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, ~~2022~~2023

☐ 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)

Wisconsin

47-0871001

(State or Other Jurisdiction of Incorporation or Organization)

(I.R.S. Employer Identification No.)

111 North Washington Street

Green Bay,

Wisconsin

54301

(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 class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	~~NCBS~~NIC	~~The NASDAQ~~New York Stock ~~Market LLC~~Exchange

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 filer	☐☒	Accelerated filer	☒☐

Non-accelerated filer	☐	Smaller reporting company	☐

Emerging ~~Growth Company~~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 ~~27, 2022~~30, 2023 there were ~~13,392,160~~14,716,616 shares of $0.01 par value common stock outstanding.

Nicolet Bankshares, Inc.

Quarterly Report on Form 10-Q

March 31, ~~2022~~2023

TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:

NICOLET BANKSHARES, INC.

Consolidated Balance Sheets

(In thousands, except share and per share data)


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
		(Unaudited)		(Audited)			(Unaudited)		(Audited)
Assets	Assets					Assets
Cash and due from banks	Cash and due from banks	$	183,705	$	209,349	Cash and due from banks	$	93,462	$	121,211
Interest-earning deposits	Interest-earning deposits	212,218		385,943		Interest-earning deposits	20,718		33,512

Cash and cash equivalents	Cash and cash equivalents	395,923		595,292		Cash and cash equivalents	114,180		154,723
Certificates of deposit in other banks	Certificates of deposit in other banks	19,692		21,920		Certificates of deposit in other banks	11,293		12,518
Securities available for sale (“AFS”), at fair value	Securities available for sale (“AFS”), at fair value	852,331		921,661		Securities available for sale (“AFS”), at fair value	1,023,176		917,618
Securities held to maturity (“HTM”), at amortized cost	Securities held to maturity (“HTM”), at amortized cost	684,991		651,803		Securities held to maturity (“HTM”), at amortized cost	—		679,128
Other investments	Other investments	54,257		44,008		Other investments	57,482		65,286
Loans held for sale	Loans held for sale	9,764		6,447		Loans held for sale	4,962		1,482
Other assets held for sale		—		199,833

Loans	Loans	4,683,315		4,621,836		Loans	6,223,732		6,180,499
Allowance for credit losses - loans (“ACL-Loans”)	Allowance for credit losses - loans (“ACL-Loans”)	(49,906)		(49,672)		Allowance for credit losses - loans (“ACL-Loans”)	(62,412)		(61,829)
Loans, net	Loans, net	4,633,409		4,572,164		Loans, net	6,161,320		6,118,670
Premises and equipment, net	Premises and equipment, net	94,275		94,566		Premises and equipment, net	112,569		108,956
Bank owned life insurance (“BOLI”)	Bank owned life insurance (“BOLI”)	135,292		134,476		Bank owned life insurance (“BOLI”)	166,107		165,137
Goodwill and other intangibles, net	Goodwill and other intangibles, net	338,068		339,492		Goodwill and other intangibles, net	400,277		402,438
Accrued interest receivable and other assets	Accrued interest receivable and other assets	102,210		113,375		Accrued interest receivable and other assets	140,988		138,013
Total assets	Total assets	$	7,320,212	$	7,695,037	Total assets	$	8,192,354	$	8,763,969

Liabilities and Stockholders’ Equity	Liabilities and Stockholders’ Equity					Liabilities and Stockholders’ Equity
Liabilities:	Liabilities:					Liabilities:
Noninterest-bearing demand deposits	Noninterest-bearing demand deposits	$	1,912,995	$	1,975,705	Noninterest-bearing demand deposits	$	2,094,623	$	2,361,816
Interest-bearing deposits	Interest-bearing deposits	4,318,125		4,490,211		Interest-bearing deposits	4,833,956		4,817,105
Total deposits	Total deposits	6,231,120		6,465,916		Total deposits	6,928,579		7,178,921
Short-term borrowings						Short-term borrowings	50,000		317,000
Long-term borrowings						Long-term borrowings	197,448		225,342

Long-term borrowings		206,946		216,915
Other liabilities held for sale		—		51,586
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	45,836		68,729		Accrued interest payable and other liabilities	54,535		70,177
Total liabilities	Total liabilities	6,483,902		6,803,146		Total liabilities	7,230,562		7,791,440

Stockholders’ Equity:	Stockholders’ Equity:					Stockholders’ Equity:
Common stock	Common stock	135		140		Common stock	147		147
Additional paid-in capital	Additional paid-in capital	524,478		575,045		Additional paid-in capital	623,746		621,988
Retained earnings	Retained earnings	337,768		313,604		Retained earnings	398,966		407,864
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(26,071)		3,102		Accumulated other comprehensive income (loss)	(61,067)		(57,470)
Total stockholders’ equity	Total stockholders’ equity	836,310		891,891		Total stockholders’ equity	961,792		972,529
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	7,320,212	$	7,695,037	Total liabilities and stockholders’ equity	$	8,192,354	$	8,763,969

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 outstanding	Preferred shares issued and outstanding	—		—		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 outstanding	Common shares outstanding	13,456,741		13,994,079		Common shares outstanding	14,698,265		14,690,614
Common shares issued	Common shares issued	13,481,442		14,019,880		Common shares issued	14,771,255		14,764,104

See accompanying notes to unaudited consolidated financial statements.

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.

Consolidated Statements of Income (Loss)

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


		Three Months Ended March 31,				Three Months Ended March 31,
		2022		2021				2023		2022
Interest income:	Interest income:						Interest income:
Loans, including loan fees	Loans, including loan fees	$	51,299	$	33,862		Loans, including loan fees	$	79,142	$	51,299
Investment securities:	Investment securities:						Investment securities:
Taxable	Taxable	5,127		1,814			Taxable	4,961		5,127
Tax-exempt	Tax-exempt	675		545			Tax-exempt	1,737		675
Other interest income	Other interest income	817		655			Other interest income	1,536		817
Total interest income	Total interest income	57,918		36,876			Total interest income	87,376		57,918
Interest expense:	Interest expense:						Interest expense:
Deposits	Deposits	2,192		2,922			Deposits	24,937		2,192
Short-term borrowings	Short-term borrowings	—		—			Short-term borrowings	3,212		—
Long-term borrowings	Long-term borrowings	1,931		313			Long-term borrowings	2,506		1,931
Total interest expense	Total interest expense	4,123		3,235			Total interest expense	30,655		4,123
Net interest income	Net interest income	53,795		33,641			Net interest income	56,721		53,795
Provision for credit losses	Provision for credit losses	300		500			Provision for credit losses	3,090		300
Net interest income after provision for credit losses	Net interest income after provision for credit losses	53,495		33,141			Net interest income after provision for credit losses	53,631		53,495
Noninterest income:	Noninterest income:						Noninterest income:
Trust services fee income		2,011		1,775
Brokerage fee income		3,688		2,793
Wealth management fee income							Wealth management fee income	5,512		5,699
Mortgage income, net	Mortgage income, net	3,253		7,230			Mortgage income, net	1,466		3,253
Service charges on deposit accounts	Service charges on deposit accounts	1,477		1,091			Service charges on deposit accounts	1,480		1,477
Card interchange income	Card interchange income	2,581		1,927			Card interchange income	3,033		2,581
BOLI income	BOLI income	933		527			BOLI income	1,200		933
Deferred compensation plan asset market valuations							Deferred compensation plan asset market valuations	946		(467)
LSR income, net							LSR income, net	1,155		(382)
Asset gains (losses), net	Asset gains (losses), net	1,313		711			Asset gains (losses), net	(38,468)		1,313
Other income	Other income	687		1,072			Other income	1,832		1,536
Total noninterest income	Total noninterest income	15,943		17,126			Total noninterest income	(21,844)		15,943
Noninterest expense:	Noninterest expense:						Noninterest expense:
Personnel	Personnel	21,191		15,116			Personnel	24,328		21,191
Occupancy, equipment and office	Occupancy, equipment and office	6,944		4,137			Occupancy, equipment and office	8,783		6,944
Business development and marketing	Business development and marketing	1,831		989			Business development and marketing	2,121		1,831
Data processing	Data processing	3,387		2,658			Data processing	3,988		3,387
Intangibles amortization	Intangibles amortization	1,424		852			Intangibles amortization	2,161		1,424
FDIC assessments	FDIC assessments	480		595			FDIC assessments	540		480
Merger-related expense	Merger-related expense	98		—			Merger-related expense	163		98
Other expense	Other expense	2,195		1,734			Other expense	2,791		2,195
Total noninterest expense	Total noninterest expense	37,550		26,081			Total noninterest expense	44,875		37,550
Income before income tax expense		31,888		24,186
Income tax expense		7,724		5,947
Net income		$	24,164	$	18,239
Earnings per common share:
Income (loss) before income tax expense							Income (loss) before income tax expense	(13,088)		31,888
Income tax expense (benefit)							Income tax expense (benefit)	(4,190)		7,724
Net income (loss)							Net income (loss)	$	(8,898)	$	24,164
Earnings (loss) per common share:							Earnings (loss) per common share:
Basic	Basic	$	1.77	$	1.82		Basic	$	(0.61)	$	1.77
Diluted	Diluted	$	1.70	$	1.75		Diluted	$	(0.61)	$	1.70
Weighted average common shares outstanding:	Weighted average common shares outstanding:						Weighted average common shares outstanding:
Basic	Basic	13,648,745		9,997,634			Basic	14,694,451		13,648,745
Diluted	Diluted	14,214,752		10,403,309			Diluted	14,694,451		14,214,752

See accompanying notes to unaudited consolidated financial statements.

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,
		2022		2021				2023		2022
Net income		$	24,164	$	18,239
Net income (loss)							Net income (loss)	$	(8,898)	$	24,164
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)	(39,948)		(7,369)			Net unrealized holding gains (losses)	15,294		(39,948)
Net realized (gains) losses included in income	Net realized (gains) losses included in income	(15)		—			Net realized (gains) losses included in income	213		(15)
Reclassification adjustment for securities transferred from held to maturity to available for sale							Reclassification adjustment for securities transferred from held to maturity to available for sale	(20,434)		—
Income tax (expense) benefit	Income tax (expense) benefit	10,790		1,989			Income tax (expense) benefit	1,330		10,790
Total other comprehensive income (loss)	Total other comprehensive income (loss)	(29,173)		(5,380)			Total other comprehensive income (loss)	(3,597)		(29,173)
Comprehensive income (loss)	Comprehensive income (loss)	$	(5,009)	$	12,859		Comprehensive income (loss)	$	(12,495)	$	(5,009)

See accompanying notes to unaudited consolidated financial statements.

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			Common Stock		Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income (Loss)		Total
Balances at December 31, 2022												Balances at December 31, 2022	$	147	$	621,988	$	407,864	$	(57,470)	$	972,529
Comprehensive income:												Comprehensive income:
Net income (loss), three months ended March 31, 2023												Net income (loss), three months ended March 31, 2023	—		—		(8,898)		—		(8,898)
Other comprehensive income (loss)												Other comprehensive income (loss)	—		—		—		(3,597)		(3,597)

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

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

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

Balances at March 31, 2022	Balances at March 31, 2022	$	135	$	524,478	$	337,768	$	(26,071)	$	836,310	Balances at March 31, 2022	$	135	$	524,478	$	337,768	$	(26,071)	$	836,310
Balances at December 31, 2020		$	100	$	273,390	$	252,952	$	12,747	$	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	$	550,046

See accompanying notes to unaudited consolidated financial statements.

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,
		2022		2021			2023		2022
Cash Flows From Operating Activities:	Cash Flows From Operating Activities:					Cash Flows From Operating Activities:
Net income		$	24,164	$	18,239
Adjustments to reconcile net income to net cash provided by operating activities:
Net income (loss)						Net income (loss)	$	(8,898)	$	24,164
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:						Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretion	Depreciation, amortization, and accretion	6,769		2,719		Depreciation, amortization, and accretion	4,197		6,769
Provision for credit losses	Provision for credit losses	300		500		Provision for credit losses	3,090		300
Increase in cash surrender value of life insurance	Increase in cash surrender value of life insurance	(933)		(527)		Increase in cash surrender value of life insurance	(1,087)		(933)
Stock-based compensation expense	Stock-based compensation expense	1,799		1,341		Stock-based compensation expense	1,424		1,799
Asset (gains) losses, net	Asset (gains) losses, net	(1,313)		(711)		Asset (gains) losses, net	38,468		(1,313)
Gain on sale of loans held for sale, net	Gain on sale of loans held for sale, net	(2,377)		(7,255)		Gain on sale of loans held for sale, net	(612)		(2,377)
Net change due to:	Net change due to:					Net change due to:
Proceeds from sale of loans held for sale	Proceeds from sale of loans held for sale	86,478		222,406		Proceeds from sale of loans held for sale	17,789		86,478
Origination of loans held for sale	Origination of loans held for sale	(88,304)		(211,701)		Origination of loans held for sale	(20,861)		(88,304)
Accrued interest receivable and other assets	Accrued interest receivable and other assets	6,786		9,719		Accrued interest receivable and other assets	(2,326)		6,786
Accrued interest payable and other liabilities	Accrued interest payable and other liabilities	(11,426)		3,483		Accrued interest payable and other liabilities	(15,642)		(11,426)
Net cash provided by (used in) operating activities	Net cash provided by (used in) operating activities	21,943		38,213		Net cash provided by (used in) operating activities	15,542		21,943
Cash Flows From Investing Activities:	Cash Flows From Investing Activities:					Cash Flows From Investing Activities:
Net (increase) decrease in loans	Net (increase) decrease in loans	(64,669)		(57,003)		Net (increase) decrease in loans	(41,764)		(64,669)
Net (increase) decrease in certificates of deposit in other banks	Net (increase) decrease in certificates of deposit in other banks	2,228		2,225		Net (increase) decrease in certificates of deposit in other banks	1,225		2,228
Purchases of securities AFS	Purchases of securities AFS	(5,017)		(48,402)		Purchases of securities AFS	—		(5,017)
Purchases of securities HTM	Purchases of securities HTM	(38,856)		—		Purchases of securities HTM	—		(38,856)
Proceeds from sales of securities AFS	Proceeds from sales of securities AFS	3,400		—		Proceeds from sales of securities AFS	22,565		3,400
Proceeds from sales of securities HTM						Proceeds from sales of securities HTM	460,051		—
Proceeds from calls and maturities of securities AFS	Proceeds from calls and maturities of securities AFS	29,511		21,215		Proceeds from calls and maturities of securities AFS	42,028		29,511
Proceed from calls and maturities of securities HTM		5,430		—
Proceeds from calls and maturities of securities HTM						Proceeds from calls and maturities of securities HTM	2,916		5,430
Purchases of other investments	Purchases of other investments	(10,953)		(89)		Purchases of other investments	(3,801)		(10,953)
Proceeds from sales of other investments	Proceeds from sales of other investments	775		81		Proceeds from sales of other investments	11,108		775

Proceeds from redemption of BOLI	Proceeds from redemption of BOLI	117		—		Proceeds from redemption of BOLI	117		117
Net (increase) decrease in premises and equipment	Net (increase) decrease in premises and equipment	(1,953)		(485)		Net (increase) decrease in premises and equipment	(5,646)		(1,953)
Net (increase) decrease in other real estate and other assets	Net (increase) decrease in other real estate and other assets	3,075		293		Net (increase) decrease in other real estate and other assets	—		3,075
Net cash (paid) received in branch sale	Net cash (paid) received in branch sale	147,833		—		Net cash (paid) received in branch sale	—		147,833

Net cash provided by (used in) investing activities	Net cash provided by (used in) investing activities	70,921		(82,165)		Net cash provided by (used in) investing activities	488,799		70,921
Cash Flows From Financing Activities:	Cash Flows From Financing Activities:					Cash Flows From Financing Activities:
Net increase (decrease) in deposits	Net increase (decrease) in deposits	(229,862)		(9,710)		Net increase (decrease) in deposits	(250,218)		(229,862)

Net increase (decrease) in short-term borrowings						Net increase (decrease) in short-term borrowings	(267,000)		—

Repayments of long-term borrowings	Repayments of long-term borrowings	(10,000)		(10,000)		Repayments of long-term borrowings	(28,000)		(10,000)
Purchase and retirement of common stock	Purchase and retirement of common stock	(54,433)		(4,625)		Purchase and retirement of common stock	—		(54,433)

Proceeds from issuance of common stock	Proceeds from issuance of common stock	175		121		Proceeds from issuance of common stock	186		175
Proceeds from exercise of stock options	Proceeds from exercise of stock options	1,887		1,161		Proceeds from exercise of stock options	148		1,887

Net cash provided by (used in) financing activities	Net cash provided by (used in) financing activities	(292,233)		(23,053)		Net cash provided by (used in) financing activities	(544,884)		(292,233)
Net increase (decrease) in cash and cash equivalents	Net increase (decrease) in cash and cash equivalents	(199,369)		(67,005)		Net increase (decrease) in cash and cash equivalents	(40,543)		(199,369)
Cash and cash equivalents:	Cash and cash equivalents:					Cash and cash equivalents:
Beginning	Beginning	595,292		802,859		Beginning	154,723		595,292
Ending *	Ending *	$	395,923	$	735,854	Ending *	$	114,180	$	395,923
Supplemental Disclosures of Cash Flow Information:	Supplemental Disclosures of Cash Flow Information:					Supplemental Disclosures of Cash Flow Information:
Cash paid for interest	Cash paid for interest	$	5,170	$	3,492	Cash paid for interest	$	30,825	$	5,170
Cash paid for taxes	Cash paid for taxes	—		—		Cash paid for taxes	—		—
Transfer of securities from HTM to AFS						Transfer of securities from HTM to AFS	177,727		—
Transfer of loans and bank premises to other real estate owned	Transfer of loans and bank premises to other real estate owned	432		302		Transfer of loans and bank premises to other real estate owned	—		432
Capitalized mortgage servicing rights	Capitalized mortgage servicing rights	886		1,117		Capitalized mortgage servicing rights	204		886

* ~~Cash~~There was no restricted cash in cash and cash equivalents at ~~both~~March 31, 2023, while cash and cash equivalents at March 31, 2022, ~~and March 31, 2021, include~~included restricted cash of $1.9 millionpledged as collateral on interest rate ~~swaps and no~~swaps. No reserve balance was required with the Federal Reserve ~~Bank.~~Bank at either March 31, 2023 or March 31, 2022.

See accompanying notes to unaudited consolidated financial statements.

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 (loss), comprehensive income (loss), changes in stockholders’ equity, and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, as of and for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances 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, ~~2021.~~2022.

Critical Accounting Policies and Estimates

Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates, assumptions, and ~~assumptions~~judgments that affect the amounts reported in the consolidated financial statements and accompanying disclosures. ~~These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future.~~ Estimates are used in accounting for, among other items, the allowance for credit losses, valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. ~~Estimates that~~These estimates are ~~particularly susceptible~~based on management’s knowledge of historical experience, current information, and other factors deemed to significant change for the Company include the determination of the allowance for 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.be relevant; accordingly, as this information changes, actual results could differ from those estimates. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. ~~Actual~~Nicolet considers accounting estimates to be critical to reported financial results ~~may ultimately differ~~if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that are reasonably likely to occur from period to period, could have a material impact on the financial statements. The accounting estimates ~~although management does not generally believe such differences would materially affect~~we consider to be critical include business combinations and the ~~consolidated financial statements in any individual reporting period presented.~~valuation of loans acquired, the determination of the allowance for credit losses, and income taxes.

There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying ~~what management believes are~~ critical accounting policies and developing critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

~~Future~~Recent Accounting Pronouncements Adopted

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~~eliminated the accounting guidance for TDRs by creditors ~~while enhancing~~and enhanced the disclosure requirements for ~~certain~~ loan ~~refinancings and restructurings by creditors when a borrower is~~modifications to borrowers experiencing financial difficulty. The ASU also requires public business entities to expand the vintage disclosures to include gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, ~~2022, with early adoption permitted. The Company is evaluating the impact~~2022. Adoption of this ASU did not have a material impact on ~~its~~the Company’s consolidated financial ~~statements.~~statements; however, it resulted in new disclosures. See Note 6 for the new disclosures.

Future Accounting Pronouncements

In March 2023, the FASB issued ASU 2023-02, Investments - Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. This ASU permits reporting entities to elect to account for tax equity investments, regardless of the tax credit program for which the income tax credits are received, using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the income tax credits and other income tax benefits received and recognizes the net amortization and income tax credits and other income tax benefits in the income statement as a component of income tax expense. A reporting entity makes an accounting policy election to apply the proportional amortization method on a tax-credit-program-by-tax-credit-program basis rather than electing to apply the proportional amortization method at the reporting entity level or to individual investments. This ASU also requires specific disclosures of investments that generate income tax credits and other income tax benefits from a tax credit program for which the entity has elected to apply the proportional amortization method. The updated guidance is effective for fiscal years beginning after December 15, 2023.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. This ASU provides optional guidance for a limited period of time to ease the potential burden in accounting for (or recognizing the effects of) reference rate reform on financial reporting. It provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. ~~The updated~~In December 2022, the FASB issued ASU 2022-06, Reference Rate Reform (Topic 848): Deferral of the Sunset Date of Topic 848, which defers the sunset date of the original guidance ~~is effective for all entities as of March 12, 2020 through~~from December 31, ~~2022.~~2022 to December 31, 2024. The Company continues to ~~evaluate~~work through the ~~impact~~cessation of LIBOR, including the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the reference rate reform transition guidance, as applicable, and does not expect such adoption to have a material impact on its consolidated financial ~~statements.~~statements or financial disclosures. The Company will continue to assess the impact as the reference rate transition approaches June 30, 2023.

Reclassifications

Certain amounts in the ~~2021~~2022 consolidated financial statements have been reclassified to conform to the ~~2022~~2023 presentation. These reclassifications were not material and did not impact previously reported net income or comprehensive income.

Note 2 – ~~Acquisitions~~

~~Completed Acquisitions:~~Acquisition

~~County Bancorp,~~Charter Bankshares, Inc. (“~~County”~~Charter”): On ~~December 3, 2021,~~August 26, 2022, Nicolet completed its merger with ~~County,~~Charter, pursuant to the Agreement and Plan of Merger dated ~~June 22, 2021 (the “County Merger Agreement”),~~March 29, 2022, at which time ~~County~~Charter merged with and

into Nicolet, and ~~Investors Community~~Charter Bank, the wholly owned bank subsidiary of ~~County,~~Charter, 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~~ In the merger, ~~was converted into the right to receive, at the election of the shareholder, either cash of $37.18 or 0.48~~Charter stockholders received 15.458 shares of Nicolet common stock ~~subject to proration procedures such that 1,237,000 shares~~and $475 in cash for each share of ~~County common stock were exchanged for cash, and the remaining shares were exchanged for Nicolet common stock.~~Charter owned. As a result, Nicolet issued approximately ~~2.4~~1.26 million shares of Nicolet common stock for stock consideration of ~~$176~~$98 million and cash consideration of ~~$48~~$39 million, orfor a total ~~purchases~~purchase price of ~~$224~~$137 million. With the ~~County~~Charter merger, Nicolet ~~became the premier agriculture lender throughout Wisconsin.~~expanded to Western Wisconsin and Minnesota.

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


(In millions, except share data)	(In millions, except share data)	Acquired from County		Fair Value Adjustments		Estimated Fair Value		(In millions, except share data)	Acquired from Charter		Fair Value Adjustments		Estimated Fair Value
Assets Acquired:	Assets Acquired:							Assets Acquired:
Cash and cash equivalents	Cash and cash equivalents	$	20	$	—	$	20	Cash and cash equivalents	$	10	$	—	$	10
Investment securities	Investment securities	301		(1)		300		Investment securities	218		—		218
Loans	Loans	1,015		(1)		1,014		Loans	848		(21)		827
ACL-Loans	ACL-Loans	(11)		8		(3)		ACL-Loans	(9)		7		(2)
Premises and equipment	Premises and equipment	21		(4)		17		Premises and equipment	9		1		10
BOLI	BOLI	33		—		33		BOLI	29		—		29
Core deposit intangible	Core deposit intangible	—		7		7		Core deposit intangible	—		19		19
Loan servicing rights		20		—		20
Other assets	Other assets	6		(2)		4		Other assets	5		5		10
Total assets	Total assets	$	1,405	$	7	$	1,412	Total assets	$	1,110	$	11	$	1,121
Liabilities Assumed:	Liabilities Assumed:							Liabilities Assumed:
Deposits	Deposits	$	1,027	$	3	$	1,030	Deposits	$	869	$	1	$	870
Borrowings	Borrowings	218		1		219		Borrowings	161		—		161
Other liabilities	Other liabilities	8		—		8		Other liabilities	3		—		3
Total liabilities	Total liabilities	$	1,253	$	4	$	1,257	Total liabilities	$	1,033	$	1	$	1,034
Net assets acquired	Net assets acquired					$	155	Net assets acquired					$	87
Purchase Price:	Purchase Price:							Purchase Price:
Nicolet common stock issued (in shares)	Nicolet common stock issued (in shares)					2,366,243		Nicolet common stock issued (in shares)					1,262,360
Value of Nicolet common stock consideration	Value of Nicolet common stock consideration					$	176	Value of Nicolet common stock consideration					$	98
Cash consideration paid	Cash consideration paid					48		Cash consideration paid					39
Total purchase price	Total purchase price					$	224	Total purchase price					$	137
Write-off prior investment in County						(1)
Preliminary goodwill	Preliminary goodwill					$	70	Preliminary goodwill					$	50

The Company purchased loans through the acquisition of ~~County~~Charter 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~~August 26, 2022
Purchase price of PCD loans at acquisition	$	~~64,948~~24,031
Allowance for credit losses on PCD loans at acquisition	~~3,262~~1,709
Par value of PCD acquired loans at acquisition	$	~~68,210~~25,740

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

~~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.

Pursuant 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 2.3 million shares of Nicolet common stock for stock consideration of $180 million and cash consideration of $49 million, or a total purchase price of $229 million. The Mackinac merger expanded Nicolet prominently into Northern Michigan and the 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 Mackinac Fair Value Adjustments Estimated Fair Value
Assets Acquired:
Cash and cash equivalents $ 448 $ — $ 448
Investment securities 104 — 104
Loans 930 10 940
ACL-Loans (6) 4 (2)
Premises and equipment 24 (3) 21
BOLI 16 — 16
Goodwill 20 (20) —
Other intangibles 4 3 7
Other assets 25 (3) 22
     Total assets $ 1,565 $ (9) $ 1,556
Liabilities Assumed:
Deposits $ 1,365 $ 1 $ 1,366
Borrowings 28 1 29
Other liabilities 13 1 14
     Total liabilities $ 1,406 $ 3 $ 1,409
Net assets acquired $ 147
Purchase Price:
Nicolet common stock issued (in shares) 2,337,230
Value of Nicolet common stock consideration $ 180
Cash consideration paid 49
    Total purchase price $ 229
Write-off prior investment in Mackinac (2)
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 acquisition~~	~~1,896~~
~~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

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


		Three Months Ended March 31,				Three Months Ended March 31,
(In thousands, except per share data)	(In thousands, except per share data)	2022		2021			(In thousands, except per share data)	2023		2022
Net income		$	24,164	$	18,239
Net income (loss)							Net income (loss)	$	(8,898)	$	24,164
Weighted average common shares outstanding	Weighted average common shares outstanding	13,649		9,998			Weighted average common shares outstanding	14,694		13,649
Effect of dilutive common stock awards	Effect of dilutive common stock awards	566		405			Effect of dilutive common stock awards	—		566
Diluted weighted average common shares outstanding	Diluted weighted average common shares outstanding	14,215		10,403			Diluted weighted average common shares outstanding	14,694		14,215
Basic earnings per common share*		$	1.77	$	1.82
Diluted earnings per common share*		$	1.70	$	1.75
Basic earnings (loss) per common share*							Basic earnings (loss) per common share*	$	(0.61)	$	1.77
Diluted earnings (loss) per common share*							Diluted earnings (loss) per common share*	$	(0.61)	$	1.70

*Cumulative quarterly per share performance may not equal annual per share totals due to the effects of the amount and timing of capital increases. When computing earnings per share for an interim period, the denominator is based on the weighted average 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.

As a result of the Company’s reported net loss for the three months ended March 31, 2023, all of the common stock awards outstanding were excluded from the computation of diluted earnings (loss) per common shares. For the three months ended March 31, 2022, ~~and 2021, respectively,~~ options to purchase ~~less than~~approximately 0.1 million shares ~~are~~were excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive.

Note 4 – Stock-Based 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, ~~2022,~~2023, approximately ~~0.8~~0.7 million shares were available for grant under these stock-based compensation plans.

A Black-Scholes model is utilized to estimate the fair value of stock option grants, while the market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards. The weighted average assumptions used in the Black-Scholes model for valuing stock option grants for the three months ended March 31, 2022 ~~and 2021~~ were as follows. There were no stock options granted for the three months ended March 31, 2023.

Three Months Ended March 31,
2022 2021
Dividend yield — % — %
Expected volatility 30 % — %
Risk-free interest rate 1.77 % — %
Expected average life 7 years 0 years
Weighted average per share fair value of options $ 32.99 $ —


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

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

Stock Options Option Shares
Outstanding Weighted
Average
Exercise Price Weighted Average
Remaining
Life (Years) Aggregate
Intrinsic Value
(in thousands)
Outstanding - December 31, 2021 1,833,246 $ 57.69
Granted 30,429 93.68
Exercise of stock options * (59,811) 41.73
Forfeited (4,500) 78.67
Outstanding - March 31, 2022 1,799,364 $ 58.78 6.5 $ 62,622
Exercisable - March 31, 2022 977,935 $ 48.90 5.1 $ 43,690


Stock Options	Option Shares Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Life (Years)	Aggregate Intrinsic Value (in thousands)
Outstanding - December 31, 2022	1,853,064	$	59.79
Granted	—	—
Exercise of stock options *	(5,329)	34.82

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

* The terms of the stock option agreements permit having a number of shares of stock withheld, the fair market value of which as of the date of exercise is sufficient to satisfy the exercise price and/or tax withholding requirements. For the three months ended March 31, ~~2022, 6,073~~2023, 492 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, ~~2022~~2023 and ~~2021~~2022 was approximately ~~$3.0~~$0.2 million and ~~$1.3~~$3.0 million, respectively.

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

Restricted Stock Weighted Average Grant
Date Fair Value Restricted Shares
Outstanding
Outstanding - December 31, 2021 $ 71.42 25,801
Granted — —
Vested * 63.28 (1,100)
Forfeited — —
Outstanding - 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, 210 shares were surrendered during the three months ended March 31, 2022.


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

Outstanding - March 31, 2023	$	76.52	72,990

The Company recognized approximately ~~$1.8~~$1.4 million and ~~$1.2~~$1.8 million of stock-based compensation expense (included in personnel on the consolidated statements of income) for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, associated with its common stock awards granted to officers and employees. In addition, during the 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, ~~2022,~~2023, there was approximately ~~$15.8~~$17.2 million of unrecognized compensation cost related to equity award ~~grants. The cost~~grants, which is expected to be recognized over the remaining vesting period of approximately ~~four~~three years. The Company recognized a tax benefit of ~~approximately $0.4~~less than $0.1 million and ~~$0.2~~approximately $0.4 million for the three months ended March 31, ~~2022~~2023 and ~~2021,~~2022, respectively, for the tax impact of stock option exercises and vesting of restricted stock.

Note 5 – Securities and Other Investments

Securities

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

The amortized cost and fair value of securities AFS and HTM are summarized as follows.


		March 31, 2022											March 31, 2023
(in thousands)	(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value		Fair Value as % of Total		(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Securities AFS:	Securities AFS:											Securities AFS:
U.S. Treasury securities												U.S. Treasury securities	$	192,166	$	—	$	6,058	$	186,108
U.S. government agency securities	U.S. government agency securities	$	192,442	$	—	$	6,119	$	186,323	22	%	U.S. government agency securities	9,959		36		25		9,970
State, county and municipals	State, county and municipals	305,034		135		16,461		288,708		34	%	State, county and municipals	428,643		692		31,887		397,448
Mortgage-backed securities	Mortgage-backed securities	255,866		215		12,477		243,604		28	%	Mortgage-backed securities	350,712		—		39,091		311,621
Corporate debt securities	Corporate debt securities	134,703		1,207		2,214		133,696		16	%	Corporate debt securities	125,349		—		7,320		118,029
Total securities AFS	Total securities AFS	$	888,045	$	1,557	$	37,271	$	852,331	100	%	Total securities AFS	$	1,106,829	$	728	$	84,381	$	1,023,176
Securities HTM:
U.S. government agency securities		$	508,373	$	—	$	23,648	$	484,725	74	%
State, county and municipals		44,790		5		1,592		43,203		7	%
Mortgage-backed securities		131,828		—		7,700		124,128		19	%

Total securities HTM		$	684,991	$	5	$	32,940	$	652,056	100	%

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


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

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

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


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

All mortgage-backed securities included in the tables above were issued by U.S. government agencies and corporations. Investment securities with a carrying value of ~~$372~~$414 million and ~~$277~~$883 million, as of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, respectively, were pledged as collateral onto secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required ~~or permitted~~ by ~~law.~~regulation. Accrued interest on investment securities totaled $6 million ~~and $5 million~~ at both March 31, ~~2022~~2023 and December 31, ~~2021, respectively,~~2022, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

1312

The following table presents gross unrealized losses and the related estimated fair value of investment securities 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, 2022														March 31, 2023
		Less than 12 months				12 months or more				Total						Less than 12 months				12 months or more				Total
($ 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:														Securities AFS:
U.S. Treasury securities															U.S. Treasury securities	$	456	$	8	$	185,640	$	6,050	$	186,096	$	6,058	9
U.S. government agency securities	U.S. government agency securities	$	185,822	$	6,119	$	—	$	—	$	185,822	$	6,119	13	U.S. government agency securities	2,718		20		107		5		2,825		25		9
State, county and municipals	State, county and municipals	232,438		13,340		27,417		3,121		259,855		16,461		389	State, county and municipals	79,617		1,826		247,397		30,061		327,014		31,887		608
Mortgage-backed securities	Mortgage-backed securities	194,557		10,075		21,469		2,402		216,026		12,477		336	Mortgage-backed securities	35,724		2,158		275,897		36,933		311,621		39,091		464
Corporate debt securities	Corporate debt securities	66,907		2,214		—		—		66,907		2,214		43	Corporate debt securities	68,654		2,583		44,995		4,737		113,649		7,320		75
Total	Total	$	679,724	$	31,748	$	48,886	$	5,523	$	728,610	$	37,271	781	Total	$	187,169	$	6,595	$	754,036	$	77,786	$	941,205	$	84,381	1,165
Securities HTM:
U.S. government agency securities		$	484,577	$	23,648	$	—	$	—	$	484,577	$	23,648	9
State, county and municipals		37,514		1,592		—		—		37,514		1,592		54
Mortgage-backed securities		124,128		7,700		—		—		124,128		7,700		104

Total		$	646,219	$	32,940	$	—	$	—	$	646,219	$	32,940	167


		December 31, 2021														December 31, 2022
		Less than 12 months				12 months or more				Total						Less than 12 months				12 months or more				Total
($ 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:														Securities AFS:
U.S. Treasury securities															U.S. Treasury securities	$	448	$	14	$	183,382	$	8,272	$	183,830	$	8,286	9
U.S. government agency securities	U.S. government agency securities	$	190,432	$	1,235	$	—	$	—	$	190,432	$	1,235	11	U.S. government agency securities	2,083		32		17		1		2,100		33		9
State, county and municipals	State, county and municipals	103,950		2,119		1,777		83		105,727		2,202		132	State, county and municipals	277,546		18,041		86,569		17,627		364,115		35,668		812
Mortgage-backed securities	Mortgage-backed securities	137,561		1,616		6,068		229		143,629		1,845		159	Mortgage-backed securities	102,108		11,320		95,614		15,408		197,722		26,728		376
Corporate debt securities	Corporate debt securities	23,267		246		—		—		23,267		246		13	Corporate debt securities	114,887		6,186		12,938		1,961		127,825		8,147		90
Total	Total	$	455,210	$	5,216	$	7,845	$	312	$	463,055	$	5,528	315	Total	$	497,072	$	35,593	$	378,520	$	43,269	$	875,592	$	78,862	1,296
Securities HTM:	Securities HTM:														Securities HTM:
U.S. government agency securities		$	505,938	$	2,740	$	—	$	—	$	505,938	$	2,740	9
U.S. Treasury securities															U.S. Treasury securities	$	—	$	—	$	461,926	$	35,722	$	461,926	$	35,722	6

State, county and municipals	State, county and municipals	30,898		173		—		—		30,898		173		46	State, county and municipals	17,591		1,594		11,654		1,755		29,245		3,349		58
Mortgage-backed securities	Mortgage-backed securities	69,333		595		—		—		69,333		595		72	Mortgage-backed securities	68,108		8,029		53,003		8,722		121,111		16,751		106
Total	Total	$	606,169	$	3,508	$	—	$	—	$	606,169	$	3,508	127	Total	$	85,699	$	9,623	$	526,583	$	46,199	$	612,282	$	55,822	170

~~Quarterly,~~During first quarter 2023, the Company ~~evaluates securities AFS~~recognized provision expense of $2.3 million related to the expected credit loss on its Signature Bank sub debt investment (acquired in ~~unrealized loss positions to determine whether~~an acquisition), and immediately charged-off 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, 2022 and December 31, 2021, no allowance for credit losses on securities AFS was recognized.full investment. The Company does not consider its remaining 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 AFS 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~~ As of March 31, 2023 and December 31, 2022, no allowance for credit losses ~~is necessary. In making this determination, management considers~~on AFS securities was recognized.

The Company evaluated the ~~facts~~HTM securities and ~~circumstances of the underlying investment securities.~~determined no allowance for credit losses was necessary at December 31, 2022. The U.S. Treasury and 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~~considered 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,

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 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.

As of March 31, 2022 Securities AFS Securities HTM
(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value
Due in less than one year $ 37,717 $ 37,852 $ 6,197 $ 6,184
Due in one year through five years 319,726 313,302 503,946 480,140
Due after five years through ten years 192,077 180,523 33,963 32,665
Due after ten years 82,659 77,050 9,057 8,939
632,179 608,727 553,163 527,928
Mortgage-backed securities 255,866 243,604 131,828 124,128
Total investment securities $ 888,045 $ 852,331 $ 684,991 $ 652,056

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

Three Months Ended March 31,
(in thousands) 2022 2021
Gross gains $ 20 $ —
Gross losses (5) —
Gains (losses) on sales of securities AFS, net $ 15 $ —
Proceeds from sales of securities AFS $ 3,400 $ —


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

Other Investments

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


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
(in thousands)	(in thousands)	Amount		Amount		(in thousands)	Amount		Amount
Federal Reserve Bank stock	Federal Reserve Bank stock	$	29,020	$	20,973	Federal Reserve Bank stock	$	32,708	$	32,219
Federal Home Loan Bank (“FHLB”) stock	Federal Home Loan Bank (“FHLB”) stock	9,771		10,545		Federal Home Loan Bank (“FHLB”) stock	10,174		18,625
Equity securities with readily determinable fair values	Equity securities with readily determinable fair values	6,081		5,660		Equity securities with readily determinable fair values	3,912		4,376
Other investments	Other investments	9,385		6,830		Other investments	10,688		10,066
Total other investments	Total other investments	$	54,257	$	44,008	Total other investments	$	57,482	$	65,286

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

The loan composition is summarized as follows.


		March 31, 2022					December 31, 2021						March 31, 2023					December 31, 2022
(in thousands)	(in thousands)	Amount			% of Total		Amount			% of Total		(in thousands)	Amount			% of Total		Amount			% of Total
Commercial & industrial	Commercial & industrial	$	1,063,300		23	%	$	1,042,256		23	%	Commercial & industrial	$	1,330,052		21	%	$	1,304,819		21	%
Owner-occupied commercial real estate (“CRE”)	Owner-occupied commercial real estate (“CRE”)	794,946			17		787,189			17		Owner-occupied commercial real estate (“CRE”)	969,064			16		954,599			15
Agricultural	Agricultural	826,364			18		794,728			17		Agricultural	1,065,909			17		1,088,607			18
CRE investment	CRE investment	807,602			17		818,061			18		CRE investment	1,146,388			19		1,149,949			19
Construction & land development	Construction & land development	211,640			4		213,035			5		Construction & land development	333,370			5		318,600			5
Residential construction	Residential construction	72,660			2		70,353			1		Residential construction	134,782			2		114,392			2
Residential first mortgage	Residential first mortgage	721,107			15		713,983			15		Residential first mortgage	1,014,166			16		1,016,935			16
Residential junior mortgage	Residential junior mortgage	133,817			3		131,424			3		Residential junior mortgage	177,026			3		177,332			3
Retail & other	Retail & other	51,879			1		50,807			1		Retail & other	52,975			1		55,266			1
Loans	Loans	4,683,315			100	%	4,621,836			100	%	Loans	6,223,732			100	%	6,180,499			100	%
Less allowance for credit losses - Loans (“ACL-Loans”)	Less allowance for credit losses - Loans (“ACL-Loans”)	49,906					49,672					Less allowance for credit losses - Loans (“ACL-Loans”)	62,412					61,829
Loans, net	Loans, net	$	4,633,409				$	4,572,164				Loans, net	$	6,161,320				$	6,118,670
Allowance for credit losses - Loans to loans	Allowance for credit losses - Loans to loans	1.07		%			1.07		%			Allowance for credit losses - Loans to loans	1.00		%			1.00		%

~~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 ~~$10~~$16 million and $15 million at March 31, ~~2022~~2023 and ~~$11 million at~~ December 31, ~~2021,~~2022, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

Allowance for Credit Losses - 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.

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

Three Months Ended Year Ended
(in thousands) March 31, 2022 March 31, 2021 December 31, 2021
Beginning balance $ 49,672 $ 32,173 $ 32,173
ACL on PCD loans acquired — — 5,159
Provision for credit losses 300 500 12,500
Charge-offs (100) (94) (513)
Recoveries 34 47 353
Net (charge-offs) recoveries (66) (47) (160)
Ending balance $ 49,906 $ 32,626 $ 49,672


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

The following tables present the balance and activity in the ACL-Loans by portfolio segment.


		Three Months Ended March 31, 2022																															Three Months Ended March 31, 2023
(in thousands)	(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total			(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total
ACL-Loans *
ACL-Loans																																ACL-Loans
Beginning balance	Beginning balance	$	12,613		$	7,222		$	9,547		$	8,462		$	1,812		$	900		$	6,844		$	1,340		$	932		$	49,672		Beginning balance	$	16,350		$	9,138		$	9,762		$	12,744		$	2,572		$	1,412		$	6,976		$	1,846		$	1,029		$	61,829
ACL on PCD loans		—			—			—			—			—			—			—			—			—			—

Provision	Provision	489			94			(175)			(23)			(175)			38			(141)			63			130			300			Provision	457			172			(328)			210			106			262			(206)			(31)			108			750
Charge-offs	Charge-offs	—			(36)			—			—			—			—			—			—			(64)			(100)			Charge-offs	(118)			—			—			—			—			—			—			—			(66)			(184)
Recoveries	Recoveries	20			—			—			—			—			—			4			—			10			34			Recoveries	10			—			2			—			—			—			1			—			4			17
Net (charge-offs) recoveries	Net (charge-offs) recoveries	20			(36)			—			—			—			—			4			—			(54)			(66)			Net (charge-offs) recoveries	(108)			—			2			—			—			—			1			—			(62)			(167)
Ending balance	Ending balance	$	13,122		$	7,280		$	9,372		$	8,439		$	1,637		$	938		$	6,707		$	1,403		$	1,008		$	49,906		Ending balance	$	16,699		$	9,310		$	9,436		$	12,954		$	2,678		$	1,674		$	6,771		$	1,815		$	1,075		$	62,412
As % of ACL-Loans	As % of ACL-Loans	26		%	15		%	19		%	17		%	3		%	2		%	13		%	3		%	2		%	100		%	As % of ACL-Loans	27		%	15		%	15		%	21		%	4		%	2		%	11		%	3		%	2		%	100		%

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


		Year Ended December 31, 2021																															Year Ended December 31, 2022
(in thousands)	(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total			(in thousands)	Commercial & industrial			Owner- occupied CRE			Agricultural			CRE investment			Construction & land development			Residential construction			Residential first mortgage			Residential junior mortgage			Retail & other			Total
ACL-Loans *
ACL-Loans																																ACL-Loans
Beginning balance	Beginning 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 loans	ACL on PCD loans	723			1,045			2,585			415			103			—			272			13			3			5,159			ACL on PCD loans	1,408			384			—			38			2			—			93			12			—			1,937
Provision	Provision	196			305			5,615			2,608			725			479			1,892			237			443			12,500			Provision	2,415			2,087			215			4,075			758			512			96			493			299			10,950
Charge-offs	Charge-offs	(242)			—			(48)			(4)			—			—			(113)			—			(106)			(513)			Charge-offs	(190)			(555)			—			—			—			—			(65)			—			(223)			(1,033)
Recoveries	Recoveries	292			—			—			2			—			—			20			4			35			353			Recoveries	104			—			—			169			—			—			8			1			21			303
Net (charge-offs) recoveries	Net (charge-offs) recoveries	50			—			(48)			(2)			—			—			(93)			4			(71)			(160)			Net (charge-offs) recoveries	(86)			(555)			—			169			—			—			(57)			1			(202)			(730)
Ending balance	Ending balance	$	12,613		$	7,222		$	9,547		$	8,462		$	1,812		$	900		$	6,844		$	1,340		$	932		$	49,672		Ending balance	$	16,350		$	9,138		$	9,762		$	12,744		$	2,572		$	1,412		$	6,976		$	1,846		$	1,029		$	61,829
As % of ACL-Loans	As % of ACL-Loans	25		%	14		%	19		%	17		%	4		%	2		%	14		%	3		%	2		%	100		%	As % of ACL-Loans	26		%	15		%	16		%	21		%	4		%	2		%	11		%	3		%	2		%	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 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.

deteriorated loans is equal to the aggregate collateral or discounted cash flow shortfall. Management 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.

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~~$3.0 million at both March 31, ~~2022~~2023 and December 31, ~~2021.~~

2022.

Provision for Credit Losses:

The provision for credit losses is determined by the Company as the amount to be added to the ACL loss accounts for various types of financial instruments including loans, investment securities, and off-balance sheet credit exposures after net charge-offs have been deducted to bring the ACL to a level that, in ~~management's~~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 Ended				Year Ended	Three Months Ended								Year Ended
(in thousands)	(in thousands)	March 31, 2022		March 31, 2021				December 31, 2021		(in thousands)	March 31, 2023		March 31, 2022			December 31, 2022
Provision for credit losses on:	Provision for credit losses on:									Provision for credit losses on:
Loans	Loans	$	300	$	500			$	12,500	Loans	$	750	$	300		$	10,950
Unfunded Commitments		—		—				2,400
Unfunded commitments										Unfunded commitments	—		—			550
Investment securities	Investment securities	—		—				—		Investment securities	2,340		—			—
Total	Total	$	300	$	500			$	14,900	Total	$	3,090	$	300		$	11,500

Collateral Dependent Loans:

A loan is considered to be collateral dependent when, based upon ~~management's~~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, 2022		Collateral Type
March 31, 2023														March 31, 2023	Collateral Type
(in thousands)	(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation		(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	Commercial & industrial	$	—	$	2,241	$	2,241	$	1,447	$	794	$	224	Commercial & industrial	$	—	$	2,419	$	2,419	$	1,084	$	1,335	$	506
Owner-occupied CRE	Owner-occupied CRE	6,125		—		6,125		3,996		2,129		459		Owner-occupied CRE	5,905		—		5,905		5,697		208		54
Agricultural	Agricultural	15,590		7,889		23,479		16,294		7,185		489		Agricultural	12,656		5,800		18,456		12,751		5,705		166
CRE investment	CRE investment	2,910		—		2,910		1,011		1,899		342		CRE investment	3,158		—		3,158		2,635		523		7
Construction & land development	Construction & land development	1,023		—		1,023		1,023		—		—		Construction & land development	650		—		650		650		—		—
Residential construction		—		—		—		—		—		—

Residential first mortgage	Residential first mortgage	473		—		473		473		—		—		Residential first mortgage	1,357		—		1,357		1,357		—		—
Residential junior mortgage	Residential junior mortgage	—		—		—		—		—		—		Residential junior mortgage	8		—		8		8		—		—
Retail & other		—		—		—		—		—		—

Total loans	Total loans	$	26,121	$	10,130	$	36,251	$	24,244	$	12,007	$	1,514	Total loans	$	23,734	$	8,219	$	31,953	$	24,182	$	7,771	$	733


December 31, 2021		Collateral Type
December 31, 2022														December 31, 2022	Collateral Type
(in thousands)	(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation		(in thousands)	Real Estate		Other Business Assets		Total		Without an Allowance		With an Allowance		Allowance Allocation
Commercial & industrial	Commercial & industrial	$	—	$	2,296	$	2,296	$	1,842	$	454	$	258	Commercial & industrial	$	—	$	3,475	$	3,475	$	1,927	$	1,548	$	595
Owner-occupied CRE	Owner-occupied CRE	3,537		—		3,537		1,315		2,222		552		Owner-occupied CRE	4,907		—		4,907		4,699		208		53
Agricultural	Agricultural	19,637		8,518		28,155		25,310		2,845		841		Agricultural	13,758		6,458		20,216		14,358		5,858		261
CRE investment	CRE investment	3,000		—		3,000		1,684		1,316		407		CRE investment	2,713		—		2,713		979		1,734		212
Construction & land development	Construction & land development	1,038		—		1,038		655		383		211		Construction & land development	670		—		670		670		—		—
Residential construction		—		—		—		—		—		—

Residential first mortgage	Residential first mortgage	473		—		473		473		—		—		Residential first mortgage	91		—		91		91		—		—
Residential junior mortgage		—		—		—		—		—		—
Retail & other		—		—		—		—		—		—

Total loans	Total loans	$	27,685	$	10,814	$	38,499	$	31,279	$	7,220	$	2,269	Total loans	$	22,139	$	9,933	$	32,072	$	22,724	$	9,348	$	1,121

1817

Past Due and Nonaccrual Loans:

The following tables present past due loans by portfolio segment.


		March 31, 2022													March 31, 2023
(in thousands)	(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total			(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	Commercial & industrial	$	216		$	1,849		$	1,061,235		$	1,063,300		Commercial & industrial	$	256		$	2,874		$	1,326,922		$	1,330,052
Owner-occupied CRE	Owner-occupied CRE	211			5,007			789,728			794,946			Owner-occupied CRE	388			7,128			961,548			969,064
Agricultural	Agricultural	506			23,570			802,288			826,364			Agricultural	178			18,782			1,046,949			1,065,909
CRE investment	CRE investment	401			3,914			803,287			807,602			CRE investment	—			4,126			1,142,262			1,146,388
Construction & land development	Construction & land development	63			1,054			210,523			211,640			Construction & land development	—			748			332,622			333,370
Residential construction	Residential construction	—			—			72,660			72,660			Residential construction	1,144			—			133,638			134,782
Residential first mortgage	Residential first mortgage	4,459			3,919			712,729			721,107			Residential first mortgage	3,852			4,986			1,005,328			1,014,166
Residential junior mortgage	Residential junior mortgage	114			242			133,461			133,817			Residential junior mortgage	219			196			176,611			177,026
Retail & other	Retail & other	682			115			51,082			51,879			Retail & other	222			55			52,698			52,975
Total loans	Total loans	$	6,652		$	39,670		$	4,636,993		$	4,683,315		Total loans	$	6,259		$	38,895		$	6,178,578		$	6,223,732
Percent of total loans	Percent of total loans	0.1		%	0.9		%	99.0		%	100.0		%	Percent of total loans	0.1		%	0.6		%	99.3		%	100.0		%


		December 31, 2021													December 31, 2022
(in thousands)	(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total			(in thousands)	30-89 Days Past Due (accruing)			90 Days & Over or nonaccrual			Current			Total
Commercial & industrial	Commercial & industrial	$	94		$	1,908		$	1,040,254		$	1,042,256		Commercial & industrial	$	210		$	3,328		$	1,301,281		$	1,304,819
Owner-occupied CRE	Owner-occupied CRE	—			4,220			782,969			787,189			Owner-occupied CRE	833			5,647			948,119			954,599
Agricultural	Agricultural	108			28,367			766,253			794,728			Agricultural	20			20,416			1,068,171			1,088,607
CRE investment	CRE investment	114			4,119			813,828			818,061			CRE investment	—			3,832			1,146,117			1,149,949
Construction & land development	Construction & land development	—			1,071			211,964			213,035			Construction & land development	—			771			317,829			318,600
Residential construction	Residential construction	246			—			70,107			70,353			Residential construction	—			—			114,392			114,392
Residential first mortgage	Residential first mortgage	2,592			4,132			707,259			713,983			Residential first mortgage	3,628			3,780			1,009,527			1,016,935
Residential junior mortgage	Residential junior mortgage	23			243			131,158			131,424			Residential junior mortgage	236			224			176,872			177,332
Retail & other	Retail & other	115			94			50,598			50,807			Retail & other	261			82			54,923			55,266
Total loans	Total loans	$	3,292		$	44,154		$	4,574,390		$	4,621,836		Total loans	$	5,188		$	38,080		$	6,137,231		$	6,180,499
Percent of total loans	Percent of total loans	0.1		%	0.9		%	99.0		%	100.0		%	Percent of total loans	0.1		%	0.6		%	99.3		%	100.0		%

The following table presents nonaccrual loans by portfolio segment.


		March 31, 2022					December 31, 2021						March 31, 2023					December 31, 2022
(in thousands)	(in thousands)	Nonaccrual Loans			% of Total		Nonaccrual Loans			% of Total		(in thousands)	Nonaccrual Loans			% of Total		Nonaccrual Loans			% of Total
Commercial & industrial	Commercial & industrial	$	1,849		5	%	$	1,908		4	%	Commercial & industrial	$	2,874		7	%	$	3,328		9	%
Owner-occupied CRE	Owner-occupied CRE	5,007			13		4,220			10		Owner-occupied CRE	7,128			18		5,647			15
Agricultural	Agricultural	23,570			59		28,367			64		Agricultural	18,782			48		20,416			53
CRE investment	CRE investment	3,914			10		4,119			9		CRE investment	4,126			11		3,832			10
Construction & land development	Construction & land development	1,054			2		1,071			3		Construction & land development	748			2		771			2
Residential construction	Residential construction	—			—		—			—		Residential construction	—			—		—			—
Residential first mortgage	Residential first mortgage	3,919			10		4,132			9		Residential first mortgage	4,986			13		3,780			10
Residential junior mortgage	Residential junior mortgage	242			1		243			1		Residential junior mortgage	196			1		224			1
Retail & other	Retail & other	115			—		94			—		Retail & other	55			—		82			—
Nonaccrual loans	Nonaccrual loans	$	39,670		100	%	$	44,154		100	%	Nonaccrual loans	$	38,895		100	%	$	38,080		100	%
Percent of total loans	Percent of total loans	0.9		%			0.9		%			Percent of total loans	0.6		%			0.6		%

2018

Credit Quality Information:

The following tables present total loans by risk categories and gross charge-offs by year of origination. ~~Loans acquired from Mackinac and County~~Acquired loans have been included ~~in the March 31, 2022 and December 31, 2021 tables~~ based upon the actual origination date.


March 31, 2022		Amortized Cost Basis by Origination Year
March 31, 2023																				March 31, 2023	Amortized Cost Basis by Origination Year
(in thousands)	(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving to Term		TOTAL		(in thousands)	2023		2022		2021		2020		2019		Prior		Revolving		Revolving to Term		TOTAL
Commercial & industrial	Commercial & industrial																			Commercial & industrial
Grades 1-4	Grades 1-4	$	74,080	$	251,155	$	125,658	$	92,606	$	65,494	$	101,759	$	297,121	$	—	$	1,007,873	Grades 1-4	$	47,409	$	312,964	$	215,435	$	96,534	$	65,723	$	111,114	$	376,926	$	—	$	1,226,105
Grade 5	Grade 5	3,955		3,591		8,185		3,089		1,618		7,836		16,557		—		44,831		Grade 5	95		4,204		4,640		6,548		1,195		11,392		27,894		—		55,968
Grade 6	Grade 6	155		1,069		2,980		730		679		461		1,122		—		7,196		Grade 6	—		1,358		618		66		—		11,881		6,543		—		20,466
Grade 7	Grade 7	39		175		433		675		327		1,265		486		—		3,400		Grade 7	291		3,613		1,894		2,165		2,371		2,411		14,768		—		27,513
Total	Total	$	78,229	$	255,990	$	137,256	$	97,100	$	68,118	$	111,321	$	315,286	$	—	$	1,063,300	Total	$	47,795	$	322,139	$	222,587	$	105,313	$	69,289	$	136,798	$	426,131	$	—	$	1,330,052
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	(77)	$	(26)	$	—	$	—	$	—	$	(15)	$	—	$	(118)
Owner-occupied CRE	Owner-occupied CRE																			Owner-occupied CRE
Grades 1-4	Grades 1-4	$	40,673	$	155,869	$	92,991	$	97,240	$	86,626	$	260,682	$	8,350	$	—	$	742,431	Grades 1-4	$	28,513	$	155,362	$	196,641	$	103,973	$	97,039	$	322,852	$	4,773	$	—	$	909,153
Grade 5	Grade 5	352		5,894		2,129		5,703		2,413		13,492		634		—		30,617		Grade 5	1,381		3,134		6,310		4,485		908		17,497		490		—		34,205
Grade 6	Grade 6	—		—		2,217		1,858		—		1,080		—		—		5,155		Grade 6	—		1,000		355		41		1,575		2,070		250		—		5,291
Grade 7	Grade 7	—		—		4,808		1,896		—		9,058		981		—		16,743		Grade 7	—		224		684		7,244		1,358		10,905		—		—		20,415
Total	Total	$	41,025	$	161,763	$	102,145	$	106,697	$	89,039	$	284,312	$	9,965	$	—	$	794,946	Total	$	29,894	$	159,720	$	203,990	$	115,743	$	100,880	$	353,324	$	5,513	$	—	$	969,064
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Agricultural	Agricultural																			Agricultural
Grades 1-4	Grades 1-4	$	51,984	$	126,552	$	83,356	$	27,133	$	22,251	$	124,604	$	229,196	$	—	$	665,076	Grades 1-4	$	11,930	$	280,631	$	138,443	$	83,733	$	25,089	$	152,730	$	227,727	$	—	$	920,283
Grade 5	Grade 5	241		14,967		4,683		2,543		771		55,592		23,364		—		102,161		Grade 5	1,239		13,311		11,668		1,762		879		39,707		20,436		—		89,002
Grade 6	Grade 6	—		37		35		35		—		1,120		84		—		1,311		Grade 6	50		62		1,244		—		52		2,332		195		—		3,935
Grade 7	Grade 7	2,058		4,215		2,007		3,287		4,019		29,973		12,257		—		57,816		Grade 7	695		7,199		7,271		786		1,942		23,812		10,984		—		52,689
Total	Total	$	54,283	$	145,771	$	90,081	$	32,998	$	27,041	$	211,289	$	264,901	$	—	$	826,364	Total	$	13,914	$	301,203	$	158,626	$	86,281	$	27,962	$	218,581	$	259,342	$	—	$	1,065,909
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE investment	CRE investment																			CRE investment
Grades 1-4	Grades 1-4	$	46,108	$	166,896	$	135,267	$	117,040	$	48,884	$	220,348	$	11,763	$	—	$	746,306	Grades 1-4	$	8,011	$	205,798	$	228,060	$	189,172	$	132,082	$	326,737	$	11,704	$	—	$	1,101,564
Grade 5	Grade 5	—		10,951		2,575		15,452		2,926		23,709		—		—		55,613		Grade 5	2,825		563		1,633		3,552		3,312		21,095		—		—		32,980
Grade 6	Grade 6	—		—		—		697		—		—		—		—		697		Grade 6	—		—		—		—		1,159		3,778		183		—		5,120
Grade 7	Grade 7	—		—		—		451		140		4,169		226		—		4,986		Grade 7	—		—		21		523		2,316		3,663		201		—		6,724
Total	Total	$	46,108	$	177,847	$	137,842	$	133,640	$	51,950	$	248,226	$	11,989	$	—	$	807,602	Total	$	10,836	$	206,361	$	229,714	$	193,247	$	138,869	$	355,273	$	12,088	$	—	$	1,146,388
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction & land development	Construction & land development																			Construction & land development
Grades 1-4	Grades 1-4	$	13,458	$	86,916	$	60,183	$	10,130	$	12,552	$	11,975	$	12,344	$	—	$	207,558	Grades 1-4	$	6,947	$	119,087	$	144,313	$	11,980	$	8,802	$	36,033	$	5,290	$	—	$	332,452
Grade 5	Grade 5	—		1,490		—		518		906		112		—		—		3,026		Grade 5	—		34		—		—		12		92		—		—		138
Grade 6	Grade 6	—		—		—		1		—		—		—		—		1		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		—		—		—		1,055		—		—		1,055		Grade 7	—		32		—		—		—		748		—		—		780
Total	Total	$	13,458	$	88,406	$	60,183	$	10,649	$	13,458	$	13,142	$	12,344	$	—	$	211,640	Total	$	6,947	$	119,153	$	144,313	$	11,980	$	8,814	$	36,873	$	5,290	$	—	$	333,370
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential construction	Residential construction																			Residential construction
Grades 1-4	Grades 1-4	$	11,865	$	55,257	$	3,680	$	152	$	342	$	1,313	$	—	$	—	$	72,609	Grades 1-4	$	5,036	$	114,512	$	12,948	$	1,045	$	121	$	549	$	—	$	—	$	134,211
Grade 5	Grade 5	—		—		—		—		—		—		—		—		—		Grade 5	—		—		571		—		—		—		—		—		571
Grade 6	Grade 6	—		—		—		51		—		—		—		—		51		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		—		—		—		—		—		—		—		Grade 7	—		—		—		—		—		—		—		—		—
Total	Total	$	11,865	$	55,257	$	3,680	$	203	$	342	$	1,313	$	—	$	—	$	72,660	Total	$	5,036	$	114,512	$	13,519	$	1,045	$	121	$	549	$	—	$	—	$	134,782
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential first mortgage	Residential first mortgage																			Residential first mortgage
Grades 1-4	Grades 1-4	$	56,685	$	245,519	$	141,633	$	79,561	$	27,590	$	159,309	$	1,216	$	4	$	711,517	Grades 1-4	$	35,309	$	309,434	$	270,665	$	142,741	$	66,489	$	173,612	$	1,426	$	3	$	999,679
Grade 5	Grade 5	—		723		524		2,012		—		1,242		—		—		4,501		Grade 5	—		1,364		776		987		1,776		2,759		—		—		7,662
Grade 6	Grade 6	—		—		—		1,042		—		—		—		—		1,042		Grade 6	—		—		—		—		703		—		—		—		703
Grade 7	Grade 7	—		—		38		448		252		3,309		—		—		4,047		Grade 7	—		152		477		178		359		4,956		—		—		6,122
Total	Total	$	56,685	$	246,242	$	142,195	$	83,063	$	27,842	$	163,860	$	1,216	$	4	$	721,107	Total	$	35,309	$	310,950	$	271,918	$	143,906	$	69,327	$	181,327	$	1,426	$	3	$	1,014,166
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential junior mortgage	Residential junior mortgage																			Residential junior mortgage
Grades 1-4	Grades 1-4	$	2,529	$	3,973	$	5,254	$	2,876	$	1,933	$	3,718	$	111,098	$	2,164	$	133,545	Grades 1-4	$	2,784	$	9,905	$	4,291	$	5,055	$	3,071	$	4,780	$	140,169	$	6,570	$	176,625
Grade 5	Grade 5	—		—		—		—		—		—		—		—		—		Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		—		54		—		82		136		—		272		Grade 7	—		35		205		—		—		23		138		—		401
Total	Total	$	2,529	$	3,973	$	5,254	$	2,930	$	1,933	$	3,800	$	111,234	$	2,164	$	133,817	Total	$	2,784	$	9,940	$	4,496	$	5,055	$	3,071	$	4,803	$	140,307	$	6,570	$	177,026
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Retail & other	Retail & other																			Retail & other
Grades 1-4	Grades 1-4	$	3,653	$	11,798	$	5,886	$	4,822	$	1,625	$	23,244	$	749	$	—	$	51,777	Grades 1-4	$	1,646	$	10,603	$	8,010	$	3,659	$	2,622	$	4,451	$	21,885	$	—	$	52,876
Grade 5	Grade 5	—		—		—		—		—		—		—		—		—		Grade 5	—		—		21		—		—		—		—		—		21
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		22		3		16		61		—		—		102		Grade 7	—		—		46		2		1		29		—		—		78
Total	Total	$	3,653	$	11,798	$	5,908	$	4,825	$	1,641	$	23,305	$	749	$	—	$	51,879	Total	$	1,646	$	10,603	$	8,077	$	3,661	$	2,623	$	4,480	$	21,885	$	—	$	52,975

Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	(66)	$	—	$	(66)
Total loans	Total loans	$	307,835	$	1,147,047	$	684,544	$	472,105	$	281,364	$	1,060,568	$	727,684	$	2,168	$	4,683,315	Total loans	$	154,161	$	1,554,581	$	1,257,240	$	666,231	$	420,956	$	1,292,008	$	871,982	$	6,573	$	6,223,732

2119


December 31, 2021		Amortized Cost Basis by Origination Year
December 31, 2022																				December 31, 2022	Amortized Cost Basis by Origination Year
(in thousands)	(in thousands)	2021		2020		2019		2018		2017		Prior		Revolving		Revolving to Term		TOTAL		(in thousands)	2022		2021		2020		2019		2018		Prior		Revolving		Revolving to Term		TOTAL
Commercial & industrial	Commercial & industrial																			Commercial & industrial
Grades 1-4	Grades 1-4	$	282,369	$	146,131	$	99,702	$	69,478	$	50,557	$	71,247	$	288,115	$	—	$	1,007,599	Grades 1-4	$	317,394	$	226,065	$	101,374	$	68,884	$	50,189	$	77,589	$	360,978	$	—	$	1,202,473
Grade 5	Grade 5	1,685		1,905		4,369		5,809		4,860		2,097		8,408		—		29,133		Grade 5	9,938		5,902		10,811		1,530		3,986		4,562		20,617		—		57,346
Grade 6	Grade 6	598		54		16		687		67		91		391		—		1,904		Grade 6	1,459		2,283		629		511		402		11,653		14,047		—		30,984
Grade 7	Grade 7	—		440		692		337		976		743		432		—		3,620		Grade 7	556		293		3,211		2,990		775		1,070		5,121		—		14,016
Total	Total	$	284,652	$	148,530	$	104,779	$	76,311	$	56,460	$	74,178	$	297,346	$	—	$	1,042,256	Total	$	329,347	$	234,543	$	116,025	$	73,915	$	55,352	$	94,874	$	400,763	$	—	$	1,304,819
Current period gross charge-offs																				Current period gross charge-offs	$	(38)	$	(41)	$	(2)	$	—	$	(109)	$	—	$	—	$	—	$	(190)
Owner-occupied CRE	Owner-occupied CRE																			Owner-occupied CRE
Grades 1-4	Grades 1-4	$	154,578	$	94,300	$	105,226	$	92,128	$	75,583	$	202,816	$	6,945	$	—	$	731,576	Grades 1-4	$	151,391	$	190,313	$	105,156	$	100,606	$	91,479	$	252,574	$	6,734	$	—	$	898,253
Grade 5	Grade 5	7,753		3,019		6,529		2,543		2,515		13,905		656		—		36,920		Grade 5	5,241		3,192		4,287		2,163		4,791		14,632		348		—		34,654
Grade 6	Grade 6	—		—		1,642		—		20		805		—		—		2,467		Grade 6	—		—		763		2,361		—		877		—		—		4,001
Grade 7	Grade 7	—		3,124		1,914		—		3,526		6,672		990		—		16,226		Grade 7	227		706		6,344		616		—		9,798		—		—		17,691
Total	Total	$	162,331	$	100,443	$	115,311	$	94,671	$	81,644	$	224,198	$	8,591	$	—	$	787,189	Total	$	156,859	$	194,211	$	116,550	$	105,746	$	96,270	$	277,881	$	7,082	$	—	$	954,599
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(555)	$	—	$	—	$	(555)
Agricultural	Agricultural																			Agricultural
Grades 1-4	Grades 1-4	$	128,404	$	87,844	$	28,416	$	22,887	$	36,298	$	86,104	$	235,743	$	—	$	625,696	Grades 1-4	$	275,208	$	145,272	$	85,413	$	25,463	$	19,687	$	130,849	$	249,033	$	—	$	930,925
Grade 5	Grade 5	14,796		4,183		2,391		915		3,912		48,373		26,778		—		101,348		Grade 5	13,295		18,178		2,694		1,992		517		43,927		21,199		—		101,802
Grade 6	Grade 6	38		38		36		—		86		1,049		85		—		1,332		Grade 6	115		1,457		28		33		—		5,258		429		—		7,320
Grade 7	Grade 7	3,284		3,971		3,490		4,201		7,215		31,672		12,519		—		66,352		Grade 7	7,165		2,632		720		1,977		4,611		19,948		11,507		—		48,560
Total	Total	$	146,522	$	96,036	$	34,333	$	28,003	$	47,511	$	167,198	$	275,125	$	—	$	794,728	Total	$	295,783	$	167,539	$	88,855	$	29,465	$	24,815	$	199,982	$	282,168	$	—	$	1,088,607
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
CRE investment	CRE investment																			CRE investment
Grades 1-4	Grades 1-4	$	192,274	$	139,127	$	136,306	$	56,148	$	65,026	$	162,991	$	11,289	$	—	$	763,161	Grades 1-4	$	205,930	$	229,252	$	192,527	$	134,301	$	79,649	$	248,595	$	11,383	$	—	$	1,101,637
Grade 5	Grade 5	11,081		3,001		6,497		3,945		6,726		17,527		—		—		48,777		Grade 5	567		1,649		3,578		4,266		3,086		24,897		—		—		38,043
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		1,170		2,396		2,483		206		—		6,255
Grade 7	Grade 7	—		—		456		141		1,352		3,943		231		—		6,123		Grade 7	—		—		121		299		245		3,140		209		—		4,014
Total	Total	$	203,355	$	142,128	$	143,259	$	60,234	$	73,104	$	184,461	$	11,520	$	—	$	818,061	Total	$	206,497	$	230,901	$	196,226	$	140,036	$	85,376	$	279,115	$	11,798	$	—	$	1,149,949
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Construction & land development	Construction & land development																			Construction & land development
Grades 1-4	Grades 1-4	$	81,891	$	72,415	$	12,547	$	19,511	$	1,184	$	11,274	$	10,943	$	—	$	209,765	Grades 1-4	$	104,804	$	140,727	$	12,188	$	9,747	$	23,811	$	13,138	$	13,235	$	—	$	317,650
Grade 5	Grade 5	640		—		521		919		—		119		—		—		2,199		Grade 5	37		—		—		14		—		95		—		—		146
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		—		—		17		1,054		—		—		1,071		Grade 7	33		—		—		—		—		771		—		—		804
Total	Total	$	82,531	$	72,415	$	13,068	$	20,430	$	1,201	$	12,447	$	10,943	$	—	$	213,035	Total	$	104,874	$	140,727	$	12,188	$	9,761	$	23,811	$	14,004	$	13,235	$	—	$	318,600
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential construction	Residential construction																			Residential construction
Grades 1-4	Grades 1-4	$	58,352	$	9,998	$	155	$	344	$	1,072	$	380	$	—	$	—	$	70,301	Grades 1-4	$	92,417	$	16,774	$	966	$	123	$	336	$	229	$	3,547	$	—	$	114,392
Grade 5	Grade 5	—		—		52		—		—		—		—		—		52		Grade 5	—		—		—		—		—		—		—		—		—
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		—		—		—		—		—		—		—		Grade 7	—		—		—		—		—		—		—		—		—
Total	Total	$	58,352	$	9,998	$	207	$	344	$	1,072	$	380	$	—	$	—	$	70,353	Total	$	92,417	$	16,774	$	966	$	123	$	336	$	229	$	3,547	$	—	$	114,392
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Residential first mortgage	Residential first mortgage																			Residential first mortgage
Grades 1-4	Grades 1-4	$	256,082	$	152,932	$	168,705	$	22,568	$	20,147	$	82,479	$	1,840	$	4	$	704,757	Grades 1-4	$	318,628	$	272,011	$	147,857	$	68,975	$	31,208	$	162,153	$	2,080	$	3	$	1,002,915
Grade 5	Grade 5	713		529		3,094		—		—		1,508		—		—		5,844		Grade 5	1,494		758		997		1,803		2,272		465		—		—		7,789
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		711		—		—		—		—		711
Grade 7	Grade 7	—		—		560		225		73		2,524		—		—		3,382		Grade 7	154		329		188		349		197		4,303		—		—		5,520
Total	Total	$	256,795	$	153,461	$	172,359	$	22,793	$	20,220	$	86,511	$	1,840	$	4	$	713,983	Total	$	320,276	$	273,098	$	149,042	$	71,838	$	33,677	$	166,921	$	2,080	$	3	$	1,016,935
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	(65)	$	—	$	—	$	(65)
Residential junior mortgage	Residential junior mortgage																			Residential junior mortgage
Grades 1-4	Grades 1-4	$	3,194	$	3,139	$	3,021	$	1,501	$	512	$	1,969	$	115,817	$	1,426	$	130,579	Grades 1-4	$	10,119	$	4,580	$	5,207	$	3,151	$	1,573	$	3,409	$	142,784	$	5,762	$	176,585
Grade 5	Grade 5	—		—		29		—		—		—		439		—		468		Grade 5	—		—		—		—		—		143		165		—		308
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		—		172		—		23		44		138		—		377		Grade 7	—		206		—		—		—		24		209		—		439
Total	Total	$	3,194	$	3,139	$	3,222	$	1,501	$	535	$	2,013	$	116,394	$	1,426	$	131,424	Total	$	10,119	$	4,786	$	5,207	$	3,151	$	1,573	$	3,576	$	143,158	$	5,762	$	177,332
Current period gross charge-offs																				Current period gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—	$	—
Retail & other	Retail & other																			Retail & other
Grades 1-4	Grades 1-4	$	13,676	$	6,886	$	5,826	$	2,053	$	1,882	$	20,102	$	275	$	—	$	50,700	Grades 1-4	$	12,318	$	8,957	$	4,221	$	3,188	$	1,035	$	24,950	$	492	$	—	$	55,161
Grade 5	Grade 5	—		—		—		—		—		—		—		—		—		Grade 5	—		23		—		—		—		—		—		—		23
Grade 6	Grade 6	—		—		—		—		—		—		—		—		—		Grade 6	—		—		—		—		—		—		—		—		—
Grade 7	Grade 7	—		24		2		19		—		62		—		—		107		Grade 7	—		23		22		2		30		5		—		—		82
Total	Total	$	13,676	$	6,910	$	5,828	$	2,072	$	1,882	$	20,164	$	275	$	—	$	50,807	Total	$	12,318	$	9,003	$	4,243	$	3,190	$	1,065	$	24,955	$	492	$	—	$	55,266

Current period gross charge-offs																				Current period gross charge-offs	$	—	$	(1)	$	(6)	$	(1)	$	—	$	—	$	(215)	$	—	$	(223)
Total loans	Total loans	$	1,211,408	$	733,060	$	592,366	$	306,359	$	283,629	$	771,550	$	722,034	$	1,430	$	4,621,836	Total loans	$	1,528,490	$	1,271,582	$	689,302	$	437,225	$	322,275	$	1,061,537	$	864,323	$	5,765	$	6,180,499

2220

~~The following tables present total loans by risk categories.~~

March 31, 2022
(in thousands) Grades 1- 4 Grade 5 Grade 6 Grade 7 Total
Commercial & industrial $ 1,007,873 $ 44,831 $ 7,196 $ 3,400 $ 1,063,300
Owner-occupied CRE 742,431 30,617 5,155 16,743 794,946
Agricultural 665,076 102,161 1,311 57,816 826,364
CRE investment 746,306 55,613 697 4,986 807,602
Construction & land development 207,558 3,026 1 1,055 211,640
Residential construction 72,609 — 51 — 72,660
Residential first mortgage 711,517 4,501 1,042 4,047 721,107
Residential junior mortgage 133,545 — — 272 133,817
Retail & other 51,777 — — 102 51,879
Total loans $ 4,338,692 $ 240,749 $ 15,453 $ 88,421 $ 4,683,315
Percent of total 92.7 % 5.1 % 0.3 % 1.9 % 100.0 %

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

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

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~~Modifications to Borrowers Experiencing Financial Difficulty:

~~Loans are considered troubled debt restructurings if concessions have been granted~~On January 1, 2023, the Company adopted ASU 2022-02, which eliminated the accounting guidance for TDRs by creditors and enhanced the disclosure requirements for certain loan modifications to borrowers ~~who are~~ experiencing financial ~~difficulties.~~difficulty. The following table presents the ~~loan composition~~amortized cost of ~~nonaccrual~~loans that were both experiencing financial difficulty and ~~performing TDRs.~~were modified during the three months ended March 31, 2023, aggregated by portfolio segment and type of modification.


		March 31, 2022						December 31, 2021
(in thousands)	(in thousands)	Performing		Nonaccrual		Total		Performing		Nonaccrual		Total		(in thousands)	Payment Delay		Term Extension		Interest Rate Reduction		Term Extension & Interest Rate Reduction		Total		% of Total Loans
Commercial & industrial	Commercial & industrial	$	—	$	164	$	164	$	—	$	197	$	197	Commercial & industrial	$	—	$	—	$	—	$	—	$	—	—	%
Owner-occupied CRE	Owner-occupied CRE	1,714		2,792		4,506		3,466		2,888		6,354		Owner-occupied CRE	—		—		—		—		—		—	%
Agricultural	Agricultural	—		16,442		16,442		—		16,835		16,835		Agricultural	110		—		—		—		110		0.01	%
CRE investment	CRE investment	—		—		—		918		—		918		CRE investment	—		—		—		—		—		—	%
Construction & land development	Construction & land development	—		308		308		—		308		308		Construction & land development	—		—		—		—		—		—	%

Residential first mortgage	Residential first mortgage	—		14		14		913		15		928		Residential first mortgage	—		—		—		—		—		—	%
Residential junior mortgage		—		—		—		146		—		146

Total	Total	$	1,714	$	19,720	$	21,434	$	5,443	$	20,243	$	25,686	Total	$	110	$	—	$	—	$	—	$	110	—	%

The ~~following~~loans presented in the table ~~presents~~above have had more than insignificant payment delays (which the ~~number~~Company has defined as payment delays in excess of six months). These modified loans are closely monitored by the Company to understand the effectiveness of its modification efforts, and such loans generally remain in nonaccrual status pending a sustained period of performance in accordance with the modified ~~in a TDR, pre-modification loan balance, and post-modification loan balance by loan composition.~~terms.

March 31, 2022 December 31, 2021
($ in thousands) Number of Loans Pre-Modification Balance Current Balance Number of Loans Pre-Modification Balance Current Balance
Commercial & industrial 2 $ 200 $ 164 2 $ 200 $ 197
Owner-occupied CRE 5 5,138 4,506 6 6,913 6,354
Agricultural 31 17,228 16,442 31 17,228 16,835
CRE investment — — — 1 919 918
Construction & land development 1 533 308 1 533 308
Residential first mortgage 1 17 14 2 931 928
Residential junior mortgage — — — 1 166 146
Total 40 $ 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 these concessions. There were no loans which were classified as troubled debt restructurings during the previous twelve months that subsequently defaulted during 2021 or through March 31, 2022. As of March 31, ~~2022,~~2023, there were no loans made to borrowers experiencing financial difficulty that were modified during the current period and subsequently defaulted, and there were no commitments to lend additional funds to ~~debtors whose terms have been~~such debtors.

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

As of December 31, 2022, the Company had restructured loans totaling $18 million, with a pre-modification balance of $24 million, all of which were also reflected as nonaccrual loans. There were no restructured loans modified ~~in troubled debt restructurings.~~

during 2022 that subsequently defaulted, and there were no commitments to lend additional funds to such debtors.

Note 7 – Goodwill and Other Intangibles and 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~~that would ~~impact~~affect expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance ~~on an undiscounted basis,~~ of the underlying operations or assets which give rise to the intangible. Management ~~continues to monitor~~also regularly monitors economic factors for potential impairment indications on the ~~valuation~~value of our franchise, stability of deposits, and of the wealth client base, underlying our goodwill ~~core deposit intangible,~~ and ~~customer list intangibles,~~other intangibles. Management concluded no impairment was indicated for the three months ended March 31, 2023 and ~~determined no impairments were indicated.~~the year ended December 31, 2022. A summary of goodwill and other intangibles was as follows.

(in thousands) March 31, 2022 December 31, 2021
Goodwill $ 317,189 $ 317,189
Core deposit intangibles 18,148 19,445
Customer list intangibles 2,731 2,858
Other intangibles 20,879 22,303
Goodwill and other intangibles, net $ 338,068 $ 339,492



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

Goodwill: A summary of goodwill was as follows. During ~~2021,~~2022, goodwill increased due to the ~~acquisitions of Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.~~Charter acquisition.

Three Months Ended Year Ended
(in thousands) March 31, 2022 December 31, 2021
Goodwill:
Goodwill at beginning of year $ 317,189 $ 163,151
Acquisitions — 154,038
Goodwill at end of period $ 317,189 $ 317,189


	Three Months Ended		Year Ended
(in thousands)	March 31, 2023		December 31, 2022
Goodwill:
Goodwill at beginning of year	$	367,387	$	317,189
Acquisitions	—		49,970
Purchase accounting adjustment	—		228
Goodwill at end of period	$	367,387	$	367,387

Other intangible assets: Other intangible assets, consisting of core deposit intangibles and customer list intangibles, are amortized over their estimated finite lives. A summary of other intangible assets was as follows. During ~~2021,~~2022, core deposit intangibles increased due to the ~~acquisitions of Mackinac and County. See Note 2 for additional information on the Company’s acquisitions.~~Charter acquisition.


		Three Months Ended		Year Ended			Three Months Ended		Year Ended
(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Core deposit intangibles:	Core deposit intangibles:					Core deposit intangibles:
Gross carrying amount	Gross carrying amount	$	41,360	$	41,360	Gross carrying amount	$	60,724	$	60,724
Accumulated amortization	Accumulated amortization	(23,212)		(21,915)		Accumulated amortization	(30,057)		(28,023)
Net book value	Net book value	$	18,148	$	19,445	Net book value	$	30,667	$	32,701
Additions during the period	Additions during the period	$	—	$	13,595	Additions during the period	$	—	$	19,364
Amortization during the period	Amortization during the period	$	1,297	$	2,987	Amortization during the period	$	2,034	$	6,108
Customer list intangibles:	Customer list intangibles:					Customer list intangibles:
Gross carrying amount	Gross carrying amount	$	5,523	$	5,523	Gross carrying amount	$	5,523	$	5,523
Accumulated amortization	Accumulated amortization	(2,792)		(2,665)		Accumulated amortization	(3,300)		(3,173)
Net book value	Net book value	$	2,731	$	2,858	Net book value	$	2,223	$	2,350

Amortization during the period	Amortization during the period	$	127	$	507	Amortization during the period	$	127	$	508

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 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 Ended Year Ended
(in thousands) March 31, 2022 December 31, 2021
Mortgage servicing rights asset:
MSR asset at beginning of year $ 13,636 $ 10,230
Capitalized MSR 886 4,329
MSR asset acquired — 1,322
Amortization during the period (696) (2,245)
MSR asset at end of period $ 13,826 $ 13,636
Valuation allowance at beginning of year $ (1,200) $ (1,000)
Additions — (500)
Reversals 600 300
Valuation allowance at end of period $ (600) $ (1,200)
MSR asset, net $ 13,226 $ 12,436
Fair value of MSR asset at end of period $ 16,621 $ 15,599
Residential mortgage loans serviced for others $ 1,593,010 $ 1,583,577
Net book value of MSR asset to loans serviced for others 0.83 % 0.79 %

The Company periodically evaluates its mortgage servicing rights asset for impairment. At each reporting date, impairment is assessed based on 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~~A summary of the ~~MSR asset.~~changes in the mortgage servicing rights asset was as follows.


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

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

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

Loan servicing rights (“LSR”): The Company acquired an LSR asset in ~~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 assetwhich will be

amortized ~~on an accelerated basis~~ over the estimated remaining loan service ~~period as the~~period. The Company does not expect to add new loans to this servicing portfolio. ~~See Note 9 for additional information on the fair value~~A summary of the changes in the LSR ~~asset.~~asset were as follows.


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

The following table shows the estimated future amortization expense for amortizing intangible assets and the servicing assets. The projections are based on existing asset balances, the current interest rate environment and prepayment speeds as of March 31, ~~2022.~~2023. The actual amortization expense the Company recognizes in any given period may be significantly different depending upon acquisition or sale activities, changes in interest rates, prepayment speeds, market conditions, regulatory requirements and events or circumstances that indicate the carrying amount of an asset may not be recoverable.


(in thousands)	(in thousands)	Core deposit intangibles		Customer list intangibles		MSR asset		LSR asset		(in thousands)	Core deposit intangibles		Customer list intangibles		MSR asset		LSR asset
Year ending December 31,	Year ending December 31,									Year ending December 31,
2022 (remaining nine months)		$	3,520	$	380	$	1,777	$	6,512
2023		3,910		483		2,605		6,345
2023 (remaining nine months)										2023 (remaining nine months)	$	5,555	$	356	$	1,672	$	1,656
2024	2024	3,135		449		2,499		3,673		2024	6,298		449		2,680		1,962
2025	2025	2,385		449		1,719		1,020		2025	5,161		449		1,942		1,717
2026	2026	1,659		249		1,277		—		2026	3,983		249		1,434		1,472
2027	2027	1,346		166		1,277		—		2027	3,218		166		1,434		1,227
2028										2028	2,622		166		1,432		981
Thereafter	Thereafter	2,193		555		2,672		—		Thereafter	3,830		388		1,950		1,472
Total	Total	$	18,148	$	2,731	$	13,826	$	17,550	Total	$	30,667	$	2,223	$	12,544	$	10,487

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, ~~2022 and~~2023, short-term borrowings included $50 million of short-term FHLB advances due in September 2023 with a weighted average rate of 4.26%. At December 31, ~~2021, the Company did not have any outstanding~~2022, short-term ~~borrowings.~~borrowings included $317 million of short-term FHLB advances, comprised of $117 million due in January 2023 at a weighted average rate of 4.29% and $200 million due in September 2023 at a weighted average rate of 4.30%.

Long-Term Borrowings:

Long-term borrowings include any borrowing with an original maturity greater than one year. The components of long-term borrowings were as follows.


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
FHLB advances	FHLB advances	$	15,000	$	25,000	FHLB advances	$	5,000	$	33,000
Junior subordinated debentures	Junior subordinated debentures	39,101		38,885		Junior subordinated debentures	39,928		39,720
Subordinated notes	Subordinated notes	152,845		153,030		Subordinated notes	152,520		152,622
Total long-term borrowings	Total long-term borrowings	$	206,946	$	216,915	Total long-term borrowings	$	197,448	$	225,342

FHLB Advances: The Federal Home Loan Bank (“FHLB”) advances bear fixed rates, require interest-only monthly payments, and have maturity dates through March 2025. The weighted average rate of the FHLB advances was ~~0.52%~~1.55% at March 31, ~~2022~~2023 and ~~0.59%~~1.09% at December 31, ~~2021.~~2022.

Junior Subordinated Debentures: Each of the junior subordinated 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 debenture. All the junior subordinated debentures are currently callable and may be redeemed in part or in full, at par, plus any accrued but unpaid interest. At both March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, approximately ~~$37~~$38 million of trust preferred securities qualify as Tier 1 capital.

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~~an 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%

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, 2022								As of December 31, 2021						As of March 31, 2023								As of December 31, 2022
(in thousands)	(in thousands)	Maturity Date	Interest Rate		Par		Unamortized Premium /(Discount) / Debt Issue Costs (1)		Carrying Value		Interest Rate		Carrying Value		(in thousands)	Maturity Date	Interest Rate		Par		Unamortized Premium /(Discount) / Debt Issue Costs (1)		Carrying Value		Interest Rate		Carrying Value
Junior Subordinated Debentures:	Junior Subordinated Debentures:														Junior Subordinated Debentures:
Mid-Wisconsin Statutory Trust I (2)	Mid-Wisconsin Statutory Trust I (2)	12/15/2035	2.26	%	$	10,310	$	(2,724)	$	7,586	1.63	%	$	7,537	Mid-Wisconsin Statutory Trust I (2)	12/15/2035	6.30	%	$	10,310	$	(2,527)	$	7,783	6.20	%	$	7,734
Baylake Capital Trust II (3)	Baylake Capital Trust II (3)	9/30/2036	2.35	%	16,598		(3,351)		13,247		1.57	%	13,187		Baylake Capital Trust II (3)	9/30/2036	6.51	%	16,598		(3,115)		13,483		6.08	%	13,424
First Menasha Statutory Trust (4)	First Menasha Statutory Trust (4)	3/17/2034	3.71	%	5,155		(520)		4,635		3.01	%	4,624		First Menasha Statutory Trust (4)	3/17/2034	7.70	%	5,155		(476)		4,679		7.53	%	4,668
County Bancorp Statutory Trust II (5)	County Bancorp Statutory Trust II (5)	9/15/2035	2.36	%	6,186		(1,081)		5,105		1.73	%	5,061		County Bancorp Statutory Trust II (5)	9/15/2035	6.40	%	6,186		(870)		5,316		6.30	%	5,277
County Bancorp Statutory Trust III (6)	County Bancorp Statutory Trust III (6)	6/15/2036	2.52	%	6,186		(1,023)		5,163		1.89	%	5,121		County Bancorp Statutory Trust III (6)	6/15/2036	6.56	%	6,186		(928)		5,258		6.46	%	5,219
Fox River Valley Capital Trust (7)	Fox River Valley Capital Trust (7)	5/30/2033	6.40	%	3,610		(245)		3,365		6.40	%	3,355		Fox River Valley Capital Trust (7)	5/30/2033	6.40	%	3,610		(201)		3,409		6.40	%	3,398
Total	Total				$	48,045	$	(8,944)	$	39,101			$	38,885	Total				$	48,045	$	(8,117)	$	39,928			$	39,720
Subordinated Notes:	Subordinated Notes:														Subordinated Notes:
Subordinated Notes due 2031	Subordinated Notes due 2031	7/15/2031	3.13	%	$	100,000	$	(890)	$	99,110	3.13	%	$	99,057	Subordinated Notes due 2031	7/15/2031	3.13	%	$	100,000	$	(681)	$	99,319	3.13	%	$	99,267
County Subordinated Notes due 2028	County Subordinated Notes due 2028	6/1/2028	5.88	%	30,000		341		30,341		5.88	%	30,402		County Subordinated Notes due 2028	6/1/2028	5.88	%	30,000		49		30,049		5.88	%	30,119
County Subordinated Notes due 2030	County Subordinated Notes due 2030	6/30/2030	7.00	%	22,400		994		23,394		7.00	%	23,571		County Subordinated Notes due 2030	6/30/2030	7.00	%	22,400		752		23,152		7.00	%	23,236
Total	Total				$	152,400	$	445	$	152,845			$	153,030	Total				$	152,400	$	120	$	152,520			$	152,622

(1) Represents the remaining unamortized premium or discount on debt issuances assumed in acquisitions, and represents the unamortized debt issue costs for the debt issued directly by Nicolet.

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

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

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

(5) The debentures, assumed in December 2021 as the result of an acquisition, have a floating rate of three-month LIBOR plus 1.53%, adjusted quarterly.

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

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

Note 9 – Commitments and Contingencies

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

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


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

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

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

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

Interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale are considered derivative instruments (“mortgage derivatives”) and the contractual amounts were $18 million and $17 million, respectively, at March 31, 2023. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale totaled $9 million and $9 million, respectively, at December 31, 2022. The net fair value of these mortgage derivatives combined was a net gain of $0.1 million at both March 31, 2023 and December 31, 2022.

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

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

Note 910 – 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. Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from independent sources. Unobservable inputs are inputs that reflect assumptions of the reporting entity about how market participants would price the asset or liability based on the best information available under the circumstances. The three fair value levels are:

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

•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.

2726

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:	Total		Level 1		Level 2		Level 3		Measured at Fair Value on a Recurring Basis:	Total		Level 1		Level 2		Level 3
March 31, 2022
March 31, 2023										March 31, 2023
U.S. Treasury securities										U.S. Treasury securities	$	186,108	$	—	$	186,108	$	—
U.S. government agency securities	U.S. government agency securities	$	186,323	$	—	$	186,323	$	—	U.S. government agency securities	9,970		—		9,970		—
State, county and municipals	State, county and municipals	288,708		—		286,354		2,354		State, county and municipals	397,448		—		395,579		1,869
Mortgage-backed securities	Mortgage-backed securities	243,604		—		242,609		995		Mortgage-backed securities	311,621		—		310,638		983
Corporate debt securities	Corporate debt securities	133,696		—		129,055		4,641		Corporate debt securities	118,029		—		112,726		5,303
Securities AFS	Securities AFS	$	852,331	$	—	$	844,341	$	7,990	Securities AFS	$	1,023,176	$	—	$	1,015,021	$	8,155
Other investments (equity securities)	Other investments (equity securities)	$	6,081	$	6,081	$	—	$	—	Other investments (equity securities)	$	3,912	$	3,912	$	—	$	—
Derivative assets		387		—		387		—
Derivative liabilities		387		—		387		—
December 31, 2021

December 31, 2022										December 31, 2022
U.S. Treasury securities										U.S. Treasury securities	$	183,830	$	—	$	183,830	$	—
U.S. government agency securities	U.S. government agency securities	$	191,277	$	—	$	191,277	$	—	U.S. government agency securities	2,100		—		2,100		—
State, county and municipals	State, county and municipals	312,737		—		310,316		2,421		State, county and municipals	398,188		—		396,315		1,873
Mortgage-backed securities	Mortgage-backed securities	271,262		—		270,260		1,002		Mortgage-backed securities	200,932		—		199,951		981
Corporate debt securities	Corporate debt securities	146,385		—		141,743		4,642		Corporate debt securities	132,568		—		127,269		5,299
Securities AFS	Securities AFS	$	921,661	$	—	$	913,596	$	8,065	Securities AFS	$	917,618	$	—	$	909,465	$	8,153
Other investments (equity securities)	Other investments (equity securities)	$	5,660	$	5,660	$	—	$	—	Other investments (equity securities)	$	4,376	$	4,376	$	—	$	—
Derivative assets		1,064		—		1,064		—
Derivative liabilities		1,064		—		1,064		—

The following is a description of the valuation methodologies used by the Company for the assets and liabilities 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. Treasury securities, 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 are primarily trust preferred security investments, as well as certain municipal bonds and mortgage-backed securities. At March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, 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.

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


		Three Months Ended		Year Ended			Three Months Ended		Year Ended
Level 3 Fair Value Measurements:	Level 3 Fair Value Measurements:	March 31, 2022		December 31, 2021		Level 3 Fair Value Measurements:	March 31, 2023		December 31, 2022
Balance at beginning of year	Balance at beginning of year	$	8,065	$	3,130	Balance at beginning of year	$	8,153	$	8,065
Acquired balance	Acquired balance	—		4,935		Acquired balance	—		750

Maturities / Paydowns						Maturities / Paydowns	—		(451)
Unrealized gain / (loss)	Unrealized gain / (loss)	(75)		—		Unrealized gain / (loss)	2		(211)
Balance at end of period	Balance at end of period	$	7,990	$	8,065	Balance at end of period	$	8,155	$	8,153

2827

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:	Total		Level 1		Level 2		Level 3		Measured at Fair Value on a Nonrecurring Basis:	Total		Level 1		Level 2		Level 3
March 31, 2022
March 31, 2023										March 31, 2023
Collateral dependent loans	Collateral dependent loans	$	34,737	$	—	$	—	$	34,737	Collateral dependent loans	$	31,220	$	—	$	—	$	31,220
Other real estate owned (“OREO”)	Other real estate owned (“OREO”)	9,816		—		—		9,816		Other real estate owned (“OREO”)	1,975		—		—		1,975
MSR asset	MSR asset	13,226		—		—		13,226		MSR asset	12,544		—		—		12,544
LSR asset		17,550		—		—		17,550
December 31, 2021
December 31, 2022										December 31, 2022
Collateral dependent loans	Collateral dependent loans	$	36,230	$	—	$	—	$	36,230	Collateral dependent loans	$	30,951	$	—	$	—	$	30,951
OREO	OREO	11,955		—		—		11,955		OREO	1,975		—		—		1,975
MSR asset	MSR asset	12,436		—		—		12,436		MSR asset	12,580		—		—		12,580
LSR asset		20,055		—		—		20,055

The following is a description of the valuation methodologies used by the Company for the items noted in the table above. For collateral dependent loans, the estimated fair value is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the estimated fair value of the underlying collateral with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral, or the estimated liquidity of the note. For OREO, the fair value is based upon the estimated fair value of the underlying collateral adjusted for the expected costs to sell. To estimate the fair value of the MSR asset, the underlying serviced loan pools are stratified by interest rate tranche and term of the loan, and a valuation model is used to calculate the present value of the expected future cash flows for each stratum. 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~~servicing valuation model ~~is used to calculate the present value of the expected future cash flows for each tranche. The servicing valuation models incorporate~~incorporates assumptions that market participants would use in estimating future net servicing income, such as costs to service, a discount rate, ancillary income, default rates and losses, and prepayment speeds. Although some of these assumptions are based on observable market data, other assumptions are based on unobservable estimates of what market participants would use to measure fair value.

Financial instruments:

The carrying amounts and estimated fair values of the Company’s financial instruments are shown below.


March 31, 2022
March 31, 2023												March 31, 2023
(in thousands)	(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	395,923	$	395,923	$	395,923	$	—	$	—	Cash and cash equivalents	$	114,180	$	114,180	$	114,180	$	—	$	—
Certificates of deposit in other banks	Certificates of deposit in other banks	19,692		19,801		—		19,801		—		Certificates of deposit in other banks	11,293		11,181		—		11,181		—
Securities AFS	Securities AFS	852,331		852,331		—		844,341		7,990		Securities AFS	1,023,176		1,023,176		—		1,015,021		8,155
Securities HTM		684,991		652,056		—		652,056		—

Other investments, including equity securities	Other investments, including equity securities	54,257		54,257		6,081		39,383		8,793		Other investments, including equity securities	57,482		57,482		3,912		42,982		10,588
Loans held for sale	Loans held for sale	9,764		9,886		—		9,886		—		Loans held for sale	4,962		5,057		—		5,057		—
Loans, net	Loans, net	4,633,409		4,548,241		—		—		4,548,241		Loans, net	6,161,320		5,962,242		—		—		5,962,242
MSR asset	MSR asset	13,226		16,621		—		—		16,621		MSR asset	12,544		17,708		—		—		17,708
LSR asset		17,550		17,550		—		—		17,550
Accrued interest receivable	Accrued interest receivable	15,908		15,908		15,908		—		—		Accrued interest receivable	21,796		21,796		21,796		—		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	6,231,120	$	6,214,808	$	—	$	—	$	6,214,808	Deposits	$	6,928,579	$	6,918,140	$	—	$	—	$	6,918,140

Short-term borrowings												Short-term borrowings	50,000		50,000		—		50,000		—
Long-term borrowings	Long-term borrowings	206,946		205,995		—		15,001		190,994		Long-term borrowings	197,448		188,203		—		4,855		183,348
Accrued interest payable	Accrued interest payable	2,852		2,852		2,852		—		—		Accrued interest payable	4,219		4,219		4,219		—		—

2928


December 31, 2021
December 31, 2022												December 31, 2022
(in thousands)	(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3		(in thousands)	Carrying Amount		Estimated Fair Value		Level 1		Level 2		Level 3
Financial assets:	Financial assets:											Financial assets:
Cash and cash equivalents	Cash and cash equivalents	$	595,292	$	595,292	$	595,292	$	—	$	—	Cash and cash equivalents	$	154,723	$	154,723	$	154,723	$	—	$	—
Certificates of deposit in other banks	Certificates of deposit in other banks	21,920		22,236		—		22,236		—		Certificates of deposit in other banks	12,518		12,407		—		12,407		—
Securities AFS	Securities AFS	921,661		921,661		—		913,596		8,065		Securities AFS	917,618		917,618		—		909,465		8,153
Securities HTM	Securities HTM	651,803		648,394		—		648,394		—		Securities HTM	679,128		623,352		—		623,352		—
Other investments, including equity securities	Other investments, including equity securities	44,008		44,008		5,660		32,110		6,238		Other investments, including equity securities	65,286		65,286		4,376		52,093		8,817
Loans held for sale	Loans held for sale	6,447		6,616		—		6,616		—		Loans held for sale	1,482		1,529		—		1,529		—
Loans, net	Loans, net	4,572,164		4,606,851		—		—		4,606,851		Loans, net	6,118,670		5,863,570		—		—		5,863,570
MSR asset	MSR asset	12,436		15,599		—		—		15,599		MSR asset	12,580		17,215		—		—		17,215
LSR asset		20,055		20,055		—		—		20,055
Accrued interest receivable	Accrued interest receivable	15,277		15,277		15,277		—		—		Accrued interest receivable	21,275		21,275		21,275		—		—
Financial liabilities:	Financial liabilities:											Financial liabilities:
Deposits	Deposits	$	6,465,916	$	6,463,064	$	—	$	—	$	6,463,064	Deposits	$	7,178,921	$	7,172,779	$	—	$	—	$	7,172,779

Short-term borrowings												Short-term borrowings	317,000		317,000		317,000		—		—
Long-term borrowings	Long-term borrowings	216,915		216,092		—		25,097		190,995		Long-term borrowings	225,342		220,513		—		33,001		187,512
Accrued interest payable	Accrued interest payable	3,078		3,078		3,078		—		—		Accrued interest payable	4,265		4,265		4,265		—		—

The valuation methodologies for the financial instruments disclosed in the above table are described in Note 18, Fair Value Measurements, in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~

~~Note 10 – Other Assets and Other Liabilities Held for Sale~~

On September 7, 2021, Nicolet entered into a Purchase and Assumption Agreement (the “Birmingham Agreement”) with Bank of Ann Arbor to sell Nicolet’s Birmingham, Michigan branch, including legacy mBank’s asset-based lending team (the “Birmingham Sale”). Pursuant to the terms of the Birmingham Agreement, Bank of Ann Arbor agreed to assume certain deposit liabilities and to acquire certain loans, as well as cash, personal property and other fixed assets associated with the Birmingham branch. The combined loan and deposit balances of the Birmingham branch (excluding certain loans and deposits not subject to the Birmingham Agreement) were approximately $199 million and $51 million, respectively, as of December 31, 2021. The Birmingham Sale closed on January 21, 2022.

3029

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 ~~Northeast and Central~~ Wisconsin, ~~Northern~~ Michigan, and ~~the upper peninsula of Michigan.~~Minnesota. 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 implied or anticipated by the statements. Except as required by law, we expressly disclaim any obligations to publicly update any forward-looking statements whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise. Important factors, many of which are beyond Nicolet’s control, that could cause our actual results and financial condition to differ materially from those indicated in the forward-looking statements, in addition to those described in detail under Item 1A, “Risk Factors” of Nicolet’s ~~2021~~2022 Annual Report on Form 10-K include, but are not necessarily limited to the following:

•the COVID-19 pandemic and its continuing effects on our business (including the diversion of management time and resources) as well as the business, customers, employees and third-party service providers of Nicolet or any of its acquisition targets;

•operating, legal and regulatory risks, including the effects of legislative or regulatory developments affecting the financial industry generally or Nicolet specifically;

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

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

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

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

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

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

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

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

•changes in monetary and tax policies;

•changes occurring in business conditions and ~~inflation;~~inflation and the possibility of a recession;

•our ability to attract and retain key personnel;

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

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

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

•each of the factors and risks under Item 1A, “Risk Factors” of Nicolet’s ~~2021~~2022 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;~~

◦~~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.

Overview

The following discussion is management’s analysis of the consolidated financial condition as of March 31, ~~2022~~2023 and December 31, ~~2021~~2022 and results of operations for the three-month periods ended March 31, ~~2022~~2023 and ~~2021.~~2022. It should be read in conjunction with Nicolet’s audited consolidated financial statements included in Nicolet’s ~~2021~~2022 Annual Report on Form 10-K.

Our financial performance and certain balance sheet line items were impacted by the timing and size of our ~~2021 acquisitions~~acquisition of ~~Mackinac Financial Corporation~~Charter Bankshares, Inc. (“~~Mackinac”~~Charter”) on ~~September 3, 2021 and County Bancorp, Inc. (“County”) on December 3, 2021.~~August 26, 2022. Certain income statement results, average balances and related ratios ~~for 2021~~ include partial contributions from ~~Mackinac and County, each~~Charter from the ~~respective~~ acquisition date. Additional information on our ~~2021~~ acquisition activity is included in Note 2, ~~“Acquisitions”~~“Acquisition” in the Notes to Unaudited Consolidated Financial Statements, under Part I, Item 1.

~~Proposed Merger~~Economic Outlook and Recent Industry Developments

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

During first quarter 2023, the banking industry experienced significant volatility with ~~Charter~~

~~On March 29, 2022, Nicolet entered into an Agreement~~high-profile bank failures 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 merger is expectedindustry wide concerns related to ~~close~~liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the ~~third~~banking system. Despite these negative industry developments, Nicolet strengthened its balance sheet and maintained a solid liquidity position. During first quarter ~~of 2022, subject to customary closing conditions, including approval by regulators. Under~~2023, the terms of the 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 $475 in cash. As a result, we expect to issue approximately 1.26 million shares of Nicolet common stock and $38.8Company sold $500 million in ~~cash~~held to maturity securities and used the net proceeds to reduce wholesale funding, which repositioned the balance sheet for future growth. This reduction in wholesale funding also enhanced the ~~acquisition of Charter.~~Company’s already strong liquidity position.

3231

Table 1: Earnings Summary and Selected Financial Data


		At or for the Three Months Ended																At or for the Three Months Ended
(In thousands, except per share data)	(In thousands, except per share data)	3/31/2022			12/31/2021			9/30/2021			6/30/2021			3/31/2021			(In thousands, except per share data)	3/31/2023			12/31/2022			9/30/2022			6/30/2022			3/31/2022
Results of operations:	Results of operations:																Results of operations:
Net interest income	Net interest income	$	53,795		$	53,559		$	35,184		$	35,571		$	33,641		Net interest income	$	56,721		$	68,092		$	62,990		$	55,084		$	53,795
Provision for credit losses	Provision for credit losses	300			8,400			6,000			—			500			Provision for credit losses	3,090			1,850			8,600			750			300
Noninterest income	Noninterest income	15,943			16,064			13,996			20,178			17,126			Noninterest income	(21,844)			14,846			13,000			14,131			15,943
Noninterest expense	Noninterest expense	37,550			39,408			33,061			30,747			26,081			Noninterest expense	44,875			43,989			42,567			36,538			37,550
Income before income tax expense		31,888			21,815			10,119			25,002			24,186
Income tax expense		7,724			5,510			2,295			6,718			5,947
Net income		$	24,164		$	16,305		$	7,824		$	18,284		$	18,239
Earnings per common share:
Income (loss) before income tax expense																	Income (loss) before income tax expense	(13,088)			37,099			24,823			31,927			31,888
Income tax expense (benefit)																	Income tax expense (benefit)	(4,190)			9,498			6,313			7,942			7,724
Net income (loss)																	Net income (loss)	$	(8,898)		$	27,601		$	18,510		$	23,985		$	24,164
Earnings (loss) per common share:																	Earnings (loss) per common share:
Basic	Basic	$	1.77		$	1.29		$	0.75		$	1.85		$	1.82		Basic	$	(0.61)		$	1.88		$	1.33		$	1.79		$	1.77
Diluted	Diluted	$	1.70		$	1.25		$	0.73		$	1.77		$	1.75		Diluted	$	(0.61)		$	1.83		$	1.29		$	1.73		$	1.70
Common Shares:	Common Shares:																Common Shares:
Basic weighted average	Basic weighted average	13,649			12,626			10,392			9,902			9,998			Basic weighted average	14,694			14,685			13,890			13,402			13,649
Diluted weighted average	Diluted weighted average	14,215			13,049			10,776			10,326			10,403			Diluted weighted average	14,694			15,110			14,310			13,852			14,215
Outstanding (period end)	Outstanding (period end)	13,457			13,994			11,952			9,843			9,988			Outstanding (period end)	14,698			14,691			14,673			13,407			13,457
Period-End Balances:	Period-End Balances:																Period-End Balances:
Loans	Loans	$	4,683,315		$	4,621,836		$	3,533,198		$	2,820,331		$	2,846,351		Loans	$	6,223,732		$	6,180,499		$	5,984,437		$	4,978,654		$	4,683,315
Allowance for credit losses - loans	Allowance for credit losses - loans	49,906			49,672			38,399			32,561			32,626			Allowance for credit losses - loans	62,412			61,829			60,348			50,655			49,906
Total assets	Total assets	7,320,212			7,695,037			6,407,820			4,587,347			4,543,804			Total assets	8,192,354			8,763,969			8,895,916			7,370,252			7,320,212
Deposits	Deposits	6,231,120			6,465,916			5,428,774			3,939,022			3,900,594			Deposits	6,928,579			7,178,921			7,395,902			6,286,266			6,231,120
Stockholders’ equity (common)	Stockholders’ equity (common)	836,310			891,891			729,278			559,395			550,046			Stockholders’ equity (common)	961,792			972,529			938,463			839,387			836,310
Book value per common share	Book value per common share	62.15			63.73			61.01			56.83			55.07			Book value per common share	65.44			66.20			63.96			62.61			62.15
Tangible book value per common share (2)	Tangible book value per common share (2)	37.03			39.47			38.43			39.18			37.60			Tangible book value per common share (2)	38.20			38.81			36.21			37.49			37.03
Financial Ratios: (1)	Financial Ratios: (1)																Financial Ratios: (1)
Return on average assets	Return on average assets	1.30		%	0.96		%	0.59		%	1.62		%	1.64		%	Return on average assets	(0.42)		%	1.26		%	0.93		%	1.32		%	1.30		%
Return on average common equity	Return on average common equity	11.38			8.24			5.10			13.31			13.58			Return on average common equity	(3.72)			11.47			8.25			11.48			11.38
Return on average tangible common equity (2)	Return on average tangible common equity (2)	18.75			13.19			7.62			19.46			20.01			Return on average tangible common equity (2)	(6.34)			19.85			13.93			19.21			18.75
Stockholders’ equity to assets	Stockholders’ equity to assets	11.42			11.59			11.38			12.19			12.11			Stockholders’ equity to assets	11.74			11.10			10.55			11.39			11.42
Tangible common equity to tangible assets (2)	Tangible common equity to tangible assets (2)	7.14			7.51			7.48			8.74			8.60			Tangible common equity to tangible assets (2)	7.21			6.82			6.26			7.15			7.14
Reconciliation of Non-GAAP Financial Measures:	Reconciliation of Non-GAAP Financial Measures:																Reconciliation of Non-GAAP Financial Measures:
Adjusted net income reconciliation: (3)
Net income (GAAP)		$	24,164		$	16,305		$	7,824		$	18,284		$	18,239
Adjusted net income (loss) reconciliation: (3)																	Adjusted net income (loss) reconciliation: (3)
Net income (loss) (GAAP)																	Net income (loss) (GAAP)	$	(8,898)		$	27,601		$	18,510		$	23,985		$	24,164
Adjustments:	Adjustments:																Adjustments:
Provision expense related to merger		—			8,400			6,000			—			—
Provision expense (4)																	Provision expense (4)	2,340			—			8,000			—			—
Assets (gains) losses, net	Assets (gains) losses, net	(1,313)			(465)			1,187			(4,192)			(711)			Assets (gains) losses, net	38,468			(260)			46			(1,603)			(1,313)
Merger-related expense	Merger-related expense	98			2,202			2,793			656			—			Merger-related expense	163			492			519			555			98
Branch closure expense		—			—			944			—			—

Adjustments subtotal	Adjustments subtotal	(1,215)			10,137			10,924			(3,536)			(711)			Adjustments subtotal	40,971			232			8,565			(1,048)			(1,215)
Tax on Adjustments (25% effective tax rate)	Tax on Adjustments (25% effective tax rate)	(304)			2,534			2,731			(884)			(178)			Tax on Adjustments (25% effective tax rate)	10,243			58			2,141			(262)			(304)
Adjustments, net of tax	Adjustments, net of tax	(911)			7,603			8,193			(2,652)			(533)			Adjustments, net of tax	30,728			174			6,424			(786)			(911)
Adjusted net income (Non-GAAP)		$	23,253		$	23,908		$	16,017		$	15,632		$	17,706
Core banking operations / Adjusted net income (Non-GAAP)																	Core banking operations / Adjusted net income (Non-GAAP)	$	21,830		$	27,775		$	24,934		$	23,199		$	23,253
Adjusted diluted earnings per common share (Non-GAAP)	Adjusted diluted earnings per common share (Non-GAAP)	$	1.64		$	1.83		$	1.49		$	1.51		$	1.70		Adjusted diluted earnings per common share (Non-GAAP)	$	1.45		$	1.84		$	1.74		$	1.67		$	1.64
Tangible assets: (2)	Tangible assets: (2)																Tangible assets: (2)
Total assets	Total assets	$	7,320,212		$	7,695,037		$	6,407,820		$	4,587,347		$	4,543,804		Total assets	$	8,192,354		$	8,763,969		$	8,895,916		$	7,370,252		$	7,320,212
Goodwill and other intangibles, net	Goodwill and other intangibles, net	338,068			339,492			269,954			173,711			174,501			Goodwill and other intangibles, net	400,277			402,438			407,117			336,721			338,068
Tangible assets	Tangible assets	$	6,982,144		$	7,355,545		$	6,137,866		$	4,413,636		$	4,369,303		Tangible assets	$	7,792,077		$	8,361,531		$	8,488,799		$	7,033,531		$	6,982,144
Tangible common equity: (2)	Tangible common equity: (2)																Tangible common equity: (2)
Stockholders’ equity (common)	Stockholders’ equity (common)	$	836,310		$	891,891		$	729,278		$	559,395		$	550,046		Stockholders’ equity (common)	$	961,792		$	972,529		$	938,463		$	839,387		$	836,310
Goodwill and other intangibles, net	Goodwill and other intangibles, net	338,068			339,492			269,954			173,711			174,501			Goodwill and other intangibles, net	400,277			402,438			407,117			336,721			338,068
Tangible common equity	Tangible common equity	$	498,242		$	552,399		$	459,324		$	385,684		$	375,545		Tangible common equity	$	561,515		$	570,091		$	531,346		$	502,666		$	498,242
Tangible average common equity: (2)	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 stockholders’ equity (common)	$	970,108		$	954,970		$	890,205		$	837,975		$	861,319
Average goodwill and other intangibles, net	Average goodwill and other intangibles, net	338,694			294,051			201,748			174,026			174,825			Average goodwill and other intangibles, net	401,212			403,243			363,211			337,289			338,694
Average tangible common equity	Average tangible common equity	$	522,625		$	490,615		$	407,198		$	376,948		$	369,716		Average tangible common equity	$	568,896		$	551,727		$	526,994		$	500,686		$	522,625

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

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

(3) The adjusted net income / core banking operations measure is a non-GAAP financial measure that provides information that management believes is useful to investors in understanding our operating performance and 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.

(4) Provision expense for 2023 is attributable to the expected loss on our investment in Signature Bank sub debt, and the provision expense for 2022 is attributable to the Day 2 allowance from the acquisition of Charter.

Non-GAAP Financial Measures

We identify “tangible book value per common share,” “return on average tangible common equity,” “tangible common equity to tangible assets” “adjusted net income / core banking operations,” and “adjusted diluted earnings per common share” as “non-GAAP financial measures.” In accordance with the 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 and provide important supplemental information that contributes to a proper understanding of our operating performance and trends, (b) enables a more complete understanding of factors and trends affecting our business, and (c) allows investors to compare our financial performance to the 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 $24~~Nicolet recognized a net loss of $9 million ~~for the three months ended March 31, 2022, compared to $16 million for the three months ended December 31, 2021 and $18 million for the three months ended March 31, 2021. Earnings~~(or loss per diluted common share ~~was $1.70~~of $0.61) for first quarter ~~2022,~~2023, compared to ~~$1.25~~net income of $28 million (or earnings per diluted common share of $1.83) for fourth quarter ~~2021~~2022, and ~~$1.75~~net income of $24 million (or earnings per diluted common share of $1.70) for first quarter ~~2021. Annualized return~~2022.

Core banking operations (or adjusted net income (Non-GAAP)) earned $22 million on ~~average~~growth in loans and wealth management fee revenue. Asset quality continued to be very good as nonperforming assets ~~was 1.30%~~were 0.50% of total assets. Net income reflected non-core items and the related tax effect of each, including U.S. Treasury securities sale loss, expected loss (provision expense) on the Signature Bank sub debt investment (acquired in an acquisition), ~~0.96%~~merger-related expenses, Day 2 credit provision expense required under the CECL model, as well as gains / (losses) on other assets and ~~1.64%,~~investments. These non-core items negatively impacted earnings per diluted common share $2.06 for first quarter ~~2022,~~2023 and $0.01 for fourth quarter ~~2021~~2022, and positively impacted earnings per diluted common share $0.06 for first quarter ~~2021 respectively. Our performance~~2022.

On March 7, 2023, Nicolet executed the sale of $500 million (par value) U.S. Treasury held to maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million to reposition the balance sheet for future growth. The $500 million portfolio yielded approximately 88 bps with scheduled maturities in ~~first quarter 2022 reflects our focus~~2024 and 2025 (or average duration of 2 years). Proceeds from the sale were used to reduce existing FHLB borrowings with the remainder held in investable cash. The following table summarizes the estimated annual impact of this balance sheet repositioning.


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

Lost interest from U.S. Treasury securities	$	(4,380)	Assumes $500 million at 88 bps
Lower interest expense on FHLB borrowings	17,128		Assumes $377 million at 456 bps (at time of sale)
Interest income from investable cash	3,905		Assumes $83 million at 465 bps (at time of sale)
Projected net impact from repositioning	$	16,653
Estimated earn back (in years)	2.26

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

•At March 31, ~~2022,~~2023, assets were ~~$7.3~~$8.2 billion, a decrease of ~~$375~~$572 million ~~(5%~~(7%) from December 31, ~~2021, including $200 million of assets related~~2022, mostly in investment securities due to the ~~sale of the Birmingham branch in January 2022, as well as lower cash and cash equivalents from the decline in deposits.~~balance sheet repositioning. Compared to March 31, ~~2021,~~2022, assets increased ~~$2.8 billion (61%~~$872 million (12%) ~~largely~~ due to the ~~acquisitions~~acquisition of ~~Mackinac and County.~~Charter as well as strong organic loan growth.

•At March 31, ~~2022,~~2023, loans were ~~$4.7~~$6.2 billion, an increase of ~~$61~~$43 million (3% annualized) 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 $16 million).2022. Compared to March 31, ~~2021,~~2022, loans increased ~~$1.8~~$1.5 billion ~~(65%~~(33%), largely due to the ~~Mackinac~~Charter acquisition and ~~County acquisitions. Quarter average loans grew $736 million (19%) over fourth quarter 2021 and grew $1.9 billion (66%) over first quarter 2021.~~strong organic loan growth. For additional information regarding loans, see “BALANCE SHEET ANALYSIS — Loans.”

•Total deposits were ~~$6.2~~$6.9 billion at March 31, ~~2022,~~2023, down ~~$235~~$250 million from December 31, ~~2021, due to the repricing of acquired deposits to current market rates.~~2022, mostly in noninterest-bearing demand deposits. Compared to March 31, ~~2021,~~2022, deposits increased ~~$2.3 billion (60%~~$697 million (11%), largely due to the ~~Mackinac and County acquisitions. Quarter average deposits grew $638 million (11%) over fourth quarter 2021 and grew $2.5 billion (65%) over first quarter 2021.~~Charter acquisition. For additional information regarding deposits, see “BALANCE SHEET ANALYSIS – Deposits.”

•The net interest margin was ~~3.23%~~2.91% for first quarter ~~2022, 8~~2023, 32 bps lower than the comparable ~~2021 period, with~~2022 period. The favorable increase in the earning asset yield ~~down 15~~of 101 bps, was more than offset by a 195 bps increase in the cost of funds, ~~favorably lower 12 bps,~~ and the net free funds ~~unfavorably lower 5~~improved 62 bps. Net interest income increased ~~$20.2~~$2.9 million ~~(60%~~(5%) over first quarter ~~2021, largely due to the acquisitions of Mackinac and County during the second half of 2021.~~2022, including a $29.5 million increase in interest income offset by a $26.5 million increase in interest expense. For additional information regarding net interest income, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”

•Noninterest income was ~~$15.9~~a negative $21.8 million for first quarter ~~2022,~~2023, a ~~decrease of $1.2~~$37.8 million ~~(7%)~~unfavorable change compared to ~~$17.1 million~~first quarter 2022. Excluding net asset gains (losses), noninterest income for first quarter ~~2021.~~2023 was $16.6 million, a $2.0 million increase over first quarter 2022. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”

•Noninterest expense was ~~$37.6~~$44.9 million for first quarter ~~2022,~~2023, an increase of ~~$11.5~~$7.3 million ~~(44%~~(20%) over first quarter ~~2021.~~2022. Personnel costs increased ~~$6.1~~$3.1 million ~~(40%~~(15%), while non-personnel expenses combined increased ~~$5.4~~$4.2 million ~~(49%~~(26%) compared to first quarter ~~2021.~~2022. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”

INCOME STATEMENT ANALYSIS

Net Interest Income

Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and its use in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. The tax-equivalent adjustments bring tax-exempt interest to a level that would yield the same after-tax income by applying the effective Federal corporate tax rates to the underlying assets. Tables 2 and 3 present information to facilitate the review and discussion of selected average balance sheet items, tax-equivalent net interest income, interest rate spread and net interest margin.

Table 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,
		2022						2021							2023						2022
(in thousands)	(in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate		(in thousands)	Average Balance		Interest		Average Yield/Rate		Average Balance		Interest		Average Yield/Rate
ASSETS	ASSETS													ASSETS
Interest-earning assets	Interest-earning assets													Interest-earning assets
Commercial PPP Loans		$	13,503	$	1,377	40.79	%	$	206,498	$	3,951	7.65	%
All other commercial loans		3,907,241		41,820		4.28	%	2,125,844		24,441		4.60	%
Total commercial loans		3,920,744		43,197		4.41	%	2,332,342		28,392		4.87	%

Commercial-based loans														Commercial-based loans	$	5,145,341	$	65,512	5.09	%	$	3,920,744	$	43,197	4.41	%
Retail-based loans	Retail-based loans	768,040		8,137		4.24	%	493,322		5,493		4.46	%	Retail-based loans	1,056,439		13,674		5.18	%	768,040		8,137		4.24	%
Total loans, including loan fees (1)(2)	Total loans, including loan fees (1)(2)	4,688,784		51,334		4.38	%	2,825,664		33,885		4.80	%	Total loans, including loan fees (1)(2)	6,201,780		79,186		5.11	%	4,688,784		51,334		4.38	%
Investment securities:	Investment securities:													Investment securities:
Taxable	Taxable	1,386,593		5,127		1.48	%	382,455		1,814		1.90	%	Taxable	1,224,395		4,961		1.63	%	1,386,593		5,127		1.48	%
Tax-exempt (2)	Tax-exempt (2)	189,031		1,031		2.18	%	145,887		774		2.12	%	Tax-exempt (2)	284,140		2,285		3.22	%	189,031		1,031		2.18	%
Total investment securities	Total investment securities	1,575,624		6,158		1.57	%	528,342		2,588		1.96	%	Total investment securities	1,508,535		7,246		1.93	%	1,575,624		6,158		1.57	%
Other interest-earning assets	Other interest-earning assets	446,783		817		0.73	%	735,597		655		0.36	%	Other interest-earning assets	120,275		1,536		5.11	%	446,783		817		0.73	%
Total non-loan earning assets	Total non-loan earning assets	2,022,407		6,975		1.38	%	1,263,939		3,243		1.03	%	Total non-loan earning assets	1,628,810		8,782		2.16	%	2,022,407		6,975		1.38	%
Total interest-earning assets	Total interest-earning assets	6,711,191		$	58,309	3.48	%	4,089,603		$	37,128	3.63	%	Total interest-earning assets	7,830,590		$	87,968	4.49	%	6,711,191		$	58,309	3.48	%
Other assets, net	Other assets, net	808,445						425,324						Other assets, net	740,033						808,445
Total assets	Total assets	$	7,519,636					$	4,514,927					Total assets	$	8,570,623					$	7,519,636
LIABILITIES AND STOCKHOLDERS’ EQUITY	LIABILITIES AND STOCKHOLDERS’ EQUITY													LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities	Interest-bearing liabilities													Interest-bearing liabilities
Savings	Savings	$	821,452	$	105	0.05	%	$	535,914	$	80	0.06	%	Savings	$	888,979	$	2,365	1.08	%	$	821,452	$	105	0.05	%
Interest-bearing demand	Interest-bearing demand	1,052,076		701		0.27	%	673,398		759		0.46	%	Interest-bearing demand	985,778		3,339		1.37	%	1,052,076		701		0.27	%
Money market accounts ("MMA")		1,540,506		323		0.09	%	857,258		124		0.06	%
Money market accounts (“MMA”)														Money market accounts (“MMA”)	1,847,701		11,190		2.46	%	1,540,506		323		0.09	%
Core time deposits	Core time deposits	595,864		508		0.35	%	329,378		878		1.08	%	Core time deposits	602,882		2,693		1.81	%	595,864		508		0.35	%
Total interest-bearing core deposits	Total interest-bearing core deposits	4,009,898		1,637		0.17	%	2,395,948		1,841		0.31	%	Total interest-bearing core deposits	4,325,340		19,587		1.84	%	4,009,898		1,637		0.17	%
Brokered deposits	Brokered deposits	459,460		555		0.49	%	316,589		1,081		1.38	%	Brokered deposits	566,282		5,350		3.83	%	459,460		555		0.49	%
Total interest-bearing deposits	Total interest-bearing deposits	4,469,358		2,192		0.20	%	2,712,537		2,922		0.44	%	Total interest-bearing deposits	4,891,622		24,937		2.07	%	4,469,358		2,192		0.20	%
Other interest-bearing liabilities	Other interest-bearing liabilities	214,557		1,931		3.60	%	51,695		313		2.42	%	Other interest-bearing liabilities	499,485		5,718		4.58	%	214,557		1,931		3.60	%
Total interest-bearing liabilities	Total interest-bearing liabilities	4,683,915		4,123		0.35	%	2,764,232		3,235		0.47	%	Total interest-bearing liabilities	5,391,107		30,655		2.30	%	4,683,915		4,123		0.35	%
Noninterest-bearing demand	Noninterest-bearing demand	1,923,186						1,162,668						Noninterest-bearing demand	2,168,640						1,923,186
Other liabilities	Other liabilities	51,216						43,486						Other liabilities	40,768						51,216
Stockholders’ equity	Stockholders’ equity	861,319						544,541						Stockholders’ equity	970,108						861,319
Total liabilities and stockholders’ equity	Total liabilities and stockholders’ equity	$	7,519,636					$	4,514,927					Total liabilities and stockholders’ equity	$	8,570,623					$	7,519,636
Net interest income and rate spread	Net interest income and rate spread			$	54,186	3.13	%			$	33,893	3.16	%	Net interest income and rate spread			$	57,313	2.19	%			$	54,186	3.13	%
Tax-equivalent adjustment & net free funds	Tax-equivalent adjustment & net free funds			391		0.10	%			252		0.15	%	Tax-equivalent adjustment & net free funds			592		0.72	%			391		0.10	%
Net interest income and net interest margin	Net interest income and net interest margin			$	53,795	3.23	%			$	33,641	3.31	%	Net interest income and net interest margin			$	56,721	2.91	%			$	53,795	3.23	%

(1)Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.

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

Table 3: Volume/Rate Variance - Tax-Equivalent Basis


		For the Three Months Ended March 31, 2022 Compared to March 31, 2021:							For the Three Months Ended March 31, 2023 Compared to March 31, 2022:
		Increase (Decrease) Due to Changes in							Increase (Decrease) Due to Changes in
(in thousands)	(in thousands)	Volume		Rate		Net (1)		(in thousands)	Volume		Rate		Net (1)
Interest-earning assets	Interest-earning assets							Interest-earning assets
Commercial PPP Loans		$	(6,531)	$	3,957	$	(2,574)
All other commercial loans		24,256		(6,877)		17,379
Total commercial loans		17,725		(2,920)		14,805

Commercial-based loans								Commercial-based loans	$	14,894	$	7,421	$	22,315
Retail-based loans	Retail-based loans	2,911		(267)		2,644		Retail-based loans	3,481		2,056		5,537
Total loans, including loan fees (2) (3)	Total loans, including loan fees (2) (3)	20,636		(3,187)		17,449		Total loans, including loan fees (2) (3)	18,375		9,477		27,852
Investment securities:	Investment securities:							Investment securities:
Taxable	Taxable	3,198		115		3,313		Taxable	(1,243)		1,077		(166)
Tax-exempt (3)	Tax-exempt (3)	235		22		257		Tax-exempt (3)	646		608		1,254
Total investment securities	Total investment securities	3,433		137		3,570		Total investment securities	(597)		1,685		1,088
Other interest-earning assets	Other interest-earning assets	66		96		162		Other interest-earning assets	(100)		819		719
Total non-loan earning assets	Total non-loan earning assets	3,499		233		3,732		Total non-loan earning assets	(697)		2,504		1,807
Total interest-earning assets	Total interest-earning assets	$	24,135	$	(2,954)	$	21,181	Total interest-earning assets	$	17,678	$	11,981	$	29,659
Interest-bearing liabilities	Interest-bearing liabilities							Interest-bearing liabilities
Savings	Savings	$	38	$	(13)	$	25	Savings	$	9	$	2,251	$	2,260
Interest-bearing demand	Interest-bearing demand	326		(384)		(58)		Interest-bearing demand	(41)		2,679		2,638
MMA	MMA	127		72		199		MMA	78		10,789		10,867
Core time deposits	Core time deposits	448		(818)		(370)		Core time deposits	6		2,179		2,185
Total interest-bearing core deposits	Total interest-bearing core deposits	939		(1,143)		(204)		Total interest-bearing core deposits	52		17,898		17,950
Brokered deposits	Brokered deposits	358		(884)		(526)		Brokered deposits	158		4,637		4,795
Total interest-bearing deposits	Total interest-bearing deposits	1,297		(2,027)		(730)		Total interest-bearing deposits	210		22,535		22,745
Other interest-bearing liabilities	Other interest-bearing liabilities	1,571		47		1,618		Other interest-bearing liabilities	3,143		644		3,787
Total interest-bearing liabilities	Total interest-bearing liabilities	2,868		(1,980)		888		Total interest-bearing liabilities	3,353		23,179		26,532
Net interest income	Net interest income	$	21,267	$	(974)	$	20,293	Net interest income	$	14,325	$	(11,198)	$	3,127

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

(2)Nonaccrual loans and loans held for sale are included in the 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.

The Federal Reserve ~~increased~~raised short-term interest rates 25a total of 425 bps during 2022, increasing the Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Additional increases totaling 50 bps were made in ~~mid-March 2022. Prior~~first quarter 2023, resulting in a Federal Funds range of 4.75% to ~~this, short-term interest rates remained steady since~~5.00% as of March 2020. With this recent interest rate increase, the short end (up to two years) of the yield curve has begun to steepen. Margins remain depressed from the pressures of a low interest rate environment, though interest income dollars continue to rise on favorable asset volumes and proactive expense reduction measures.31, 2023.

Tax-equivalent net interest income was ~~$54.2~~$57 million for ~~the~~ first ~~three months~~quarter 2023, an increase of ~~2022, comprised of net interest income of $53.8~~$3 million ~~($20.2 million or 60% higher than the~~(6%) over first ~~three months of 2021), and a $0.4 million tax-equivalent adjustment.~~quarter 2022). The ~~$20.3~~$3 million increase in tax-equivalent net interest income was attributable to net favorable volumes (which added ~~$21.3~~$14 million to net interest income, mostly from ~~higher interest-earning asset volumes added with~~ the ~~Mackinac~~Charter acquisition and ~~County acquisitions, as well as organic~~solid loan ~~growth and strategic investment purchases)~~growth) and net unfavorable rates (which decreased net interest income ~~$1.0~~$11 million from higher deposit costs and the ~~continued pressure of a low~~lag in repricing the loan portfolio to current market interest ~~rate environment)~~rates).

Average interest-earning assets increased to ~~$6.7~~$7.8 billion, up ~~$2.6~~$1.1 billion ~~(64%~~(17%) over the ~~2021~~ comparable 2022 period, primarily due to the ~~acquisitions~~timing of ~~Mackinac and County (in September 2021 and December 2021, respectively).~~the acquisition of Charter. Between the comparable ~~first quarter~~three-month periods, average loans increased ~~$1.9~~$1.5 billion ~~(66%~~(32%), mostly due to timing of the ~~Mackinac and County acquisitions, which~~Charter acquisition (which added loans of ~~$0.9 billion~~$827 million at acquisition) and ~~$1.0 billion, respectively, at acquisition. In addition,~~strong organic loan growth ~~was strong, and replaced the reduction in PPP loans from continued loan forgiveness.~~throughout 2022. Average investment securities ~~increased $1.0 billion~~decreased $67 million between the comparable ~~first quarter~~three-month 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. Otherwhile other interest-earning assets declined ~~$0.3 billion with the additional assets added with the 2021 acquisitions, more than offset by the re-investment of excess cash liquidity noted above.~~$327 million, mostly due to lower cash. As a result, the mix of average interest-earning assets shifted to ~~70%~~79% loans, ~~23%~~19% investments and 7%2% other interest-earning assets (mostly cash) for first quarter ~~2022,~~2023, compared to ~~69%~~70%, ~~13%~~23% and ~~18%~~7%, respectively, for first quarter ~~2021.~~

2022.

Average interest-bearing liabilities were ~~$4.7~~$5.4 billion for first quarter ~~2022,~~2023, an increase of ~~$1.9 billion (69%~~$707 million (15%) over first quarter ~~2021,~~2022, primarily due to the ~~acquisitions~~timing of ~~Mackinac and County.~~the acquisition of Charter. Average interest-bearing core deposits increased ~~$1.6 billion~~$315 million and average brokered deposits increased ~~$143~~$107 million between the comparable ~~first quarter~~three-month periods, ~~largely due~~reflecting the impact of the Charter acquisition and brokered funding to support the ~~Mackinac and County acquisitions.~~strong loan growth. Other interest-bearing liabilities ~~grew $163~~increased $285 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,~~wholesale funding acquired with Charter and partly due to ~~wholesale funding acquired with~~FHLB borrowings to support the ~~Mackinac and County acquisitions.~~strong loan growth. The mix of average interest-bearing liabilities was ~~86%~~80% core deposits, ~~10%~~11% brokered deposits and ~~4% other~~9% wholesale funding for the first quarter ~~2022,~~2023, compared to ~~87%~~86%, ~~11%~~10%, and 2%4%, respectively, for the first quarter ~~2021.~~2022.

~~Between~~

The interest rate spread decreased 94 bps between the comparable first quarter periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate ~~spread decreased 3 bps.~~environment. The ~~first quarter 2022~~ interest-earning asset yield ~~declined 15~~increased 101 bps to ~~3.48%, reflecting~~4.49% for the ~~decline in the average yield~~first three months of ~~loans and investment securities, as well as~~2023, primarily due to 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~~improved 73 bps to ~~4.38%~~5.11% between the comparable ~~first quarter~~three-month periods, largely due to the ~~impact~~repricing of ~~the low~~new and renewed loans in a rising interest rate environment, ~~and competitive pricing pressures on new, renewed, and variable rate loans,~~ while the yield on investment securities ~~declined 39~~increased 36 bps to ~~1.57%,~~1.93%. The cost of funds increased 195 bps to 2.30% for first quarter 2023, also ~~attributable to~~reflecting the ~~low~~rising interest rate environment, ~~as well as~~a migration of customer deposits into higher rate deposit products, and a shift in the ~~strategic re-investment~~mix of ~~cash into lower yielding U.S. Treasury securities. The 2022 cost of funds declined 12 bps to 0.35%, largely from lower rates on core~~ interest-bearing ~~deposits and brokered deposits.~~liabilities (mostly the increase in wholesale funding noted above). The contribution from net free funds ~~decreased 5~~increased 62 bps, mostly due ~~mostly~~ to the ~~reduced~~higher value in the ~~low~~rising interest rate environment, though offset partly by the 53% increase in average net free funds (largely from higher average noninterest-bearing demand deposits and stockholders’ equity) between the first quarter periods.environment. As a result, the tax-equivalent net interest margin was 2.91% for first quarter 2023, down 32 bps compared to 3.23% for first quarter ~~2022, down 8 bps compared to 3.31% for first quarter 2021.~~2022.

Tax-equivalent interest income was ~~$58.3~~$88 million for first quarter ~~2022,~~2023, up ~~$21.2~~$30 million from first quarter ~~2021,~~2022, comprised of ~~$24.1~~$18 million higher volumes ~~partly offset by lower~~and $12 million higher average rates. Interest income on loans increased ~~$17.4~~$28 million over first quarter ~~2021,~~2022, mostly due to higher average balances from the ~~Mackinac~~Charter acquisition and ~~County acquisitions, as well as~~strong organic loan growth. Between the comparable first quarter periods, interest income on 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~~$31 million for first quarter ~~2022,~~2023, up ~~$0.9~~$27 million compared to first quarter ~~2021,~~2022, comprised of ~~$2.9~~$23 million higher ~~volumes, partly offset by $2.0 million from lower~~ overall cost of ~~funds.~~funds and $3 million higher volumes. Interest expense on deposits ~~decreased $0.7~~increased $23 million ~~(25%)~~ from first quarter ~~2021 given~~2022 mostly due to a much higher ~~average interest-bearing deposit balances at a lower cost as product~~interest rate changes were made during 2021 in the low rate environment, and brokered deposits cost less largely from maturities of higher-costing term brokered funds procured under competitive conditions in mid-2020 during the pandemic.environment. Interest expense on ~~other interest-bearing liabilities~~wholesale funding increased between the comparable ~~first quarter~~three-month periods, mostly due to higher average ~~balances from the July 2021 subordinated notes issuance, as well as wholesale funding acquired with the 2021 acquisitions.~~balances.

Provision for Credit Losses

The provision for credit losses was $3.1 million for the three months ended March 31, 2023 (comprised of $0.8 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS), compared to $0.3 million for the three months ended March 31, 2022 ~~compared to $0.5 million for the three months ended March 31, 2021, with the full provision amount~~(all related to the ~~ACL-Loans~~ACL-Loans). The provision for ~~both periods.~~credit losses on loans was attributable to growth and changes in the underlying loan portfolio, while the provision for credit losses on securities AFS was due to the expected loss on our Signature Bank sub debt investment which was fully charged-off during first quarter 2023.

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 and unfunded commitments.~~ACL. 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 securities is affected by risk of the underlying issuer, while the ACL for unfunded commitments is affected by many of the same factors as the ACL-Loans, as well as funding assumptions relative to lines of credit. See also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures. For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” “— Allowance for Credit Losses - Loans,” and “— Nonperforming Assets.”

Noninterest Income

Table 4: Noninterest Income


		Three Months Ended March 31,									Three Months Ended March 31,
(in thousands)	(in thousands)	2022		2021		$ Change		% Change		(in thousands)	2023		2022		$ Change		% Change
Trust services fee income	Trust services fee income	$	2,011	$	1,775	$	236	13	%	Trust services fee income	$	2,033	$	2,011	$	22	1	%
Brokerage fee income	Brokerage fee income	3,688		2,793		895		32		Brokerage fee income	3,479		3,688		(209)		(6)
Wealth management fee income										Wealth management fee income	5,512		5,699		(187)		(3)
Mortgage income, net	Mortgage income, net	3,253		7,230		(3,977)		(55)		Mortgage income, net	1,466		3,253		(1,787)		(55)
Service charges on deposit accounts	Service charges on deposit accounts	1,477		1,091		386		35		Service charges on deposit accounts	1,480		1,477		3		—
Card interchange income	Card interchange income	2,581		1,927		654		34		Card interchange income	3,033		2,581		452		18
BOLI income	BOLI income	933		527		406		77		BOLI income	1,200		933		267		29
Deferred compensation plan asset market valuations										Deferred compensation plan asset market valuations	946		(467)		1,413		(303)
LSR income, net	LSR income, net	(382)		—		(382)		N/M		LSR income, net	1,155		(382)		1,537		N/M
Other income	Other income	1,069		1,072		(3)		—		Other income	1,832		1,536		296		19
Subtotal	Subtotal	14,630		16,415		(1,785)		(11)		Subtotal	16,624		14,630		1,994		14
Asset gains (losses), net	Asset gains (losses), net	1,313		711		602		N/M		Asset gains (losses), net	(38,468)		1,313		(39,781)		N/M
Total noninterest income	Total noninterest income	$	15,943	$	17,126	$	(1,183)	(7)	%	Total noninterest income	$	(21,844)	$	15,943	$	(37,787)	(237)	%
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~~a negative $21.8 million for the first three months of 2023, an unfavorable change of $37.8 million compared to the first three months of 2022, primarily due to the balance sheet repositioning. Excluding net asset gains (losses), noninterest income for first quarter ~~2022,~~2023 was $16.6 million, a ~~decrease of $1.2~~$2.0 million ~~(7%~~(14%) compared to $17.1 million for first quarter 2021. The subtotal of noninterest income before net asset gains (losses) declined $1.8 million (11%) between the comparable three-month periods, with lower net mortgage income partly offset by growth in most other noninterest income categories.

~~Trust services fee income and brokerage fee income combined were $5.7 million, up $1.1 million (25%)~~increase over first quarter ~~2021, consistent with~~2022.

Wealth management fee income was $5.5 million, down $0.2 million (3%) from the first three months of 2022, as unfavorable market-related declines outpaced growth in accounts and assets under ~~management, though tempered slightly by market declines at the end of the quarter.~~management.

Mortgage income represents net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“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 ~~$3.3~~$1.5 million, decreased ~~$4.0~~$1.8 million (55%) between the comparable ~~three-month~~first quarter periods, ~~predominantly on slowing mortgage activity from~~mostly due to the rising interest rate ~~environment. Gains~~environment reducing secondary market volumes and the related gains on sales and capitalized gains combined decreased $4.9 million, while net servicing fees increased $0.1 million (with higher income on the larger portfolio serviced for others, partially offset by an increase in MSR amortization), and MSR impairment was down $1.1 million on slower paydown activity.sales. See also “Lending-Related Commitments” and Note 7, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional disclosures on the MSR asset.

~~Service charges on deposit accounts were up $0.4 million to $1.5 million for the three months ended March 31, 2022, due to the larger deposit base from the 2021 acquisitions.~~

Card interchange income grew ~~$0.7~~$0.5 million ~~(34%~~(18%) between the comparable three-month periods due to higher volume and activity.

BOLI income was up ~~$0.4~~$0.3 million between the comparable three-month periods, attributable to higher average balances from BOLI acquired with the ~~2021 acquisitions.~~Charter acquisition.

Loan servicing rights (“LSR”) income ~~includes agricultural loan servicing fees net of~~increased $1.5 million between the ~~related LSR amortization. Nicolet is not adding new loans~~comparable first quarter periods mostly due to ~~this servicing portfolio; thus, the~~lower LSR amortization ~~is currently outpacing~~from the ~~loan servicing fees.~~much slower prepayments speeds in the higher interest rate environment. See also Note 7, “Goodwill and Other Intangibles and Servicing Rights” of the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1, for additional information on the LSR asset.

Other income of ~~$1.1~~$1.8 million for the three months ended March 31, ~~2022~~2023 was ~~minimally changed~~up $0.3 million from the comparable ~~2021~~2022 period, ~~including new revenue from crop insurance sales (related~~largely due to broker fees.

Net asset losses of $38.5 million for the ~~County acquisition) offset by the unfavorable change in fair value~~first three months of ~~nonqualified deferred compensation plan assets from the recent market declines. See also “Noninterest Expense” for discussion~~2023 were primarily attributable to losses on the ~~offsetting fair value change~~sale of approximately $500 million (par value) U.S. Treasury held to ~~the nonqualified deferred compensation plan liabilities.~~

~~Net~~maturity securities executed in early March as part of a balance sheet repositioning, while net asset gains of $1.3 million for the first ~~quarter~~three months of 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 for first quarter 2021 were primarily attributable to favorable fair value marks on equity securities.~~.

Noninterest Expense

Table 5: Noninterest Expense


		Three Months Ended March 31,									Three Months Ended March 31,
($ in thousands)	($ in thousands)	2022		2021		Change		% Change		($ in thousands)	2023		2022		Change		% Change
Personnel	Personnel	$	21,191	$	15,116	$	6,075	40	%	Personnel	$	24,328	$	21,191	$	3,137	15	%
Occupancy, equipment and office	Occupancy, equipment and office	6,944		4,137		2,807		68		Occupancy, equipment and office	8,783		6,944		1,839		26
Business development and marketing	Business development and marketing	1,831		989		842		85		Business development and marketing	2,121		1,831		290		16
Data processing	Data processing	3,387		2,658		729		27		Data processing	3,988		3,387		601		18
Intangibles amortization	Intangibles amortization	1,424		852		572		67		Intangibles amortization	2,161		1,424		737		52
FDIC assessments	FDIC assessments	480		595		(115)		(19)		FDIC assessments	540		480		60		13
Merger-related expense	Merger-related expense	98		—		98		N/M		Merger-related expense	163		98		65		66
Other expense	Other expense	2,195		1,734		461		27		Other expense	2,791		2,195		596		27
Total noninterest expense	Total noninterest expense	$	37,550	$	26,081	$	11,469	44	%	Total noninterest expense	$	44,875	$	37,550	$	7,325	20	%
Non-personnel expenses	Non-personnel expenses	$	16,359	$	10,965	$	5,394	49	%	Non-personnel expenses	$	20,547	$	16,359	$	4,188	26	%
Average full-time equivalent (“FTE”) employees	Average full-time equivalent (“FTE”) employees	833		558		275		49	%	Average full-time equivalent (“FTE”) employees	943		833		110		13	%
N/M means not meaningful.

Noninterest expense was ~~$37.6~~$44.9 million, an increase of ~~$11.5~~$7.3 million ~~(44%~~(20%) over the first ~~quarter 2021.~~three months of 2022. Personnel costs increased ~~$6.1~~$3.1 million ~~(40%~~(15%), while non-personnel expenses combined increased ~~$5.4~~$4.2 million ~~(49%~~(26%) compared to the first ~~quarter 2021.~~three months of 2022.

Personnel expense was ~~$21.2~~$24.3 million for the three months ended March 31, ~~2022,~~2023, an increase of ~~$6.1~~$3.1 million from the comparable period in ~~2021.~~2022. Salary expense increased ~~$5.2~~$3.0 million ~~(57%~~(17%) over the first ~~quarter 2021,~~three months of 2022, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up ~~49%~~13%, mostly due to the ~~2021 acquisitions) as well as~~Charter acquisition), investments in our wealth team, and merit increases between the ~~years.~~years, partly offset by lower incentive

compensation given the current period net loss. Fringe benefits increased ~~$1.2~~$0.1 million ~~(47%~~(3%) over the first ~~quarter 2021, mostly due to~~three months of 2022, commensurate with the larger employee base. ~~Personnel~~Salary expense was also impacted by the change in the fair value of nonqualified deferred compensation plan liabilities from the recent market declines. See also “Noninterest Income” for ~~discussion on~~ the offsetting fair value change to the nonqualified deferred compensation plan assets.

Occupancy, equipment and office expense was ~~$6.9~~$8.8 million for the first ~~quarter 2022,~~three months of 2023, up ~~$2.8~~$1.8 million ~~(68%~~(26%) compared to the first ~~quarter 2021,~~three months of 2022, largely due to the expanded branch network with the ~~Mackinac and County acquisitions,~~Charter acquisition, as well as additional expense for software and technology solutions.

Business development and marketing expense was ~~$1.8~~$2.1 million, up ~~$0.8~~$0.3 million ~~(85%~~(16%), between the comparable first quarter periods, largely ~~due~~attributable to the ~~higher travel~~timing and ~~entertainment expenses, as well as additional~~extent of marketing donations, promotions, and media to support our expanded branch network and community base.

Data processing expense was ~~$3.4~~$4.0 million, up ~~$0.7~~$0.6 million ~~(27%~~(18%) between the comparable three-month periods, mostly due to volume-based increases in core and card processing charges, ~~including~~partly from the ~~larger operating base following the Mackinac and County acquisitions.~~Charter acquisition.

Intangibles amortization increased ~~$0.6~~$0.7 million between the comparable first quarter periods due to higher amortization from the intangibles added with the ~~2021~~recent acquisitions.

Other expense was ~~$2.2~~$2.8 million, up ~~$0.5~~$0.6 million (27%) between the comparable three-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 our larger operating base.~~fees.

Income Taxes

Income tax was a benefit of $4.2 million (effective tax rate of 32.0%) for the first three months of 2023, compared to expense ~~was~~of $7.7 million (effective tax rate of 24.2%) for ~~first quarter 2022, compared to $5.9 million (effective tax rate of 24.6%) for~~ the comparable period of ~~2021.~~2022. The change in the effective tax rate was largely due to the increase in tax benefits with a pre-tax loss.

BALANCE SHEET ANALYSIS

At March 31, ~~2022,~~2023, period end assets were ~~$7.3~~$8.2 billion, a decrease of ~~$0.4 billion (5%~~$572 million (7%) from December 31, ~~2021, including $200 million of assets related~~2022, mostly due to the sale of ~~the Birmingham branch in January 2022,~~investment securities as ~~well as lower cash and cash equivalents from the decline in deposits.~~part of our balance sheet repositioning. Total loans increased ~~$61~~$43 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 $16 million).2022. Total deposits of ~~$6.2~~$6.9 billion at March 31, ~~2022,~~2023, decreased ~~$0.2 billion~~$250 million from December 31, ~~2021, due to the repricing of acquired deposits to current market rates.~~2022, while total borrowings decreased $295 million from December 31, 2022 in FHLB advances. Total stockholders’ equity was ~~$836~~$962 million at March 31, ~~2022,~~2023, a decrease of ~~$56~~$11 million since December 31, ~~2021,~~2022, also mostly ~~due to stock repurchase activity and unfavorable changes in~~from the ~~fair value of securities AFS, partly offset by current quarter earnings.~~balance sheet repositioning.

Compared to March 31, ~~2021,~~2022, assets ~~were $7.3 billion, up $2.8 billion (61%~~increased $872 million (12%) ~~from March 31, 2021,~~, largely due to the ~~acquisitions~~acquisition of ~~Mackinac~~Charter and ~~County in second half 2021.~~strong loan growth, partly offset by lower investment securities related to the balance sheet repositioning. Total loans increased ~~$1.8~~$1.5 billion and total deposits increased ~~$2.3 billion~~$697 million from March 31, ~~2021,~~2022, also largely due to the ~~acquisitions~~acquisition of ~~Mackinac and County.~~Charter. Stockholders’ equity increased ~~$286~~$125 million from March 31, ~~2021,~~2022, primarily due to common stock issued in the ~~Mackinac~~Charter acquisition and ~~County acquisitions and 2021~~ net income, partially offset by ~~stock repurchases over the 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 ~~Northeast and Central~~ Wisconsin, ~~Northern~~ Michigan and ~~the Upper Peninsula of Michigan.~~Minnesota. We concentrate on originating loans in our local markets and assisting current loan customers. ~~The~~Nicolet actively utilizes government loan ~~portfolio is widely diversified~~programs such as those provided by ~~types~~the U.S. Small Business Administration (“SBA”) and the U.S. Department of ~~borrowers, industry groups, and market areas.~~Agriculture’s Farm Service Agency (“FSA”).

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 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.

For additional disclosures on loans, see also Note 6, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Unaudited Consolidated Financial Statements under Part I, Item 1. For information regarding the allowance for credit losses and nonperforming assets see “BALANCE SHEET ANALYSIS – Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS – Nonperforming Assets.” A detailed discussion of the loan portfolio accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2022 Annual Report on Form 10-K.

Table 6: Period End Loan Composition


		March 31, 2022				December 31, 2021				March 31, 2021					March 31, 2023				December 31, 2022				March 31, 2022
(in thousands)	(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total		(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Commercial & industrial	Commercial & industrial	$	1,063,300	23	%	$	1,042,256	23	%	$	957,901	34	%	Commercial & industrial	$	1,330,052	21	%	$	1,304,819	21	%	$	1,063,300	23	%
Owner-occupied CRE	Owner-occupied CRE	794,946		17		787,189		17		520,274		18		Owner-occupied CRE	969,064		16		954,599		15		794,946		17
Agricultural	Agricultural	826,364		18		794,728		17		107,009		4		Agricultural	1,065,909		17		1,088,607		18		826,364		18
Commercial	Commercial	2,684,610		58		2,624,173		57		1,585,184		56		Commercial	3,365,025		54		3,348,025		54		2,684,610		58
CRE investment	CRE investment	807,602		17		818,061		18		490,053		17		CRE investment	1,146,388		19		1,149,949		19		807,602		17
Construction & land development	Construction & land development	211,640		4		213,035		5		137,670		5		Construction & land development	333,370		5		318,600		5		211,640		4
Commercial real estate	Commercial real estate	1,019,242		21		1,031,096		23		627,723		22		Commercial real estate	1,479,758		24		1,468,549		24		1,019,242		21
Commercial-based loans	Commercial-based loans	3,703,852		79		3,655,269		80		2,212,907		78		Commercial-based loans	4,844,783		78		4,816,574		78		3,703,852		79
Residential construction	Residential construction	72,660		2		70,353		1		39,586		1		Residential construction	134,782		2		114,392		2		72,660		2
Residential first mortgage	Residential first mortgage	721,107		15		713,983		15		456,197		16		Residential first mortgage	1,014,166		16		1,016,935		16		721,107		15
Residential junior mortgage	Residential junior mortgage	133,817		3		131,424		3		107,641		4		Residential junior mortgage	177,026		3		177,332		3		133,817		3
Residential real estate	Residential real estate	927,584		20		915,760		19		603,424		21		Residential real estate	1,325,974		21		1,308,659		21		927,584		20
Retail & other	Retail & other	51,879		1		50,807		1		30,020		1		Retail & other	52,975		1		55,266		1		51,879		1
Retail-based loans	Retail-based loans	979,463		21		966,567		20		633,444		22		Retail-based loans	1,378,949		22		1,363,925		22		979,463		21
Total loans	Total loans	$	4,683,315	100	%	$	4,621,836	100	%	$	2,846,351	100	%	Total loans	$	6,223,732	100	%	$	6,180,499	100	%	$	4,683,315	100	%

As noted in Table 6 above, the loan portfolio at March 31, ~~2022,~~2023, was ~~79%~~78% commercial-based and ~~21%~~22% retail-based. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because of the broader list of factors that could impact a commercial borrower negatively. In addition, the commercial balance per borrower is 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.

Total loans of $6.2 billion at March 31, 2023, increased $43 million (3% annualized) from December 31, 2022. At March 31, 2023, commercial and industrial loans represented the largest segment of Nicolet’s loan portfolio at 21% of the total portfolio, followed by CRE investment at 19% of the total portfolio. The loan portfolio is widely diversified and included the following industries: manufacturing, wholesaling, paper, packaging, food production and processing, agriculture, forest products, hospitality, retail, service, and businesses supporting the general building industry. The following chart provides the industry distribution of our commercial loan portfolio at March 31, 2023.


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

~~At March 31, 2022, loans were $4.7 billion, $61 million higher than December 31, 2021, due to growth in~~The following table presents the maturity distribution of 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~~portfolio.

Table 7: Loan Maturity Distribution


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










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










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


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










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










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

* The residential construction loans ~~from~~with a loan ~~forgiveness (down $16 million). Commercial and industrial loans continue~~maturity after five years represent a construction to ~~be the largest segment of Nicolet’s portfolio and represented 23% of the total portfolio at March 31, 2022.~~

Residential real estate loans of $928 million grew $12 million from year-end 2021, to represent 20% of total loans at March 31, 2022. Residential first mortgage loans include conventional first-lien home mortgages, while residential junior mortgage loans consist mainly of home equity lines and term loans secured by junior mortgage liens. As part of our management of residential mortgage loans, the majority of Nicolet’s long-term, fixed-rate residential first mortgage loans are sold in the secondary market with servicing rights retained. Nicolet’s mortgage loans are typically of high quality and have historically had low net charge-off rates.

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

Allowance for Credit Losses - Loans

~~In addition to~~For additional disclosures on the ~~discussion that follows,~~allowance for credit losses, 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. A detailed discussion of the loan portfolio accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, ~~for additional disclosures~~“Nature of Business and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements, included in Part II, Item 8 of the Company’s 2022 Annual Report on ~~the allowance for credit losses.~~Form 10-K.

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 2021 Annual Report on Form 10-K.type. 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. Loans charged off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, interest, and related expenses. For additional information regarding nonperforming assets see also “BALANCE SHEET ANALYSIS – Nonperforming Assets.”

The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the overall appropriateness of the ACL-Loans, management applies an allocation methodology 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 nonaccrual loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing 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 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 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~~Second, management 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 and environmental factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses ~~as of~~at the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.

At March 31, ~~2022,~~2023, the ACL-Loans was $62 million (representing 1.00% of period end loans), unchanged from $62 million (or 1.00% of period end loans) at December 31, 2022 and up from $50 million ~~(representing~~(or 1.07% of period end loans) ~~compared to $50 million at December 31, 2021 and $33 million~~ at March 31, ~~2021. The ACL-Loans was minimally changed from year-end 2021 given solid asset quality trends which offset current period loan growth.~~2022. The increase in the ACL-Loans from March 31, ~~2021~~2022 was ~~largely~~mostly due to the ~~acquisitions of Mackinac and County,~~Charter acquisition, which ~~combined~~ added ~~$12~~$8 million of provision for the Day 2 allowance and $5$2 million related to purchased credit deteriorated loans. ~~Net charge-offs (0.01% of average loans, annualized) remain negligible.~~ The components of the ACL-Loans are detailed further in Table 78 below.

Table 7:8: Allowance for Credit Losses - Loans


		Three Months Ended						Year Ended				Three Months Ended						Year Ended
(in thousands)	(in thousands)	March 31, 2022			March 31, 2021			December 31, 2021			(in thousands)	March 31, 2023			March 31, 2022			December 31, 2022
ACL-Loans:	ACL-Loans:										ACL-Loans:
Balance at beginning of period	Balance at beginning of period	$	49,672		$	32,173		$	32,173		Balance at beginning of period	$	61,829		$	49,672		$	49,672
ACL on PCD loans acquired	ACL on PCD loans acquired	—			—			5,159			ACL on PCD loans acquired	—			—			1,937
Provision for credit losses	Provision for credit losses	300			500			12,500			Provision for credit losses	750			300			10,950
Charge-offs	Charge-offs	(100)			(94)			(513)			Charge-offs	(184)			(100)			(1,033)
Recoveries	Recoveries	34			47			353			Recoveries	17			34			303
Net (charge-offs) recoveries	Net (charge-offs) recoveries	(66)			(47)			(160)			Net (charge-offs) recoveries	(167)			(66)			(730)
Balance at end of period	Balance at end of period	$	49,906		$	32,626		$	49,672		Balance at end of period	$	62,412		$	49,906		$	61,829
Net loan (charge-offs) recoveries:	Net loan (charge-offs) recoveries:										Net loan (charge-offs) recoveries:
Commercial & industrial	Commercial & industrial	$	20		$	(13)		$	50		Commercial & industrial	$	(108)		$	20		$	(86)
Owner-occupied CRE	Owner-occupied CRE	(36)			—			—			Owner-occupied CRE	—			(36)			(555)
Agricultural	Agricultural	—			—			(48)			Agricultural	2			—			—
CRE investment	CRE investment	—			(4)			(2)			CRE investment	—			—			169
Construction & land development	Construction & land development	—			—			—			Construction & land development	—			—			—
Residential construction	Residential construction	—			—			—			Residential construction	—			—			—
Residential first mortgage	Residential first mortgage	4			10			(93)			Residential first mortgage	1			4			(57)
Residential junior mortgage	Residential junior mortgage	—			2			4			Residential junior mortgage	—			—			1
Retail & other	Retail & other	(54)			(42)			(71)			Retail & other	(62)			(54)			(202)
Total net (charge-offs) recoveries	Total net (charge-offs) recoveries	$	(66)		$	(47)		$	(160)		Total net (charge-offs) recoveries	$	(167)		$	(66)		$	(730)
Ratios:	Ratios:										Ratios:
ACL-Loans to total loans	ACL-Loans to total loans	1.07		%	1.15		%	1.07		%	ACL-Loans to total loans	1.00		%	1.07		%	1.00		%
Net charge-offs to average loans, annualized	Net charge-offs to average loans, annualized	0.01		%	0.01		%	0.01		%	Net charge-offs to average loans, annualized	0.01		%	0.01		%	0.01		%

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

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans 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, ~~2022,~~2023, nonperforming assets were ~~$49~~$41 million and represented ~~0.68%~~0.50% of total assets, compared to ~~$56~~$40 million or ~~0.73%~~0.46% of total assets at December 31, ~~2021.~~2022.

The level of potential problem loans is another predominant factor in determining the relative level of risk in the loan portfolio and in determining the 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 ~~$49~~$76 million ~~(1.0%~~(1% of loans) and $53 million ~~(1.1%~~(1% of loans) at March 31, ~~2022~~2023 and December 31, ~~2021, respectively.~~2022, respectively, with the increase primarily due to the downgrade of one commercial credit relationship. Potential problem loans require a heightened management review ofgiven the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

Table 9: Nonperforming Assets


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

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

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

~~Table 8: Nonperforming Assets~~

(in thousands) March 31, 2022 December 31, 2021 March 31, 2021
Nonperforming loans:
Commercial & industrial $ 1,849 $ 1,908 $ 2,842
Owner-occupied CRE 5,007 4,220 1,563
Agricultural 23,570 28,367 2,087
Commercial 30,426 34,495 6,492
CRE investment 3,914 4,119 1,436
Construction & land development 1,054 1,071 327
Commercial real estate 4,968 5,190 1,763
Commercial-based loans 35,394 39,685 8,255
Residential construction — — —
Residential first mortgage 3,919 4,132 527
Residential junior mortgage 242 243 116
Residential real estate 4,161 4,375 643
Retail & other 115 94 67
Retail-based loans 4,276 4,469 710
Total nonaccrual loans 39,670 44,154 8,965
Accruing loans past due 90 days or more — — —
Total nonperforming loans $ 39,670 $ 44,154 $ 8,965
Nonaccrual loans (included above) covered by guarantees $ 4,675 $ 6,776 $ 1,416
OREO:
Commercial real estate owned $ 797 $ 1,549 $ 302
Residential real estate owned — 99 —
Bank property real estate owned 9,019 10,307 3,495
Total OREO 9,816 11,955 3,797
Total nonperforming assets $ 49,486 $ 56,109 $ 12,762
Performing troubled debt restructurings $ 1,714 $ 5,443 $ 2,120
Ratios:
Nonperforming loans to total loans 0.85 % 0.96 % 0.31 %
Nonperforming assets to total loans plus OREO 1.05 % 1.21 % 0.45 %
Nonperforming assets to total assets 0.68 % 0.73 % 0.28 %
ACL-Loans to nonperforming loans 126 % 112 % 364 %

Deposits

Deposits represent Nicolet’s largest source of ~~funds. Total deposits~~funds, and the strong core deposit base provides a stable funding source. As of ~~$6.2~~March 31, 2023, approximately 83% of core deposit balances have been with Nicolet more than five years.

Core deposit balances of $6.4 billion at March 31, ~~2022, decreased $235~~2023 declined $181 million (3%) from December 31, ~~2021,~~2022, partly due to the ~~repricing~~seasonal run-off of acquired deposits to current market rates, as well as the usual cyclical decline in demand deposit accounts. Core customer deposits decreased $200 million, while brokered deposits decreased $35 million.municipal deposits. Compared to March 31, ~~2021, total~~2022, core deposits increased ~~$2.3 billion (60%~~$584 million (10%), largely due to the ~~Mackinac and County acquisitions.~~Charter acquisition. The deposit composition is presented in Table 910 below.

Table 9:10: Period End Deposit Composition


		March 31, 2022				December 31, 2021				March 31, 2021					March 31, 2023				December 31, 2022				March 31, 2022
(in thousands)	(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total		(in thousands)	Amount		% of Total		Amount		% of Total		Amount		% of Total
Noninterest-bearing demand	Noninterest-bearing demand	$	1,912,995	31	%	$	1,975,705	31	%	$	1,216,477	31	%	Noninterest-bearing demand	$	2,094,623	30	%	$	2,361,816	33	%	$	1,912,995	31	%
Money market and interest-bearing demand		2,740,024		44	%	2,834,824		44	%	1,576,041		40	%
Interest-bearing demand														Interest-bearing demand	1,138,415		17	%	1,279,850		18	%	1,239,582		20	%
Money market														Money market	1,886,879		27	%	1,707,619		24	%	1,500,442		24	%
Savings	Savings	841,369		13	%	803,197		12	%	572,225		15	%	Savings	865,824		12	%	931,417		13	%	841,369		13	%
Time	Time	736,732		12	%	852,190		13	%	535,851		14	%	Time	942,838		14	%	898,219		12	%	736,732		12	%
Total deposits	Total deposits	$	6,231,120	100	%	$	6,465,916	100	%	$	3,900,594	100	%	Total deposits	$	6,928,579	100	%	$	7,178,921	100	%	$	6,231,120	100	%
Brokered transaction accounts	Brokered transaction accounts	$	228,079	4	%	$	234,306	4	%	$	35,615	1	%	Brokered transaction accounts	$	233,393	4	%	$	252,829	3	%	$	228,079	4	%
Brokered and listed time deposits	Brokered and listed time deposits	180,823		3	%	209,857		3	%	225,402		6	%	Brokered and listed time deposits	289,181		4	%	339,066		5	%	180,823		3	%
Total brokered deposits	Total brokered deposits	$	408,902	7	%	$	444,163	7	%	$	261,017	7	%	Total brokered deposits	$	522,574	8	%	$	591,895	8	%	$	408,902	7	%
Customer transaction accounts	Customer transaction accounts	$	5,266,309	84	%	$	5,379,420	83	%	$	3,329,128	85	%	Customer transaction accounts	$	5,752,348	83	%	$	6,027,873	84	%	$	5,266,309	84	%
Customer time deposits	Customer time deposits	555,909		9	%	642,333		10	%	310,449		8	%	Customer time deposits	653,657		9	%	559,153		8	%	555,909		9	%
Total customer deposits (core)	Total customer deposits (core)	$	5,822,218	93	%	$	6,021,753	93	%	$	3,639,577	93	%	Total customer deposits (core)	$	6,406,005	92	%	$	6,587,026	92	%	$	5,822,218	93	%

Total uninsured deposits were $1.9 billion (representing 27% of total deposits) at March 31, 2023, compared to $2.1 billion (representing 29% of total deposits) at December 31, 2022.

Lending-Related Commitments

As of March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, Nicolet had the following off-balance sheet lending-related commitments.

Table ~~10:~~11: Commitments


(in thousands)	(in thousands)	March 31, 2022		December 31, 2021		(in thousands)	March 31, 2023		December 31, 2022
Commitments to extend credit	Commitments to extend credit	$	1,432,989	$	1,433,881	Commitments to extend credit	$	1,850,215	$	1,850,601
Financial standby letters of credit	Financial standby letters of credit	14,884		13,562		Financial standby letters of credit	23,246		26,530
Performance standby letters of credit	Performance standby letters of credit	7,773		7,336		Performance standby letters of credit	9,952		9,375

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 ~~$31~~$18 million and ~~$26~~$17 million, respectively, at March 31, ~~2022.~~2023. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale both represented ~~$50~~$9 million ~~and $1 million, respectively,~~ at December 31, ~~2021.~~2022. The net fair value of these mortgage derivatives combined was a gain of ~~$122,000~~$72,000 at March 31, ~~2022~~2023 compared to a gain of ~~$149,000~~$50,000 at December 31, ~~2021.~~2022.

Liquidity Management

Liquidity management refers to the ability to ensure that ~~cash is~~adequate liquid funds are available ~~in a timely and cost-effective manner~~ to meet the current and future cash flow ~~requirements~~obligations arising in the daily operations of ~~depositors and borrowers and to meet other commitments as they fall due, including~~the Company. These cash flow obligations include the ability to ~~service debt, invest in subsidiaries, repurchase common stock,~~meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to stockholders (if any), and satisfy other operating ~~requirements.~~expenses. The Company’s most liquid assets are cash and due from banks and interest-earning deposits, which totaled $114 million and $155 million at March 31, 2023 and December 31, 2022, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.

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

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

Nicolet’s primary sources ~~including, but not limited to,~~of funds include the core deposit ~~base;~~base, repayment and maturity of ~~loans;~~loans, investment securities calls, maturities, and ~~sales;~~sales, and procurement of ~~additional~~ brokered deposits or other wholesale funding. At March 31, ~~2022,~~2023, approximately ~~24%~~40% of the ~~$1.5 billion~~ investment securities portfolio was pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by ~~law. Additional funding~~regulation. Liquidity sources available to the Company at March 31, ~~2022, consist of available and unused Federal funds lines, borrowing capacity at the FHLB of $373 million, and borrowing capacity~~2023, are presented in ~~the brokered deposit market.~~Table 12 below.

Table 12: Liquidity Sources


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

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

Total Contingent Funding Availability	$	2,246

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

Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies. The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases ~~repayment of debt,~~ or investment in other strategic actions such as mergers or acquisitions. At March 31, ~~2022,~~2023, the Parent Company had ~~$27~~$62 million in cash. Additional cash sources available to the Parent Company include 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, 2022 and December 31, 2021 were $396 million and $595 million, respectively.~~ The ~~decrease~~Bank is required by federal law to obtain prior approval of the OCC for payments of dividends if the total of all dividends declared by the Bank in ~~cash and cash equivalents since year-end 2021 included $22 million net cash provided by operating activities~~

~~(mostly earnings), $71 million net cash provided by investing activities (with net cash received~~any year will exceed certain thresholds. Management does not believe that regulatory restrictions on dividends from the Birmingham branch sale exceeding cash payments to fund loan growth and net investment purchases), and $292 million net cash used in financing activities (mostly deposit growth and common stock repurchases). Management believesBank will adversely affect its ~~liquidity resources were sufficient as of March 31, 2022 to fund loans, accommodate deposit cycles and trends, and~~ability to meet ~~other~~its cash ~~needs as necessary.~~obligations.

Interest Rate Sensitivity Management and Impact of Inflation

A reasonable balance between interest rate risk, credit risk, liquidity risk and maintenance of yield, is highly important to Nicolet’s business success and profitability. As an ongoing part of our financial strategy and risk management, we attempt to understand and manage the impact of fluctuations in market interest rates on our net interest income. The consolidated balance sheet consists mainly of interest-earning assets (loans, investments and cash) which are primarily funded by interest-bearing liabilities (deposits and other borrowings). Such financial instruments have varying levels of sensitivity to changes in market rates of interest. Market rates are highly sensitive to many factors beyond our control, including but not limited to general economic conditions and policies of governmental and regulatory authorities. Our operating income and net income depends, to a substantial extent, on “rate spread” (i.e., the difference between the income earned on loans, investments and other earning assets and the interest expense paid to obtain deposits and other funding liabilities).

Asset-liability management policies establish guidelines for acceptable limits on the sensitivity to changes in interest rates on earnings and market value of assets and liabilities. Such policies are set and monitored by management and the ~~board~~Board of ~~directors’~~Directors’ Asset and Liability Committee.

To understand and manage the impact of fluctuations in market interest rates on net interest income, we measure our overall interest rate sensitivity through a net interest income analysis, which calculates the change in net interest income in the event of hypothetical changes in interest rates under different scenarios versus a baseline scenario. Such scenarios can involve static balance sheets, balance sheets with projected growth, parallel (or non-parallel) yield curve slope changes, immediate or gradual changes in market interest rates, and one-year or longer time horizons. The simulation modeling uses assumptions involving

market spreads, prepayments of rate-sensitive instruments, renewal rates on maturing or new loans, deposit retention rates, and other assumptions.

Among other scenarios, we 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~~above and reflect the changed interest rate environment. The interest rate scenarios are used for analytical purposes only and do not necessarily represent management’s view of future market interest rate movements. Based on financial data at March 31, ~~2022~~2023 and December 31, ~~2021,~~2022, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 1113 below. The results are within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps.

Table ~~11:~~13: Interest Rate Sensitivity


		March 31, 2022		December 31, 2021			March 31, 2023		December 31, 2022
200 bps decrease in interest rates	200 bps decrease in interest rates	(1.2)	%	(0.3)	%	200 bps decrease in interest rates	(0.1)	%	(0.7)	%
100 bps decrease in interest rates	100 bps decrease in interest rates	(0.8)	%	(0.3)	%	100 bps decrease in interest rates	(0.1)	%	(0.4)	%
100 bps increase in interest rates	100 bps increase in interest rates	(0.6)	%	(0.1)	%	100 bps increase in interest rates	(0.2)	%	—	%
200 bps increase in interest rates	200 bps increase in interest rates	(1.2)	%	(0.3)	%	200 bps increase in interest rates	(0.3)	%	0.1	%

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

The effect of inflation on a financial institution differs significantly from the effect on an industrial company. While a financial institution’s operating expenses, particularly salary and employee benefits, are affected by general inflation, the asset and liability structure of a financial institution consists largely of monetary items. Monetary items, such as cash, investments, loans, deposits and other borrowings, are those assets and liabilities which are or will be converted into a fixed number of dollars regardless of changes in prices. As a result, changes in interest rates have a more significant impact on a financial institution’s performance than does general inflation. Inflation may also have impacts on the Bank’s customers, on businesses and consumers and their ability or willingness to invest, save or spend, and perhaps on their ability to repay loans. As such, there would likely be impacts on the general appetite for banking products and the credit health of the Bank’s customer base.

Capital

Management regularly reviews the adequacy of its capital to ensure that sufficient capital is available for current and future needs and is in compliance with regulatory guidelines. The capital position and strategies are actively reviewed in light of perceived business risks associated with current and prospective earning levels, liquidity, asset quality, economic conditions in the markets served, and level of returns available to shareholders. Management intends to maintain an optimal capital and leverage mix for growth and shareholder return. For details on the change in capital see “BALANCE SHEET ANALYSIS.”

The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At March 31, ~~2022,~~2023, 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 the 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:~~14: Capital


		At or for the Three Months Ended			At or for the Year Ended				At or for the Three Months Ended			At or for the Year Ended
($ in thousands)	($ in thousands)	March 31, 2022			December 31, 2021			($ in thousands)	March 31, 2023			December 31, 2022
Company Stock Repurchases: *	Company Stock Repurchases: *							Company Stock Repurchases: *
Common stock repurchased during the period (dollars)	Common stock repurchased during the period (dollars)	$	54,420		$	61,464		Common stock repurchased during the period (dollars)	$	—		$	61,483
Common stock repurchased during the period (full shares)	Common stock repurchased during the period (full shares)	593,713			793,064			Common stock repurchased during the period (full shares)	—			671,662
Company Risk-Based Capital:	Company Risk-Based Capital:							Company Risk-Based Capital:
Total risk-based capital	Total risk-based capital	$	769,472		$	793,410		Total risk-based capital	$	886,051		$	889,763
Tier 1 risk-based capital	Tier 1 risk-based capital	576,239			604,199			Tier 1 risk-based capital	676,114			684,280
Common equity Tier 1 capital	Common equity Tier 1 capital	538,919			567,095			Common equity Tier 1 capital	637,967			646,341
Total capital ratio	Total capital ratio	13.7		%	13.8		%	Total capital ratio	12.3		%	12.3		%
Tier 1 capital ratio	Tier 1 capital ratio	10.3		%	10.5		%	Tier 1 capital ratio	9.4		%	9.5		%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	9.6		%	9.9		%	Common equity tier 1 capital ratio	8.9		%	9.0		%
Tier 1 leverage ratio	Tier 1 leverage ratio	8.0		%	9.4		%	Tier 1 leverage ratio	8.2		%	8.2		%
Bank Risk-Based Capital:	Bank Risk-Based Capital:							Bank Risk-Based Capital:
Total risk-based capital	Total risk-based capital	$	727,620		$	700,869		Total risk-based capital	$	813,992		$	816,951
Tier 1 risk-based capital	Tier 1 risk-based capital	687,232			664,688			Tier 1 risk-based capital	756,575			764,090
Common equity Tier 1 capital	Common equity Tier 1 capital	687,232			664,688			Common equity Tier 1 capital	756,575			764,090
Total capital ratio	Total capital ratio	13.0		%	12.2		%	Total capital ratio	11.3		%	11.3		%
Tier 1 capital ratio	Tier 1 capital ratio	12.3		%	11.6		%	Tier 1 capital ratio	10.5		%	10.6		%
Common equity tier 1 capital ratio	Common equity tier 1 capital ratio	12.3		%	11.6		%	Common equity tier 1 capital ratio	10.5		%	10.6		%
Tier 1 leverage ratio	Tier 1 leverage ratio	9.6		%	10.3		%	Tier 1 leverage ratio	9.2		%	9.1		%
* 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 2022, $54 million was utilized to repurchase and cancel 593,713 shares of common stock, at an average per share cost of $91.66, pursuant to our common stock repurchase program. Subsequently, on April 19, 2022, the Company’s board authorized an increase to the program of $40 million. Including this additional authorization,At March 31, 2023, there remains ~~$55~~$47 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.

Critical Accounting Estimates

~~In preparing the consolidated~~The preparation of financial statements in conformity with U.S. GAAP requires management ~~is required~~ to make estimates, ~~and~~ assumptions or judgments that affect the amounts reported ~~amounts of assets~~in the financial statements and ~~liabilities~~accompanying notes. These estimates and assumptions are based on historical experience, current information, and other factors deemed to be relevant; accordingly, as ~~of the date of the balance sheet and revenues and expenses for the period. Actual~~this information changes, actual results could differ ~~significantly~~ from those estimates. ~~Estimates~~Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are ~~particularly susceptible~~highly uncertain and different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to ~~significant change~~occur from period to period, could have a material impact on the financial statements. The accounting estimates we consider to be critical include business combinations and the valuation of ~~loan acquisition transactions, as well as~~loans acquired, the determination of the allowance for credit losses, and income taxes. A discussion of these estimates can be found in the “Critical Accounting Estimates” section in Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s ~~2021~~2022 Annual Report on Form 10-K. There have been no changes in the Company’s determination of critical accounting policies and estimates since December 31, ~~2021.~~2022.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

There have been no material changes in our market risk at March 31, 2023, from that presented in our 2022 Annual Report on Form 10-K. See section “Interest Rate Sensitivity Management and Impact of Inflation” within Management’s Discussion and Analysis of Financial Condition and Results of Operations under Part I, Item 2.2, for our interest rate sensitivity position at March 31, 2023.

ITEM 4. CONTROLS AND PROCEDURES

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

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

4748

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

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

ITEM 1A. RISK FACTORS

There have been no material changes in the risk factors previously disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021.~~2022.

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

~~Following are~~Issuer Purchases of Equity Securities

The following table contains information regarding purchases of Nicolet’s ~~monthly~~ common stock ~~purchases~~made during ~~the~~ first quarter 2023 by or on behalf of ~~2022.~~the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.

Total Number of
Shares Purchased (a)
Average Price
Paid per Share Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs (b)
(#) ($) (#) (#)
Period
January 1 – January 31, 2022 316,146 $ 89.45 316,146
February 1 – February 28, 2022 198,167 $ 94.19 198,167
March 1 – March 31, 2022 79,610 $ 94.14 79,400
Total 593,923 $ 91.66 593,713 155,600


	Total Number of Shares Purchased (a)	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs (b)
	(#)	($)		(#)	(#)
Period
January 1 – January 31, 2023	—	$	—	—
February 1 – February 28, 2023	—	$	—	—
March 1 – March 31, 2023	492	$	75.26	—
Total	492	$	75.26	—	753,000

~~(a)~~a.During first quarter ~~2022,~~2023, the Company ~~repurchased 210~~withheld no common shares for minimum tax withholding settlements on restricted ~~stock.~~stock, and withheld 492 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises. These ~~purchases~~are not considered “repurchases” and, therefore, do not count against the maximum number of shares that may yet be purchased under the ~~board~~Board of ~~directors’~~Directors’ authorization.

~~(b)~~b.The ~~board~~Board of ~~directors~~Directors approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to ~~$236~~$276 million to repurchase outstanding shares of common stock. This common stock repurchase program was last modified on April 19, 2022, and has no expiration date. At March 31, ~~2022,~~2023, approximately ~~$15~~$47 million remained available under this common stock repurchase program, or approximately ~~155,600~~753,000 shares of common stock (based upon the closing stock price of ~~$93.57~~$63.05 on March 31, ~~2022)~~2023). ~~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.

4849

ITEM 6. EXHIBITS

The following exhibits are filed herewith:


Exhibit Number						Description
~~2.1~~						~~Agreement and Plan of Merger~~ ~~By and~~ ~~Between Nicolet Bankshares, Inc. and Charter Bankshares, Inc., dated March 29, 2022(1)~~
31.1						Certification of CEO under Section 302 of Sarbanes-Oxley Act of 2002
31.2						Certification of CFO under Section 302 of Sarbanes-Oxley Act of 2002
32.1						Certification of CEO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
32.2						Certification of CFO Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
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)~~(1)
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

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

~~(2)~~ Includes the following financial information included in the ~~Company's~~Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, ~~2022,~~2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income (Loss), (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.

4950

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 29, 2022~~May 2, 2023			/s/ Michael E. Daniels
			Michael E. Daniels
			President and Chief Executive Officer

~~April 29, 2022~~May 2, 2023			/s/ H. Phillip Moore, Jr.
			H. Phillip Moore, Jr.
			Chief Financial Officer

5051


			PAGE
PART I	FINANCIAL INFORMATION

	Item 1.	Financial Statements:

		Consolidated Balance Sheets	3

		Consolidated Statements of Income (Loss)	4

		Consolidated Statements of Comprehensive Income (Loss)	5

		Consolidated Statements of Stockholders’ Equity	6

		Consolidated Statements of Cash Flows	7

		Notes to Unaudited Consolidated Financial Statements	8

	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	3130

	Item 3.	Quantitative and Qualitative Disclosures About Market Risk	4647

	Item 4.	Controls and Procedures	47

PART II	OTHER INFORMATION

	Item 1.	Legal Proceedings	4849

	Item 1A.	Risk Factors	4849

	Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	4849

	Item 3.	Defaults Upon Senior Securities	4849

	Item 4.	Mine Safety Disclosures	4849

	Item 5.	Other Information	4849

	Item 6.	Exhibits	4950

		Signatures	5051


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


	March 31, 2022
(in thousands)	Grades 1- 4			Grade 5			Grade 6			Grade 7			Total
Commercial & industrial	$	1,007,873		$	44,831		$	7,196		$	3,400		$	1,063,300
Owner-occupied CRE	742,431			30,617			5,155			16,743			794,946
Agricultural	665,076			102,161			1,311			57,816			826,364
CRE investment	746,306			55,613			697			4,986			807,602
Construction & land development	207,558			3,026			1			1,055			211,640
Residential construction	72,609			—			51			—			72,660
Residential first mortgage	711,517			4,501			1,042			4,047			721,107
Residential junior mortgage	133,545			—			—			272			133,817
Retail & other	51,777			—			—			102			51,879
Total loans	$	4,338,692		$	240,749		$	15,453		$	88,421		$	4,683,315
Percent of total	92.7		%	5.1		%	0.3		%	1.9		%	100.0		%