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 June 30, 20222023
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                          
Commission file number: 001-37700
NICOLET BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
Wisconsin47-0871001
(State or Other Jurisdiction of Incorporation or Organization)(I.R.S. Employer Identification No.)
111 North Washington Street
Green Bay,Wisconsin54301
(Address of Principal Executive Offices) 
(Zip Code)
(920)430-1400
(Registrant’s Telephone Number, Including Area Code)
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareNICNew York Stock 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 filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of July 31, 20222023 there were 13,409,98114,740,465 shares of $0.01 par value common stock outstanding.



Nicolet Bankshares, Inc.
Quarterly Report on Form 10-Q
June 30, 20222023
TABLE OF CONTENTS
PAGE
2


PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:
NICOLET BANKSHARES, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(Unaudited)(Audited)(Unaudited)(Audited)
AssetsAssetsAssets
Cash and due from banksCash and due from banks$96,189 $209,349 Cash and due from banks$122,021 $121,211 
Interest-earning depositsInterest-earning deposits84,828 385,943 Interest-earning deposits383,185 33,512 
Cash and cash equivalentsCash and cash equivalents181,017 595,292 Cash and cash equivalents505,206 154,723 
Certificates of deposit in other banksCertificates of deposit in other banks15,502 21,920 Certificates of deposit in other banks9,808 12,518 
Securities available for sale (“AFS”), at fair valueSecurities available for sale (“AFS”), at fair value813,248 921,661 Securities available for sale (“AFS”), at fair value921,108 917,618 
Securities held to maturity (“HTM”), at amortized costSecurities held to maturity (“HTM”), at amortized cost695,812 651,803 Securities held to maturity (“HTM”), at amortized cost 679,128 
Other investmentsOther investments53,269 44,008 Other investments57,578 65,286 
Loans held for saleLoans held for sale5,084 6,447 Loans held for sale3,849 1,482 
Other assets held for sale 199,833 
LoansLoans4,978,654 4,621,836 Loans6,222,776 6,180,499 
Allowance for credit losses - loans (“ACL-Loans”)Allowance for credit losses - loans (“ACL-Loans”)(50,655)(49,672)Allowance for credit losses - loans (“ACL-Loans”)(62,811)(61,829)
Loans, netLoans, net4,927,999 4,572,164 Loans, net6,159,965 6,118,670 
Premises and equipment, netPremises and equipment, net96,656 94,566 Premises and equipment, net117,278 108,956 
Bank owned life insurance (“BOLI”)Bank owned life insurance (“BOLI”)136,060 134,476 Bank owned life insurance (“BOLI”)167,192 165,137 
Goodwill and other intangibles, netGoodwill and other intangibles, net336,721 339,492 Goodwill and other intangibles, net398,194 402,438 
Accrued interest receivable and other assetsAccrued interest receivable and other assets108,884 113,375 Accrued interest receivable and other assets142,450 138,013 
Total assetsTotal assets$7,370,252 $7,695,037 Total assets$8,482,628 $8,763,969 
Liabilities and Stockholders’ EquityLiabilities and Stockholders’ EquityLiabilities and Stockholders’ Equity
Liabilities:Liabilities:Liabilities:
Noninterest-bearing demand depositsNoninterest-bearing demand deposits$2,045,732 $1,975,705 Noninterest-bearing demand deposits$2,059,939 $2,361,816 
Interest-bearing depositsInterest-bearing deposits4,240,534 4,490,211 Interest-bearing deposits5,138,665 4,817,105 
Total depositsTotal deposits6,286,266 6,465,916 Total deposits7,198,604 7,178,921 
Short-term borrowingsShort-term borrowings50,000 317,000 
Long-term borrowingsLong-term borrowings197,577 225,342 
Long-term borrowings196,963 216,915 
Other liabilities held for sale 51,586 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities47,636 68,729 Accrued interest payable and other liabilities58,809 70,177 
Total liabilitiesTotal liabilities6,530,865 6,803,146 Total liabilities7,504,990 7,791,440 
Stockholders’ Equity:Stockholders’ Equity:Stockholders’ Equity:
Common stockCommon stock134 140 Common stock147 147 
Additional paid-in capitalAdditional paid-in capital520,741 575,045 Additional paid-in capital624,897 621,988 
Retained earningsRetained earnings361,753 313,604 Retained earnings417,863 407,864 
Accumulated other comprehensive income (loss)Accumulated other comprehensive income (loss)(43,241)3,102 Accumulated other comprehensive income (loss)(65,269)(57,470)
Total stockholders’ equityTotal stockholders’ equity839,387 891,891 Total stockholders’ equity977,638 972,529 
Total liabilities and stockholders’ equityTotal liabilities and stockholders’ equity$7,370,252 $7,695,037 Total liabilities and stockholders’ equity$8,482,628 $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 outstandingPreferred 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 outstandingCommon shares outstanding13,407,375 13,994,079 Common shares outstanding14,717,938 14,690,614 
Common shares issuedCommon shares issued13,428,551 14,019,880 Common shares issued14,788,928 14,764,104 
See accompanying notes to unaudited consolidated financial statements.
3

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20222021202220212023202220232022
Interest income:Interest income:Interest income:
Loans, including loan feesLoans, including loan fees$52,954 $35,111 $104,253 $68,973 Loans, including loan fees$84,091 $52,954 $163,233 $104,253 
Investment securities:Investment securities:Investment securities:
TaxableTaxable5,135 2,060 10,262 3,874 Taxable4,133 5,135 9,094 10,262 
Tax-exemptTax-exempt647 520 1,322 1,065 Tax-exempt1,476 647 3,213 1,322 
Other interest incomeOther interest income790 616 1,607 1,271 Other interest income2,357 790 3,893 1,607 
Total interest incomeTotal interest income59,526 38,307 117,444 75,183 Total interest income92,057 59,526 179,433 117,444 
Interest expense:Interest expense:Interest expense:
DepositsDeposits2,410 2,433 4,602 5,355 Deposits29,340 2,410 54,277 4,602 
Short-term borrowingsShort-term borrowings28 — 28 — Short-term borrowings1,108 28 4,320 28 
Long-term borrowingsLong-term borrowings2,004 303 3,935 616 Long-term borrowings2,570 2,004 5,076 3,935 
Total interest expenseTotal interest expense4,442 2,736 8,565 5,971 Total interest expense33,018 4,442 63,673 8,565 
Net interest incomeNet interest income55,084 35,571 108,879 69,212 Net interest income59,039 55,084 115,760 108,879 
Provision for credit lossesProvision for credit losses750 — 1,050 500 Provision for credit losses450 750 3,540 1,050 
Net interest income after provision for credit lossesNet interest income after provision for credit losses54,334 35,571 107,829 68,712 Net interest income after provision for credit losses58,589 54,334 112,220 107,829 
Noninterest income:Noninterest income:Noninterest income:
Trust services fee income2,004 1,906 4,015 3,681 
Brokerage fee income2,988 2,991 6,676 5,784 
Wealth management fee incomeWealth management fee income5,870 4,992 11,382 10,691 
Mortgage income, netMortgage income, net2,205 5,599 5,458 12,829 Mortgage income, net1,822 2,205 3,288 5,458 
Service charges on deposit accountsService charges on deposit accounts1,536 1,136 3,013 2,227 Service charges on deposit accounts1,529 1,536 3,009 3,013 
Card interchange incomeCard interchange income2,950 2,266 5,531 4,193 Card interchange income3,331 2,950 6,364 5,531 
BOLI incomeBOLI income768 559 1,701 1,086 BOLI income1,073 768 2,273 1,701 
Deferred compensation plan asset market valuationsDeferred compensation plan asset market valuations499 (1,316)1,445 (1,783)
LSR income, netLSR income, net1,135 (143)2,290 (525)
Asset gains (losses), netAsset gains (losses), net1,603 4,192 2,916 4,903 Asset gains (losses), net(318)1,603 (38,786)2,916 
Other incomeOther income77 1,529 764 2,601 Other income1,900 1,536 3,732 3,072 
Total noninterest incomeTotal noninterest income14,131 20,178 30,074 37,304 Total noninterest income16,841 14,131 (5,003)30,074 
Noninterest expense:Noninterest expense:Noninterest expense:
PersonnelPersonnel19,681 17,084 40,872 32,200 Personnel23,900 19,681 48,228 40,872 
Occupancy, equipment and officeOccupancy, equipment and office6,891 4,053 13,835 8,190 Occupancy, equipment and office8,845 6,891 17,628 13,835 
Business development and marketingBusiness development and marketing2,057 1,210 3,888 2,199 Business development and marketing1,946 2,057 4,067 3,888 
Data processingData processing3,596 2,811 6,983 5,469 Data processing4,218 3,596 8,206 6,983 
Intangibles amortizationIntangibles amortization1,347 790 2,771 1,642 Intangibles amortization2,083 1,347 4,244 2,771 
FDIC assessmentsFDIC assessments480 480 960 1,075 FDIC assessments1,009 480 1,549 960 
Merger-related expenseMerger-related expense555 656 653 656 Merger-related expense26 555 189 653 
Other expenseOther expense1,931 3,663 4,126 5,397 Other expense2,930 1,931 5,721 4,126 
Total noninterest expenseTotal noninterest expense36,538 30,747 74,088 56,828 Total noninterest expense44,957 36,538 89,832 74,088 
Income before income tax expenseIncome before income tax expense31,927 25,002 63,815 49,188 Income before income tax expense30,473 31,927 17,385 63,815 
Income tax expenseIncome tax expense7,942 6,718 15,666 12,665 Income tax expense7,878 7,942 3,688 15,666 
Net incomeNet income$23,985 $18,284 $48,149 $36,523 Net income$22,595 $23,985 $13,697 $48,149 
Earnings per common share:Earnings per common share:Earnings per common share:
BasicBasic$1.79 $1.85 $3.56 $3.67 Basic$1.54 $1.79 $0.93 $3.56 
DilutedDiluted$1.73 $1.77 $3.43 $3.52 Diluted$1.51 $1.73 $0.91 $3.43 
Weighted average common shares outstanding:Weighted average common shares outstanding:Weighted average common shares outstanding:
BasicBasic13,402,455 9,901,614 13,524,919 9,949,359 Basic14,711,490 13,402,455 14,703,018 13,524,919 
DilutedDiluted13,852,179 10,325,699 14,035,086 10,364,629 Diluted14,959,778 13,852,179 15,011,418 14,035,086 
See accompanying notes to unaudited consolidated financial statements.
4

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Comprehensive Income (Loss)
(In thousands) (Unaudited)
Three Months Ended
June 30,
Six Months Ended
June 30,
Three Months Ended
June 30,
Six Months Ended
June 30,
20222021202220212023202220232022
Net incomeNet income$23,985 $18,284 $48,149 $36,523 Net income$22,595 $23,985 $13,697 $48,149 
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)(23,520)1,862 (63,468)(5,507)Net unrealized holding gains (losses)(5,893)(23,520)9,401 (63,468)
Net realized (gains) losses included in incomeNet realized (gains) losses included in income — (15)— Net realized (gains) losses included in income135 — 348 (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) benefitIncome tax (expense) benefit6,350 (503)17,140 1,486 Income tax (expense) benefit1,556 6,350 2,886 17,140 
Total other comprehensive income (loss)Total other comprehensive income (loss)(17,170)1,359 (46,343)(4,021)Total other comprehensive income (loss)(4,202)(17,170)(7,799)(46,343)
Comprehensive income (loss)Comprehensive income (loss)$6,815 $19,643 $1,806 $32,502 Comprehensive income (loss)$18,393 $6,815 $5,898 $1,806 
See accompanying notes to unaudited consolidated financial statements.
5

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands) (Unaudited)
Common
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
TotalCommon
Stock
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Total
Balances at March 31, 2023Balances at March 31, 2023$147 $623,746 $398,966 $(61,067)$961,792 
Comprehensive income:Comprehensive income:
Net income, three months ended June 30, 2023Net income, three months ended June 30, 2023  22,595  22,595 
Other comprehensive income (loss)Other comprehensive income (loss)   (4,202)(4,202)
Stock-based compensation expenseStock-based compensation expense 2,006   2,006 
Cash dividends on common stock, $0.25 per shareCash dividends on common stock, $0.25 per share  (3,698) (3,698)
Exercise of stock options, netExercise of stock options, net1 451   452 
Issuance of common stockIssuance of common stock 214   214 
Purchase and retirement of common stockPurchase and retirement of common stock(1)(1,520)  (1,521)
Balances at June 30, 2023Balances at June 30, 2023$147 $624,897 $417,863 $(65,269)$977,638 
Balances at March 31, 2022Balances 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 
Comprehensive income:Comprehensive income:Comprehensive income:
Net income, three months ended June 30, 2022Net income, three months ended June 30, 2022  23,985  23,985 Net income, three months ended June 30, 2022— — 23,985 — 23,985 
Other comprehensive income (loss)Other comprehensive income (loss)   (17,170)(17,170)Other comprehensive income (loss)— — — (17,170)(17,170)
Stock-based compensation expenseStock-based compensation expense 2,154   2,154 Stock-based compensation expense— 2,154 — — 2,154 
Exercise of stock options, netExercise of stock options, net 190   190 Exercise of stock options, net— 190 — — 190 
Issuance of common stockIssuance of common stock 197   197 Issuance of common stock— 197 — — 197 
Purchase and retirement of common stockPurchase and retirement of common stock(1)(6,278)  (6,279)Purchase and retirement of common stock(1)(6,278)— — (6,279)
Balances at June 30, 2022Balances at June 30, 2022$134 $520,741 $361,753 $(43,241)$839,387 Balances at June 30, 2022$134 $520,741 $361,753 $(43,241)$839,387 
Balances at March 31, 2021$100 $271,388 $271,191 $7,367 $550,046 
Balances at December 31, 2022Balances at December 31, 2022$147 $621,988 $407,864 $(57,470)$972,529 
Comprehensive income:Comprehensive income:Comprehensive income:
Net income, three months ended June 30, 2021— — 18,284 — 18,284 
Net income, six months ended June 30, 2023Net income, six months ended June 30, 2023  13,697  13,697 
Other comprehensive income (loss)Other comprehensive income (loss)— — — 1,359 1,359 Other comprehensive income (loss)   (7,799)(7,799)
Stock-based compensation expenseStock-based compensation expense— 2,055 — — 2,055 Stock-based compensation expense 3,430   3,430 
Cash dividends on common stock, $0.25 per shareCash dividends on common stock, $0.25 per share  (3,698) (3,698)
Exercise of stock options, netExercise of stock options, net— 64 — — 64 Exercise of stock options, net1 599   600 
Issuance of common stockIssuance of common stock— 111 — — 111 Issuance of common stock 400   400 
Purchase and retirement of common stockPurchase and retirement of common stock(2)(12,522)— — (12,524)Purchase and retirement of common stock(1)(1,520)  (1,521)
Balances at June 30, 2021$98 $261,096 $289,475 $8,726 $559,395 
Balances at June 30, 2023Balances at June 30, 2023$147 $624,897 $417,863 $(65,269)$977,638 
Balances at December 31, 2021Balances 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, six months ended June 30, 2022Net income, six months ended June 30, 2022  48,149  48,149 Net income, six months ended June 30, 2022— — 48,149 — 48,149 
Other comprehensive income (loss)Other comprehensive income (loss)   (46,343)(46,343)Other comprehensive income (loss)— — — (46,343)(46,343)
Stock-based compensation expenseStock-based compensation expense 3,953   3,953 Stock-based compensation expense— 3,953 — — 3,953 
Exercise of stock options, netExercise of stock options, net1 2,076   2,077 Exercise of stock options, net2,076 — — 2,077 
Issuance of common stockIssuance of common stock 372   372 Issuance of common stock— 372 — — 372 
Purchase and retirement of common stockPurchase and retirement of common stock(7)(60,705)  (60,712)Purchase and retirement of common stock(7)(60,705)— — (60,712)
Balances at June 30, 2022Balances at June 30, 2022$134 $520,741 $361,753 $(43,241)$839,387 Balances at June 30, 2022$134 $520,741 $361,753 $(43,241)$839,387 
Balances at December 31, 2020$100 $273,390 $252,952 $12,747 $539,189 
Comprehensive income:
Net income, six months ended June 30, 2021— — 36,523 — 36,523 
Other comprehensive income (loss)— — — (4,021)(4,021)
Stock-based compensation expense— 3,396 — — 3,396 
Exercise of stock options, net— 1,225 — — 1,225 
Issuance of common stock— 232 — — 232 
Purchase and retirement of common stock(2)(17,147)— — (17,149)
Balances at June 30, 2021$98 $261,096 $289,475 $8,726 $559,395 
See accompanying notes to unaudited consolidated financial statements.
6

ITEM 1. Financial Statements Continued:

NICOLET BANKSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)(In thousands)Six Months Ended June 30,(In thousands)Six Months Ended June 30,
2022202120232022
Cash Flows From Operating Activities:Cash Flows From Operating Activities:Cash Flows From Operating Activities:
Net incomeNet income$48,149 $36,523 Net income$13,697 $48,149 
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash provided by (used in) operating activities:Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation, amortization, and accretionDepreciation, amortization, and accretion11,804 5,204 Depreciation, amortization, and accretion9,274 11,804 
Provision for credit lossesProvision for credit losses1,050 500 Provision for credit losses3,540 1,050 
Increase in cash surrender value of life insuranceIncrease in cash surrender value of life insurance(1,701)(1,086)Increase in cash surrender value of life insurance(2,159)(1,701)
Stock-based compensation expenseStock-based compensation expense3,953 3,396 Stock-based compensation expense3,430 3,953 
Asset (gains) losses, netAsset (gains) losses, net(2,916)(4,903)Asset (gains) losses, net38,786 (2,916)
Gain on sale of loans held for sale, netGain on sale of loans held for sale, net(3,468)(12,133)Gain on sale of loans held for sale, net(1,860)(3,468)
Net change due to:Net change due to:Net change due to:
Proceeds from sale of loans held for saleProceeds from sale of loans held for sale150,037 367,215 Proceeds from sale of loans held for sale64,117 150,037 
Origination of loans held for saleOrigination of loans held for sale(146,891)(347,161)Origination of loans held for sale(65,244)(146,891)
Accrued interest receivable and other assetsAccrued interest receivable and other assets8,112 (2,001)Accrued interest receivable and other assets(3,846)8,112 
Accrued interest payable and other liabilitiesAccrued interest payable and other liabilities(18,787)(2,539)Accrued interest payable and other liabilities(11,368)(18,787)
Net cash provided by (used in) operating activitiesNet cash provided by (used in) operating activities49,342 43,015 Net cash provided by (used in) operating activities48,367 49,342 
Cash Flows From Investing Activities:Cash Flows From Investing Activities:Cash Flows From Investing Activities:
Net (increase) decrease in loansNet (increase) decrease in loans(359,145)(30,451)Net (increase) decrease in loans(39,223)(359,145)
Net (increase) decrease in certificates of deposit in other banksNet (increase) decrease in certificates of deposit in other banks6,427 6,134 Net (increase) decrease in certificates of deposit in other banks2,710 6,427 
Purchases of securities AFSPurchases of securities AFS(8,017)(88,204)Purchases of securities AFS (8,017)
Purchases of securities HTMPurchases of securities HTM(56,479)— Purchases of securities HTM (56,479)
Proceeds from sales of securities AFSProceeds from sales of securities AFS3,400 — Proceeds from sales of securities AFS26,798 3,400 
Proceeds from sales of securities HTMProceeds from sales of securities HTM460,051 — 
Proceeds from calls and maturities of securities AFSProceeds from calls and maturities of securities AFS47,052 58,349 Proceeds from calls and maturities of securities AFS133,027 47,052 
Proceed from calls and maturities of securities HTM12,509 — 
Proceeds from calls and maturities of securities HTMProceeds from calls and maturities of securities HTM2,916 12,509 
Purchases of other investmentsPurchases of other investments(11,303)(1,710)Purchases of other investments(12,022)(11,303)
Proceeds from sales of other investmentsProceeds from sales of other investments1,734 822 Proceeds from sales of other investments18,883 1,734 
Proceeds from redemption of BOLIProceeds from redemption of BOLI117 — Proceeds from redemption of BOLI117 117 
Net (increase) decrease in premises and equipmentNet (increase) decrease in premises and equipment(6,173)(3,694)Net (increase) decrease in premises and equipment(12,565)(6,173)
Net (increase) decrease in other real estate and other assetsNet (increase) decrease in other real estate and other assets9,836 1,165 Net (increase) decrease in other real estate and other assets794 9,836 
Net cash (paid) received in branch saleNet cash (paid) received in branch sale147,833 — Net cash (paid) received in branch sale 147,833 
Net cash provided by (used in) investing activitiesNet cash provided by (used in) investing activities(212,209)(57,589)Net cash provided by (used in) investing activities581,486 (212,209)
Cash Flows From Financing Activities:Cash Flows From Financing Activities:Cash Flows From Financing Activities:
Net increase (decrease) in depositsNet increase (decrease) in deposits(173,145)28,813 Net increase (decrease) in deposits19,849 (173,145)
Net increase (decrease) in short-term borrowingsNet increase (decrease) in short-term borrowings(267,000)— 
Proceeds from long-term borrowings 5,000 
Repayments of long-term borrowingsRepayments of long-term borrowings(20,000)(14,000)Repayments of long-term borrowings(28,000)(20,000)
Purchase and retirement of common stockPurchase and retirement of common stock(60,712)(17,149)Purchase and retirement of common stock(1,521)(60,712)
Cash dividends paid on common stockCash dividends paid on common stock(3,698)— 
Proceeds from issuance of common stockProceeds from issuance of common stock372 232 Proceeds from issuance of common stock400 372 
Proceeds from exercise of stock optionsProceeds from exercise of stock options2,077 1,225 Proceeds from exercise of stock options600 2,077 
Net cash provided by (used in) financing activitiesNet cash provided by (used in) financing activities(251,408)4,121 Net cash provided by (used in) financing activities(279,370)(251,408)
Net increase (decrease) in cash and cash equivalentsNet increase (decrease) in cash and cash equivalents(414,275)(10,453)Net increase (decrease) in cash and cash equivalents350,483 (414,275)
Cash and cash equivalents:Cash and cash equivalents:Cash and cash equivalents:
BeginningBeginning595,292 802,859 Beginning154,723 595,292 
Ending *Ending *$181,017 $792,406 Ending *$505,206 $181,017 
Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:Supplemental Disclosures of Cash Flow Information:
Cash paid for interestCash paid for interest$11,367 $6,436 Cash paid for interest$61,769 $11,367 
Cash paid for taxesCash paid for taxes19,610 19,416 Cash paid for taxes12,400 19,610 
Transfer of securities from HTM to AFSTransfer of securities from HTM to AFS177,727 — 
Transfer of loans and bank premises to other real estate ownedTransfer of loans and bank premises to other real estate owned432 302 Transfer of loans and bank premises to other real estate owned 432 
Capitalized mortgage servicing rightsCapitalized mortgage servicing rights1,685 2,294 Capitalized mortgage servicing rights620 1,685 
* There was no restricted cash in cash and cash equivalents at June 30, 2022, while cash and cash equivalents at June 30, 2021, included restricted cash of $1.9 millionpledged as collateral on interest rate swaps. No reserve balance was required with the Federal Reserve Bank at either June 30, 20222023 or June 30, 2021.2022.
See accompanying notes to unaudited consolidated financial statements.
7


NICOLET BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements

Note 1 – Basis of Presentation
General
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets, statements of income, comprehensive income (loss), changes in stockholders’ equity, and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, as of and for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.
These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 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 assumptionsjudgments 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 thatThese estimates are particularly susceptiblebased 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. ActualNicolet considers accounting estimates to be critical to reported financial results may ultimately differif 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 affectwe 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.

FutureRecent 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 eliminateseliminated the accounting guidance for TDRs by creditors while enhancingand enhanced the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower ismodifications 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.2022. Adoption of this amendment isASU did not expected to have a material impact on the Company’s consolidated financial statements; though,however, it will resultresulted 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 gross charge-offs by year of originationinvestments that generate income tax credits and onother income tax benefits from a tax credit program for which the types of loan modificationsentity has elected to borrowers experiencing financial difficulties. Current TDR disclosures will be also removed.apply the proportional amortization method. The updated guidance is effective for fiscal years beginning after December 15, 2023.

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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 updatedIn 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 throughfrom December 31, 2022.2022 to December 31, 2024. The Company continues to work through the cessation of LIBOR, including the modification of its loans and other financial instruments with attributes that are either directly or indirectly influenced by LIBOR. The Company expects to utilize the reference rate reform transition guidance, as applicable, and does not expect such adoption to have a material impact on its consolidated financial statements 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 20212022 consolidated financial statements have been reclassified to conform to the 20222023 presentation. These reclassifications were not material and did not impact previously reported net income or comprehensive income.
8



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 CountyCharter merged with and into Nicolet, and Investors CommunityCharter 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 0.48Charter stockholders received 15.458 shares of Nicolet common stock subject to proration procedures such that 1,237,000 sharesand $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 2.41.26 million shares of Nicolet common stock for stock consideration of $176$98 million and cash consideration of $48$39 million, orfor a total purchasespurchase price of $224$137 million. With the CountyCharter 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 CountyCharter transaction, as of the acquisition date, including the purchase price allocation was as follows.

(In millions, except share data)(In millions, except share data)Acquired from CountyFair Value AdjustmentsEstimated Fair Value(In millions, except share data)Acquired from CharterFair Value AdjustmentsEstimated Fair Value
Assets Acquired:Assets Acquired:Assets Acquired:
Cash and cash equivalentsCash and cash equivalents$20 $— $20 Cash and cash equivalents$10 $— $10 
Investment securitiesInvestment securities301 (1)300 Investment securities218 — 218 
LoansLoans1,015 (1)1,014 Loans848 (21)827 
ACL-LoansACL-Loans(11)(3)ACL-Loans(9)(2)
Premises and equipmentPremises and equipment21 (4)17 Premises and equipment10 
BOLIBOLI33 — 33 BOLI29 — 29 
Core deposit intangibleCore deposit intangible— Core deposit intangible— 19 19 
Loan servicing rights20 — 20 
Other assetsOther assets(2)Other assets10 
Total assets Total assets$1,405 $$1,412  Total assets$1,110 $11 $1,121 
Liabilities Assumed:Liabilities Assumed:Liabilities Assumed:
DepositsDeposits$1,027 $$1,030 Deposits$869 $$870 
BorrowingsBorrowings218 219 Borrowings161 — 161 
Other liabilitiesOther liabilities— Other liabilities— 
Total liabilities Total liabilities$1,253 $$1,257  Total liabilities$1,033 $$1,034 
Net assets acquiredNet 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 considerationValue of Nicolet common stock consideration$176 Value of Nicolet common stock consideration$98 
Cash consideration paidCash consideration paid48 Cash consideration paid39 
Total purchase price Total purchase price$224  Total purchase price$137 
Write-off prior investment in County(1)
GoodwillGoodwill$70 Goodwill$50 

The Company purchased loans through the acquisition of CountyCharter 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.

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(In thousands)December 3, 2021August 26, 2022
Purchase price of PCD loans at acquisition$64,94824,031 
Allowance for credit losses on PCD loans at acquisition3,2621,709 
Par value of PCD acquired loans at acquisition$68,21025,740 

9


The Company accounted for the CountyCharter acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of CountyCharter 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 CountyCharter acquisition is not deductible for tax purposes.

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 purchase price allocation was as follows.

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

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

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

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

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

Pending Acquisition:
Charter Bankshares, Inc. (“Charter”): On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”) pursuant to which Charter will merge with and into Nicolet. Pursuant to the terms and subject to the conditions set forth in the Charter Merger Agreement, at the effective time of the merger, Charter shareholders will have 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 March 31, 2022, Charter had total assets of $1.1 billion. As of July 12, 2022, Nicolet received all regulatory approvals for the Charter merger. The merger is expected to close in the third quarter of 2022, subject to customary closing conditions.

Note 3 – Earnings per Common Share
Basic earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income 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 June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(In thousands, except per share data)(In thousands, except per share data)2022202120222021(In thousands, except per share data)2023202220232022
Net incomeNet income$23,985 $18,284 $48,149 $36,523 Net income$22,595 $23,985 $13,697 $48,149 
Weighted average common shares outstandingWeighted average common shares outstanding13,402 9,902 13,525 9,949 Weighted average common shares outstanding14,711 13,402 14,703 13,525 
Effect of dilutive common stock awardsEffect of dilutive common stock awards450 424 510 416 Effect of dilutive common stock awards249 450 308 510 
Diluted weighted average common shares outstandingDiluted weighted average common shares outstanding13,852 10,326 14,035 10,365 Diluted weighted average common shares outstanding14,960 13,852 15,011 14,035 
Basic earnings per common share*Basic earnings per common share*$1.79 $1.85 $3.56 $3.67 Basic earnings per common share*$1.54 $1.79 $0.93 $3.56 
Diluted earnings per common share*Diluted earnings per common share*$1.73 $1.77 $3.43 $3.52 Diluted earnings per common share*$1.51 $1.73 $0.91 $3.43 
*Cumulative quarterly per share performance may not equal annual per share totals due to the effects of the amount and timing of capital increases. When computing earnings per share for an interim period, the denominator is based on the weighted average shares outstanding during the interim period, and not on an annualized weighted average basis. Accordingly, the sum of the earnings per share data for the quarters will not necessarily equal the year to date earnings per share data.
For both the three and six months ended June 30, 20222023, options to purchase approximately 0.3 million shares were excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive. For both the three and six months ended June 30, 2021,2022, options to purchase approximately 0.1 million shares arewere excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive.

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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 June 30, 2022,2023, approximately 0.80.7 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 six months ended June 30, 2022 and 2021 were as follows.
Six Months Ended June 30,Six Months Ended June 30,
2022202120232022
Dividend yieldDividend yield— %— %Dividend yield1.6 %— %
Expected volatilityExpected volatility30 %30 %Expected volatility30 %30 %
Risk-free interest rateRisk-free interest rate1.77 %1.16 %Risk-free interest rate3.74 %1.77 %
Expected average lifeExpected average life7 years7 yearsExpected average life7 years7 years
Weighted average per share fair value of optionsWeighted average per share fair value of options$32.99 $26.55 Weighted average per share fair value of options$20.94 $32.99 
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A summary of the Company’s stock option activity is summarized below.
Stock OptionsStock OptionsOption Shares
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Life (Years)
Aggregate
Intrinsic Value
(in thousands)
Stock OptionsOption Shares
Outstanding
Weighted
Average
Exercise Price
Weighted Average
Remaining
Life (Years)
Aggregate
Intrinsic Value
(in thousands)
Outstanding - December 31, 20211,833,246 $57.69 
Outstanding - December 31, 2022Outstanding - December 31, 20221,853,064 $59.79 
GrantedGranted30,429 93.68 Granted7,000 64.36 
Exercise of stock options *Exercise of stock options *(65,411)41.32 Exercise of stock options *(48,979)31.67 
ForfeitedForfeited(8,100)77.56 Forfeited(13,000)78.32 
Outstanding - June 30, 20221,790,164 $58.81 6.2$27,369 
Exercisable - June 30, 20221,207,235 $50.84 5.1$26,444 
Outstanding - June 30, 2023Outstanding - June 30, 20231,798,085 $60.44 5.5$19,976 
Exercisable - June 30, 2023Exercisable - June 30, 20231,310,642 $54.41 4.6$19,862 
* 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 six months ended June 30, 2022, 6,0732023, 14,772 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 six months ended June 30, 20222023 and 20212022 was approximately $3.3$1.4 million and $1.5$3.3 million, respectively.
A summary of the Company’s restricted stock activity is summarized below.
Restricted StockWeighted Average Grant
Date Fair Value
Restricted Shares
Outstanding
Outstanding - December 31, 2021$71.42 25,801 
Granted77.06 8,424 
Vested *71.63 (12,449)
Forfeited56.01 (600)
Outstanding - June 30, 2022$73.98 21,176 
* The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, 393 shares were surrendered during the six months ended June 30, 2022.
Restricted StockWeighted Average Grant
Date Fair Value
Restricted Shares
Outstanding
Outstanding - December 31, 2022$76.49 73,490 
Granted55.65 11,674 
Vested59.50 (14,174)
Outstanding - June 30, 2023$76.45 70,990 
The Company recognized approximately $3.3$2.8 million and $2.7$3.3 million of stock-based compensation expense (included in personnel on the consolidated statements of income) for the six months ended June 30, 20222023 and 2021,2022, respectively, associated with its common stock awards granted to officers and employees. In addition, duringfor the six months ended June 30, 2022,2023, the Company recognized approximately $0.6 million of director expense (included in other expense on the consolidated statements of income) for restricted stock grants totaling 8,42411,674 shares with immediate vesting to directors, while during first half 2021,for the six months ended June 30, 2022, the Company recognized approximately $0.7$0.6 million of director expense for restricted stock grants totaling 8,5628,424 shares with immediate vesting to directors, in each case representing the annual stock retainer fee paid to external board members for that year. As of June 30, 2022,2023, there was approximately $14.2$15.6 million of unrecognized compensation cost related to equity award grants. The costgrants, which is expected to be recognized over the remaining vesting period of approximately fourthree years. The Company
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recognized a tax benefit of approximately $0.4$0.2 million and $0.3$0.4 million for the six months ended June 30, 20222023 and 2021,2022, respectively, for the tax impact of stock option exercises and vesting of restricted stock.
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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.
June 30, 2022June 30, 2023
(in thousands)(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair ValueFair Value as % of Total(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair Value
Securities AFS:Securities AFS:Securities AFS:
U.S. Treasury securitiesU.S. Treasury securities$142,197 $— $4,999 $137,198 
U.S. government agency securitiesU.S. government agency securities$191,976 $— $8,127 $183,849 23 %U.S. government agency securities8,807 29 44 8,792 
State, county and municipalsState, county and municipals298,822 38 27,358 271,502 33 %State, county and municipals401,293 263 32,718 368,838 
Mortgage-backed securitiesMortgage-backed securities246,198 19,952 226,248 28 %Mortgage-backed securities342,945 — 41,161 301,784 
Corporate debt securitiesCorporate debt securities135,486 65 3,902 131,649 16 %Corporate debt securities115,277 — 10,781 104,496 
Total securities AFSTotal securities AFS$872,482 $105 $59,339 $813,248 100 %Total securities AFS$1,010,519 $292 $89,703 $921,108 
Securities HTM:
U.S. government agency securities$507,766 $25 $30,348 $477,443 74 %
State, county and municipals44,230 2,541 41,693 %
Mortgage-backed securities143,816 — 12,719 131,097 20 %
Total securities HTM$695,812 $29 $45,608 $650,233 100 %
December 31, 2021December 31, 2022
(in thousands)(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair ValueFair Value as % of Total(in thousands)Amortized CostGross
Unrealized
Gains
Gross
Unrealized
Losses
Estimated Fair Value
Securities AFS:Securities AFS:Securities AFS:
U.S. Treasury securitiesU.S. Treasury securities$192,116 $— $8,286 $183,830 
U.S. government agency securitiesU.S. government agency securities$192,506 $$1,235 $191,277 21 %U.S. government agency securities2,133 — 33 2,100 
State, county and municipalsState, county and municipals311,717 3,222 2,202 312,737 34 %State, county and municipals433,733 123 35,668 398,188 
Mortgage-backed securitiesMortgage-backed securities270,017 3,090 1,845 271,262 29 %Mortgage-backed securities227,650 10 26,728 200,932 
Corporate debt securitiesCorporate debt securities143,172 3,459 246 146,385 16 %Corporate debt securities140,712 8,147 132,568 
Total securities AFSTotal securities AFS$917,412 $9,777 $5,528 $921,661 100 %Total securities AFS$996,344 $136 $78,862 $917,618 
Securities HTM:Securities HTM:Securities HTM:
U.S. Treasury securitiesU.S. Treasury securities$497,648 $— $35,722 $461,926 
U.S. government agency securitiesU.S. government agency securities$508,810 $— $2,740 $506,070 78 %U.S. government agency securities8,744 46 — 8,790 
State, county and municipalsState, county and municipals42,876 10 173 42,713 %State, county and municipals34,874 — 3,349 31,525 
Mortgage-backed securitiesMortgage-backed securities100,117 89 595 99,611 15 %Mortgage-backed securities137,862 — 16,751 121,111 
Total securities HTMTotal securities HTM$651,803 $99 $3,508 $648,394 100 %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 (at the time of reclassification) increased the balance of accumulated other comprehensive loss $15 million, net of the deferred tax effect, and is subject to future market changes.
12



Proceeds and realized gains or losses from the sale of AFS and HTM securities were as follows.
Six Months Ended June 30,
(in thousands)20232022
Securities AFS:
Gross gains$148 $20 
Gross losses(496)(5)
Gains (losses) on sales of securities AFS, net$(348)$15 
Proceeds from sales of securities AFS$26,798 $3,400 
Securities HTM:
Gross gains$— $— 
Gross losses(37,723)— 
Gains (losses) on sales of securities HTM, net$(37,723)$— 
Proceeds from sales of securities HTM$460,051 $— 
All mortgage-backed securities included in the tables abovesecurities portfolio were issued by U.S. government agencies and corporations. Investment securities with a carrying value of $781$396 million and $277$883 million, as of June 30, 20222023 and December 31, 2021,2022, respectively, were pledged as collateral to secure public deposits and borrowings, as applicable, and for liquidity or other purposes as required by regulation. Accrued interest on investment securities totaled $5 million and $6 million at both June 30, 20222023 and December 31, 2021,2022, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

13



The following table presents gross unrealized losses and the related estimated fair value of investment securities 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.
June 30, 2022June 30, 2023
Less than 12 months12 months or moreTotalLess than 12 months12 months or moreTotal
($ in thousands)($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Securities AFS:Securities AFS:Securities AFS:
U.S. Treasury securitiesU.S. Treasury securities$453 $14 $136,733 $4,985 $137,186 $4,999 
U.S. government agency securitiesU.S. government agency securities$183,739 $8,127 $— $— $183,739 $8,127 12 U.S. government agency securities1,771 38 106 1,877 44 
State, county and municipalsState, county and municipals231,716 22,805 25,953 4,553 257,669 27,358 403 State, county and municipals89,871 2,286 244,861 30,432 334,732 32,718 661 
Mortgage-backed securitiesMortgage-backed securities204,256 16,398 21,567 3,554 225,823 19,952 370 Mortgage-backed securities10,915 616 290,862 40,545 301,777 41,161 445 
Corporate debt securitiesCorporate debt securities101,597 3,902 — — 101,597 3,902 63 Corporate debt securities33,133 1,231 66,984 9,550 100,117 10,781 70 
TotalTotal$721,308 $51,232 $47,520 $8,107 $768,828 $59,339 848 Total$136,143 $4,185 $739,546 $85,518 $875,689 $89,703 1,191 
Securities HTM:
U.S. government agency securities$466,941 $30,348 $— $— $466,941 $30,348 
State, county and municipals34,537 2,541 — — 34,537 2,541 60 
Mortgage-backed securities131,053 12,719 — — 131,053 12,719 110 
Total$632,531 $45,608 $— $— $632,531 $45,608 176 
December 31, 2021
Less than 12 months12 months or moreTotal
($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Securities AFS:
U.S. government agency securities$190,432 $1,235 $— $— $190,432 $1,235 11 
State, county and municipals103,950 2,119 1,777 83 105,727 2,202 132 
Mortgage-backed securities137,561 1,616 6,068 229 143,629 1,845 159 
Corporate debt securities23,267 246 — — 23,267 246 13 
Total$455,210 $5,216 $7,845 $312 $463,055 $5,528 315 
Securities HTM:
U.S. government agency securities$505,938 $2,740 $— $— $505,938 $2,740 
State, county and municipals30,898 173 — — 30,898 173 46 
Mortgage-backed securities69,333 595 — — 69,333 595 72 
Total$606,169 $3,508 $— $— $606,169 $3,508 127 
13


Quarterly,
December 31, 2022
Less than 12 months12 months or moreTotal
($ in thousands)Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Fair
Value
Unrealized
Losses
Number of
Securities
Securities AFS:
U.S. Treasury securities$448 $14 $183,382 $8,272 $183,830 $8,286 
U.S. government agency securities2,083 32 17 2,100 33 
State, county and municipals277,546 18,041 86,569 17,627 364,115 35,668 812 
Mortgage-backed securities102,108 11,320 95,614 15,408 197,722 26,728 376 
Corporate debt securities114,887 6,186 12,938 1,961 127,825 8,147 90 
Total$497,072 $35,593 $378,520 $43,269 $875,592 $78,862 1,296 
Securities HTM:
U.S. Treasury securities$— $— $461,926 $35,722 $461,926 $35,722 
State, county and municipals17,591 1,594 11,654 1,755 29,245 3,349 58 
Mortgage-backed securities68,108 8,029 53,003 8,722 121,111 16,751 106 
Total$85,699 $9,623 $526,583 $46,199 $612,282 $55,822 170 
During first quarter 2023, the Company evaluates securities AFSrecognized 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 whetheran 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 June 30, 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 June 30, 2023 and December 31, 2022, no allowance for credit losses is necessary. In making this determination, management considerson AFS securities was recognized.
The Company evaluated the factsHTM 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 considersconsidered 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,
14


which are currently explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses. Therefore, management determined no allowance for credit losses was necessary for the securities HTM.
The amortized cost and fair value of investment securities 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 June 30, 2022Securities AFSSecurities HTM
As of June 30, 2023As of June 30, 2023Securities AFS
(in thousands)(in thousands)Amortized CostFair ValueAmortized CostFair Value(in thousands)Amortized CostFair Value
Due in less than one yearDue in less than one year$106,281 $105,073 $6,626 $6,616 Due in less than one year$172,412 $170,901 
Due in one year through five yearsDue in one year through five years251,475 242,694 507,447 476,632 Due in one year through five years163,610 151,145 
Due after five years through ten yearsDue after five years through ten years192,260 173,265 32,711 30,751 Due after five years through ten years209,473 185,108 
Due after ten yearsDue after ten years76,268 65,968 5,212 5,137 Due after ten years122,079 112,170 
626,284 587,000 551,996 519,136 667,574 619,324 
Mortgage-backed securitiesMortgage-backed securities246,198 226,248 143,816 131,097 Mortgage-backed securities342,945 301,784 
Total investment securitiesTotal investment securities$872,482 $813,248 $695,812 $650,233 Total investment securities$1,010,519 $921,108 
Proceeds and realized gains or losses from the sale of AFS securities were as follows.
14

Six Months Ended June 30,
(in thousands)20222021
Gross gains$20 $— 
Gross losses(5)— 
Gains (losses) on sales of securities AFS, net$15 $— 
Proceeds from sales of securities AFS$3,400 $— 

Other Investments
Other investments include “restricted” equity securities, equity securities with readily determinable fair values, and private company securities. As a member of the Federal Reserve Bank System and the Federal Home Loan Bank (“FHLB”) System, Nicolet is required to maintain an investment in the capital stock of these entities. These equity securities are “restricted” in that they can only be sold back to the respective institutions or another member institution at par. Therefore, they are less liquid than other exchange traded equity securities. As no 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.
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)AmountAmount(in thousands)AmountAmount
Federal Reserve Bank stockFederal Reserve Bank stock$29,024 $20,973 Federal Reserve Bank stock$32,411 $32,219 
Federal Home Loan Bank (“FHLB”) stockFederal Home Loan Bank (“FHLB”) stock9,771 10,545 Federal Home Loan Bank (“FHLB”) stock9,674 18,625 
Equity securities with readily determinable fair valuesEquity securities with readily determinable fair values4,793 5,660 Equity securities with readily determinable fair values3,748 4,376 
Other investmentsOther investments9,681 6,830 Other investments11,745 10,066 
Total other investmentsTotal other investments$53,269 $44,008 Total other investments$57,578 $65,286 

15



Note 6 – Loans, Allowance for Credit Losses - Loans, and Credit Quality
The loan composition is summarized as follows.
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)Amount% of
Total
Amount% of
Total
(in thousands)Amount% of
Total
Amount% of
Total
Commercial & industrialCommercial & industrial$1,118,360 23 %$1,042,256 23 %Commercial & industrial$1,318,567 21 %$1,304,819 21 %
Owner-occupied commercial real estate (“CRE”)Owner-occupied commercial real estate (“CRE”)790,680 16 787,189 17 Owner-occupied commercial real estate (“CRE”)969,202 16 954,599 15 
AgriculturalAgricultural967,192 19 794,728 17 Agricultural1,068,999 17 1,088,607 18 
CRE investmentCRE investment818,562 16 818,061 18 CRE investment1,108,692 18 1,149,949 19 
Construction & land developmentConstruction & land development228,575 213,035 Construction & land development337,389 318,600 
Residential constructionResidential construction69,423 70,353 Residential construction108,095 114,392 
Residential first mortgageResidential first mortgage785,591 16 713,983 15 Residential first mortgage1,072,609 17 1,016,935 16 
Residential junior mortgageResidential junior mortgage148,732 131,424 Residential junior mortgage184,873 177,332 
Retail & otherRetail & other51,539 50,807 Retail & other54,350 55,266 
LoansLoans4,978,654 100 %4,621,836 100 %Loans6,222,776 100 %6,180,499 100 %
Less allowance for credit losses - Loans (“ACL-Loans”)Less allowance for credit losses - Loans (“ACL-Loans”)50,655 49,672 Less allowance for credit losses - Loans (“ACL-Loans”)62,811 61,829 
Loans, netLoans, net$4,927,999 $4,572,164 Loans, net$6,159,965 $6,118,670 
Allowance for credit losses - Loans to loansAllowance for credit losses - Loans to loans1.02 %1.07 %Allowance for credit losses - Loans to loans1.01 %1.00 %
Commercial and industrial loans included $1 million and $25 million of PPP loans at June 30, 2022 and December 31, 2021, respectively. Accrued interest on loans totaled $11$16 million and $15 million at both June 30, 20222023 and 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.
15


A roll forward of the allowance for credit losses - loans is summarized as follows.
Three Months EndedSix Months EndedYear Ended
(in thousands)June 30, 2022June 30, 2021June 30, 2022June 30, 2021December 31, 2021
Beginning balance$49,906 $32,626 $49,672 $32,173 $32,173 
ACL on PCD loans acquired— — — — 5,159 
Provision for credit losses600 — 900 500 12,500 
Charge-offs(42)(235)(142)(329)(513)
Recoveries191 170 225 217 353 
Net (charge-offs) recoveries149 (65)83 (112)(160)
Ending balance$50,655 $32,561 $50,655 $32,561 $49,672 
16


Three Months EndedSix Months EndedYear Ended
(in thousands)June 30, 2023June 30, 2022June 30, 2023June 30, 2022December 31, 2022
Beginning balance$62,412 $49,906 $61,829 $49,672 $49,672 
ACL on PCD loans acquired— — — — 1,937 
Provision for credit losses450 600 1,200 900 10,950 
Charge-offs(561)(42)(745)(142)(1,033)
Recoveries510 191 527 225 303 
Net (charge-offs) recoveries(51)149 (218)83 (730)
Ending balance$62,811 $50,655 $62,811 $50,655 $61,829 
The following tables present the balance and activity in the ACL-Loans by portfolio segment.
Six Months Ended June 30, 2022Six Months Ended June 30, 2023
(in thousands)(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction & land
development
Residential
construction
Residential
first mortgage
Residential
junior
mortgage
Retail
& other
Total(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction & land
development
Residential
construction
Residential
first mortgage
Residential
junior
mortgage
Retail
& other
Total
ACL-Loans *
ACL-LoansACL-Loans
Beginning balanceBeginning 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— — — — — — — — — — 
ProvisionProvision1,048 (261)505 (416)(59)(291)186 182 900 Provision(387)(307)1,865 (301)127 (69)(46)136 182 1,200 
Charge-offsCharge-offs— (36)— — — — — — (106)(142)Charge-offs(403)— (66)— — — — (96)(180)(745)
RecoveriesRecoveries30 — — 169 — — 20 225 Recoveries518 — — — — — 527 
Net (charge-offs) recoveriesNet (charge-offs) recoveries30 (36)— 169 — — (86)83 Net (charge-offs) recoveries115 — (63)— — — (96)(176)(218)
Ending balanceEnding balance$13,691 $6,925 $10,052 $8,215 $1,753 $906 $6,558 $1,527 $1,028 $50,655 Ending balance$16,078 $8,831 $11,564 $12,443 $2,699 $1,343 $6,932 $1,886 $1,035 $62,811 
As % of ACL-LoansAs % of ACL-Loans27 %14 %20 %16 %%%13 %%%100 %As % of ACL-Loans26 %14 %18 %20 %%%11 %%%100 %
*The PPP loans are fully guaranteed by the SBA; thus, no ACL-Loans has been allocated to these loans.
Year Ended December 31, 2021Year Ended December 31, 2022
(in thousands)(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction
& land
development
Residential
construction
Residential
first
mortgage
Residential
junior
mortgage
Retail &
other
 
Total
(in thousands)Commercial
& industrial
Owner-
occupied
CRE
AgriculturalCRE
investment
Construction
& land
development
Residential
construction
Residential
first
mortgage
Residential
junior
mortgage
Retail &
other
 
Total
ACL-Loans *
ACL-LoansACL-Loans
Beginning balanceBeginning balance$11,644 $5,872 $1,395 $5,441 $984 $421 $4,773 $1,086 $557 $32,173 Beginning balance$12,613 $7,222 $9,547 $8,462 $1,812 $900 $6,844 $1,340 $932 $49,672 
ACL on PCD loansACL on PCD loans723 1,045 2,585 415 103 — 272 13 5,159 ACL on PCD loans1,408 384 — 38 — 93 12 — 1,937 
ProvisionProvision196 305 5,615 2,608 725 479 1,892 237 443 12,500 Provision2,415 2,087 215 4,075 758 512 96 493 299 10,950 
Charge-offsCharge-offs(242)— (48)(4)— — (113)— (106)(513)Charge-offs(190)(555)— — — — (65)— (223)(1,033)
RecoveriesRecoveries292 — — — — 20 35 353 Recoveries104 — — 169 — — 21 303 
Net (charge-offs) recoveriesNet (charge-offs) recoveries50 — (48)(2)— — (93)(71)(160)Net (charge-offs) recoveries(86)(555)— 169 — — (57)(202)(730)
Ending balanceEnding 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-LoansAs % of ACL-Loans25 %14 %19 %17 %%%14 %%%100 %As % of ACL-Loans26 %15 %16 %21 %%%11 %%%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.
Management allocates the ACL-Loans by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve is established for individually evaluated credit-deteriorated loans, which management defines as nonaccrual credit relationships over $250,000, collateral dependent loans, purchased credit deteriorated loans, and other loans with evidence of credit deterioration. The specific reserve in the ACL-Loans for these credit deteriorated loans is equal to the aggregate collateral or discounted cash flow shortfall. Management allocates the ACL-Loans with historical loss rates by loan 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.
16


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 $2.6$3.0 million at both June 30, 20222023 and $2.4 million at December 31, 2021.

17


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 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 EndedSix Months EndedYear EndedThree Months EndedSix Months EndedYear Ended
(in thousands)(in thousands)June 30, 2022June 30, 2021June 30, 2022June 30, 2021December 31, 2021(in thousands)June 30, 2023June 30, 2022June 30, 2023June 30, 2022December 31, 2022
Provision for credit losses on:Provision for credit losses on:Provision for credit losses on:
LoansLoans$600 $— $900 $500 $12,500 Loans$450 $600 $1,200 $900 $10,950 
Unfunded Commitments150 — 150 — 2,400 
Unfunded commitmentsUnfunded commitments— 150 — 150 550 
Investment securitiesInvestment securities— — — — — Investment securities— — 2,340 — — 
TotalTotal$750 $— $1,050 $500 $14,900 Total$450 $750 $3,540 $1,050 $11,500 
Collateral Dependent Loans:
A loan is considered to be collateral dependent when, based upon management’s assessment, the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. For collateral dependent loans, expected credit losses are based on the estimated fair value of the collateral at the balance sheet date, with consideration for estimated selling costs if satisfaction of the loan depends on the sale of the collateral. The following tables present collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation.
June 30, 2022Collateral Type
June 30, 2023June 30, 2023Collateral Type
(in thousands)(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation
Commercial & industrialCommercial & industrial$— $2,196 $2,196 $1,425 $771 $197 Commercial & industrial$— $1,989 $1,989 $561 $1,428 $461 
Owner-occupied CREOwner-occupied CRE6,562 — 6,562 4,489 2,073 403 Owner-occupied CRE5,236 — 5,236 5,236 — — 
AgriculturalAgricultural14,236 6,522 20,758 14,604 6,154 309 Agricultural5,805 3,069 8,874 3,871 5,003 91 
CRE investmentCRE investment2,265 — 2,265 419 1,846 289 CRE investment2,434 — 2,434 1,911 523 
Construction & land developmentConstruction & land development1,009 — 1,009 1,009 — — Construction & land development— — — — — — 
Residential construction— — — — — — 
Residential first mortgageResidential first mortgage— — — — — — Residential first mortgage693 — 693 693 — — 
Residential junior mortgageResidential junior mortgage— — — — — — Residential junior mortgage— — — — — — 
Retail & other— — — — — — 
Total loansTotal loans$24,072 $8,718 $32,790 $21,946 $10,844 $1,198 Total loans$14,168 $5,058 $19,226 $12,272 $6,954 $559 

December 31, 2021Collateral Type
December 31, 2022December 31, 2022Collateral Type
(in thousands)(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation(in thousands)Real EstateOther Business AssetsTotalWithout an AllowanceWith an AllowanceAllowance Allocation
Commercial & industrialCommercial & industrial$— $2,296 $2,296 $1,842 $454 $258 Commercial & industrial$— $3,475 $3,475 $1,927 $1,548 $595 
Owner-occupied CREOwner-occupied CRE3,537 — 3,537 1,315 2,222 552 Owner-occupied CRE4,907 — 4,907 4,699 208 53 
AgriculturalAgricultural19,637 8,518 28,155 25,310 2,845 841 Agricultural13,758 6,458 20,216 14,358 5,858 261 
CRE investmentCRE investment3,000 — 3,000 1,684 1,316 407 CRE investment2,713 — 2,713 979 1,734 212 
Construction & land developmentConstruction & land development1,038 — 1,038 655 383 211 Construction & land development670 — 670 670 — — 
Residential construction— — — — — — 
Residential first mortgageResidential first mortgage473 — 473 473 — — Residential first mortgage91 — 91 91 — — 
Residential junior mortgage— — — — — — 
Retail & other— — — — — — 
Total loansTotal 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.
June 30, 2022June 30, 2023
(in thousands)(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal
Commercial & industrialCommercial & industrial$2,114 $1,784 $1,114,462 $1,118,360 Commercial & industrial$260 $3,157 $1,315,150 $1,318,567 
Owner-occupied CREOwner-occupied CRE165 5,183 785,332 790,680 Owner-occupied CRE28 6,573 962,601 969,202 
AgriculturalAgricultural129 21,054 946,009 967,192 Agricultural151 9,092 1,059,756 1,068,999 
CRE investmentCRE investment287 3,617 814,658 818,562 CRE investment56 2,535 1,106,101 1,108,692 
Construction & land developmentConstruction & land development— 1,044 227,531 228,575 Construction & land development121 95 337,173 337,389 
Residential constructionResidential construction994 — 68,429 69,423 Residential construction— — 108,095 108,095 
Residential first mortgageResidential first mortgage1,427 3,580 780,584 785,591 Residential first mortgage868 3,638 1,068,103 1,072,609 
Residential junior mortgageResidential junior mortgage126 221 148,385 148,732 Residential junior mortgage118 87 184,668 184,873 
Retail & otherRetail & other146 97 51,296 51,539 Retail & other215 101 54,034 54,350 
Total loansTotal loans$5,388 $36,580 $4,936,686 $4,978,654 Total loans$1,817 $25,278 $6,195,681 $6,222,776 
Percent of total loansPercent of total loans0.1 %0.7 %99.2 %100.0 %Percent of total loans— %0.4 %99.6 %100.0 %
December 31, 2021December 31, 2022
(in thousands)(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal(in thousands)30-89 Days Past
Due (accruing)
90 Days & Over or nonaccrualCurrentTotal
Commercial & industrialCommercial & industrial$94 $1,908 $1,040,254 $1,042,256 Commercial & industrial$210 $3,328 $1,301,281 $1,304,819 
Owner-occupied CREOwner-occupied CRE— 4,220 782,969 787,189 Owner-occupied CRE833 5,647 948,119 954,599 
AgriculturalAgricultural108 28,367 766,253 794,728 Agricultural20 20,416 1,068,171 1,088,607 
CRE investmentCRE investment114 4,119 813,828 818,061 CRE investment— 3,832 1,146,117 1,149,949 
Construction & land developmentConstruction & land development— 1,071 211,964 213,035 Construction & land development— 771 317,829 318,600 
Residential constructionResidential construction246 — 70,107 70,353 Residential construction— — 114,392 114,392 
Residential first mortgageResidential first mortgage2,592 4,132 707,259 713,983 Residential first mortgage3,628 3,780 1,009,527 1,016,935 
Residential junior mortgageResidential junior mortgage23 243 131,158 131,424 Residential junior mortgage236 224 176,872 177,332 
Retail & otherRetail & other115 94 50,598 50,807 Retail & other261 82 54,923 55,266 
Total loansTotal 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 loansPercent of total loans0.1 %0.9 %99.0 %100.0 %Percent of total loans0.1 %0.6 %99.3 %100.0 %

The following table presents nonaccrual loans by portfolio segment.
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
(in thousands)(in thousands)Nonaccrual Loans% of TotalNonaccrual Loans% of Total(in thousands)Nonaccrual Loans% of TotalNonaccrual Loans% of Total
Commercial & industrialCommercial & industrial$1,784 %$1,908 %Commercial & industrial$3,157 12 %$3,328 %
Owner-occupied CREOwner-occupied CRE5,183 14 4,220 10 Owner-occupied CRE6,573 26 5,647 15 
AgriculturalAgricultural21,054 58 28,367 64 Agricultural9,092 36 20,416 53 
CRE investmentCRE investment3,617 10 4,119 CRE investment2,535 10 3,832 10 
Construction & land developmentConstruction & land development1,044 1,071 Construction & land development95 771 
Residential constructionResidential construction— — — — Residential construction— — — — 
Residential first mortgageResidential first mortgage3,580 10 4,132 Residential first mortgage3,638 14 3,780 10 
Residential junior mortgageResidential junior mortgage221 243 Residential junior mortgage87 — 224 
Retail & otherRetail & other97 — 94 — Retail & other101 82 — 
Nonaccrual loansNonaccrual loans$36,580 100 %$44,154 100 %Nonaccrual loans$25,278 100 %$38,080 100 %
Percent of total loansPercent of total loans0.7 %0.9 %Percent of total loans0.4 %0.6 %

1918


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 CountyAcquired loans have been included in the June 30, 2022 and December 31, 2021 tables based upon the actual origination date.
June 30, 2022Amortized Cost Basis by Origination Year
June 30, 2023June 30, 2023Amortized Cost Basis by Origination Year
(in thousands)(in thousands)20222021202020192018PriorRevolvingRevolving to TermTOTAL(in thousands)20232022202120202019PriorRevolvingRevolving to TermTOTAL
Commercial & industrialCommercial & industrialCommercial & industrial
Grades 1-4Grades 1-4$150,560 $235,065 $115,457 $85,568 $55,138 $86,868 $331,520 $— $1,060,176 Grades 1-4$97,859 $292,993 $198,515 $85,707 $59,568 $102,696 $383,527 $— $1,220,865 
Grade 5Grade 55,978 4,207 10,982 2,421 711 4,507 19,006 — 47,812 Grade 55,318 6,973 6,397 1,929 1,156 7,678 27,520 — 56,971 
Grade 6Grade 6167 1,095 121 577 466 399 514 — 3,339 Grade 6— 1,688 1,361 837 1,127 4,907 — 9,925 
Grade 7Grade 748 28 3,409 625 658 1,214 1,051 — 7,033 Grade 7605 3,578 2,590 2,319 2,189 13,912 5,613 — 30,806 
TotalTotal$156,753 $240,395 $129,969 $89,191 $56,973 $92,988 $352,091 $— $1,118,360 Total$103,782 $305,232 $208,863 $90,792 $62,918 $125,413 $421,567 $— $1,318,567 
Current period gross charge-offsCurrent period gross charge-offs$— $(77)$(114)$— $— $(197)$(15)$— $(403)
Owner-occupied CREOwner-occupied CREOwner-occupied CRE
Grades 1-4Grades 1-4$78,180 $154,736 $90,071 $92,236 $82,271 $240,560 $7,573 $— $745,627 Grades 1-4$60,120 $160,217 $189,378 $100,814 $92,047 $302,445 $3,210 $— $908,231 
Grade 5Grade 5822 4,977 2,225 5,709 2,962 11,048 14 — 27,757 Grade 51,398 4,237 9,020 5,009 1,139 16,269 509 — 37,581 
Grade 6Grade 6— — — 1,832 683 283 — — 2,798 Grade 6— 261 352 546 1,561 954 150 — 3,824 
Grade 7Grade 7— — 6,299 161 — 8,038 — — 14,498 Grade 7— 221 2,069 6,806 577 9,893 — — 19,566 
TotalTotal$79,002 $159,713 $98,595 $99,938 $85,916 $259,929 $7,587 $— $790,680 Total$61,518 $164,936 $200,819 $113,175 $95,324 $329,561 $3,869 $— $969,202 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $— $— $— $— 
AgriculturalAgriculturalAgricultural
Grades 1-4Grades 1-4$166,648 $154,216 $96,285 $28,045 $20,248 $148,562 $198,551 $— $812,555 Grades 1-4$34,882 $281,777 $139,350 $82,481 $24,247 $152,130 $230,863 $— $945,730 
Grade 5Grade 52,268 15,504 3,951 2,115 775 52,536 20,284 — 97,433 Grade 52,335 12,391 6,359 741 373 39,105 14,380 — 75,684 
Grade 6Grade 6— 329 33 34 — 3,291 337 — 4,024 Grade 6— 109 1,144 — 52 2,320 129 — 3,754 
Grade 7Grade 76,935 4,364 1,634 2,350 3,794 23,126 10,977 — 53,180 Grade 72,570 7,057 6,827 589 1,890 15,082 9,816 — 43,831 
TotalTotal$175,851 $174,413 $101,903 $32,544 $24,817 $227,515 $230,149 $— $967,192 Total$39,787 $301,334 $153,680 $83,811 $26,562 $208,637 $255,188 $— $1,068,999 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $(66)$— $— $(66)
CRE investmentCRE investmentCRE investment
Grades 1-4Grades 1-4$88,371 $172,181 $133,305 $113,059 $50,947 $215,573 $10,035 $— $783,471 Grades 1-4$17,613 $196,825 $217,555 $181,239 $123,758 $305,218 $13,699 $— $1,055,907 
Grade 5Grade 5276 4,359 2,554 2,144 449 17,477 — — 27,259 Grade 52,814 559 13,092 3,908 3,812 19,960 49 — 44,194 
Grade 6Grade 6— — — 1,203 1,097 1,445 206 — 3,951 Grade 6— — — — 497 3,693 73 — 4,263 
Grade 7Grade 7— — — 75 138 3,447 221 — 3,881 Grade 7— — 21 523 2,403 1,381 — — 4,328 
TotalTotal$88,647 $176,540 $135,859 $116,481 $52,631 $237,942 $10,462 $— $818,562 Total$20,427 $197,384 $230,668 $185,670 $130,470 $330,252 $13,821 $— $1,108,692 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $— $— $— $— 
Construction & land developmentConstruction & land developmentConstruction & land development
Grades 1-4Grades 1-4$42,613 $91,176 $43,458 $9,649 $11,607 $12,645 $13,434 $— $224,582 Grades 1-4$19,928 $132,395 $129,347 $9,924 $8,498 $31,872 $3,237 $— $335,201 
Grade 5Grade 5— 1,566 — 516 843 24 — — 2,949 Grade 5— 30 128 1,285 511 91 — — 2,045 
Grade 6Grade 6— — — — — — — — — Grade 6— — — — — — — — — 
Grade 7Grade 7— — — — — 1,044 — — 1,044 Grade 748 — — — — 95 — — 143 
TotalTotal$42,613 $92,742 $43,458 $10,165 $12,450 $13,713 $13,434 $— $228,575 Total$19,976 $132,425 $129,475 $11,209 $9,009 $32,058 $3,237 $— $337,389 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential constructionResidential constructionResidential construction
Grades 1-4Grades 1-4$24,350 $41,888 $1,252 $150 $340 $1,043 $400 $— $69,423 Grades 1-4$15,583 $80,786 $8,244 $1,064 $127 $1,513 $— $— $107,317 
Grade 5Grade 5— — — — — — — — — Grade 5162 — 616 — — — — — 778 
Grade 6Grade 6— — — — — — — — — Grade 6— — — — — — — — — 
Grade 7Grade 7— — — — — — — — — Grade 7— — — — — — — — — 
TotalTotal$24,350 $41,888 $1,252 $150 $340 $1,043 $400 $— $69,423 Total$15,745 $80,786 $8,860 $1,064 $127 $1,513 $— $— $108,095 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential first mortgageResidential first mortgageResidential first mortgage
Grades 1-4Grades 1-4$152,844 $236,331 $135,176 $70,033 $25,878 $155,087 $1,378 $$776,731 Grades 1-4$76,867 $338,815 $264,697 $137,536 $62,134 $176,793 $805 $$1,057,650 
Grade 5Grade 5— 706 519 1,950 — 776 — — 3,951 Grade 5— 1,305 1,055 1,272 2,874 2,858 — — 9,364 
Grade 6Grade 6— — — 729 — — — — 729 Grade 6— — — — 562 — — — 562 
Grade 7Grade 7— — 290 353 218 3,319 — — 4,180 Grade 7— 151 471 276 424 3,711 — — 5,033 
TotalTotal$152,844 $237,037 $135,985 $73,065 $26,096 $159,182 $1,378 $$785,591 Total$76,867 $340,271 $266,223 $139,084 $65,994 $183,362 $805 $$1,072,609 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential junior mortgageResidential junior mortgageResidential junior mortgage
Grades 1-4Grades 1-4$3,720 $3,861 $4,980 $2,057 $1,769 $2,874 $125,271 $3,951 $148,483 Grades 1-4$7,841 $9,094 $4,026 $4,821 $2,955 $4,387 $144,869 $6,590 $184,583 
Grade 5Grade 5— — — — — — — — — Grade 5— — — — — — — — — 
Grade 6Grade 6— — — — — — — — — Grade 6— — — — — — — — — 
Grade 7Grade 7— — — 28 — 79 142 — 249 Grade 7— 32 204 — — 15 39 — 290 
TotalTotal$3,720 $3,861 $4,980 $2,085 $1,769 $2,953 $125,413 $3,951 $148,732 Total$7,841 $9,126 $4,230 $4,821 $2,955 $4,402 $144,908 $6,590 $184,873 
Current period gross charge-offsCurrent period gross charge-offs$— $— $— $— $— $(96)$— $— $(96)
Retail & otherRetail & otherRetail & other
Grades 1-4Grades 1-4$6,572 $9,676 $5,085 $3,855 $1,265 $24,174 $804 $— $51,431 Grades 1-4$4,078 $9,654 $7,001 $3,212 $2,378 $4,282 $23,638 $— $54,243 
Grade 5Grade 5— — — — — — — — — Grade 5— — 19 — — — — — 19 
Grade 6Grade 6— — — — — — — — — Grade 6— — — — — — — — — 
Grade 7Grade 7— — 11 37 58 — — 108 Grade 730 — 21 11 25 — — 88 
TotalTotal$6,572 $9,676 $5,096 $3,857 $1,302 $24,232 $804 $— $51,539 Total$4,108 $9,654 $7,041 $3,223 $2,379 $4,307 $23,638 $— $54,350 
Current period gross charge-offsCurrent period gross charge-offs$(6)$(1)$— $(1)$— $(52)$(120)$— $(180)
Total loansTotal loans$730,352 $1,136,265 $657,097 $427,476 $262,294 $1,019,497 $741,718 $3,955 $4,978,654 Total loans$350,051 $1,541,148 $1,209,859 $632,849 $395,738 $1,219,505 $867,033 $6,593 $6,222,776 

19


December 31, 2022Amortized Cost Basis by Origination Year
(in thousands)20222021202020192018PriorRevolvingRevolving to TermTOTAL
Commercial & industrial
Grades 1-4$317,394 $226,065 $101,374 $68,884 $50,189 $77,589 $360,978 $— $1,202,473 
Grade 59,938 5,902 10,811 1,530 3,986 4,562 20,617 — 57,346 
Grade 61,459 2,283 629 511 402 11,653 14,047 — 30,984 
Grade 7556 293 3,211 2,990 775 1,070 5,121 — 14,016 
Total$329,347 $234,543 $116,025 $73,915 $55,352 $94,874 $400,763 $— $1,304,819 
Current period gross charge-offs$(38)$(41)$(2)$— $(109)$— $— $— $(190)
Owner-occupied CRE
Grades 1-4$151,391 $190,313 $105,156 $100,606 $91,479 $252,574 $6,734 $— $898,253 
Grade 55,241 3,192 4,287 2,163 4,791 14,632 348 — 34,654 
Grade 6— — 763 2,361 — 877 — — 4,001 
Grade 7227 706 6,344 616 — 9,798 — — 17,691 
Total$156,859 $194,211 $116,550 $105,746 $96,270 $277,881 $7,082 $— $954,599 
Current period gross charge-offs$— $— $— $— $— $(555)$— $— $(555)
Agricultural
Grades 1-4$275,208 $145,272 $85,413 $25,463 $19,687 $130,849 $249,033 $— $930,925 
Grade 513,295 18,178 2,694 1,992 517 43,927 21,199 — 101,802 
Grade 6115 1,457 28 33 — 5,258 429 — 7,320 
Grade 77,165 2,632 720 1,977 4,611 19,948 11,507 — 48,560 
Total$295,783 $167,539 $88,855 $29,465 $24,815 $199,982 $282,168 $— $1,088,607 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
CRE investment
Grades 1-4$205,930 $229,252 $192,527 $134,301 $79,649 $248,595 $11,383 $— $1,101,637 
Grade 5567 1,649 3,578 4,266 3,086 24,897 — — 38,043 
Grade 6— — — 1,170 2,396 2,483 206 — 6,255 
Grade 7— — 121 299 245 3,140 209 — 4,014 
Total$206,497 $230,901 $196,226 $140,036 $85,376 $279,115 $11,798 $— $1,149,949 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Construction & land development
Grades 1-4$104,804 $140,727 $12,188 $9,747 $23,811 $13,138 $13,235 $— $317,650 
Grade 537 — — 14 — 95 — — 146 
Grade 6— — — — — — — — — 
Grade 733 — — — — 771 — — 804 
Total$104,874 $140,727 $12,188 $9,761 $23,811 $14,004 $13,235 $— $318,600 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential construction
Grades 1-4$92,417 $16,774 $966 $123 $336 $229 $3,547 $— $114,392 
Grade 5— — — — — — — — — 
Grade 6— — — — — — — — — 
Grade 7— — — — — — — — — 
Total$92,417 $16,774 $966 $123 $336 $229 $3,547 $— $114,392 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Residential first mortgage
Grades 1-4$318,628 $272,011 $147,857 $68,975 $31,208 $162,153 $2,080 $$1,002,915 
Grade 51,494 758 997 1,803 2,272 465 — — 7,789 
Grade 6— — — 711 — — — — 711 
Grade 7154 329 188 349 197 4,303 — — 5,520 
Total$320,276 $273,098 $149,042 $71,838 $33,677 $166,921 $2,080 $$1,016,935 
Current period gross charge-offs$— $— $— $— $— $(65)$— $— $(65)
Residential junior mortgage
Grades 1-4$10,119 $4,580 $5,207 $3,151 $1,573 $3,409 $142,784 $5,762 $176,585 
Grade 5— — — — — 143 165 — 308 
Grade 6— — — — — — — — — 
Grade 7— 206 — — — 24 209 — 439 
Total$10,119 $4,786 $5,207 $3,151 $1,573 $3,576 $143,158 $5,762 $177,332 
Current period gross charge-offs$— $— $— $— $— $— $— $— $— 
Retail & other
Grades 1-4$12,318 $8,957 $4,221 $3,188 $1,035 $24,950 $492 $— $55,161 
Grade 5— 23 — — — — — — 23 
Grade 6— — — — — — — — — 
Grade 7— 23 22 30 — — 82 
Total$12,318 $9,003 $4,243 $3,190 $1,065 $24,955 $492 $— $55,266 
Current period gross charge-offs$— $(1)$(6)$(1)$— $— $(215)$— $(223)
Total loans$1,528,490 $1,271,582 $689,302 $437,225 $322,275 $1,061,537 $864,323 $5,765 $6,180,499 

20


December 31, 2021Amortized Cost Basis by Origination Year
(in thousands)20212020201920182017PriorRevolvingRevolving to TermTOTAL
Commercial & industrial
Grades 1-4$282,369 $146,131 $99,702 $69,478 $50,557 $71,247 $288,115 $— $1,007,599 
Grade 51,685 1,905 4,369 5,809 4,860 2,097 8,408 — 29,133 
Grade 6598 54 16 687 67 91 391 — 1,904 
Grade 7— 440 692 337 976 743 432 — 3,620 
Total$284,652 $148,530 $104,779 $76,311 $56,460 $74,178 $297,346 $— $1,042,256 
Owner-occupied CRE
Grades 1-4$154,578 $94,300 $105,226 $92,128 $75,583 $202,816 $6,945 $— $731,576 
Grade 57,753 3,019 6,529 2,543 2,515 13,905 656 — 36,920 
Grade 6— — 1,642 — 20 805 — — 2,467 
Grade 7— 3,124 1,914 — 3,526 6,672 990 — 16,226 
Total$162,331 $100,443 $115,311 $94,671 $81,644 $224,198 $8,591 $— $787,189 
Agricultural
Grades 1-4$128,404 $87,844 $28,416 $22,887 $36,298 $86,104 $235,743 $— $625,696 
Grade 514,796 4,183 2,391 915 3,912 48,373 26,778 — 101,348 
Grade 638 38 36 — 86 1,049 85 — 1,332 
Grade 73,284 3,971 3,490 4,201 7,215 31,672 12,519 — 66,352 
Total$146,522 $96,036 $34,333 $28,003 $47,511 $167,198 $275,125 $— $794,728 
CRE investment
Grades 1-4$192,274 $139,127 $136,306 $56,148 $65,026 $162,991 $11,289 $— $763,161 
Grade 511,081 3,001 6,497 3,945 6,726 17,527 — — 48,777 
Grade 6— — — — — — — — — 
Grade 7— — 456 141 1,352 3,943 231 — 6,123 
Total$203,355 $142,128 $143,259 $60,234 $73,104 $184,461 $11,520 $— $818,061 
Construction & land development
Grades 1-4$81,891 $72,415 $12,547 $19,511 $1,184 $11,274 $10,943 $— $209,765 
Grade 5640 — 521 919 — 119 — — 2,199 
Grade 6— — — — — — — — — 
Grade 7— — — — 17 1,054 — — 1,071 
Total$82,531 $72,415 $13,068 $20,430 $1,201 $12,447 $10,943 $— $213,035 
Residential construction
Grades 1-4$58,352 $9,998 $155 $344 $1,072 $380 $— $— $70,301 
Grade 5— — 52 — — — — — 52 
Grade 6— — — — — — — — — 
Grade 7— — — — — — — — — 
Total$58,352 $9,998 $207 $344 $1,072 $380 $— $— $70,353 
Residential first mortgage
Grades 1-4$256,082 $152,932 $168,705 $22,568 $20,147 $82,479 $1,840 $$704,757 
Grade 5713 529 3,094 — — 1,508 — — 5,844 
Grade 6— — — — — — — — — 
Grade 7— — 560 225 73 2,524 — — 3,382 
Total$256,795 $153,461 $172,359 $22,793 $20,220 $86,511 $1,840 $$713,983 
Residential junior mortgage
Grades 1-4$3,194 $3,139 $3,021 $1,501 $512 $1,969 $115,817 $1,426 $130,579 
Grade 5— — 29 — — — 439 — 468 
Grade 6— — — — — — — — — 
Grade 7— — 172 — 23 44 138 — 377 
Total$3,194 $3,139 $3,222 $1,501 $535 $2,013 $116,394 $1,426 $131,424 
Retail & other
Grades 1-4$13,676 $6,886 $5,826 $2,053 $1,882 $20,102 $275 $— $50,700 
Grade 5— — — — — — — — — 
Grade 6— — — — — — — — — 
Grade 7— 24 19 — 62 — — 107 
Total$13,676 $6,910 $5,828 $2,072 $1,882 $20,164 $275 $— $50,807 
Total loans$1,211,408 $733,060 $592,366 $306,359 $283,629 $771,550 $722,034 $1,430 $4,621,836 

21


The following tables present total loans by risk categories.
June 30, 2022
(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total
Commercial & industrial$1,060,176 $47,812 $3,339 $7,033 $1,118,360 
Owner-occupied CRE745,627 27,757 2,798 14,498 790,680 
Agricultural812,555 97,433 4,024 53,180 967,192 
CRE investment783,471 27,259 3,951 3,881 818,562 
Construction & land development224,582 2,949 — 1,044 228,575 
Residential construction69,423 — — — 69,423 
Residential first mortgage776,731 3,951 729 4,180 785,591 
Residential junior mortgage148,483 — — 249 148,732 
Retail & other51,431 — — 108 51,539 
Total loans$4,672,479 $207,161 $14,841 $84,173 $4,978,654 
Percent of total93.8 %4.2 %0.3 %1.7 %100.0 %
December 31, 2021
(in thousands)Grades 1- 4Grade 5Grade 6Grade 7Total
Commercial & industrial$1,007,599 $29,133 $1,904 $3,620 $1,042,256 
Owner-occupied CRE731,576 36,920 2,467 16,226 787,189 
Agricultural625,696 101,348 1,332 66,352 794,728 
CRE investment763,161 48,777 — 6,123 818,061 
Construction & land development209,765 2,199 — 1,071 213,035 
Residential construction70,301 52 — — 70,353 
Residential first mortgage704,757 5,844 — 3,382 713,983 
Residential junior mortgage130,579 468 — 377 131,424 
Retail & other50,700 — — 107 50,807 
Total loans$4,294,134 $224,741 $5,703 $97,258 $4,621,836 
Percent of total92.9 %4.9 %0.1 %2.1 %100.0 %

An internal loan review function rates loans using a grading system based on different risk categories. Loans with a Substandard grade are considered to have a greater risk of loss and may be assigned allocations for loss based on specific review of the weaknesses observed in the individual credits. Such loans are 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.

22


Troubled Debt RestructuringsModifications to Borrowers Experiencing Financial Difficulty:
Loans are considered troubled debt restructurings if concessions have been grantedOn 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 compositionamortized cost of nonaccrualloans that were both experiencing financial difficulty and performing TDRs.were modified during the six months ended June 30, 2023, aggregated by portfolio segment and type of modification.
June 30, 2022December 31, 2021
(in thousands)(in thousands)PerformingNonaccrualTotalPerformingNonaccrualTotal(in thousands)Payment DelayTerm ExtensionInterest Rate ReductionTerm Extension & Interest Rate ReductionTotal% of Total Loans
Commercial & industrialCommercial & industrial$— $194 $194 $— $197 $197 Commercial & industrial$454 $— $88 $— $542 0.04 %
Owner-occupied CREOwner-occupied CRE1,710 2,770 4,480 3,466 2,888 6,354 Owner-occupied CRE— — — — — — %
AgriculturalAgricultural— 14,525 14,525 — 16,835 16,835 Agricultural109 — — — 109 0.01 %
CRE investmentCRE investment— — — 918 — 918 CRE investment— — — — — — %
Construction & land developmentConstruction & land development— 308 308 — 308 308 Construction & land development— — — — — — %
Residential first mortgageResidential first mortgage— 14 14 913 15 928 Residential first mortgage— — — — — — %
Residential junior mortgage— — — 146 — 146 
TotalTotal$1,710 $17,811 $19,521 $5,443 $20,243 $25,686 Total$563 $— $88 $— $651 0.01 %
The followingloans presented in the table presentsabove have had more than insignificant payment delays (which the numberCompany has defined as payment delays in excess of six months). These modified loans are closely monitored by the Company to understand the effectiveness of its modification efforts, and such loans generally remain in nonaccrual status pending a sustained period of performance in accordance with the modified in a TDR, pre-modification loan balance, and post-modification loan balance by loan composition.terms.
 June 30, 2022December 31, 2021
($ in thousands)Number of LoansPre-Modification BalanceCurrent BalanceNumber of LoansPre-Modification BalanceCurrent Balance
Commercial & industrial$200 $194 $200 $197 
Owner-occupied CRE5,138 4,480 6,913 6,354 
Agricultural26 16,237 14,525 31 17,228 16,835 
CRE investment— — — 919 918 
Construction & land development533 308 533 308 
Residential first mortgage17 14 931 928 
Residential junior mortgage— — — 166 146 
Total35 $22,125 $19,521 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 June 30, 2022. As of June 30, 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 beensuch 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.

21



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 that would 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 also regularly monitors economic factors for potential impairment indications on the value of our franchise, stability of deposits, and the wealth client base, underlying our goodwill core deposit intangible, and customer list intangibles,other intangibles. Management concluded no impairment was indicated for the six months ended June 30, 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)June 30, 2022December 31, 2021
Goodwill$317,189 $317,189 
Core deposit intangibles16,928 19,445 
Customer list intangibles2,604 2,858 
    Other intangibles19,532 22,303 
Goodwill and other intangibles, net$336,721 $339,492 
23


(in thousands)June 30, 2023December 31, 2022
Goodwill$367,387 $367,387 
Core deposit intangibles28,710 32,701 
Customer list intangibles2,097 2,350 
    Other intangibles30,807 35,051 
Goodwill and other intangibles, net$398,194 $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.
Six Months EndedYear EndedSix Months EndedYear Ended
(in thousands)(in thousands)June 30, 2022December 31, 2021(in thousands)June 30, 2023December 31, 2022
Goodwill:Goodwill:Goodwill:
Goodwill at beginning of yearGoodwill at beginning of year$317,189 $163,151 Goodwill at beginning of year$367,387 $317,189 
AcquisitionsAcquisitions— 154,038 Acquisitions— 49,970 
Purchase accounting adjustmentPurchase accounting adjustment— 228 
Goodwill at end of periodGoodwill at end of period$317,189 $317,189 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.
Six Months EndedYear EndedSix Months EndedYear Ended
(in thousands)(in thousands)June 30, 2022December 31, 2021(in thousands)June 30, 2023December 31, 2022
Core deposit intangibles:Core deposit intangibles:Core deposit intangibles:
Gross carrying amountGross carrying amount$41,360 $41,360 Gross carrying amount$60,724 $60,724 
Accumulated amortizationAccumulated amortization(24,432)(21,915)Accumulated amortization(32,014)(28,023)
Net book valueNet book value$16,928 $19,445 Net book value$28,710 $32,701 
Additions during the periodAdditions during the period$— $13,595 Additions during the period$— $19,364 
Amortization during the periodAmortization during the period$2,517 $2,987 Amortization during the period$3,991 $6,108 
Customer list intangibles:Customer list intangibles:Customer list intangibles:
Gross carrying amountGross carrying amount$5,523 $5,523 Gross carrying amount$5,523 $5,523 
Accumulated amortizationAccumulated amortization(2,919)(2,665)Accumulated amortization(3,426)(3,173)
Net book valueNet book value$2,604 $2,858 Net book value$2,097 $2,350 
Amortization during the periodAmortization during the period$254 $507 Amortization during the period$253 $508 
22


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.
Six Months EndedYear Ended
(in thousands)June 30, 2022December 31, 2021
Mortgage servicing rights asset:
MSR asset at beginning of year$13,636 $10,230 
Capitalized MSR1,685 4,329 
MSR asset acquired— 1,322 
Amortization during the period(1,413)(2,245)
MSR asset at end of period$13,908 $13,636 
Valuation allowance at beginning of year$(1,200)$(1,000)
Additions— (500)
Reversals700 300 
Valuation allowance at end of period$(500)$(1,200)
MSR asset, net$13,408 $12,436 
Fair value of MSR asset at end of period$15,699 $15,599 
Residential mortgage loans serviced for others$1,611,794 $1,583,577 
Net book value of MSR asset to loans serviced for others0.83 %0.79 %
The Company periodically evaluates its mortgage servicing rights asset for impairment. At each reporting date, impairment is assessed based on estimated fair value using estimated prepayment speeds of the underlying mortgage loans serviced and stratification based on the risk characteristics of the underlying loans (predominantly loan type and note interest rate). See Note 9 for additional information on the fair valueA summary of the MSR asset.changes in the mortgage servicing rights asset was as follows.
Six Months EndedYear Ended
(in thousands)June 30, 2023December 31, 2022
Mortgage servicing rights asset:
MSR asset at beginning of year$13,080 $13,636 
Capitalized MSR620 2,327 
Amortization during the period(1,489)(2,883)
MSR asset at end of period$12,211 $13,080 
Valuation allowance at beginning of year$(500)$(1,200)
Reversals500 700 
Valuation allowance at end of period$— $(500)
MSR asset, net$12,211 $12,580 
Fair value of MSR asset at end of period$16,200 $17,215 
Residential mortgage loans serviced for others$1,615,985 $1,637,109 
Net book value of MSR asset to loans serviced for others0.76 %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 $15 million at June 30, 2022, and related to approximately $604 million of unpaid principal balances of loans serviced for others. The LSR assetwhich will be
24


amortized on an accelerated basis over the estimated remaining loan service period as theperiod. The Company does not expect to add new loans to this servicing portfolio. See Note 9 for additional information on the fair valueA summary of the changes in the LSR asset.asset were as follows.
Six Months EndedYear Ended
(in thousands)June 30, 2023December 31, 2022
Loan servicing rights asset:
LSR asset at beginning of year$11,039 $20,055 
Amortization during the period(1,104)(9,016)
LSR asset at end of period$9,935 $11,039 
Agricultural loans serviced for others$512,766 $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 estimated prepayment speeds as of June 30, 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 assetLSR asset(in thousands)Core deposit
intangibles
Customer list
intangibles
MSR assetLSR asset
Year ending December 31,Year ending December 31,Year ending December 31,
2022 (remaining six months)$2,300 $253 $1,107 $4,175 
20233,910 483 2,691 6,345 
2023 (remaining six months)2023 (remaining six months)$3,598 $230 $945 $1,104 
202420243,135 449 2,587 3,673 20246,298 449 2,725 1,962 
202520252,385 449 1,828 1,020 20255,161 449 1,998 1,717 
202620261,659 249 1,351 — 20263,983 249 1,474 1,472 
202720271,346 166 1,351 — 20273,218 166 1,473 1,227 
202820282,622 166 1,472 981 
ThereafterThereafter2,193 555 2,993 — Thereafter3,830 388 2,124 1,472 
TotalTotal$16,928 $2,604 $13,908 $15,213 Total$28,710 $2,097 $12,211 $9,935 


23


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 June 30, 2022 and2023, 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 outstanding2022, 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)June 30, 2022December 31, 2021(in thousands)June 30, 2023December 31, 2022
FHLB advancesFHLB advances$5,000 $25,000 FHLB advances$5,000 $33,000 
Junior subordinated debenturesJunior subordinated debentures39,305 38,885 Junior subordinated debentures40,136 39,720 
Subordinated notesSubordinated notes152,658 153,030 Subordinated notes152,441 152,622 
Total long-term borrowingsTotal long-term borrowings$196,963 $216,915 Total long-term borrowings$197,577 $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 1.55% at June 30, 20222023 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 June 30, 20222023 and December 31, 2021,2022, approximately $38 million and $37 million, respectively, 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 Countyan 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%
25


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.purposes, and are discounted in accordance with regulations when the debt has five years or less remaining to maturity.
24


The following table shows the breakdown of junior subordinated debentures and subordinated notes.
As of June 30, 2022As of December 31, 2021As of June 30, 2023As 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)
12/15/20353.26 %$10,310 $(2,674)$7,636 1.63 %$7,537 
Mid-Wisconsin Statutory Trust I (2)
12/15/20356.98 %$10,310 $(2,478)$7,832 6.20 %$7,734 
Baylake Capital Trust II (3)
Baylake Capital Trust II (3)
9/30/20363.60 %16,598 (3,292)13,306 1.57 %13,187 
Baylake Capital Trust II (3)
9/30/20366.89 %16,598 (3,056)13,542 6.08 %13,424 
First Menasha Statutory Trust (4)
First Menasha Statutory Trust (4)
3/17/20344.82 %5,155 (509)4,646 3.01 %4,624 
First Menasha Statutory Trust (4)
3/17/20348.30 %5,155 (465)4,690 7.53 %4,668 
County Bancorp Statutory Trust II (5)
County Bancorp Statutory Trust II (5)
9/15/20353.36 %6,186 (1,044)5,142 1.73 %5,061 
County Bancorp Statutory Trust II (5)
9/15/20357.08 %6,186 (831)5,355 6.30 %5,277 
County Bancorp Statutory Trust III (6)
County Bancorp Statutory Trust III (6)
6/15/20363.52 %6,186 (987)5,199 1.89 %5,121 
County Bancorp Statutory Trust III (6)
6/15/20367.24 %6,186 (889)5,297 6.46 %5,219 
Fox River Valley Capital Trust (7)
Fox River Valley Capital Trust (7)
5/30/20336.40 %3,610 (234)3,376 6.40 %3,355 
Fox River Valley Capital Trust (7)
5/30/20336.40 %3,610 (190)3,420 6.40 %3,398 
TotalTotal$48,045 $(8,740)$39,305 $38,885 Total$48,045 $(7,909)$40,136 $39,720 
Subordinated Notes:Subordinated Notes:Subordinated Notes:
Subordinated Notes due 2031Subordinated Notes due 20317/15/20313.13 %$100,000 $(838)$99,162 3.13 %$99,057 Subordinated Notes due 20317/15/20313.13 %$100,000 $(628)$99,372 3.13 %$99,267 
County Subordinated Notes due 2028County Subordinated Notes due 20286/1/20285.88 %30,000 280 30,280 5.88 %30,402 County Subordinated Notes due 20286/1/20288.38 %30,000 — 30,000 5.88 %30,119 
County Subordinated Notes due 2030County Subordinated Notes due 20306/30/20307.00 %22,400 816 23,216 7.00 %23,571 County Subordinated Notes due 20306/30/20307.00 %22,400 669 23,069 7.00 %23,236 
TotalTotal$152,400 $258 $152,658 $153,030 Total$152,400 $41 $152,441 $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 LIBORswap 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)June 30, 2023December 31, 2022
Commitments to extend credit$1,826,995 $1,850,601 
Financial standby letters of credit22,777 26,530 
Performance standby letters of credit12,824 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
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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 $24 million and $18 million, respectively, at June 30, 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 $0.2 million and $0.1 million at June 30, 2023 and December 31, 2022, respectively.
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 outcome 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.
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Recurring basis fair value measurements:
The following table presents the balances of assets and liabilities measured at fair value on a recurring basis for the periods presented.
(in thousands)(in thousands)Fair Value Measurements Using(in thousands)Fair Value Measurements Using
Measured at Fair Value on a Recurring Basis:Measured at Fair Value on a Recurring Basis:TotalLevel 1Level 2Level 3Measured at Fair Value on a Recurring Basis:TotalLevel 1Level 2Level 3
June 30, 2022
June 30, 2023June 30, 2023
U.S. Treasury securitiesU.S. Treasury securities$137,198 $— $137,198 $— 
U.S. government agency securitiesU.S. government agency securities$183,849 $— $183,849 $— U.S. government agency securities8,792 — 8,792 — 
State, county and municipalsState, county and municipals271,502 — 269,621 1,881 State, county and municipals368,838 — 367,417 1,421 
Mortgage-backed securitiesMortgage-backed securities226,248 — 225,268 980 Mortgage-backed securities301,784 — 300,805 979 
Corporate debt securitiesCorporate debt securities131,649 — 127,056 4,593 Corporate debt securities104,496 — 99,241 5,255 
Securities AFSSecurities AFS$813,248 $— $805,794 $7,454 Securities AFS$921,108 $— $913,453 $7,655 
Other investments (equity securities)Other investments (equity securities)$4,793 $4,793 $— $— Other investments (equity securities)$3,748 $3,748 $— $— 
Derivative assets— — — — 
Derivative liabilities— — — — 
December 31, 2021
December 31, 2022December 31, 2022
U.S. Treasury securitiesU.S. Treasury securities$183,830 $— $183,830 $— 
U.S. government agency securitiesU.S. government agency securities$191,277 $— $191,277 $— U.S. government agency securities2,100 — 2,100 — 
State, county and municipalsState, county and municipals312,737 — 310,316 2,421 State, county and municipals398,188 — 396,315 1,873 
Mortgage-backed securitiesMortgage-backed securities271,262 — 270,260 1,002 Mortgage-backed securities200,932 — 199,951 981 
Corporate debt securitiesCorporate debt securities146,385 — 141,743 4,642 Corporate debt securities132,568 — 127,269 5,299 
Securities AFSSecurities 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 assets1,064 — 1,064 — 
Derivative liabilities1,064 — 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 June 30, 20222023 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.
Six Months EndedYear Ended
(in thousands)(in thousands)Six Months EndedYear Ended
Level 3 Fair Value Measurements:Level 3 Fair Value Measurements:June 30, 2022December 31, 2021Level 3 Fair Value Measurements:June 30, 2023December 31, 2022
Balance at beginning of yearBalance at beginning of year$8,065 $3,130 Balance at beginning of year$8,153 $8,065 
Acquired balanceAcquired balance— 4,935 Acquired balance— 750 
Maturities / PaydownsMaturities / Paydowns(442)— Maturities / Paydowns(451)(451)
Unrealized gain / (loss)Unrealized gain / (loss)(169)— Unrealized gain / (loss)(47)(211)
Balance at end of periodBalance at end of period$7,454 $8,065 Balance at end of period$7,655 $8,153 
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Nonrecurring basis fair value measurements:
The following table presents the Company’s assets measured at fair value on a nonrecurring basis, aggregated by level in the fair value hierarchy within which those measurements fall.
(in thousands)(in thousands)Fair Value Measurements Using(in thousands)Fair Value Measurements Using
Measured at Fair Value on a Nonrecurring Basis:Measured at Fair Value on a Nonrecurring Basis:TotalLevel 1Level 2Level 3Measured at Fair Value on a Nonrecurring Basis:TotalLevel 1Level 2Level 3
June 30, 2022
June 30, 2023June 30, 2023
Collateral dependent loansCollateral dependent loans$31,592 $— $— $31,592 Collateral dependent loans$18,667 $— $— $18,667 
Other real estate owned (“OREO”)Other real estate owned (“OREO”)5,006 — — 5,006 Other real estate owned (“OREO”)1,478 — — 1,478 
MSR assetMSR asset13,408 — — 13,408 MSR asset12,211 — — 12,211 
LSR asset15,213 — — 15,213 
December 31, 2021
December 31, 2022December 31, 2022
Collateral dependent loansCollateral dependent loans$36,230 $— $— $36,230 Collateral dependent loans$30,951 $— $— $30,951 
OREOOREO11,955 — — 11,955 OREO1,975 — — 1,975 
MSR assetMSR asset12,436 — — 12,436 MSR asset12,580 — — 12,580 
LSR asset20,055 — — 20,055 
The following is a description of the valuation methodologies used by the Company for the items noted in the table above. For collateral dependent loans, the estimated fair value is based upon the present value of expected 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 aservicing valuation model is used to calculate the present value of the expected future cash flows for each tranche. The servicing valuation models incorporateincorporates 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.
June 30, 2022
June 30, 2023June 30, 2023
(in thousands)(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$181,017 $181,017 $181,017 $— $— Cash and cash equivalents$505,206 $505,206 $505,206 $— $— 
Certificates of deposit in other banksCertificates of deposit in other banks15,502 15,462 — 15,462 — Certificates of deposit in other banks9,808 9,710 — 9,710 — 
Securities AFSSecurities AFS813,248 813,248 — 805,794 7,454 Securities AFS921,108 921,108 — 913,453 7,655 
Securities HTM695,812 650,233 — 650,233 — 
Other investments, including equity securitiesOther investments, including equity securities53,269 53,269 4,793 39,387 9,089 Other investments, including equity securities57,578 57,578 3,748 43,334 10,496 
Loans held for saleLoans held for sale5,084 5,190 — 5,190 — Loans held for sale3,849 3,944 — 3,944 — 
Loans, netLoans, net4,927,999 4,818,422 — — 4,818,422 Loans, net6,159,965 5,854,647 — — 5,854,647 
MSR assetMSR asset13,408 15,699 — — 15,699 MSR asset12,211 16,200 — — 16,200 
LSR asset15,213 15,213 — — 15,213 
Accrued interest receivableAccrued interest receivable16,008 16,008 16,008 — — Accrued interest receivable21,511 21,511 21,511 — — 
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits$6,286,266 $6,281,308 $— $— $6,281,308 Deposits$7,198,604 $7,167,820 $— $— $7,167,820 
Short-term borrowingsShort-term borrowings50,000 50,000 — 50,000 — 
Long-term borrowingsLong-term borrowings196,963 192,447 — 5,001 187,446 Long-term borrowings197,577 188,603 — 4,701 183,902 
Accrued interest payableAccrued interest payable2,668 2,668 2,668 — — Accrued interest payable6,335 6,335 6,335 — — 
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December 31, 2021
December 31, 2022December 31, 2022
(in thousands)(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3(in thousands)Carrying
Amount
Estimated
Fair Value
Level 1Level 2Level 3
Financial assets:Financial assets:Financial assets:
Cash and cash equivalentsCash and cash equivalents$595,292 $595,292 $595,292 $— $— Cash and cash equivalents$154,723 $154,723 $154,723 $— $— 
Certificates of deposit in other banksCertificates of deposit in other banks21,920 22,236 — 22,236 — Certificates of deposit in other banks12,518 12,407 — 12,407 — 
Securities AFSSecurities AFS921,661 921,661 — 913,596 8,065 Securities AFS917,618 917,618 — 909,465 8,153 
Securities HTMSecurities HTM651,803 648,394 — 648,394 — Securities HTM679,128 623,352 — 623,352 — 
Other investments, including equity securitiesOther investments, including equity securities44,008 44,008 5,660 32,110 6,238 Other investments, including equity securities65,286 65,286 4,376 52,093 8,817 
Loans held for saleLoans held for sale6,447 6,616 — 6,616 — Loans held for sale1,482 1,529 — 1,529 — 
Loans, netLoans, net4,572,164 4,606,851 — — 4,606,851 Loans, net6,118,670 5,863,570 — — 5,863,570 
MSR assetMSR asset12,436 15,599 — — 15,599 MSR asset12,580 17,215 — — 17,215 
LSR asset20,055 20,055 — — 20,055 
Accrued interest receivableAccrued interest receivable15,277 15,277 15,277 — — Accrued interest receivable21,275 21,275 21,275 — — 
Financial liabilities:Financial liabilities:Financial liabilities:
DepositsDeposits$6,465,916 $6,463,064 $— $— $6,463,064 Deposits$7,178,921 $7,172,779 $— $— $7,172,779 
Short-term borrowingsShort-term borrowings317,000 317,000 317,000 — — 
Long-term borrowingsLong-term borrowings216,915 216,092 — 25,097 190,995 Long-term borrowings225,342 220,513 — 33,001 187,512 
Accrued interest payableAccrued interest payable3,078 3,078 3,078 — — Accrued interest payable4,265 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.
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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, (including the expected closing date of the merger with Charter Bankshares, Inc. (“Charter”) and number of shares to be issued in connection with that merger), and statements about our future performance, operations, products and services, and should be viewed with caution. Shareholders should note that many factors, some of which are discussed elsewhere in this document, could affect the future financial results of Nicolet and could cause those results to differ materially from those 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 20212022 Annual Report on Form 10-K include, but are not necessarily limited to the following:
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 20212022 Annual Report on Form 10-K and in subsequent filings we make with the SEC; and
risks related to our proposed merger with Charter, including:
possible negative impact on our stock price and future business and financial results;
uncertainties while the merger is pending which could have a negative effect;
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the occurrence of any event, change or other circumstances that could give rise to the right of one or both of the parties to terminate the Charter Merger Agreement;
unexpected costs associated with the merger;
diversion of management’s attention from ongoing business operations and opportunities;
possible inability to achieve expected synergies and operating efficiencies in the merger within the expected timeframes or at all;
failure to receive or satisfy required shareholder or other approvals, consents, waivers and/or non-objections or other conditions to the closing;
the impact of, or problems arising from the integration of the two companies;
the outcome of litigation or of matters before regulatory agencies, whether currently existing or commencing in the future, including litigation related to the merger;
potential adverse reactions or changes to business or employee relationships, including those resulting from the announcement or completion of the merger; and
current or future adverse legislation or regulation.
the risk that Nicolet’s analysis of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful.
These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements.
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Overview
The following discussion is management’s analysis of the consolidated financial condition as of June 30, 20222023 and December 31, 20212022 and results of operations for the three and six-month periods ended June 30, 20222023 and 2021.2022. It should be read in conjunction with Nicolet’s audited consolidated financial statements included in Nicolet’s 20212022 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 acquisitionsacquisition of Mackinac Financial CorporationCharter 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, eachCharter 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.

Economic Outlook and Recent Industry Developments
Growth inFor year-to-date 2023, economic activity andgrowth remains stronger than expected, driven by spending within the consumer sector. The labor market remains tighter than expected, which is fueling additional consumer spending through continued demand for goods and services, combined with labor shortages, supply chain complications and geopolitical matters, have contributedservices. Inflation has started to rising inflation.come down; however, the progress has been slower than anticipated despite the significant increase in interest rates by the Federal Reserve. In response,an effort to combat inflation, the Federal Reserve has raisedtightened monetary policy by raising interest rates from a target range of 0.00%-0.25% in early March 2022 to 2.25%-2.50%5.00%-5.25% at the end of June 2023, followed by another 0.25% increase (to a target rate of 5.25%-5.50%) at the end of July 2022.2023. All these factors are indicating a slowing in economic activity is the most likely scenario for the U.S. economy in late 2023.

These macroeconomic challenges are fueling additional concerns within the banking sector. During first quarter 2023, the banking industry experienced significant volatility with high-profile bank failures and industry wide concerns related to liquidity, deposit outflows, unrealized securities losses, and eroding consumer confidence in the banking system. This banking crisis has the potential for tighter lending standards and higher capital requirements, which further complicates the current economic outlook. In addition, the Federal Reserve has signaled that it anticipates additional increases inongoing geopolitical issues also have the target range are likely to mitigate the hardships caused by the ongoing Russia-Ukraine conflict, continued supply chain disruptions, and increased inflationary pressure. The tightening of the Federal Reserve’s monetary policies, including these increases in the target range and the tapering of the Federal Reserve’s balance sheet, combined with ongoingpotential for further economic and political instability, increases the risk of an economic recession. While forecasts vary, many economists are projecting that U.S. economic growth will slow and inflation will remain elevated in the coming quarters, potentially resulting in a contraction of the U.S. gross domestic output by 2023, if not earlier. The timing and impact of inflation and rising interest rates on our business and related financial results will depend on future developments, which are highly uncertain and difficult to predict.

Proposed Merger with Charter
On March 29, 2022, Nicolet entered into an Agreement and Plan of Merger with Charter (the “Charter Merger Agreement”), a bank holding company headquartered in Eau Claire, Wisconsin, with total assets of $1.1 billion at March 31, 2022. The merger is expected to close in the third quarter of 2022, subject to customary closing conditions. Under 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 $38.8 million in cash for the acquisition of Charter.disruptions.


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Table 1: Earnings Summary and Selected Financial DataTable 1: Earnings Summary and Selected Financial DataTable 1: Earnings Summary and Selected Financial Data
At or for the Three Months EndedAt or for the Six Months EndedAt or for the Three Months EndedAt or for the Six Months Ended
(In thousands, except per share data)(In thousands, except per share data)6/30/20223/31/202212/31/20219/30/20216/30/20216/30/20226/30/2021(In thousands, except per share data)6/30/20233/31/202312/31/20229/30/20226/30/20226/30/20236/30/2022
Results of operations:Results of operations:Results of operations:
Net interest incomeNet interest income$55,084 $53,795 $53,559 $35,184 $35,571 $108,879 $69,212 Net interest income$59,039 $56,721 $68,092 $62,990 $55,084 $115,760 $108,879 
Provision for credit lossesProvision for credit losses750 300 8,400 6,000 — 1,050 500 Provision for credit losses450 3,090 1,850 8,600 750 3,540 1,050 
Noninterest incomeNoninterest income14,131 15,943 16,064 13,996 20,178 30,074 37,304 Noninterest income16,841 (21,844)14,846 13,000 14,131 (5,003)30,074 
Noninterest expenseNoninterest expense36,538 37,550 39,408 33,061 30,747 74,088 56,828 Noninterest expense44,957 44,875 43,989 42,567 36,538 89,832 74,088 
Income before income tax expense31,927 31,888 21,815 10,119 25,002 63,815 49,188 
Income tax expense7,942 7,724 5,510 2,295 6,718 15,666 12,665 
Net income$23,985 $24,164 $16,305 $7,824 $18,284 $48,149 $36,523 
Earnings per common share:       
Income (loss) before income tax expenseIncome (loss) before income tax expense30,473 (13,088)37,099 24,823 31,927 17,385 63,815 
Income tax expense (benefit)Income tax expense (benefit)7,878 (4,190)9,498 6,313 7,942 3,688 15,666 
Net income (loss)Net income (loss)$22,595 $(8,898)$27,601 $18,510 $23,985 $13,697 $48,149 
Earnings (loss) per common share ("EPS"):Earnings (loss) per common share ("EPS"):      
BasicBasic$1.79 $1.77 $1.29 $0.75 $1.85 $3.56 $3.67 Basic$1.54 $(0.61)$1.88 $1.33 $1.79 $0.93 $3.56 
DilutedDiluted$1.73 $1.70 $1.25 $0.73 $1.77 $3.43 $3.52 Diluted$1.51 $(0.61)$1.83 $1.29 $1.73 $0.91 $3.43 
Common Shares:Common Shares:       Common Shares:
Basic weighted averageBasic weighted average13,402 13,649 12,626 10,392 9,902 13,525 9,949 Basic weighted average14,711 14,694 14,685 13,890 13,402 14,703 13,525 
Diluted weighted averageDiluted weighted average13,852 14,215 13,049 10,776 10,326 14,035 10,365 Diluted weighted average14,960 14,694 15,110 14,310 13,852 15,011 14,035 
Outstanding (period end)Outstanding (period end)13,407 13,457 13,994 11,952 9,843 13,407 9,843 Outstanding (period end)14,718 14,698 14,691 14,673 13,407 14,718 13,407 
Period-End Balances:Period-End Balances:       Period-End Balances:       
LoansLoans$4,978,654 $4,683,315 $4,621,836 $3,533,198 $2,820,331 $4,978,654 $2,820,331 Loans$6,222,776 $6,223,732 $6,180,499 $5,984,437 $4,978,654 $6,222,776 $4,978,654 
Allowance for credit losses - loansAllowance for credit losses - loans50,655 49,906 49,672 38,399 32,561 50,655 32,561 Allowance for credit losses - loans62,811 62,412 61,829 60,348 50,655 62,811 50,655 
Total assetsTotal assets7,370,252 7,320,212 7,695,037 6,407,820 4,587,347 7,370,252 4,587,347 Total assets8,482,628 8,192,354 8,763,969 8,895,916 7,370,252 8,482,628 7,370,252 
DepositsDeposits6,286,266 6,231,120 6,465,916 5,428,774 3,939,022 6,286,266 3,939,022 Deposits7,198,604 6,928,579 7,178,921 7,395,902 6,286,266 7,198,604 6,286,266 
Stockholders’ equity (common)Stockholders’ equity (common)839,387 836,310 891,891 729,278 559,395 839,387 559,395 Stockholders’ equity (common)977,638 961,792 972,529 938,463 839,387 977,638 839,387 
Book value per common shareBook value per common share62.61 62.15 63.73 61.01 56.83 62.61 56.83 Book value per common share66.42 65.44 66.20 63.96 62.61 66.42 62.61 
Tangible book value per common share (2)
Tangible book value per common share (2)
37.49 37.03 39.47 38.43 39.18 37.49 39.18 
Tangible book value per common share (2)
39.37 38.20 38.81 36.21 37.49 39.37 37.49 
Financial Ratios: (1)
Financial Ratios: (1)
       
Financial Ratios: (1)
       
Return on average assetsReturn on average assets1.32 %1.30 %0.96 %0.59 %1.62 %1.31 %1.63 %Return on average assets1.10 %(0.42)%1.26 %0.93 %1.32 %0.33 %1.31 %
Return on average common equityReturn on average common equity11.48 11.38 8.24 5.10 13.31 11.43 13.45 Return on average common equity9.37 (3.72)11.47 8.25 11.48 2.85 11.43 
Return on average tangible common equity (2)
Return on average tangible common equity (2)
19.21 18.75 13.19 7.62 19.46 18.98 19.73 
Return on average tangible common equity (2)
15.95 (6.34)19.85 13.93 19.21 4.86 18.98 
Stockholders' equity to assetsStockholders' equity to assets11.39 11.42 11.59 11.38 12.19 11.39 12.19 Stockholders' equity to assets11.53 11.74 11.10 10.55 11.39 11.53 11.39 
Tangible common equity to tangible assets (2)
Tangible common equity to tangible assets (2)
7.15 7.14 7.51 7.48 8.74 7.15 8.74 
Tangible common equity to tangible assets (2)
7.17 7.21 6.82 6.26 7.15 7.17 7.15 
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)$23,985 $24,164 $16,305 $7,824 $18,284 $48,149 $36,523 
Adjusted net income (loss) reconciliation (3)
Adjusted net income (loss) reconciliation (3)
Net income (loss) (GAAP)Net income (loss) (GAAP)$22,595 $(8,898)$27,601 $18,510 $23,985 $13,697 $48,149 
Adjustments:Adjustments:Adjustments:
Provision expense related to merger— — 8,400 6,000 — — — 
Provision expense (4)
Provision expense (4)
— 2,340 — 8,000 — 2,340 — 
Assets (gains) losses, netAssets (gains) losses, net(1,603)(1,313)(465)1,187 (4,192)(2,916)(4,903)Assets (gains) losses, net318 38,468 (260)46 (1,603)38,786 (2,916)
Merger-related expenseMerger-related expense555 98 2,202 2,793 656 653 656 Merger-related expense26 163 492 519 555 189 653 
Branch closure expense— — — 944 — — — 
Adjustments subtotalAdjustments subtotal(1,048)(1,215)10,137 10,924 (3,536)(2,263)(4,247)Adjustments subtotal344 40,971 232 8,565 (1,048)41,315 (2,263)
Tax on Adjustments (25% effective tax rate)Tax on Adjustments (25% effective tax rate)(262)(304)2,534 2,731 (884)(566)(1,062)Tax on Adjustments (25% effective tax rate)86 10,243 58 2,141 (262)10,329 (566)
Adjustments, net of taxAdjustments, net of tax(786)(911)7,603 8,193 (2,652)(1,697)(3,185)Adjustments, net of tax258 30,728 174 6,424 (786)30,986 (1,697)
Adjusted net income (Non-GAAP)Adjusted net income (Non-GAAP)$23,199 $23,253 $23,908 $16,017 $15,632 $46,452 $33,338 Adjusted net income (Non-GAAP)$22,853 $21,830 $27,775 $24,934 $23,199 $44,683 $46,452 
Adjusted diluted EPS (Non-GAAP)Adjusted diluted EPS (Non-GAAP)$1.67 $1.64 $1.83 $1.49 $1.51 $3.31 $3.22 Adjusted diluted EPS (Non-GAAP)$1.53 $1.45 $1.84 $1.74 $1.67 $2.98 $3.31 
Tangible Assets:Tangible Assets:Tangible Assets:
Total assetsTotal assets$7,370,252 $7,320,212 $7,695,037 $6,407,820 $4,587,347 Total assets$8,482,628 $8,192,354 $8,763,969 $8,895,916 $7,370,252 
Goodwill and other intangibles, netGoodwill and other intangibles, net336,721 338,068 339,492 269,954 173,711 Goodwill and other intangibles, net398,194 400,277 402,438 407,117 336,721 
Tangible assetsTangible assets$7,033,531 $6,982,144 $7,355,545 $6,137,866 $4,413,636 Tangible assets$8,084,434 $7,792,077 $8,361,531 $8,488,799 $7,033,531 
Tangible Common Equity:Tangible Common Equity:Tangible Common Equity:
Stockholders’ equity (common)Stockholders’ equity (common)$839,387 $836,310 $891,891 $729,278 $559,395 Stockholders’ equity (common)$977,638 $961,792 $972,529 $938,463 $839,387 
Goodwill and other intangibles, netGoodwill and other intangibles, net336,721 338,068 339,492 269,954 173,711 Goodwill and other intangibles, net398,194 400,277 402,438 407,117 336,721 
Tangible common equityTangible common equity$502,666 $498,242 $552,399 $459,324 $385,684 Tangible common equity$579,444 $561,515 $570,091 $531,346 $502,666 
Average Tangible Common Equity:Average Tangible Common Equity:       Average Tangible Common Equity:       
Stockholders’ equity (common)Stockholders’ equity (common)$837,975 $861,319 $784,666 $608,946 $550,974 $849,582 $547,775 Stockholders’ equity (common)$967,142 $970,108 $954,970 $890,205 $837,975 $968,617 $849,582 
Goodwill and other intangibles, netGoodwill and other intangibles, net337,289 338,694 294,051 201,748 174,026 337,988 174,424 Goodwill and other intangibles, net399,080 401,212 403,243 363,211 337,289 400,140 337,988 
Average tangible common equityAverage tangible common equity$500,686 $522,625 $490,615 $407,198 $376,948 $511,594 $373,351 Average tangible common equity$568,062 $568,896 $551,727 $526,994 $500,686 $568,477 $511,594 
Note: Numbers may not sum due to rounding.
(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 financial condition and capital strength. See section “Non-GAAP Financial Measures” below.
(3) The adjusted net income measure is a non-GAAP financial measure that provides information that management believes is useful to investors in understanding our operating performance and trends and also aids investors in the comparison of our financial performance to the financial performance of peer banks. See section “Non-GAAP Financial Measures” below.
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(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,” 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 $48.1$14 million (or earnings per diluted common share of $0.91) for the six months ended June 30, 2023, compared to net income of $48 million (or earnings per diluted common share of $3.43) for the six months ended June 30, 2022, compared to $36.5 millionwith 2023 significantly impacted by the first quarter balance sheet repositioning actions (detailed below).
Net income reflected non-core items and the related tax effect of each, including U.S. Treasury securities sale loss, expected loss (provision expense) on the Signature Bank sub debt investment (acquired in an acquisition), merger-related expenses, Day 2 credit provision expense required under the CECL model, as well as gains / (losses) on other assets and investments. These non-core items negatively impacted earnings per diluted common share $2.07 for the six months ended June 30, 2021. Earnings2023 and positively impacted earnings per diluted common share was $3.43$0.12 for the first six months ended June 30, 2022.
On March 7, 2023, Nicolet executed the sale of 2022, compared$500 million (par value) U.S. Treasury held to $3.52maturity securities for a pre-tax loss of $38 million or an after-tax loss of $28 million to reposition the first six monthsbalance sheet for future growth. The $500 million portfolio yielded approximately 88 bps with scheduled maturities in 2024 and 2025 (or average duration of 2021.2 years). Proceeds from the sale were used to reduce existing FHLB borrowings with the remainder held in investable cash. The following table summarizes the estimated annual impact of this balance sheet repositioning.
Sale Metrics$ in ThousandsAssumptions
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 borrowings17,128 Assumes $377 million at 456 bps (at time of sale)
Interest income from investable cash3,905 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 this portfolio of $20 million (at the time of reclassification) increased the balance of accumulated other comprehensive loss $15 million, net of the deferred tax effect, and is subject to future market changes.
Net interest income was $108.9$116 million for the first six months of 2022,2023, up $39.7$7 million (57%(6%) over the first six months of 2021.2022. Interest income grew $42.3$62 million attributable to favorable volumes (mostly higher loan volumes), partly offset by net unfavorable rates (asfrom new and renewed loans reprice at varying intervals to reflect the recent Federal Reservein a rising interest rate increases)environment, as well as favorable loan volumes (partly from the Charter acquisition). Interest expense increased $2.6$55 million between the comparable six-month periods mostly from the largerhigher average funding base.costs. Net interest margin was 3.02% for the six months ended June 30, 2023, compared to 3.29% for the six months ended June 30, 2022, compared to 3.38% for the six months ended June 30, 2021.2022. For additional information regarding net interest income, see “Income Statement Analysis — Net Interest Income.”
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Noninterest income was $30.1a negative $5 million for the first six months of 2022, down $7.22023, a $35 million (19%)unfavorable change from the comparable 20212022 period, with lowerprimarily due to the balance sheet repositioning (noted above). Excluding net mortgage income and other income partly offset by growth in most otherasset gains (losses), noninterest income categories.for the first six months of 2023 was $34 million, a $7 million increase over the first six months of 2022. For additional information regarding noninterest income, see “Income Statement Analysis — Noninterest Income.”
Noninterest expense was $74.1$90 million, $17.3$16 million (30%(21%) higher than the first six months of 2021.2022. Personnel costs increased $8.7$7 million, and non-personnel expenses combined increased $8.6$8 million (35%(25%) over the comparable 20212022 period. For additional information regarding noninterest expense, see “Income Statement Analysis — Noninterest Expense.”
Nonperforming assets were $42$27 million, representing 0.56%0.32% of total assets at June 30, 2022,2023, compared to 0.73%$40 million or 0.46% of total assets at December 31, 2021 and 0.21% at June 30, 2021.2022. The reduction in nonperforming assets was due to the sale of select nonaccrual loans (net book value of approximately $13 million). For additional information regarding nonperforming assets, see “Balance Sheet Analysis – Nonperforming Assets.”
At June 30, 2022,2023, assets were $7.4$8.5 billion, down $0.3 billion (4%$281 million (3%) from December 31, 2021,2022, mostly cash and cash equivalents. Total assets increased $2.8 billion (61%) from June 30, 2021, mainly due to the acquisitionssale of Mackinac and County.investment securities as part of our balance sheet repositioning, partly offset by higher cash balances. For additional balance sheet discussion see “Balance Sheet Analysis.”
At June 30, 2022,2023, loans were $5.0$6.2 billion, $357up $42 million (8%) higher thanfrom December 31, 2021 on solid2022, with growth in residential mortgage loans partly offset by lower commercial-based loans from the sale of specific nonaccrual loans (noted above) as well as the payoff of two larger loan growth. Total loans were $2.2 billion (77%) higher than June 30, 2021, largely due to the acquisitions of Mackinac and County.relationships. On average, loans grew $1.9$1.5 billion (67%(31%) over the first six months of 2021.2022. For additional information regarding loans, see “Balance Sheet Analysis — Loans.”
Total deposits were $6.3of $7.2 billion at June 30, 2022, a decrease of $180 million (3%)2023, were minimally changed from December 31, 2021 on2022, with growth in customer and brokered time deposits partly offset by lower core customer deposits. Total deposits were $2.3 billion (60%) higher than June 30, 2021, largely due to the Mackinac and County acquisitions.transaction account balances. Year-to-date average deposits were $2.4 billion (62%$711 million (11%) higher than the first six months of 2021.2022. For additional information regarding deposits, see “Balance Sheet Analysis – Deposits.”
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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.

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Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis
For the Six Months Ended June 30,
20222021
(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
ASSETS
Interest-earning assets
Commercial PPP Loans$9,395 $1,390 29.41 %$206,066 $8,813 8.51 %
All other commercial-based loans3,970,704 86,208 4.32 %2,142,902 49,086 4.56 %
Retail-based loans783,974 16,720 4.27 %498,536 11,114 4.46 %
Total loans, including loan fees (1)(2)
4,764,073 104,318 4.36 %2,847,504 69,013 4.83 %
Investment securities:
Taxable1,388,630 10,262 1.48 %391,601 3,874 1.98 %
Tax-exempt (2)
185,689 2,022 2.18 %141,412 1,509 2.13 %
Total investment securities1,574,319 12,284 1.56 %533,013 5,383 2.02 %
Other interest-earning assets306,662 1,607 1.05 %719,036 1,271 0.35 %
Total non-loan earning assets1,880,981 13,891 1.48 %1,252,049 6,654 1.06 %
Total interest-earning assets6,645,054 $118,209 3.54 %4,099,553 $75,667 3.68 %
Other assets, net750,693 421,866 
Total assets$7,395,747 $4,521,419 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings$831,335 $339 0.08 %$561,392 $172 0.06 %
Interest-bearing demand1,020,273 1,499 0.30 %665,646 1,429 0.43 %
Money market accounts (“MMA”)1,482,431 823 0.11 %851,655 227 0.05 %
Core time deposits563,846 833 0.30 %313,123 1,536 0.99 %
Total interest-bearing core deposits3,897,885 3,494 0.18 %2,391,816 3,364 0.28 %
Brokered deposits441,316 1,108 0.51 %285,029 1,991 1.41 %
Total interest-bearing deposits4,339,201 4,602 0.21 %2,676,845 5,355 0.40 %
Wholesale funding214,767 3,963 3.69 %47,487 616 2.58 %
Total interest-bearing liabilities4,553,968 8,565 0.38 %2,724,332 5,971 0.44 %
Noninterest-bearing demand deposits1,950,528 1,209,718 
Other liabilities41,669 39,594 
Stockholders’ equity849,582 547,775 
Total liabilities and
 stockholders’ equity
$7,395,747 $4,521,419 
Interest rate spread3.16 %3.24 %
Net free funds0.13 %0.14 %
Tax-equivalent net interest income and net interest margin$109,644 3.29 %$69,696 3.38 %
Tax-equivalent adjustment$765 $484 
Net interest income$108,879 $69,212 
(1)Nonaccrual loans and loans held for sale are included in the daily average loan balances outstanding.
(2)The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense.
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Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis (Continued)
For the Three Months Ended June 30,For the Six Months Ended June 30,
2022202120232022
(in thousands)(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
ASSETSASSETSASSETS
Interest-earning assetsInterest-earning assetsInterest-earning assets
Commercial PPP Loans$5,333 $13 0.93 %$205,639 $4,862 9.35 %
All other commercial-based loans4,033,469 44,388 4.35 %2,159,774 24,645 4.51 %
Retail-based loans799,733 8,583 4.29 %503,692 5,622 4.47 %
Total loans, including loan fees (1)(2)
Total loans, including loan fees (1)(2)
4,838,535 52,984 4.34 %2,869,105 35,129 4.85 %
Total loans, including loan fees (1)(2)
$6,219,868 $163,318 5.23 %$4,764,073 $104,318 4.36 %
Investment securities:Investment securities:Investment securities:
TaxableTaxable1,390,642 5,135 1.48 %400,646 2,060 2.06 %Taxable1,022,188 9,094 1.78 %1,388,630 10,262 1.48 %
Tax-exempt (2)
Tax-exempt (2)
182,385 991 2.17 %136,986 734 2.15 %
Tax-exempt (2)
264,935 4,246 3.21 %185,689 2,022 2.18 %
Total investment securitiesTotal investment securities1,573,027 6,126 1.56 %537,632 2,794 2.08 %Total investment securities1,287,123 13,340 2.07 %1,574,319 12,284 1.56 %
Other interest-earning assetsOther interest-earning assets168,082 790 1.87 %702,657 616 0.35 %Other interest-earning assets156,353 3,893 4.96 %306,662 1,607 1.05 %
Total non-loan earning assetsTotal non-loan earning assets1,741,109 6,916 1.59 %1,240,289 3,410 1.10 %Total non-loan earning assets1,443,476 17,233 2.39 %1,880,981 13,891 1.48 %
Total interest-earning assetsTotal interest-earning assets6,579,644 $59,900 3.61 %4,109,394 $38,539 3.72 %Total interest-earning assets7,663,344 $180,551 4.69 %6,645,054 $118,209 3.54 %
Other assets, netOther assets, net693,575 418,445 Other assets, net735,323 750,693 
Total assetsTotal assets$7,273,219 $4,527,839 Total assets$8,398,667 $7,395,747 
LIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITYLIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilitiesInterest-bearing liabilitiesInterest-bearing liabilities
SavingsSavings$841,109 $234 0.11 %$586,590 $92 0.06 %Savings$865,588 $4,867 1.13 %$831,335 $339 0.08 %
Interest-bearing demandInterest-bearing demand988,820 798 0.32 %657,979 670 0.41 %Interest-bearing demand929,728 6,449 1.40 %1,020,273 1,499 0.30 %
MMA1,424,995 500 0.14 %846,114 104 0.05 %
Money market accounts (“MMA”)Money market accounts (“MMA”)1,836,405 23,191 2.55 %1,482,431 823 0.11 %
Core time depositsCore time deposits532,179 325 0.24 %297,047 657 0.89 %Core time deposits670,071 7,808 2.35 %563,846 833 0.30 %
Total interest-bearing core depositsTotal interest-bearing core deposits3,787,103 1,857 0.20 %2,387,730 1,523 0.26 %Total interest-bearing core deposits4,301,792 42,315 1.98 %3,897,885 3,494 0.18 %
Brokered depositsBrokered deposits423,372 553 0.52 %253,816 910 1.44 %Brokered deposits603,668 11,962 4.00 %441,316 1,108 0.51 %
Total interest-bearing depositsTotal interest-bearing deposits4,210,475 2,410 0.23 %2,641,546 2,433 0.37 %Total interest-bearing deposits4,905,460 54,277 2.23 %4,339,201 4,602 0.21 %
Wholesale fundingWholesale funding214,975 2,032 3.77 %43,325 303 2.76 %Wholesale funding395,742 9,396 4.72 %214,767 3,963 3.69 %
Total interest-bearing liabilitiesTotal interest-bearing liabilities4,425,450 4,442 0.40 %2,684,871 2,736 0.41 %Total interest-bearing liabilities5,301,202 63,673 2.42 %4,553,968 8,565 0.38 %
Noninterest-bearing demand depositsNoninterest-bearing demand deposits1,977,569 1,256,251 Noninterest-bearing demand deposits2,094,860 1,950,528 
Other liabilitiesOther liabilities32,225 35,743 Other liabilities33,988 41,669 
Stockholders’ equityStockholders’ equity837,975 550,974 Stockholders’ equity968,617 849,582 
Total liabilities and
stockholders’ equity
Total liabilities and
stockholders’ equity
$7,273,219 $4,527,839 Total liabilities and stockholders’ equity$8,398,667 $7,395,747 
Interest rate spreadInterest rate spread3.21 %3.31 %Interest rate spread2.27 %3.16 %
Net free fundsNet free funds0.13 %0.14 %Net free funds0.75 %0.13 %
Tax-equivalent net interest income and net interest marginTax-equivalent net interest income and net interest margin$55,458 3.34 %$35,803 3.45 %Tax-equivalent net interest income and net interest margin$116,878 3.02 %$109,644 3.29 %
Tax-equivalent adjustmentTax-equivalent adjustment$374 $232 Tax-equivalent adjustment$1,118 $765 
Net interest incomeNet interest income$55,084 $35,571 Net interest income$115,760 $108,879 
(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.

35


Table 2: Average Balance Sheet and Net Interest Income Analysis - Tax-Equivalent Basis (Continued)
For the Three Months Ended June 30,
20232022
(in thousands)Average
Balance
InterestAverage
Yield/Rate
Average
Balance
InterestAverage
Yield/Rate
ASSETS
Interest-earning assets
Total loans, including loan fees (1)(2)
$6,237,757 $84,132 5.35 %$4,838,535 $52,984 4.34 %
Investment securities:
Taxable822,204 4,133 2.01 %1,390,642 5,135 1.48 %
Tax-exempt (2)
245,940 1,961 3.19 %182,385 991 2.17 %
Total investment securities1,068,144 6,094 2.28 %1,573,027 6,126 1.56 %
Other interest-earning assets192,034 2,357 4.87 %168,082 790 1.87 %
Total non-loan earning assets1,260,178 8,451 2.68 %1,741,109 6,916 1.59 %
Total interest-earning assets7,497,935 $92,583 4.90 %6,579,644 $59,900 3.61 %
Other assets, net730,665 693,575 
Total assets$8,228,600 $7,273,219 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings$842,454 $2,502 1.19 %$841,109 $234 0.11 %
Interest-bearing demand874,294 3,110 1.43 %988,820 798 0.32 %
MMA1,825,233 12,001 2.64 %1,424,995 500 0.14 %
Core time deposits736,521 5,115 2.79 %532,179 325 0.24 %
Total interest-bearing core deposits4,278,502 22,728 2.13 %3,787,103 1,857 0.20 %
Brokered deposits640,643 6,612 4.14 %423,372 553 0.52 %
Total interest-bearing deposits4,919,145 29,340 2.39 %4,210,475 2,410 0.23 %
Wholesale funding293,140 3,678 4.96 %214,975 2,032 3.77 %
Total interest-bearing liabilities5,212,285 33,018 2.54 %4,425,450 4,442 0.40 %
Noninterest-bearing demand deposits2,021,892 1,977,569 
Other liabilities27,281 32,225 
Stockholders’ equity967,142 837,975 
Total liabilities and stockholders’ equity$8,228,600 $7,273,219 
Interest rate spread2.36 %3.21 %
Net free funds0.78 %0.13 %
Tax-equivalent net interest income and net interest margin$59,565 3.14 %$55,458 3.34 %
Tax-equivalent adjustment$526 $374 
Net interest income$59,039 $55,084 
(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.

36


Table 3: Volume/Rate Variance - Tax-Equivalent Basis
For the Three Months Ended
June 30, 2022
Compared to June 30, 2021:
For the Six Months Ended
 June 30, 2022
Compared to June 30, 2021:
For the Three Months Ended
June 30, 2023
Compared to June 30, 2022:
For the Six Months Ended
 June 30, 2023
Compared to June 30, 2022:
Increase (Decrease) Due to Changes inIncrease (Decrease) Due to Changes inIncrease (Decrease) Due to Changes inIncrease (Decrease) Due to Changes in
(in thousands)(in thousands)VolumeRate
Net (1)
VolumeRate
Net (1)
(in thousands)VolumeRate
Net (1)
VolumeRate
Net (1)
Interest-earning assetsInterest-earning assetsInterest-earning assets
Commercial PPP Loans$(2,519)$(2,330)$(4,849)$(14,193)$6,770 $(7,423)
All other commercial-based loans21,272 (1,529)19,743 50,668 (13,546)37,122 
Retail-based loans3,161 (200)2,961 6,071 (465)5,606 
Total loans (2)
Total loans (2)
21,914 (4,059)17,855 42,546 (7,241)35,305 
Total loans (2)
$24,153 $6,995 $31,148 $35,730 $23,270 $59,000 
Investment securities:Investment securities:Investment securities:
TaxableTaxable3,104 (29)3,075 6,303 85 6,388 Taxable(1,054)52 (1,002)(1,598)430 (1,168)
Tax-exempt (2)
Tax-exempt (2)
247 10 257 481 32 513 
Tax-exempt (2)
414 556 970 1,056 1,168 2,224 
Total investment securitiesTotal investment securities3,351 (19)3,332 6,784 117 6,901 Total investment securities(640)608 (32)(542)1,598 1,056 
Other interest-earning assetsOther interest-earning assets(71)245 174 25 311 336 Other interest-earning assets(57)1,624 1,567 171 2,115 2,286 
Total non-loan earning assets Total non-loan earning assets3,280 226 3,506 6,809 428 7,237  Total non-loan earning assets(697)2,232 1,535 (371)3,713 3,342 
Total interest-earning assetsTotal interest-earning assets$25,194 $(3,833)$21,361 $49,355 $(6,813)$42,542 Total interest-earning assets$23,456 $9,227 $32,683 $35,359 $26,983 $62,342 
Interest-bearing liabilitiesInterest-bearing liabilitiesInterest-bearing liabilities
SavingsSavings$51 $91 $142 $99 $68 $167 Savings$$2,266 $2,268 $14 $4,514 $4,528 
Interest-bearing demandInterest-bearing demand288 (160)128 611 (541)70 Interest-bearing demand(103)2,415 2,312 (145)5,095 4,950 
MMAMMA107 289 396 242 354 596 MMA179 11,322 11,501 241 22,127 22,368 
Core time depositsCore time deposits323 (655)(332)770 (1,473)(703)Core time deposits171 4,619 4,790 184 6,791 6,975 
Total interest-bearing core depositsTotal interest-bearing core deposits769 (435)334 1,722 (1,592)130 Total interest-bearing core deposits249 20,622 20,871 294 38,527 38,821 
Brokered depositsBrokered deposits409 (766)(357)769 (1,652)(883)Brokered deposits420 5,639 6,059 546 10,308 10,854 
Total interest-bearing depositsTotal interest-bearing deposits1,178 (1,201)(23)2,491 (3,244)(753)Total interest-bearing deposits669 26,261 26,930 840 48,835 49,675 
Wholesale fundingWholesale funding1,628 101 1,729 3,202 145 3,347 Wholesale funding674 972 1,646 3,790 1,643 5,433 
Total interest-bearing liabilitiesTotal interest-bearing liabilities2,806 (1,100)1,706 5,693 (3,099)2,594 Total interest-bearing liabilities1,343 27,233 28,576 4,630 50,478 55,108 
Net interest incomeNet interest income$22,388 $(2,733)$19,655 $43,662 $(3,714)$39,948 Net interest income$22,113 $(18,006)$4,107 $30,729 $(23,495)$7,234 
(1)The change in interest due to both rate and volume has been allocated in proportion to the relationship of dollar amountsamount of change in each.
(2)The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 21% and adjusted for the disallowance of interest expense.


The Federal Reserve raised short-term interest rates 25a total of 425 bps in Marchduring 2022, followed byincreasing the Federal Funds rate to a 50 bps increase in May 2022 and arange of 4.25% to 4.50% as of December 31, 2022. Additional increases totaling 75 bps increasewere made in the first half of 2023, resulting in a Federal Funds range of 5.00% to 5.25% as of June 2022, for a total increase in short-term interest rates of 150 bps since year-end 2021. Prior to this, short-term interest rates remained steady since March 2020.30, 2023.
Tax-equivalent net interest income was $109.6$117 million for the first six months June 30, 2023, an increase of 2022, comprised of net interest income of $108.9$7 million ($39.7 million or 57% higher than(7%) over the first six months of 2021), and a $0.8 million tax-equivalent adjustment.ended June 30, 2022. The $39.9$7 million increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $43.7$31 million to net interest income, mostly from interest-earning asset volumes added with the MackinacCharter acquisition and County acquisitions, as well as solid loan growth and strategic investment purchases)growth) and net unfavorable rates (which decreased net interest income $3.7$23 million from competitive pricing pressurehigher deposit costs and the lag in repricing the loan portfolio to current market interest rates).
Average interest-earning assets increased to $6.6$7.7 billion, up $2.5$1.0 billion (62%(15%) over the 2021 comparable 2022 period, primarily due to the acquisitionstiming of Mackinac and County (in September 2021 and December 2021, respectively).the acquisition of Charter. Between the comparable first halfsix-month periods, average loans increased $1.9$1.5 billion (67%(31%), mostly due to timing of the Mackinac and County acquisitions, whichCharter acquisition (which added loans of $0.9 billion$827 million at acquisition) and $1.0 billion, respectively, at acquisition. In addition, average loans reflected strong organic loan growth and the repurchase of previously participated agricultural loans, which more than offset the reduction in PPP loans from continued loan forgiveness.throughout 2022. Average investment securities increased $1.0 billiondecreased $287 million between the comparable first halfsix-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 $0.4 billion with the additional assets added with the 2021 acquisitions, more than offset by$150 million, mostly due to lower cash mostly from the re-investment of excess cash liquidity noted above.cash. As a result, the mix of average interest-earning assets shifted to 72%81% loans, 24%17% investments and 4%2% other interest-earning assets (mostly cash) for the first half 2022,of 2023, compared to 69%72%, 13%24% and 18%4%, respectively, for the first half 2021.
36


of 2022.
Average interest-bearing liabilities were $4.6$5.3 billion for the first half 2022,of 2023, an increase of $1.8 billion (67%$747 million (16%) over the first half 2021,of 2022, primarily due to the acquisitionstiming of Mackinac and County.the acquisition of Charter. Average interest-bearing core deposits increased $1.5 billion$404 million and average brokered deposits increased $156$162 million between the comparable first halfsix-month periods, largely duereflecting the impact of the Charter acquisition and brokered funding to support the Mackinac and County acquisitions.strong loan growth in 2022. Other interest-bearing liabilities grew $167increased $181 million between the comparable first halfsix-month periods, partly due to the private placement of $100 million in fixed-to-floating rate subordinated notes in July 2021, and partly due to wholesale funding acquired with Charter and partly due to FHLB borrowings to support the Mackinac and County acquisitions.strong loan growth in 2022. The mix of average interest-bearing liabilities was 86%81% core deposits, 10%11% brokered deposits and 4% other8% wholesale funding for the first half 2022,of 2023, compared to 88%86%, 10%, and 2%4%, respectively, for the first half 2021.of 2022.
Between the comparable first half periods, the
37


The interest rate spread decreased 8 bps.89 bps between the comparable six-month periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate environment. The first half 2022 interest-earning asset yield declined 14increased 115 bps to 3.54%, reflecting4.69% for the decline in the average yieldfirst six months of loans and investment securities, as well as2023, due to the changing mix of interest-earning assets (mostly the reduction in cash due tonoted above), as well as the re-investment of excess cash liquidity noted above).higher interest rate environment. The loan yield declined 47improved 87 bps to 4.36%5.23% between the comparable first halfsix-month periods, largely due to the impactrepricing of the lownew and renewed loans in a rising interest rate environment, through early 2022 and competitive pricing pressures on new, renewed, and variable rate loans, while the yield on investment securities declined 46increased 51 bps to 1.56%,2.07%. The cost of funds increased 204 bps to 2.42% for the first half of 2023, also attributable toreflecting the lowrising interest rate environment, through early 2022, as well asa migration of customer deposits into higher rate deposit products, and a shift in the strategic re-investmentmix of cash into lower yielding U.S. Treasury securities. The 2022 cost of funds declined 6 bps to 0.38%, 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 1increased 62 bps, mostly due mostly to the reducedhigher value in the lowrising interest rate environment, though offset partly by the 52% increase in average net free funds (largely from higher average noninterest-bearing demand deposits and stockholders’ equity) between the first half periods.environment. As a result, the tax-equivalent net interest margin was 3.29%3.02% for the first half 2022,of 2023, down 927 bps compared to 3.38%3.29% for the first half 2021.of 2022.
Tax-equivalent interest income was $118.2$181 million for the first half 2022,of 2023, up $42.5$62 million from first half 2021,comparable period of 2022, comprised of $49.4$35 million higher volumes partly offset by lowerand $27 million higher average rates.rates (mostly in the loan portfolio). Interest income on loans increased $35.3$59 million over the first half 2021,of 2022, mostly due to higher average balances from the MackinacCharter acquisition and County acquisitions, as well as solidstrong organic loan growth. Between the comparable first half periods, interest income on investment securities grew $6.9 million, also attributable to the Mackinac and County acquisitions, as well as the re-investment of excess cash liquidity (noted above). Interest expense increased to $8.6$64 million for the first half 2022,of 2023, up $2.6$55 million compared to the first half 2021, comprised of $5.7 million2022, mostly due to a much higher volumes, partly offset by $3.1 million from lower overall cost of funds. Interest expense on deposits decreased $0.8increased $50 million (14%) from first half 2021 given higher average interest-bearing deposit balances at a lower cost as product 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. Interest expense on other interest-bearing liabilities increased between the comparable first halfsix-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.rapidly rising interest rate environment.
Provision for Credit Losses
The provision for credit losses was $3.5 million for the six months ended June 30, 2023 (comprised of $1.2 million related to the ACL-Loans and $2.3 million for the ACL on securities AFS), compared to $1.1 million for the six months ended June 30, 2022 (comprised of $0.9 million related to the ACL-Loans and $0.2 millionthe remainder for the ACL on unfunded commitments), compared. The 2023 provision for credit losses on loans was attributable to $0.5 milliongrowth and changes in the underlying loan portfolio, while the provision for the six months ended June 30, 2021 (all relatedcredit losses on securities AFS was due to the ACL-Loans).expected loss on our Signature Bank subordinated 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.”

37
38



Noninterest Income
Table 4: Noninterest Income
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
(in thousands)(in thousands)20222021$ Change% Change20222021$ Change% Change(in thousands)20232022$ Change% Change20232022$ Change% Change
Trust services fee incomeTrust services fee income$2,004 $1,906 $98 %$4,015 $3,681 $334 %Trust services fee income$2,148 $2,004 $144 %$4,181 $4,015 $166 %
Brokerage fee incomeBrokerage fee income2,988 2,991 (3)— 6,676 5,784 892 15 Brokerage fee income3,722 2,988 734 25 7,201 6,676 525 
Wealth management fee incomeWealth management fee income5,870 4,992 878 18 11,382 10,691 691 
Mortgage income, netMortgage income, net2,205 5,599 (3,394)(61)5,458 12,829 (7,371)(57)Mortgage income, net1,822 2,205 (383)(17)3,288 5,458 (2,170)(40)
Service charges on deposit accountsService charges on deposit accounts1,536 1,136 400 35 3,013 2,227 786 35 Service charges on deposit accounts1,529 1,536 (7)— 3,009 3,013 (4)— 
Card interchange incomeCard interchange income2,950 2,266 684 30 5,531 4,193 1,338 32 Card interchange income3,331 2,950 381 13 6,364 5,531 833 15 
BOLI incomeBOLI income768 559 209 37 1,701 1,086 615 57 BOLI income1,073 768 305 40 2,273 1,701 572 34 
Deferred compensation plan asset market valuationsDeferred compensation plan asset market valuations499 (1,316)1,815 N/M1,445 (1,783)3,228 N/M
LSR income, netLSR income, net(143)— (143)N/M(525)— (525)N/MLSR income, net1,135 (143)1,278 N/M2,290 (525)2,815 N/M
Other incomeOther income220 1,529 (1,309)(86)1,289 2,601 (1,312)(50)Other income1,900 1,536 364 24 3,732 3,072 660 21 
Noninterest income without
net gains
12,528 15,986 (3,458)(22)27,158 32,401 (5,243)(16)
Noninterest income without
net gains (losses)
Noninterest income without
net gains (losses)
17,159 12,528 4,631 37 33,783 27,158 6,625 24 
Asset gains (losses), netAsset gains (losses), net1,603 4,192 (2,589)(62)2,916 4,903 (1,987)(41)Asset gains (losses), net(318)1,603 (1,921)N/M(38,786)2,916 (41,702)N/M
Total noninterest incomeTotal noninterest income$14,131 $20,178 $(6,047)(30)%$30,074 $37,304 $(7,230)(19)%Total noninterest income$16,841 $14,131 $2,710 19 %$(5,003)$30,074 $(35,077)(117)%
Trust services fee income & Brokerage fee income combined$4,992 $4,897 $95 %$10,691 $9,465 $1,226 13 %
N/M means not meaningful.
Noninterest income was $30.1a negative $5.0 million for the first six months of 2023, an unfavorable change of $35.1 million compared to the first six months of 2022, primarily due to the balance sheet repositioning. Excluding net asset gains (losses), noninterest income for first half 2022,2023 was $33.8 million, a decrease of $7.2$6.6 million (19%(24%) compared to $37.3 million for first half 2021, with lower net mortgage income and other income partly offset by growth in most other noninterest income categories.
Trust services fee income and brokerage fee income combined were $10.7 million, up $1.2 million (13%)increase over first half 2021, consistent with2022.
Wealth management fee income was $11.4 million, up $0.7 million (6%) from the first six months of 2022, including favorable market-related changes, as well as growth in accounts and assets under management, though tempered by unfavorable market-related declines.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 $5.5$3.3 million, decreased $7.4$2.2 million (57%(40%) between the comparable six-month periods, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales. Gains on sales and capitalized gains combined decreased $8.1 million and the fair value of the mortgage derivatives decreased $0.4 million, while MSR impairment was $1.2 million favorable on slower paydown activity. 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 $0.8 million to $3.0 million for the six months ended June 30, 2022, mostly due to the larger deposit base from the 2021 acquisitions.
Card interchange income grew $1.3$0.8 million (32%(15%) between the comparable six-month periods due to higher volume and activity.
BOLI income was up $0.6 million between the comparable six-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 ofincreased $2.8 million between the related LSR amortization. Nicolet is not adding new loanscomparable first half periods mostly due to this servicing portfolio and repurchased approximately $100 million of these previously participated loans during second quarter 2022; thus, thelower LSR amortization is currently outpacingfrom 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 $1.3$3.7 million for the six months ended June 30, 20222023 was down $1.3up $0.7 million from the comparable 20212022 period, largely due to unfavorable changes inbroker fees and card incentive income.
Net asset losses of $38.8 million for the fair valuefirst six months of nonqualified deferred compensation plan assets from the recent market declines, partly offset by new revenue from crop insurance sales (related2023 were primarily attributable to the County acquisition). See also “Noninterest Expense” for discussionlosses on the offsetting fair value changesale of approximately $500 million (par value) U.S. Treasury held to the nonqualified deferred compensation plan liabilities.
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Netmaturity securities executed in early March as part of a balance sheet repositioning, while net asset gains of $2.9 million for the first halfsix months of 2022 were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations), while net asset gains of $4.9 million for first half 2021 were primarily attributable to favorable fair value marks on equity securities..

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Noninterest Expense
Table 5: Noninterest Expense
Three Months Ended June 30,Six Months Ended June 30,Three Months Ended June 30,Six Months Ended June 30,
($ in thousands)($ in thousands)20222021Change% Change20222021Change% Change($ in thousands)20232022Change% Change20232022Change% Change
PersonnelPersonnel$19,681 $17,084 $2,597 15 %$40,872 $32,200 $8,672 27 %Personnel$23,900 $19,681 $4,219 21 %$48,228 $40,872 $7,356 18 %
Occupancy, equipment and officeOccupancy, equipment and office6,891 4,053 2,838 70 13,835 8,190 5,645 69 Occupancy, equipment and office8,845 6,891 1,954 28 17,628 13,835 3,793 27 
Business development and marketingBusiness development and marketing2,057 1,210 847 70 3,888 2,199 1,689 77 Business development and marketing1,946 2,057 (111)(5)4,067 3,888 179 
Data processingData processing3,596 2,811 785 28 6,983 5,469 1,514 28 Data processing4,218 3,596 622 17 8,206 6,983 1,223 18 
Intangibles amortizationIntangibles amortization1,347 790 557 71 2,771 1,642 1,129 69 Intangibles amortization2,083 1,347 736 55 4,244 2,771 1,473 53 
FDIC assessmentsFDIC assessments480 480 — 960 1,075 (115)(11)FDIC assessments1,009 480 529 110 1,549 960 589 61 
Merger-related expenseMerger-related expense555 656 (101)(15)653 656 (3)Merger-related expense26 555 (529)(95)189 653 (464)(71)
Other expenseOther expense1,931 3,663 (1,732)(47)4,126 5,397 (1,271)(24)Other expense2,930 1,931 999 52 5,721 4,126 1,595 39 
Total noninterest expenseTotal noninterest expense$36,538 $30,747 $5,791 19 %$74,088 $56,828 $17,260 30 %Total noninterest expense$44,957 $36,538 $8,419 23 %$89,832 $74,088 $15,744 21 %
Non-personnel expensesNon-personnel expenses$16,857 $13,663 $3,194 23 %$33,216 $24,628 $8,588 35 %Non-personnel expenses$21,057 $16,857 $4,200 25 %$41,604 $33,216 $8,388 25 %
Average full-time equivalent (“FTE”) employeesAverage full-time equivalent (“FTE”) employees850 570 280 49 %842 564 278 49 %Average full-time equivalent (“FTE”) employees943 850 93 11 %943 842 101 12 %

Noninterest expense was $74.1$89.8 million, an increase of $17.3$15.7 million (30%(21%) over the first half 2021.six months of 2022. Personnel costs increased $8.7$7.4 million (27%(18%), while non-personnel expenses combined increased $8.6$8.4 million (35%(25%) compared to the first half 2021.six months of 2022.
Personnel expense was $40.9$48.2 million for the six months ended June 30, 2022,2023, an increase of $8.7$7.4 million from the comparable period in 2021.2022. Salary expense increased $11.0$6.1 million (60%(18%) over the first half 2021,six months of 2022, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up 49%12%, mostly due to the 2021 acquisitions) as well asCharter acquisition), investments in our wealth team, and merit increases between the years. Salary expense also reflected increases in hourly pay and base salaries effective atyears, partly offset by lower incentive compensation commensurate with the end of March 2022, which benefited 67% of our employee base.lower current period earnings. Fringe benefits increased $1.6$1.3 million (35%(20%) over the first half 2021, mostly due tosix months of 2022, reflecting higher overall health care expenses as well as the larger employee base. PersonnelSalary expense was also impacted by the change in the fair value of nonqualified deferred compensation plan liabilities from the recent market declines.improvements. 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 $13.8$17.6 million for the first half 2022,six months of 2023, up $5.6$3.8 million (69%(27%) compared to the first half 2021,six 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 $3.9$4.1 million, up $1.7$0.2 million (77%(5%), between the comparable six-monthfirst half periods, largely dueattributable to the higher traveltiming and entertainment expenses, as well as additionalextent of marketing donations, promotions, and media to support our expanded branch network and community base.
Data processing expense was $7.0$8.2 million, up $1.5$1.2 million (28%(18%) between the comparable six-month periods, mostly due to volume-based increases in core and card processing charges, includingpartly from the larger operating base following the Mackinac and County acquisitions.Charter acquisition.
Intangibles amortization increased $1.1$1.5 million between the comparable first half periods due to higher amortization from the intangibles added with the 2021recent acquisitions.
Other expense was $4.1$5.7 million, down $1.3up $1.6 million (24%(39%) between the comparable six-month periods, mostly due to a $2.1 million contract termination charge incurred in 2021 and lowerhigher professional fees (related to the 2021 subordinated notes issuance), partly offset by costs to carry closed bank branches and overall higher expenses related to our larger operating base.fees.

Income Taxes
Income tax expense was $3.7 million (effective tax rate of 21.2%) for the first six months of 2023, compared to expense of $15.7 million (effective tax rate of 24.5%) for first half 2022, compared to $12.7 million (effective tax rate of 25.7%) for the comparable period of 2021.2022. The change in income tax expense was largely due to the lower pretax earnings between the years.
3940



Income Statement Analysis – Three Months Ended June 30, 20222023 versus Three Months Ended June 30, 20212022
Net income was $22.6 million for the three months ended June 30, 2023, compared to $24.0 million for the three months ended June 30, 2022, compared to $18.3 million for the three months ended June 30, 2021.2022. Earnings per diluted common share was $1.51 for second quarter 2023, compared to $1.73 for second quarter 2022, compared to $1.77 for second quarter 2021.2022.
Tax-equivalent net interest income was $55.5$59.6 million for second quarter 2022, comprised2023, an increase of net interest income of $55.1$4.1 million ($19.5 million or 55% over second quarter 2021), and a tax-equivalent adjustment of $0.4 million. Tax-equivalent interest2022. Interest income increased $21.4$32.7 million between theover second quarter periods,2022, with $25.2$23.5 million from stronger volumes (led by average loans which grew $2.0$1.4 billion or 69%29% over second quarter 2021,2022, mostly due to the acquisitions of MackinacCharter acquisition) and County), partly offset by $3.8$9.2 million from lowerhigher yields. Average investment securities increased $1.0 billiondecreased $505 million between the comparable second quarter periods, partlymostly 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 fourthbalance sheet repositioning actions in first quarter 2021.2023. Interest expense increased $1.7$28.6 million from second quarter 2021, with the impact of the2022, mostly due to $27.2 million higher average deposit balances partly offset a lower overall cost on deposits.funding costs. For additional information regarding average balances, net interest income and net interest margin, see “INCOME STATEMENT ANALYSIS — Net Interest Income.”
The net interest margin for second quarter 20222023 was 3.34%3.14%, down from 3.45%compared to 3.34% for second quarter 2021,2022, influenced by timing of recentthe rising interest rate increasesenvironment and the changing balance sheet mix. The mix of average interest-earning assets shifted from 74% loans, 24% investments and 2% other interest-earning assets (mostly cash) for second quarter 2022, to 83%, 14% and 3%, respectively, for second quarter 2023. The yield on interest-earning assets of 3.61% declined 114.90% increased 129 bps from second quarter 2021.2022. The yield on loans was 4.34%5.35%, 51101 bps lowerhigher than second quarter 2021,2022, largely due to the impact of the lowrising interest rate environment throughout 2021 and competitive pricing pressures on new, renewed, and variable loans, as well as the continued reduction in PPP loans due to loan forgiveness.environment. The cost of funds of 0.40% declined 12.54% increased 214 bps between the comparable quarters, mostlyalso due to lower rates on core interest-bearing deposits and brokered deposits.the rising interest rates.
Provision for credit losses was $0.5 million for second quarter 2023 (all related to the ACL-Loans), compared to $0.8 million provision for credit losses for second quarter 2022 (comprised of $0.6 million related to the ACL-Loans, and $0.2 million for the ACL on unfunded commitments), compared to no provision for credit losses for second quarter 2021. The 2022 provision for credit losses was attributable to strong loan growth, solid asset quality trends, and negligible net charge-offs, while the 2021 provision for credit losses was due to improving asset quality trends and minimal net charge-offs.. For additional information regarding the allowance for credit losses-loans and asset quality, see “BALANCE SHEET ANALYSIS — Allowance for Credit Losses - Loans” and “BALANCE SHEET ANALYSIS — Nonperforming Assets.”
Noninterest income was $14.1$16.8 million for second quarter 2022, a decrease2023, an increase of $6.0$2.7 million (30%(19%) from second quarter 2021. Net mortgage income of $2.2 million for second quarter 2022 was down $3.4 million (61%) from second quarter 2021, primarily due to the rising interest rate environment reducing secondary market volumes and the related gains on sales. Trust services2022. Wealth management fee income and brokerage fee income combined was up $0.1grew $0.9 million (2%(18%), consistent with theincluding favorable market-related changes, as well as growth in accounts and assets under management, though tempered by unfavorable market-related declines. Service charges on deposit accounts grew $0.4management. Market valuations improved $1.8 million to $1.5 million forbetween the comparable second quarter 2022,periods from favorable fair value changes on the deferred compensation plan assets. LSR income increased $1.3 million between the comparable second quarter periods mostly due to the larger deposit baselower LSR amortization from the 2021 acquisitions. Card interchange income grew $0.7much slower prepayments speeds in the higher interest rate environment. Net asset losses of $0.3 million (30%) due to higher volume and activity. Other income declined $1.3 million fromin second quarter 2021, largely due2023 were primarily attributable to unfavorable changes in the fair value of nonqualified deferred compensation plan assets from the recent market declines. Netmarks on equity securities, while net asset gains of $1.6 million in second quarter 2022 were were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations), while net asset gains of $4.2 million in second quarter 2021 were primarily attributable to favorable fair value marks on equity securities.. For additional information regarding noninterest income, see “INCOME STATEMENT ANALYSIS — Noninterest Income.”
Noninterest expense was $36.5$45.0 million for second quarter 2022,2023, an increase of $5.8$8.4 million (19%(23%) from second quarter 2021,2022, including a $2.6$4.2 million increase in personnel expense and a $3.2$4.2 million increase in non-personnel expenses. The increase in personnel was due to higher salaries and fringe benefits from the larger employee base partly offset by(with average full-time equivalent employees up 11%), investments in our wealth team, and merit increases between the change in fair value of nonqualified deferred compensation plan liabilities from recent market declines.years. Occupancy, equipment, and office of $6.9$8.8 million was up $2.8$2.0 million (70%(28%), largely due to the expanded branch network with the Mackinac and CountyCharter acquisitions as well as additional expense for software and technology solutions. Business development and marketing of $2.1 million increased $0.8 million over second quarter 2021, largely due to higher travel and entertainment expenses, as well as additional marketing donations, promotions, and media to support our expanded branch network and community base. Data processing expense was $3.6$4.2 million, up $0.8$0.6 million (28%(17%) between the comparable second quarter periods, mostly due to volume-based increases in core and card processing charges, including the larger operating base following the Mackinac and County acquisitions.Charter acquisition. Other expense was $1.9$2.9 million, down $1.7an increase of $1.0 million between the comparable second quarter periods, mostlyprimarily due to a $2.1 million contract termination charge incurred in second quarter 2021 and lowerhigher professional fees (related to the 2021 subordinated notes issuance), partly offset by costs to carry closed bank branches and overall higher expenses related to our larger operating base. For additional information regarding noninterest expense, see “INCOME STATEMENT ANALYSIS — Noninterest Expense.”
Income tax expense for second quarter 2022 was $7.9 million, with an effective tax rate of 24.9%, compared to income tax expense of $6.7 million and an effective tax rate of 26.9% for second quarter 2021.
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BALANCE SHEET ANALYSIS
At June 30, 2022,2023, period end assets were $7.4$8.5 billion, a decrease of $0.3 billion (4%$281 million (3%) from December 31, 2021, on lower cash and cash equivalents from the decline in deposits and stock repurchase activity, as well as $200 million of assets related2022, mostly due to the sale of the Birmingham branch in January 2022.investment securities as part of our balance sheet repositioning, partly offset by higher cash balances. Total loans increased $357$42 million from December 31, 2021,2022, with solid organic loan growth in agricultural, commercial and industrial, and residential first mortgage loans partly offset by lower commercial-based loans from the sale of specific nonaccrual loans as well as the repurchasepayoff of approximately $100 million previously participated agricultural loans.two larger loan relationships. Total deposits of $6.3$7.2 billion at June 30, 2023, were minimally changed from December 31, 2022, with growth in customer and brokered time deposits partly offset by lower transaction account balances. Total borrowings decreased $180$295 million from December 31, 2021, due to2022 in FHLB advances (as part of the repricing of acquired deposits to current market rates and a reduction in retail deposits.balance sheet repositioning). Total stockholders’ equity was $839$978 million at June 30, 2022, a decrease2023, an increase of $53$5 million since December 31, 2021, mostly due to stock repurchase activity and unfavorable changes in the fair value of securities AFS, partly offset by current year earnings.2022.
Compared to June 30, 2021,2022, assets were $7.4increased $1.1 billion up $2.8 billion (61%(15%) from June 30, 2021,, largely due to the acquisitionsacquisition of MackinacCharter and County in second half 2021.strong loan growth, partly offset by lower investment securities related to the balance sheet repositioning. Total loans increased $2.2$1.2 billion and total deposits increased $2.3 billion$912 million from June 30, 2021,2022, also largely due to the acquisitionsacquisition of Mackinac and County.Charter. Stockholders’ equity increased $280$138 million from June 30, 2021,2022, primarily due to common stock issued in the Mackinac and County acquisitionsCharter acquisition and 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. TheNicolet actively utilizes government loan portfolio is widely diversifiedprograms such as those provided by typesthe 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
June 30, 2022December 31, 2021June 30, 2021June 30, 2023December 31, 2022June 30, 2022
(in thousands)(in thousands)Amount% of TotalAmount% of TotalAmount% of Total(in thousands)Amount% of TotalAmount% of TotalAmount% of Total
Commercial & industrialCommercial & industrial$1,118,360 23 %$1,042,256 23 %$886,456 31 %Commercial & industrial$1,318,567 21 %$1,304,819 21 %$1,118,360 23 %
Owner-occupied CREOwner-occupied CRE790,680 16 787,189 17 520,299 18 Owner-occupied CRE969,202 16 954,599 15 790,680 16 
AgriculturalAgricultural967,192 19 794,728 17 110,664 Agricultural1,068,999 17 1,088,607 18 967,192 19 
CommercialCommercial2,876,232 58 2,624,173 57 1,517,419 53 Commercial3,356,768 54 3,348,025 54 2,876,232 58 
CRE investmentCRE investment818,562 16 818,061 18 505,588 18 CRE investment1,108,692 18 1,149,949 19 818,562 16 
Construction & land developmentConstruction & land development228,575 213,035 140,588 Construction & land development337,389 318,600 228,575 
Commercial real estateCommercial real estate1,047,137 21 1,031,096 23 646,176 23 Commercial real estate1,446,081 23 1,468,549 24 1,047,137 21 
Commercial-based loansCommercial-based loans3,923,369 79 3,655,269 80 2,163,595 76 Commercial-based loans4,802,849 77 4,816,574 78 3,923,369 79 
Residential constructionResidential construction69,423 70,353 46,646 Residential construction108,095 114,392 69,423 
Residential first mortgageResidential first mortgage785,591 16 713,983 15 471,354 17 Residential first mortgage1,072,609 17 1,016,935 16 785,591 16 
Residential junior mortgageResidential junior mortgage148,732 131,424 104,218 Residential junior mortgage184,873 177,332 148,732 
Residential real estateResidential real estate1,003,746 20 915,760 19 622,218 23 Residential real estate1,365,577 22 1,308,659 21 1,003,746 20 
Retail & otherRetail & other51,539 50,807 34,518 Retail & other54,350 55,266 51,539 
Retail-based loansRetail-based loans1,055,285 21 966,567 20 656,736 24 Retail-based loans1,419,927 23 1,363,925 22 1,055,285 21 
Total loansTotal loans$4,978,654 100 %$4,621,836 100 %$2,820,331 100 %Total loans$6,222,776 100 %$6,180,499 100 %$4,978,654 100 %
As noted in Table 6 above, the loan portfolio at June 30, 2022,2023, was 79%77% commercial-based and 21%23% 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
42


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 June 30, 2023, increased $42 million from December 31, 2022, with growth in residential mortgage loans partly offset by lower commercial-based loans from the sale of specific nonaccrual loans (net book value of approximately $13 million) as well as the payoff of two larger loan relationships. At June 30, 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 18% 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 June 30, 2023.
Commercial Loan Portfolio by Industry Type (based on NAICS codes)
Commercial by NAICS_06.30.2023.jpg
The following table presents the maturity distribution of the loan portfolio.
Table 7: Loan Maturity Distribution
As of June 30, 2023Loan Maturity
(in thousands)One Year
or Less
After One Year
to Five Years
After Five Years to Fifteen YearsAfter Fifteen YearsTotal
Commercial & industrial$464,614 $652,126 $190,494 $11,333 $1,318,567 
Owner-occupied CRE74,675 657,889 203,445 33,193 969,202 
Agricultural330,163 336,515 361,578 40,743 1,068,999 
CRE investment131,458 724,139 226,416 26,679 1,108,692 
Construction & land development32,270 187,928 91,499 25,692 337,389 
Residential construction *28,627 8,088 4,014 67,366 108,095 
Residential first mortgage20,151 260,733 193,751 597,974 1,072,609 
Residential junior mortgage9,681 20,068 33,646 121,478 184,873 
Retail & other28,946 13,454 7,699 4,251 54,350 
   Total loans$1,120,585 $2,860,940 $1,312,542 $928,709 $6,222,776 
Percent by maturity distribution18 %46 %21 %15 %100 %
Total fixed rate loans$452,373 $2,692,047 $929,155 $322,487 $4,396,062 
Total floating rate loans$668,212 $168,893 $383,387 $606,222 $1,826,714 
41
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At June 30, 2022,
As of December 31, 2022Loan Maturity
(in thousands)One Year
or Less
After One Year
to Five Years
After Five Years to Fifteen YearsAfter Fifteen YearsTotal
Commercial & industrial$433,319 $660,560 $197,352 $13,588 $1,304,819 
Owner-occupied CRE78,759 639,093 208,719 28,028 954,599 
Agricultural350,752 328,495 367,913 41,447 1,088,607 
CRE investment129,770 737,869 250,256 32,054 1,149,949 
Construction & land development64,169 131,889 92,379 30,163 318,600 
Residential construction *41,049 6,922 2,091 64,330 114,392 
Residential first mortgage22,985 263,810 202,514 527,626 1,016,935 
Residential junior mortgage6,814 19,941 33,201 117,376 177,332 
Retail & other27,814 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 distribution19 %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 were $5.0 billion, $357 million higher than December 31, 2021. The increase in loans was duewith a loan maturity after five years represent a construction to strong growth in mostpermanent loan categories, including commercial loans up $276 million (11%), primarily agricultural and commercial and industrial loans, partly offset by continued reductions in PPP loans from loan forgiveness (down $24 million). The growth in commercial loans also included the repurchase of approximately $100 million previously participated agricultural loans. Excluding the repurchased agricultural loans, the organic commercial loan growth was $176 million (7%) from December 31, 2021. Commercial and industrial loans continue to be the largest segment of Nicolet’s portfolio and represented 23% of the total portfolio at June 30, 2022.
Residential real estate loans of $1.0 billion grew $88 million from year-end 2021, primarily in ARM products, to represent 20% of total loans at June 30, 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 slightly ($1 million) from year-end 2021, representing approximately 1% of the total loan portfolio, and include predominantly short-term and other personal installment loans not secured by real estate.product.

Allowance for Credit Losses - Loans
In addition toFor 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. ManagementSecond, 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 ofat 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 June 30, 2022,2023, the ACL-Loans was $63 million (representing 1.01% of period end loans), minimally changed from $62 million (or 1.00% of period end loans) at December 31, 2022 and up from $51 million (representing(or 1.02% of period end loans) compared to $50 million at December 31, 2021 and $33 million at June 30, 2021. The increase in the ACL-Loans from year-end 2021 is reflective of strong loan growth, solid asset quality trends, and negligible net charge-offs.2022. The increase in the ACL-Loans from June 30, 20212022 was largelymostly 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. The components of the ACL-Loans are detailed further in Table 78 below.
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Table 7:8: Allowance for Credit Losses - Loans
Six Months EndedYear EndedSix Months EndedYear Ended
(in thousands)(in thousands)June 30, 2022June 30, 2021December 31, 2021(in thousands)June 30, 2023June 30, 2022December 31, 2022
ACL-Loans:ACL-Loans:ACL-Loans:
Balance at beginning of periodBalance 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 acquiredACL on PCD loans acquired— — 5,159 ACL on PCD loans acquired— — 1,937 
Provision for credit lossesProvision for credit losses900 500 12,500 Provision for credit losses1,200 900 10,950 
Charge-offsCharge-offs(142)(329)(513)Charge-offs(745)(142)(1,033)
RecoveriesRecoveries225 217 353 Recoveries527 225 303 
Net (charge-offs) recoveriesNet (charge-offs) recoveries83 (112)(160)Net (charge-offs) recoveries(218)83 (730)
Balance at end of periodBalance at end of period$50,655 $32,561 $49,672 Balance at end of period$62,811 $50,655 $61,829 
Net loan (charge-offs) recoveries:Net loan (charge-offs) recoveries:Net loan (charge-offs) recoveries:
Commercial & industrialCommercial & industrial$30 $(36)$50 Commercial & industrial$115 $30 $(86)
Owner-occupied CREOwner-occupied CRE(36)— — Owner-occupied CRE— (36)(555)
AgriculturalAgricultural— (48)(48)Agricultural(63)— — 
CRE investmentCRE investment169 (2)(2)CRE investment— 169 169 
Construction & land developmentConstruction & land development— — — Construction & land development— — — 
Residential constructionResidential construction— — — Residential construction— — — 
Residential first mortgageResidential first mortgage12 (93)Residential first mortgage(57)
Residential junior mortgageResidential junior mortgageResidential junior mortgage(96)
Retail & otherRetail & other(86)(41)(71)Retail & other(176)(86)(202)
Total net (charge-offs) recoveriesTotal net (charge-offs) recoveries$83 $(112)$(160)Total net (charge-offs) recoveries$(218)$83 $(730)
Ratios:Ratios:Ratios:
ACL-Loans to total loansACL-Loans to total loans1.02 %1.15 %1.07 %ACL-Loans to total loans1.01 %1.02 %1.00 %
Net charge-offs to average loans, annualizedNet charge-offs to average loans, annualized(0.00)%0.01 %0.01 %Net charge-offs to average loans, annualized0.01 %— %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 identify problem loans early and minimize the risk of 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 alsomacroeconomic challenges. 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 June 30, 2022,2023, nonperforming assets were $42$27 million and represented 0.56%0.32% of total assets, compared to $56$40 million or 0.73%0.46% of total assets at December 31, 2021.2022. The reduction in nonperforming assets was mostly due to the nonaccrual loan sale (as noted under “BALANCE SHEET ANALYSIS – Loans” above).
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 $48$79 million (1.0%(1% of loans) and $53 million (1.1%(1% of loans) at June 30, 20222023 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.
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Table 8:9: Nonperforming Assets
(in thousands)(in thousands)June 30, 2022December 31, 2021June 30, 2021(in thousands)June 30, 2023December 31, 2022June 30, 2022
Nonperforming loans:Nonperforming loans:Nonperforming loans:
Commercial & industrialCommercial & industrial$1,784 $1,908 $1,110 Commercial & industrial$3,157 $3,328 $1,784 
Owner-occupied CREOwner-occupied CRE5,183 4,220 1,625 Owner-occupied CRE6,573 5,647 5,183 
AgriculturalAgricultural21,054 28,367 1,820 Agricultural9,092 20,416 21,054 
CommercialCommercial28,021 34,495 4,555 Commercial18,822 29,391 28,021 
CRE investmentCRE investment3,617 4,119 743 CRE investment2,535 3,832 3,617 
Construction & land developmentConstruction & land development1,044 1,071 326 Construction & land development95 771 1,044 
Commercial real estateCommercial real estate4,661 5,190 1,069 Commercial real estate2,630 4,603 4,661 
Commercial-based loansCommercial-based loans32,682 39,685 5,624 Commercial-based loans21,452 33,994 32,682 
Residential constructionResidential construction— — — Residential construction— — — 
Residential first mortgageResidential first mortgage3,580 4,132 1,135 Residential first mortgage3,638 3,780 3,580 
Residential junior mortgageResidential junior mortgage221 243 113 Residential junior mortgage87 224 221 
Residential real estateResidential real estate3,801 4,375 1,248 Residential real estate3,725 4,004 3,801 
Retail & otherRetail & other97 94 60 Retail & other101 82 97 
Retail-based loansRetail-based loans3,898 4,469 1,308 Retail-based loans3,826 4,086 3,898 
Total nonaccrual loansTotal nonaccrual loans36,580 44,154 6,932 Total nonaccrual loans25,278 38,080 36,580 
Accruing loans past due 90 days or moreAccruing loans past due 90 days or more— — — Accruing loans past due 90 days or more— — — 
Total nonperforming loansTotal nonperforming loans$36,580 $44,154 $6,932 Total nonperforming loans$25,278 $38,080 $36,580 
Nonaccrual loans (included above) covered by guaranteesNonaccrual loans (included above) covered by guarantees$4,883 $6,776 $1,201 Nonaccrual loans (included above) covered by guarantees$3,110 $5,459 $4,883 
OREO:OREO:OREO:
Commercial real estate ownedCommercial real estate owned$628 $1,549 $— Commercial real estate owned$520 $628 $628 
Residential real estate owned— 99 — 
Bank property real estate ownedBank property real estate owned4,378 10,307 2,895 Bank property real estate owned958 1,347 4,378 
Total OREOTotal OREO5,006 11,955 2,895 Total OREO1,478 1,975 5,006 
Total nonperforming assetsTotal nonperforming assets$41,586 $56,109 $9,827 Total nonperforming assets$26,756 $40,055 $41,586 
Performing troubled debt restructurings$1,710 $5,443 $3,879 
Ratios:Ratios:Ratios:
Nonperforming loans to total loansNonperforming loans to total loans0.73 %0.96 %0.25 %Nonperforming loans to total loans0.41 %0.62 %0.73 %
Nonperforming assets to total loans plus OREONonperforming assets to total loans plus OREO0.83 %1.21 %0.35 %Nonperforming assets to total loans plus OREO0.43 %0.65 %0.83 %
Nonperforming assets to total assetsNonperforming assets to total assets0.56 %0.73 %0.21 %Nonperforming assets to total assets0.32 %0.46 %0.56 %
ACL-Loans to nonperforming loansACL-Loans to nonperforming loans138 %112 %470 %ACL-Loans to nonperforming loans248 %162 %138 %

Deposits
Deposits represent Nicolet’s largest source of funds. Total depositsfunds, and the strong core deposit base provides a stable funding source. Core deposit balances of $6.3$6.5 billion at June 30, 2022, decreased $1802023 declined $128 million (2%) from December 31, 2021,2022, including a $219 million reduction in core customer deposits and a $39 million increase in brokered deposits. The net decrease in deposits from year-end 2021 was due tolower commercial balances, as well as the repricingseasonal run-off of acquired deposits to current market rates and a reduction in retailmunicipal deposits. Compared to June 30, 2021, total2022, core deposits increased $2.3 billion (60%$656 million (11%), 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
June 30, 2022December 31, 2021June 30, 2021June 30, 2023December 31, 2022June 30, 2022
(in thousands)(in thousands)Amount% of TotalAmount% of TotalAmount% of Total(in thousands)Amount% of TotalAmount% of TotalAmount% of Total
Noninterest-bearing demandNoninterest-bearing demand$2,045,732 33 %$1,975,705 31 %$1,324,994 34 %Noninterest-bearing demand$2,059,939 29 %$2,361,816 33 %$2,045,732 33 %
Money market and interest-bearing demand2,642,510 42 %2,834,824 44 %1,512,753 38 %
Interest-bearing demandInterest-bearing demand1,030,919 14 %1,279,850 18 %1,230,822 20 %
Money marketMoney market1,835,523 26 %1,707,619 24 %1,411,688 22 %
SavingsSavings858,160 13 %803,197 12 %599,461 15 %Savings821,803 11 %931,417 13 %858,160 13 %
TimeTime739,864 12 %852,190 13 %501,814 13 %Time1,450,420 20 %898,219 12 %739,864 12 %
Total depositsTotal deposits$6,286,266 100 %$6,465,916 100 %$3,939,022 100 %Total deposits$7,198,604 100 %$7,178,921 100 %$6,286,266 100 %
Brokered transaction accountsBrokered transaction accounts$265,240 %$234,306 %$34,067 %Brokered transaction accounts$173,107 %$252,829 %$265,240 %
Brokered and listed time depositsBrokered and listed time deposits218,198 %209,857 %216,273 %Brokered and listed time deposits566,405 %339,066 %218,198 %
Total brokered depositsTotal brokered deposits$483,438 %$444,163 %$250,340 %Total brokered deposits$739,512 10 %$591,895 %$483,438 %
Customer transaction accountsCustomer transaction accounts$5,281,162 84 %$5,379,420 83 %$3,403,141 87 %Customer transaction accounts$5,575,077 78 %$6,027,873 84 %$5,281,162 84 %
Customer time depositsCustomer time deposits521,666 %642,333 10 %285,541 %Customer time deposits884,015 12 %559,153 %521,666 %
Total customer deposits (core)Total customer deposits (core)$5,802,828 92 %$6,021,753 93 %$3,688,682 94 %Total customer deposits (core)$6,459,092 90 %$6,587,026 92 %$5,802,828 92 %
Total estimated uninsured deposits were $2.0 billion (representing 28% of total deposits) at June 30, 2023, compared to $2.3 billion (representing 32% of total deposits) at December 31, 2022.
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Lending-Related Commitments
As of June 30, 20222023 and December 31, 2021,2022, Nicolet had the following off-balance sheet lending-related commitments.
Table 10:11: Commitments
(in thousands)(in thousands)June 30, 2022December 31, 2021(in thousands)June 30, 2023December 31, 2022
Commitments to extend creditCommitments to extend credit$1,564,644 $1,433,881 Commitments to extend credit$1,826,995 $1,850,601 
Financial standby letters of creditFinancial standby letters of credit19,100 13,562 Financial standby letters of credit22,777 26,530 
Performance standby letters of creditPerformance standby letters of credit8,049 7,336 Performance standby letters of credit12,824 9,375 
Interest rate lockFor additional disclosures on lending-related commitments, see Note 9, “Commitments and Contingencies” of the Notes to originate residential mortgage loans held for sale (included above in commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale are considered derivative instruments (“mortgage derivatives”) and the notional amounts represented $16 million and $15 million, respectively, at June 30, 2022. In comparison, interest rate lock commitments to originate residential mortgage loans held for sale and forward commitments to sell residential mortgage loans held for sale represented $50 million and $1 million, respectively, at December 31, 2021. The net fair value of these mortgage derivatives combined was a gain of $103,000 at June 30, 2022 compared to a gain of $149,000 at December 31, 2021.Unaudited Consolidated Financial Statements under Part I, Item 1.

Liquidity Management
Liquidity management refers to the ability to ensure that cash isadequate liquid funds are available in a timely and cost-effective manner to meet the current and future cash flow requirementsobligations arising in the daily operations of depositors and borrowers and to meet other commitments as they fall due, includingthe 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 $505 million and $155 million at June 30, 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 availableThe $350 million increase in cash and cash equivalents since year-end 2022 included $48 million net cash provided by operating activities and $581 million net cash provided by investing activities (mostly investment sales from a numberthe balance sheet repositioning), partly offset by $279 million net cash used in financing activities (mostly repayment of basic banking activityFHLB borrowings from the balance sheet repositioning). As of June 30, 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 June 30, 2022,2023, approximately 52%43% 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 regulation. Additional fundingLiquidity sources available to the Company at June 30, 2022, consist of available and unused Federal funds lines, borrowing capacity at the FHLB of $840 million, and borrowing capacity2023, are presented in the brokered deposit market.Table 12 below.
Table 12: Liquidity Sources
(in millions)June 30, 2023
FHLB Borrowing Availability (1)
$581 
Fed Funds Lines155
Fed Discount Window11
Immediate Funding Availability$747 
Unencumbered AFS Securities$525 
Less: AFS Securities retained per policy (2)
(443)
Brokered Capacity1,060 
Guaranteed portion of SBA loans88 
Other funding sources75 
Short-Term Funding Availability (3)
$1,305 
Total Contingent Funding Availability$2,052 
(1) Excludes outstanding FHLB borrowings of $55 million at June 30, 2023.
(2) Excludes $443 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 June 30, 2022,2023, the Parent Company had $47$56 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
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lesser extent, stock option exercises, also represent significant sources of cash flows for the Parent Company.
Cash and cash equivalents at June 30, 2022 and December 31, 2021 were $181 million and $595 million, respectively. The decreaseBank 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 $49 million net cash provided by operating activities (mostly earnings), $212 million net cash used in investing activities (with strong loan growth partly offset by net cash receivedany year will exceed certain thresholds. Management does not believe that regulatory restrictions on dividends from the Birmingham branch sale), and $251 million net cash used in financing activities (mostly to fund deposit outflows and common stock repurchases). Management believesBank will adversely affect its liquidity resources were sufficient as of June 30, 2022 to fund loans, accommodate deposit cycles and trends, andability to meet otherits 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).
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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 boardBoard 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 earlierabove and reflect the changedhigher 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 June 30, 20222023 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
June 30, 2022December 31, 2021June 30, 2023December 31, 2022
200 bps decrease in interest rates200 bps decrease in interest rates(1.3)%(0.3)%200 bps decrease in interest rates(2.1)%(0.7)%
100 bps decrease in interest rates100 bps decrease in interest rates(0.4)%(0.3)%100 bps decrease in interest rates(1.1)%(0.4)%
100 bps increase in interest rates100 bps increase in interest rates— %(0.1)%100 bps increase in interest rates1.1 %— %
200 bps increase in interest rates200 bps increase in interest rates(0.1)%(0.3)%200 bps increase in interest rates2.3 %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 impacthave 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.”
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The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At June 30, 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.
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Table 12:14: Capital
At or for the Six Months EndedAt or for the
Year Ended
At or for the Six Months EndedAt or for the
Year Ended
($ in thousands)($ in thousands)June 30, 2022December 31, 2021($ in thousands)June 30, 2023December 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)$60,697 $61,464 Common stock repurchased during the period (dollars)$1,519 $61,483 
Common stock repurchased during the period (full shares)Common stock repurchased during the period (full shares)661,662 793,064 Common stock repurchased during the period (full shares)26,853 671,662 
Company Risk-Based Capital:Company Risk-Based Capital:Company Risk-Based Capital:
Total risk-based capitalTotal risk-based capital$791,903 $793,410 Total risk-based capital$902,726 $889,763 
Tier 1 risk-based capitalTier 1 risk-based capital597,957 604,199 Tier 1 risk-based capital698,469 684,280 
Common equity Tier 1 capitalCommon equity Tier 1 capital560,433 567,095 Common equity Tier 1 capital660,114 646,341 
Total capital ratioTotal capital ratio13.4 %13.8 %Total capital ratio12.7 %12.3 %
Tier 1 capital ratioTier 1 capital ratio10.1 %10.5 %Tier 1 capital ratio9.8 %9.5 %
Common equity tier 1 capital ratioCommon equity tier 1 capital ratio9.5 %9.9 %Common equity tier 1 capital ratio9.3 %9.0 %
Tier 1 leverage ratioTier 1 leverage ratio8.5 %9.4 %Tier 1 leverage ratio8.8 %8.2 %
Bank Risk-Based Capital:Bank Risk-Based Capital:Bank Risk-Based Capital:
Total risk-based capitalTotal risk-based capital$731,419 $700,869 Total risk-based capital$841,973 $816,951 
Tier 1 risk-based capitalTier 1 risk-based capital690,132 664,688 Tier 1 risk-based capital784,157 764,090 
Common equity Tier 1 capitalCommon equity Tier 1 capital690,132 664,688 Common equity Tier 1 capital784,157 764,090 
Total capital ratioTotal capital ratio12.4 %12.2 %Total capital ratio11.8 %11.3 %
Tier 1 capital ratioTier 1 capital ratio11.7 %11.6 %Tier 1 capital ratio11.0 %10.6 %
Common equity tier 1 capital ratioCommon equity tier 1 capital ratio11.7 %11.6 %Common equity tier 1 capital ratio11.0 %10.6 %
Tier 1 leverage ratioTier 1 leverage ratio9.9 %10.3 %Tier 1 leverage ratio9.9 %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)opportunities, dividends, or repayment of equity-equivalent debt) in light of strategic plans. During first half 2022, $61 million was utilized to repurchase and cancel 661,662 shares of common stock, pursuant to our common stock repurchase program. At June 30, 2022,2023, there remains $48$46 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 consolidatedThe 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 assetsin the financial statements and liabilitiesaccompanying 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. Actualthis information changes, actual results could differ significantly from those estimates. EstimatesNicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are particularly susceptiblehighly 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 changeoccur 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 loans acquired, 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.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 20212022 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 June 30, 2022,2023, from that presented in our 20212022 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, for our interest rate sensitivity position at June 30, 2022.2023.
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ITEM 4. CONTROLS AND PROCEDURES
(a) Disclosure Controls and Procedures. Management, under the supervision, and with the participation, of our principal executive officer and principal financial officer, evaluated our disclosure controls and procedures (as such term is defined in Exchange Act Rule 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.
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(b) Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting (as such term is defined in 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 controlscontrol over financial reporting.


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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
WeThe Company and ourits subsidiaries may be involved from time to time in various routine legal proceedings incidental to our respective businesses. Neither wethe Company nor any of ourits 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
Issuer Purchases of Equity Securities
The following table contains information regarding purchases of Nicolet’s common stock made during the second quarter of 20222023 by or on behalf of the Company or any “affiliated purchaser,” as defined by Rule 10b-18(a)(3) of the Exchange Act.
Total Number of
Shares Purchased (a)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs (b)
(#)($)(#)(#)
Period
April 1 – April 30, 202268,132 $92.38 67,949 
May 1 – May 31, 2022— $— — 
June 1 – June 30, 2022— $— — 
Total68,132 $92.38 67,949 667,000 
Total Number of
Shares Purchased (a)
Average Price
Paid per Share
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans
or Programs
Maximum Number of
Shares that May Yet
Be Purchased Under
the Plans
or Programs (b)
(#)($)(#)(#)
Period
April 1 – April 30, 202321,031 $59.63 12,116 
May 1 – May 31, 202318,430 $57.48 14,737 
June 1 – June 30, 20231,672 $72.36 — 
Total41,133 $59.18 26,853 677,000 
a.During second quarter 2022,2023, the Company withheld 183no common shares for minimum tax withholding settlements on restricted stock.stock, and withheld 14,280 common shares to satisfy the exercise price and tax withholding requirements on stock option exercises. These are not considered “repurchases” and, therefore, do not count against the maximum number of shares that may yet be purchased under the boardBoard of directors’Directors’ authorization.
b.The boardBoard of directorsDirectors approved a common stock repurchase program which authorized, with subsequent modifications, the use of up to $276 million to repurchase outstanding shares of common stock. This common stock repurchase program was last modified on April 19, 2022, and has no expiration date. At June 30, 2022,2023, approximately $48$46 million remained available under this common stock repurchase program, or approximately 667,000677,000 shares of common stock (based upon the closing stock price of $72.34$67.91 on June 30, 2022)2023).
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed herewith:
Exhibit
Number
Description
2.1
31.1
31.2
32.1
32.2
101.INS
The XBRL Instance Document does not appear in the Interactive Date File because its XBRL tags are embedded within the Inline XBRL document (2)(1)
101.SCHInline XBRL Taxonomy Extension Schema Document
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document
101.LABInline XBRL Taxonomy Extension Label Linkbase Document
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
(1) Incorporated by reference to the exhibit of the same number in the Registrant’s Current Report on Form 8-K filed on March 30, 2022.
(2) Includes the following financial information included in the Company'sCompany’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2022,2023, formatted in iXBRL (Inline eXtensible Business Reporting Language): (i) the Consolidated Balance Sheets, (ii) the Consolidated Statements of Income, (iii) the Consolidated Statements of Comprehensive Income (Loss), (iv) the Consolidated Statements of Stockholders’ Equity, (v) the Consolidated Statements of Cash Flows, and (vi) Notes to Unaudited Consolidated Financial Statements.
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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.
August 8, 20224, 2023/s/ Michael E. Daniels
Michael E. Daniels
President and Chief Executive Officer
August 8, 20224, 2023/s/ H. Phillip Moore, Jr.
H. Phillip Moore, Jr.
Chief Financial Officer

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