UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20212022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                          
Commission file number: 001-37700
NICOLET BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Wisconsin47-0871001
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
111 North Washington Street
Green Bay,Wisconsin54301
(Address of Principal Executive Offices) 
(Zip Code)
(920)430-1400
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareNCBSThe NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 28, 202127, 2022 there were 9,956,52113,392,160 shares of $0.01 par value common stock outstanding.



Nicolet Bankshares, Inc.
Quarterly Report on Form 10-Q
March 31, 20212022
TABLE OF CONTENTS
PAGE
2


PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:
NICOLET BANKSHARES, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
March 31, 2021December 31, 2020March 31, 2022December 31, 2021
(Unaudited)(Audited)(Unaudited)(Audited)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$61,295 $88,460 Cash and due from banks$183,705 $209,349 
Interest-earning depositsInterest-earning deposits674,559 714,399 Interest-earning deposits212,218 385,943 
Cash and cash equivalentsCash and cash equivalents735,854 802,859 Cash and cash equivalents395,923 595,292 
Certificates of deposit in other banksCertificates of deposit in other banks27,296 29,521 Certificates of deposit in other banks19,692 21,920 
Securities available for sale (“AFS”), at fair valueSecurities available for sale (“AFS”), at fair value558,229 539,337 Securities available for sale (“AFS”), at fair value852,331 921,661 
Securities held to maturity (“HTM”), at amortized costSecurities held to maturity (“HTM”), at amortized cost684,991 651,803 
Other investmentsOther investments28,248 27,619 Other investments54,257 44,008 
Loans held for saleLoans held for sale16,883 21,450 Loans held for sale9,764 6,447 
Other assets held for saleOther assets held for sale 199,833 
LoansLoans2,846,351 2,789,101 Loans4,683,315 4,621,836 
Allowance for credit losses - loans (“ACL-Loans”)Allowance for credit losses - loans (“ACL-Loans”)(32,626)(32,173)Allowance for credit losses - loans (“ACL-Loans”)(49,906)(49,672)
Loans, netLoans, net2,813,725 2,756,928 Loans, net4,633,409 4,572,164 
Premises and equipment, netPremises and equipment, net59,413 59,944 Premises and equipment, net94,275 94,566 
Bank owned life insurance (“BOLI”)Bank owned life insurance (“BOLI”)83,788 83,262 Bank owned life insurance (“BOLI”)135,292 134,476 
Goodwill and other intangibles, netGoodwill and other intangibles, net174,501 175,353 Goodwill and other intangibles, net338,068 339,492 
Accrued interest receivable and other assetsAccrued interest receivable and other assets45,867 55,516 Accrued interest receivable and other assets102,210 113,375 
Total assetsTotal assets$4,543,804 $4,551,789 Total assets$7,320,212 $7,695,037 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Liabilities:Liabilities:Liabilities:
Noninterest-bearing demand depositsNoninterest-bearing demand deposits$1,216,477 $1,212,787 Noninterest-bearing demand deposits$1,912,995 $1,975,705 
Interest-bearing depositsInterest-bearing deposits2,684,117 2,697,612 Interest-bearing deposits4,318,125 4,490,211 
Total depositsTotal deposits3,900,594 3,910,399 Total deposits6,231,120 6,465,916 
Short-term borrowings0 
Long-term borrowingsLong-term borrowings43,988 53,869 Long-term borrowings206,946 216,915 
Other liabilities held for saleOther liabilities held for sale 51,586 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities49,176 48,332 Accrued interest payable and other liabilities45,836 68,729 
Total liabilitiesTotal liabilities3,993,758 4,012,600 Total liabilities6,483,902 6,803,146 
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Common stockCommon stock100 100 Common stock135 140 
Additional paid-in capitalAdditional paid-in capital271,388 273,390 Additional paid-in capital524,478 575,045 
Retained earningsRetained earnings271,191 252,952 Retained earnings337,768 313,604 
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)7,367 12,747 Accumulated other comprehensive income (loss)(26,071)3,102 
Total stockholders’ equityTotal stockholders’ equity550,046 539,189 Total stockholders’ equity836,310 891,891 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$4,543,804 $4,551,789 Total liabilities and stockholders’ equity$7,320,212 $7,695,037 
Preferred shares authorized (no par value)Preferred shares authorized (no par value)10,000,000 10,000,000 Preferred shares authorized (no par value)10,000,000 10,000,000 
Preferred shares issued and outstandingPreferred shares issued and outstanding0 Preferred shares issued and outstanding — 
Common shares authorized (par value $0.01 per share)Common shares authorized (par value $0.01 per share)30,000,000 30,000,000 Common shares authorized (par value $0.01 per share)30,000,000 30,000,000 
Common shares outstandingCommon shares outstanding9,987,897 10,011,342 Common shares outstanding13,456,741 13,994,079 
Common shares issuedCommon shares issued10,002,322 10,030,267 Common shares issued13,481,442 14,019,880 
See accompanying notes to unaudited consolidated financial statements.
3

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2021202020222021
Interest income:Interest income:Interest income:
Loans, including loan feesLoans, including loan fees$33,862 $33,778 Loans, including loan fees$51,299 $33,862 
Investment securities:Investment securities:Investment securities:
TaxableTaxable1,814 2,072 Taxable5,127 1,814 
Tax-exemptTax-exempt545 491 Tax-exempt675 545 
Other interest incomeOther interest income655 662 Other interest income817 655 
Total interest incomeTotal interest income36,876 37,003 Total interest income57,918 36,876 
Interest expense:Interest expense:Interest expense:
DepositsDeposits2,922 4,957 Deposits2,192 2,922 
Short-term borrowingsShort-term borrowings0 27 Short-term borrowings — 
Long-term borrowingsLong-term borrowings313 756 Long-term borrowings1,931 313 
Total interest expenseTotal interest expense3,235 5,740 Total interest expense4,123 3,235 
Net interest incomeNet interest income33,641 31,263 Net interest income53,795 33,641 
Provision for credit lossesProvision for credit losses500 3,000 Provision for credit losses300 500 
Net interest income after provision for credit lossesNet interest income after provision for credit losses33,141 28,263 Net interest income after provision for credit losses53,495 33,141 
Noninterest income:Noninterest income:Noninterest income:
Trust services fee incomeTrust services fee income1,775 1,579 Trust services fee income2,011 1,775 
Brokerage fee incomeBrokerage fee income2,793 2,322 Brokerage fee income3,688 2,793 
Mortgage income, netMortgage income, net7,230 2,327 Mortgage income, net3,253 7,230 
Service charges on deposit accountsService charges on deposit accounts1,091 1,225 Service charges on deposit accounts1,477 1,091 
Card interchange incomeCard interchange income1,927 1,562 Card interchange income2,581 1,927 
BOLI incomeBOLI income527 703 BOLI income933 527 
Asset gains (losses), netAsset gains (losses), net711 (654)Asset gains (losses), net1,313 711 
Other incomeOther income1,072 521 Other income687 1,072 
Total noninterest incomeTotal noninterest income17,126 9,585 Total noninterest income15,943 17,126 
Noninterest expense:Noninterest expense:Noninterest expense:
PersonnelPersonnel15,116 13,323 Personnel21,191 15,116 
Occupancy, equipment and officeOccupancy, equipment and office4,137 4,204 Occupancy, equipment and office6,944 4,137 
Business development and marketingBusiness development and marketing989 1,359 Business development and marketing1,831 989 
Data processingData processing2,658 2,563 Data processing3,387 2,658 
Intangibles amortizationIntangibles amortization852 993 Intangibles amortization1,424 852 
FDIC assessmentsFDIC assessments595 FDIC assessments480 595 
Merger-related expenseMerger-related expense98 — 
Other expenseOther expense1,734 1,412 Other expense2,195 1,734 
Total noninterest expenseTotal noninterest expense26,081 23,854 Total noninterest expense37,550 26,081 
Income before income tax expenseIncome before income tax expense24,186 13,994 Income before income tax expense31,888 24,186 
Income tax expenseIncome tax expense5,947 3,321 Income tax expense7,724 5,947 
Net incomeNet income18,239 10,673 Net income$24,164 $18,239 
Less: Net income attributable to noncontrolling interest0 118 
Net income attributable to Nicolet Bankshares, Inc.$18,239 $10,555 
Earnings per common share:Earnings per common share:Earnings per common share:
BasicBasic$1.82 $1.00 Basic$1.77 $1.82 
DilutedDiluted$1.75 $0.98 Diluted$1.70 $1.75 
Weighted average common shares outstanding:Weighted average common shares outstanding:Weighted average common shares outstanding:
BasicBasic9,997,634 10,515,778 Basic13,648,745 9,997,634 
DilutedDiluted10,403,309 10,800,636 Diluted14,214,752 10,403,309 
See accompanying notes to unaudited consolidated financial statements.
4

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands) (Unaudited)
Three Months Ended
March 31,
Three Months Ended
March 31,
2021202020222021
Net incomeNet income$18,239 $10,673 Net income$24,164 $18,239 
Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities AFS:Unrealized gains (losses) on securities AFS:Unrealized gains (losses) on securities AFS:
Net unrealized holding gains (losses)Net unrealized holding gains (losses)(7,369)4,329 Net unrealized holding gains (losses)(39,948)(7,369)
Net realized (gains) losses included in incomeNet realized (gains) losses included in income0 Net realized (gains) losses included in income(15)— 
Income tax (expense) benefitIncome tax (expense) benefit1,989 (1,168)Income tax (expense) benefit10,790 1,989 
Total other comprehensive income (loss)Total other comprehensive income (loss)(5,380)3,161 Total other comprehensive income (loss)(29,173)(5,380)
Comprehensive income$12,859 $13,834 
Comprehensive income (loss)Comprehensive income (loss)$(5,009)$12,859 
See accompanying notes to unaudited consolidated financial statements.
5

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands) (Unaudited)
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balances at December 31, 2021Balances at December 31, 2021$140 $575,045 $313,604 $3,102 $891,891 
Comprehensive income:Comprehensive income:
Net income, three months ended March 31, 2022Net income, three months ended March 31, 2022  24,164  24,164 
Other comprehensive income (loss)Other comprehensive income (loss)   (29,173)(29,173)
Stock-based compensation expenseStock-based compensation expense 1,799   1,799 
Exercise of stock options, netExercise of stock options, net1 1,886   1,887 
Issuance of common stockIssuance of common stock 175   175 
Purchase and retirement of common stockPurchase and retirement of common stock(6)(54,427)  (54,433)
Balances at March 31, 2022Balances at March 31, 2022$135 $524,478 $337,768 $(26,071)$836,310 
Balances at December 31, 2020Balances at December 31, 2020$100 $273,390 $252,952 $12,747 $539,189 
Comprehensive income:Comprehensive income:
Net income, three months ended March 31, 2021Net income, three months ended March 31, 2021— — 18,239 — 18,239 
Other comprehensive income (loss)Other comprehensive income (loss)— — — (5,380)(5,380)
Stock-based compensation expenseStock-based compensation expense— 1,341 — — 1,341 
Exercise of stock options, netExercise of stock options, net— 1,161 — — 1,161 
Issuance of common stockIssuance of common stock— 121 — — 121 
Purchase and retirement of common stockPurchase and retirement of common stock— (4,625)— — (4,625)
Balances at March 31, 2021Balances at March 31, 2021$100 $271,388 $271,191 $7,367 $550,046 
Nicolet Bankshares, Inc. Stockholders’ Equity
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Non-
controlling
Interest
Total
Balances at December 31, 2020$100 $273,390 $252,952 $12,747 $0 $539,189 
Comprehensive income:
Net income, three months ended
March 31, 2021
  18,239   18,239 
Other comprehensive income (loss)   (5,380) (5,380)
Stock-based compensation expense 1,341    1,341 
Exercise of stock options, net 1,161    1,161 
Issuance of common stock 121    121 
Purchase and retirement of common stock (4,625)   (4,625)
Balances at March 31, 2021$100 $271,388 $271,191 $7,367 $0 $550,046 
Balances at December 31, 2019$106 $312,733 $199,005 $4,418 $728 $516,990 
Comprehensive income:
Net income, three months ended
March 31, 2020
— — 10,555 — 118 10,673 
Other comprehensive income (loss)— — — 3,161 — 3,161 
Stock-based compensation expense— 1,299 — — — 1,299 
Exercise of stock options, net— 851 — — — 851 
Issuance of common stock— 215 — — — 215 
Purchase and retirement of common stock(2)(15,195)— — — (15,197)
Distribution to noncontrolling interest— — — — (77)(77)
Adoption of new accounting pronouncement— — (6,175)— — (6,175)
Balances at March 31, 2020$104 $299,903 $203,385 $7,579 $769 $511,740 
See accompanying notes to unaudited consolidated financial statements.
6

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)(In thousands)Three Months Ended March 31,(In thousands)Three Months Ended March 31,
2021202020222021
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net incomeNet income$18,239 $10,673 Net income$24,164 $18,239 
Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization, and accretionDepreciation, amortization, and accretion2,719 2,156 Depreciation, amortization, and accretion6,769 2,719 
Provision for credit lossesProvision for credit losses500 3,000 Provision for credit losses300 500 
Increase in cash surrender value of life insuranceIncrease in cash surrender value of life insurance(527)(525)Increase in cash surrender value of life insurance(933)(527)
Stock-based compensation expenseStock-based compensation expense1,341 1,299 Stock-based compensation expense1,799 1,341 
Asset (gains) losses, netAsset (gains) losses, net(711)654 Asset (gains) losses, net(1,313)(711)
Gain on sale of loans held for sale, netGain on sale of loans held for sale, net(7,255)(3,017)Gain on sale of loans held for sale, net(2,377)(7,255)
Net change due to:Net change due to:
Proceeds from sale of loans held for saleProceeds from sale of loans held for sale222,406 103,950 Proceeds from sale of loans held for sale86,478 222,406 
Origination of loans held for saleOrigination of loans held for sale(211,701)(102,715)Origination of loans held for sale(88,304)(211,701)
Net change in:
Accrued interest receivable and other assetsAccrued interest receivable and other assets9,719 (5,567)Accrued interest receivable and other assets6,786 9,719 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities3,483 2,257 Accrued interest payable and other liabilities(11,426)3,483 
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities38,213 12,165 Net cash provided by (used in) operating activities21,943 38,213 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Net (increase) decrease in loansNet (increase) decrease in loans(57,003)(32,238)Net (increase) decrease in loans(64,669)(57,003)
Net (increase) decrease in certificates of deposit in other banksNet (increase) decrease in certificates of deposit in other banks2,225 501 Net (increase) decrease in certificates of deposit in other banks2,228 2,225 
Purchases of securities AFSPurchases of securities AFS(48,402)(74,759)Purchases of securities AFS(5,017)(48,402)
Purchases of securities HTMPurchases of securities HTM(38,856)— 
Proceeds from sales of securities AFSProceeds from sales of securities AFS3,400 — 
Proceeds from calls and maturities of securities AFSProceeds from calls and maturities of securities AFS21,215 17,931 Proceeds from calls and maturities of securities AFS29,511 21,215 
Proceed from calls and maturities of securities HTMProceed from calls and maturities of securities HTM5,430 — 
Purchases of other investmentsPurchases of other investments(89)(3,673)Purchases of other investments(10,953)(89)
Proceeds from sales of other investmentsProceeds from sales of other investments81 Proceeds from sales of other investments775 81 
Proceeds from redemption of BOLIProceeds from redemption of BOLI117 — 
Net (increase) decrease in premises and equipmentNet (increase) decrease in premises and equipment(485)(4,961)Net (increase) decrease in premises and equipment(1,953)(485)
Net (increase) decrease in other real estate and other assetsNet (increase) decrease in other real estate and other assets293 Net (increase) decrease in other real estate and other assets3,075 293 
Net cash (paid) received in branch saleNet cash (paid) received in branch sale147,833 — 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(82,165)(97,199)Net cash provided by (used in) investing activities70,921 (82,165)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Net increase (decrease) in depositsNet increase (decrease) in deposits(9,710)69,143 Net increase (decrease) in deposits(229,862)(9,710)
Net increase in short-term borrowings0 75,000 
Proceeds from long-term borrowings0 20,000 
Repayments of long-term borrowingsRepayments of long-term borrowings(10,000)(5,000)Repayments of long-term borrowings(10,000)(10,000)
Purchase and retirement of common stockPurchase and retirement of common stock(4,625)(15,197)Purchase and retirement of common stock(54,433)(4,625)
Proceeds from issuance of common stockProceeds from issuance of common stock121 215 Proceeds from issuance of common stock175 121 
Proceeds from exercise of stock optionsProceeds from exercise of stock options1,161 851 Proceeds from exercise of stock options1,887 1,161 
Distribution to noncontrolling interest0 (77)
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(23,053)144,935 Net cash provided by (used in) financing activities(292,233)(23,053)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents(67,005)59,901 Net increase (decrease) in cash and cash equivalents(199,369)(67,005)
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
BeginningBeginning802,859 182,059 Beginning595,292 802,859 
Ending *Ending *$735,854 $241,960 Ending *$395,923 $735,854 
Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:
Cash paid for interestCash paid for interest$3,492 $6,077 Cash paid for interest$5,170 $3,492 
Cash paid for taxesCash paid for taxes0 Cash paid for taxes — 
Transfer of loans and bank premises to other real estate ownedTransfer of loans and bank premises to other real estate owned302 Transfer of loans and bank premises to other real estate owned432 302 
Capitalized mortgage servicing rightsCapitalized mortgage servicing rights1,117 559 Capitalized mortgage servicing rights886 1,117 
* Cash and cash equivalents at both March 31, 20212022 and March 31, 2020,2021, include restricted cash of $1.9 million pledged as collateral on interest rate swaps and 0no reserve balance was required with the Federal Reserve Bank.
See accompanying notes to unaudited consolidated financial statements.
7


NICOLET BANKSHARES, INC.
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 the consolidated balance sheets, statements of income, comprehensive income (loss), changes in stockholders’ equity and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, as of and for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances 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, 2020.2021.
Critical Accounting Policies and Estimates
Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for credit losses, valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for credit losses, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.
There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.

Future Accounting Pronouncements
In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The ASU also requires public business entities to expand the vintage disclosures to include gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. The Company is evaluating the impact of this ASU on its consolidated financial statements.
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. The updated guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company continues to evaluate the impact of reference rate reform on its consolidated financial statements.

Reclassifications
Certain amounts in the 20202021 consolidated financial statements have been reclassified to conform to the 20212022 presentation. These reclassifications were not material and did not impact previously reported net income or comprehensive income.

Note 2 – Acquisitions
Completed Acquisition:Acquisitions:

Advantage Community Bancshares,County Bancorp, Inc. (“Advantage”County”): On August 21, 2020,December 3, 2021, Nicolet completed its merger with Advantage,County, pursuant to the termsAgreement and Plan of the definitive merger agreementMerger dated March 2, 2020, whereby AdvantageJune 22, 2021 (the “County Merger Agreement”), at which time County merged with and
8


into Nicolet, and AdvantageInvestors Community Bank, the wholly owned bank subsidiary of Advantage,County, was merged with and into Nicolet National Bank (the “Bank”), the wholly owned bank subsidiary of Nicolet.

Pursuant to the County Merger Agreement, each share of County common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive, at the election of the shareholder, either cash of $37.18 or 0.48 shares of Nicolet common stock, subject to proration procedures such that 1,237,000 shares of County common stock were exchanged for cash, and the remaining shares were exchanged for Nicolet common stock. As a result, Nicolet issued approximately 2.4 million shares of Nicolet common stock for stock consideration of $176 million and cash consideration of $48 million, or a total purchases price of $224 million. With the County merger, Nicolet became the premier agriculture lender throughout Wisconsin.

A summary of the assets acquired and liabilities assumed in the County transaction, as of the acquisition date, including the preliminary purchase price allocation was as follows.

(In millions, except share data)Acquired from CountyFair Value AdjustmentsEstimated Fair Value
Assets Acquired:
Cash and cash equivalents$20 $— $20 
Investment securities301 (1)300 
Loans1,015 (1)1,014 
ACL-Loans(11)(3)
Premises and equipment21 (4)17 
BOLI33 — 33 
Core deposit intangible— 
Loan servicing rights20 — 20 
Other assets(2)
     Total assets$1,405 $$1,412 
Liabilities Assumed:
Deposits$1,027 $$1,030 
Borrowings218 219 
Other liabilities— 
     Total liabilities$1,253 $$1,257 
Net assets acquired$155 
Purchase Price:
Nicolet common stock issued (in shares)2,366,243 
Value of Nicolet common stock consideration$176 
Cash consideration paid48 
    Total purchase price$224 
Write-off prior investment in County(1)
Preliminary goodwill$70 

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

(In thousands)December 3, 2021
Purchase price of PCD loans at acquisition$64,948 
Allowance for credit losses on PCD loans at acquisition3,262 
Par value of PCD acquired loans at acquisition$68,210 

The Company accounted for the County acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of County prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective estimated fair values at the date of acquisition. The estimated fair value was determined with the assistance of third party valuations, appraisals, and third party advisors. Due to the timing of the merger, the purchase price allocation and estimated fair value measurements remain preliminary. Goodwill arising as a result of the County acquisition is not deductible for tax purposes. Management will continue to review the estimated fair values and expects to finalize its analysis of the acquired
9


assets and assumed liabilities in the transaction over the next few months, within one year of the merger. Therefore, adjustments to the purchase price allocation and estimated fair value may occur.

Mackinac Financial Corporation (“Mackinac”): On September 3, 2021, Nicolet completed its merger with Mackinac, pursuant to the terms of the Agreement and Plan of Merger dated April 12, 2021 (the “Mackinac Merger Agreement”), at which time Mackinac merged with and into Nicolet, and mBank, the wholly owned bank subsidiary of Mackinac, was merged with and into the Bank. Advantage’s 4 branches in Dorchester, Edgar, Mosinee, and Wausau opened as Nicolet National Bank branches on August 24, 2020, expanding our presence in Central Wisconsin and the Wausau area. Due to the small size of the transaction, terms of the all-cash deal were not disclosed.

Upon consummation, Advantage added total assetsPursuant to the Mackinac Merger Agreement, Mackinac shareholders received fixed consideration of 0.22 shares of Nicolet common stock and $4.64 in cash for each share of Mackinac common stock owned, resulting in the issuance of approximately $1722.3 million (representing approximately 4%shares of Nicolet’s then pre-merger asset size), loansNicolet common stock for stock consideration of $88 million, deposits of $141 million, core deposit intangible of $1$180 million and goodwillcash consideration of $12$49 million, or a total purchase price of $229 million. The Mackinac merger expanded Nicolet prominently into Northern Michigan and the Upper Peninsula of Michigan, and added to Nicolet’s presence in upper northeastern Wisconsin.

A summary of the assets acquired and liabilities assumed in the Mackinac transaction, as of the acquisition date, including the preliminary purchase price allocation was as follows.

(In millions, except share data)Acquired from MackinacFair Value AdjustmentsEstimated Fair Value
Assets Acquired:
Cash and cash equivalents$448 $— $448 
Investment securities104 — 104 
Loans930 10 940 
ACL-Loans(6)(2)
Premises and equipment24 (3)21 
BOLI16 — 16 
Goodwill20 (20)— 
Other intangibles
Other assets25 (3)22 
     Total assets$1,565 $(9)$1,556 
Liabilities Assumed:
Deposits$1,365 $$1,366 
Borrowings28 29 
Other liabilities13 14 
     Total liabilities$1,406 $$1,409 
Net assets acquired$147 
Purchase Price:
Nicolet common stock issued (in shares)2,337,230 
Value of Nicolet common stock consideration$180 
Cash consideration paid49 
    Total purchase price$229 
Write-off prior investment in Mackinac(2)
Preliminary goodwill$84 

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

(In thousands)September 3, 2021
Purchase price of PCD loans at acquisition$10,605 
Allowance for credit losses on PCD loans at acquisition1,896 
Par value of PCD acquired loans at acquisition$12,501 

The Company accounted for the Mackinac acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of Mackinac 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 value was determined with the assistance of third
810


party valuations, appraisals, and third party advisors. Due to the timing of the merger, the purchase price allocation and estimated fair value measurements remain preliminary. Goodwill arising as a result of the Mackinac acquisition is not deductible for tax purposes. Management will continue to review the estimated fair values and expects to finalize its analysis of the acquired assets and assumed liabilities in the transaction over the next few months, within one year of the merger. Therefore, adjustments to the purchase price allocation and estimated fair value may occur.

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

Three Months Ended
(In thousands, except per share data)March 31, 2021
Total revenue, net of interest expense$81,307 
Net income$16,661 
Diluted earnings per common share$1.10 

Pending Acquisition:
Charter Bankshares, Inc. (“Charter”): On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”) pursuant to which Charter will merge with and into Nicolet. Pursuant to the terms and subject to the conditions set forth in the Charter Merger Agreement, at the effective time of the merger, Charter shareholders will have the right to receive 15.458 shares of Nicolet common stock and $475 in cash for each share of Charter common stock. As a result, Nicolet expects to issue approximately 1.26 million shares of Nicolet common stock and $38.8 million in cash for the acquisition of Charter. At December 31, 2021, Charter had total assets of $1.1 billion. The merger is expected to close in the third quarter of 2022, subject to customary closing conditions, including approval by regulators.

Note 3 – Earnings per Common Share
Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock), if any. Presented below are the calculations for basic and diluted earnings per common share.
Three Months Ended March 31,Three Months Ended March 31,
(In thousands, except per share data)(In thousands, except per share data)20212020(In thousands, except per share data)20222021
Net income attributable to Nicolet Bankshares, Inc.$18,239 $10,555 
Net incomeNet income$24,164 $18,239 
Weighted average common shares outstandingWeighted average common shares outstanding9,998 10,516 Weighted average common shares outstanding13,649 9,998 
Effect of dilutive common stock awardsEffect of dilutive common stock awards405 285 Effect of dilutive common stock awards566 405 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding10,403 10,801 Diluted weighted average common shares outstanding14,215 10,403 
Basic earnings per common share*Basic earnings per common share*$1.82 $1.00 Basic earnings per common share*$1.77 $1.82 
Diluted earnings per common share*Diluted earnings per common share*$1.75 $0.98 Diluted earnings per common share*$1.70 $1.75 
*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 shares outstanding during the interim period, and not on an annualized weighted average basis. Accordingly, the sum of the earnings per share data for the quarters will not necessarily equal the year to date earnings per share data.
For the three months ended March 31, 2022 and 2021, respectively, options to purchase less than 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive. For the three months ended March 31, 2020, options to purchase approximately 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive.

11


Note 4 – 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, 2021,2022, approximately 1.30.8 million shares were available for grant under these stock-based compensation plans.
A Black-Scholes model is utilized to estimate the fair value of stock 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, 20202022 and 2021 were as follows. There were 0 stock option grants for the three months ended March 31, 2021.
Three Months Ended March 31,
20212020
Dividend yield%%
Expected volatility%25 %
Risk-free interest rate%1.67 %
Expected average life0 years7 years
Weighted average per share fair value of options$$21.83 
9


Three Months Ended March 31,
20222021
Dividend yield— %— %
Expected volatility30 %— %
Risk-free interest rate1.77 %— %
Expected average life7 years0 years
Weighted average per share fair value of options$32.99 $— 
A summary of the Company’s stock option activity is summarized below.
Stock OptionsStock OptionsOption Shares
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Life (Years)
Aggregate
Intrinsic Value
(in thousands)
Stock OptionsOption Shares
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Life (Years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding - December 31, 20201,437,460 $50.47 
Outstanding - December 31, 2021Outstanding - December 31, 20211,833,246 $57.69 
GrantedGrantedGranted30,429 93.68 
Exercise of stock options *Exercise of stock options *(32,672)35.55 Exercise of stock options *(59,811)41.73 
ForfeitedForfeitedForfeited(4,500)78.67 
Outstanding - March 31, 20211,404,788 $50.82 6.4$45,872 
Exercisable - March 31, 2021779,538 $46.87 5.9$28,538 
Outstanding - March 31, 2022Outstanding - March 31, 20221,799,364 $58.78 6.5$62,622 
Exercisable - March 31, 2022Exercisable - March 31, 2022977,935 $48.90 5.1$43,690 
* 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. For the three months ended March 31, 2021, 5,6072022, 6,073 such shares were withheld by the 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 intrinsic value of options exercised for the three months ended March 31, 20212022 and 20202021 was approximately $1.3$3.0 million and $1.8$1.3 million, respectively.
A summary of the Company’s restricted stock activity is summarized below.
Restricted StockRestricted StockWeighted Average Grant
Date Fair Value
Restricted Shares
Outstanding
Restricted StockWeighted Average Grant
Date Fair Value
Restricted Shares
Outstanding
Outstanding - December 31, 2020$53.57 18,925 
Outstanding - December 31, 2021Outstanding - December 31, 2021$71.42 25,801 
GrantedGranted72.24 1,500 Granted— — 
Vested *Vested *47.23 (6,000)Vested *63.28 (1,100)
ForfeitedForfeitedForfeited— — 
Outstanding - March 31, 2021$58.15 14,425 
Outstanding - March 31, 2022Outstanding - March 31, 2022$71.78 24,701 
* The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, 1,300210 shares were surrendered during the three months ended March 31, 2021.2022.
The Company recognized approximately $1.2$1.8 million and $1.3$1.2 million of stock-based compensation expense (included in personnel on the consolidated statements of income) for the three months ended March 31, 20212022 and 2020,2021, respectively, associated with its common stock awards granted to officers and employees. In addition, during first quarterthe three months ended March 31, 2021, the Company recognized approximately $0.1 million of director expense (included in other expense on the consolidated statements of income) for a total restricted stock grant of 1,500 shares with immediate vesting to directors. As of March 31, 2021,2022, there was approximately $8.5$15.8 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the remaining vesting period of approximately 2.5four years. The Company recognized a tax benefit of approximately $0.2$0.4 million and $0.3$0.2 million for the three months ended March 31, 20212022 and 2020,2021, respectively, for the tax impact of stock option exercises and vesting of restricted stock.
12



Note 5 – Securities Availableand 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 Salean 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.
Amortized
The amortized cost and fair value of securities available for saleAFS and HTM are summarized as follows.
March 31, 2021March 31, 2022
(in thousands)(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueFair Value as % of Total(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair ValueFair Value as % of Total
Securities AFS:Securities AFS:
U.S. government agency securitiesU.S. government agency securities$79,139 $232 $256 $79,115 14 %U.S. government agency securities$192,442 $— $6,119 $186,323 22 %
State, county and municipalsState, county and municipals226,192 3,415 1,935 227,672 41 %State, county and municipals305,034 135 16,461 288,708 34 %
Mortgage-backed securitiesMortgage-backed securities163,048 4,892 1,040 166,900 30 %Mortgage-backed securities255,866 215 12,477 243,604 28 %
Corporate debt securitiesCorporate debt securities79,758 4,868 84 84,542 15 %Corporate debt securities134,703 1,207 2,214 133,696 16 %
Total$548,137 $13,407 $3,315 $558,229 100 %
Total securities AFSTotal securities AFS$888,045 $1,557 $37,271 $852,331 100 %
Securities HTM:Securities HTM:
U.S. government agency securitiesU.S. government agency securities$508,373 $— $23,648 $484,725 74 %
State, county and municipalsState, county and municipals44,790 1,592 43,203 %
Mortgage-backed securitiesMortgage-backed securities131,828 — 7,700 124,128 19 %
Total securities HTMTotal securities HTM$684,991 $$32,940 $652,056 100 %
10


December 31, 2020December 31, 2021
(in thousands)(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Fair ValueFair Value as % of Total(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair ValueFair Value as % of Total
Securities AFS:Securities AFS:
U.S. government agency securitiesU.S. government agency securities$63,162 $289 $$63,451 12 %U.S. government agency securities$192,506 $$1,235 $191,277 21 %
State, county and municipalsState, county and municipals226,493 5,386 11 231,868 43 %State, county and municipals311,717 3,222 2,202 312,737 34 %
Mortgage-backed securitiesMortgage-backed securities156,148 6,425 78 162,495 30 %Mortgage-backed securities270,017 3,090 1,845 271,262 29 %
Corporate debt securitiesCorporate debt securities76,073 5,450 81,523 15 %Corporate debt securities143,172 3,459 246 146,385 16 %
Total$521,876 $17,550 $89 $539,337 100 %
Total securities AFSTotal securities AFS$917,412 $9,777 $5,528 $921,661 100 %
Securities HTM:Securities HTM:
U.S. government agency securitiesU.S. government agency securities$508,810 $— $2,740 $506,070 78 %
State, county and municipalsState, county and municipals42,876 10 173 42,713 %
Mortgage-backed securitiesMortgage-backed securities100,117 89 595 99,611 15 %
Total securities HTMTotal securities HTM$651,803 $99 $3,508 $648,394 100 %
All mortgage-backed securities included in the tabletables above were issued by U.S. government agencies and corporations. Securities AFSInvestment securities with a faircarrying value of $145$372 million and $146$277 million, as of March 31, 20212022 and December 31, 2020,2021, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law. Accrued interest on investment securities AFS totaled $2.8$6 million and $2.3$5 million at March 31, 20212022 and December 31, 2020,2021, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

13



The following table presents gross unrealized losses and the related estimated fair value of investment securities AFS for 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.
March 31, 2021March 31, 2022
Less than 12 months12 months or moreTotalLess than 12 months12 months or moreTotal
($ in thousands)($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Securities AFS:Securities AFS:
U.S. government agency securitiesU.S. government agency securities$16,263 $256 $$$16,263 $256 U.S. government agency securities$185,822 $6,119 $— $— $185,822 $6,119 13 
State, county and municipalsState, county and municipals74,338 1,935 74,338 1,935 110 State, county and municipals232,438 13,340 27,417 3,121 259,855 16,461 389 
Mortgage-backed securitiesMortgage-backed securities39,362 1,036 331 39,693 1,040 40 Mortgage-backed securities194,557 10,075 21,469 2,402 216,026 12,477 336 
Corporate debt securitiesCorporate debt securities2,087 84 2,087 84 Corporate debt securities66,907 2,214 — — 66,907 2,214 43 
TotalTotal$132,050 $3,311 $331 $$132,381 $3,315 152 Total$679,724 $31,748 $48,886 $5,523 $728,610 $37,271 781 
Securities HTM:Securities HTM:
U.S. government agency securitiesU.S. government agency securities$484,577 $23,648 $— $— $484,577 $23,648 
State, county and municipalsState, county and municipals37,514 1,592 — — 37,514 1,592 54 
Mortgage-backed securitiesMortgage-backed securities124,128 7,700 — — 124,128 7,700 104 
TotalTotal$646,219 $32,940 $— $— $646,219 $32,940 167 
December 31, 2020December 31, 2021
Less than 12 months12 months or moreTotalLess than 12 months12 months or moreTotal
($ in thousands)($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Securities AFS:Securities AFS:
U.S. government agency securitiesU.S. government agency securities$190,432 $1,235 $— $— $190,432 $1,235 11 
State, county and municipalsState, county and municipals$5,181 $11 $$$5,181 $11 State, county and municipals103,950 2,119 1,777 83 105,727 2,202 132 
Mortgage-backed securitiesMortgage-backed securities10,612 71 492 11,104 78 22 Mortgage-backed securities137,561 1,616 6,068 229 143,629 1,845 159 
Corporate debt securitiesCorporate debt securities23,267 246 — — 23,267 246 13 
TotalTotal$15,793 $82 $492 $$16,285 $89 31 Total$455,210 $5,216 $7,845 $312 $463,055 $5,528 315 
Securities HTM:Securities HTM:
U.S. government agency securitiesU.S. government agency securities$505,938 $2,740 $— $— $505,938 $2,740 
State, county and municipalsState, county and municipals30,898 173 — — 30,898 173 46 
Mortgage-backed securitiesMortgage-backed securities69,333 595 — — 69,333 595 72 
TotalTotal$606,169 $3,508 $— $— $606,169 $3,508 127 
TheQuarterly, the Company evaluates securities AFS in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
As of March 31, 20212022 and December 31, 2020, 02021, no allowance for credit losses on securities AFS was recognized. The Company does not consider its securities AFS with unrealized losses to be 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 market conditions subsequent to purchase, not credit deterioration. Furthermore, the Company does not have the intent to sell any of these securities AFS and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost.
The Company also evaluates securities HTM quarterly to determine whether an allowance for credit losses is necessary. In making this determination, management considers the facts and circumstances of the underlying investment securities. The U.S. government agency securities include U.S. Treasury Notes which are guaranteed by the U.S. government. For the state, county and municipal securities, management considers issuer bond ratings, historical loss rates by bond ratings, whether issuers continue to make timely principal and interest payments per the contractual terms of the investment securities, 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,
11
14


which are currently explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. Therefore, management determined no allowance for credit losses was necessary for the securities HTM.
The amortized cost and fair value of investment securities AFS 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; as this is particularly inherent in mortgage-backed securities, these securities are not included in the maturity categories below.
March 31, 2021
As of March 31, 2022As of March 31, 2022Securities AFSSecurities HTM
(in thousands)(in thousands)Amortized CostFair Value(in thousands)Amortized CostFair ValueAmortized CostFair Value
Due in less than one yearDue in less than one year$91,706 $92,221 Due in less than one year$37,717 $37,852 $6,197 $6,184 
Due in one year through five yearsDue in one year through five years160,270 165,873 Due in one year through five years319,726 313,302 503,946 480,140 
Due after five years through ten yearsDue after five years through ten years121,235 120,172 Due after five years through ten years192,077 180,523 33,963 32,665 
Due after ten yearsDue after ten years11,878 13,063 Due after ten years82,659 77,050 9,057 8,939 
385,089 391,329 632,179 608,727 553,163 527,928 
Mortgage-backed securitiesMortgage-backed securities163,048 166,900 Mortgage-backed securities255,866 243,604 131,828 124,128 
Securities AFS$548,137 $558,229 
Total investment securitiesTotal investment securities$888,045 $852,331 $684,991 $652,056 
ThereProceeds and realized gains or losses from the sale of AFS securities were as follows.
Three Months Ended March 31,
(in thousands)20222021
Gross gains$20 $— 
Gross losses(5)— 
Gains (losses) on sales of securities AFS, net$15 $— 
Proceeds from sales of securities AFS$3,400 $— 
Other Investments
Other investments include “restricted” equity securities, equity securities with readily determinable fair values, and private company securities. As a member of the Federal Reserve Bank System and the Federal Home Loan Bank (“FHLB”) System, Nicolet is required to maintain an investment in the capital stock of these entities. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no salesready 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, which are carried at cost less impairment charges, if any. The carrying value of securities AFS for the three months ended March 31, 2021 and March 31, 2020.other investments are summarized as follows.
March 31, 2022December 31, 2021
(in thousands)AmountAmount
Federal Reserve Bank stock$29,020 $20,973 
Federal Home Loan Bank (“FHLB”) stock9,771 10,545 
Equity securities with readily determinable fair values6,081 5,660 
Other investments9,385 6,830 
Total other investments$54,257 $44,008 

15



Note 6 – Loans, Allowance for Credit Losses - Loans, and Credit Quality
The loan composition is summarized as follows.
March 31, 2021December 31, 2020March 31, 2022December 31, 2021
(in thousands)(in thousands)Amount% of
Total
Amount% of
Total
(in thousands)Amount% of
Total
Amount% of
Total
Commercial & industrialCommercial & industrial$728,498 26 %$750,718 27 %Commercial & industrial$1,063,300 23 %$1,042,256 23 %
Paycheck Protection Program (“PPP”) loans229,403 186,016 
Owner-occupied commercial real estate (“CRE”)Owner-occupied commercial real estate (“CRE”)520,274 18 521,300 19 Owner-occupied commercial real estate (“CRE”)794,946 17 787,189 17 
AgriculturalAgricultural107,009 109,629 Agricultural826,364 18 794,728 17 
CRE investmentCRE investment490,053 17 460,721 16 CRE investment807,602 17 818,061 18 
Construction & land developmentConstruction & land development137,670 131,283 Construction & land development211,640 213,035 
Residential constructionResidential construction39,586 41,707 Residential construction72,660 70,353 
Residential first mortgageResidential first mortgage456,197 16 444,155 16 Residential first mortgage721,107 15 713,983 15 
Residential junior mortgageResidential junior mortgage107,641 111,877 Residential junior mortgage133,817 131,424 
Retail & otherRetail & other30,020 31,695 Retail & other51,879 50,807 
LoansLoans2,846,351 100 %2,789,101 100 %Loans4,683,315 100 %4,621,836 100 %
Less allowance for credit losses - Loans (“ACL-Loans”)Less allowance for credit losses - Loans (“ACL-Loans”)32,626 32,173 Less allowance for credit losses - Loans (“ACL-Loans”)49,906 49,672 
Loans, netLoans, net$2,813,725 $2,756,928 Loans, net$4,633,409 $4,572,164 
Allowance for credit losses - Loans to loansAllowance for credit losses - Loans to loans1.15 %1.15 %Allowance for credit losses - Loans to loans1.07 %1.07 %
Commercial and industrial loans included $8 million and $25 million of PPP loans at March 31, 2022 and December 31, 2021, respectively. Accrued interest on loans totaled $7$10 million at both March 31, 20212022 and $11 million at December 31, 2020,2021, and is included in accrued interest receivable and other assets on the consolidated balance sheets.
Allowance for Credit Losses-LoansLosses - Loans:
The majority of the Company’s loans, commitments, and 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.
12


A roll forward of the allowance for credit losses - loans is summarized as follows.
Three Months EndedYear EndedThree Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021March 31, 2020December 31, 2020(in thousands)March 31, 2022March 31, 2021December 31, 2021
Beginning balanceBeginning balance$32,173 $13,972 $13,972 Beginning balance$49,672 $32,173 $32,173 
Adoption of CECL— 8,488 8,488 
Initial PCD ACL— 797 797 
Total impact for adoption of CECL— 9,285 9,285 
ACL on PCD loans acquiredACL on PCD loans acquired— — 5,159 
Provision for credit lossesProvision for credit losses500 3,000 10,300 Provision for credit losses300 500 12,500 
Charge-offsCharge-offs(94)(93)(1,689)Charge-offs(100)(94)(513)
RecoveriesRecoveries47 38 305 Recoveries34 47 353 
Net (charge-offs) recoveriesNet (charge-offs) recoveries(47)(55)(1,384)Net (charge-offs) recoveries(66)(47)(160)
Ending balanceEnding balance$32,626 $26,202 $32,173 Ending balance$49,906 $32,626 $49,672 
16


The following tables present the balance and activity in the ACL-Loans by portfolio segment.
Three Months Ended March 31, 2021Three Months Ended March 31, 2022
(in thousands)(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction & land
development
Residential
construction
Residential
first mortgage
Residential
junior
mortgage
Retail
& other
Total(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction & land
development
Residential
construction
Residential
first mortgage
Residential
junior
mortgage
Retail
& other
Total
ACL-Loans *ACL-Loans *ACL-Loans *
Beginning balanceBeginning balance$11,644 $5,872 $1,395 $5,441 $984 $421 $4,773 $1,086 $557 $32,173 Beginning balance$12,613 $7,222 $9,547 $8,462 $1,812 $900 $6,844 $1,340 $932 $49,672 
ACL on PCD loansACL on PCD loans— — — — — — — — — — 
ProvisionProvision(1,043)(338)(100)723 248 83 539 224 164 500 Provision489 94 (175)(23)(175)38 (141)63 130 300 
Charge-offsCharge-offs(44)(4)(46)(94)Charge-offs— (36)— — — — — — (64)(100)
RecoveriesRecoveries31 10 47 Recoveries20 — — — — — — 10 34 
Net (charge-offs) recoveriesNet (charge-offs) recoveries(13)(4)10 (42)(47)Net (charge-offs) recoveries20 (36)— — — — — (54)(66)
Ending balanceEnding balance$10,588 $5,534 $1,295 $6,160 $1,232 $504 $5,322 $1,312 $679 $32,626 Ending balance$13,122 $7,280 $9,372 $8,439 $1,637 $938 $6,707 $1,403 $1,008 $49,906 
As % of ACL-LoansAs % of ACL-Loans32 %17 %%19 %%%16 %%%100 %As % of ACL-Loans26 %15 %19 %17 %%%13 %%%100 %
*The PPP loans are fully guaranteed by the SBA; thus, no ACL-Loans has been allocated to these loans.
Year Ended December 31, 2020Year Ended December 31, 2021
(in thousands)(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction
& land
development
Residential
construction
Residential
first
mortgage
Residential
junior
mortgage
Retail &
other
 
Total
(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction
& land
development
Residential
construction
Residential
first
mortgage
Residential
junior
mortgage
Retail &
other
 
Total
ACL-Loans *ACL-Loans *ACL-Loans *
Beginning balanceBeginning balance$5,471 $3,010 $579 $1,600 $414 $368 $1,669 $517 $344 $13,972 Beginning balance$11,644 $5,872 $1,395 $5,441 $984 $421 $4,773 $1,086 $557 $32,173 
Adoption of CECL2,962 1,249 361 1,970 51 124 1,286 351 134 8,488 
Initial PCD ACL797 797 
ACL on PCD loansACL on PCD loans723 1,045 2,585 415 103 — 272 13 5,159 
ProvisionProvision3,106 2,062 455 2,061 519 (71)1,809 151 208 10,300 Provision196 305 5,615 2,608 725 479 1,892 237 443 12,500 
Charge-offsCharge-offs(812)(530)(190)(2)(155)(1,689)Charge-offs(242)— (48)(4)— — (113)— (106)(513)
RecoveriesRecoveries120 81 11 67 26 305 Recoveries292 — — — — 20 35 353 
Net (charge-offs) recoveriesNet (charge-offs) recoveries(692)(449)(190)67 (129)(1,384)Net (charge-offs) recoveries50 — (48)(2)— — (93)(71)(160)
Ending balanceEnding balance$11,644 $5,872 $1,395 $5,441 $984 $421 $4,773 $1,086 $557 $32,173 Ending balance$12,613 $7,222 $9,547 $8,462 $1,812 $900 $6,844 $1,340 $932 $49,672 
As % of ACL-LoansAs % of ACL-Loans36 %18 %%17 %%%15 %%%100 %As % of ACL-Loans25 %14 %19 %17 %%%14 %%%100 %
The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the 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 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 (x) other qualitative and quantitative factors which could affect expected credit losses. Assessing these numerous factors involves significant judgment.
Management allocates the ACL-Loans by pools of risk within each loan portfolio segment. The allocation methodology consists of the following 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 other loans with evidence of credit deterioration. The specific reserve in the 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 loan
13


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 ACL-Loans using the qualitative factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.
Allowance for Credit Losses-Unfunded Commitments:
In addition to the ACL-Loans, the Company has established an ACL-Unfunded commitments, classified in accrued interest payable and other liabilities on the consolidated balance sheets. This reserve is maintained at a level that management believes is sufficient to absorb losses arising from unfunded loan commitments, and is determined quarterly based on methodology similar to the methodology for determining the ACL-Loans. The reserve for unfunded commitments was $2.4 million at both March 31, 2022 and December 31, 2021.

17


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 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 5 for additional information regarding the ACL related to investment securities. The following table presents the components of the provision for credit losses.
Three Months EndedYear Ended
(in thousands)March 31, 2022March 31, 2021December 31, 2021
Provision for credit losses on:
Loans$300 $500 $12,500 
Unfunded Commitments— — 2,400 
Investment securities— — — 
Total$300 $500 $14,900 
Collateral Dependent Loans:
A loan is considered to be collateral dependent when, based upon management's assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation.
March 31, 2021Collateral Type
March 31, 2022March 31, 2022Collateral Type
(in thousands)(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation
Commercial & industrialCommercial & industrial$$2,437 $2,437 $401 $2,036 $955 Commercial & industrial$— $2,241 $2,241 $1,447 $794 $224 
PPP loans
Owner-occupied CREOwner-occupied CRE3,514 3,514 3,514 Owner-occupied CRE6,125 — 6,125 3,996 2,129 459 
AgriculturalAgricultural986 675 1,661 986 675 Agricultural15,590 7,889 23,479 16,294 7,185 489 
CRE investmentCRE investment1,436 1,436 1,436 CRE investment2,910 — 2,910 1,011 1,899 342 
Construction & land developmentConstruction & land development308 308 308 Construction & land development1,023 — 1,023 1,023 — — 
Residential constructionResidential constructionResidential construction— — — — — — 
Residential first mortgageResidential first mortgageResidential first mortgage473 — 473 473 — — 
Residential junior mortgageResidential junior mortgageResidential junior mortgage— — — — — — 
Retail & otherRetail & otherRetail & other— — — — — — 
Total loansTotal loans$6,244 $3,112 $9,356 $6,645 $2,711 $957 Total loans$26,121 $10,130 $36,251 $24,244 $12,007 $1,514 

December 31, 2020Collateral Type
December 31, 2021December 31, 2021Collateral Type
(in thousands)(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation
Commercial & industrialCommercial & industrial$$2,195 $2,195 $501 $1,694 $1,241 Commercial & industrial$— $2,296 $2,296 $1,842 $454 $258 
PPP loans
Owner-occupied CREOwner-occupied CRE3,519 3,519 3,519 Owner-occupied CRE3,537 — 3,537 1,315 2,222 552 
AgriculturalAgricultural584 797 1,381 1,378 Agricultural19,637 8,518 28,155 25,310 2,845 841 
CRE investmentCRE investment1,474 1,474 1,474 CRE investment3,000 — 3,000 1,684 1,316 407 
Construction & land developmentConstruction & land development308 308 308 Construction & land development1,038 — 1,038 655 383 211 
Residential constructionResidential constructionResidential construction— — — — — — 
Residential first mortgageResidential first mortgageResidential first mortgage473 — 473 473 — — 
Residential junior mortgageResidential junior mortgageResidential junior mortgage— — — — — — 
Retail & otherRetail & otherRetail & other— — — — — — 
Total loansTotal loans$5,885 $2,992 $8,877 $7,180 $1,697 $1,244 Total loans$27,685 $10,814 $38,499 $31,279 $7,220 $2,269 


1418


Past Due and Nonaccrual Loans:
The following tables present past due loans by portfolio segment.
March 31, 2022
(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal
Commercial & industrial$216 $1,849 $1,061,235 $1,063,300 
Owner-occupied CRE211 5,007 789,728 794,946 
Agricultural506 23,570 802,288 826,364 
CRE investment401 3,914 803,287 807,602 
Construction & land development63 1,054 210,523 211,640 
Residential construction— — 72,660 72,660 
Residential first mortgage4,459 3,919 712,729 721,107 
Residential junior mortgage114 242 133,461 133,817 
Retail & other682 115 51,082 51,879 
Total loans$6,652 $39,670 $4,636,993 $4,683,315 
Percent of total loans0.1 %0.9 %99.0 %100.0 %
March 31, 2021December 31, 2021
(in thousands)(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal
Commercial & industrialCommercial & industrial$58 $2,842 $725,598 $728,498 Commercial & industrial$94 $1,908 $1,040,254 $1,042,256 
PPP loans229,403 229,403 
Owner-occupied CREOwner-occupied CRE76 1,563 518,635 520,274 Owner-occupied CRE— 4,220 782,969 787,189 
AgriculturalAgricultural2,087 104,922 107,009 Agricultural108 28,367 766,253 794,728 
CRE investmentCRE investment1,436 488,617 490,053 CRE investment114 4,119 813,828 818,061 
Construction & land developmentConstruction & land development73 327 137,270 137,670 Construction & land development— 1,071 211,964 213,035 
Residential constructionResidential construction39,586 39,586 Residential construction246 — 70,107 70,353 
Residential first mortgageResidential first mortgage1,932 527 453,738 456,197 Residential first mortgage2,592 4,132 707,259 713,983 
Residential junior mortgageResidential junior mortgage32 116 107,493 107,641 Residential junior mortgage23 243 131,158 131,424 
Retail & otherRetail & other56 67 29,897 30,020 Retail & other115 94 50,598 50,807 
Total loansTotal loans$2,227 $8,965 $2,835,159 $2,846,351 Total loans$3,292 $44,154 $4,574,390 $4,621,836 
Percent of total loansPercent of total loans0.1 %0.3 %99.6 %100.0 %Percent of total loans0.1 %0.9 %99.0 %100.0 %
December 31, 2020
(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal
Commercial & industrial$$2,646 $748,072 $750,718 
PPP loans186,016 186,016 
Owner-occupied CRE1,869 519,431 521,300 
Agricultural1,830 107,792 109,629 
CRE investment1,488 459,233 460,721 
Construction & land development327 130,956 131,283 
Residential construction41,707 41,707 
Residential first mortgage613 823 442,719 444,155 
Residential junior mortgage43 384 111,450 111,877 
Retail & other102 88 31,505 31,695 
Total loans$765 $9,455 $2,778,881 $2,789,101 
Percent of total loans%0.4 %99.6 %100.0 %

19


The following table presents nonaccrual loans by portfolio segment. The nonaccrual loans without a related allowance for credit losses have been reflected in the collateral dependent loans table above.
March 31, 2021December 31, 2020March 31, 2022December 31, 2021
(in thousands)(in thousands)Nonaccrual Loans% of TotalNonaccrual Loans% of Total(in thousands)Nonaccrual Loans% of TotalNonaccrual Loans% of Total
Commercial & industrialCommercial & industrial$2,842 32 %$2,646 28 %Commercial & industrial$1,849 %$1,908 %
PPP loans
Owner-occupied CREOwner-occupied CRE1,563 17 1,869 20 Owner-occupied CRE5,007 13 4,220 10 
AgriculturalAgricultural2,087 23 1,830 19 Agricultural23,570 59 28,367 64 
CRE investmentCRE investment1,436 16 1,488 16 CRE investment3,914 10 4,119 
Construction & land developmentConstruction & land development327 327 Construction & land development1,054 1,071 
Residential constructionResidential constructionResidential construction— — — — 
Residential first mortgageResidential first mortgage527 823 Residential first mortgage3,919 10 4,132 
Residential junior mortgageResidential junior mortgage116 384 Residential junior mortgage242 243 
Retail & otherRetail & other67 88 Retail & other115 — 94 — 
Nonaccrual loansNonaccrual loans$8,965 100 %$9,455 100 %Nonaccrual loans$39,670 100 %$44,154 100 %
Percent of total loansPercent of total loans0.3 %0.4 %Percent of total loans0.9 %0.9 %

1520


Credit Quality Information:
The following tables present total loans by risk categories and year of origination.
March 31, 2021Amortized Cost Basis by Origination Year
(in thousands)20212020201920182017PriorRevolvingRevolving to TermTOTAL
Commercial & industrial (a)
Grades 1-4$163,454 $247,363 $115,018 $86,898 $66,632 $56,175 $192,156 $$927,696 
Grade 5115 2,012 3,339 4,560 5,299 3,821 6,216 25,362 
Grade 6670 65 16 42 57 219 1,069 
Grade 720 928 469 655 336 1,366 3,774 
Total$164,239 $249,460 $119,301 $91,969 $72,586 $60,389 $199,957 $$957,901 
Owner-occupied CRE
Grades 1-4$13,070 $88,302 $74,839 $76,925 $50,831 $182,221 $1,084 $$487,272 
Grade 541 1,933 1,032 7,828 11,266 22,100 
Grade 621 2,564 51 2,636 
Grade 72,968 512 952 3,834 8,266 
Total$13,070 $91,311 $77,284 $77,978 $62,175 $197,372 $1,084 $$520,274 
Agricultural
Grades 1-4$1,179 $13,801 $5,232 $7,353 $9,551 $34,345 $21,259 $$92,720 
Grade 5284 295 685 439 6,301 277 8,281 
Grade 6
Grade 726 90 5,795 97 6,008 
Total$1,463 $14,096 $5,232 $8,064 $10,080 $46,441 $21,633 $$107,009 
CRE investment
Grades 1-4$49,394 $80,566 $73,984 $34,734 $60,858 $143,032 $6,028 $$448,596 
Grade 51,555 2,592 1,106 3,077 3,777 26,654 38,761 
Grade 6787 787 
Grade 71,909 1,909 
Total$50,949 $83,158 $75,090 $37,811 $65,422 $171,595 $6,028 $$490,053 
Construction & land development
Grades 1-4$4,931 $77,235 $23,800 $14,532 $2,068 $8,450 $4,279 $$135,295 
Grade 5373 651 534 22 453 2,033 
Grade 6
Grade 719 323 342 
Total$4,931 $77,235 $24,173 $15,183 $2,621 $8,795 $4,732 $$137,670 
Residential construction
Grades 1-4$6,212 $27,277 $5,129 $392 $307 $215 $$$39,532 
Grade 554 54 
Grade 6
Grade 7
Total$6,212 $27,277 $5,129 $392 $361 $215 $$$39,586 
Residential first mortgage
Grades 1-4$48,620 $144,134 $58,206 $34,880 $35,738 $126,739 $342 $$448,664 
Grade 5921 2,149 462 2,771 6,303 
Grade 6
Grade 7435 194 15 586 1,230 
Total$48,620 $144,134 $59,562 $37,223 $36,215 $130,096 $342 $$456,197 
Residential junior mortgage
Grades 1-4$964 $4,406 $3,997 $3,228 $838 $3,553 $89,255 $1,252 $107,493 
Grade 532 32 
Grade 6
Grade 726 48 42 116 
Total$964 $4,406 $3,997 $3,228 $864 $3,633 $89,297 $1,252 $107,641 
Retail & other
Grades 1-4$2,428 $5,381 $4,774 $1,541 $1,567 $1,961 $12,301 $$29,953 
Grade 5
Grade 6
Grade 717 50 67 
Total$2,428 $5,398 $4,774 $1,541 $1,567 $2,011 $12,301 $$30,020 
Total loans$292,876 $696,475 $374,542 $273,389 $251,891 $620,547 $335,374 $1,257 $2,846,351 
(a) For purposes of this table at March 31, 2021, the $229 million net carrying value of PPP loans include $138 million originated in 2021 Loans acquired from Mackinac and $91 million originated in 2020, have a Pass risk grade (Grades 1-4) andCounty have been included within the Commercial & industrial loan category.March 31, 2022 and December 31, 2021 tables based upon the actual origination date.
March 31, 2022Amortized Cost Basis by Origination Year
(in thousands)20222021202020192018PriorRevolvingRevolving to TermTOTAL
Commercial & industrial
Grades 1-4$74,080 $251,155 $125,658 $92,606 $65,494 $101,759 $297,121 $— $1,007,873 
Grade 53,955 3,591 8,185 3,089 1,618 7,836 16,557 — 44,831 
Grade 6155 1,069 2,980 730 679 461 1,122 — 7,196 
Grade 739 175 433 675 327 1,265 486 — 3,400 
Total$78,229 $255,990 $137,256 $97,100 $68,118 $111,321 $315,286 $— $1,063,300 
Owner-occupied CRE
Grades 1-4$40,673 $155,869 $92,991 $97,240 $86,626 $260,682 $8,350 $— $742,431 
Grade 5352 5,894 2,129 5,703 2,413 13,492 634 — 30,617 
Grade 6— — 2,217 1,858 — 1,080 — — 5,155 
Grade 7— — 4,808 1,896 — 9,058 981 — 16,743 
Total$41,025 $161,763 $102,145 $106,697 $89,039 $284,312 $9,965 $— $794,946 
Agricultural
Grades 1-4$51,984 $126,552 $83,356 $27,133 $22,251 $124,604 $229,196 $— $665,076 
Grade 5241 14,967 4,683 2,543 771 55,592 23,364 — 102,161 
Grade 6— 37 35 35 — 1,120 84 — 1,311 
Grade 72,058 4,215 2,007 3,287 4,019 29,973 12,257 — 57,816 
Total$54,283 $145,771 $90,081 $32,998 $27,041 $211,289 $264,901 $— $826,364 
CRE investment
Grades 1-4$46,108 $166,896 $135,267 $117,040 $48,884 $220,348 $11,763 $— $746,306 
Grade 5— 10,951 2,575 15,452 2,926 23,709 — — 55,613 
Grade 6— — — 697 — — — — 697 
Grade 7— — — 451 140 4,169 226 — 4,986 
Total$46,108 $177,847 $137,842 $133,640 $51,950 $248,226 $11,989 $— $807,602 
Construction & land development
Grades 1-4$13,458 $86,916 $60,183 $10,130 $12,552 $11,975 $12,344 $— $207,558 
Grade 5— 1,490 — 518 906 112 — — 3,026 
Grade 6— — — — — — — 
Grade 7— — — — — 1,055 — — 1,055 
Total$13,458 $88,406 $60,183 $10,649 $13,458 $13,142 $12,344 $— $211,640 
Residential construction
Grades 1-4$11,865 $55,257 $3,680 $152 $342 $1,313 $— $— $72,609 
Grade 5— — — — — — — — — 
Grade 6— — — 51 — — — — 51 
Grade 7— — — — — — — — — 
Total$11,865 $55,257 $3,680 $203 $342 $1,313 $— $— $72,660 
Residential first mortgage
Grades 1-4$56,685 $245,519 $141,633 $79,561 $27,590 $159,309 $1,216 $$711,517 
Grade 5— 723 524 2,012 — 1,242 — — 4,501 
Grade 6— — — 1,042 — — — — 1,042 
Grade 7— — 38 448 252 3,309 — — 4,047 
Total$56,685 $246,242 $142,195 $83,063 $27,842 $163,860 $1,216 $$721,107 
Residential junior mortgage
Grades 1-4$2,529 $3,973 $5,254 $2,876 $1,933 $3,718 $111,098 $2,164 $133,545 
Grade 5— — — — — — — — — 
Grade 6— — — — — — — — — 
Grade 7— — — 54 — 82 136 — 272 
Total$2,529 $3,973 $5,254 $2,930 $1,933 $3,800 $111,234 $2,164 $133,817 
Retail & other
Grades 1-4$3,653 $11,798 $5,886 $4,822 $1,625 $23,244 $749 $— $51,777 
Grade 5— — — — — — — — — 
Grade 6— — — — — — — — — 
Grade 7— — 22 16 61 — — 102 
Total$3,653 $11,798 $5,908 $4,825 $1,641 $23,305 $749 $— $51,879 
Total loans$307,835 $1,147,047 $684,544 $472,105 $281,364 $1,060,568 $727,684 $2,168 $4,683,315 

1621


December 31, 2020Amortized Cost Basis by Origination Year
December 31, 2021December 31, 2021Amortized Cost Basis by Origination Year
(in thousands)(in thousands)20202019201820172016PriorRevolvingRevolving to TermTOTAL(in thousands)20212020201920182017PriorRevolvingRevolving to TermTOTAL
Commercial & industrial (a)
Commercial & industrial (a)
Commercial & industrial (a)
Grades 1-4Grades 1-4$348,274 $121,989 $98,920 $72,027 $21,613 $39,454 $183,858 $$886,135 Grades 1-4$282,369 $146,131 $99,702 $69,478 $50,557 $71,247 $288,115 $— $1,007,599 
Grade 5Grade 51,416 2,239 4,486 527 1,638 4,151 18,994 33,451 Grade 51,685 1,905 4,369 5,809 4,860 2,097 8,408 — 29,133 
Grade 6Grade 669 19 735 5,315 29 32 1,923 8,122 Grade 6598 54 16 687 67 91 391 — 1,904 
Grade 7Grade 7334 1,126 1,389 663 122 3,103 2,289 9,026 Grade 7— 440 692 337 976 743 432 — 3,620 
TotalTotal$350,093 $125,373 $105,530 $78,532 $23,402 $46,740 $207,064 $$936,734 Total$284,652 $148,530 $104,779 $76,311 $56,460 $74,178 $297,346 $— $1,042,256 
Owner-occupied CREOwner-occupied CREOwner-occupied CRE
Grades 1-4Grades 1-4$90,702 $74,029 $78,013 $52,911 $45,042 $150,624 $870 $$492,191 Grades 1-4$154,578 $94,300 $105,226 $92,128 $75,583 $202,816 $6,945 $— $731,576 
Grade 5Grade 542 623 1,349 7,541 1,102 5,842 16,499 Grade 57,753 3,019 6,529 2,543 2,515 13,905 656 — 36,920 
Grade 6Grade 61,710 706 2,416 Grade 6— — 1,642 — 20 805 — — 2,467 
Grade 7Grade 72,987 675 176 835 5,521 10,194 Grade 7— 3,124 1,914 — 3,526 6,672 990 — 16,226 
TotalTotal$93,731 $75,327 $79,538 $62,997 $46,144 $162,693 $870 $$521,300 Total$162,331 $100,443 $115,311 $94,671 $81,644 $224,198 $8,591 $— $787,189 
AgriculturalAgriculturalAgricultural
Grades 1-4Grades 1-4$13,719 $5,652 $7,580 $9,745 $2,613 $32,702 $21,513 $$93,524 Grades 1-4$128,404 $87,844 $28,416 $22,887 $36,298 $86,104 $235,743 $— $625,696 
Grade 5Grade 51,034 701 169 644 6,131 356 9,035 Grade 514,796 4,183 2,391 915 3,912 48,373 26,778 — 101,348 
Grade 6Grade 6329 390 719 Grade 638 38 36 — 86 1,049 85 — 1,332 
Grade 7Grade 726 110 1,111 5,042 62 6,351 Grade 73,284 3,971 3,490 4,201 7,215 31,672 12,519 — 66,352 
TotalTotal$14,753 $5,652 $8,307 $10,353 $4,758 $43,875 $21,931 $$109,629 Total$146,522 $96,036 $34,333 $28,003 $47,511 $167,198 $275,125 $— $794,728 
CRE investmentCRE investmentCRE investment
Grades 1-4Grades 1-4$82,518 $78,841 $40,881 $69,643 $31,541 $137,048 $5,255 $$445,727 Grades 1-4$192,274 $139,127 $136,306 $56,148 $65,026 $162,991 $11,289 $— $763,161 
Grade 5Grade 547 1,284 1,828 9,073 12,232 Grade 511,081 3,001 6,497 3,945 6,726 17,527 — — 48,777 
Grade 6Grade 6796 796 Grade 6— — — — — — — — — 
Grade 7Grade 71,966 1,966 Grade 7— — 456 141 1,352 3,943 231 — 6,123 
TotalTotal$82,518 $78,841 $40,928 $71,723 $33,369 $148,087 $5,255 $$460,721 Total$203,355 $142,128 $143,259 $60,234 $73,104 $184,461 $11,520 $— $818,061 
Construction & land developmentConstruction & land developmentConstruction & land development
Grades 1-4Grades 1-4$67,578 $30,733 $15,209 $2,204 $2,083 $7,266 $3,675 $$128,748 Grades 1-4$81,891 $72,415 $12,547 $19,511 $1,184 $11,274 $10,943 $— $209,765 
Grade 5Grade 5373 660 545 23 455 2,056 Grade 5640 — 521 919 — 119 — — 2,199 
Grade 6Grade 6Grade 6— — — — — — — — — 
Grade 7Grade 7479 479 Grade 7— — — — 17 1,054 — — 1,071 
TotalTotal$67,578 $31,106 $15,869 $2,749 $2,083 $7,768 $4,130 $$131,283 Total$82,531 $72,415 $13,068 $20,430 $1,201 $12,447 $10,943 $— $213,035 
Residential constructionResidential constructionResidential construction
Grades 1-4Grades 1-4$31,687 $9,185 $395 $121 $$264 $$$41,652 Grades 1-4$58,352 $9,998 $155 $344 $1,072 $380 $— $— $70,301 
Grade 5Grade 555 55 Grade 5— — 52 — — — — — 52 
Grade 6Grade 6Grade 6— — — — — — — — — 
Grade 7Grade 7Grade 7— — — — — — — — — 
TotalTotal$31,687 $9,185 $395 $176 $$264 $$$41,707 Total$58,352 $9,998 $207 $344 $1,072 $380 $— $— $70,353 
Residential first mortgageResidential first mortgageResidential first mortgage
Grades 1-4Grades 1-4$146,744 $64,013 $40,388 $41,245 $41,274 $103,094 $287 $$437,050 Grades 1-4$256,082 $152,932 $168,705 $22,568 $20,147 $82,479 $1,840 $$704,757 
Grade 5Grade 5925 2,245 256 364 1,714 5,504 Grade 5713 529 3,094 — — 1,508 — — 5,844 
Grade 6Grade 6Grade 6— — — — — — — — — 
Grade 7Grade 7437 197 16 942 1,601 Grade 7— — 560 225 73 2,524 — — 3,382 
TotalTotal$146,744 $65,375 $42,830 $41,517 $41,647 $105,750 $287 $$444,155 Total$256,795 $153,461 $172,359 $22,793 $20,220 $86,511 $1,840 $$713,983 
Residential junior mortgageResidential junior mortgageResidential junior mortgage
Grades 1-4Grades 1-4$4,936 $4,338 $3,663 $1,060 $869 $3,131 $91,816 $1,648 $111,461 Grades 1-4$3,194 $3,139 $3,021 $1,501 $512 $1,969 $115,817 $1,426 $130,579 
Grade 5Grade 532 32 Grade 5— — 29 — — — 439 — 468 
Grade 6Grade 6Grade 6— — — — — — — — — 
Grade 7Grade 727 232 125 384 Grade 7— — 172 — 23 44 138 — 377 
TotalTotal$4,936 $4,338 $3,663 $1,087 $869 $3,395 $91,941 $1,648 $111,877 Total$3,194 $3,139 $3,222 $1,501 $535 $2,013 $116,394 $1,426 $131,424 
Retail & otherRetail & otherRetail & other
Grades 1-4Grades 1-4$8,083 $5,213 $1,942 $1,676 $752 $1,339 $12,602 $$31,607 Grades 1-4$13,676 $6,886 $5,826 $2,053 $1,882 $20,102 $275 $— $50,700 
Grade 5Grade 5Grade 5— — — — — — — — — 
Grade 6Grade 6Grade 6— — — — — — — — — 
Grade 7Grade 716 22 50 88 Grade 7— 24 19 — 62 — — 107 
TotalTotal$8,099 $5,213 $1,964 $1,676 $752 $1,389 $12,602 $$31,695 Total$13,676 $6,910 $5,828 $2,072 $1,882 $20,164 $275 $— $50,807 
Total loansTotal loans$800,139 $400,410 $299,024 $270,810 $153,024 $519,961 $344,080 $1,653 $2,789,101 Total loans$1,211,408 $733,060 $592,366 $306,359 $283,629 $771,550 $722,034 $1,430 $4,621,836 
(a) For purposes of this table, the $186 million net carrying value of PPP loans at December 31, 2020 were originated in 2020, have a Pass risk grade (Grades 1-4) and have been included with the Commercial & industrial loan category.
1722


The following tables present total loans by risk categories.
March 31, 2021March 31, 2022
(in thousands)(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total
Commercial & industrialCommercial & industrial$698,293 $25,362 $1,069 $3,774 $728,498 Commercial & industrial$1,007,873 $44,831 $7,196 $3,400 $1,063,300 
PPP loans229,403 229,403 
Owner-occupied CREOwner-occupied CRE487,272 22,100 2,636 8,266 520,274 Owner-occupied CRE742,431 30,617 5,155 16,743 794,946 
AgriculturalAgricultural92,720 8,281 6,008 107,009 Agricultural665,076 102,161 1,311 57,816 826,364 
CRE investmentCRE investment448,596 38,761 787 1,909 490,053 CRE investment746,306 55,613 697 4,986 807,602 
Construction & land developmentConstruction & land development135,295 2,033 342 137,670 Construction & land development207,558 3,026 1,055 211,640 
Residential constructionResidential construction39,532 54 39,586 Residential construction72,609 — 51 — 72,660 
Residential first mortgageResidential first mortgage448,664 6,303 1,230 456,197 Residential first mortgage711,517 4,501 1,042 4,047 721,107 
Residential junior mortgageResidential junior mortgage107,493 32 116 107,641 Residential junior mortgage133,545 — — 272 133,817 
Retail & otherRetail & other29,953 67 30,020 Retail & other51,777 — — 102 51,879 
Total loansTotal loans$2,717,221 $102,926 $4,492 $21,712 $2,846,351 Total loans$4,338,692 $240,749 $15,453 $88,421 $4,683,315 
Percent of totalPercent of total95.4 %3.6 %0.2 %0.8 %100.0 %Percent of total92.7 %5.1 %0.3 %1.9 %100.0 %
December 31, 2020December 31, 2021
(in thousands)(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total
Commercial & industrialCommercial & industrial$700,119 $33,451 $8,122 $9,026 $750,718 Commercial & industrial$1,007,599 $29,133 $1,904 $3,620 $1,042,256 
PPP loans186,016 186,016 
Owner-occupied CREOwner-occupied CRE492,191 16,499 2,416 10,194 521,300 Owner-occupied CRE731,576 36,920 2,467 16,226 787,189 
AgriculturalAgricultural93,524 9,035 719 6,351 109,629 Agricultural625,696 101,348 1,332 66,352 794,728 
CRE investmentCRE investment445,727 12,232 796 1,966 460,721 CRE investment763,161 48,777 — 6,123 818,061 
Construction & land developmentConstruction & land development128,748 2,056 479 131,283 Construction & land development209,765 2,199 — 1,071 213,035 
Residential constructionResidential construction41,652 55 41,707 Residential construction70,301 52 — — 70,353 
Residential first mortgageResidential first mortgage437,050 5,504 1,601 444,155 Residential first mortgage704,757 5,844 — 3,382 713,983 
Residential junior mortgageResidential junior mortgage111,461 32 384 111,877 Residential junior mortgage130,579 468 — 377 131,424 
Retail & otherRetail & other31,607 88 31,695 Retail & other50,700 — — 107 50,807 
Total loansTotal loans$2,668,095 $78,864 $12,053 $30,089 $2,789,101 Total loans$4,294,134 $224,741 $5,703 $97,258 $4,621,836 
Percent of totalPercent of total95.7 %2.8 %0.4 %1.1 %100.0 %Percent of total92.9 %4.9 %0.1 %2.1 %100.0 %

An internal loan review function rates loans using a grading system based on different risk categories. Loans with a Substandard grade are considered to have a greater risk of loss and may be assigned allocations for loss based on specific review of the weaknesses observed in the individual credits. Such loans are constantly 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.
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 nonaccrual loans are considered to be categorized in this rating, regardless of collateral sufficiency.
Troubled Debt Restructurings: At March 31, 2021, there were 8 loans classified as troubled debt restructurings with a current outstanding balance of $5.1 million (including $3.0 million on nonaccrual and $2.1 million performing) and pre-modification balance of $5.5 million. In comparison, at December 31, 2020, there were 11 loans classified as troubled debt
1823


Troubled Debt Restructurings:
Loans are considered troubled debt restructurings with an outstanding balanceif concessions have been granted to borrowers who are experiencing financial difficulties. The following table presents the loan composition of $5.5 million (including $3.4 million on nonaccrual and $2.1 million performing)performing TDRs.
 March 31, 2022December 31, 2021
(in thousands)PerformingNonaccrualTotalPerformingNonaccrualTotal
Commercial & industrial$— $164 $164 $— $197 $197 
Owner-occupied CRE1,714 2,792 4,506 3,466 2,888 6,354 
Agricultural— 16,442 16,442 — 16,835 16,835 
CRE investment— — — 918 — 918 
Construction & land development— 308 308 — 308 308 
Residential first mortgage— 14 14 913 15 928 
Residential junior mortgage— — — 146 — 146 
Total$1,714 $19,720 $21,434 $5,443 $20,243 $25,686 
The following table presents the number of loans modified in a TDR, pre-modification loan balance, and pre-modificationpost-modification loan balance by loan composition.
 March 31, 2022December 31, 2021
($ in thousands)Number of LoansPre-Modification BalanceCurrent BalanceNumber of LoansPre-Modification BalanceCurrent Balance
Commercial & industrial$200 $164 $200 $197 
Owner-occupied CRE5,138 4,506 6,913 6,354 
Agricultural31 17,228 16,442 31 17,228 16,835 
CRE investment— — — 919 918 
Construction & land development533 308 533 308 
Residential first mortgage17 14 931 928 
Residential junior mortgage— — — 166 146 
Total40 $23,116 $21,434 44 $26,890 $25,686 
TDR concessions may include payment schedule modifications, interest rate concessions, maturity date extensions, bankruptcies, or some combination of $6.5 million.these concessions. There were 0no loans which were classified as troubled debt restructurings during the previous twelve months that subsequently defaulted during the three months ended2021 or through March 31, 2021.2022. As of March 31, 2021,2022, there were no commitments to lend additional funds to debtors whose terms have been modified in troubled debt restructurings.

Note 7 – Goodwill and Other Intangibles and Mortgage Servicing Rights
Management periodically reviews the carrying value of its 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 would impact 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. Management continues to consider the ongoing impacts of the COVID-19 pandemic and relatedmonitor economic uncertaintyfactors for potential impairment indications on the valuation of our franchise, stability of deposits, and of the wealth client base, underlying our goodwill, core deposit intangible, and customer list intangibles, and determined no impairments were indicated. A summary of goodwill and other intangibles was as follows.
Three Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
GoodwillGoodwill$163,151 $163,151 Goodwill$317,189 $317,189 
Core deposit intangiblesCore deposit intangibles8,112 8,837 Core deposit intangibles18,148 19,445 
Customer list intangiblesCustomer list intangibles3,238 3,365 Customer list intangibles2,731 2,858 
Other intangibles Other intangibles11,350 12,202  Other intangibles20,879 22,303 
Goodwill and other intangibles, netGoodwill and other intangibles, net$174,501 $175,353 Goodwill and other intangibles, net$338,068 $339,492 
24


Goodwill: A summary of goodwill was as follows. During 2020,2021, goodwill increased due to the Advantage acquisition.acquisitions of Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.
Three Months EndedYear EndedThree Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Goodwill:Goodwill:Goodwill:
Goodwill at beginning of yearGoodwill at beginning of year$163,151 $151,198 Goodwill at beginning of year$317,189 $163,151 
Acquisition11,953 
AcquisitionsAcquisitions— 154,038 
Goodwill at end of periodGoodwill at end of period$163,151 $163,151 Goodwill at end of period$317,189 $317,189 
Other intangible assets: Other intangible assets, consisting of core deposit intangibles and customer list intangibles, are amortized over their estimated finite lives. A summary of other intangible assets was as follows. During 2020,2021, core deposit intangibles increased due to the Advantage acquisition.acquisitions of Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.
Three Months EndedYear EndedThree Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Core deposit intangibles:Core deposit intangibles:Core deposit intangibles:
Gross carrying amountGross carrying amount$31,715 $31,715 Gross carrying amount$41,360 $41,360 
Accumulated amortizationAccumulated amortization(23,603)(22,878)Accumulated amortization(23,212)(21,915)
Net book valueNet book value$8,112 $8,837 Net book value$18,148 $19,445 
Additions during the periodAdditions during the period$$1,000 Additions during the period$— $13,595 
Amortization during the periodAmortization during the period$725 $3,060 Amortization during the period$1,297 $2,987 
Customer list intangibles:Customer list intangibles:Customer list intangibles:
Gross carrying amountGross carrying amount$5,523 $5,523 Gross carrying amount$5,523 $5,523 
Accumulated amortizationAccumulated amortization(2,285)(2,158)Accumulated amortization(2,792)(2,665)
Net book valueNet book value$3,238 $3,365 Net book value$2,731 $2,858 
Amortization during the periodAmortization during the period$127 $507 Amortization during the period$127 $507 
Mortgage servicing rights (“MSR”): 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
19


of accumulated amortization, or estimated fair value, and are included in other assets in the consolidated balance sheets. A summary of the changes in the mortgage servicing rights asset was as follows.
Three Months EndedYear EndedThree Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Mortgage servicing rights ("MSR") asset:
Mortgage servicing rights asset:Mortgage servicing rights asset:
MSR asset at beginning of yearMSR asset at beginning of year$10,230 $5,919 MSR asset at beginning of year$13,636 $10,230 
Capitalized MSRCapitalized MSR1,117 5,256 Capitalized MSR886 4,329 
MSR asset acquiredMSR asset acquired529 MSR asset acquired— 1,322 
Amortization during the periodAmortization during the period(496)(1,474)Amortization during the period(696)(2,245)
MSR asset at end of periodMSR asset at end of period$10,851 $10,230 MSR asset at end of period$13,826 $13,636 
Valuation allowance at beginning of yearValuation allowance at beginning of year$(1,000)$Valuation allowance at beginning of year$(1,200)$(1,000)
AdditionsAdditions(500)(1,000)Additions— (500)
ReversalsReversals600 300 
Valuation allowance at end of periodValuation allowance at end of period$(1,500)$(1,000)Valuation allowance at end of period$(600)$(1,200)
MSR asset, netMSR asset, net$9,351 $9,230 MSR asset, net$13,226 $12,436 
Fair value of MSR asset at end of periodFair value of MSR asset at end of period$10,550 $9,276 Fair value of MSR asset at end of period$16,621 $15,599 
Residential mortgage loans serviced for othersResidential mortgage loans serviced for others$1,293,845 $1,250,206 Residential mortgage loans serviced for others$1,593,010 $1,583,577 
Net book value of MSR asset to loans serviced for othersNet book value of MSR asset to loans serviced for others0.72 %0.74 %Net book value of MSR asset to loans serviced for others0.83 %0.79 %
The Company periodically evaluates its mortgage servicing rights asset for impairment. At each reporting date, impairment is assessed based on estimated fair value using estimated prepayment speeds of the underlying mortgage loans serviced and stratification based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). See Note 9 for additional information on the fair value of the MSR asset.
Loan servicing rights (“LSR”): The Company acquired an LSR asset in connection with its acquisition of County on December 3, 2021 (see Note 2 for additional information on the County acquisition). The LSR asset was $18 million at March 31, 2022, and related to approximately $743 million of unpaid principal balances of loans serviced for others. The LSR asset will be
25


amortized on an accelerated basis over the estimated remaining loan service period as the Company does not expect to add new loans to this servicing portfolio. See Note 9 for additional information on the fair value of the LSR asset.
The following table shows the estimated future amortization expense for amortizing intangible assets and the MSR asset.servicing assets. The projections are based on existing asset balances, the current interest rate environment and prepayment speeds as of March 31, 2021.2022. The actual amortization expense the Company recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements and events or circumstances that indicate the carrying amount of an asset may not be recoverable.
(in thousands)(in thousands)Core deposit
intangibles
Customer list
intangibles
MSR asset(in thousands)Core deposit
intangibles
Customer list
intangibles
MSR assetLSR asset
Year ending December 31,Year ending December 31,Year ending December 31,
2021 (remaining nine months)$1,918 $380 $1,381 
20222,150 507 1,869 
2022 (remaining nine months)2022 (remaining nine months)$3,520 $380 $1,777 $6,512 
202320231,633 483 1,773 20233,910 483 2,605 6,345 
202420241,130 449 1,448 20243,135 449 2,499 3,673 
20252025670 449 961 20252,385 449 1,719 1,020 
20262026317 249 960 20261,659 249 1,277 — 
202720271,346 166 1,277 — 
ThereafterThereafter294 721 2,459 Thereafter2,193 555 2,672 — 
TotalTotal$8,112 $3,238 $10,851 Total$18,148 $2,731 $13,826 $17,550 

Note 8 – Short and Long-Term Borrowings
Short-Term Borrowings:
Short-term borrowings include any borrowing with an original maturity of one year or less. At both March 31, 20212022 and December 31, 2020,2021, the Company did 0tnot have any outstanding short-term borrowings.
Long-Term Borrowings:
Long-term borrowings include any borrowing with an original maturity greater than one year. The components of long-term borrowings were as follows.
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
FHLB advancesFHLB advances$19,000 $29,000 FHLB advances$15,000 $25,000 
Junior subordinated debenturesJunior subordinated debentures24,988 24,869 Junior subordinated debentures39,101 38,885 
Subordinated notesSubordinated notes152,845 153,030 
Total long-term borrowingsTotal long-term borrowings$43,988 $53,869 Total long-term borrowings$206,946 $216,915 
FHLB Advances: The FHLBFederal Home Loan Bank (“FHLB”) advances bear fixed rates, require interest-only monthly payments, and have maturity dates through March 2027.2025. The weighted average rate of the FHLB advances was 0.78%0.52% at March 31, 20212022 and 0.73%0.59% at December 31, 2020.2021.
20


Junior Subordinated Debentures: The following table shows Each of the breakdown of junior subordinated debentures.debentures was issued to an underlying statutory trust (the “statutory trusts”), which issued trust preferred securities and common securities and used the proceeds from the issuance of the common and the trust preferred securities 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. 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 debentures.debenture. All the junior subordinated debentures below are currently callable and may be redeemed in part or in full, at par, plus any accrued but unpaid interest. At both March 31, 20212022 and December 31, 2020, $24.02021, approximately $37 million and $23.9 million, respectively,of trust preferred securities qualify as Tier 1 capital.
Junior Subordinated Debentures
March 31, 2021December 31, 2020
(in thousands)Maturity
Date
ParUnamortized
Discount
Carrying
Value
Carrying
Value
2005 Mid-Wisconsin Financial Services, Inc. (1)
12/15/2035$10,310 $(2,923)$7,387 $7,338 
2006 Baylake Corp. (2)
9/30/203616,598 (3,588)13,010 12,951 
2004 First Menasha Bancshares, Inc. (3)
3/17/20345,155 (564)4,591 4,580 
Total $32,063 $(7,075)$24,988 $24,869 

(1)Subordinated Notes (the “Notes”): In July 2021, the Company completed the private placement of $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 2031 are redeemable beginning July 15, 2026 and quarterly thereafter on any interest payment date.
In December 2021, Nicolet assumed two subordinated note issuances at a premium as the result of the County acquisition. One issuance was $30 million in fixed-to-floating rate subordinated notes due in 2028, with a fixed annual interest rate of 5.875%
26


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 redeemable beginning June 1, 2023, and quarterly thereafter on any interest payment date, while the Notes due in 2030 are redeemable beginning June 30, 2025, and quarterly thereafter on any interest payment date. All Notes qualify as Tier 2 capital for regulatory purposes.
The following table shows the breakdown of junior subordinated debentures and subordinated notes.
As of March 31, 2022As of December 31, 2021
(in thousands)Maturity
Date
Interest
 Rate
Par

Unamortized Premium /(Discount) / Debt Issue Costs (1)

Carrying
Value
Interest
 Rate

Carrying
Value
Junior Subordinated Debentures:
Mid-Wisconsin Statutory Trust I (2)
12/15/20352.26 %$10,310 $(2,724)$7,586 1.63 %$7,537 
Baylake Capital Trust II (3)
9/30/20362.35 %16,598 (3,351)13,247 1.57 %13,187 
First Menasha Statutory Trust (4)
3/17/20343.71 %5,155 (520)4,635 3.01 %4,624 
County Bancorp Statutory Trust II (5)
9/15/20352.36 %6,186 (1,081)5,105 1.73 %5,061 
County Bancorp Statutory Trust III (6)
6/15/20362.52 %6,186 (1,023)5,163 1.89 %5,121 
Fox River Valley Capital Trust (7)
5/30/20336.40 %3,610 (245)3,365 6.40 %3,355 
Total$48,045 $(8,944)$39,101 $38,885 
Subordinated Notes:
Subordinated Notes due 20317/15/20313.13 %$100,000 $(890)$99,110 3.13 %$99,057 
County Subordinated Notes due 20286/1/20285.88 %30,000 341 30,341 5.88 %30,402 
County Subordinated Notes due 20306/30/20307.00 %22,400 994 23,394 7.00 %23,571 
Total$152,400 $445 $152,845 $153,030 
(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 the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rates were 1.61% and 1.65% as of March 31, 2021 and December 31, 2020, respectively.
(2)(3) The debentures, assumed in April 2016 as a result of an acquisition, have a floating rate of the three-month LIBOR plus 1.35%, adjusted quarterly. The interest rates were 1.55% and 1.59% as of March 31, 2021 and December 31, 2020, respectively.
(3)(4) The debentures, assumed in April 2017 as the result of an acquisition, have a floating rate of the three-month LIBOR plus 2.79%, adjusted quarterly.
(5) The interest rates were 2.97% and 3.02%debentures, assumed in December 2021 as the result of March 31,an acquisition, have a floating rate of three-month LIBOR plus 1.53%, adjusted quarterly.
(6) The debentures, assumed in December 2021 andas the result of an acquisition, have a floating rate of three-month LIBOR plus 1.69%, adjusted quarterly.
(7) The debentures, assumed in December 31, 2020, respectively.2021 as the result of an acquisition, have a floating rate of 5-year LIBOR plus 3.40%, which resets every five years.

Note 9 – 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.
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. TheseObservable 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
Level 2 – inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or 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
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 assessment of the significance of an input requires management judgment.
2127


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.
(in thousands)(in thousands)Fair Value Measurements Using(in thousands)Fair Value Measurements Using
Measured at Fair Value on a Recurring Basis:Measured at Fair Value on a Recurring Basis:TotalLevel 1Level 2Level 3Measured at Fair Value on a Recurring Basis:TotalLevel 1Level 2Level 3
March 31, 2021
March 31, 2022March 31, 2022
U.S. government agency securitiesU.S. government agency securities$79,115 $$79,115 $U.S. government agency securities$186,323 $— $186,323 $— 
State, county and municipalsState, county and municipals227,672 227,672 State, county and municipals288,708 — 286,354 2,354 
Mortgage-backed securitiesMortgage-backed securities166,900 166,900 Mortgage-backed securities243,604 — 242,609 995 
Corporate debt securitiesCorporate debt securities84,542 81,412 3,130 Corporate debt securities133,696 — 129,055 4,641 
Securities AFSSecurities AFS$558,229 $$555,099 $3,130 Securities AFS$852,331 $— $844,341 $7,990 
Other investments (equity securities)Other investments (equity securities)$4,190 $4,190 $$Other investments (equity securities)$6,081 $6,081 $— $— 
December 31, 2020
Derivative assetsDerivative assets387 — 387 — 
Derivative liabilitiesDerivative liabilities387 — 387 — 
December 31, 2021December 31, 2021
U.S. government agency securitiesU.S. government agency securities$63,451 $$63,451 $U.S. government agency securities$191,277 $— $191,277 $— 
State, county and municipalsState, county and municipals231,868 231,868 State, county and municipals312,737 — 310,316 2,421 
Mortgage-backed securitiesMortgage-backed securities162,495 162,495 Mortgage-backed securities271,262 — 270,260 1,002 
Corporate debt securitiesCorporate debt securities81,523 78,393 3,130 Corporate debt securities146,385 — 141,743 4,642 
Securities AFSSecurities AFS$539,337 $$536,207 $3,130 Securities AFS$921,661 $— $913,596 $8,065 
Other investments (equity securities)Other investments (equity securities)$3,567 $3,567 $$Other investments (equity securities)$5,660 $5,660 $— $— 
Derivative assetsDerivative assets1,064 — 1,064 — 
Derivative liabilitiesDerivative liabilities1,064 — 1,064 — 
The following is a description of the valuation methodologies used by the Company for the securities AFSassets and equity securitiesliabilities measured at fair value on a recurring basis, noted in the tables above. Where quoted market prices on securities exchanges are available, the investments are classified as Level 1. Level 1 investments primarily include exchange-traded equity 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 U.S. government agency securities, mortgage-backed securities, obligations of state, county and 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 corporate debt securities, which includeare primarily trust preferred security investments.investments, as well as certain municipal bonds and mortgage-backed securities. At March 31, 20212022 and December 31, 2020,2021, it was determined that carrying value was the best approximation of fair value for these Level 3 securities, based primarily on the internal analysis on these securities. The fair value of the derivative assets and liabilities is determined using a discounted cash flow analysis of the expected cash flows of each derivative, which considers the contractual terms of the underlying derivative financial instrument and observable market-based inputs, such as interest rate curves.
ForThe following table presents the three months ended March 31, 2021 and the year ended December 31, 2020, there have been no changes in the Level 3 securities AFS measured at fair value on a recurring basis.
Three Months EndedYear Ended
Level 3 Fair Value Measurements:March 31, 2022December 31, 2021
Balance at beginning of year$8,065 $3,130 
Acquired balance— 4,935 
Unrealized gain / (loss)(75)— 
Balance at end of period$7,990 $8,065 
28


Nonrecurring basis fair value measurements:
The following table presents the Company’s assets measured at fair value on a nonrecurring basis, aggregated by level in the fair value hierarchy within which those measurements fall.
(in thousands)(in thousands)Fair Value Measurements Using(in thousands)Fair Value Measurements Using
Measured at Fair Value on a Nonrecurring Basis:Measured at Fair Value on a Nonrecurring Basis:TotalLevel 1Level 2Level 3Measured at Fair Value on a Nonrecurring Basis:TotalLevel 1Level 2Level 3
March 31, 2021
March 31, 2022March 31, 2022
Collateral dependent loansCollateral dependent loans$8,399 $$$8,399 Collateral dependent loans$34,737 $— $— $34,737 
Other real estate owned (“OREO”)Other real estate owned (“OREO”)3,797 3,797 Other real estate owned (“OREO”)9,816 — — 9,816 
MSR assetMSR asset10,550 10,550 MSR asset13,226 — — 13,226 
December 31, 2020
LSR assetLSR asset17,550 — — 17,550 
December 31, 2021December 31, 2021
Collateral dependent loansCollateral dependent loans$7,633 $$$7,633 Collateral dependent loans$36,230 $— $— $36,230 
OREOOREO3,608 3,608 OREO11,955 — — 11,955 
MSR assetMSR asset9,276 9,276 MSR asset12,436 — — 12,436 
LSR assetLSR asset20,055 — — 20,055 
The following is a description of the valuation methodologies used by the Company for the items noted in the table above. For collateral dependent loans, the estimated fair value is based upon the present value of expected credit losses are based onfuture cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral.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. 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
22


valuation model is used to calculate the present value of the expected future cash flows for each stratum. The fair value of the LSR asset is determined by stratifying the rights into tranches based on the predominant characteristics, such as interest rate, loan type, and investor type, and a valuation model incorporatesis used to calculate the present value of the expected future cash flows for each tranche. The servicing valuation models incorporate assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, ancillary income, default rates and losses, and prepayment speeds. Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value.
Financial instruments:
The carrying amounts and estimated fair values of the Company’s financial instruments are shown below.
March 31, 2021
(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$735,854 $735,854 $735,854 $$
Certificates of deposit in other banks27,296 28,320 28,320 
Securities AFS558,229 558,229 555,099 3,130 
Other investments, including equity securities28,248 28,248 4,190 20,074 3,984 
Loans held for sale16,883 17,383 17,383 
Loans, net2,813,725 2,861,528 2,861,528 
BOLI83,788 83,788 83,788 
MSR asset9,351 10,550 10,550 
Financial liabilities:
Deposits$3,900,594 $3,906,058 $$$3,906,058 
Long-term borrowings43,988 43,750 19,261 24,489 
December 31, 2020
(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$802,859 $802,859 $802,859 $$
Certificates of deposit in other banks29,521 31,053 31,053 
Securities AFS539,337 539,337 536,207 3,130 
Other investments, including equity securities27,619 27,619 3,567 20,155 3,897 
Loans held for sale21,450 22,329 22,329 
Loans, net2,756,928 2,834,452 2,834,452 
BOLI83,262 83,262 83,262 
MSR asset9,230 9,276 9,276 
Financial liabilities:
Deposits$3,910,399 $3,917,121 $$$3,917,121 
Long-term borrowings53,869 53,859 29,488 24,371 
The carrying value of certain assets and liabilities such as cash and cash equivalents, BOLI, nonmaturing deposits, and short-term borrowings, approximate their estimated fair value. For those financial instruments not previously disclosed, the following is a description of the valuation 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.
Other investments: The valuation methodologies utilized for exchange-traded equity securities are discussed under “Recurring basis fair value measurements” above. The carrying amount of Federal Reserve Bank 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.
March 31, 2022
(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$395,923 $395,923 $395,923 $— $— 
Certificates of deposit in other banks19,692 19,801 — 19,801 — 
Securities AFS852,331 852,331 — 844,341 7,990 
Securities HTM684,991 652,056 — 652,056 — 
Other investments, including equity securities54,257 54,257 6,081 39,383 8,793 
Loans held for sale9,764 9,886 — 9,886 — 
Loans, net4,633,409 4,548,241 — — 4,548,241 
MSR asset13,226 16,621 — — 16,621 
LSR asset17,550 17,550 — — 17,550 
Accrued interest receivable15,908 15,908 15,908 — — 
Financial liabilities:
Deposits$6,231,120 $6,214,808 $— $— $6,214,808 
Long-term borrowings206,946 205,995 — 15,001 190,994 
Accrued interest payable2,852 2,852 2,852 — — 
2329


Loans held
December 31, 2021
(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:
Cash and cash equivalents$595,292 $595,292 $595,292 $— $— 
Certificates of deposit in other banks21,920 22,236 — 22,236 — 
Securities AFS921,661 921,661 — 913,596 8,065 
Securities HTM651,803 648,394 — 648,394 — 
Other investments, including equity securities44,008 44,008 5,660 32,110 6,238 
Loans held for sale6,447 6,616 — 6,616 — 
Loans, net4,572,164 4,606,851 — — 4,606,851 
MSR asset12,436 15,599 — — 15,599 
LSR asset20,055 20,055 — — 20,055 
Accrued interest receivable15,277 15,277 15,277 — — 
Financial liabilities:
Deposits$6,465,916 $6,463,064 $— $— $6,463,064 
Long-term borrowings216,915 216,092 — 25,097 190,995 
Accrued interest payable3,078 3,078 3,078 — — 
The valuation methodologies 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.
Deposits: The fair value of deposits with no stated maturity (such as demand deposits, savings, interest and noninterest 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.
Long-term borrowings: The fair value of the FHLB advances is obtained from the FHLB 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 value of the junior subordinated debentures utilizes 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.
Lending-related commitments and derivative financial instruments: At March 31, 2021 and December 31, 2020, the estimated fair value of letters of credit, interest rate lock commitments on residential mortgage loans, outstanding mandatory commitments to sell residential mortgage loans into the secondary market, and mirror interest rate swap agreements 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 valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the financial instruments or other factors. Those techniquesdisclosed in the above table are significantly affected bydescribed in Note 18, Fair Value Measurements, in the assumptions used, includingCompany’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, 2021.

Note 10 – Subsequent EventOther Assets and Other Liabilities Held for Sale
On April 12,September 7, 2021, Nicolet entered into a definitive merger agreementPurchase and Assumption Agreement (the “Birmingham Agreement”) with Mackinac Financial Corporation (“Mackinac”) pursuantBank of Ann Arbor to which Mackinac will mergesell Nicolet’s Birmingham, Michigan branch, including legacy mBank’s asset-based lending team (the “Birmingham Sale”). Pursuant to the terms of the Birmingham Agreement, Bank of Ann Arbor agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, personal property and other fixed assets associated with the Birmingham branch. The combined loan and into Nicolet, expanding Nicolet prominently into Northern Michigandeposit balances of the Birmingham branch (excluding certain loans and the Upper Peninsula of Michigan. Mackinac shareholders will receive fixed consideration of 0.22 shares of Nicolet common stock and $4.64 in cash for each share of Mackinac common stock owned (approximating a 20% cash and 80% stock split),deposits not subject to provisions provided for in the merger agreement. AtBirmingham Agreement) were approximately $199 million and $51 million, respectively, as of December 31, 2020, Mackinac had total assets of $1.5 billion, loans of $1.1 billion, deposits of $1.3 billion, and equity of $168 million.2021. The merger is expected to close in the third quarter of 2021, subject to customary closing conditions, including approval by regulators and shareholders of both Mackinac and Nicolet.Birmingham Sale closed on January 21, 2022.
2430


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. Nicolet provides a diversified range of traditional banking and wealth management services to individuals and businesses in its market area and through the branch offices of its banking subsidiary, Nicolet National Bank (the “Bank”), in northeasternNortheast and centralCentral Wisconsin, Northern Michigan and in Menominee,the upper peninsula of Michigan. In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, all references to “we,” “us” and “our” refer to the 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 inimplied 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. Thesewhether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s 2021 Annual Report on Form 10-K include, but are not necessarily limited to the following:
the magnitude and duration of the COVID-19 pandemic and its continuing effects on our business (including the effectsdiversion of the COVID-19 pandemic onmanagement time and resources) as well as the business, customers, employees and third-party service providers of Nicolet or any of its acquisition targets, including Mackinac;targets;
operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;
economic, market, political and competitive forces affecting Nicolet’s banking and wealth management businesses;
changes in interest rates, monetary policy and general economic conditions, which may impact Nicolet’s net interest income;
potential difficulties in identifying and integrating the risk that the proposedoperations of future acquisition targets with those of Mackinac will not be consummated or will not meet Nicolet’s expectations regarding the timing of the proposed acquisition;Nicolet;
diversionthe impact of management time on pandemic-relatedpurchase accounting with respect to our merger activities, or acquisition-related issues;any change in the assumptions used regarding the assets purchased and liabilities assumed to determine their fair value;
adoptioncybersecurity risks and the vulnerability of new accounting standards, includingour network and online banking portals, and the effects from the adoption of the CECL model on January 1, 2020,systems or changes in existing standards;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 to statutes, regulations, or regulatory policies or practices resulting fromin accounting standards, rules and interpretations and the COVID-19 pandemic;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 consumer demandmonetary and tax policies;
changes occurring in business conditions and inflation;
our ability to attract and retain key personnel;
examinations by our regulatory authorities, including the possibility that the regulatory authorities may, among other things, require us to increase our allowance for credit losses, write-down assets, or take other actions;
risks associated with actual or potential information gatherings, investigations or legal proceedings by customers, regulatory agencies or others;
the potential effects of events beyond our control that may have a destabilizing effect on financial services;markets and the economy, such as weather events, natural disasters, epidemics and pandemics (including COVID-19), war or terrorist activities, disruptions in our customers’ supply chains, disruptions in transportation, essential utility outages or trade disputes and related tariffs;
each of the factors and risks under Item 1A, “Risk Factors” of Nicolet’s 2021 Annual Report on Form 10-K and in subsequent filings we make with the SEC; and
risks related to our proposed merger with Charter Bankshares, Inc. (“Charter”), including:
possible negative impact on our stock price and future business and financial results;
31


uncertainties while the merger is pending which could have a negative effect;
the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Charter Merger Agreement;
unexpected costs associated with the merger;
diversion of management’s attention from ongoing business operations and opportunities;
possible inability to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all;
failure to receive or satisfy required regulatory, shareholder or other approvals, consents, waivers and/or non-objections or other conditions to the closing, or receipt of required regulatory approvals with adverse conditions;
the impact of, or problems arising from the integration of the two companies;
the outcome of litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;
potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger; and
current or future adverse legislation or regulation.
the risk that Nicolet’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements. Nicolet specifically disclaims any obligation to update factors or to publicly announce the results of revisions to any of the forward-looking statements or comments included herein to reflect future events or developments.

Overview
The following discussion is management’s analysis of the consolidated financial condition as of March 31, 20212022 and December 31, 20202021 and results of operations for the three-month periods ended March 31, 20212022 and 2020.2021. It should be read in conjunction with Nicolet’s audited consolidated financial statements included in Nicolet’s 2021 Annual Report on Form 10-K for the year ended December 31, 2020.10-K.

TheOur financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s acquisitionour 2021 acquisitions of Advantage Community Bancshares, Inc.Mackinac Financial Corporation (“Advantage”Mackinac”) on August 21, 2020, at 4% of then pre-merger assets, impacts financial comparisons.September 3, 2021 and County Bancorp, Inc. (“County”) on December 3, 2021. Certain income statement results, average balances and related ratios for the three-month period ended March 31, 2021 include full contributionpartial contributions from Advantage, whileMackinac and County, each from the same periodrespective acquisition date. Additional information on our 2021 acquisition activity is included in 2020 includes no contribution from Advantage.Note 2, “Acquisitions” in the Notes to Unaudited Consolidated Financial Statements, under Part I, Item 1.

Proposed Merger with Charter
On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”), a bank holding company headquartered in Eau Claire, Wisconsin, with total assets of $1.1 billion at December 31, 2021. The initial impactsmerger is expected to close in the third quarter of 2022, subject to customary closing conditions, including approval by regulators. Under the terms of the COVID-19 pandemic (declared in March 2020) resulted in, among other things,Charter Merger Agreement, each outstanding share of Charter common stock will be converted into the right to receive 15.458 shares of Nicolet common stock and global markets decline, disruption$475 in businesscash. As a result, we expect to issue approximately 1.26 million shares of Nicolet common stock and leisure activities as nation-wide stay-at-home orders were mandated, significant strain on$38.8 million in cash for the health care industry as it addressed the severityacquisition of the health crisis, and shifts in the general economy (such as high unemployment, negative GDP expectations, an immediate 150 bps decline in Federal funds rates, and unprecedented government stimulus), triggering a 2020 recession. The dramatic events surrounding the pandemic, fluctuating social andCharter.


2532


economic changes since the onset of the pandemic, and uncertainty about the longevity of the pandemic’s affects were significant and unfolding throughout most of 2020, but have abated somewhat for 2021 as people and businesses were supported by government stimulus and are adjusting to a vaccination rollout and a new normal in a still evolving environment.

Amid the uncertainty, in 2020 Nicolet increased liquidity, increased the credit loss provision, took significant safety measures for customers and employees, improved efficiencies (including seven net branch closures) and automation, and returned fully on site by June 2020, operating safely to serve and meet the needs of customers in the challenging environment, including advising clients about their finances and wealth in a volatile climate, closing significant volumes of mortgages for retail customers purchasing new homes or refinancing, and guiding commercial customers through temporary loan modifications and/or participation in the Paycheck Protection Program (“PPP”). The main themes from late 2020 continued to drive results into 2021 - strong mortgage income, improved asset quality leading to lower credit provision, continued PPP loan activity (including a new round of funding), high levels of cash, and expense control, while serving our customers and communities safely on site.

At March 31, 2021, period end assets were $4.5 billion, unchanged from December 31, 2020, with a slight shift in composition. The shift in assets included a $57 million increase in loans (including $43 million from net activity in PPP loans, and $14 million increase in all other loans, mainly commercial) and a $19 million increase in securities AFS, offset by a reduction in cash and cash equivalents (down $67 million to $736 million). Total deposits of $3.9 billion at March 31, 2021, were also minimally changed from year end, with a decrease of $64 million in brokered deposits (as brokered deposits mature without renewal given our liquid position) substantially offset by a $54 million increase in customer core deposits (aided in part by additional stimulus checks and new PPP funds on deposit). Total capital was $550 million at March 31, 2021, an increase of $11 million since year end, mostly due to solid earnings, partly offset by share repurchase activity and unfavorable net fair value investment changes.

During 2020, we originated 2,725 PPP loans totaling $351 million, bearing a 1% contractual rate, and earned a $12.3 million fee. During first quarter 2021, under the latest round of the SBA’s program, Nicolet originated 1,928 PPP loans totaling $145 million and earned a $7.2 million fee. Of the total fees, $5.7 million was accreted into interest in 2020 and $3.4 million was accreted in first quarter 2021. At March 31, 2021, the net carrying value of all PPP loans was $229 million, or 8% of total loans, for a net $43 million increase over year-end 2020. SBA loan forgiveness that started in November 2020 has boosted overall borrower equity in their businesses, meaningfully improving the credit quality of many commercial relationships.

Net income for first quarter 2021 was $18.2 million, consistent with net income of $18.0 million for fourth quarter 2020 and 73% stronger than net income of $10.6 million for first quarter 2020, due to the vastly different business environment between the first quarter periods (essentially pre-pandemic for 2020 and emerging-out-of-pandemic for 2021). Between the first quarter periods, 2021 benefited from higher net interest income (largely the inclusion of PPP loans and despite tighter margins), lower credit provision (on improved asset quality levels and better visibility on credit concerns than a year ago), strong noninterest income (led by exceptionally higher net mortgage income), offset partly by higher noninterest expense (with merit increases and expense timing in personnel and modest increase in all other expenses combined) and tax expense (given the higher pretax income level).
26


Performance Summary
Table 1: Earnings Summary and Selected Financial Data
At or for the Three Months EndedAt or for the Three Months Ended
(In thousands, except per share data)(In thousands, except per share data)3/31/202112/31/20209/30/20206/30/20203/31/2020(In thousands, except per share data)3/31/202212/31/20219/30/20216/30/20213/31/2021
Results of operations:Results of operations:Results of operations:
Interest income$36,876 $38,037 $37,270 $36,892 $37,003 
Interest expense3,235 4,019 4,710 5,395 5,740 
Net interest incomeNet interest income33,641 34,018 32,560 31,497 31,263 Net interest income$53,795 $53,559 $35,184 $35,571 $33,641 
Provision for credit lossesProvision for credit losses500 1,300 3,000 3,000 3,000 Provision for credit losses300 8,400 6,000 — 500 
Net interest income after provision for credit losses33,141 32,718 29,560 28,497 28,263 
Noninterest incomeNoninterest income17,126 16,879 18,691 17,471 9,585 Noninterest income15,943 16,064 13,996 20,178 17,126 
Noninterest expenseNoninterest expense26,081 25,367 23,685 27,813 23,854 Noninterest expense37,550 39,408 33,061 30,747 26,081 
Income before income tax expenseIncome before income tax expense24,186 24,230 24,566 18,155 13,994 Income before income tax expense31,888 21,815 10,119 25,002 24,186 
Income tax expenseIncome tax expense5,947 6,145 6,434 4,576 3,321 Income tax expense7,724 5,510 2,295 6,718 5,947 
Net incomeNet income18,239 18,085 18,132 13,579 10,673 Net income$24,164 $16,305 $7,824 $18,284 $18,239 
Net income attributable to noncontrolling interest— 98 30 101 118 
Net income attributable to Nicolet Bankshares, Inc.$18,239 $17,987 $18,102 $13,478 $10,555 
Earnings per common share:Earnings per common share:     Earnings per common share:     
BasicBasic$1.82 $1.79 $1.75 $1.29 $1.00 Basic$1.77 $1.29 $0.75 $1.85 $1.82 
DilutedDiluted$1.75 $1.74 $1.72 $1.28 $0.98 Diluted$1.70 $1.25 $0.73 $1.77 $1.75 
Common Shares:Common Shares:     Common Shares:     
Basic weighted averageBasic weighted average9,998 10,074 10,349 10,417 10,516 Basic weighted average13,649 12,626 10,392 9,902 9,998 
Diluted weighted averageDiluted weighted average10,403 10,350 10,499 10,520 10,801 Diluted weighted average14,215 13,049 10,776 10,326 10,403 
Outstanding (period end)Outstanding (period end)9,988 10,011 10,196 10,424 10,408 Outstanding (period end)13,457 13,994 11,952 9,843 9,988 
Period-End Balances:Period-End Balances:     Period-End Balances:     
LoansLoans$2,846,351 $2,789,101 $2,908,793 $2,821,501 $2,607,424 Loans$4,683,315 $4,621,836 $3,533,198 $2,820,331 $2,846,351 
Allowance for credit losses - loansAllowance for credit losses - loans32,626 32,173 31,388 29,130 26,202 Allowance for credit losses - loans49,906 49,672 38,399 32,561 32,626 
Securities available-for-sale, at fair value558,229 539,337 535,351 510,809 511,860 
Goodwill and other intangibles, net174,501 175,353 176,213 164,094 164,974 
Total assetsTotal assets4,543,804 4,551,789 4,706,375 4,541,228 3,732,554 Total assets7,320,212 7,695,037 6,407,820 4,587,347 4,543,804 
DepositsDeposits3,900,594 3,910,399 3,712,808 3,537,805 3,023,466 Deposits6,231,120 6,465,916 5,428,774 3,939,022 3,900,594 
Stockholders’ equity550,046 539,189 538,068 532,033 510,971 
Stockholders’ equity (common)Stockholders’ equity (common)836,310 891,891 729,278 559,395 550,046 
Book value per common shareBook value per common share55.07 53.86 52.77 51.04 49.09 Book value per common share62.15 63.73 61.01 56.83 55.07 
Tangible book value per common share (2)
Tangible book value per common share (2)
37.60 36.34 35.49 35.30 33.24 
Tangible book value per common share (2)
37.03 39.47 38.43 39.18 37.60 
Average Balances:     
Loans$2,825,664 $2,868,827 $2,871,256 $2,823,866 $2,584,584 
Interest-earning assets4,089,603 4,091,460 4,216,106 3,917,499 3,167,505 
Goodwill and other intangibles, net174,825 175,678 169,353 164,564 165,532 
Total assets4,514,927 4,515,226 4,633,359 4,310,088 3,555,144 
Deposits3,875,205 3,793,430 3,636,260 3,403,188 2,920,071 
Interest-bearing liabilities2,764,232 2,744,578 2,933,737 2,741,199 2,218,592 
Stockholders’ equity544,541 537,920 537,826 520,177 513,558 
Financial Ratios: (1)
Financial Ratios: (1)
     
Financial Ratios: (1)
     
Return on average assetsReturn on average assets1.64 %1.58 %1.55 %1.26 %1.19 %Return on average assets1.30 %0.96 %0.59 %1.62 %1.64 %
Return on average common equityReturn on average common equity13.58 13.30 13.39 10.42 8.27 Return on average common equity11.38 8.24 5.10 13.31 13.58 
Return on average tangible common equity (2)
Return on average tangible common equity (2)
20.01 19.75 19.54 15.24 12.20 
Return on average tangible common equity (2)
18.75 13.19 7.62 19.46 20.01 
Average equity to average assets12.06 11.91 11.61 12.07 14.45 
Stockholders' equity to assets12.11 11.85 11.43 11.72 13.69 
Stockholders’ equity to assetsStockholders’ equity to assets11.42 11.59 11.38 12.19 12.11 
Tangible common equity to tangible assets (2)
Tangible common equity to tangible assets (2)
8.60 8.31 7.99 8.41 9.70 
Tangible common equity to tangible assets (2)
7.14 7.51 7.48 8.74 8.60 
Net interest margin3.31 3.29 3.06 3.21 3.94 
Net loan charge-offs to average loans0.01 0.07 0.10 0.01 0.01 
Nonperforming loans to total loans0.31 0.34 0.38 0.43 0.57 
Nonperforming assets to total assets0.28 0.29 0.25 0.29 0.42 
Effective tax rate24.59 25.36 26.19 25.21 23.73 
Reconciliation of Non-GAAP Financial Measures:Reconciliation of Non-GAAP Financial Measures:
Adjusted net income reconciliation: (3)
Adjusted net income reconciliation: (3)
Net income (GAAP)Net income (GAAP)$24,164 $16,305 $7,824 $18,284 $18,239 
Adjustments:Adjustments:
Provision expense related to mergerProvision expense related to merger— 8,400 6,000 — — 
Assets (gains) losses, netAssets (gains) losses, net(1,313)(465)1,187 (4,192)(711)
Merger-related expenseMerger-related expense98 2,202 2,793 656 — 
Branch closure expenseBranch closure expense— — 944 — — 
Adjustments subtotalAdjustments subtotal(1,215)10,137 10,924 (3,536)(711)
Tax on Adjustments (25% effective tax rate)Tax on Adjustments (25% effective tax rate)(304)2,534 2,731 (884)(178)
Adjustments, net of taxAdjustments, net of tax(911)7,603 8,193 (2,652)(533)
Adjusted net income (Non-GAAP)Adjusted net income (Non-GAAP)$23,253 $23,908 $16,017 $15,632 $17,706 
Adjusted diluted earnings per common share (Non-GAAP)Adjusted diluted earnings per common share (Non-GAAP)$1.64 $1.83 $1.49 $1.51 $1.70 
Tangible assets: (2)
Tangible assets: (2)
Total assetsTotal assets$7,320,212 $7,695,037 $6,407,820 $4,587,347 $4,543,804 
Goodwill and other intangibles, netGoodwill and other intangibles, net338,068 339,492 269,954 173,711 174,501 
Tangible assetsTangible assets$6,982,144 $7,355,545 $6,137,866 $4,413,636 $4,369,303 
Tangible common equity: (2)
Tangible common equity: (2)
Stockholders’ equity (common)Stockholders’ equity (common)$836,310 $891,891 $729,278 $559,395 $550,046 
Goodwill and other intangibles, netGoodwill and other intangibles, net338,068 339,492 269,954 173,711 174,501 
Tangible common equityTangible common equity$498,242 $552,399 $459,324 $385,684 $375,545 
Tangible average common equity: (2)
Tangible average common equity: (2)
Average stockholders’ equity (common)Average stockholders’ equity (common)$861,319 $784,666 $608,946 $550,974 $544,541 
Average goodwill and other intangibles, netAverage goodwill and other intangibles, net338,694 294,051 201,748 174,026 174,825 
Average tangible common equityAverage tangible common equity$522,625 $490,615 $407,198 $376,948 $369,716 
(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 they are consideredmanagement considers them to be importantuseful 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 measure is a non-GAAP financial measure that provides information that management believes is useful to investors in understanding our operating performance and trends and also aids investors in the comparison of our financial performance to the financial performance of peer banks. See section “Non-GAAP Financial Measures” below.
33



Non-GAAP Financial Measures
We identify “tangible book value per common share,” “return on average tangible common equity,” “tangible common equity to tangible assets” “adjusted net income,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the SEC’s rules, we identify certain financial measures as non-GAAP financial measures if such financial measures exclude or include amounts in the most directly comparable measures calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in effect in the United States in our statements of income, balance sheets or statements of cash flows. Non-GAAP financial measures do not include operating and other statistical measures, ratios or statistical measures calculated using exclusively financial measures calculated in accordance with GAAP.
Management believes that the presentation of these non-GAAP financial measures (a) are important metrics used to analyze and evaluate our financial condition and capital strength especially when comparing Nicoletand provide important supplemental information that contributes to non-acquisitivea 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 institutions.performance to the financial performance of our peers and to evaluate our performance in a manner similar to management, the financial services industry, bank stock analysts, and bank regulators. Management uses non-GAAP measures as follows: in the preparation of our operating budgets, monthly financial performance reporting, and in our 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 the table above.

Performance Summary
Net income was $18.2$24 million for the three months ended March 31, 2022, compared to $16 million for the three months ended December 31, 2021 an increase of $7.6 million (73%) over $10.6and $18 million for the three months ended March 31, 2020.2021. Earnings per diluted common share was $1.70 for first quarter 2022, compared to $1.25 for fourth quarter 2021 and $1.75 for first quarter 2021, compared to
27


$0.98 for first quarter 2020, with earnings up 73% and diluted weighted average shares down 4%.2021. Annualized return on average assets for the comparable first quarters of 2021was 1.30%, 0.96% and 2020 was 1.64% and 1.19%, respectively. The underlying financial results were sound for first quarter 2022, fourth quarter 2021 reflecting disciplined deposit pricing and a steepening yield curve, though largely offset by continued lower earning asset yieldsfirst quarter 2021 respectively. Our performance in this low rate environment. Mortgage has been strong, with the low rate environment boosting refinancing activity, while the provision for credit losses has been reflective offirst quarter 2022 reflects our continued pristine asset quality.focus on relationships rather than transactions and all revenue lines working together to serve our customers.
At March 31, 2021,2022, assets were $4.5$7.3 billion, unchangeda decrease of $375 million (5%) from December 31, 20202021, including $200 million of assets related to the sale of the Birmingham branch in January 2022, as well as lower cash and $811 million (22%) higher thancash equivalents from the decline in deposits. Compared to March 31, 2020. The increase since March 2020 is2021, assets increased $2.8 billion (61%) largely due to the steady growth in core deposits coming from customers holding funds from government stimulus (both payments to individualsacquisitions of Mackinac and PPP loan proceeds held by businesses).County.
At March 31, 2021,2022, loans were $2.8$4.7 billion, an increase of $57$61 million (2%) overfrom December 31, 20202021, due to growth in the loan portfolio (up $77 million or 6.8% annualized, primarily in agricultural and $239 million (9%) higher thancommercial and industrial loans), partly offset by continued reductions in PPP loans from loan forgiveness (down $16 million). Compared to March 31, 2020 (partly2021, loans increased $1.8 billion (65%), largely due to the $88 million of loans acquired with Advantage in August 2020). QuarterlyMackinac and County acquisitions. Quarter average loans contracted $43grew $736 million (2%(19%) fromover fourth quarter 2020, but2021 and grew $241 million (9%$1.9 billion (66%) over first quarter 2020.2021. For additional information regarding loans, see “BALANCE SHEET ANALYSIS — Loans.”
Total deposits were $3.9$6.2 billion at March 31, 2021,2022, down slightly ($10 million)$235 million from December 31, 2020 (with brokered2021, due to the repricing of acquired deposits down $64 million, as brokered deposits procured during our liquidity actions in March 2020 mature without renewal, and customer core deposits up $54 million, from individual stimulus and new PPP funds on deposit) and $877 million (29%) higher thanto current market rates. Compared to March 31, 2020 (largely2021, deposits increased $2.3 billion (60%), largely due to steady increases in customer balances from government stimulus, the $141 million of deposits acquired with Advantage in August 2020,Mackinac and the March 2020 liquidity actions noted above). QuarterlyCounty acquisitions. Quarter average deposits grew $82$638 million (2%(11%) over fourth quarter 20202021 and grew $955 million (33%$2.5 billion (65%) over first quarter 2020.2021. For additional information regarding deposits, see “BALANCE SHEET ANALYSIS – Deposits.”
Comparatively, short-term interest rates have remained unchanged since March 2020, while the yield curve has begun to steepen mainly since year end 2020. The net interest margin was 3.31%3.23% for first quarter 2021, 632022, 8 bps lower than the comparable 20202021 period, with the earning asset yield down 10315 bps, the cost of funds favorably lower 5712 bps, and the net free funds unfavorably lower 175 bps. Net interest income increased $2.4$20.2 million (8%(60%) over first quarter 2020, benefiting predominantly from favorable deposit rate changes (largely2021, largely due to the lower rate environment) withacquisitions of Mackinac and County during the impactsecond half of lower earning asset yields offset largely by PPP income.2021. For additional information regarding net interest income, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”
Noninterest income excluding net asset gains grew $6.2was $15.9 million (60%) overfor first quarter 2020, with net mortgage income, trust services fee income, brokerage fee income and other income up year-over-year on2022, a recovering economy.decrease of $1.2 million (7%) compared to $17.1 million for first quarter 2021. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”
Noninterest expense increased $2.2was $37.6 million (9%for first quarter 2022, an increase of $11.5 million (44%) over first quarter 2020, in part from elevated personnel2021. Personnel costs increased data processing and heightened professional fees related$6.1 million (40%), while non-personnel expenses combined increased $5.4 million (49%) compared to the proposed acquisition of Mackinac.first quarter 2021. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”
Provision for credit losses decreased to $0.5 million for the three months ended March 31, 2021, compared to $3.0 million for the three months ended March 31, 2020, with the prior year largely impacted by uncertainty surrounding the initial onset of the COVID-19 pandemic. Asset quality has improved over the prior year and we continue to maintain historically favorable ratios in all categories. For additional information regarding the allowance for credit losses see “BALANCE SHEET ANALYSIS – Allowance for Credit Losses - Loans.”
2834



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 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis
For the Three Months Ended March 31,For the Three Months Ended March 31,
2021202020222021
(in thousands)(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
ASSETSASSETSASSETS
Interest-earning assetsInterest-earning assetsInterest-earning assets
PPP Loans$206,498 $3,951 7.65 %$— $— — %
Commercial-based loans ex PPP2,125,844 24,441 4.60 %2,108,402 27,892 5.23 %
Commercial PPP LoansCommercial PPP Loans$13,503 $1,377 40.79 %$206,498 $3,951 7.65 %
All other commercial loansAll other commercial loans3,907,241 41,820 4.28 %2,125,844 24,441 4.60 %
Total commercial loansTotal commercial loans3,920,744 43,197 4.41 %2,332,342 28,392 4.87 %
Retail-based loansRetail-based loans493,322 5,493 4.46 %476,182 5,916 4.97 %Retail-based loans768,040 8,137 4.24 %493,322 5,493 4.46 %
Total loans, including loan fees (1)(2)
Total loans, including loan fees (1)(2)
2,825,664 33,885 4.80 %2,584,584 33,808 5.19 %
Total loans, including loan fees (1)(2)
4,688,784 51,334 4.38 %2,825,664 33,885 4.80 %
Investment securities:Investment securities:Investment securities:
TaxableTaxable382,455 1,814 1.90 %327,910 2,072 2.53 %Taxable1,386,593 5,127 1.48 %382,455 1,814 1.90 %
Tax-exempt (2)
Tax-exempt (2)
145,887 774 2.12 %125,910 692 2.20 %
Tax-exempt (2)
189,031 1,031 2.18 %145,887 774 2.12 %
Total investment securities Total investment securities528,342 2,588 1.96 %453,820 2,764 2.44 % Total investment securities1,575,624 6,158 1.57 %528,342 2,588 1.96 %
Other interest-earning assetsOther interest-earning assets735,597 655 0.36 %129,101 662 2.04 %Other interest-earning assets446,783 817 0.73 %735,597 655 0.36 %
Total non-loan earning assetsTotal non-loan earning assets1,263,939 3,243 1.03 %582,921 3,426 2.35 %Total non-loan earning assets2,022,407 6,975 1.38 %1,263,939 3,243 1.03 %
Total interest-earning assetsTotal interest-earning assets4,089,603 $37,128 3.63 %3,167,505 $37,234 4.66 %Total interest-earning assets6,711,191 $58,309 3.48 %4,089,603 $37,128 3.63 %
Other assets, netOther assets, net425,324 387,639 Other assets, net808,445 425,324 
Total assetsTotal assets$4,514,927 $3,555,144 Total assets$7,519,636 $4,514,927 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilitiesInterest-bearing liabilitiesInterest-bearing liabilities
SavingsSavings$535,914 $80 0.06 %$351,238 $305 0.35 %Savings$821,452 $105 0.05 %$535,914 $80 0.06 %
Interest-bearing demandInterest-bearing demand673,398 759 0.46 %535,296 1,214 0.91 %Interest-bearing demand1,052,076 701 0.27 %673,398 759 0.46 %
Money market accounts ("MMA")Money market accounts ("MMA")857,258 124 0.06 %660,686 730 0.44 %Money market accounts ("MMA")1,540,506 323 0.09 %857,258 124 0.06 %
Core time depositsCore time deposits329,378 878 1.08 %427,925 1,933 1.82 %Core time deposits595,864 508 0.35 %329,378 878 1.08 %
Total interest-bearing core depositsTotal interest-bearing core deposits2,395,948 1,841 0.31 %1,975,145 4,182 0.85 %Total interest-bearing core deposits4,009,898 1,637 0.17 %2,395,948 1,841 0.31 %
Brokered depositsBrokered deposits316,589 1,081 1.38 %158,068 775 1.97 %Brokered deposits459,460 555 0.49 %316,589 1,081 1.38 %
Total interest-bearing depositsTotal interest-bearing deposits2,712,537 2,922 0.44 %2,133,213 4,957 0.93 %Total interest-bearing deposits4,469,358 2,192 0.20 %2,712,537 2,922 0.44 %
Other interest-bearing liabilitiesOther interest-bearing liabilities51,695 313 2.42 %85,379 783 3.64 %Other interest-bearing liabilities214,557 1,931 3.60 %51,695 313 2.42 %
Total interest-bearing liabilitiesTotal interest-bearing liabilities2,764,232 3,235 0.47 %2,218,592 5,740 1.04 %Total interest-bearing liabilities4,683,915 4,123 0.35 %2,764,232 3,235 0.47 %
Noninterest-bearing demandNoninterest-bearing demand1,162,668 786,858 Noninterest-bearing demand1,923,186 1,162,668 
Other liabilitiesOther liabilities43,486 36,136 Other liabilities51,216 43,486 
Stockholders’ equityStockholders’ equity544,541 513,558 Stockholders’ equity861,319 544,541 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$4,514,927 $3,555,144 Total liabilities and stockholders’ equity$7,519,636 $4,514,927 
Net interest income and rate spreadNet interest income and rate spread$33,893 3.16 %$31,494 3.62 %Net interest income and rate spread$54,186 3.13 %$33,893 3.16 %
Tax-equivalent adjustment & net free fundsTax-equivalent adjustment & net free funds252 0.15 %231 0.32 %Tax-equivalent adjustment & net free funds391 0.10 %252 0.15 %
Net interest income and net interest marginNet interest income and net interest margin$33,641 3.31 %$31,263 3.94 %Net interest income and net interest margin$53,795 3.23 %$33,641 3.31 %
Selected Additional Information:
Total loans ex PPP$2,619,166 $29,934 4.57 %$2,584,584 $33,808 5.19 %
Total interest-earning assets ex PPP3,883,105 33,177 3.42 %3,167,505 37,234 4.66 %
Net interest rate spread ex PPP2.95 %3.62 %
(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.

29
35



Table 3: Volume/Rate Variance - Tax-Equivalent Basis
For the Three Months Ended March 31, 2021
Compared to March 31, 2020:
For the Three Months Ended March 31, 2022
Compared to March 31, 2021:
Increase (Decrease) Due to Changes inIncrease (Decrease) Due to Changes in
(in thousands)(in thousands)VolumeRate
Net (1)
(in thousands)VolumeRate
Net (1)
Interest-earning assetsInterest-earning assetsInterest-earning assets
PPP Loans$3,951 $— $3,951 
Commercial-based loans ex PPP(1,329)(2,122)(3,451)
Commercial PPP LoansCommercial PPP Loans$(6,531)$3,957 $(2,574)
All other commercial loansAll other commercial loans24,256 (6,877)17,379 
Total commercial loansTotal commercial loans17,725 (2,920)14,805 
Retail-based loansRetail-based loans205 (628)(423)Retail-based loans2,911 (267)2,644 
Total loans, including loan fees (2) (3)
Total loans, including loan fees (2) (3)
2,827 (2,750)77 
Total loans, including loan fees (2) (3)
20,636 (3,187)17,449 
Investment securities:Investment securities:Investment securities:
TaxableTaxable18 (276)(258)Taxable3,198 115 3,313 
Tax-exempt (3)
Tax-exempt (3)
107 (25)82 
Tax-exempt (3)
235 22 257 
Total investment securities Total investment securities125 (301)(176) Total investment securities3,433 137 3,570 
Other interest-earning assetsOther interest-earning assets393 (400)(7)Other interest-earning assets66 96 162 
Total non-loan earning assets Total non-loan earning assets518 (701)(183) Total non-loan earning assets3,499 233 3,732 
Total interest-earning assetsTotal interest-earning assets$3,345 $(3,451)$(106)Total interest-earning assets$24,135 $(2,954)$21,181 
Interest-bearing liabilitiesInterest-bearing liabilitiesInterest-bearing liabilities
SavingsSavings$107 $(332)$(225)Savings$38 $(13)$25 
Interest-bearing demandInterest-bearing demand255 (710)(455)Interest-bearing demand326 (384)(58)
MMAMMA166 (772)(606)MMA127 72 199 
Core time depositsCore time deposits(383)(672)(1,055)Core time deposits448 (818)(370)
Total interest-bearing core deposits Total interest-bearing core deposits145 (2,486)(2,341) Total interest-bearing core deposits939 (1,143)(204)
Brokered depositsBrokered deposits589 (283)306 Brokered deposits358 (884)(526)
Total interest-bearing depositsTotal interest-bearing deposits734 (2,769)(2,035)Total interest-bearing deposits1,297 (2,027)(730)
Other interest-bearing liabilitiesOther interest-bearing liabilities(176)(294)(470)Other interest-bearing liabilities1,571 47 1,618 
Total interest-bearing liabilitiesTotal interest-bearing liabilities558 (3,063)(2,505)Total interest-bearing liabilities2,868 (1,980)888 
Net interest incomeNet interest income$2,787 $(388)$2,399 Net interest income$21,267 $(974)$20,293 
(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 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 disallowance of interest expense.

Short-termThe Federal Reserve increased short-term interest rates have25 bps in mid-March 2022. Prior to this, short-term interest rates remained steady since March 31, 2020, while2020. With this recent interest rate increase, the short end (up to two years) of the yield curve has begun to steepen mainly since year end 2020. The succeeding four quarters feltsteepen. Margins remain depressed from the pressurepressures of a low interest rate environment, and bloated cash balances from government stimulus, both in the form of stimulus checks to individuals and PPP loans for businesses. These elevated low interest-earning asset balances have further decreased margins along with the normal pressures of a near-zero rate environment. Though margins remain depressed,though interest income dollars continue to rise on favorable asset volumes and proactive expense reduction measures. The following paragraphs will discuss the comparison of the first three months of 2021 and 2020, with minimal COVID-19 pandemic impacts appearing in first quarter 2020 and the economy beginning to rebound in first quarter 2021. Though improving, we see continued margin pressure and pricing impacts on loans and deposits.
Tax-equivalent net interest income was $33.9$54.2 million for the first three months of 2021,2022, comprised of net interest income of $33.6$53.8 million ($2.420.2 million or 8%60% higher than the first three months of 2020)2021), and a $0.3$0.4 million tax-equivalent adjustment. The $2.4$20.3 million increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $2.8$21.3 million, mostly from higher loaninterest-earning asset volumes due toadded with the inclusion PPP loansMackinac and County acquisitions, as well as interest-earning assets from the Advantage acquisition)organic loan growth and strategic investment purchases) and net unfavorable rates (which reduceddecreased net interest income $0.4 million). The net $0.4$1.0 million decrease from rates was from interest-earning asset rate changes in the lower rate environment (decreasing net interest income $3.5 million, of which $2.8 million was from loans), offset partly by benefitscontinued pressure of a lower costlow interest rate environment).
Average interest-earning assets increased to $6.7 billion, up $2.6 billion (64%) over the 2021 comparable period, primarily due to the acquisitions of funds (improving net interest income $3.1 million, predominantly ledMackinac and County (in September 2021 and December 2021, respectively). Between the comparable first quarter periods, average loans increased $1.9 billion (66%), mostly due to the Mackinac and County acquisitions, which added loans of $0.9 billion and $1.0 billion, respectively, at acquisition. In addition, organic loan growth was strong, and replaced the reduction in PPP loans from continued loan forgiveness. Average investment securities increased $1.0 billion between the comparable first quarter periods, partly due to the acquisitions of Mackinac and County, and partly due to the strategic re-investment of approximately $0.5 billion excess cash liquidity into U.S. Treasury securities of varying yields and durations during fourth quarter 2021. Other interest-earning assets declined $0.3 billion with the additional assets added with the 2021 acquisitions, more than offset by $2.5 million savings fromthe re-investment of excess cash liquidity noted above. As a result, the mix of average interest-earning assets shifted to 70% loans, 23% investments and 7% other interest-earning assets (mostly cash) for first quarter 2022, compared to 69%, 13% and 18%, respectively, for first quarter 2021.
36


Average interest-bearing liabilities were $4.7 billion for first quarter 2022, an increase of $1.9 billion (69%) over first quarter 2021, primarily due to the acquisitions of Mackinac and County. Average interest-bearing core deposits $0.3increased $1.6 billion and average brokered deposits increased $143 million savings frombetween the comparable first quarter periods largely due to the Mackinac and County acquisitions. Other interest-bearing liabilities grew $163 million between the comparable first quarter periods, partly due to the private placement of $100 million in fixed-to-floating rate subordinated notes in July 2021, and partly due to wholesale funds,funding acquired with the Mackinac and $0.3 million savings fromCounty acquisitions. The mix of average interest-bearing liabilities was 86% core deposits, 10% brokered deposits).deposits and 4% other funding for the first quarter 2022, compared to 87%, 11% and 2%, respectively, for the first quarter 2021.
Between the comparable three-monthfirst quarter periods, the interest rate spread decreased 46 bps, largely attributable to the lower interest rate environment between the periods and the significantly higher concentration of low-earning cash compared to3 bps. The first quarter 2020. The 20212022 interest-earning asset yield declined 10315 bps to 3.63%3.48%, partly fromreflecting the decline in the average yield of loans and investment securities, as well as the changing mix of interest-earning assets (mostly the reduction in cash due to the re-investment of excess cash liquidity noted above). The loan yield declined 42 bps to 4.38% between the comparable first quarter periods, largely due to the impact of the low interest rate environment and competitive pricing pressures on new, renewed, and variable rate loans, while the yield on investment securities declined 39 bps decline in loans but was more significantly impacted byto 1.57%, also attributable to the decrease inlow interest rate environment, as well as the loans-to-earning asset mix (to 69% compared to 82% for first quarter 2020) given the significant increase in cash. Other interest-earning assets (which are predominantly cash) declined 168 bps, while total non-
30


loan earning assets declined 132 bps.strategic re-investment of cash into lower yielding U.S. Treasury securities. The 20212022 cost of funds declined favorably 5712 bps to 0.47%0.35%, largely from improvedlower rates on core interest-bearing core deposit rates, as well as lowerdeposits and brokered and wholesale funding rates.deposits. The contribution from net free funds decreased 175 bps, due mostly to the reduced value in the lowerlow interest rate environment, though offset partly by the 40%53% increase in average net free funds (largely from higher average noninterest-bearing demand deposits and stockholdersstockholders’ equity) between the three-monthfirst quarter periods. As a result, the tax-equivalent net interest margin was 3.23% for first quarter 2022, down 8 bps compared to 3.31% for first quarter 2021.
Tax-equivalent interest income was $58.3 million for first quarter 2022, up $21.2 million from first quarter 2021, down 63 bps compared to 3.94% for the comparable 2020 period.
Average interest-earning assetscomprised of $24.1 million higher volumes, partly offset by lower average rates. Interest income on loans increased to $4.1 billion, up $0.9 billion (29%)$17.4 million over the 2020 comparable period, primarilyfirst quarter 2021, mostly due to significantly higher cash starting in second quarter 2020,average balances from the addition of PPP loans (beginning second quarter 2020),Mackinac and the timing of the Advantage acquisition (August 2020).County acquisitions, as well as organic loan growth. Between the comparable first quarter periods, average loans increased $241 million (9%), mostly due to PPP loan activity (net average balance of $206 million at March 31, 2021) and $88 million of Advantage loans at acquisition, while all other interest-earning assets combined increased $681 million (117%) on average. The mix of average interest-earning assets shifted toward lower-yielding assets, at 69% loans, 13% investments and 18% other interest-earning assets (mostly cash) for first quarter 2021, compared to 82%, 14% and 4%, respectively, for first quarter 2020.
Tax-equivalent interest income was $37.1on investment securities grew $3.6 million, also attributable to the Mackinac and County acquisitions, as well as the re-investment of excess cash liquidity (noted above). Interest expense increased to $4.1 million for first quarter 2021, down $0.1 million from first quarter 2020, and the related interest-earning asset yield was 3.63%, down 103 bps from the comparable period in 2020. Interest income on loans increased $0.1 million over first quarter 2020, with decreases in interest rates more than offset by PPP loan volumes. The 2021 loan yield was 4.80%, down 39 bps from first quarter 2020, largely from the significantly lower rate environment impacting yields on new, renewed and variable rate loans, as well as from inclusion of PPP loans at a 7.65% yield (comprised of a 1% coupon rate and accreted fees associated with the program). Between the comparable three-month periods, interest income on non-loan earning assets combined was down $0.2 million to $3.2 million, impacted by a 132 bps decline in the yield (to 1.03%) in the lower rate environment, partially offset by higher average volumes (up 117%) from the significantly higher cash.
Average interest-bearing liabilities were $2.8 billion, an increase of $546 million (25%), primarily due to the significant increase in deposits from government stimulus activities and deposited PPP loan proceeds, though also partly due to the timing of the Advantage acquisition in August 2020. The mix of average interest-bearing liabilities was 87% core deposits, 11% brokered deposits and 2% other funding for first quarter 2021, compared to 89%, 7% and 4%, respectively, for first quarter 2020, with the mix changes influenced by the procurement of brokered deposits in March-April 2020 as part of previously discussed liquidity actions.
Interest expense decreased to $3.2 million for first quarter 2021, down $2.52022, up $0.9 million compared to first quarter 2020, on2021, comprised of $2.9 million higher volumes, of average interest-bearing liabilities (up 25% to $2.8 billion) but at apartly offset by $2.0 million from lower overall cost of funds (down 57 bps to 0.47%).funds. Interest expense on deposits decreased $2.0$0.7 million (41%(25%) from first quarter 20202021 given 27% higher average interest-bearing deposit balances but at a lower cost (down 49 bps to 0.44%). The 2021 cost of savings, interest-bearing demand, money market accounts and core time deposits decreased from first quarter 2020, by 29 bps, 45 bps, 38 bps and 74 bps, respectively, as product rate changes were made during 2021 in the lowerlow rate environment, and brokered deposits cost 59 bps less than the comparable first quarter period of 2020, largely from maturities of higher-costing term brokered funds procured during March-April 2020 under competitive conditions as part of previously discussed liquidity actions.in mid-2020 during the pandemic. Interest expense on other interest-bearing liabilities was downincreased between the comparable first quarter periods, as interest expense on lowermostly due to higher average balances (down $34 million) combinedfrom the July 2021 subordinated notes issuance, as well as wholesale funding acquired with lower rates (down 122 bps to 2.42%) decreased expense by more than half.the 2021 acquisitions.
Provision for Credit Losses
The provision for credit losses decreasedwas $0.3 million for the three months ended March 31, 2022, compared to $0.5 million for the three months ended March 31, 2021, comparedwith the full provision amount related to $3.0 millionthe ACL-Loans for the three months ended March 31, 2020. The provision for credit losses was significantly increased for the first three quarters of 2020 given unprecedented economic disruptions and uncertainty surrounding the COVID-19 pandemic, and the related credit stress on our customers, though tempered in late 2020 into first quarter 2021 as potential deterioration of loan quality metrics initially anticipated did not materialize.both periods.
The provision for credit losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the appropriateness of the ACL-Loans.ACL-Loans and unfunded commitments. The appropriateness of the ACL-Loans is affected by changes in the size and character of the loan portfolio, changes in levels of 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 expected credit losses. The ACL for unfunded commitments is affected by many of the same factors as the ACL-Loans, as well as funding assumptions relative to lines of credit. See also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures. For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” “— Allowance for Credit Losses - Loans,” and “— Nonperforming Assets.”
3137


Noninterest Income
Table 4: Noninterest Income
Three Months Ended March 31,Three Months Ended March 31,
(in thousands)(in thousands)20212020$ Change% Change(in thousands)20222021$ Change% Change
Trust services fee incomeTrust services fee income$1,775 $1,579 $196 12 %Trust services fee income$2,011 $1,775 $236 13 %
Brokerage fee incomeBrokerage fee income2,793 2,322 471 20 Brokerage fee income3,688 2,793 895 32 
Mortgage income, netMortgage income, net7,230 2,327 4,903 211 Mortgage income, net3,253 7,230 (3,977)(55)
Service charges on deposit accountsService charges on deposit accounts1,091 1,225 (134)(11)Service charges on deposit accounts1,477 1,091 386 35 
Card interchange incomeCard interchange income1,927 1,562 365 23 Card interchange income2,581 1,927 654 34 
BOLI incomeBOLI income527 703 (176)(25)BOLI income933 527 406 77 
LSR income, netLSR income, net(382)— (382)N/M
Other incomeOther income1,072 521 551 106 Other income1,069 1,072 (3)— 
Noninterest income without net gains16,415 10,239 6,176 60 
SubtotalSubtotal14,630 16,415 (1,785)(11)
Asset gains (losses), netAsset gains (losses), net711 (654)1,365 N/MAsset gains (losses), net1,313 711 602 N/M
Total noninterest incomeTotal noninterest income$17,126 $9,585 $7,541 79 %Total noninterest income$15,943 $17,126 $(1,183)(7)%
Trust services fee income & Brokerage fee income combinedTrust services fee income & Brokerage fee income combined$4,568 $3,901 $667 17 %Trust services fee income & Brokerage fee income combined$5,699 $4,568 $1,131 25 %
N/M means not meaningful.N/M means not meaningful.N/M means not meaningful.

Noninterest income was $15.9 million for first quarter 2022, a decrease of $1.2 million (7%) compared to $17.1 million for first quarter 2021, an increase2021. The subtotal of $7.5 million (79%) compared to $9.6 million for the comparable period of 2020. Noninterestnoninterest income excludingbefore net asset gains (losses) grew $6.2declined $1.8 million (60%(11%) between the comparable three-month periods, predominantly on strongwith lower net mortgage income.income partly offset by growth in most other noninterest income categories.
Trust services fee income and brokerage fee income combined were $4.6$5.7 million, up $0.7$1.1 million (17%(25%) over first quarter 2020,2021, consistent with the growth in accounts and assets under management.management, though tempered slightly by market declines at the end of the quarter.
Mortgage income represents net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”MSR”), servicing fees 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. Net mortgage income of $7.2$3.3 million, increased $4.9decreased $4.0 million (211%(55%) between the comparable three-month periods, predominantly on slowing mortgage activity from higher sale gainsthe rising rate environment. Gains on sales and capitalized gains combined (up $4.4decreased $4.9 million, or 144%, commensurate with the increase in volumes sold into the secondary market aided by higher refinance activity and better pricing between the years), favorable changes in the fair value of the mortgage derivatives (up $0.8 million), and higherwhile net servicing fees (up $0.3increased $0.1 million (with higher income on the larger portfolio serviced for others),others, partially offset by a $0.2 millionan increase in MSR amortizationamortization), and $0.3MSR impairment was down $1.1 million higher MSR asset impairment given fasteron slower paydown activity (with impairment of $0.5 million in first quarter 2021 compared to impairment of $0.2 million in first quarter 2020).activity. See also “Lending-Related Commitments” and Note 7, “Goodwill and Other Intangibles and Mortgage Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the MSR asset.
Service charges on deposit accounts were down $0.1up $0.4 million to $1.1$1.5 million for the three months ended March 31, 2021, mainly as a result of a decrease in NSF fees2022, due to the increased liquidity of consumers and businesses.larger deposit base from the 2021 acquisitions.
Card interchange income grew $0.4$0.7 million (23%(34%) between the comparable first quarterthree-month periods due to higher volume and activity, as activity was tempered late in first quarter 2020 with the onset of the pandemic, as well as cautionary spending of consumers given the economic uncertainty.activity.
BOLI income was down $0.2up $0.4 million between the comparable three-month periods, attributable to BOLI death benefits received in first quarter 2020, partly offset by income on higher average balances from $3 million BOLI acquired with Advantage in August 2020.the 2021 acquisitions.
Loan servicing rights (“LSR”) income includes agricultural loan servicing fees net of the related LSR amortization. Nicolet is not adding new loans to this servicing portfolio; thus, the LSR amortization is currently outpacing the loan servicing fees. See also Note 7, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on the LSR asset.
Other income of $1.1 million for the three months ended March 31, 20212022 was up $0.6 millionminimally changed from the comparable 20202021 period, largely dueincluding new revenue from crop insurance sales (related to the County acquisition) offset by the unfavorable change in fair value of nonqualified deferred compensation plan assets from the significantrecent market decline in March 2020 at the onset of the pandemic (from a negative position at March 31, 2020 to a positive position at March 31, 2021).declines. See also “Noninterest Expense” for discussion on the offsetting fair value change to the nonqualified deferred compensation plan liabilities.
Net asset gains of $1.3 million for first quarter 2022 were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations) and market gains on equity securities, while net asset gains of $0.7 million infor first quarter 2021 were primarily attributable to favorable fair value marks on equity securities, which was largely a recapture of net asset losses of $0.7 million in first quarter 2020.securities.
3238


Noninterest Expense
Table 5: Noninterest Expense
Three Months Ended March 31,Three Months Ended March 31,
($ in thousands)($ in thousands)20212020Change% Change($ in thousands)20222021Change% Change
PersonnelPersonnel$15,116 $13,323 $1,793 13 %Personnel$21,191 $15,116 $6,075 40 %
Occupancy, equipment and officeOccupancy, equipment and office4,137 4,204 (67)(2)Occupancy, equipment and office6,944 4,137 2,807 68 
Business development and marketingBusiness development and marketing989 1,359 (370)(27)Business development and marketing1,831 989 842 85 
Data processingData processing2,658 2,563 95 Data processing3,387 2,658 729 27 
Intangibles amortizationIntangibles amortization852 993 (141)(14)Intangibles amortization1,424 852 572 67 
FDIC assessmentsFDIC assessments595 — 595 N/MFDIC assessments480 595 (115)(19)
Merger-related expenseMerger-related expense98 — 98 N/M
Other expenseOther expense1,734 1,412 322 23 Other expense2,195 1,734 461 27 
Total noninterest expenseTotal noninterest expense$26,081 $23,854 $2,227 %Total noninterest expense$37,550 $26,081 $11,469 44 %
Non-personnel expensesNon-personnel expenses$10,965 $10,531 $434 %Non-personnel expenses$16,359 $10,965 $5,394 49 %
Average full-time equivalent (“FTE”) employeesAverage full-time equivalent (“FTE”) employees558 580 (22)(4)%Average full-time equivalent (“FTE”) employees833 558 275 49 %
N/M means not meaningful.N/M means not meaningful.N/M means not meaningful.

Noninterest expense was $26.1$37.6 million, an increase of $2.2$11.5 million (9%(44%) over first quarter 2020.2021. Personnel costs increased $1.8$6.1 million (13%(40%), while non-personnel expenses combined increased $0.4$5.4 million (4%(49%) compared to first quarter 2020.2021.
Personnel expense was $15.1$21.2 million for the three months ended March 31, 2021,2022, an increase of $1.8$6.1 million from the comparable period in 2020. A significant portion of2021. Salary expense increased $5.2 million (57%) over first quarter 2021, reflecting higher salaries from the increase islarger employee base (with average full-time equivalent employees up 49%, mostly due to the 2021 acquisitions) as well as merit increases between the years. Fringe benefits increased $1.2 million (47%) over first quarter 2021, mostly due to the larger employee base. Personnel expense was also impacted by the change in the fair value of nonqualified deferred compensation plan liabilities from the significantrecent market decline at the onset of the pandemic (from a negative position at March 31, 2020 to a positive position at March 31, 2021).declines. See also “Noninterest Income” for discussion on the offsetting fair value change to the nonqualified deferred compensation plan assets. Excluding this fair value change, personnel increased 7% compared to first quarter 2020. Salaries increased 2%, with the lower average FTE employees from a smaller branch network offset by merit increases between the periods. Personnel expense was also impacted by higher health insurance and other fringe benefit costs, as well as higher incentives in conjunction with the strong earnings for first quarter 2021.
Occupancy, equipment and office expense was $4.1$6.9 million for first quarter 2021, down $0.12022, up $2.8 million (2%(68%) compared to first quarter 2020,2021, largely due to the smallerexpanded branch network with the Mackinac and ongoing efforts to improve operational efficiency.County acquisitions, as well as additional expense for software and technology solutions.
Business development and marketing expense was $1.0$1.8 million, down $0.4up $0.8 million (27%(85%), between the comparable three-monthfirst quarter periods, largely due to lower business development costs from lessthe higher travel and entertainment during the pandemic,expenses, as well as loweradditional marketing costs from differences in the timing and extent of donations, marketing campaigns, promotions, and media.media to support our expanded branch and community base.
Data processing expense was $2.7$3.4 million, up $0.1$0.7 million (4%(27%) between the comparable three-month periods, mostly due to volume-based increases in core processing charges.charges, including the larger operating base following the Mackinac and County acquisitions.
Intangibles amortization decreased $0.1increased $0.6 million between the comparable first quarter periods mainly from declining amortization on the aging intangibles of previous acquisitions, partly offset bydue to higher amortization from the new intangibles ofadded with the August 2020 Advantage acquisition.
FDIC assessments increased to $0.6 million for first quarter 2021 as the small bank assessment credits were fully utilized during third quarter 2020 and also reflecting the higher assessment base.acquisitions.
Other expense was $1.7$2.2 million, up $0.3$0.5 million (23%(27%) between the comparable first quarterthree-month periods, mostly due to an increase in director fees (reflective of the additional complexity of a larger company, including the addition of two new directors with the 2021 acquisitions), higher professional fees, costs to carry closed bank branches, and overall higher expenses related to the recently announced proposed acquisition of Mackinac.our larger operating base.

Income Taxes
Income tax expense was $7.7 million (effective tax rate of 24.2%) for first quarter 2022, compared to $5.9 million (effective tax rate of 24.59%) for first quarter 2021, compared to $3.3 million (effective tax rate of 23.73%24.6%) for the comparable period of 2020. The lower effective tax rate for 2020 was due to the favorable tax treatment of the BOLI death benefit proceeds and higher tax benefit on stock-based compensation.2021.
3339



BALANCE SHEET ANALYSIS
At March 31, 2021,2022, period end assets were $4.5$7.3 billion, unchangeda decrease of $0.4 billion (5%) from December 31, 2020, with a slight shift2021, including $200 million of assets related to the sale of the Birmingham branch in composition. The shift in assets from year-end 2020 included a $57 million increase in loans (comprised of $43 million from net activity in PPP loans, and a $14 million increase in all other loans, mostly commercial), and a $19 million increase in securities AFS, offset by a reduction inJanuary 2022, as well as lower cash and cash equivalents from the decline in deposits. Total loans increased $61 million from December 31, 2021, due to growth in the loan portfolio (up $77 million or 6.8% annualized, primarily in agricultural and commercial and industrial loans), partly offset by continued reductions in PPP loans from loan forgiveness (down $67 million to $736$16 million). Total deposits of $3.9$6.2 billion at March 31, 2021, were also minimally changed2022, decreased $0.2 billion from December 31, 2020, with a decrease of $64 million in brokered deposits substantially offset by an increase of $54 million in customer core deposits. Borrowings decreased $10 million mostly2021, due to the early repaymentrepricing of an FHLB advance.acquired deposits to current market rates. Total stockholders’ equity was $550$836 million an increaseat March 31, 2022, a decrease of $11$56 million fromsince December 31, 2020, primarily from earnings, exceeding2021, mostly due to stock repurchasesrepurchase activity and negative netunfavorable changes in the fair value investment changes.of securities AFS, partly offset by current quarter earnings.
Compared to March 31, 2020,2021, assets were $4.5$7.3 billion, up $0.8$2.8 billion (22%(61%), from March 31, 2021, largely due to the increaseacquisitions of Mackinac and County in liquidity. Cashsecond half 2021. Total loans increased $1.8 billion and cash equivalentstotal deposits increased significantly, up $494 million (204%) to $736 million at$2.3 billion from March 31, 2021, and represented 16% of total assets (compared to 6% of total assets at March 31, 2020), while loans increased $239 million (9%) and securities AFS increased $46 million (9%). On the funding side, deposits increased $0.9 billion (29%) over March 31, 2020, while total borrowings decreased $114 million. Also contributingalso largely due to the increase was the acquisitionacquisitions of Advantage in August 2020, which added $172 million in assets, $88 million in loansMackinac and $141 million of deposits at acquisition.County. Stockholders’ equity increased $39$286 million from March 31, 2020,2021, primarily due to common stock issued in the Mackinac and County acquisitions and 2021 net income, partially offset by stock repurchases over the year.year and negative net fair value investment changes.

Loans
In addition to the discussion that follows, see also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on loans. For additional information regarding the allowance for credit losses and nonperforming assets see also “BALANCE SHEET ANALYSIS – Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS – Nonperforming Assets.”
Nicolet services a diverse customer base throughout northeasternNortheast and centralCentral Wisconsin, Northern Michigan and in Menominee,the Upper Peninsula of Michigan. The Company concentratesWe concentrate on originating loans in itsour local markets and assisting its current loan customers. The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas. Significant loan concentrations are considered 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 March 31, 2021, no significant industry concentrations existed in Nicolet’s portfolio in excess of 10% of total loans.
An active credit risk management process is used to ensure that sound and consistent credit decisions are made. The credit management process is regularly reviewed and the process has been modified over the past several years to further strengthen the 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 appropriate ACL-Loans, and sound nonaccrual and charge-off policies.
34


Table 6: Period End Loan Composition
March 31, 2021December 31, 2020March 31, 2020March 31, 2022December 31, 2021March 31, 2021
(in thousands)(in thousands)Amount% of TotalAmount% of TotalAmount% of Total(in thousands)Amount% of TotalAmount% of TotalAmount% of Total
Commercial & industrialCommercial & industrial$728,498 26 %$750,718 27 %$831,257 32 %Commercial & industrial$1,063,300 23 %$1,042,256 23 %$957,901 34 %
PPP loans229,403 186,016 — — 
Owner-occupied CREOwner-occupied CRE520,274 18 521,300 19 499,705 19 Owner-occupied CRE794,946 17 787,189 17 520,274 18 
AgriculturalAgricultural107,009 109,629 95,991 Agricultural826,364 18 794,728 17 107,009 
CommercialCommercial1,585,184 56 1,567,663 57 1,426,953 54 Commercial2,684,610 58 2,624,173 57 1,585,184 56 
CRE investmentCRE investment490,053 17 460,721 16 448,758 17 CRE investment807,602 17 818,061 18 490,053 17 
Construction & land developmentConstruction & land development137,670 131,283 96,055 Construction & land development211,640 213,035 137,670 
Commercial real estateCommercial real estate627,723 22 592,004 21 544,813 21 Commercial real estate1,019,242 21 1,031,096 23 627,723 22 
Commercial-based loansCommercial-based loans2,212,907 78 2,159,667 78 1,971,766 75 Commercial-based loans3,703,852 79 3,655,269 80 2,212,907 78 
Residential constructionResidential construction39,586 41,707 52,945 Residential construction72,660 70,353 39,586 
Residential first mortgageResidential first mortgage456,197 16 444,155 16 432,126 17 Residential first mortgage721,107 15 713,983 15 456,197 16 
Residential junior mortgageResidential junior mortgage107,641 111,877 121,105 Residential junior mortgage133,817 131,424 107,641 
Residential real estateResidential real estate603,424 21 597,739 21 606,176 24 Residential real estate927,584 20 915,760 19 603,424 21 
Retail & otherRetail & other30,020 31,695 29,482 Retail & other51,879 50,807 30,020 
Retail-based loansRetail-based loans633,444 22 629,434 22 635,658 25 Retail-based loans979,463 21 966,567 20 633,444 22 
Total loansTotal loans$2,846,351 100 %$2,789,101 100 %$2,607,424 100 %Total loans$4,683,315 100 %$4,621,836 100 %$2,846,351 100 %
Total loans ex. PPP loans$2,616,948 92 %$2,603,085 93 %$2,607,424 100 %
Broadly,As noted in Table 6 above, the loan portfolio at March 31, 2021,2022, was 78%79% commercial-based and 22%21% 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 typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis. Credit risk on commercial-based loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations or on the value of underlying collateral, if any. PPP
40


At March 31, 2022, loans however, initially added during second quarter 2020, are fully guaranteed by the SBA, warranting no credit loss provisions.
Commercial-based loans of $2.2were $4.7 billion, increased $53$61 million (2%) sincehigher than December 31, 2020, primarily2021, due to a $43 million increasegrowth in the net carrying value of PPP loans (including an additional $147loan portfolio (up $77 million from the latest round of PPP loans,or 6.8% annualized, primarily in agricultural and commercial and industrial loans), partly offset by approximately $100 million ofcontinued reductions in PPP loans from loan forgiveness) and growth of $10 million in the remainder of the commercial-based loan portfolio.forgiveness (down $16 million). Commercial and industrial loans continue to be the largest segment of Nicolet’s portfolio and represented 26%23% of the total portfolio at March 31, 2021.2022.
Residential real estate loans of $603$928 million grew $6$12 million (1%) from year-end 2020,2021, to represent 21%20% of total loans at March 31, 2021.2022. Residential first mortgage loans include conventional first-lien home mortgages, while residential junior mortgage real estate loans consist mainly of home equity lines and term loans secured by junior mortgage liens. As part of itsour management of originating residential mortgage loans, the vast majority of Nicolet’s long-term, fixed-rate residential real estatefirst mortgage loans are sold in the secondary market with servicing rights retained. Nicolet’s mortgage loans are typically of high quality and have historically had low net charge-off rates.
Retail and other loans were relatively unchangedup $1 million from year-end 2020,2021, and represented approximately 1% of the total loan portfolio, and include predominantly short-term and other personal installment loans not secured by real estate.

Allowance for Credit Losses - Loans
In addition to the discussion that follows, see also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the allowance for credit losses.
Credit risks within the loan portfolio are inherently different for each loan type as summarized under “BALANCE SHEET ANALYSIS — Loans.” A discussion of the loan portfolio credit risk can be found in the “Loans” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 20202021 Annual Report on Form 10-K. Credit risk is controlled and monitored through the use of lending standards, a thorough review of potential borrowers, and ongoing review of loan payment performance. Active asset quality administration, including early problem loan identification and timely resolution of problems, aids in the management of credit risk and minimization of loan losses. For additional information regarding nonperforming assets see also “BALANCE SHEET ANALYSIS – Nonperforming Assets.”
35


The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the 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 nonperformingnonaccrual 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 (x) other qualitative and quantitative factors which could affect expected credit losses. Assessing these numerous factors involves significant judgment; therefore, management considers the ACL-Loans a critical accounting policy.estimate.
Management allocates the ACL-Loans by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve is established for individually evaluated credit-deterioratedcredit deteriorated loans, 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 ACL-Loans for these credit deteriorated loans is equal to the aggregate collateral or discounted cash flow shortfall. Second, managementManagement allocates the ACL-Loans with historical loss rates by 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 ACL-Loans using the qualitative factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.
At March 31, 2021,2022, the ACL-Loans was $32.6$50 million (representing 1.15%1.07% of period end loans and 1.25% of period end loans excluding PPP loans) compared to $32.2$50 million at December 31, 20202021 and $26.2$33 million at March 31, 2020.2021. The ACL-Loans was minimally changed from year-end 2021 given solid asset quality trends which offset current period loan growth. The increase in the ACL-Loans from year-end 2020March 31, 2021 was largely due to the $0.5acquisitions of Mackinac and County, which combined added $12 million of provision for the Day 2 allowance and $5 million related to purchased credit losses recognized and negligible netdeteriorated loans. Net charge-offs (0.01% of average loans, annualized), while the increase from March 31, 2020 was largely due to the higher provision for credit losses in 2020 given the unprecedented economic disruptions and uncertainty surrounding the COVID-19 pandemic. remain negligible. The components of the ACL-Loans are detailed further in Table 7 below.

41


Table 7: Allowance for Credit Losses - Loans
Three Months EndedYear EndedThree Months EndedYear Ended
(in thousands)(in thousands)March 31, 2021March 31, 2020December 31, 2020(in thousands)March 31, 2022March 31, 2021December 31, 2021
ACL-Loans:ACL-Loans:ACL-Loans:
Balance at beginning of periodBalance at beginning of period$32,173 $13,972 $13,972 Balance at beginning of period$49,672 $32,173 $32,173 
Adoption of CECL— 8,488 8,488 
Initial PCD ACL— 797 797 
Total impact for adoption of CECL— 9,285 9,285 
ACL on PCD loans acquiredACL on PCD loans acquired— — 5,159 
Provision for credit lossesProvision for credit losses500 3,000 10,300 Provision for credit losses300 500 12,500 
Charge-offsCharge-offs(94)(93)(1,689)Charge-offs(100)(94)(513)
RecoveriesRecoveries47 38 305 Recoveries34 47 353 
Net (charge-offs) recoveriesNet (charge-offs) recoveries(47)(55)(1,384)Net (charge-offs) recoveries(66)(47)(160)
Balance at end of periodBalance at end of period$32,626 $26,202 $32,173 Balance at end of period$49,906 $32,626 $49,672 
Net loan (charge-offs) recoveries:Net loan (charge-offs) recoveries:Net loan (charge-offs) recoveries:
Commercial & industrialCommercial & industrial$(13)$30 $(692)Commercial & industrial$20 $(13)$50 
Owner-occupied CREOwner-occupied CRE— — (449)Owner-occupied CRE(36)— — 
AgriculturalAgricultural— — — Agricultural— — (48)
CRE investmentCRE investment(4)(20)(190)CRE investment— (4)(2)
Construction & land developmentConstruction & land development— — — Construction & land development— — — 
Residential constructionResidential construction— — — Residential construction— — — 
Residential first mortgageResidential first mortgage10 Residential first mortgage10 (93)
Residential junior mortgageResidential junior mortgage67 Residential junior mortgage— 
Retail & otherRetail & other(42)(69)(129)Retail & other(54)(42)(71)
Total net (charge-offs) recoveriesTotal net (charge-offs) recoveries$(47)$(55)$(1,384)Total net (charge-offs) recoveries$(66)$(47)$(160)
Ratios:Ratios:Ratios:
ACL-Loans to total loansACL-Loans to total loans1.15 %1.00 %1.15 %ACL-Loans to total loans1.07 %1.15 %1.07 %
ACL-Loans to total loans ex. PPP loans1.25 %1.00 %1.24 %
Net charge-offs to average loans, annualizedNet charge-offs to average loans, annualized0.01 %0.01 %0.05 %Net charge-offs to average loans, annualized0.01 %0.01 %0.01 %
Net charge-offs to average loans ex. PPP loans, annualized0.01 %0.01 %0.05 %
36



Nonperforming Assets
As part of its overall credit risk management process, management 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 problem loans are identified early and the risk of loss is minimized. Management continues to actively work with customers and monitor credit risk from the ongoing economic disruptions surrounding the COVID-19 pandemic. Sincerelated to the pandemic, started, approximately 1,000 loans were provided temporary payment modifications. As of March 31, 2021, only 9 loans (with a current balance of $3 million) remain under temporary payment modification structureas well as economic, political, and 3 loans (with a current balance of $4 million) have been classified as troubled debt restructurings (included in Table 8 below, with $2 million reflected as performing troubled debt restructrings and the remainder in nonaccrual).social turmoil. See also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for further disclosures on credit quality. For additional information see also “BALANCE SHEET ANALYSIS – Loans” and “BALANCE SHEET ANALYSIS – Allowance for Credit Losses-Loans.”
Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans 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. Nonperforming assets include nonperforming loans and other real estate owned (“OREO”). At March 31, 2021,2022, nonperforming assets were $13$49 million comprised of $9 million of nonaccrual loans and $4 million of OREO, and represented 0.28%0.68% of total assets, compared to $13$56 million or 0.29%0.73% of total assets at December 31, 2020.2021.
The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the appropriate level of the 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 $13$49 million (0.4%(1.0% of loans) and $21$53 million (0.7%(1.1% of loans) at March 31, 20212022 and December 31, 2020,2021, respectively. Potential problem loans require a heightened management review of the pace at which a credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.
3742


Table 8: Nonperforming Assets
(in thousands)(in thousands)March 31, 2021December 31, 2020March 31, 2020(in thousands)March 31, 2022December 31, 2021March 31, 2021
Nonperforming loans:Nonperforming loans:Nonperforming loans:
Commercial & industrialCommercial & industrial$2,842 $2,646 $6,050 Commercial & industrial$1,849 $1,908 $2,842 
Owner-occupied CREOwner-occupied CRE1,563 1,869 3,837 Owner-occupied CRE5,007 4,220 1,563 
AgriculturalAgricultural2,087 1,830 1,801 Agricultural23,570 28,367 2,087 
CommercialCommercial6,492 6,345 11,688 Commercial30,426 34,495 6,492 
CRE investmentCRE investment1,436 1,488 1,029 CRE investment3,914 4,119 1,436 
Construction & land developmentConstruction & land development327 327 533 Construction & land development1,054 1,071 327 
Commercial real estateCommercial real estate1,763 1,815 1,562 Commercial real estate4,968 5,190 1,763 
Commercial-based loansCommercial-based loans8,255 8,160 13,250 Commercial-based loans35,394 39,685 8,255 
Residential constructionResidential construction— — — Residential construction— — — 
Residential first mortgageResidential first mortgage527 823 953 Residential first mortgage3,919 4,132 527 
Residential junior mortgageResidential junior mortgage116 384 566 Residential junior mortgage242 243 116 
Residential real estateResidential real estate643 1,207 1,519 Residential real estate4,161 4,375 643 
Retail & otherRetail & other67 88 — Retail & other115 94 67 
Retail-based loansRetail-based loans710 1,295 1,519 Retail-based loans4,276 4,469 710 
Total nonaccrual loansTotal nonaccrual loans8,965 9,455 14,769 Total nonaccrual loans39,670 44,154 8,965 
Accruing loans past due 90 days or moreAccruing loans past due 90 days or more— — — Accruing loans past due 90 days or more— — — 
Total nonperforming loansTotal nonperforming loans$8,965 $9,455 $14,769 Total nonperforming loans$39,670 $44,154 $8,965 
Nonaccrual loans (included above) covered by SBA guarantee$1,416 $1,265 $1,308 
Nonaccrual loans (included above) covered by guaranteesNonaccrual loans (included above) covered by guarantees$4,675 $6,776 $1,416 
OREO:OREO:OREO:
Commercial real estate ownedCommercial real estate owned$302 $— $— Commercial real estate owned$797 $1,549 $302 
Residential real estate ownedResidential real estate owned— — — Residential real estate owned— 99 — 
Bank property real estate ownedBank property real estate owned3,495 3,608 1,000 Bank property real estate owned9,019 10,307 3,495 
Total OREOTotal OREO3,797 3,608 1,000 Total OREO9,816 11,955 3,797 
Total nonperforming assetsTotal nonperforming assets$12,762 $13,063 $15,769 Total nonperforming assets$49,486 $56,109 $12,762 
Performing troubled debt restructuringsPerforming troubled debt restructurings$2,120 $2,120 $— Performing troubled debt restructurings$1,714 $5,443 $2,120 
Ratios:Ratios:Ratios:
Nonperforming loans to total loansNonperforming loans to total loans0.31 %0.34 %0.57 %Nonperforming loans to total loans0.85 %0.96 %0.31 %
Nonperforming assets to total loans plus OREONonperforming assets to total loans plus OREO0.45 %0.47 %0.60 %Nonperforming assets to total loans plus OREO1.05 %1.21 %0.45 %
Nonperforming assets to total assetsNonperforming assets to total assets0.28 %0.29 %0.42 %Nonperforming assets to total assets0.68 %0.73 %0.28 %
ACL-Loans to nonperforming loansACL-Loans to nonperforming loans364 %340 %177 %ACL-Loans to nonperforming loans126 %112 %364 %

Deposits
Deposits represent Nicolet’s largest source of funds. The deposit levels have been heavily influenced byTotal deposits of $6.2 billion at March 31, 2022, decreased $235 million from December 31, 2021, due to the ongoing economic uncertainty, government stimulus payments and other directives relatedrepricing of acquired deposits to pandemic, which reduced spending and increased liquidity of consumers and businesses,current market rates, as well as by PPP loan proceeds retained onthe usual cyclical decline in demand deposit by corporate borrowers.accounts. Core customer deposits decreased $200 million, while brokered deposits decreased $35 million. Compared to March 31, 2021, total deposits increased $2.3 billion (60%), largely due to the Mackinac and County acquisitions. The deposit composition is presented in Table 9 below.
Total deposits of $3.9 billion at March 31, 2021, were minimally changed (down slightly, $10 million) from December 31, 2020. Core customer deposits increased $54 million, aided in part by additional government stimulus payments and new PPP funds on deposit, while brokered deposits decreased $64 million, as brokered deposits matured without renewal given our liquid position.
Compared to March 31, 2020, total deposits increased $0.9 billion (29%), largely due to an increase in customer core deposits, partly offset by a $21 million reduction in brokered deposits. The increase in total deposits since March 31, 2020 was largely due to the liquidity objectives of consumers and businesses in very uncertain times noted above. Also contributing to the increase in deposits from March 31, 2020, was the acquisition of Advantage in August 2020, which added $141 million of deposits at acquisition.
3843


Table 9: Period End Deposit Composition
March 31, 2021December 31, 2020March 31, 2020March 31, 2022December 31, 2021March 31, 2021
(in thousands)(in thousands)Amount% of TotalAmount% of TotalAmount% of Total(in thousands)Amount% of TotalAmount% of TotalAmount% of Total
Noninterest-bearing demandNoninterest-bearing demand$1,216,477 31 %$1,212,787 31 %$791,563 26 %Noninterest-bearing demand$1,912,995 31 %$1,975,705 31 %$1,216,477 31 %
Money market and interest-bearing demandMoney market and interest-bearing demand1,576,041 40 %1,551,325 40 %1,208,024 40 %Money market and interest-bearing demand2,740,024 44 %2,834,824 44 %1,576,041 40 %
SavingsSavings572,225 15 %521,814 13 %361,829 12 %Savings841,369 13 %803,197 12 %572,225 15 %
TimeTime535,851 14 %624,473 16 %662,050 22 %Time736,732 12 %852,190 13 %535,851 14 %
Total depositsTotal deposits$3,900,594 100 %$3,910,399 100 %$3,023,466 100 %Total deposits$6,231,120 100 %$6,465,916 100 %$3,900,594 100 %
Brokered transaction accountsBrokered transaction accounts$35,615 %$46,340 %$36,331 %Brokered transaction accounts$228,079 %$234,306 %$35,615 %
Brokered and listed time depositsBrokered and listed time deposits225,402 %278,521 %245,252 %Brokered and listed time deposits180,823 %209,857 %225,402 %
Total brokered depositsTotal brokered deposits$261,017 %$324,861 %$281,583 %Total brokered deposits$408,902 %$444,163 %$261,017 %
Customer transaction accountsCustomer transaction accounts$3,329,128 85 %$3,239,586 83 %$2,325,085 77 %Customer transaction accounts$5,266,309 84 %$5,379,420 83 %$3,329,128 85 %
Customer time depositsCustomer time deposits310,449 %345,952 %416,798 14 %Customer time deposits555,909 %642,333 10 %310,449 %
Total customer deposits (core)Total customer deposits (core)$3,639,577 93 %$3,585,538 92 %$2,741,883 91 %Total customer deposits (core)$5,822,218 93 %$6,021,753 93 %$3,639,577 93 %

Lending-Related Commitments
As of March 31, 20212022 and December 31, 2020,2021, Nicolet had the following off-balance sheet lending-related commitments.
Table 10: Commitments
(in thousands)(in thousands)March 31, 2021December 31, 2020(in thousands)March 31, 2022December 31, 2021
Commitments to extend creditCommitments to extend credit$960,788 $950,287 Commitments to extend credit$1,432,989 $1,433,881 
Financial standby letters of creditFinancial standby letters of credit7,868 8,241 Financial standby letters of credit14,884 13,562 
Performance standby letters of creditPerformance standby letters of credit7,757 8,366 Performance standby letters of credit7,773 7,336 
Interest rate lock commitments 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 $82$31 million and $3$26 million, respectively, at March 31, 2021.2022. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale represented $113$50 million and $20$1 million, respectively, at December 31, 2020.2021. The net fair value of these mortgage derivatives combined was a lossgain of $211,000$122,000 at March 31, 20212022 compared to a lossgain of $244,000$149,000 at December 31, 2020.2021.

Liquidity Management
Liquidity management refers to the ability to ensure that cash is available in a timely and cost-effective manner to meet cash flow requirements of depositors and borrowers and to meet other commitments as they fall due, including the ability to service debt, invest in subsidiaries, repurchase common stock, pay dividends to shareholders (if any), and satisfy other operating requirements.
Given the stable core customer deposit base, fairly consistent patterns of activity in the core deposit base (including extra growth in core deposits during the pandemic as previously discussed), and the minimal use of capacity available in numerous non-core funding sources, Nicolet's liquidity levels and resources have been sufficient to fund loans, accommodate deposit trends and cycles, and to meet other cash needs as necessary. At the onset of the pandemic, but prior to the announcement of government stimulus, management initiated preparatory actions to increase on-balance sheet liquidity to ensure we could meet customer needs. These actions proved later to not be necessary, leading us to reduce non-deposit funding. In addition to this on-balance sheet liquidity build, remaining liquidity facilities continue to provide capacity and flexibility in an uncertain time.
Funds are available from a number of basic banking activity sources including, but not limited to, the core deposit base; repayment and maturity of loans; investment securities calls, maturities, and sales; and procurement of additional brokered deposits or other wholesale funding. All securities AFS and equity securities (included in other investments) are reported at fair value on the consolidated balance sheet. At March 31, 2021,2022, approximately 26%24% of the $558 million$1.5 billion investment securities AFS portfolio was pledged to secure public deposits, as applicable, and for other purposes as required by law. Additional funding sources at March 31, 2021,2022, consist of $175 million of available and unused Federal funds lines, available borrowing capacity at the FHLB of $185$373 million, and borrowing capacity in the brokered deposit market.
In consideration of the funds availability for the Bank and the current high levels of cash in a very low interest rate environment, management has taken prudent pricing actions on deposits and loans, as well as actions to reduce non-deposit funding. Brokered deposits have matured without renewal and selected FHLB advances were repaid early.
39


Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies. The Parent Company uses cash for normal expenses, debt service requirements, and when opportune, for common stock repurchases, repayment of debt, or investment in other strategic actions such as mergers or acquisitions. At March 31, 2021,2022, the Parent Company had $56$27 million in cash. Additional cash sources among others, available to the Parent Company include its $10 million available and unused line of credit, and access to the public or private markets to issue new equity, subordinated notes or other debt. During 2021, Nicolet completed the private placement of $100 million in fixed-to-floating rate subordinated notes (the “Notes”) due in 2031. (See Note 8, “Short and Long-Term Borrowings” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on the Notes). Dividends from the Bank and, to a lesser extent, stock option exercises, also represent significant sources of cash flows for the Parent Company.
Cash and cash equivalents at March 31, 20212022 and December 31, 20202021 were $736$396 million and $803$595 million, respectively. The decrease in cash and cash equivalents since year-end 20202021 included $38$22 million net cash provided by operating activities (mostly
44


(mostly earnings), $82$71 million net cash usedprovided by investing activities (primarily(with net cash received from the Birmingham branch sale exceeding cash payments to fund loan growth mostly PPP loans, and net investment purchases), and $23$292 million net cash used byin financing activities (with seasonal reductions in deposits(mostly deposit growth and brokered deposit maturities, partially offset by additional government stimulus)common stock repurchases). Management believes its liquidity resources were sufficient as of March 31, 20212022 to fund loans, accommodate deposit cycles and trends, and to meet other cash needs as necessary in these unsettled times.necessary.

Interest Rate Sensitivity Management and Impact of Inflation
A reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield, is highly important to Nicolet’s business success and profitability. As an ongoing part of itsour financial strategy and risk management, Nicolet attemptswe attempt to understand and manage the impact of fluctuations in market interest rates on itsour net interest income. The consolidated balance sheet consists mainly of interest-earning assets (loans, investments and cash) which are primarily funded by interest-bearing liabilities (deposits and other borrowings). Such financial instruments have varying levels of sensitivity to changes in market rates of interest. Market rates are highly sensitive to many factors beyond our control, including but not limited to general economic conditions and policies of governmental and regulatory authorities. Our operating income and net income depends, to a substantial extent, on “rate spread” (i.e., the difference between the income earned on loans, investments and other earning assets and the interest expense paid to obtain deposits and other funding liabilities).
Asset-liability management policies establish guidelines for acceptable limits on the sensitivity to changes in interest rates on earnings and market value of assets and liabilities. Such policies are set and monitored by management and the board of directors’ Asset and Liability Committee.
To understand and manage the impact of fluctuations in market interest rates on net interest income, Nicolet measures itswe 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.
Among other scenarios, Nicoletwe assessed the impact on net interest income in the event of a gradual +/-100 bps and +/-200 bps change in market rates (parallel to the change in prime rate) over a one-year time horizon to a static (flat) balance sheet. The results provided include the liquidity measures mentioned earlier and reflect the changed interest rate environment in response to the pandemic.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 financial data at March 31, 20212022 and December 31, 2020,2021, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 11 below. The results are within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps and given the relatively short nature of the Company's balance sheet, reflect a largely unchanged risk position as expected.bps.
Table 11: Interest Rate Sensitivity
March 31, 2021December 31, 2020March 31, 2022December 31, 2021
200 bps decrease in interest rates200 bps decrease in interest rates(0.4)%(0.8)%200 bps decrease in interest rates(1.2)%(0.3)%
100 bps decrease in interest rates100 bps decrease in interest rates(0.4)%(0.8)%100 bps decrease in interest rates(0.8)%(0.3)%
100 bps increase in interest rates100 bps increase in interest rates2.0 %4.0 %100 bps increase in interest rates(0.6)%(0.1)%
200 bps increase in interest rates200 bps increase in interest rates4.1 %8.1 %200 bps increase in interest rates(1.2)%(0.3)%
Actual results may differ from these simulated results due to timing, magnitude and frequency of interest rate changes, as well as changes in market conditions and their impact on customer behavior and management strategies.
The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and
40


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 guidelinesguidelines. The capital position and strategies are actively reviews capital strategiesreviewed 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 shareholder return. For details on the change in capital see “BALANCE SHEET ANALYSIS.”
45


The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At March 31, 2021,2022, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in the current environment and in strategic growth. A summary of Nicolet’sthe Company’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in the following table.
Table 12: Capital
At or for the Three Months EndedAt or for the
Year Ended
At or for the Three Months EndedAt or for the
Year Ended
($ in thousands)($ in thousands)March 31, 2021December 31, 2020($ in thousands)March 31, 2022December 31, 2021
Company Stock Repurchases: *Company Stock Repurchases: *Company Stock Repurchases: *
Common stock repurchased during the period (dollars)Common stock repurchased during the period (dollars)$4,102 $40,544 Common stock repurchased during the period (dollars)$54,420 $61,464 
Common stock repurchased during the period (full shares)Common stock repurchased during the period (full shares)56,886 646,748 Common stock repurchased during the period (full shares)593,713 793,064 
Company Risk-Based Capital:Company Risk-Based Capital:Company Risk-Based Capital:
Total risk-based capitalTotal risk-based capital$424,016 $406,325 Total risk-based capital$769,472 $793,410 
Tier 1 risk-based capitalTier 1 risk-based capital402,419 385,068 Tier 1 risk-based capital576,239 604,199 
Common equity Tier 1 capitalCommon equity Tier 1 capital378,394 361,162 Common equity Tier 1 capital538,919 567,095 
Total capital ratioTotal capital ratio13.4 %12.9 %Total capital ratio13.7 %13.8 %
Tier 1 capital ratioTier 1 capital ratio12.7 %12.2 %Tier 1 capital ratio10.3 %10.5 %
Common equity tier 1 capital ratioCommon equity tier 1 capital ratio12.0 %11.4 %Common equity tier 1 capital ratio9.6 %9.9 %
Tier 1 leverage ratioTier 1 leverage ratio9.3 %9.0 %Tier 1 leverage ratio8.0 %9.4 %
Bank Risk-Based Capital:Bank Risk-Based Capital:Bank Risk-Based Capital:
Total risk-based capitalTotal risk-based capital$360,815 $351,081 Total risk-based capital$727,620 $700,869 
Tier 1 risk-based capitalTier 1 risk-based capital339,218 329,824 Tier 1 risk-based capital687,232 664,688 
Common equity Tier 1 capitalCommon equity Tier 1 capital339,218 329,824 Common equity Tier 1 capital687,232 664,688 
Total capital ratioTotal capital ratio11.5 %11.2 %Total capital ratio13.0 %12.2 %
Tier 1 capital ratioTier 1 capital ratio10.8 %10.5 %Tier 1 capital ratio12.3 %11.6 %
Common equity tier 1 capital ratioCommon equity tier 1 capital ratio10.8 %10.5 %Common equity tier 1 capital ratio12.3 %11.6 %
Tier 1 leverage ratioTier 1 leverage ratio7.8 %7.8 %Tier 1 leverage ratio9.6 %10.3 %
* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.* Reflects common stock repurchased under board of director authorizations for the common stock repurchase program.
In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities) in light of strategic plans. During first quarter 2021, $4.12022, $54 million was utilized to repurchase and cancel 56,886593,713 shares of common stock, at an average per share cost of $91.66, pursuant to our common stock repurchase program. At March 31, 2021,Subsequently, on April 19, 2022, the Company’s board authorized an increase to the program of $40 million. Including this additional authorization, there remained $16.3remains $55 million authorized under this repurchase program, as modified, to be utilized from time-to-time to repurchase shares in the open market, through block transactions or in private transactions.
41



Critical Accounting PoliciesEstimates
In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Estimates that are particularly susceptible to significant change include the valuation of loan acquisition transactions, as well as the determination of the allowance for credit losses and income taxes. A discussion of these policiesestimates can be found in the “Critical Accounting Policies”Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s 20202021 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting policies since December 31, 2020.2021.

Future Accounting Pronouncements
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. The updated guidance is effective for all entities as of March 12, 2020 through December 31, 2022. The Company continues to evaluate the impact of reference rate reform on its consolidated financial statements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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.
46



ITEM 4. CONTROLS AND PROCEDURES
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 our Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as such term is defined 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 procedures were effective.
There have been no changes in the Company’s internal controls or, to the Company’s knowledge, in other factors during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


4247


PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
We and our subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither we nor any of our subsidiaries are currently engaged in any legal proceedings that are expected to have a material adverse effect on our results of operations or financial position.

ITEM 1A. RISK FACTORS
There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.2021.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
Following are Nicolet’s monthly common stock purchases during the first quarter of 2021.2022.
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, 20219,688 $68.41 9,688 542,500 
February 1 – February 28, 202150,389 $72.94 43,698 498,800 
March 1 – March 31, 20213,716 $76.80 3,500 495,300 
Total63,793 $72.48 56,886 495,300 
Total Number of
Shares Purchased (a)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs (b)
(#)($)(#)(#)
Period
January 1 – January 31, 2022316,146 $89.45 316,146 
February 1 – February 28, 2022198,167 $94.19 198,167 
March 1 – March 31, 202279,610 $94.14 79,400 
Total593,923 $91.66 593,713 155,600 
(a)During first quarter 2021,2022, the Company repurchased 1,300210 common shares for minimum tax withholding settlements on restricted stock and 5,607common shares were repurchased to satisfy the exercise price and / or tax withholding requirements of stock options.stock. These purchases do not count against the maximum number of shares that may yet be purchased under the board of directors'directors’ authorization.
(b)During first quarter 2021, Nicolet utilized $4.1The board of directors approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to $236 million to repurchase and cancel approximately 56,900outstanding shares of common stock pursuant to ourstock. This common stock repurchase program.program has no expiration date. At March 31, 2021,2022, approximately $16.3$15 million remained available under this common stock repurchase program.program, or approximately 155,600 shares of common stock (based upon the closing stock price of $93.57 on March 31, 2022). Subsequently, on April 19, 2022, Nicolet’s board authorized an increase to the program of $40 million.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.

ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.

ITEM 5. OTHER INFORMATION
None.
4348



ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit
Number
Description
2.1
31.1
31.2
32.1
32.2
101.INS
The XBRL Instance Document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document (2)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Incorporated by reference to the exhibit of the same number in the Registrant'sRegistrant’s Current Report on Form 8-K filed on April 12, 2021.March 30, 2022.
(2) Includes the following financial information included in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021,2022, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders'Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.
4449


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.
April 30, 202129, 2022/s/ Michael E. Daniels
Michael E. Daniels
President and Chief Executive Officer
April 30, 202129, 2022/s/ Ann K. LawsonH. Phillip Moore, Jr.
Ann K. LawsonH. Phillip Moore, Jr.
Chief Financial Officer

4550