes	—		—
Transfer of securities from HTM to AFS	177,727		—
Transfer of loans and bank premises to other real estate owned	—		432
Capitalized mortgage servicing rights	204		886

* There was no restricted cash in cash and cash equivalents at March 31, 2023, while cash and cash equivalents at March 31, 2022, included restricted cash of $1.9 million pledged as collateral on interest rate swaps. No reserve balance was required with the Federal Reserve Bank at either March 31, 2023 or March 31, 2022.

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 (loss), 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.~~

2022.

Critical Accounting Policies and Estimates

Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and ~~assumptions~~judgments 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~~These estimates are ~~particularly susceptible~~based on management’s knowledge of historical experience, current information, and other factors deemed to significant change for the Company include the determination of the allowance for loan losses, the assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisitions; therefore, these are critical accounting policies.be relevant; accordingly, as this information changes, actual results could differ from those estimates. 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~~Nicolet considers accounting estimates to be critical to reported financial results ~~may ultimately differ~~if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that are reasonably likely to occur from period to period, could have a material impact on the financial statements. The accounting estimates ~~although management does not generally believe such differences would materially affect~~we consider to be critical include business combinations and the ~~consolidated financial statements in any individual reporting period presented.~~

valuation of loans acquired, the determination of the allowance for credit losses, and income taxes.

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.~~

2022.

Recent Accounting ~~Developments~~Pronouncements Adopted

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 eliminated the accounting guidance for TDRs by creditors and enhanced the disclosure requirements for loan modifications to borrowers 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 of guidance that 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,~~fiscal years beginning after December 15, ~~2016. The impact~~2022. Adoption of ~~the new guidance~~this ASU did not have a material impact on the Company’s consolidated financial ~~statements.~~

statements; however, it resulted in new disclosures. See Note 6 for the new disclosures.

Future Accounting Pronouncements

In March ~~2016,~~2023, the FASB issued ~~updated guidance~~ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits reporting entities to ~~ASU 2016-09,~~~~Stock Compensation Improvements~~elect to ~~Employee Share-Based Payment Activity~~ ~~intended to simplify and improve several aspects~~account for tax equity investments, regardless of the ~~accounting~~tax credit program for ~~share-based payment transactions, including~~which the income tax ~~consequences, classification~~credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of ~~such awards~~the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as ~~either equity~~a component of income tax expense. A reporting entity makes an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or ~~liabilities~~to individual investments. This ASU also requires specific disclosures of investments that generate income tax credits and ~~classification on~~other income tax benefits from a tax credit program for which the ~~statement of cash flows.~~entity has elected to apply the proportional amortization method. The updated guidance is effective for ~~interim and annual reporting periods~~fiscal years beginning after December 15, ~~2016.~~2023.

In March 2020, the FASB issued ASU 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 (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 affected by reference rate reform if certain criteria are met. In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of the original guidance from December 31, 2022 to December 31, 2024. The Company continues to work through the cessation of LIBOR, including the modification of its loans and 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~~2022 consolidated financial statements have been reclassified to conform to the ~~2017~~2023 presentation.

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

Note 2 – ~~Acquisitions~~

~~First Menasha Bancshares,~~Acquisition

Charter Bankshares, Inc. (“~~First Menasha”~~Charter”):

On ~~April 28, 2017, the Company consummated~~August 26, 2022, Nicolet completed its merger with ~~First Menasha~~Charter, pursuant to the Agreement and Plan of Merger ~~by and between the Company and First Menasha~~ dated ~~November 3, 2016, (the “Merger Agreement”), whereby First Menasha was~~March 29, 2022, at which time Charter merged with and into ~~the Company,~~Nicolet, and ~~The First National Bank-Fox Valley,~~Charter Bank, the wholly owned ~~commercial~~ bank subsidiary of ~~First Menasha serving the Fox Valley area of Wisconsin,~~Charter, was merged with and into Nicolet National Bank (the “Bank”)~~. The system integration was completed, and five branches~~, the wholly owned bank subsidiary 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, bringing the Bank’s footprint to 38 branches as of September 30, 2017.

~~The purpose of~~Nicolet. In the merger, was to continue Nicolet’s interest in strategic growth, consistent with its plan to improve profitability through efficiency, leverage the strengths of each bank across the combined customer base, and add shareholder value. With the merger, Nicolet became the leading community bank to serve the Fox Valley area of Wisconsin.

~~Pursuant to the Merger Agreement, the final purchase price consisted of issuing 1,309,885~~Charter stockholders received 15.458 shares of ~~the Company’s~~Nicolet common stock ~~(given the final stock-for-stock exchange ratio~~and $475 in cash for each share of ~~3.126 except~~Charter owned. As a result, Nicolet issued approximately 1.26 million shares of Nicolet common stock for ~~First Menasha shares owned by the Company immediately prior to the time of the merger), for common~~ stock consideration of ~~$62.2~~$98 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~~and cash consideration of ~~$19.3~~$39 million, for a total purchase price of $137 million. ~~Approximately $0.2 million~~With the Charter merger, Nicolet expanded to Western Wisconsin and Minnesota.

A summary of the assets acquired and liabilities assumed in ~~direct stock issuance costs~~the Charter transaction, as of the acquisition date, including the purchase price allocation was as follows.


(In millions, except share data)	Acquired from Charter		Fair Value Adjustments		Estimated Fair Value
Assets Acquired:
Cash and cash equivalents	$	10	$	—	$	10
Investment securities	218		—		218
Loans	848		(21)		827
ACL-Loans	(9)		7		(2)
Premises and equipment	9		1		10
BOLI	29		—		29
Core deposit intangible	—		19		19
Other assets	5		5		10
Total assets	$	1,110	$	11	$	1,121
Liabilities Assumed:
Deposits	$	869	$	1	$	870
Borrowings	161		—		161
Other liabilities	3		—		3
Total liabilities	$	1,033	$	1	$	1,034
Net assets acquired					$	87
Purchase Price:
Nicolet common stock issued (in shares)					1,262,360
Value of Nicolet common stock consideration					$	98
Cash consideration paid					39
Total purchase price					$	137
Preliminary goodwill					$	50

The Company purchased loans through the acquisition of Charter for which there was, at the ~~merger were incurred and charged against additional paid in capital.~~

~~Upon consummation, the Company added $480 million in assets, $351 million in~~date of acquisition, more than insignificant deterioration of credit quality since origination (purchased credit deteriorated loans ~~$375 million in deposits, $4 million in core deposit intangible, and $41 million~~or “PCD” loans). The carrying amount of ~~goodwill.~~ these loans at acquisition was as follows.


(In thousands)	August 26, 2022
Purchase price of PCD loans at acquisition	$	24,031
Allowance for credit losses on PCD loans at acquisition	1,709
Par value of PCD acquired loans at acquisition	$	25,740

The Company accounted for the ~~transaction~~Charter acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of ~~First Menasha~~Charter 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 Charter acquisition is not deductible for tax purposes. Due to the ~~closing date~~timing of the merger, the purchase price allocation and estimated fair value measurements remain preliminary. Management will continue to review the estimated fair values ~~becomes available through~~and expects to finalize its analysis of 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 gainacquired assets and assumed liabilities 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 growth of the Company’s wealth management business. The transaction was effected in phases and completed April 1, 2016. The Company paid $4.9 million total initial consideration, including $0.8 million cash, $2.6 million of Nicolet common stock, and recorded a $1.5 million earn-out liability payable to one principal in the future. The Company initially recorded $0.4 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~~next few months, 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 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 consummationyear 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 million (based on $37.58 per share, the volume weighted average closing price of the Company’s common stock over the preceding 20 trading day period) and recorded an additional $1.2 million consideration for 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.

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

~~The~~purchase price allocation and estimated fair value ~~of the assets acquired and liabilities assumed on April 29, 2016 was 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

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 presented for illustrative purposes and are not intended to represent or be indicative of the actual results of operations of the combined company that would have been achieved had the acquisition occurred at the beginning of each period presented, nor are they intended 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

may occur.

Note 3 – Earnings per Common Share

Basic earnings per common share are calculated by dividing net income ~~available to common shareholders~~(loss) 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~~(loss) 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 March 31,
(In thousands, except per share data)	2023		2022
Net income (loss)	$	(8,898)	$	24,164
Weighted average common shares outstanding	14,694		13,649
Effect of dilutive common stock awards	—		566
Diluted weighted average common shares outstanding	14,694		14,215
Basic earnings (loss) per common share*	$	(0.61)	$	1.77
Diluted earnings (loss) per common share*	$	(0.61)	$	1.70

*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~~

As a result of the Company’s reported net loss for the three months ended March 31, 2023, all of the common stock awards outstanding were noexcluded from the computation of diluted earnings (loss) per common shares. For the three months ended March 31, 2022, options ~~outstanding at September 30, 2017 or September 30, 2016 that~~to purchase approximately 0.1 million shares were 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 March 31, 2023, approximately 0.7 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 three months ended March 31, 2022 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. There were no stock options granted for the three months ended March 31, 2023.

	11
		Three Months Ended March 31, 2022
Dividend yield		—		%
Expected volatility		30		%
Risk-free interest rate		1.77		%
Expected average life		7 years
Weighted average per share fair value of options		$	32.99

~~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, 2022	1,853,064	$	59.79
Granted	—	—
Exercise of stock options *	(5,329)	34.82

Outstanding - March 31, 2023	1,847,735	$	59.86	5.7	$	16,359
Exercisable - March 31, 2023	1,278,592	$	52.22	4.6	$	16,302

*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 three months ended March 31, 2023, 492 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~~three months ~~of 2017,~~ended March 31, 2023 and ~~full year of 2016~~2022 was approximately ~~$1.8~~$0.2 million and ~~$1.3~~$3.0 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

*The terms

A summary of the Company’s 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 shares were surrendered during the nine months ended September 30, 2017 and 7,851 shares were surrendered during the twelve months ended December 31, 2016.

activity is summarized below.


Restricted Stock	Weighted Average Grant Date Fair Value		Restricted Shares Outstanding
Outstanding - December 31, 2022	$	76.49	73,490
Granted	—		—
Vested	72.00		(500)

Outstanding - March 31, 2023	$	76.52	72,990

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

The Company recognized approximately ~~$1.9~~$1.4 million and ~~$1.1~~$1.8 million of stock-based ~~employee~~ compensation expense ~~during~~(included in personnel on the ~~nine~~consolidated statements of income) for the three months ended ~~September 30, 2017~~March 31, 2023 and ~~2016,~~2022, respectively, associated with its common stock ~~equity awards.~~awards granted to officers and employees. As of ~~September 30, 2017,~~March 31, 2023, there was approximately ~~$15.2~~$17.2 million of unrecognized compensation cost related to equity award ~~grants. The cost~~grants, which is expected to be recognized over the ~~weighted average~~ remaining vesting period of approximately ~~four~~three years.

The Company recognized a tax benefit of less than $0.1 million and approximately $0.4 million for the three months ended March 31, 2023 and 2022, 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 AFS and HTM are summarized as follows.


	March 31, 2023
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities AFS:
U.S. Treasury securities	$	192,166	$	—	$	6,058	$	186,108
U.S. government agency securities	9,959		36		25		9,970
State, county and municipals	428,643		692		31,887		397,448
Mortgage-backed securities	350,712		—		39,091		311,621
Corporate debt securities	125,349		—		7,320		118,029
Total securities AFS	$	1,106,829	$	728	$	84,381	$	1,023,176


	December 31, 2022
(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities AFS:
U.S. Treasury securities	$	192,116	$	—	$	8,286	$	183,830
U.S. government agency securities	2,133		—		33		2,100
State, county and municipals	433,733		123		35,668		398,188
Mortgage-backed securities	227,650		10		26,728		200,932
Corporate debt securities	140,712		3		8,147		132,568
Total securities AFS	$	996,344	$	136	$	78,862	$	917,618
Securities HTM:
U.S. Treasury securities	$	497,648	$	—	$	35,722	$	461,926
U.S. government agency securities	8,744		46		—		8,790
State, county and municipals	34,874		—		3,349		31,525
Mortgage-backed securities	137,862		—		16,751		121,111
Total securities HTM	$	679,128	$	46	$	55,822	$	623,352

On March 7, 2023, Nicolet executed the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million. Proceeds from the sale were used to reduce existing FHLB borrowings with the remainder held in investable cash. As a result of the sale of securities previously classified as held to maturity, the remaining unsold portfolio of held to maturity securities, with a book value of $177 million, was reclassified to available for sale ~~are summarized~~with a carrying value of approximately $157 million. The unrealized loss on this portfolio of $20 million increased the balance of accumulated other comprehensive loss $15 million, net of the deferred tax effect, and is subject to future market changes.

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


	Three Months Ended March 31,
(in thousands)	2023		2022
Securities AFS:
Gross gains	$	126	$	20
Gross losses	(339)		(5)
Gains (losses) on sales of securities AFS, net	$	(213)	$	15
Proceeds from sales of securities AFS	$	22,565	$	3,400
Securities HTM:
Gross gains	$	—	$	—
Gross losses	(37,723)		—
Gains (losses) on sales of securities HTM, net	$	(37,723)	$	—
Proceeds from sales of securities HTM	$	460,051	$	—

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 $414 million and $883 million, as of March 31, 2023 and December 31, 2022, respectively, were pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by regulation. Accrued interest on investment securities totaled $6 million at both March 31, 2023 and December 31, 2022, 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 30, 2017 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

position.


	March 31, 2023
	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. Treasury securities	$	456	$	8	$	185,640	$	6,050	$	186,096	$	6,058	9
U.S. government agency securities	2,718		20		107		5		2,825		25		9
State, county and municipals	79,617		1,826		247,397		30,061		327,014		31,887		608
Mortgage-backed securities	35,724		2,158		275,897		36,933		311,621		39,091		464
Corporate debt securities	68,654		2,583		44,995		4,737		113,649		7,320		75
Total	$	187,169	$	6,595	$	754,036	$	77,786	$	941,205	$	84,381	1,165

~~Note 5 – Securities Available for Sale, continued~~

~~At September 30, 2017~~


	December 31, 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. Treasury securities	$	448	$	14	$	183,382	$	8,272	$	183,830	$	8,286	9
U.S. government agency securities	2,083		32		17		1		2,100		33		9
State, county and municipals	277,546		18,041		86,569		17,627		364,115		35,668		812
Mortgage-backed securities	102,108		11,320		95,614		15,408		197,722		26,728		376
Corporate debt securities	114,887		6,186		12,938		1,961		127,825		8,147		90
Total	$	497,072	$	35,593	$	378,520	$	43,269	$	875,592	$	78,862	1,296
Securities HTM:
U.S. Treasury securities	$	—	$	—	$	461,926	$	35,722	$	461,926	$	35,722	6

State, county and municipals	17,591		1,594		11,654		1,755		29,245		3,349		58
Mortgage-backed securities	68,108		8,029		53,003		8,722		121,111		16,751		106
Total	$	85,699	$	9,623	$	526,583	$	46,199	$	612,282	$	55,822	170

During first quarter 2023, the Company ~~had $2.6~~recognized provision expense of $2.3 million ~~of gross unrealized losses~~ related to ~~507 securities. As of September 30, 2017,~~ the expected credit loss on its Signature Bank sub debt investment (acquired in an acquisition), and immediately charged-off the full investment. The Company does not consider its remaining 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 AFS securities and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. As of March 31, 2023 and December 31, 2022, no allowance for credit losses on AFS securities was recognized.

The Company ~~has~~evaluated the ~~ability~~HTM securities and ~~intent~~determined no allowance for credit losses was necessary at December 31, 2022. The U.S. Treasury and U.S. government agency securities are guaranteed by the U.S. government. For the state, county and municipal securities, management considered 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 the nine-month periods ending September 30, 2017 or September 30, 2016.~~

credit losses.

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 March 31, 2023	Securities AFS
(in thousands)	Amortized Cost		Fair Value
Due in less than one year	$	225,921	$	223,243
Due in one year through five years	173,794		163,788
Due after five years through ten years	223,776		201,296
Due after ten years	132,626		123,228
	756,117		711,555
Mortgage-backed securities	350,712		311,621
Total investment securities	$	1,106,829	$	1,023,176

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.


	March 31, 2023		December 31, 2022
(in thousands)	Amount		Amount
Federal Reserve Bank stock	$	32,708	$	32,219
Federal Home Loan Bank (“FHLB”) stock	10,174		18,625
Equity securities with readily determinable fair values	3,912		4,376
Other investments	10,688		10,066
Total other investments	$	57,482	$	65,286

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 %


	March 31, 2023					December 31, 2022
(in thousands)	Amount			% of Total		Amount			% of Total
Commercial & industrial	$	1,330,052		21	%	$	1,304,819		21	%
Owner-occupied commercial real estate (“CRE”)	969,064			16		954,599			15
Agricultural	1,065,909			17		1,088,607			18
CRE investment	1,146,388			19		1,149,949			19
Construction & land development	333,370			5		318,600			5
Residential construction	134,782			2		114,392			2
Residential first mortgage	1,014,166			16		1,016,935			16
Residential junior mortgage	177,026			3		177,332			3
Retail & other	52,975			1		55,266			1
Loans	6,223,732			100	%	6,180,499			100	%
Less allowance for credit losses - Loans (“ACL-Loans”)	62,412					61,829
Loans, net	$	6,161,320				$	6,118,670
Allowance for credit losses - Loans to loans	1.00		%			1.00		%

~~Note 6 – Loans,~~

Accrued interest on loans totaled $16 million and $15 million at March 31, 2023 and December 31, 2022, respectively, 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				Year Ended
(in thousands)	March 31, 2023		March 31, 2022			December 31, 2022
Beginning balance	$	61,829	$	49,672		$	49,672
ACL on PCD loans acquired	—		—			1,937
Provision for credit losses	750		300			10,950
Charge-offs	(184)		(100)			(1,033)
Recoveries	17		34			303
Net (charge-offs) recoveries	(167)		(66)			(730)
Ending balance	$	62,412	$	49,906		$	61,829

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


	Three Months Ended March 31, 2023
(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	$	16,350		$	9,138		$	9,762		$	12,744		$	2,572		$	1,412		$	6,976		$	1,846		$	1,029		$	61,829

Provision	457			172			(328)			210			106			262			(206)			(31)			108			750
Charge-offs	(118)			—			—			—			—			—			—			—			(66)			(184)
Recoveries	10			—			2			—			—			—			1			—			4			17
Net (charge-offs) recoveries	(108)			—			2			—			—			—			1			—			(62)			(167)
Ending balance	$	16,699		$	9,310		$	9,436		$	12,954		$	2,678		$	1,674		$	6,771		$	1,815		$	1,075		$	62,412
As % of ACL-Loans	27		%	15		%	15		%	21		%	4		%	2		%	11		%	3		%	2		%	100		%


	Year Ended December 31, 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	1,408			384			—			38			2			—			93			12			—			1,937
Provision	2,415			2,087			215			4,075			758			512			96			493			299			10,950
Charge-offs	(190)			(555)			—			—			—			—			(65)			—			(223)			(1,033)
Recoveries	104			—			—			169			—			—			8			1			21			303
Net (charge-offs) recoveries	(86)			(555)			—			169			—			—			(57)			1			(202)			(730)
Ending balance	$	16,350		$	9,138		$	9,762		$	12,744		$	2,572		$	1,412		$	6,976		$	1,846		$	1,029		$	61,829
As % of ACL-Loans	26		%	15		%	16		%	21		%	4		%	2		%	11		%	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 $3.0 million at both March 31, 2023 and December 31, 2022.

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				Year Ended
(in thousands)	March 31, 2023		March 31, 2022			December 31, 2022
Provision for credit losses on:
Loans	$	750	$	300		$	10,950
Unfunded commitments	—		—			550
Investment securities	2,340		—			—
Total	$	3,090	$	300		$	11,500

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.


March 31, 2023	Collateral Type
(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	$	—	$	2,419	$	2,419	$	1,084	$	1,335	$	506
Owner-occupied CRE	5,905		—		5,905		5,697		208		54
Agricultural	12,656		5,800		18,456		12,751		5,705		166
CRE investment	3,158		—		3,158		2,635		523		7
Construction & land development	650		—		650		650		—		—

Residential first mortgage	1,357		—		1,357		1,357		—		—
Residential junior mortgage	8		—		8		8		—		—

Total loans	$	23,734	$	8,219	$	31,953	$	24,182	$	7,771	$	733


December 31, 2022	Collateral Type
(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	$	—	$	3,475	$	3,475	$	1,927	$	1,548	$	595
Owner-occupied CRE	4,907		—		4,907		4,699		208		53
Agricultural	13,758		6,458		20,216		14,358		5,858		261
CRE investment	2,713		—		2,713		979		1,734		212
Construction & land development	670		—		670		670		—		—

Residential first mortgage	91		—		91		91		—		—


Total loans	$	22,139	$	9,933	$	32,072	$	22,724	$	9,348	$	1,121

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.


	March 31, 2023
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	256		$	2,874		$	1,326,922		$	1,330,052
Owner-occupied CRE	388			7,128			961,548			969,064
Agricultural	178			18,782			1,046,949			1,065,909
CRE investment	—			4,126			1,142,262			1,146,388
Construction & land development	—			748			332,622			333,370
Residential construction	1,144			—			133,638			134,782
Residential first mortgage	3,852			4,986			1,005,328			1,014,166
Residential junior mortgage	219			196			176,611			177,026
Retail & other	222			55			52,698			52,975
Total loans	$	6,259		$	38,895		$	6,178,578		$	6,223,732
Percent of total loans	0.1		%	0.6		%	99.3		%	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, 2022
(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	$	210		$	3,328		$	1,301,281		$	1,304,819
Owner-occupied CRE	833			5,647			948,119			954,599
Agricultural	20			20,416			1,068,171			1,088,607
CRE investment	—			3,832			1,146,117			1,149,949
Construction & land development	—			771			317,829			318,600
Residential construction	—			—			114,392			114,392
Residential first mortgage	3,628			3,780			1,009,527			1,016,935
Residential junior mortgage	236			224			176,872			177,332
Retail & other	261			82			54,923			55,266
Total loans	$	5,188		$	38,080		$	6,137,231		$	6,180,499
Percent of total loans	0.1		%	0.6		%	99.3		%	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.


	March 31, 2023					December 31, 2022
(in thousands)	Nonaccrual Loans			% of Total		Nonaccrual Loans			% of Total
Commercial & industrial	$	2,874		7	%	$	3,328		9	%
Owner-occupied CRE	7,128			18		5,647			15
Agricultural	18,782			48		20,416			53
CRE investment	4,126			11		3,832			10
Construction & land development	748			2		771			2
Residential construction	—			—		—			—
Residential first mortgage	4,986			13		3,780			10
Residential junior mortgage	196			1		224			1
Retail & other	55			—		82			—
Nonaccrual loans	$	38,895		100	%	$	38,080		100	%
Percent of total loans	0.6		%			0.6		%

~~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 gross charge-offs by year of ~~September 30, 2017~~origination. Acquired loans have been included based upon the actual origination date.


March 31, 2023	Amortized Cost Basis by Origination Year
(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving to Term		TOTAL
Commercial & industrial
Grades 1-4	$	47,409	$	312,964	$	215,435	$	96,534	$	65,723	$	111,114	$	376,926	$	—	$	1,226,105
Grade 5	95		4,204		4,640		6,548		1,195		11,392		27,894		—		55,968
Grade 6	—		1,358		618		66		—		11,881		6,543		—		20,466
Grade 7	291		3,613		1,894		2,165		2,371		2,411		14,768		—		27,513
Total	$	47,795	$	322,139	$	222,587	$	105,313	$	69,289	$	136,798	$	426,131	$	—	$	1,330,052
Current period gross charge-offs	$	—	$	(77)	$	(26)	$	—	$	—	$	—	$	(15)	$	—	$	(118)
Owner-occupied CRE
Grades 1-4	$	28,513	$	155,362	$	196,641	$	103,973	$	97,039	$	322,852	$	4,773	$	—	$	909,153
Grade 5	1,381		3,134		6,310		4,485		908		17,497		490		—		34,205
Grade 6	—		1,000		355		41		1,575		2,070		250		—		5,291
Grade 7	—		224		684		7,244		1,358		10,905		—		—		20,415
Total	$	29,894	$	159,720	$	203,990	$	115,743	$	100,880	$	353,324	$	5,513	$	—	$	969,064
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural
Grades 1-4	$	11,930	$	280,631	$	138,443	$	83,733	$	25,089	$	152,730	$	227,727	$	—	$	920,283
Grade 5	1,239		13,311		11,668		1,762		879		39,707		20,436		—		89,002
Grade 6	50		62		1,244		—		52		2,332		195		—		3,935
Grade 7	695		7,199		7,271		786		1,942		23,812		10,984		—		52,689
Total	$	13,914	$	301,203	$	158,626	$	86,281	$	27,962	$	218,581	$	259,342	$	—	$	1,065,909
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE investment
Grades 1-4	$	8,011	$	205,798	$	228,060	$	189,172	$	132,082	$	326,737	$	11,704	$	—	$	1,101,564
Grade 5	2,825		563		1,633		3,552		3,312		21,095		—		—		32,980
Grade 6	—		—		—		—		1,159		3,778		183		—		5,120
Grade 7	—		—		21		523		2,316		3,663		201		—		6,724
Total	$	10,836	$	206,361	$	229,714	$	193,247	$	138,869	$	355,273	$	12,088	$	—	$	1,146,388
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction & land development
Grades 1-4	$	6,947	$	119,087	$	144,313	$	11,980	$	8,802	$	36,033	$	5,290	$	—	$	332,452
Grade 5	—		34		—		—		12		92		—		—		138
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		32		—		—		—		748		—		—		780
Total	$	6,947	$	119,153	$	144,313	$	11,980	$	8,814	$	36,873	$	5,290	$	—	$	333,370
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential construction
Grades 1-4	$	5,036	$	114,512	$	12,948	$	1,045	$	121	$	549	$	—	$	—	$	134,211
Grade 5	—		—		571		—		—		—		—		—		571
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	5,036	$	114,512	$	13,519	$	1,045	$	121	$	549	$	—	$	—	$	134,782
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential first mortgage
Grades 1-4	$	35,309	$	309,434	$	270,665	$	142,741	$	66,489	$	173,612	$	1,426	$	3	$	999,679
Grade 5	—		1,364		776		987		1,776		2,759		—		—		7,662
Grade 6	—		—		—		—		703		—		—		—		703
Grade 7	—		152		477		178		359		4,956		—		—		6,122
Total	$	35,309	$	310,950	$	271,918	$	143,906	$	69,327	$	181,327	$	1,426	$	3	$	1,014,166
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential junior mortgage
Grades 1-4	$	2,784	$	9,905	$	4,291	$	5,055	$	3,071	$	4,780	$	140,169	$	6,570	$	176,625
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		35		205		—		—		23		138		—		401
Total	$	2,784	$	9,940	$	4,496	$	5,055	$	3,071	$	4,803	$	140,307	$	6,570	$	177,026
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Retail & other
Grades 1-4	$	1,646	$	10,603	$	8,010	$	3,659	$	2,622	$	4,451	$	21,885	$	—	$	52,876
Grade 5	—		—		21		—		—		—		—		—		21
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		46		2		1		29		—		—		78
Total	$	1,646	$	10,603	$	8,077	$	3,661	$	2,623	$	4,480	$	21,885	$	—	$	52,975
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	(66)	$	—	$	(66)
Total loans	$	154,161	$	1,554,581	$	1,257,240	$	666,231	$	420,956	$	1,292,008	$	871,982	$	6,573	$	6,223,732


December 31, 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	$	317,394	$	226,065	$	101,374	$	68,884	$	50,189	$	77,589	$	360,978	$	—	$	1,202,473
Grade 5	9,938		5,902		10,811		1,530		3,986		4,562		20,617		—		57,346
Grade 6	1,459		2,283		629		511		402		11,653		14,047		—		30,984
Grade 7	556		293		3,211		2,990		775		1,070		5,121		—		14,016
Total	$	329,347	$	234,543	$	116,025	$	73,915	$	55,352	$	94,874	$	400,763	$	—	$	1,304,819
Current period gross charge-offs	$	(38)	$	(41)	$	(2)	$	—	$	(109)	$	—	$	—	$	—	$	(190)
Owner-occupied CRE
Grades 1-4	$	151,391	$	190,313	$	105,156	$	100,606	$	91,479	$	252,574	$	6,734	$	—	$	898,253
Grade 5	5,241		3,192		4,287		2,163		4,791		14,632		348		—		34,654
Grade 6	—		—		763		2,361		—		877		—		—		4,001
Grade 7	227		706		6,344		616		—		9,798		—		—		17,691
Total	$	156,859	$	194,211	$	116,550	$	105,746	$	96,270	$	277,881	$	7,082	$	—	$	954,599
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(555)	$	—	$	—	$	(555)
Agricultural
Grades 1-4	$	275,208	$	145,272	$	85,413	$	25,463	$	19,687	$	130,849	$	249,033	$	—	$	930,925
Grade 5	13,295		18,178		2,694		1,992		517		43,927		21,199		—		101,802
Grade 6	115		1,457		28		33		—		5,258		429		—		7,320
Grade 7	7,165		2,632		720		1,977		4,611		19,948		11,507		—		48,560
Total	$	295,783	$	167,539	$	88,855	$	29,465	$	24,815	$	199,982	$	282,168	$	—	$	1,088,607
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE investment
Grades 1-4	$	205,930	$	229,252	$	192,527	$	134,301	$	79,649	$	248,595	$	11,383	$	—	$	1,101,637
Grade 5	567		1,649		3,578		4,266		3,086		24,897		—		—		38,043
Grade 6	—		—		—		1,170		2,396		2,483		206		—		6,255
Grade 7	—		—		121		299		245		3,140		209		—		4,014
Total	$	206,497	$	230,901	$	196,226	$	140,036	$	85,376	$	279,115	$	11,798	$	—	$	1,149,949
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction & land development
Grades 1-4	$	104,804	$	140,727	$	12,188	$	9,747	$	23,811	$	13,138	$	13,235	$	—	$	317,650
Grade 5	37		—		—		14		—		95		—		—		146
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	33		—		—		—		—		771		—		—		804
Total	$	104,874	$	140,727	$	12,188	$	9,761	$	23,811	$	14,004	$	13,235	$	—	$	318,600
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential construction
Grades 1-4	$	92,417	$	16,774	$	966	$	123	$	336	$	229	$	3,547	$	—	$	114,392
Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		—		—		—		—		—		—		—		—
Total	$	92,417	$	16,774	$	966	$	123	$	336	$	229	$	3,547	$	—	$	114,392
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential first mortgage
Grades 1-4	$	318,628	$	272,011	$	147,857	$	68,975	$	31,208	$	162,153	$	2,080	$	3	$	1,002,915
Grade 5	1,494		758		997		1,803		2,272		465		—		—		7,789
Grade 6	—		—		—		711		—		—		—		—		711
Grade 7	154		329		188		349		197		4,303		—		—		5,520
Total	$	320,276	$	273,098	$	149,042	$	71,838	$	33,677	$	166,921	$	2,080	$	3	$	1,016,935
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(65)	$	—	$	—	$	(65)
Residential junior mortgage
Grades 1-4	$	10,119	$	4,580	$	5,207	$	3,151	$	1,573	$	3,409	$	142,784	$	5,762	$	176,585
Grade 5	—		—		—		—		—		143		165		—		308
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		206		—		—		—		24		209		—		439
Total	$	10,119	$	4,786	$	5,207	$	3,151	$	1,573	$	3,576	$	143,158	$	5,762	$	177,332
Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Retail & other
Grades 1-4	$	12,318	$	8,957	$	4,221	$	3,188	$	1,035	$	24,950	$	492	$	—	$	55,161
Grade 5	—		23		—		—		—		—		—		—		23
Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	—		23		22		2		30		5		—		—		82
Total	$	12,318	$	9,003	$	4,243	$	3,190	$	1,065	$	24,955	$	492	$	—	$	55,266
Current period gross charge-offs	$	—	$	(1)	$	(6)	$	(1)	$	—	$	—	$	(215)	$	—	$	(223)
Total loans	$	1,528,490	$	1,271,582	$	689,302	$	437,225	$	322,275	$	1,061,537	$	864,323	$	5,765	$	6,180,499

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 ~~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 %

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~~

Modifications to Borrowers Experiencing Financial Difficulty:

On January 1, 2023, the ~~weaknesses as one rated Substandard with~~Company adopted ASU 2022-02, which eliminated the ~~added characteristic~~accounting guidance for TDRs by creditors and enhanced the disclosure requirements for certain loan modifications to borrowers experiencing financial difficulty. The following table presents the amortized cost of loans that ~~such weaknesses make collection or liquidation in full highly questionable.~~

were both experiencing financial difficulty and were modified during the three months ended March 31, 2023, aggregated by portfolio segment and type of modification.


(in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Term Extension & Interest Rate Reduction		Total		% of Total Loans
Commercial & industrial	$	—	$	—	$	—	$	—	$	—	—	%
Owner-occupied CRE	—		—		—		—		—		—	%
Agricultural	110		—		—		—		110		0.01	%
CRE investment	—		—		—		—		—		—	%
Construction & land development	—		—		—		—		—		—	%

Residential first mortgage	—		—		—		—		—		—	%


Total	$	110	$	—	$	—	$	—	$	110	—	%

~~Note 6 – 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~~

The loans presented 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~~table above have had more than insignificant payment delays (which the Company ~~will be unable~~has defined as payment delays in excess of six months). These modified loans are closely monitored by the Company to ~~collect all contractual principal~~understand the effectiveness of its modification efforts, and ~~interest payments due~~such loans generally remain in nonaccrual status pending a sustained period of performance in accordance with the ~~terms~~modified terms.

As of March 31, 2023, there were no loans made to borrowers experiencing financial difficulty that were modified during the ~~loan agreement. For determining~~current period and subsequently defaulted, and there were no commitments to lend additional funds to such debtors.

Troubled Debt Restructuring Disclosures Prior to Adoption of ASU 2022-02:

As of December 31, 2022, the ~~adequacy~~Company had restructured loans totaling $18 million, with a pre-modification balance of ~~the ALLL, management defines impaired loans~~$24 million, all of which were also reflected 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 the loan for impairment and possible charge-off regardless of loan size.

In determining the appropriateness of the ALLL, management 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 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 effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value 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

loans. There were no ~~originated impaired~~restructured 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,~~modified 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. There were no loans classified as troubled debt restructurings during the previous twelve months2022 that subsequently defaulted, ~~as of September 30, 2017. Loans which~~and there were ~~considered troubled debt restructurings by First Menasha and Baylake prior~~no commitments to ~~acquisition are not required~~lend additional funds 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.~~

debtors.

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 also 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 and other intangibles. Management concluded no impairment ~~charge on~~was indicated for the three months ended March 31, 2023 and the year ended December 31, 2022. A summary of goodwill orand other intangibles was ~~required for 2016 or the first nine months of 2017.~~

as follows.



(in thousands)	March 31, 2023		December 31, 2022
Goodwill	$	367,387	$	367,387
Core deposit intangibles	30,667		32,701
Customer list intangibles	2,223		2,350
Other intangibles	32,890		35,051
Goodwill and other intangibles, net	$	400,277	$	402,438

~~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 2022, 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. See Note 2 for additional information on the acquisitions.

Charter acquisition.

Three Months Ended Year Ended
(in thousands) March 31, 2023 December 31, 2022
Goodwill:
Goodwill at beginning of year $ 367,387 $ 317,189
Acquisitions — 49,970
Purchase accounting adjustment — 228
Goodwill at end of period $ 367,387 $ 367,387
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 2022, core deposit intangibles ~~related~~increased due to the First Menasha merger in the second quarter 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. See Note 2 for additional information on the 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

Charter acquisition.

Three Months Ended Year Ended
(in thousands) March 31, 2023 December 31, 2022
Core deposit intangibles:
Gross carrying amount $ 60,724 $ 60,724
Accumulated amortization (30,057) (28,023)
Net book value $ 30,667 $ 32,701
Additions during the period $ — $ 19,364
Amortization during the period $ 2,034 $ 6,108
Customer list intangibles:
Gross carrying amount $ 5,523 $ 5,523
Accumulated amortization (3,300) (3,173)
Net book value $ 2,223 $ 2,350
Amortization during the period $ 127 $ 508

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 the nine months ended September 30, 2017 and year ended December 31, 2016 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 %

sheets. 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~~A summary of the changes in the mortgage servicing rights asset was ~~recorded for 2016 or year~~as follows.


	Three Months Ended			Year Ended
(in thousands)	March 31, 2023			December 31, 2022
Mortgage servicing rights asset:
MSR asset at beginning of year	$	13,080		$	13,636
Capitalized MSR	204			2,327

Amortization during the period	(740)			(2,883)
MSR asset at end of period	$	12,544		$	13,080
Valuation allowance at beginning of year	$	(500)		$	(1,200)

Reversals	500			700
Valuation allowance at end of period	$	—		$	(500)
MSR asset, net	$	12,544		$	12,580
Fair value of MSR asset at end of period	$	17,708		$	17,215
Residential mortgage loans serviced for others	$	1,620,150		$	1,637,109
Net book value of MSR asset to loans serviced for others	0.77		%	0.77		%

Loan servicing rights (“LSR”): The Company acquired an LSR asset in December 2021 which will be amortized over the estimated remaining loan service period. The Company does not expect to ~~date 2017.~~

add new loans to this servicing portfolio. A summary of the changes in the LSR asset were as follows.


	Three Months Ended		Year Ended
(in thousands)	March 31, 2023		December 31, 2022
Loan servicing rights asset:
LSR asset at beginning of year	$	11,039	$	20,055
Amortization during the period	(552)		(9,016)
LSR asset at end of period	$	10,487	$	11,039
Agricultural loans serviced for others	$	528,891	$	538,392

~~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 30, 2017.~~March 31, 2023. 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,
2023 (remaining nine months)	$	5,555	$	356	$	1,672	$	1,656
2024	6,298		449		2,680		1,962
2025	5,161		449		1,942		1,717
2026	3,983		249		1,434		1,472
2027	3,218		166		1,434		1,227
2028	2,622		166		1,432		981
Thereafter	3,830		388		1,950		1,472
Total	$	30,667	$	2,223	$	12,544	$	10,487

Note 8 – ~~Notes Payable~~

~~The Company had the following long-term notes payable (notes~~Short and Long-Term Borrowings

Short-Term Borrowings:

Short-term borrowings include any borrowing with an original ~~maturities~~maturity of one year or less. At March 31, 2023, short-term borrowings included $50 million of short-term FHLB advances due in September 2023 with a weighted average rate of 4.26%. At December 31, 2022, short-term borrowings included $317 million of short-term FHLB advances, comprised of $117 million due in January 2023 at a weighted average rate of 4.29% and $200 million due in September 2023 at a weighted average rate of 4.30%.

Long-Term Borrowings:

Long-term borrowings include any borrowing with an original 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)	March 31, 2023		December 31, 2022
FHLB advances	$	5,000	$	33,000
Junior subordinated debentures	39,928		39,720
Subordinated notes	152,520		152,622
Total long-term borrowings	$	197,448	$	225,342

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 30, 2017~~March 31, 2023 and ~~1.17%~~1.09% 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 –~~ 2022.

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 both March 31, 2023 and December 31, 2022, approximately $38 million 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 an 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,~~

The following table shows the breakdown of junior subordinated debentures and subordinated notes.


		As of March 31, 2023								As of December 31, 2022
(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	6.30	%	$	10,310	$	(2,527)	$	7,783	6.20	%	$	7,734
Baylake Capital Trust II (3)	9/30/2036	6.51	%	16,598		(3,115)		13,483		6.08	%	13,424
First Menasha Statutory Trust (4)	3/17/2034	7.70	%	5,155		(476)		4,679		7.53	%	4,668
County Bancorp Statutory Trust II (5)	9/15/2035	6.40	%	6,186		(870)		5,316		6.30	%	5,277
County Bancorp Statutory Trust III (6)	6/15/2036	6.56	%	6,186		(928)		5,258		6.46	%	5,219
Fox River Valley Capital Trust (7)	5/30/2033	6.40	%	3,610		(201)		3,409		6.40	%	3,398
Total				$	48,045	$	(8,117)	$	39,928			$	39,720
Subordinated Notes:
Subordinated Notes due 2031	7/15/2031	3.13	%	$	100,000	$	(681)	$	99,319	3.13	%	$	99,267
County Subordinated Notes due 2028	6/1/2028	5.88	%	30,000		49		30,049		5.88	%	30,119
County Subordinated Notes due 2030	6/30/2030	7.00	%	22,400		752		23,152		7.00	%	23,236
Total				$	152,400	$	120	$	152,520			$	152,622

(1) Represents the remaining unamortized premium or discount on debt issuances assumed in acquisitions, and represents the unamortized debt issue costs 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 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~~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 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 swap rate plus 3.40%, which resets every five years.

Note 9 – Commitments and Contingencies

The Company is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, financial guarantees, and standby letters of credit. Such commitments may involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets. The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as they do for on-balance sheet financial instruments. See Note 6 for information on the allowance for credit losses-unfunded commitments.

A summary of the contract or notional amount of the Company’s exposure to off-balance sheet risk was as follows.


(in thousands)	March 31, 2023		December 31, 2022
Commitments to extend credit	$	1,850,215	$	1,850,601
Financial standby letters of credit	23,246		26,530
Performance standby letters of credit	9,952		9,375

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract, and predominantly included commercial lines of credit with a term of one year or less. The commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Financial and performance standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. Financial standby letters of credit are issued specifically to facilitate commerce and typically result in the commitment being drawn on when the underlying transaction is consummated between the customer and the third party, while performance standby letters of credit generally are contingent upon the failure of the customer to perform according to the terms of the underlying contract with the third party. Both of these guarantees are primarily issued to support public and private

borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company holds collateral, which may include accounts receivable, inventory, property, equipment, and income-producing properties, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, the Company would be required to fund the commitment. The maximum potential amount of future payments the Company could be required to make is represented by the contractual amount. If the commitment is funded, the Company would be entitled to seek recovery from the customer.

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 (“mortgage derivatives”) and the contractual amounts were $18 million and $17 million, respectively, at March 31, 2023. 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 totaled $9 million and $9 million, respectively, at December 31, 2022. The net fair value of these ~~subordinated notes~~mortgage derivatives combined was ~~$11.9 million.~~

~~The $180,000 debt issuance costs associated with the $12~~a net gain of $0.1 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~~at both March 31, 2023 and December 31, ~~2016, respectively, $88,000~~2022.

Nicolet is party to various pending and ~~$115,000,~~threatened claims and legal proceedings arising in the normal course of ~~unamortized debt issuance costs remain~~business activities, some of which may involve claims for substantial amounts. Although Nicolet has developed policies and ~~are reflected as~~procedures to minimize legal noncompliance and the impact of claims and other proceedings and endeavored to procure reasonable amounts of insurance coverage, litigation and regulatory actions present an ongoing risk. With respect to all such claims, Nicolet continuously assesses its potential liability based on the allegations and evidence available. If the facts indicate that it is probable that Nicolet will incur a ~~reduction to~~loss and the ~~carrying value~~amount of such loss can be reasonably estimated, Nicolet will establish an accrual for the probable loss. For matters where a loss is not probable, or the amount of the ~~outstanding debt.~~

loss cannot be reasonably estimated, Nicolet does not establish an accrual.

Future developments could result in an unfavorable outcome for or resolution of any one or more of the legal proceedings in which Nicolet is a defendant, which may be material to Nicolet’s business or consolidated results of operations or financial condition for a particular fiscal period or periods. Although it is not possible to predict the outcomes of any of these legal proceedings or the range of possible loss, if any, based on the most recent information available, advice of counsel and available insurance coverage, if applicable, management believes that any liability resulting from such proceedings would not have a material adverse effect on our financial position or results of operations.

Note 1110 – 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
March 31, 2023
U.S. Treasury securities	$	186,108	$	—	$	186,108	$	—
U.S. government agency securities	9,970		—		9,970		—
State, county and municipals	397,448		—		395,579		1,869
Mortgage-backed securities	311,621		—		310,638		983
Corporate debt securities	118,029		—		112,726		5,303
Securities AFS	$	1,023,176	$	—	$	1,015,021	$	8,155
Other investments (equity securities)	$	3,912	$	3,912	$	—	$	—


December 31, 2022
U.S. Treasury securities	$	183,830	$	—	$	183,830	$	—
U.S. government agency securities	2,100		—		2,100		—
State, county and municipals	398,188		—		396,315		1,873
Mortgage-backed securities	200,932		—		199,951		981
Corporate debt securities	132,568		—		127,269		5,299
Securities AFS	$	917,618	$	—	$	909,465	$	8,153
Other investments (equity securities)	$	4,376	$	4,376	$	—	$	—

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. Treasury securities, ~~and~~U.S. government agency securities, 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 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, 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 following table presents the changes in Level 3 securities AFS measured at fair value on a recurring basis.

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


	Three Months Ended		Year Ended
Level 3 Fair Value Measurements:	March 31, 2023		December 31, 2022
Balance at beginning of year	$	8,153	$	8,065
Acquired balance	—		750
Maturities / Paydowns	—		(451)
Unrealized gain / (loss)	2		(211)
Balance at end of period	$	8,155	$	8,153

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
March 31, 2023
Collateral dependent loans	$	31,220	$	—	$	—	$	31,220
Other real estate owned (“OREO”)	1,975		—		—		1,975
MSR asset	12,544		—		—		12,544
December 31, 2022
Collateral dependent loans	$	30,951	$	—	$	—	$	30,951
OREO	1,975		—		—		1,975
MSR asset	12,580		—		—		12,580

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 value of the MSR asset related to a stratum exceeds its fair value, the stratum is recorded at fair value.~~ The servicing valuation model incorporates 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.


March 31, 2023
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	114,180	$	114,180	$	114,180	$	—	$	—
Certificates of deposit in other banks	11,293		11,181		—		11,181		—
Securities AFS	1,023,176		1,023,176		—		1,015,021		8,155

Other investments, including equity securities	57,482		57,482		3,912		42,982		10,588
Loans held for sale	4,962		5,057		—		5,057		—
Loans, net	6,161,320		5,962,242		—		—		5,962,242
MSR asset	12,544		17,708		—		—		17,708
Accrued interest receivable	21,796		21,796		21,796		—		—
Financial liabilities:
Deposits	$	6,928,579	$	6,918,140	$	—	$	—	$	6,918,140
Short-term borrowings	50,000		50,000		—		50,000		—
Long-term borrowings	197,448		188,203		—		4,855		183,348
Accrued interest payable	4,219		4,219		4,219		—		—


December 31, 2022
(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	154,723	$	154,723	$	154,723	$	—	$	—
Certificates of deposit in other banks	12,518		12,407		—		12,407		—
Securities AFS	917,618		917,618		—		909,465		8,153
Securities HTM	679,128		623,352		—		623,352		—
Other investments, including equity securities	65,286		65,286		4,376		52,093		8,817
Loans held for sale	1,482		1,529		—		1,529		—
Loans, net	6,118,670		5,863,570		—		—		5,863,570
MSR asset	12,580		17,215		—		—		17,215
Accrued interest receivable	21,275		21,275		21,275		—		—
Financial liabilities:
Deposits	$	7,178,921	$	7,172,779	$	—	$	—	$	7,172,779
Short-term borrowings	317,000		317,000		317,000		—		—
Long-term borrowings	225,342		220,513		—		33,001		187,512
Accrued interest payable	4,265		4,265		4,265		—		—

The valuation ~~techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of~~methodologies for the financial instruments ~~or other factors. Those techniques~~disclosed in the above table are ~~significantly affected by~~described in Note 18, Fair Value Measurements, in the ~~assumptions used, including~~Company’s Annual Report on Form 10-K for the ~~discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.~~

year ended December 31, 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~~Wisconsin, Michigan, and ~~central Wisconsin~~Minnesota. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, all references to “we,” “us” and ~~Menominee, Michigan.~~

~~Overview~~

At September 30, 2017, Nicolet Bankshares, Inc. 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, 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 2022 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;

•our ability to maintain liquidity, primarily through deposits, in light of recent events in the banking industry;

•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 and the possibility of a recession;

•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 2022 Annual Report on Form 10-K and in subsequent filings we make with the SEC; and

•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 30, 2017~~March 31, 2023 and December 31, ~~2016~~2022 and results of operations for the ~~three and nine-month~~three-month periods ended ~~September 30, 2017~~March 31, 2023 and ~~2016.~~2022. 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 2022 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 and 2016 acquisitions. Since the balances and results~~our acquisition of ~~operations of the acquired entities are appropriately not included in the accompanying consolidated financial statements until their consummation dates,~~Charter Bankshares, Inc. (“Charter”) on August 26, 2022. Certain income statement results, ~~and~~ average balances ~~for 2017 included full contributions from the 2016 acquisitions~~ and ~~no or~~related ratios include partial contributions from Charter from the ~~2017 acquisition. Similarly~~acquisition date. Additional information on our acquisition activity is included in Note 2, “Acquisition” in the Notes to Unaudited Consolidated Financial Statements, under Part I, Item 1.

Economic Outlook and Recent Industry Developments

The current economic outlook is highly uncertain. A strong labor market is contributing to continuing positive economic activity and demand for ~~2016~~goods and services; however, certain sectors are beginning to show signs of weakening. Real estate and manufacturing are slowing. Unemployment rates have not increased despite the significant increase in interest rates by the Federal Reserve to combat inflation (from a target range of 0.00%-0.25% in early March 2022 to 4.75%-5.00% at the end of March 2023). Many economists are anticipating a mild recession over the next year, but the long-term outlook is still positive as entrepreneurial activity remains strong.

During first quarter 2023, the banking industry experienced significant volatility with high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking system. Despite these negative industry developments, Nicolet strengthened its balance sheet and maintained a solid liquidity position. During first quarter 2023, the Company sold $500 million in held to maturity securities and used the net proceeds to reduce wholesale funding, which repositioned the balance sheet for future growth. This reduction in wholesale funding also enhanced the Company’s already strong liquidity position.

Table 1: Earnings Summary and Selected Financial Data


	At or for the Three Months Ended
(In thousands, except per share data)	3/31/2023			12/31/2022			9/30/2022			6/30/2022			3/31/2022
Results of operations:
Net interest income	$	56,721		$	68,092		$	62,990		$	55,084		$	53,795
Provision for credit losses	3,090			1,850			8,600			750			300
Noninterest income	(21,844)			14,846			13,000			14,131			15,943
Noninterest expense	44,875			43,989			42,567			36,538			37,550
Income (loss) before income tax expense	(13,088)			37,099			24,823			31,927			31,888
Income tax expense (benefit)	(4,190)			9,498			6,313			7,942			7,724
Net income (loss)	$	(8,898)		$	27,601		$	18,510		$	23,985		$	24,164
Earnings (loss) per common share:
Basic	$	(0.61)		$	1.88		$	1.33		$	1.79		$	1.77
Diluted	$	(0.61)		$	1.83		$	1.29		$	1.73		$	1.70
Common Shares:
Basic weighted average	14,694			14,685			13,890			13,402			13,649
Diluted weighted average	14,694			15,110			14,310			13,852			14,215
Outstanding (period end)	14,698			14,691			14,673			13,407			13,457
Period-End Balances:
Loans	$	6,223,732		$	6,180,499		$	5,984,437		$	4,978,654		$	4,683,315
Allowance for credit losses - loans	62,412			61,829			60,348			50,655			49,906
Total assets	8,192,354			8,763,969			8,895,916			7,370,252			7,320,212
Deposits	6,928,579			7,178,921			7,395,902			6,286,266			6,231,120
Stockholders’ equity (common)	961,792			972,529			938,463			839,387			836,310
Book value per common share	65.44			66.20			63.96			62.61			62.15
Tangible book value per common share (2)	38.20			38.81			36.21			37.49			37.03
Financial Ratios: (1)
Return on average assets	(0.42)		%	1.26		%	0.93		%	1.32		%	1.30		%
Return on average common equity	(3.72)			11.47			8.25			11.48			11.38
Return on average tangible common equity (2)	(6.34)			19.85			13.93			19.21			18.75
Stockholders’ equity to assets	11.74			11.10			10.55			11.39			11.42
Tangible common equity to tangible assets (2)	7.21			6.82			6.26			7.15			7.14
Reconciliation of Non-GAAP Financial Measures:
Adjusted net income (loss) reconciliation: (3)
Net income (loss) (GAAP)	$	(8,898)		$	27,601		$	18,510		$	23,985		$	24,164
Adjustments:
Provision expense (4)	2,340			—			8,000			—			—
Assets (gains) losses, net	38,468			(260)			46			(1,603)			(1,313)
Merger-related expense	163			492			519			555			98

Adjustments subtotal	40,971			232			8,565			(1,048)			(1,215)
Tax on Adjustments (25% effective tax rate)	10,243			58			2,141			(262)			(304)
Adjustments, net of tax	30,728			174			6,424			(786)			(911)
Core banking operations / Adjusted net income (Non-GAAP)	$	21,830		$	27,775		$	24,934		$	23,199		$	23,253
Adjusted diluted earnings per common share (Non-GAAP)	$	1.45		$	1.84		$	1.74		$	1.67		$	1.64
Tangible assets: (2)
Total assets	$	8,192,354		$	8,763,969		$	8,895,916		$	7,370,252		$	7,320,212
Goodwill and other intangibles, net	400,277			402,438			407,117			336,721			338,068
Tangible assets	$	7,792,077		$	8,361,531		$	8,488,799		$	7,033,531		$	6,982,144
Tangible common equity: (2)
Stockholders’ equity (common)	$	961,792		$	972,529		$	938,463		$	839,387		$	836,310
Goodwill and other intangibles, net	400,277			402,438			407,117			336,721			338,068
Tangible common equity	$	561,515		$	570,091		$	531,346		$	502,666		$	498,242
Tangible average common equity: (2)
Average stockholders’ equity (common)	$	970,108		$	954,970		$	890,205		$	837,975		$	861,319
Average goodwill and other intangibles, net	401,212			403,243			363,211			337,289			338,694
Average tangible common equity	$	568,896		$	551,727		$	526,994		$	500,686		$	522,625

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

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

(3) The adjusted net income ~~statement~~/ core banking operations measure is a non-GAAP financial measure that provides information that management believes is useful to investors in understanding our operating performance and ~~average balance results,~~trends and also aids investors in the ~~2016 acquisitions provided no~~comparison of our financial performance to ~~partial contributions~~the financial performance of peer banks. See section “Non-GAAP Financial Measures” below.

(4) Provision expense for 2023 is attributable to the expected loss on our investment in Signature Bank sub debt, and the ~~2017~~provision expense for 2022 is attributable to the Day 2 allowance from the acquisition ~~provided no contribution.~~

~~The inclusion~~ of Charter.

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 / core banking operations,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the ~~Baylake balance sheet (at about 83% of Nicolet’s then pre-merger asset size) and operational results for approximately eight months in 2016 (and approximately five months~~SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the ~~nine month period ended September 30, 2016) analytically explains~~ most ~~of the increase~~directly comparable measures calculated and presented in certain average balances and income statement line items between 2017 and 2016 periods. To a lesser extent, the inclusion of the First Menasha balance sheet (at about 20% of Nicolet’s then pre-merger asset size) and operational results for approximately five of nine monthsaccordance with generally accepted accounting principles (“GAAP”) in 2017 analytically explains a portion of the increase in certain average balances and income statement line items between 2017 and 2016 periods. 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 net income by inclusion of non-recurring direct merger expenses of approximately $1.3 million in 2016 ($0.4 million, $0.4 million, $0.1 million and $0.4 million in first through fourth quarters, respectively) and $0.5 million in 2017 ($0.2 million and $0.3 millioneffect in the ~~first~~United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and ~~second quarters, respectively), along~~other statistical measures, ratios or statistical measures calculated using exclusively financial measures calculated in accordance with ~~a $1.7 million lease termination charge in second quarter 2016 related~~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~~recognized a net ~~income~~loss of ~~$24.0~~$9 million ~~for the nine months ended September 30, 2017, a 94% increase over $12.4 million for the first nine months of 2016. Net income available to common shareholders was $24.0 million, or $2.45~~(or loss per diluted common share of $0.61) for ~~the~~ first ~~nine months of 2017. Comparatively, after $633,000 of preferred stock dividends,~~quarter 2023, compared to net income ~~available to common shareholders was $11.7~~of $28 million ~~or $1.67~~(or earnings per diluted common share of $1.83) for fourth quarter 2022, and net income of $24 million (or earnings per diluted common share of $1.70) for first quarter 2022.

Core banking operations (or adjusted net income (Non-GAAP)) earned $22 million on growth in loans and wealth management fee revenue. Asset quality continued to be very good as nonperforming assets were 0.50% of total assets. Net income reflected non-core items and the related tax effect of each, including U.S. Treasury securities sale loss, expected loss (provision expense) on the Signature Bank sub debt investment (acquired in an acquisition), merger-related expenses, Day 2 credit provision expense required under the CECL model, as well as gains / (losses) on other assets and investments. These non-core items negatively impacted earnings per diluted common share $2.06 for first ~~nine months~~quarter 2023 and $0.01 for fourth quarter 2022, and positively impacted earnings per diluted common share $0.06 for first quarter 2022.

On March 7, 2023, Nicolet executed the sale of ~~2016. Beginning March 1, 2016,~~$500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million to reposition the ~~annual dividend rate on preferred stock moved~~balance sheet for future growth. The $500 million portfolio yielded approximately 88 bps with scheduled maturities in 2024 and 2025 (or average duration of 2 years). Proceeds from 1%the sale were used to ~~9% in accordance~~reduce existing FHLB borrowings with the ~~contractual terms. Nicolet redeemed its outstanding preferred stock~~remainder held in ~~full in September 2016, explaining~~investable cash. The following table summarizes the ~~difference in preferred stock dividends between the nine-month periods.~~

~~The results for the first nine months~~estimated annual impact 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.

this balance sheet repositioning.

	·	~~Net~~
Sale Metrics			$ in Millions		Assumptions
Loss on sale of U.S.Treasury securities			$	(37,723)	Sale of $500 million U.S. Treasury securities yielding 88 bps

Lost interest from U.S. Treasury securities			$	(4,380)	Assumes $500 million at 88 bps
Lower interest expense on FHLB borrowings			17,128		Assumes $377 million at 456 bps (at time of sale)
Interest income ~~was $72.2~~from investable cash			3,905		Assumes $83 million ~~for the first nine months~~at 465 bps (at time 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 acquiredsale)
Projected net ~~interest-earning assets albeit at lower yields, as well as organic growth), and net favorable rate variances, largely~~impact 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.repositioning			$	16,653

Estimated earn back (in years)

352.26

As a result of the sale of securities previously classified as held to maturity, the remaining unsold portfolio of held to maturity securities, with a book value of $177 million, was reclassified to available for sale with a carrying value of approximately $157 million. The unrealized loss on this portfolio of $20 million increased the balance of accumulated other comprehensive loss (AOCI) $15 million, net of the deferred tax effect, and is subject to future market changes.

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%.

•At March 31, 2023, assets were $8.2 billion, a decrease of $572 million (7%) from December 31, 2022, mostly in investment securities due to the balance sheet repositioning. Compared to March 31, 2022, assets increased $872 million (12%) due to the acquisition of Charter as well as strong organic loan growth.

•At March 31, 2023, loans were $6.2 billion, an increase of $43 million (3% annualized) from December 31, 2022. Compared to March 31, 2022, loans increased $1.5 billion (33%), largely due to the Charter acquisition and strong organic loan growth. For additional information regarding loans, see “BALANCE SHEET ANALYSIS — Loans.”

•Total deposits were $6.9 billion at March 31, 2023, down $250 million from December 31, 2022, mostly in noninterest-bearing demand deposits. Compared to March 31, 2022, deposits increased $697 million (11%), largely due to the Charter acquisition. For additional information regarding deposits, see “BALANCE SHEET ANALYSIS – Deposits.”

•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.

~~Net Interest Income~~

~~Nicolet’s earnings are substantially dependent on~~ net interest ~~income.~~margin was 2.91% for first quarter 2023, 32 bps lower than the comparable 2022 period. The favorable increase in the earning asset yield of 101 bps, was more than offset by a 195 bps increase in the cost of funds, and the net free funds improved 62 bps. Net interest income ~~is the primary source of Nicolet’s revenue and is the difference between~~increased $2.9 million (5%) over first quarter 2022, including a $29.5 million increase in 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~~offset by ~~the sensitivity of the balance sheet to changes~~a $26.5 million increase 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 million for the first nine months of 2017 and 2016, respectively, resulting in taxable equivalentexpense. For additional information regarding net interest income, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”

•Noninterest income was a negative $21.8 million for first quarter 2023, a $37.8 million unfavorable change compared to first quarter 2022. Excluding net asset gains (losses), noninterest income for first quarter 2023 was $16.6 million, a $2.0 million increase over first quarter 2022. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

•Noninterest expense was $44.9 million for first quarter 2023, an increase of ~~$74.0~~$7.3 million ~~and $49.4~~(20%) over first quarter 2022. Personnel costs increased $3.1 million ~~respectively.~~

~~Taxable equivalent~~(15%), while non-personnel expenses combined increased $4.2 million (26%) compared to first quarter 2022. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

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 Three Months Ended March 31,
	2023						2022
(in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS
Interest-earning assets


Commercial-based loans	$	5,145,341	$	65,512	5.09	%	$	3,920,744	$	43,197	4.41	%
Retail-based loans	1,056,439		13,674		5.18	%	768,040		8,137		4.24	%
Total loans, including loan fees (1)(2)	6,201,780		79,186		5.11	%	4,688,784		51,334		4.38	%
Investment securities:
Taxable	1,224,395		4,961		1.63	%	1,386,593		5,127		1.48	%
Tax-exempt (2)	284,140		2,285		3.22	%	189,031		1,031		2.18	%
Total investment securities	1,508,535		7,246		1.93	%	1,575,624		6,158		1.57	%
Other interest-earning assets	120,275		1,536		5.11	%	446,783		817		0.73	%
Total non-loan earning assets	1,628,810		8,782		2.16	%	2,022,407		6,975		1.38	%
Total interest-earning assets	7,830,590		$	87,968	4.49	%	6,711,191		$	58,309	3.48	%
Other assets, net	740,033						808,445
Total assets	$	8,570,623					$	7,519,636
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings	$	888,979	$	2,365	1.08	%	$	821,452	$	105	0.05	%
Interest-bearing demand	985,778		3,339		1.37	%	1,052,076		701		0.27	%
Money market accounts (“MMA”)	1,847,701		11,190		2.46	%	1,540,506		323		0.09	%
Core time deposits	602,882		2,693		1.81	%	595,864		508		0.35	%
Total interest-bearing core deposits	4,325,340		19,587		1.84	%	4,009,898		1,637		0.17	%
Brokered deposits	566,282		5,350		3.83	%	459,460		555		0.49	%
Total interest-bearing deposits	4,891,622		24,937		2.07	%	4,469,358		2,192		0.20	%
Other interest-bearing liabilities	499,485		5,718		4.58	%	214,557		1,931		3.60	%
Total interest-bearing liabilities	5,391,107		30,655		2.30	%	4,683,915		4,123		0.35	%
Noninterest-bearing demand	2,168,640						1,923,186
Other liabilities	40,768						51,216
Stockholders’ equity	970,108						861,319
Total liabilities and stockholders’ equity	$	8,570,623					$	7,519,636
Net interest income and rate spread			$	57,313	2.19	%			$	54,186	3.13	%
Tax-equivalent adjustment & net free funds			592		0.72	%			391		0.10	%
Net interest income and net interest margin			$	56,721	2.91	%			$	53,795	3.23	%

(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~~3: Volume/Rate Variance

~~Comparison~~ - Tax-Equivalent Basis


	For the Three Months Ended March 31, 2023 Compared to March 31, 2022:
	Increase (Decrease) Due to Changes in
(in thousands)	Volume		Rate		Net (1)
Interest-earning assets


Commercial-based loans	$	14,894	$	7,421	$	22,315
Retail-based loans	3,481		2,056		5,537
Total loans, including loan fees (2) (3)	18,375		9,477		27,852
Investment securities:
Taxable	(1,243)		1,077		(166)
Tax-exempt (3)	646		608		1,254
Total investment securities	(597)		1,685		1,088
Other interest-earning assets	(100)		819		719
Total non-loan earning assets	(697)		2,504		1,807
Total interest-earning assets	$	17,678	$	11,981	$	29,659
Interest-bearing liabilities
Savings	$	9	$	2,251	$	2,260
Interest-bearing demand	(41)		2,679		2,638
MMA	78		10,789		10,867
Core time deposits	6		2,179		2,185
Total interest-bearing core deposits	52		17,898		17,950
Brokered deposits	158		4,637		4,795
Total interest-bearing deposits	210		22,535		22,745
Other interest-bearing liabilities	3,143		644		3,787
Total interest-bearing liabilities	3,353		23,179		26,532
Net interest income	$	14,325	$	(11,198)	$	3,127

(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amounts of change in each.

(2)Nonaccrual loans and loans held for sale are included in the ~~nine months ended September 30, 2017 versus~~daily average loan balances outstanding.

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

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.~~

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

~~Comparison~~

The Federal Reserve raised short-term interest rates a total of 425 bps during 2022, increasing 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% 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~~Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Additional increases totaling 50 bps were made in first quarter 2023, resulting in a Federal Funds range of 4.75% to 5.00% as of March 31, 2023.

Tax-equivalent net interest income was ~~$74.0 million and $49.4~~$57 million for first quarter 2023, an increase of $3 million (6%) over first quarter 2022). The $3 million increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $14 million to net interest income, mostly from the ~~nine months of 2017~~Charter acquisition and ~~2016, respectively, up $24.6 million or 50%, with $22.7~~solid loan growth) and net unfavorable rates (which decreased net interest income $11 million from ~~net favorable volume~~higher deposit costs and ~~mix variances (due~~the lag in repricing the loan portfolio to current market interest rates).

Average interest-earning assets increased to $7.8 billion, up $1.1 billion (17%) over the comparable 2022 period, primarily due to the ~~addition~~timing of ~~acquired net~~the acquisition of Charter. Between the comparable three-month periods, average loans increased $1.5 billion (32%), mostly due to timing of the Charter acquisition (which added loans of $827 million at acquisition) and strong organic loan growth throughout 2022. Average investment securities decreased $67 million between the comparable three-month periods, while other interest-earning assets ~~as well as organic growth), and $1.9~~declined $327 million, from net favorable rate variances (from both 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 variancesmostly due to lower ~~cost funding (largely from lower-costing Baylake deposits acquired, offset partly by higher-costing First Menasha deposits acquired,~~cash. As a result, the mix of average interest-earning assets shifted to 79% loans, 19% investments and 2% other interest-earning assets (mostly cash) for first quarter 2023, compared to 70%, 23% and 7%, respectively, for first quarter 2022.

Average interest-bearing liabilities were $5.4 billion for first quarter 2023, an increase ~~in select deposit rates that began in July 2017,~~of $707 million (15%) over first quarter 2022, primarily due to the timing of the acquisition of Charter. Average interest-bearing core deposits increased $315 million and ~~general rate pressures influenced by a 75 bps increase in~~average brokered deposits increased $107 million between the ~~federal funds rate since January 1, 2016).~~

comparable three-month periods, reflecting the impact of the Charter acquisition and brokered funding to support the strong loan growth. Other interest-bearing liabilities increased $285 million between the comparable first quarter periods, partly due to wholesale funding acquired with Charter and partly due to FHLB borrowings to support the strong loan growth. The ~~taxable-equivalent net interest margin~~mix of average interest-bearing liabilities was ~~4.27%~~80% core deposits, 11% brokered deposits and 9% wholesale funding for the first ~~nine months of 2017, up 28 bps versus~~quarter 2023, compared to 86%, 10%, and 4%, respectively, for the first ~~nine months of 2016.~~ quarter 2022.

The interest rate spread ~~increased 27~~decreased 94 bps between the comparable first quarter periods, ~~with a favorable increase~~as our liabilities have repriced faster than our assets in the ~~earning~~rapidly rising interest rate environment. The interest-earning asset yield ~~(up 25~~increased 101 bps to ~~4.69%~~4.49% for the first ~~nine~~three months of ~~2017),~~2023, primarily due to the changing mix of interest-earning assets (mostly the reduction in cash noted above). The loan yield improved 73 bps to 5.11% between the comparable three-month periods, largely due to the repricing of new and ~~an improvement~~renewed loans in a rising interest rate environment, while the yield on investment securities increased 36 bps to 1.93%. The cost of funds ~~(down 2~~increased 195 bps to ~~0.56%~~2.30% for first quarter 2023, also reflecting the ~~first nine months~~rising interest rate environment, a migration of ~~2017)~~customer deposits into higher rate deposit products, and a shift in the mix of interest-bearing liabilities (mostly the increase in wholesale funding noted above). The contribution from net free funds increased ~~by 1 bp,~~62 bps, 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 in the 2017 period than the 2016 period) and a lower proportion of low-earning cash. Loans, investments and other 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~~value in the rising interest rate environment. As a result, the tax-equivalent net interest margin was 2.91% for first quarter 2023, down 32 bps compared to 3.23% for first quarter 2022.

Tax-equivalent interest income was $88 million for first quarter 2023, up $30 million from first quarter 2022, comprised of $18 million higher volumes and $12 million higher average rates. Interest income on ~~acquired~~ loans ~~between periods, more than offsetting lower underlying loan yields mainly~~increased $28 million over first quarter 2022, mostly due to higher average balances from the ~~acquired loan portfolios~~Charter acquisition 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~~Interest expense increased to $31 million for first quarter 2023, up $27 million compared to first quarter 2022, comprised of ~~a $568~~$23 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~~higher overall cost of funds ~~decreased 2 bps to 0.56% for the~~and $3 million higher volumes. Interest expense on deposits increased $23 million from first ~~nine months of 2017 compared~~quarter 2022 mostly due 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, offset partly by the higher-costing First Menasha deposits acquired, an increase in select deposit rates that began in July 2017, and generalmuch higher interest rate ~~pressures influenced by a 75 bps increase in the federal funds rate since January 1, 2016.~~

~~Average interest-bearing liabilities were $1.72 billion for the first nine months of 2017, up $473 million or 38% from~~environment. Interest expense on wholesale funding increased between the comparable ~~period in 2016, predominantly attributable~~three-month periods, mostly due to ~~acquired~~higher average balances. ~~Interest-bearing deposits represented 96% of average interest-bearing liabilities~~

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 $3.1 million for the ~~first nine~~three months ended March 31, 2023 (comprised of ~~2017, up $92~~$0.8 million ~~or 318% from~~related to the ~~comparable period in 2016, with average yields declining from 1.29%~~ACL-Loans and $2.3 million for the ACL on securities AFS), compared to ~~0.69%~~$0.3 million for the three months ended March 31, 2022 (all related to the ACL-Loans). ~~The increase in brokered deposits was partly due 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~~

The provision for ~~loan~~credit losses ~~for the nine months ended September 30, 2017~~on loans was attributable to growth 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 declinechanges in the ~~ratio~~underlying loan portfolio, while the provision for credit losses on securities AFS was ~~a result of recording~~due to the ~~acquired loan portfolios at fair value with no carryover of allowance at the time of each merger.~~

expected loss on our Signature Bank sub debt investment which was fully charged-off during first quarter 2023.

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. 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 securities is affected by risk of the underlying issuer, while 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 %

~~N/M means not meaningful~~

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


	Three Months Ended March 31,
(in thousands)	2023		2022		$ Change		% Change
Trust services fee income	$	2,033	$	2,011	$	22	1	%
Brokerage fee income	3,479		3,688		(209)		(6)
Wealth management fee income	5,512		5,699		(187)		(3)
Mortgage income, net	1,466		3,253		(1,787)		(55)
Service charges on deposit accounts	1,480		1,477		3		—
Card interchange income	3,033		2,581		452		18
BOLI income	1,200		933		267		29
Deferred compensation plan asset market valuations	946		(467)		1,413		(303)
LSR income, net	1,155		(382)		1,537		N/M
Other income	1,832		1,536		296		19
Subtotal	16,624		14,630		1,994		14
Asset gains (losses), net	(38,468)		1,313		(39,781)		N/M
Total noninterest income	$	(21,844)	$	15,943	$	(37,787)	(237)	%
N/M means not meaningful.

Noninterest income was ~~$26.0~~a negative $21.8 million for the first ~~nine~~three months of ~~2017,~~2023, an unfavorable change of $37.8 million compared to ~~$18.8 million for~~ the first ~~nine~~three months of ~~2016, aided largely by~~2022, primarily due to the ~~2016 acquisitions and, to a lesser extent, the 2017 acquisition.~~balance sheet repositioning. Excluding net asset gains ~~on sale or write-down of assets from both nine-month periods,~~(losses), noninterest income ~~increased $5.7~~for first quarter 2023 was $16.6 million, ~~or 31.3%.~~

~~The 2017 activity in net gain on sale or write-down of assets consisted of~~ a ~~$1.2~~$2.0 million ~~gain to record the fair value of Nicolet’s pre-acquisition interest in First Menasha, a $0.3~~(14%) increase over first quarter 2022.

Wealth management fee income was $5.5 million, ~~net gain on the sale of OREO, a $0.1~~down $0.2 million ~~write-down of OREO properties, and a $0.7 million gain on the sale or disposition of assets (consisting of $0.9 million of gain~~(3%) 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~~three months of ~~2017, up $0.9 million or 33.9% over the first nine months of 2016, resulting from an increased number of~~2022, as unfavorable market-related declines outpaced growth in accounts ~~mostly attributable to the bank acquisitions~~ and ~~an increase to the fee charged on overdrafts implemented in May 2017.~~

assets under management.

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 $1.5 million, ~~or 8.3%~~decreased $1.8 million (55%) between the comparable ~~nine-month~~first quarter periods, mostly due to ~~greater~~the rising interest rate environment reducing secondary ~~mortgage production~~market volumes and ~~sales aided by a broader geographic footprint~~the related gains on sales. See also “Lending-Related Commitments” and ~~increased net servicing fees~~Note 7, “Goodwill and 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 were up $0.4~~MSR asset.

Card interchange income grew $0.5 million ~~or 10.8%~~(18%) between the ~~nine-month~~comparable three-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~~$0.3 million ~~or 49.3%~~ between the ~~nine-month~~comparable three-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 fees were up $1.2~~Charter acquisition.

Loan servicing rights (“LSR”) income increased $1.5 million ~~or 53.6% on higher volume and activity. Other noninterest income was $2.0 million, up $0.4 million or 21.4% over~~between the comparable ~~period of 2016 with income~~first quarter periods mostly due to lower LSR amortization from ~~equity in UFS, a data processing company acquired~~the much slower prepayments speeds in the ~~Baylake merger,~~higher interest rate environment. 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 $1.8 million for the three months ended March 31, 2023 was up $0.3 ~~million.~~

million from the comparable 2022 period, largely due to broker fees.

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

~~Total noninterest expense was $59.5~~$38.5 million for the first ~~nine~~three months of ~~2017 (including $0.5 million~~2023 were primarily attributable to ~~non-recurring, merger-based~~losses on the sale of approximately $500 million (par value) U.S. Treasury held to maturity securities executed in early March as part of a balance sheet repositioning, while net asset gains of $1.3 million for the first three months of 2022 were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations).

Noninterest Expense

Table 5: Noninterest Expense


	Three Months Ended March 31,
($ in thousands)	2023		2022		Change		% Change
Personnel	$	24,328	$	21,191	$	3,137	15	%
Occupancy, equipment and office	8,783		6,944		1,839		26
Business development and marketing	2,121		1,831		290		16
Data processing	3,988		3,387		601		18
Intangibles amortization	2,161		1,424		737		52
FDIC assessments	540		480		60		13
Merger-related expense	163		98		65		66
Other expense	2,791		2,195		596		27
Total noninterest expense	$	44,875	$	37,550	$	7,325	20	%
Non-personnel expenses	$	20,547	$	16,359	$	4,188	26	%
Average full-time equivalent (“FTE”) employees	943		833		110		13	%

Noninterest expense was $44.9 million, an increase of $7.3 million (20%) over the first three months of 2022. Personnel costs increased $3.1 million (15%), while non-personnel expenses ~~such as legal and conversion processing costs),~~combined increased $4.2 million (26%) compared to ~~$46.6~~the first three months of 2022.

Personnel expense was $24.3 million for the three months ended March 31, 2023, an increase of $3.1 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~~2022. Salary expense increased ~~approximately $15.0~~$3.0 million ~~or 34.2%, primarily attributable to~~(17%) over the first three months of 2022, 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~~13%, 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~~Charter acquisition), investments in our wealth team, and ~~2017, respectively). Also contributing to the increase were~~ merit increases between the ~~periods, incentives timing, equity grants~~years, partly offset by lower incentive

compensation given the current period net loss. Fringe benefits increased $0.1 million (3%) over the first three months of 2022, commensurate with the larger employee base. Salary 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 the offsetting fair value change to the nonqualified deferred compensation plan assets.

Occupancy, equipment and office expense was ~~$9.6~~$8.8 million for the first ~~nine~~three months of ~~2017,~~2023, up ~~$2.3~~$1.8 million ~~or 31.3%~~(26%) compared to ~~2016, primarily~~ the ~~result~~first three months of 2022, largely due to the ~~larger operating base~~expanded branch network with the Charter acquisition, as well as additional expense for software and ~~software needs, offset partly by branch closure savings.~~

technology solutions.

Business development and marketing expense ~~increased $1.0~~was $2.1 million, ~~or 42.8%,~~up $0.3 million (16%) between the comparable ~~nine-month~~first quarter periods, largely ~~due to the expanded operating base and branding efforts influencing additional marketing, promotions and media.~~

~~Data processing expenses, which are primarily volume-based, rose $2.0 million or 45.8% between the nine-month periods predominantly~~ attributable to the ~~acquisitions, higher~~timing and extent of marketing donations, promotions, and media to support our expanded branch network and community base.

Data processing expense was $4.0 million, up $0.6 million (18%) between the comparable three-month periods, mostly due to volume-based increases in core and card processing ~~and expanded functionalities. Intangible~~charges, partly from the Charter acquisition.

Intangibles amortization increased ~~$1.2~~$0.7 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~~comparable first quarter periods due ~~primarily~~ to ~~$2.1 million lower merger-related expenses, partially offset by a $0.9 million increase in all other costs, which were largely a function of~~ higher ~~other operating costs associated~~amortization from the intangibles added 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.~~

~~Income Taxes~~

~~For the nine-month periods ending September 30, 2017 and 2016, income tax~~recent acquisitions.

Other expense was ~~$12.6~~$2.8 million, ~~and $6.4~~up $0.6 million ~~respectively. The increase was primarily attributable~~(27%) between the comparable three-month periods, mostly due to higher ~~pre-tax income between the two periods. Included in 2017 is~~professional fees.

Income Taxes

Income tax was a ~~tax~~ benefit of ~~$0.2~~$4.2 million ~~related to~~(effective tax rate of 32.0%) for 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~~first three months ~~ending September 30, 2017 versus 2016~~

~~Nicolet reported net income~~ of ~~$9.5~~2023, compared to expense of $7.7 million ~~for the three months ended September 30, 2017, up $3.0 million or 47% over $6.5 million~~(effective tax rate of 24.2%) 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 per diluted common share, compared to net income available to common shareholders of $6.2 million, or $0.69 per diluted common share, for the third quarter of 2016.

~~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~~2022. The change in the ~~third quarter of 2017.~~

~~Net interest income in the consolidated statements of income (which excludes any taxable equivalent adjustment)~~effective tax rate 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 million and $21.5 million, respectively. Taxable equivalent net interest income for third quarter 2017 was up $5.5 million or 26% versus third quarter 2016, with $6.0 million of the increase due to net favorable volume variances (predominatelylargely due to the ~~First Menasha~~increase in tax benefits with a pre-tax loss.

BALANCE SHEET ANALYSIS

At March 31, 2023, period end assets ~~included in 2017 but not in 2016), and $0.5~~were $8.2 billion, a decrease of $572 million ~~lower net interest income~~(7%) 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~~December 31, 2022, mostly due to the sale of investment securities as part of our balance sheet repositioning. Total loans increased $43 million from December 31, 2022. Total deposits of $6.9 billion at March 31, 2023, decreased $250 million from December 31, 2022, while total borrowings decreased $295 million from December 31, 2022 in FHLB advances. Total stockholders’ equity was $962 million at March 31, 2023, a ~~higher mix~~decrease of $11 million since December 31, 2022, also mostly from the balance sheet repositioning.

Compared to March 31, 2022, assets increased $872 million (12%), largely due to the acquisition of Charter and strong loan growth, partly offset by lower investment securities related to the balance sheet repositioning. Total loans ~~as a percent~~increased $1.5 billion and total deposits increased $697 million from March 31, 2022, also largely due to the acquisition of ~~earning assets. Loans earned 5.29%~~Charter. Stockholders’ equity increased $125 million from March 31, 2022, primarily due to common stock issued in the Charter acquisition 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,net income, 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.

The cost of funds was 0.65% for third quarter 2017, 15 bps higher than third quarter 2016, driven by an increase in the cost of deposits (up 16 bps to 0.53% for third quarter 2017), mostly from higher-costing First Menasha deposits acquired and an increase in select deposit rates that began in July 2017. The cost of other interest-bearing liabilities decreased 131 bps to 4.04% between the third quarter periods, mostly due to a higher proportion of lower-cost, shorter term funding in the mix.

~~Noninterest income was $10.2 million for third quarter 2017, up $1.6 million over the third quarter 2016. Noninterest income without~~negative net gains was up $0.8 million or 10%, with service charges on deposits up $0.2 million (given the larger deposit base), and trust and brokerage fees up $0.6 million combined (mostly attributable to the 2016 financial advisor business acquisition and market improvements). Card interchange income was up $0.3 million on greater activity. Other income decreased $0.2 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 increased by $0.9 million between the third quarter periods, mostly due to a $1.2 million gain to record 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, up $1.8 million or 9.7% 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 higher due to the larger operating base and software needs. Data processing was $0.4 million higher than third quarter 2016 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 30, 2017 were $1.1 million (due to the charge off of a large commercial loan) compared 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 decline in the ratio was a result of recording the First Menasha loan portfolio at fair value with no carryover of their allowance at the time of the merger.

~~Income tax expense was $5.1 million and $3.4 million for the third quarters of 2017 and 2016, respectively. The effective tax rates were 34.9% for third quarter 2017 and 34.5% for third quarter 2016.~~

~~BALANCE SHEET ANALYSIS~~

investment changes.

Loans

Nicolet services a diverse customer base throughout ~~Northeast~~Wisconsin, Michigan and Central Wisconsin 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 toMinnesota. We concentrate ~~its efforts in~~on originating loans in ~~its~~our local markets and assisting ~~its~~ current loan customers. ItNicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”).

An active credit risk management process is used to ~~help customers weather current economic conditions~~ensure that sound and ~~position their businesses for the future.~~

~~Nicolet’s primary lending function~~consistent credit decisions are made. The credit management process is ~~to make 1) commercial loans, consisting of commercial~~regularly reviewed 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 Menasha loan portfolio was somewhat similar to Nicolet’s pre-merger loan mix, with the most notable differences being a higher mix in CRE investment and a lower mix in commercial 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~~

For additional disclosures on loans, 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 information regarding the allowance for credit losses and nonperforming assets see “BALANCE SHEET ANALYSIS – Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS – Nonperforming Assets.” A detailed discussion of the loan portfolio accounting policies, general loan portfolio characteristics, and credit risk ~~management process~~are described in Note 1, “Nature of Business and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2022 Annual Report on Form 10-K.

Table 6: Period End Loan Composition


	March 31, 2023				December 31, 2022				March 31, 2022
(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Commercial & industrial	$	1,330,052	21	%	$	1,304,819	21	%	$	1,063,300	23	%
Owner-occupied CRE	969,064		16		954,599		15		794,946		17
Agricultural	1,065,909		17		1,088,607		18		826,364		18
Commercial	3,365,025		54		3,348,025		54		2,684,610		58
CRE investment	1,146,388		19		1,149,949		19		807,602		17
Construction & land development	333,370		5		318,600		5		211,640		4
Commercial real estate	1,479,758		24		1,468,549		24		1,019,242		21
Commercial-based loans	4,844,783		78		4,816,574		78		3,703,852		79
Residential construction	134,782		2		114,392		2		72,660		2
Residential first mortgage	1,014,166		16		1,016,935		16		721,107		15
Residential junior mortgage	177,026		3		177,332		3		133,817		3
Residential real estate	1,325,974		21		1,308,659		21		927,584		20
Retail & other	52,975		1		55,266		1		51,879		1
Retail-based loans	1,378,949		22		1,363,925		22		979,463		21
Total loans	$	6,223,732	100	%	$	6,180,499	100	%	$	4,683,315	100	%

As noted in Table 6 above, the loan portfolio at March 31, 2023, was 78% commercial-based and 22% retail-based. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is ~~used~~typically larger than that for ~~commercial~~retail-based loans, ~~to further ensure that sound and consistent credit decisions are made. The credit management process~~implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is ~~regularly reviewed~~largely influenced by general economic conditions and the ~~process has been modified over~~resulting impact on a borrower’s operations or on the ~~past several years to further strengthen~~value of underlying collateral, if any.

Total loans of $6.2 billion at March 31, 2023, increased $43 million (3% annualized) from December 31, 2022. At March 31, 2023, commercial and industrial loans represented the ~~controls.~~

largest segment of Nicolet’s loan portfolio at 21% of the total portfolio, followed by CRE investment at 19% of the total portfolio. The loan portfolio is widely diversified ~~by types~~and included the following industries: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the industry distribution of ~~borrowers, industry groups, and market areas. Significant~~our commercial loan ~~concentrations are considered~~portfolio at March 31, 2023.


Commercial Loan Portfolio by Industry Type (based on NAICS codes)

The following table presents the maturity distribution of the loan portfolio.

Table 7: Loan Maturity Distribution


As of March 31, 2023	Loan Maturity
(in thousands)	One Year or Less			After One Year to Five Years			After Five Years to Fifteen Years			After Fifteen Years			Total
Commercial & industrial	$	461,831		$	658,961		$	196,521		$	12,739		$	1,330,052
Owner-occupied CRE	75,722			658,076			207,699			27,567			969,064
Agricultural	322,511			333,575			368,658			41,165			1,065,909
CRE investment	137,888			734,765			243,544			30,191			1,146,388
Construction & land development	47,607			147,750			107,855			30,158			333,370
Residential construction *	39,145			8,368			3,232			84,037			134,782
Residential first mortgage	21,559			261,782			197,860			532,965			1,014,166
Residential junior mortgage	8,956			19,200			34,158			114,712			177,026
Retail & other	26,525			14,449			7,615			4,386			52,975
Total loans	$	1,141,744		$	2,836,926		$	1,367,142		$	877,920		$	6,223,732
Percent by maturity distribution	18		%	46		%	22		%	14		%	100		%










Total fixed rate loans	$	496,022		$	2,659,905		$	986,196		$	306,850		$	4,448,973










Total floating rate loans	$	645,722		$	177,021		$	380,946		$	571,070		$	1,774,759


As of December 31, 2022	Loan Maturity
(in thousands)	One Year or Less			After One Year to Five Years			After Five Years to Fifteen Years			After Fifteen Years			Total
Commercial & industrial	$	433,319		$	660,560		$	197,352		$	13,588		$	1,304,819
Owner-occupied CRE	78,759			639,093			208,719			28,028			954,599
Agricultural	350,752			328,495			367,913			41,447			1,088,607
CRE investment	129,770			737,869			250,256			32,054			1,149,949
Construction & land development	64,169			131,889			92,379			30,163			318,600
Residential construction *	41,049			6,922			2,091			64,330			114,392
Residential first mortgage	22,985			263,810			202,514			527,626			1,016,935
Residential junior mortgage	6,814			19,941			33,201			117,376			177,332
Retail & other	27,814			15,002			8,021			4,429			55,266
Total loans	$	1,155,431		$	2,803,581		$	1,362,446		$	859,041		$	6,180,499
Percent by maturity distribution	19		%	45		%	22		%	14		%	100		%










Total fixed rate loans	$	520,535		$	2,631,295		$	987,225		$	315,982		$	4,455,037










Total floating rate loans	$	634,896		$	172,286		$	375,221		$	543,059		$	1,725,462

* The residential construction loans with a loan maturity after five years represent a construction to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2017, no significant industry concentrations existed in Nicolet’s portfolio in excess of 25% of total loans. Nicolet has also developed guidelines to manage its exposure to various types of concentration risks.

permanent loan product.

Allowance for ~~Loan and Lease~~Credit Losses

~~In addition to~~ - Loans

For additional disclosures on the ~~discussion that follows,~~allowance for credit losses, 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. A detailed discussion of the ~~unaudited consolidated financial statements~~loan portfolio accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” of the ~~“Critical Accounting Policies” within management’s discussion and analysis.~~

Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2022 Annual Report on Form 10-K.

Credit risks within the loan portfolio are inherently different for each loan ~~type as described under “Balance Sheet Analysis-Loans.”~~type. 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.

Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, interest, and related expenses. For additional information regarding nonperforming assets see 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,~~overall 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 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.shortfall. Second, ~~Nicolet’s~~ management allocates ~~ALLL~~the ACL-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 and environmental factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses ~~as of~~at 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~~collectability of future cash flows.

At March 31, 2023, the ACL-Loans was $62 million (representing 1.00% of period end loans), unchanged from $62 million (or 1.00% of period end loans) at December 31, 2022 and ~~on 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~~up from $50 million (or 1.07% 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~~period end loans) at March 31, 2022. The increase in the ~~level~~ACL-Loans from March 31, 2022 was mostly due to the Charter acquisition, which added $8 million of provision for ~~loan losses~~the Day 2 allowance and $2 million related 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 theirpurchased 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 compared to $11.8 million at December 31, 2016.~~deteriorated loans. 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 million 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 levelcomponents 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 million at September 30, 2017 and December 31, 2016, respectively, representing 43% of total loans at both September 30, 2017 and December 31, 2016. The change in the ALLL to loans ratio was driven by the increase in the denominator from acquired loans in 2016 and 2017.

The largest portions 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.~~

8 below.

Table ~~10: Allocation of the~~8: 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~~


	Three Months Ended						Year Ended
(in thousands)	March 31, 2023			March 31, 2022			December 31, 2022
ACL-Loans:
Balance at beginning of period	$	61,829		$	49,672		$	49,672
ACL on PCD loans acquired	—			—			1,937
Provision for credit losses	750			300			10,950
Charge-offs	(184)			(100)			(1,033)
Recoveries	17			34			303
Net (charge-offs) recoveries	(167)			(66)			(730)
Balance at end of period	$	62,412		$	49,906		$	61,829
Net loan (charge-offs) recoveries:
Commercial & industrial	$	(108)		$	20		$	(86)
Owner-occupied CRE	—			(36)			(555)
Agricultural	2			—			—
CRE investment	—			—			169
Construction & land development	—			—			—
Residential construction	—			—			—
Residential first mortgage	1			4			(57)
Residential junior mortgage	—			—			1
Retail & other	(62)			(54)			(202)
Total net (charge-offs) recoveries	$	(167)		$	(66)		$	(730)
Ratios:
ACL-Loans to total loans	1.00		%	1.07		%	1.00		%
Net charge-offs to average loans, annualized	0.01		%	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 economic uncertainty. For additional disclosures on credit quality, see 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 information on loans see “BALANCE SHEET ANALYSIS – Loans” and for additional information on the ACL-Loans see “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 March 31, 2023, nonperforming assets were ~~$15.7~~$41 million ~~at September 30, 2017~~and represented 0.50% of total assets, compared to ~~$22.3~~$40 million or 0.46% 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.

2022.

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~~$76 million ~~(0.7%~~(1% of loans) and ~~$12.6~~$53 million ~~(0.8%~~(1% of loans) at ~~September 30, 2017~~March 31, 2023 and December 31, ~~2016, respectively.~~2022, respectively, with the increase primarily due to the downgrade of one commercial credit relationship. Potential problem loans require a heightened management review ofgiven the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

Table ~~11:~~9: 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)	March 31, 2023			December 31, 2022			March 31, 2022
Nonperforming loans:
Commercial & industrial	$	2,874		$	3,328		$	1,849
Owner-occupied CRE	7,128			5,647			5,007
Agricultural	18,782			20,416			23,570
Commercial	28,784			29,391			30,426
CRE investment	4,126			3,832			3,914
Construction & land development	748			771			1,054
Commercial real estate	4,874			4,603			4,968
Commercial-based loans	33,658			33,994			35,394
Residential construction	—			—			—
Residential first mortgage	4,986			3,780			3,919
Residential junior mortgage	196			224			242
Residential real estate	5,182			4,004			4,161
Retail & other	55			82			115
Retail-based loans	5,237			4,086			4,276
Total nonaccrual loans	38,895			38,080			39,670
Accruing loans past due 90 days or more	—			—			—
Total nonperforming loans	$	38,895		$	38,080		$	39,670
Nonaccrual loans (included above) covered by guarantees	$	5,372		$	5,459		$	4,675
OREO:
Commercial real estate owned	$	628		$	628		$	797

Bank property real estate owned	1,347			1,347			9,019
Total OREO	1,975			1,975			9,816
Total nonperforming assets	$	40,870		$	40,055		$	49,486

Ratios:
Nonperforming loans to total loans	0.62		%	0.62		%	0.85		%
Nonperforming assets to total loans plus OREO	0.66		%	0.65		%	1.05		%
Nonperforming assets to total assets	0.50		%	0.46		%	0.68		%
ACL-Loans to nonperforming loans	160		%	162		%	126		%

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 %

~~(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.~~funds, and the strong core deposit base provides a stable funding source. As of March 31, 2023, approximately 83% of core deposit balances have been with Nicolet ~~competes with other bank and nonbank institutions for~~more than five years.

Core deposit balances of $6.4 billion at March 31, 2023 declined $181 million (3%) from December 31, 2022, partly due to the seasonal run-off of municipal deposits. Compared to March 31, 2022, core deposits ~~as well as with a growing number of non-deposit investment alternatives available~~increased $584 million (10%), largely due to ~~depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Challenges to~~the Charter acquisition. The 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 in total depositscomposition is presented in Table ~~14 are brokered~~10 below.

Table 10: Period End Deposit Composition


	March 31, 2023				December 31, 2022				March 31, 2022
(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Noninterest-bearing demand	$	2,094,623	30	%	$	2,361,816	33	%	$	1,912,995	31	%
Interest-bearing demand	1,138,415		17	%	1,279,850		18	%	1,239,582		20	%
Money market	1,886,879		27	%	1,707,619		24	%	1,500,442		24	%
Savings	865,824		12	%	931,417		13	%	841,369		13	%
Time	942,838		14	%	898,219		12	%	736,732		12	%
Total deposits	$	6,928,579	100	%	$	7,178,921	100	%	$	6,231,120	100	%
Brokered transaction accounts	$	233,393	4	%	$	252,829	3	%	$	228,079	4	%
Brokered and listed time deposits	289,181		4	%	339,066		5	%	180,823		3	%
Total brokered deposits	$	522,574	8	%	$	591,895	8	%	$	408,902	7	%
Customer transaction accounts	$	5,752,348	83	%	$	6,027,873	84	%	$	5,266,309	84	%
Customer time deposits	653,657		9	%	559,153		8	%	555,909		9	%
Total customer deposits (core)	$	6,406,005	92	%	$	6,587,026	92	%	$	5,822,218	93	%

Total uninsured deposits were $1.9 billion (representing 27% of ~~$126 million~~total deposits) at ~~September 30, 2017 and $21 million~~March 31, 2023, compared to $2.1 billion (representing 29% of total deposits) at December 31, ~~2016.~~

~~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.

2022.

~~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 30, 2017~~March 31, 2023 and December 31, ~~2016,~~2022, Nicolet had the following off-balance sheet lending-related commitments.

Table 11: Commitments


(in thousands)	March 31, 2023		December 31, 2022
Commitments to extend credit	$	1,850,215	$	1,850,601
Financial standby letters of credit	23,246		26,530
Performance standby letters of credit	9,952		9,375

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 $18 million and $17 million, respectively, at March 31, 2023. 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~~both represented ~~$32.2~~$9 million ~~and $5.9 million, respectively,~~ at ~~September 30, 2017. Fair~~December 31, 2022. The net fair value ~~approximates the notional amounts.~~

of these mortgage derivatives combined was a gain of $72,000 at March 31, 2023 compared to a gain of $50,000 at December 31, 2022.

Liquidity Management

Liquidity management refers to the ability to ensure that ~~cash is~~adequate liquid funds are available ~~in a timely and cost-effective manner~~ to meet the current and future cash flow ~~requirements~~obligations arising in the daily operations of ~~depositors and borrowers and to meet other commitments as they fall due, including~~the Company. These cash flow obligations include the ability to meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to ~~shareholders, service debt, invest in subsidiaries, repurchase common stock,~~stockholders (if any), and satisfy other operating ~~requirements.~~

~~Funds~~expenses. The Company’s most liquid assets are ~~available~~cash and due from banks and interest-earning deposits, which totaled $114 million and $155 million at March 31, 2023 and December 31, 2022, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.

The $41 million decrease in cash and cash equivalents since year-end 2022 included $16 million net cash provided by operating activities and $489 million net cash provided by investing activities (mostly investment sales from the balance sheet repositioning), more than offset by $545 million net cash used in financing activities (repayment of FHLB borrowings from the

balance sheet repositioning and a ~~number~~net decrease in deposits). As of ~~basic banking activity~~March 31, 2023, management believed that adequate liquidity existed to meet all projected cash flow obligations.

Nicolet’s primary sources ~~including but not limited to~~of funds include the core deposit base, ~~the~~ repayment and maturity of loans, investment securities calls, maturities, and sales, and ~~funds obtained through~~procurement of 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 March 31, 2023, approximately 40% of the ~~$408 million~~ investment securities portfolio ~~at September 30, 2017~~ was pledged as collateral to secure public deposits ~~short term~~and borrowings, ~~repurchase agreements,~~as applicable, and for liquidity or ~~for~~ other purposes as required by ~~law. Other funding~~regulation. Liquidity sources available to the Company at March 31, 2023, are presented in Table 12 below.

Table 12: Liquidity Sources


(in millions)	March 31, 2023
FHLB Borrowing Availability (1)	$	547
Fed Funds Lines	155
Fed Discount Window	11
Immediate Funding Availability	$	713

Unencumbered AFS Securities	$	609
Less: AFS Securities retained per policy (2)	(403)
Brokered Capacity	1,210
Guaranteed portion of SBA loans	89
Other funding sources	28
Short-Term Funding Availability (3)	$	1,533

Total Contingent Funding Availability	$	2,246

(1) Excludes outstanding FHLB borrowings of $55 million at March 31, 2023.
(2) Excludes $403 million of AFS securities retained in accordance with internal treasury liquidity policy.
(3) Short-term funding availability defined as funding that could be secured between 2 and 30 days.

Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies. The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At March 31, 2023, the Parent Company had $62 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. Dividends from the Bank and, ~~long-term borrowings.~~

Cash and cash equivalents at September 30, 2017 and December 31, 2016 were $96 million and $129 million, respectively. These levels have decreased through the first nine months of 2017 with $117 million net cash used by investing activities (mostly due to a ~~net increase~~lesser extent, stock option exercises, represent significant sources of cash flows for the Parent Company. The Bank is required by federal law to obtain prior approval of the OCC for payments of dividends if the total of all dividends declared by the Bank in loans and securities), partially offset by $30 million net cash provided by operating activities and $54 million net cash provided by financing activities (mostly due to a net increase in deposits). Nicolet’s liquidity resources were sufficient as of September 30, 2017 to fund loans, accommodate deposit trends and cycles, andany year will exceed certain thresholds. Management does not believe that regulatory restrictions on dividends from the Bank will adversely affect its ability to meet ~~other~~its cash ~~needs as necessary.~~

obligations.

Interest Rate Sensitivity Management

and Impact of Inflation

A reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield, is highly important to Nicolet’s business success and profitability. As an ongoing part of ~~its~~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~~Board of ~~directors’~~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 above 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 30, 2017,~~March 31, 2023 and December 31, 2022, 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 13 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 13: Interest Rate Sensitivity


	March 31, 2023		December 31, 2022
200 bps decrease in interest rates	(0.1)	%	(0.7)	%
100 bps decrease in interest rates	(0.1)	%	(0.4)	%
100 bps increase in interest rates	(0.2)	%	—	%
200 bps increase in interest rates	(0.3)	%	0.1	%

Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.

The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. Inflation may also have impacts on the Bank’s customers, on businesses and consumers and their ability or willingness to invest, save or spend, and perhaps on their ability to repay loans. As such, there would likely be impacts on the general appetite 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 30, 2017,~~ratios, including the capital conservation buffer. At March 31, 2023, 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:~~14: 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 Three Months Ended At or for the
Year Ended
($ in thousands) March 31, 2023 December 31, 2022
Company Stock Repurchases: *
Common stock repurchased during the period (dollars) $ — $ 61,483
Common stock repurchased during the period (full shares) — 671,662
Company Risk-Based Capital:
Total risk-based capital $ 886,051 $ 889,763
Tier 1 risk-based capital 676,114 684,280
Common equity Tier 1 capital 637,967 646,341
Total capital ratio 12.3 % 12.3 %
Tier 1 capital ratio 9.4 % 9.5 %
Common equity tier 1 capital ratio 8.9 % 9.0 %
Tier 1 leverage ratio 8.2 % 8.2 %
Bank Risk-Based Capital:
Total risk-based capital $ 813,992 $ 816,951
Tier 1 risk-based capital 756,575 764,090
Common equity Tier 1 capital 756,575 764,090
Total capital ratio 11.3 % 11.3 %
Tier 1 capital ratio 10.5 % 10.6 %
Common equity tier 1 capital ratio 10.5 % 10.6 %
Tier 1 leverage ratio 9.2 % 9.1 %
* 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~~level of organic growth or acquisition opportunities) in light of strategic plans. At March 31, 2023, there remains $47 million authorized under this repurchase program, as modified, to be utilized from time-to-time to repurchase shares in the ~~Basel III regulatory capital framework~~open market, through block transactions or in private transactions.

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and ~~related Dodd-Frank Act changes. The final rules took effect~~accompanying notes. These estimates and assumptions are based on historical experience, current information, and other factors deemed to be relevant; accordingly, as this information changes, actual results could differ from those estimates. Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the ~~Company and Bank on January 1, 2015, subject~~accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to ~~a transition~~occur from 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 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 expects to be entitled in exchange for those goods and services. In August 2015, 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 toperiod, could have a material impact on the ~~Company’s~~ financial ~~statements when it goes into effect~~statements. The accounting estimates we consider to be critical include business combinations and the ~~first quarter~~valuation of ~~2018.~~

~~In August 2017,~~loans acquired, 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 impactdetermination of the ~~new guidance~~allowance for credit losses, and income taxes. 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 2022 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 it is not expected to have a significant impact on its consolidated financial statements because the Company does not have any significant derivatives 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 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 afterestimates since December ~~15, 2017, with early adoption permitted. The Company is currently assessing the impact of the new guidance on its consolidated financial statements.~~

31, 2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk at March 31, 2023, from that presented in our 2022 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 March 31, 2023.

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)). 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~~control 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

The Company and ~~our~~its subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither wethe Company nor any of ~~our~~its 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.~~

2022.

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 first quarter 2023 by or on behalf of the ~~third~~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
January 1 – January 31, 2023	—	$	—	—
February 1 – February 28, 2023	—	$	—	—
March 1 – March 31, 2023	492	$	75.26	—
Total	492	$	75.26	—	753,000

a.During first quarter 2023, the Company withheld no common shares for minimum tax withholding settlements on restricted stock, and withheld 492 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises. These are not considered “repurchases” and, therefore, do not count against the maximum number 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.

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 March 31, 2023, approximately $47 million remained available under this common stock repurchase program, or approximately 753,000 shares of common stock (based upon the closing stock price of $63.05 on March 31, 2023).

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						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 (1)
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

(1) Includes the following financial information ~~that is furnished~~included in the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and not filed or a part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities Exchange Act of 1934, 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~~May 2, 2023			/s/ ~~Robert B. Atwell~~Michael E. Daniels
			~~Robert B. Atwell~~Michael E. Daniels
			~~Chairman,~~ President and Chief Executive Officer

~~November 3, 2017~~May 2, 2023			/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)~~ (Loss)	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


	March 31, 2023		December 31, 2022
	(Unaudited)		(Audited)
Assets
Cash and due from banks	$	93,462	$	121,211
Interest-earning deposits	20,718		33,512

Cash and cash equivalents	114,180		154,723
Certificates of deposit in other banks	11,293		12,518
Securities available for sale (“AFS”), at fair value	1,023,176		917,618
Securities held to maturity (“HTM”), at amortized cost	—		679,128
Other investments	57,482		65,286
Loans held for sale	4,962		1,482

Loans	6,223,732		6,180,499
Allowance for credit losses - loans (“ACL-Loans”)	(62,412)		(61,829)
Loans, net	6,161,320		6,118,670
Premises and equipment, net	112,569		108,956
Bank owned life insurance (“BOLI”)	166,107		165,137
Goodwill and other intangibles, net	400,277		402,438
Accrued interest receivable and other assets	140,988		138,013
Total assets	$	8,192,354	$	8,763,969

Liabilities and Stockholders’ Equity
Liabilities:
Noninterest-bearing demand deposits	$	2,094,623	$	2,361,816
Interest-bearing deposits	4,833,956		4,817,105
Total deposits	6,928,579		7,178,921
Short-term borrowings	50,000		317,000
Long-term borrowings	197,448		225,342

Accrued interest payable and other liabilities	54,535		70,177
Total liabilities	7,230,562		7,791,440

Stockholders’ Equity:
Common stock	147		147
Additional paid-in capital	623,746		621,988
Retained earnings	398,966		407,864
Accumulated other comprehensive income (loss)	(61,067)		(57,470)
Total stockholders’ equity	961,792		972,529
Total liabilities and stockholders’ equity	$	8,192,354	$	8,763,969

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	14,698,265		14,690,614
Common shares issued	14,771,255		14,764,104

	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	%

	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	%

	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 Three Months Ended			At or for the Year Ended
($ in thousands)	March 31, 2023			December 31, 2022
Company Stock Repurchases: *
Common stock repurchased during the period (dollars)	$	—		$	61,483
Common stock repurchased during the period (full shares)	—			671,662
Company Risk-Based Capital:
Total risk-based capital	$	886,051		$	889,763
Tier 1 risk-based capital	676,114			684,280
Common equity Tier 1 capital	637,967			646,341
Total capital ratio	12.3		%	12.3		%
Tier 1 capital ratio	9.4		%	9.5		%
Common equity tier 1 capital ratio	8.9		%	9.0		%
Tier 1 leverage ratio	8.2		%	8.2		%
Bank Risk-Based Capital:
Total risk-based capital	$	813,992		$	816,951
Tier 1 risk-based capital	756,575			764,090
Common equity Tier 1 capital	756,575			764,090
Total capital ratio	11.3		%	11.3		%
Tier 1 capital ratio	10.5		%	10.6		%
Common equity tier 1 capital ratio	10.5		%	10.6		%
Tier 1 leverage ratio	9.2		%	9.1		%
* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.