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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is management’s analysis to assist in the understanding and evaluation of the consolidated financial condition and results of operations of Nicolet. It should be read in conjunction with the consolidated financial statements and footnotes presented elsewhere in this report.

The Company’s financial performance and certain balance sheet line items were impacted by the timing and size of Nicolet’s 2022 and 2021 acquisitions. Nicolet acquired Charter Bankshares, Inc. (“Charter”) on August 26, 2022, County Bancorp, Inc. (“County”) on December 3, 2021, and Mackinac Financial Corporation (“Mackinac”) on September 3, 2021. Certain income statement results, average balances and related ratios for 2022 include partial contributions from Charter, while 2021 results include partial contributions from County and Mackinac, each from the respective acquisition date. Additional information on Nicolet’s recent acquisition activity is included in Note 2, “Acquisitions” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

The detailed financial discussion that follows focuses on 2022 results compared to 2021. For a discussion of 2021 results compared to 2020, see the information under the caption “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, filed with the SEC on February 25, 2022, which information under that caption is incorporated herein by reference. Historical results of operations are not necessarily predictive of future results.

Overview

Economic Outlook

Growth in economic activity and demand for goods and services, combined with labor shortages, supply chain complications and geopolitical matters, have contributed to rising inflation. In response, the Federal Reserve has raised interest rates from a target range of 0.00%-0.25% in early March 2022 to 4.25%-4.50% at the end of December 2022. In addition, the Federal Reserve raised the target range to 4.50%-4.75% in early February 2023, and continues to signal the potential for additional increases in the target range to mitigate the hardships caused by the ongoing Russia-Ukraine conflict, continued supply chain disruptions, and elevated global uncertainty. 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 ongoing 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 in 2023. 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.

2022 Highlights

In 2022, Nicolet delivered on growth, profitability, capital positioning, and sound asset quality management. On August 26, 2022, Nicolet completed its acquisition of Charter for a total purchase price of $137 million, including the issuance of 1.26 million shares of common stock valued at $98 million and the remainder in cash consideration. Charter added total assets of $1.1 billion, loans of $827 million, and deposits of $870 million, at acquisition.

Net income for the year ended December 31, 2022 was $94 million and earnings per diluted common share was $6.56, compared to net income of $61 million and earnings per diluted common share of $5.44 for 2021. Net income reflected non-core items and the related tax effect of each, including merger and integration related expenses, Day 2 credit provision expense required under the CECL model, branch optimization costs, and gains on other assets and investments. For the full year, non-core items negatively impacted diluted earnings per common share $0.34 for 2022 and $1.13 for 2021.

At December 31, 2022, Nicolet had total assets of $8.8 billion, an increase of $1.1 billion (14%) over December 31, 2021, largely due to the acquisition of Charter. Total loans increased $1.6 billion (34%) from December 31, 2021, including the Charter acquisition and the repurchase of approximately $100 million previously participated agriculture loans, as well as strong organic loan growth. Excluding the $827 million of loans acquired with Charter and the repurchased agriculture loans, organic loan growth was 14% from December 31, 2021. Total deposits increased $713 million (11%) from December 31, 2021, also largely due to the acquisition of Charter, while total borrowings increased $325 million, with approximately half acquired with Charter and the remainder related to new FHLB advances. Total stockholders’ equity was $973 million at December 31, 2022, an increase of $81 million since December 31, 2021, mostly due to the common stock issued in the Charter acquisition, as well as solid earnings, offset by unfavorable changes in the fair value of available for sale securities and common stock repurchases executed early in 2022.

Nonperforming assets were $40 million and represented 0.46% of total assets at December 31, 2022, compared to $56 million or 0.73% at year-end 2021, with the decline due to a $6 million improvement in nonaccrual loans and a $10 million reduction in other real estate owned (primarily sales of closed bank branches). The allowance for credit losses-loans increased to $62 million (1.00% of loans), mostly due to the Day 2 allowance increase from the Charter acquisition.

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Nicolet remains well positioned to execute its core strategy of providing shared success to its employees, customers, and shareholders after recording a record year of net income and earnings per share during 2022. The board and management team met several challenges throughout the year, most notably positioning the bank to manage the rapid increase in interest rates as the Federal Reserve aggressively attempted to curb inflationary pressures. The swift change in interest rates in the first half of the year caused a notable change in the market value of Nicolet’s securities portfolio, thus negatively impacting common equity, book values, and certain non-regulatory capital ratios. The additional pressure on common equity balances caused management to pause its share repurchase program for the first time in several years in April 2022. Additionally, while the acquisition of Charter Bankshares was successfully announced, closed, and integrated during 2022, the cash consideration in the transaction coupled with changes in mark-to-market accounting due to rapidly changing interest rates placed additional pressure on Nicolet’s capital. We view this pressure as temporary, as the combination of strong earnings, a stable balance sheet, and more predictable interest rates is expected to cause an increase in our common equity and related metrics and ratios.

In 2023, Nicolet’s board and management team have outlined certain strategic objectives it hopes to achieve, including the continued integration of the Charter acquisition, the cultural assimilation in the wealth management area due to high profile hires in late 2022, and a renewed focus on gathering core deposits. While the financial and physical integration of Charter was completed shortly after closing the merger, the cultural integration will continue well into 2023. As we have experienced with all of our past eight bank acquisitions, melding two cultures takes patience and effort by our entire employee base. While we are encouraged by what we’ve experienced through the first few months since closing, we also understand it takes time for employees and customers in new markets to understand how we operate. Nicolet has quickly made significant investments in our new communities of Eau Claire and Chetek, Wisconsin, and Chaska and Chanhassen, Minnesota, including a new branch in Lake Hallie, Wisconsin, which is expected to open in mid-2023. Similarly, Nicolet hired a highly experienced, well-known, and highly regarded financial advisor to its wealth team in fourth quarter 2022 and assembled a seasoned team of private bankers and wealth professionals in northern Michigan. Those hires have already resulted in several new account openings and added assets under management in a short period. This allows management the opportunity to assess its current product offerings and staffing levels, which will likely evolve during 2023.

The new interest rate environment has placed additional challenges on the banking industry as a whole, which Nicolet is certainly not immune to. We are in an interest rate environment last seen more than 15 years ago. Higher rates have caused our funding costs to increase more quickly than the yield earned from our securities and loan portfolios due to their fixed rate concentration. While we see ourselves as an asset sensitive bank, meaning our net interest income increases in a rising rate environment, we also require the benefit of time for our loan portfolio to price. As a result, we expect our net interest margin to remain under some pressure during the first quarter of 2023, and begin to steadily improve once the Federal Reserve pauses interest rate hikes. Management has also placed a renewed emphasis on core deposit gathering in 2023, as the cost of core deposits is typically lower than wholesale borrowing options. However, several other banks and credit unions are in a similar position, and thus, we expect competition for local deposits will be intense throughout the year. Finally, higher rates have lowered the market value of our securities portfolio, thus lowering our common equity through mark-to-market accounting. While we see this as temporary, it did cause management to take a more conservative approach to managing capital, and thus pause the share buyback program in April 2022. The program remains on pause through early 2023 (beyond a small private purchase transaction), and management expects it to restart at some point during 2023, as common equity levels have rebounded due to strong retained earnings, and a shift in interest rates has improved the unrealized losses on securities available for sale.

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Table 1: Earnings Summary and Selected Financial Data

At and for the years ended December 31,

Results of operations:

Net income attributable to noncontrolling interest — — 347

Net income attributable to Nicolet Bankshares, Inc. $ 94,260 $ 60,652 $ 60,122

Earnings per common share:

Common shares:

Year-End Balances:

Financial Ratios:

Tangible common equity to tangible assets (1) 6.82 7.51 8.31

Reconciliation of Non-GAAP Financial Measures:

Adjusted net income reconciliation: (2)

Adjustments:

Provision expense related to merger 8,000 14,400 —

Branch closure expense — 944 500

Adjusted Diluted earnings per common share (Non-GAAP) $ 6.90 $ 6.57 $ 5.94

Tangible assets:

Tangible common equity:

Tangible average common equity:

(1) The ratios of tangible book value per common share, return on average tangible common equity, and tangible common equity to tangible assets exclude goodwill and other intangibles, net. These non-GAAP financial ratios have been included as they are considered to be critical metrics with which to analyze and evaluate financial condition and capital strength.

(2) The adjusted net income measure and related reconciliation provide information useful to investors in understanding the operating performance and trends of Nicolet and also to aid investors in the comparison of Nicolet’s financial performance to the financial performance of peer banks.

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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, 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.

INCOME STATEMENT ANALYSIS

Net Interest Income

Net interest income is the primary source of Nicolet’s revenue, and is the difference between interest income on earning assets, such as loans and investment securities, and interest expense on interest-bearing liabilities, such as deposits and other borrowings. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount, mix and composition of interest-earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies. Tax-equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and is used in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources. 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

Years Ended December 31,

ASSETS

Interest-earning assets

Investment securities:

LIABILITIES AND STOCKHOLDERS’ EQUITY

Interest-bearing liabilities

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

Volume Rate Net (1) Volume Rate Net (1)

Interest-earning assets

Investment securities:

Interest-bearing liabilities

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

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

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

Comparison of 2022 versus 2021

The Federal Reserve raised short-term interest rates a total of 425 bps since mid-March 2022, increasing the Federal Funds rate to a range of 4.25% to 4.50% as of December 31, 2022. Prior to this, short-term interest rates remained steady since March 2020, with a Federal Funds rate of 0.00% to 0.25%.

Tax-equivalent net interest income was $242 million for 2022, comprised of net interest income of $240 million ($82 million or 52% higher than 2021) and a $2 million tax-equivalent adjustment. The increase in tax-equivalent net interest income was attributable to net favorable volumes (which added $94 million, mostly from interest-earning asset volumes added with the recent acquisitions, as well as solid loan growth and strategic investment purchases in fourth quarter 2021) and net unfavorable rates (which decreased net interest income $12 million from higher deposit rates and the lag in repricing the loan portoflio to current market interest rates).

Average interest-earning assets were $7.1 billion for 2022, $2.4 billion (51%) higher than 2021, primarily due to the acquisitions of Mackinac, County, and Charter (in September 2021, December 2021, and August 2022, respectively). Average loans increased $2.1 billion (65%) to $5.3 billion, largely due to the timing of the acquisitions (with Mackinac adding $940 million at acquisition, County adding $1.0 billion at acquisition, and Charter adding $827 million at acquisition). In addition, average loans reflected strong organic loan growth and the repurchase of approximately $100 million previously participated agricultural loans. Average investment securities increased $881 million, including growth related to the acquisitions, as well as the re-investment of approximately $0.5 billion excess cash liquidity into U.S. Treasury securities of varying yields and durations during fourth quarter 2021. Other interest-earning assets declined $565 million, mostly lower cash from the re-investment of excess cash liquidity noted above. As a result, the mix of average interest-earning assets shifted to 74% loans, 23% investment securities, and 3% other interest-earning assets (mostly cash) for 2022, compared to 67%, 16%, and 17%, respectively, for 2021.

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Average interest-bearing liabilities were $4.8 billion for 2022, an increase of $1.6 billion (52%) from 2021, also primarily due to the timing of the acquisitions. Average interest-bearing core deposits increased $1.3 billion and average brokered deposits grew $183 million, largely due to the acquisitions. Other interest-bearing liabilities increased $196 million, reflecting the private placement of $100 million in fixed-to-floating subordinated notes in July 2021, wholesale funding acquired with the acquisitions, and other funding needs in 2022 to support the strong loan growth. The mix of average interest-bearing liabilities was 84% core deposits, 10% brokered deposits, and 6% other funding for 2022, compared to 87% core deposits, 10% brokered deposits, and 3% other funding in 2021.

The interest rate spread decreased 6 bps between the periods, as our liabilities have repriced faster than our assets in the rapidly rising interest rate environment of 2022. The 2022 interest-earning asset yield increased 22 bps to 3.88% for 2022, largely due to the changing mix of interest-earning assets (to a higher percentage of loan assets, as noted above). The loan yield declined 28 bps to 4.64% for 2022, due to several factors: a lower percentage of PPP loans between the years, the impact of the low interest rate environment through early 2022 given the fixed nature of a portion of our loan portfolio, and competitive pricing pressures on new, renewed and variable rate loans. The investment yield declined 7 bps to 1.70%, attributable to the low rate environment through early 2022 and the re-investment of excess cash into U.S. Treasuries. The cost of funds increased 28 bps to 0.71% for 2022, reflecting the impact of a rising interest rate environment on core interest-bearing deposits (up 14 bps to 0.38%), as well as the changing mix of interest-bearing liabilities (as noted above). The contribution from net free funds increased 9 bps, attributable to the higher value in a rising interest rate environment and an increase in average net free funds (largely from higher average noninterest-bearing demand deposits and stockholders’ equity) between the years. As a result, the net interest margin was 3.40% for 2022, up 3 bps compared to 3.37% for 2021.

Tax-equivalent interest income was $276 million, up $103 million (60%) over 2021. Interest income on loans increased $87 million (56%) over 2021, mostly due to strong volumes from the acquisitions and organic loan growth. Between the years, interest income on investment securities increased $15 million to $28 million, with $13 million from higher average volumes due to the acquisitions and re-investment of excess cash (as noted above) and $2 million from higher rates. Interest expense was $34 million for 2022, up $20 million (150%) from 2021. Interest expense on deposits increased $11 million from 2021 given higher average deposit balances and a higher overall cost (up 15 bps to 0.49%). Interest expense on wholesale funding increased $9 million over 2021 mostly due to higher average balances from the July 2021 subordinated notes issuance, as well as wholesale funding acquired with the acquisitions.

Provision for Credit Losses

The provision for credit losses in 2022 was $11.5 million (comprised of $11.0 million related to the ACL-Loans, and the remainder for the ACL on unfunded commitments). The 2022 provision for credit losses included $8 million for the required Day 2 ACL increase from the acquisition of Charter, and the remaining increase to support the strong loan growth. Comparatively, the 2021 provision for credit losses was largely due to the required Day 2 ACL increase from the acquisitions of County and Mackinac. Asset quality trends have been solid and net charge-offs were negligible for both years.

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. 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 potential credit losses. For additional information regarding asset quality and the ACL-Loans, see “BALANCE SHEET ANALYSIS — Loans,” and “— Allowance for Credit Losses - Loans” and “—Nonperforming Assets.”

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Noninterest Income

Table 4: Noninterest Income

(in thousands) Years Ended December 31, Change From Prior Year

LSR income, net (1,366) — — (1,366) N/M — N/M

N/M means not meaningful.

Comparison of 2022 versus 2021

Noninterest income was $58 million for 2022, a decrease of $9 million (14%) from 2021, primarily due to lower net mortgage income. Notable contributions to the change in noninterest income were:

•Trust services fee income and brokerage fee income combined were $21 million for 2022, up $1 million (5%) from 2021, as growth in accounts and assets under management outpaced unfavorable market-related declines.

•Mortgage income represents net gains received from the sale of residential real estate loans into the secondary market, capitalized mortgage servicing rights (“MSRs”), 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 was $8 million for 2022, down $14 million (62%) between the years, mostly due to the rising interest rate environment reducing secondary market volumes and the related gains on sales. See also “Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations” and Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

•Service charges on deposit accounts were up $1 million (22%) to $6 million for 2022, mostly due to the larger deposit base from the acquisitions.

•Card interchange income grew $2 million (27%) to $12 million in 2022 largely due to higher volume and activity.

•BOLI income increased $1 million (60%) to $4 million for 2022, attributable to higher average balances from BOLI acquired with the acquisitions.

•The Company sponsors a nonqualifed deferred compensation (“NQDC”) plan for certain employees, that fluctuates based upon market valuations of the underlying plan assets. See also “Noninterest Expense” for the offsetting fair value change to the NQDC plan liabilities and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan.

•Loan servicing rights (“LSR”) income includes agricultural loan servicing fees net of the related LSR amortization. Nicolet is not adding new loans to this servicing portfolio and repurchased approximately $100 million of these previously participated loans during second quarter 2022; thus, the LSR amortization is currently outpacing the loan servicing fees. See also Note 6, “Goodwill and Other Intangibles and Servicing Rights” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the LSR asset.

•Other income grew $3 million to $7 million for 2022, largely due to revenue from crop insurance sales (acquired with County) and broker fees.

•The $3 million net asset gains in 2022 were primarily attributable to gains on sales of other real estate owned (mostly closed bank branch locations). Net asset gains in 2021 of $4 million were primarily attributable to favorable fair value marks on equity securities (including $3.5 million related to the initial public offering of an equity investment). Additional

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information on the net gains is also included in Note 16, “Asset Gains (Losses), Net,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

Noninterest Expense

Table 5: Noninterest Expense

($ in thousands) Years Ended December 31, Change From Prior Year

Comparison of 2022 versus 2021

Noninterest expense was $161 million, an increase of $31 million (24%) over 2021. Personnel costs increased $18 million (26%), while non-personnel expenses combined increased $13 million (23%) over 2021. Notable contributions to the change in noninterest expense were:

•Personnel expense (including salaries, overtime, cash and equity incentives, and employee benefit and payroll-related expenses) was $89 million for 2022, an increase of $18 million (26%) over 2021. Salary expense increased $15 million (25%) over 2021, reflecting higher salaries from the larger employee base (with average full-time equivalent employees up 41%) as well as merit increases between the years and investments in our wealth team. Salary expense also reflected increases in hourly pay and base salaries effective at the end of March 2022, which benefited the majority of our employee base. Fringe benefits increased $3 million (30%) over 2021, also mainly due to the larger employee base. Personnel expense was also impacted by the change in the fair value of the NQDC plan liabilities. See also “Noninterest Income” for the offsetting fair value change to the NQDC plan assets and Note 10, “Employee and Director Benefit Plans” in the Notes to Consolidated Financial Statements, under Part II, Item 8, for additional information on the NQDC plan.

•Occupancy, equipment and office expense was $30 million for 2022, up $9 million (41%) from 2021, largely due to the expanded branch network with the recent acquisitions, as well as additional expense for software and technology solutions to drive operational efficiencies, and enhance products or services. 2021 also included approximately $1 million of accelerated depreciation and write-offs related to branch closures.

•Business development and marketing expense was $8 million for 2022, up $3 million (57%) from 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 $15 million for 2022, up $3 million (21%) over 2021, mostly due to volume-based increases in core processing charges, including the larger operating base following the Charter, County, and Mackinac acquisitions.

•Intangible amortization increased $3 million (89%) between the years, due to higher amortization from the intangibles added with the recent acquisitions.

•Other expense was $9 million for 2022, minimally changed from 2021, with 2022 including higher professional fees, director fees, fraud losses, and higher overall expenses related to our larger operating base, while 2021 included a $2 million contract termination charge.

Income Taxes

Income tax expense was $31 million (effective tax rate of 25.0%) for 2022, compared to $20 million (effective tax rate of 25.2%) for 2021. The accounting for income taxes requires deferred income taxes to be analyzed to determine if a valuation allowance is required. A valuation allowance is required if it is more likely than not that some portion of the deferred tax asset will not be realized. This analysis involves the use of estimates and assumptions concerning accounting pronouncements and federal and state tax codes; therefore, income taxes are considered a critical accounting estimate. At December 31, 2022 and 2021, no valuation allowance was determined to be necessary. Additional information on the subjectivity of income taxes is discussed further under

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“Critical Accounting Estimates-Income Taxes.” The Company’s income taxes accounting policy is described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures relative to income taxes are included in Note 13, “Income Taxes” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

BALANCE SHEET ANALYSIS

Loans

Nicolet services a diverse customer base throughout Wisconsin, Michigan and Minnesota, including 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 Company concentrates on originating loans in its local markets and assisting current loan customers. Nicolet actively utilizes government loan programs such as those provided by the U.S. Small Business Administration (“SBA”) and the U.S. Department of Agriculture’s Farm Service Agency (“FSA”). In addition to the discussion that follows, accounting policies, general loan portfolio characteristics, and credit risk are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional loan related disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

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.

Table 6: Period End Loan Composition

(in thousands) Amount % ofTotal Amount % ofTotal Amount % ofTotal

As noted in Table 6 above, year-end 2022 loans were broadly 78% commercial-based and 22% retail-based compared to 80% commercial-based and 20% retail-based at year-end 2021. Commercial-based loans are considered to have more inherent risk of default than retail-based loans, in part because the commercial balance per borrower is typically larger than that for retail-based loans, implying higher potential losses on an individual customer basis.

Total loans were $6.2 billion at December 31, 2022, an increase of $1.6 billion (34%), compared to total loans of $4.6 billion at December 31, 2021. The increase in total loans included the Charter acquisition (which added $827 million, at acquisition) and the repurchase of approximately $100 million previously participated agriculture loans, as well as strong organic loan growth. Excluding the loans acquired with Charter and the repurchased agriculture loans, organic loan growth was 14% from December 31, 2021.

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Table 7: Loan Maturity Distribution

The following table presents the maturity distribution of the loan portfolio at December 31, 2022.

(in thousands) Loan Maturity

Percent by maturity distribution 19 % 45 % 22 % 14 % 100 %

Fixed rate loans:

Floating rate loans:

* The residential construction loans with a loan maturity after five years represent a construction to permanent loan product.

Allowance for Credit Losses - Loans

In addition to the discussion that follows, accounting policies for the allowance for credit losses - loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional ACL-Loans disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

Credit risks within the loan portfolio are inherently different for each loan 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 “BALANCE SHEET ANALYSIS – Nonperforming Assets.”

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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 factors involves significant judgment; therefore, management considers the ACL-Loans a critical accounting estimate, as further discussed under “Critical Accounting Estimates – Allowance for Credit Losses - Loans.”

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. Second, management allocates the ACL-Loans with historical loss rates by loan segment. The loss factors are measured on a quarterly basis and applied to each loan segment based on current loan balances and projected for their expected remaining life. Next, management allocates the ACL-Loans using the qualitative and environmental factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses at the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.

Management performs ongoing intensive analysis of its loan portfolio to allow for early identification of customers experiencing financial difficulties, maintains prudent underwriting standards, understands the economy in its markets, and considers the trend of deterioration in loan quality in establishing the level of the ACL-Loans. In addition, various regulatory agencies periodically review the ACL-Loans. These agencies may require the Company to make additions to the ACL-Loans or may require that certain loan balances be charged off or downgraded into classified loan categories when their credit evaluations differ from those of management based on their judgments of collectability from information available to them at the time of their examination.

At December 31, 2022, the ACL-Loans was $62 million (representing 1.00% of period end loans) compared to $50 million at December 31, 2021. The increase in the ACL-Loans was largely due to the acquisition of Charter, which added $8 million of provision for the Day 2 allowance and $2 million related to purchased credit deteriorated loans. Net charge-offs (0.01% of average loans) remain negligible. The components of the ACL-Loans are detailed further in Tables 8 and 9 below.

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Table 8: Allowance for Credit Losses - Loans

(in thousands) Years Ended December 31,

Allowance for credit losses - loans:

Adoption of CECL — — 8,488

Initial PCD ACL — — 797

Total impact for adoption of CECL — — 9,285

Net charge-offs:

Commercial & industrial (86) 50 (692)

Owner-occupied CRE (555) — (449)

Agricultural — (48) —

Construction & land development — — —

Residential construction — — —

Residential first mortgage (57) (93) 9

Residential junior mortgage 1 4 67

Ratio of net charge-offs to average loans by loan composition

Commercial & industrial 0.01 % (0.01) % 0.07 %

Owner-occupied CRE 0.06 % — % 0.09 %

Agricultural — % 0.02 % — %

CRE investment (0.02) % — % 0.04 %

Construction & land development — % — % — %

Residential construction — % — % — %

Residential first mortgage 0.01 % 0.02 % — %

Residential junior mortgage — % — % (0.06) %

Total net charge-offs to average loans 0.01 % 0.01 % 0.05 %

The allocation of the ACL-Loans by loan category for each of the past three years is shown in Table 9. The largest portions of the ACL-Loans were allocated to commercial & industrial loans and CRE investment loans, representing 26% and 21%, respectively, of the ACL-Loans at December 31, 2022. In comparison, the largest portions of the ACL-Loans were allocated to commercial & industrial loans and agricultural loans, representing 25% and 19%, respectively, of the ACL-Loans at December 31, 2021. This change in allocated ACL-Loans was attributable to the change in loan portfolio composition, as well as changes in current and forecasted risk trends within loan categories.

Table 9: Allocation of the Allowance for Credit Losses - Loans

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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 economic uncertainty. In addition to the discussion that follows, accounting policies for loans and the ACL-Loans are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional credit quality disclosures are included in Note 4, “Loans, Allowance for Credit Losses - Loans, and Credit Quality,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

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 (which include nonperforming loans and other real estate owned “OREO”) were $40 million and represented 0.46% of total assets at December 31, 2022, compared to $56 million or 0.73% at December 31, 2021. The decline in nonperforming assets between the years included a $6 million improvement in nonaccrual loans and a $10 million reduction in other real estate owned (primarily sales of closed bank branches).

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 $53 million (1% of total loans) at both December 31, 2022 and 2021. Potential problem loans require a heightened management review given the pace at which a credit may deteriorate, the potential duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

Table 10: Nonperforming Assets

Nonperforming loans:

Residential construction — — —

Accruing loans past due 90 days or more — — —

OREO:

Commercial real estate owned 628 1,549 —

Residential real estate owned — 99 —

Performing troubled debt restructurings $ — $ 5,443 $ 2,120

Ratios:

Nonperforming loans to total loans 0.62 % 0.96 % 0.34 %

NPAs to total loans plus OREO 0.65 % 1.21 % 0.47 %

ACL-Loans to nonperforming loans 162 % 112 % 340 %

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Investment Securities Portfolio

The investment securities portfolio is intended to provide Nicolet with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to Nicolet. All investment securities are classified at the time of purchase as available for sale (“AFS”) or held to maturity (“HTM”). In addition to the discussion that follows, the investment securities portfolio accounting policies are described in Note 1, “Nature of Business and Significant Accounting Policies,” and additional disclosures are included in Note 3, “Securities and Other Investments,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

At December 31, 2022, the investment securities portfolio totaled $1.6 billion (representing 18% of total assets), comprised of $918 million securities AFS and $679 million securities HTM, minimally changed from $1.6 billion (representing 20% of total assets) at December 31, 2021, comprised of $922 million securities AFS and $652 million securities HTM. The primary changes in the investment securities portfolio during 2022, included the acquisition of Charter, (which added investment securities of $218 million at acquisition), and the unfavorable change in the fair value of the securities AFS portfolio (from an unrealized gain of $4 million at December 31, 2021 to an unrealized loss of $79 million at December 31, 2022) due to the dramatic increase in interest rates.

Nicolet also had other investments of $65 million and $44 million at December 31, 2022 and 2021, respectively, consisting of capital stock in the Federal Reserve and the Federal Home Loan Bank (“FHLB”) (required as members of the Federal Reserve Bank System and the FHLB System), equity securities with readily determinable fair values, and to a lesser degree equity investments in other private companies. The FHLB and Federal Reserve investments are “restricted” in that they can only be sold back to the respective institutions or another member institution at par, and are thus not liquid, have no ready market or quoted market value, and are carried at cost. The private company equity investments have no quoted market prices, and are carried at cost less impairment charges, if any. The other investments are evaluated periodically for impairment, considering financial condition and other available relevant information.

Table 11: Investment Securities Portfolio Maturity Distribution (1)

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

Deposits

Deposits represent Nicolet’s largest source of funds. The deposit levels in 2021 were influenced by economic uncertainty and government stimulus payments related to the pandemic, which reduced spending and increased liquidity of consumers and businesses, as well as by PPP loan proceeds retained on deposit by commercial borrowers. In contrast, the deposit levels in 2022

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reflected a transition back to normal operations and activities, with consumers and businesses starting to use the excess liquidity. In addition, Charter added deposits of $870 million at acquisition.

Deposits levels may also be impacted by competition with other bank and nonbank institutions, as well as with a number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Deposit challenges include competitive deposit product features, price changes on deposit products given movements in the interest rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives. Additional disclosures on deposits are included in Note 8, “Deposits,” in the Notes to Consolidated Financial Statements, under Part II, Item 8. See Table 2 for information on average deposit balances and deposit rates.

Table 12: Period End Deposit Composition

Amount % ofTotal Amount % ofTotal Amount % ofTotal

Total deposits were $7.2 billion at December 31, 2022, an increase of $713 million (11%) over year-end 2021, primarily due to the acquisition of Charter, and included a $565 million increase to customer deposits (core) and a $148 million increase to brokered deposits.

On average, deposits grew $2.1 billion (47%) between 2022 and 2021 (as detailed in Table 2), primarily due to the timing of the acquisitions (Mackinac in September 2021, County in December 2021, and Charter in August 2022) and the liquidity objectives of our customers in uncertain economic times. Average customer deposits (core) increased $1.9 billion (46%), while average brokered deposits increased $183 million (59%) over the prior year.

At December 31, 2022, Nicolet had $77 million of time deposits that exceed the Federal Deposit Insurance Corporation (“FDIC”) insurance limit of $250,000. The following table provides information on the maturity distribution of those time deposits, including the portion of those time deposits in excess of the FDIC insurance limits (over $250,000) as of December 31, 2022.

Table 13: Maturity Distribution of Uninsured Time Deposits

Total uninsured deposits were $2.3 billion and $2.1 billion as of December 31, 2022 and 2021, respectively.

Other Funding Sources

Other funding sources include short-term and long-term borrowings. Short-term borrowings (with an original contractual maturity of one year or less) consist mainly of short-term FHLB advances, customer repurchase agreements or federal funds purchased. Long-term borrowings (with an original contractual maturity of over one year) include FHLB advances, junior subordinated debentures, and subordinated notes. The interest on all long-term borrowings is current.

Short-term borrowings were $317 million and zero at December 31, 2022 and 2021, respectively, all in FHLB advances, with approximately half acquired with Charter. Long-term borrowings were $225 million and $217 million at December 31, 2022 and

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2021, respectively. See Note 9, “Short and Long-Term Borrowings,” of the Notes to Consolidated Financial Statements under Part II, Item 8 for additional disclosures and see section “Liquidity Management,” for information on available funding sources at December 31, 2022.

RISK MANAGEMENT AND CAPITAL

Liquidity Management

Liquidity management refers to the ability to ensure that adequate liquid funds are available to meet the current and future cash flow obligations arising in the daily operations of the Company. These cash flow obligations include the ability to meet the commitments to borrowers for extensions of credit, accommodate deposit cycles and trends, fund capital expenditures, pay dividends to stockholders (if any), and satisfy other operating expenses. The Company’s most liquid assets are cash and due from banks, interest-earning deposits, and federal funds sold, which totaled $155 million and $595 million at December 31, 2022 and 2021, respectively. Balances of these liquid assets are dependent on our operating, investing, and financing activities during any given period.

The $441 million decrease in cash and cash equivalents since year-end 2021 included $117 million net cash provided by operating activities (mostly earnings), more than offset by $516 million net cash used in investing activities (primarily to fund loan growth) and $42 million net cash used in financing activities (with funds from short-term borrowings offset by a net decrease in deposits and common stock repurchases). As of December 31, 2022, management believed that adequate liquidity existed to meet all projected cash flow obligations.

Nicolet’s primary sources of funds include the core deposit base, repayment and maturity of loans, investment securities calls, maturities, and sales, and procurement of brokered deposits or other wholesale funding. At December 31, 2022, approximately 55% of the 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 funding sources at December 31, 2022, consist of $195 million of available and unused Federal funds lines, available borrowing capacity at the FHLB of $607 million, and borrowing capacity in the brokered deposit market.

Management is committed to the Parent Company being a source of strength to the Bank and its other subsidiaries, and therefore, regularly evaluates capital and liquidity positions of the Parent Company in light of current and projected needs, growth or strategies. The Parent Company uses cash for normal expenses, debt service requirements and, when opportune, for common stock repurchases or investment in other strategic actions such as mergers or acquisitions. At December 31, 2022, the Parent Company had $64 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. Dividends from the Bank and, to a lesser extent, stock option exercises, represent significant sources of cash flows for the Parent Company. The Bank is required by federal law to obtain prior approval of the OCC for payments of dividends if the total of all dividends declared by the Bank in any year will exceed certain thresholds, as more fully described in “Business—Regulation of the Bank – Payment of Dividends” and in Note 17, “Regulatory Capital Requirements,” in the Notes to the Consolidated Financial Statements under Part II, Item 8. Management does not believe that regulatory restrictions on dividends from the Bank will adversely affect its ability to meet its cash obligations.

Interest Rate Sensitivity Management and Impact of Inflation

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

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

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

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Among other scenarios, Nicolet 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 above and reflect the changed interest rate environment. The interest rate scenarios are used for analytical purposes only and do not necessarily represent management’s view of future market interest rate movements. Based on financial data at December 31, 2022 and 2021, the projected changes in net interest income over a one-year time horizon, versus the baseline, are presented in Table 14 below. The results were within Nicolet’s guidelines of not greater than -10% for +/- 100 bps and not greater than -15% for +/- 200 bps.

Table 14: Interest Rate Sensitivity

200 bps decrease in interest rates (0.7) % (0.3) %

100 bps decrease in interest rates (0.4) % (0.3) %

100 bps increase in interest rates — % (0.1) %

200 bps increase in interest rates 0.1 % (0.3) %

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

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

Capital balances and changes in capital are presented in the Consolidated Statements of Changes in Stockholders’ Equity in Part II, Item 8. Further discussion of capital components is included in Note 12, “Stockholders’ Equity,” and a summary of dividend restrictions, as well as regulatory capital amounts and ratios for Nicolet and the Bank is presented in Note 17, “Regulatory Capital Requirements,” of the Notes to Consolidated Financial Statements under Part II, Item 8.

The Company’s and the Bank’s regulatory capital ratios remain above minimum regulatory ratios, including the capital conservation buffer. At December 31, 2022, the Bank’s regulatory capital ratios qualify the Bank as well-capitalized under the prompt-corrective action framework. This strong base of capital has allowed Nicolet to be opportunistic in the current economic environment and in strategic growth. For a discussion of the regulatory restrictions applicable to the Company and the Bank, see section “Business-Regulation of Nicolet” and “Business-Regulation of the Bank,” included within Part I, Item 1. A summary of Nicolet’s and the Bank’s regulatory capital amounts and ratios, as well as selected capital metrics are presented in Table 15.

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Table 15: Capital

Company Stock Repurchases: *

Common stock repurchased during the year (dollars) $ 61,483 $ 61,464

Common stock repurchased during the year (shares) 671,662 793,064

Company Risk-Based Capital:

Total capital ratio 12.3 % 13.8 %

Tier 1 capital ratio 9.5 % 10.5 %

Common equity tier 1 capital ratio 9.0 % 9.9 %

Tier 1 leverage ratio 8.2 % 9.4 %

Bank Risk-Based Capital:

Total capital ratio 11.3 % 12.2 %

Common equity tier 1 capital ratio 10.6 % 11.6 %

Tier 1 leverage ratio 9.1 % 10.3 %

In managing capital for optimal return, we evaluate capital sources and uses, pricing and availability of our stock in the market, and alternative uses of capital (such as the level of organic growth or acquisition opportunities) in light of strategic plans. Through an ongoing repurchase program, the Board has authorized the repurchase of Nicolet’s common stock as an alternative use of capital. At December 31, 2022, there remained $48 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.

Off-Balance Sheet Arrangements, Lending-Related Commitments and Contractual Obligations

Nicolet is party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. 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. At December 31, 2022, interest rate lock commitments to originate residential mortgage loans held for sale of $9 million (included in the commitments to extend credit) and forward commitments to sell residential mortgage loans held for sale of $9 million are considered derivative instruments. Further information and discussion of these commitments is included in Note 14, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements, under Part II, Item 8.

The table below outlines the principal amounts and timing of Nicolet’s contractual obligations. The amounts presented below exclude amounts due for interest, if applicable, and include any unamortized premiums / discounts or other similar carrying value adjustments. As of December 31, 2022, Nicolet had the following contractual obligations. Further discussion of the nature of each obligation is included in the referenced note of the Notes to Consolidated Financial Statements, under Part II, Item 8.

Table 16: Contractual Obligations

(in thousands) Note Maturity by Years

Reference Total 1 or less 1-3 3-5 Over 5

Critical Accounting Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles (“GAAP”) requires management to make estimates, assumptions or judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates and assumptions are based on historical experience, current information, and other factors deemed to be relevant; accordingly, as this information changes, actual results could differ from those estimates. Nicolet considers accounting estimates to be critical to reported financial results if the accounting estimate requires management to make assumptions about matters that are highly uncertain and different estimates that management reasonably could have used for the accounting estimate in the current period, or changes in the accounting estimate that are reasonably likely to occur from period to period, could

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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, and income taxes. In addition to the discussion that follows, the accounting policies related to these critical estimates are included in Note 1, “Nature of Business and Significant Accounting Policies,” in the Notes to Consolidated Financial Statements, under Part II, Item 8.

Business Combinations and Valuation of Loans Acquired in Business Combinations

We account for acquisitions under Financial Accounting Standards Board (“FASB”) ASC Topic 805, Business Combinations, which requires the use of the acquisition method of accounting. Assets acquired and liabilities assumed in a business combination are recorded at the estimated fair value on their purchase date. As provided for under GAAP, management has up to 12 months following the date of the acquisition to finalize the fair values of acquired assets and assumed liabilities, where it was not possible to estimate the acquisition date fair value upon consummation. Management finalizes the fair values of acquired assets and assumed liabilities within this 12-month period and management currently considers such values to be the Day 1 Fair Values for the acquisition transactions.

In particular, the valuation of acquired loans involves significant estimates and assumptions based on information available as of the acquisition date. Loans acquired in a business combination are evaluated either individually or in pools of loans with similar characteristics; including consideration of a credit component. A number of factors are considered in determining the estimated fair value of purchased loans including, among other things, the remaining life of the acquired loans, estimated prepayments, estimated loss ratios, estimated value of the underlying collateral, estimated holding periods, contractual interest rates compared to market interest rates, and net present value of cash flows expected to be received.

Allowance for Credit Losses - Loans

Management’s evaluation process used to determine the appropriateness of the ACL-Loans is inherently subjective as it requires material estimates and assumptions. This evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect our estimate of lifetime expected credit losses. Because interpretation and analysis involves judgment, current economic or business conditions can change, and future events are inherently difficult to predict, the anticipated amount of estimated credit losses and therefore the appropriateness of the ACL-Loans could change significantly.

The allowance methodology applied by Nicolet is designed to assess the appropriateness of the ACL-Loans and includes allocations for individually evaluated credit-deteriorated loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and a component primarily based on other qualitative and environmental factors. The methodology includes evaluation and consideration of several factors, including but not limited to: management’s ongoing review and grading of the loan portfolio, evaluation of facts and issues related to specific loans, consideration of historical loan loss and delinquency experience on each portfolio segment, trends in past due and nonaccrual loans, the risk characteristics of specific loans or various loan segments, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, the fair value of underlying collateral, existing economic conditions, and other qualitative and quantitative factors which could affect expected credit losses. In addition, the model considers reasonable and supportable economic forecasts to assess the collectability of future cash flows. While management uses the best information available to make its evaluation, future adjustments to the ACL-Loans may be necessary if there are significant changes in economic conditions (both current and forecast) or circumstances underlying the collectability of loans. Because each of the criteria used is subject to change, the allocation of the ACL-Loans is made for analytical purposes and is not necessarily indicative of the trend of future credit losses in any particular loan category. The ACL-Loans is available to absorb losses from any segment of the loan portfolio. Management believes the ACL-Loans is appropriate at December 31, 2022. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements.

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

Income Taxes

Nicolet is subject to the federal income tax laws of the United States, and the tax laws of the states and other jurisdictions where we conduct business. Due to the complexity of these laws, taxpayers and the taxing authorities may subject these laws to different interpretations. Management must make conclusions and estimates about the application of these innately intricate laws, related

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regulations, and case law. When preparing the Company’s income tax returns, management attempts to make reasonable interpretations of the tax laws. Taxing authorities have the ability to challenge management’s analysis of the tax law or any reinterpretation management makes in its ongoing assessment of facts and the developing case law. Management assesses the reasonableness of its effective tax rate quarterly based on its current estimate of net income and the applicable taxes expected for the full year. On a quarterly basis, management also reviews circumstances and developments in tax law affecting the reasonableness of deferred tax assets and liabilities and reserves for contingent tax liabilities.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For additional disclosure, see section, “Interest Rate Sensitivity Management and Impact of Inflation,” of the Management’s Discussion and Analysis of Financial Condition and Results of Operation under Part II, Item 7.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

NICOLET BANKSHARES, INC.Consolidated Balance Sheets

Assets

Federal funds sold — —

Certificates of deposit in other banks 12,518 21,920

Securities available for sale (“AFS”), at fair value 917,618 921,661

Securities held to maturity (“HTM”), at amortized cost 679,128 651,803

Other assets held for sale — 199,833

Allowance for credit losses - loans (“ACL-Loans”) (61,829) (49,672)

Liabilities and Stockholders’ Equity

Liabilities:

Short-term borrowings 317,000 —

Other liabilities held for sale — 51,586

Accrued interest payable and other liabilities 70,177 68,729

Stockholders’ Equity:

Accumulated other comprehensive income (loss) (57,470) 3,102

Preferred shares issued and outstanding — —

See accompanying Notes to Consolidated Financial Statements.

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(In thousands, except share and per share data) 2022 2021 2020

Interest income:

Investment securities:

Interest expense:

Noninterest income:

Deferred compensation plan asset market valuations (2,040) 609 590

LSR income, net (1,366) — —

Noninterest expense:

Less: Net income attributable to noncontrolling interest — — 347

Net income attributable to Nicolet Bankshares, Inc. $ 94,260 $ 60,652 $ 60,122

Earnings per common share:

Weighted average common shares outstanding:

See accompanying Notes to Consolidated Financial Statements.

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Other comprehensive income (loss), net of tax:

Unrealized gains (losses) on securities AFS:

Net realized (gains) losses included in income 244 283 (395)

Total other comprehensive income (loss), net of tax (60,572) (9,645) 8,329

See accompanying Notes to Consolidated Financial Statements.

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Nicolet Bankshares, Inc. Stockholders’ Equity

Comprehensive income:

Other comprehensive income (loss) — — — 8,329 — 8,329

Stock-based compensation expense — 5,700 — — — 5,700

Exercise of stock options, net — 1,474 — — — 1,474

Issuance of common stock — 581 — — — 581

Purchase and retirement of common stock (6) (42,082) — — — (42,088)

Purchase of noncontrolling interest — (5,016) — — (860) (5,876)

Distribution to noncontrolling interest — — — — (215) (215)

Adoption of new accounting pronouncement — — (6,175) — — (6,175)

Comprehensive income:

Other comprehensive income (loss) — — — (9,645) — (9,645)

Stock-based compensation expense — 7,307 — — — 7,307

Exercise of stock options, net 1 1,836 — — — 1,837

Issuance of common stock — 545 — — — 545

Purchase and retirement of common stock (8) (62,575) — — — (62,583)

Comprehensive income:

Other comprehensive income (loss) — — — (60,572) — (60,572)

Stock-based compensation expense — 7,016 — — — 7,016

Exercise of stock options, net 1 2,530 — — — 2,531

Issuance of common stock in Charter acquisition 13 98,136 — — — 98,149

Issuance of common stock — 751 — — — 751

Purchase and retirement of common stock (7) (61,490) — — — (61,497)

See accompanying Notes to Consolidated Financial Statements.

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Cash Flows From Operating Activities:

Increase in cash surrender value of life insurance (3,701) (2,380) (2,199)

Net change in accrued interest receivable and other assets 73 (10,531) 6,991

Net change in accrued interest payable and other liabilities (283) 1,024 5,716

Cash Flows From Investing Activities:

Proceeds from sales of other investments 13,138 10,203 —

Net (increase) decrease in premises and equipment (12,234) (12,791) (10,791)

Net (increase) decrease in other real estate 13,150 2,743 343

Proceeds from redemption of BOLI 1,757 — 440

Net cash (paid) received in branch sale 147,833 — —

Cash Flows From Financing Activities:

Net increase (decrease) in short-term borrowings 184,134 — —

Distribution to noncontrolling interest — — (215)

Purchase of noncontrolling interest — — (8,000)

Capitalized issuance costs, net — (789) —

Proceeds from issuance of common stock, net 3,282 2,382 2,055

Supplemental Disclosures of Cash Flow Information:

Transfer of loans and bank premises to other real estate owned 612 8,177 2,608

Acquisitions:

Common stock issued in acquisitions $ 98,149 $ 355,378 $ —

* Cash and cash equivalents at December 31, 2022 did not include any restricted cash. At both December 31, 2021 and December 31, 2020, cash and cash equivalents included restricted cash of $1.9 million pledged as collateral on interest rate swaps and no reserve balance was required with the Federal Reserve.

See accompanying Notes to Consolidated Financial Statements.

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NICOLET BANKSHARES, INC.

Notes to Consolidated Financial Statements

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Banking Activities and Subsidiaries: Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) was incorporated on April 5, 2000, to serve as the holding company and sole shareholder of Nicolet National Bank (the “Bank”). The Bank opened for business on November 1, 2000. Since its opening in late 2000, Nicolet has supplemented its organic growth with branch purchase and acquisition transactions.

At December 31, 2022, the Company had three wholly owned subsidiaries, the Bank, Nicolet Advisory Services, LLC (“Nicolet Advisory”), and Nicolet Insurance Services, LLC (“Nicolet Insurance”). The consolidated income of the Company is derived principally from the Bank, which conducts lending (primarily commercial and agricultural-based loans, as well as residential and consumer loans) and deposit gathering (including other banking- and deposit-related products and services, such as ATMs, safe deposit boxes, check cashing, wires, and debit cards) to businesses, consumers and governmental units principally in its trade area of Wisconsin, Michigan and Minnesota, trust services, brokerage services (delivered through the Bank and Nicolet Advisory), and the support to deliver, fund and manage all such banking and wealth management services to its customer base.

At December 31, 2022, the Bank wholly owns an investment subsidiary based in Nevada, a subsidiary that provides a web-based investment management platform for financial advisor trades and related activity, and an entity that owns the building in which Nicolet is headquartered, Nicolet Joint Ventures, LLC (the “JV”). The JV was owned 50% by a real estate development and investment firm (the “Firm”) through the JV until late 2020 when the Bank became the 100% owner and sole managing member of the JV. The Firm is considered a related party, as one of its principals is a Board member and shareholder of the Company.

Nicolet Advisory is a registered investment advisor subsidiary that provides brokerage and investment advisory services to customers. In late 2020, to improve process efficiencies and organizational structure, the Company dissolved its wholly owned subsidiary, Brookfield Investment Partners, LLC, which provided limited investment services (transactional and strategy) to a few smaller banks, and Nicolet Advisory assumed those additional investment services contracts. Nicolet Insurance, acquired in 2021, was formed to facilitate the delivery of a crop insurance product associated with Nicolet’s agricultural lending.

Principles of Consolidation: The consolidated financial statements of the Company include the accounts of its subsidiaries. The JV underlies the noncontrolling interest reflected in the consolidated financial statements until late 2020 when the Bank purchased the remaining interest. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and conform to general practices within the banking industry. All significant intercompany accounts and transactions have been eliminated in the consolidated financial statements. Results of operations of companies purchased, if any, are included from the date of acquisition.

Because the Company is not the primary beneficiary, the consolidated financial statements exclude the following wholly-owned variable interest entities: Mid-Wisconsin Statutory Trust, Baylake Capital Trust II, First Menasha Bancshares Statutory Trust I, First Menasha Bancshares Statutory Trust II, County Bancorp Statutory Trust II, County Bancorp Statutory Trust III, and Fox River Valley Trust I.

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

Use of Estimates: In preparing the accompanying consolidated financial statements in conformity with U.S. GAAP, the Company’s management is required to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the disclosures provided. Actual results may differ from these estimates. Material estimates that are particularly susceptible to significant change in the near-term include the fair value of securities available for sale, the determination of the allowance for credit losses, business combinations accounting and the fair value of assets acquired and liabilities assumed, goodwill, and income taxes.

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Notes to Consolidated Financial Statements

Business Combinations: The Company accounts for business combinations under the acquisition method of accounting in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations (“ASC 805”). The Company recognizes the full fair value of the assets acquired and liabilities assumed and immediately expenses transaction costs. If the amount of consideration exceeds the fair value of assets purchased less the fair value of liabilities assumed, goodwill is recorded. Alternatively, if the amount by which the fair value of assets purchased exceeds the fair value of liabilities assumed and consideration paid, a gain (“bargain purchase gain”) is recorded. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values becomes available. Results of operations of the acquired business are included in the statements of income from the effective date of the acquisition.

Cash and Cash Equivalents: For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks, interest-earning deposits in other banks with original maturities of less than 90 days, and federal funds sold. The Bank maintains amounts in due from banks which, at times, may exceed federally insured limits. Management monitors these correspondent relationships, and the Bank has not experienced any losses in such accounts.

Securities Available for Sale: Securities are classified as AFS on the consolidated balance sheets at the time of purchase and include those securities that the Company intends to hold for an indefinite period of time, but not necessarily to maturity. Any decision to sell a security classified as AFS would be based on various factors, including significant movements in interest rates, changes in the maturity mix of the Company’s assets and liabilities, liquidity needs, regulatory capital considerations, and other similar factors. Securities classified as AFS are carried at fair value, with unrealized gains or losses, net of related deferred income taxes, reported as increases or decreases in accumulated other comprehensive income. Realized gains or losses on sales of securities AFS (using the specific identification method) are included in the consolidated statements of income under asset gains (losses), net. Premiums and discounts are amortized or accreted into interest income over the estimated life of the related securities using the effective interest method.

Management evaluates securities AFS in unrealized loss positions on a quarterly basis to determine whether the decline in fair value below the amortized cost basis (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. Any impairment that is not credit-related is recognized in other comprehensive income, net of related deferred income taxes. Credit-related impairment is recognized as an allowance for credit losses (“ACL”) on the balance sheet based on the amount by which the amortized cost basis exceeds the fair value, with a corresponding charge to net income. Both the ACL and charge to net income may be reversed if conditions change. However, if the Company intends to sell an impaired AFS security or more likely than not will be required to sell such a security before recovering its amortized cost basis, the entire impairment must be recognized in net income with a corresponding adjustment to the security’s amortized cost basis rather than through the establishment of an ACL.

Securities Held to Maturity: Securities are classified as HTM on the consolidated balance sheets at the time of purchase and include those securities that the Company has both the positive intent and ability to hold to maturity. HTM securities are carried at amortized cost on the consolidated balance sheets. Premiums and discounts are amortized or accreted into interest income over the estimated life of the related securities using the effective interest method.

Management evaluates securities HTM on a quarterly basis to determine whether an ACL is necessary. In making this determination, management considers the facts and circumstances of the underlying investment securities. The ACL for HTM securities, if deemed necessary, evaluates expected credit losses on HTM securities by security type, aggregated by similar risk characteristics, and considers historical credit loss information as adjusted for current conditions and supportable forecasts.

Other Investments: Other investments include equity securities with readily determinable fair values, “restricted” equity securities, and private company securities. As a member of the Federal Reserve Bank System and the Federal Home Loan Bank (“FHLB”) System, the Bank 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. Management’s evaluation of these other investments for impairment includes consideration of the financial condition and other available relevant information of the issuer.

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Notes to Consolidated Financial Statements

Loans Held for Sale: Loans originated and intended for sale in the secondary market are carried at the lower of cost or estimated fair value as determined on an aggregate basis and generally consist of current production of certain fixed-rate residential first lien mortgages. The amount by which cost exceeds fair value is recorded as a valuation allowance and charged to earnings. Changes, if any, in the valuation allowance are included in earnings in the period in which the change occurs. As of December 31, 2022 and 2021, no valuation allowance was necessary. Loans held for sale may be sold servicing retained or servicing released, and are generally sold without recourse. The carrying value of mortgage loans sold with servicing retained is reduced by the amount allocated to the servicing right at the time of sale. Gains and losses on sales of mortgage loans held for sale are included in earnings in mortgage income, net.

Loans – Originated: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at their amortized cost basis, which is the unpaid principal amount outstanding, net of deferred loan fees and costs, and any direct principal charge-off. The Company made an accounting policy election to exclude accrued interest from the amortized cost basis of loans and report such accrued interest as part of accrued interest receivable and other assets on the consolidated balance sheets.

Interest income is accrued on the unpaid principal balance using the simple interest method. The accrual of interest income on loans is discontinued when, in the opinion of management, there is reasonable doubt as to the borrower’s ability to meet payment of interest or principal when due. Loans are generally placed on nonaccrual status when contractually past due 90 days or more as to interest or principal, though may be placed in such status earlier based on the circumstances. Loans past due 90 days or more may continue on accrual only when they are well secured and/or in process of collection or renewal. When interest accrual is discontinued, all previously accrued but uncollected interest is reversed against current period interest income. Except in very limited circumstances, cash collections on nonaccrual loans are credited to the loan receivable balance and no interest income is recognized on those loans until the principal balance is paid in full. Accrual of interest may be resumed when the customer is current on all principal and interest payments and has been paying on a timely basis for a sustained period of time.

A description of each segment of the loan portfolio, including the corresponding credit risk, is included below.

Commercial and industrial loans consist primarily of commercial loans to small and mid-sized businesses within a diverse range of industries (manufacturing, wholesaling, paper, packaging, food production and processing, retail, service, and businesses supporting the general building industry). These loans are made for a wide variety of general corporate purposes, including working capital, equipment, and business expansion loans, with varying terms based upon the underlying purpose of the loan. Commercial and industrial loans are based primarily on the historical and projected cash flow of the underlying borrower, and secondarily on any underlying assets pledged by the borrower. The credit risk related to commercial and industrial loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations, or on the value of underlying collateral, if any. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, formally reviewing the borrower’s financial condition on an ongoing basis, and generally require a guarantee (in full or part) from the primary business owners. Commercial bankers utilize SBA programs, where appropriate, as Nicolet is a preferred SBA lender.

Owner-occupied CRE loans primarily consist of loans within a diverse range of industries secured by business real estate that is occupied by borrowers who operate their businesses out of the underlying collateral and who may also have commercial and industrial loans. The credit risk related to owner-occupied CRE loans is largely influenced by general economic conditions and the resulting impact on a borrower’s operations, or on the value of underlying collateral. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, formally reviewing the borrower’s financial performance on an ongoing basis, and generally require a guarantee (in full or part) from the primary business owners.

Agricultural loans consist of loans secured by farmland and the related farming operations, primarily within the dairy industry. These loans support short-term needs (planting crops or buying feed), as well as longer term needs (fund cattle, equipment or real estate purchases and improvements) of our agricultural customers. The credit risk related to agricultural loans is largely influenced by the agricultural economy, including market prices for the cost of feed and the price of milk, and/or the underlying value of the farmland. Credit risk is managed by employing sound underwriting guidelines, regular personal contact with our agricultural customers, formally reviewing the borrower’s financial condition on an ongoing basis, and generally require a guarantee (in full or part) from the primary business owners. Agricultural bankers utilize FSA programs, where appropriate, as Nicolet is a preferred FSA lender.

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Notes to Consolidated Financial Statements

The CRE investment loan classification primarily includes commercial-based mortgage loans that are secured by non-owner occupied, nonfarm/nonresidential real estate properties, and multi-family residential properties. Lending in this segment is focused on loans that are secured by commercial income-producing properties as opposed to speculative real estate development. The credit risk related to CRE investment loans is influenced by the cash flows of the properties, including vacancy experience, credit capacity of the tenants occupying the real estate, and general economic conditions, all of which may impact the borrower’s operations or the value of underlying collateral. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, regularly reviewing the borrower’s financial condition, and generally require a guarantee (in full or part) from the principals.

Construction and land development loans provide financing for the development of commercial income properties, multi-family residential development, and land designated for future development. The credit risk on construction loans depends largely upon the accuracy of the initial estimate of the property’s value at completion of construction and the estimated cost of construction. Nicolet controls the credit risk on these types of loans by making loans in familiar markets, reviewing the merits of individual projects, controlling loan structure, and monitoring the progress of projects through the analysis of construction advances. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, formally reviewing the borrower’s financial soundness and relationships on an ongoing basis, and generally require a guarantee (in full or part) from the principals.

Residential real estate includes residential first mortgage loans and residential junior mortgage loans (home equity lines and term loans secured by junior mortgage liens). Residential real estate also includes residential construction loans. As part of its management of originating residential mortgage loans, Nicolet generally sells the majority of its long-term, fixed-rate residential first mortgage loans in the secondary market with the servicing rights retained, and retains the adjustable-rate mortgage loans in its loan portfolio. The Company may also retain a portion of the long-term, fixed rate residential mortgage loans that do not conform with secondary market standards, but do meet other specific underwriting guidelines. Credit risk for residential real estate loans largely depends upon factors affecting the borrower’s ability to repay as well as general economic trends. Residential real estate loan underwriting is subject to specific regulations, and Nicolet typically underwrites these loans to conform with those widely accepted standards. Residential real estate loans typically have longer terms and higher balances with lower yields, but generally carry lower risks of default.

Retail loans include predominantly credit cards and other personal installment loans to individuals within Nicolet’s market areas. Retail loans are centrally underwritten utilizing the borrower’s financial history and information on the underlying collateral. Retail loans typically have shorter terms and lower balances with higher yields, but generally carry higher risks of default. Collection of these loans depends on the borrower’s financial stability, and is more likely to be affected by adverse personal circumstances.

Loans – Acquired: Loans purchased in acquisition transactions are acquired loans, and are recorded at their estimated fair value on the acquisition date.

Acquired loans that have evidence of more-than-insignificant deterioration in credit quality since origination are considered purchased credit deteriorated (“PCD”) loans. At acquisition, an estimate of expected credit losses is made for PCD loans. This initial allowance for credit losses is allocated to individual PCD loans and added to the purchase price or acquisition date fair value to establish the initial amortized cost basis of the PCD loans. Any difference between the unpaid principal balance of PCD loans and the amortized cost basis is considered to relate to noncredit factors, resulting in a discount or premium that is amortized to interest income. For acquired loans not deemed PCD loans at acquisition, the difference between the initial fair value mark and the unpaid principal balance are recognized in interest income over the estimated life of the loans. In addition, an initial allowance for expected credit losses is estimated and recorded as provision expense at the acquisition date. The subsequent measurement of expected credit losses for all acquired loans is the same as the subsequent measurement of expected credit losses for originated loans.

Allowance for Credit Losses - Loans: The ACL-Loans represents management’s estimate of expected credit losses over the lifetime of the loan based on loans in the Company’s loan portfolio at the balance sheet date. The Company estimates the ACL-Loans based on the amortized cost basis of the underlying loan and has made an accounting policy election to exclude accrued interest from the loan’s amortized cost basis and the related measurement of the ACL-Loans. Estimating the amount of the ACL-Loans is a function of a number of factors, including but not limited to changes in the loan portfolio, net charge-offs, trends in past due and nonaccrual loans, and the level of potential problem loans, all of which may be susceptible to significant change. Actual credit losses, net of recoveries, are deducted from the ACL-Loans. Loans are charged-off when management believes that the collectability of the

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Notes to Consolidated Financial Statements

principal is unlikely. Subsequent recoveries, if any, are credited to the ACL-Loans. A provision for credit losses, which is a charge against income, is recorded to bring the ACL-Loans to a level that, in management’s judgment, is appropriate to absorb expected credit losses in the loan portfolio.

The Company uses the current expected credit loss model (“CECL”) to estimate the ACL-Loans. This model considers historical loss rates and other qualitative adjustments, as well as a forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL-Loans estimate under the CECL model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements; performs an individual evaluation of PCD and other credit-deteriorated loans; calculates the historical loss rates for the segmented loan pools; applies the loss rates over the calculated life of the pooled loans; adjusts for forecasted macro-level economic conditions; and determines qualitative adjustments based on factors and conditions unique to Nicolet’s portfolio.

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: evaluation of facts and issues related to specific loans; management’s ongoing review and grading of the loan portfolio; consideration of historical loan loss and delinquency experience on each portfolio segment; trends in past due and nonaccrual loans; the risk characteristics of the various loan segments; changes in the size and character of the loan portfolio; concentrations of loans to specific borrowers or industries; existing economic conditions; the fair value of underlying collateral; and 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 PCD and other credit-deteriorated loans, which management defines as nonaccrual credit relationships over $250,000, collateral dependent 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. Next, 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. Management also 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 at the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.

Allocations to the ACL-Loans may be made for specific loans but the entire ACL-Loans is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized. The allowance analysis is reviewed by the Board on a quarterly basis in compliance with internal and regulatory requirements.

Credit-Related Financial Instruments: In the ordinary course of business the Company has entered into financial instruments consisting of commitments to extend credit, financial standby letters of credit, and performance standby letters of credit. 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. Such financial instruments are recorded in the consolidated financial statements when they are funded.

Allowance for Credit Losses - Unfunded Commitments: In addition to the ACL-Loans, the Company has established an allowance for unfunded commitments, included in accrued interest payable and other liabilities on the consolidated balance sheets, representing expected credit losses over the contractual period for which the Company is exposed to credit risk resulting from a contractual obligation to extend credit. The ACL-Unfunded Commitments 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.

Transfers of Financial Assets: Transfers of financial assets, primarily in loan participation activities, are accounted for as sales only when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of the right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity or the ability to unilaterally cause the holder to return assets.

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Notes to Consolidated Financial Statements

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Premises and equipment from acquisitions were recorded at estimated fair value on the respective dates of acquisition. Depreciation is computed on a straight-line basis over the estimated useful lives of the related assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the estimated useful lives of the improvements or the terms of the related leases. Maintenance and repairs are expensed as incurred.

Estimated useful lives of new premises and equipment generally range as follows:

Building and improvements 25 – 40 years

Leasehold improvements 5 – 15 years

Furniture and equipment 3 – 10 years

Operating Leases: The Company accounts for its operating leases in accordance with ASC 842, Leases, which requires lessees to record almost all leases on the balance sheet as a right-of-use (“ROU”) asset and lease liability. The operating lease ROU asset represents the right to use an underlying asset during the lease term (included in accrued interest receivable and other assets on the consolidated balance sheets), while the operating lease liability represents the obligation to make lease payments arising from the lease (included in accrued interest payable and other liabilities on the consolidated balance sheets). The ROU asset and lease liability are recognized at lease commencement based on the present value of the remaining lease payments, considering a discount rate that represents Nicolet’s incremental borrowing rate. Operating lease expense is recognized on a straight-line basis over the lease term and is recognized in occupancy, equipment, and office on the consolidated statements of income.

Other Real Estate Owned (“OREO”): OREO acquired through partial or total satisfaction of loans or bank facilities no longer in use are carried at fair value less estimated costs to sell. Any write-down in the carrying value of loans or vacated bank premises at the time of transfer to OREO is charged to the ACL-Loans or to write-down of assets, respectively. OREO properties acquired in conjunction with acquisition transactions were recorded at fair value on the date of acquisition. Any subsequent write-downs to reflect current fair value, as well as gains or losses on disposition and revenues and expenses incurred to hold and maintain such properties, are treated as period costs.

Goodwill and Other Intangibles: Goodwill represents the excess of the purchase price over the fair value of the net identifiable assets acquired. Goodwill is not amortized but, instead, is subject to impairment tests on at least an annual basis or more frequently if certain events or circumstances occur. Other intangibles include core deposit intangibles (which represent the value of acquired customer core deposit bases) and customer list intangibles. The core deposit intangibles have an estimated finite life, are amortized on an accelerated basis over a 10-year period, and are subject to periodic impairment evaluation. The customer list intangibles have finite lives, are amortized on a straight-line basis to expense over their initial weighted average life of approximately 12 years as of acquisition, and are subject to periodic impairment evaluation.

Management periodically reviews the carrying value of its intangible assets to determine if any impairment has occurred, in which case an impairment charge would be recorded as an expense in the period of impairment, or whether changes in circumstances have occurred that would require a revision to the remaining useful life which would impact expense prospectively. In making such determination, management evaluates whether there are any adverse qualitative factors indicating that an impairment may exist, as well as the performance, on an undiscounted basis, of the underlying operations or assets which give rise to the intangible.

Mortgage Servicing Rights (“MSRs”): The Company sells originated residential mortgages into the secondary market and retains the right to service the loans sold. A mortgage servicing right asset (liability) is capitalized upon sale of such loans with the offsetting effect recorded as a gain (loss) on sale of loans in earnings (included in mortgage income, net), representing the then-current estimated fair value of future net cash flows expected to be realized for performing the servicing activities. MSRs when purchased (including MSRs purchased in acquisitions) are initially recorded at their then-estimated fair value. As the Company has not elected to measure any class of servicing assets under the fair value method, the Company utilizes the amortization method. MSRs are amortized in proportion to and over the period of estimated net servicing income, with the amortization charged to earnings (included in mortgage income, net). MSRs are carried at the lower of initial capitalized amount, net of accumulated amortization, or estimated fair value, and are included in other assets in the consolidated balance sheets. Loan servicing fee income for servicing loans is typically based on a contractual percentage of the outstanding principal and is recorded as income when earned (included in mortgage income, net with less material late fees and ancillary fees related to loan servicing).

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Notes to Consolidated Financial Statements

At each reporting date, the MSR asset is assessed for impairment based on the estimated fair value, which considers the estimated prepayment speeds and stratifications based on the risk characteristics of the underlying loans serviced (predominantly loan type and note interest rate). The value of MSRs is adversely affected when mortgage interest rates decline and mortgage loan prepayments increase. A valuation allowance is established through a charge to earnings (included in mortgage income, net) to the extent the amortized cost of the MSRs exceeds the estimated fair value by stratification. If it is later determined that all or a portion of the temporary impairment no longer exists for a stratification, the valuation is reduced through a recovery to earnings, though not beyond the net amortized cost. An other-than-temporary impairment (i.e., recoverability is considered remote when considering interest rates and loan payoff activity) is recognized as a write-down of the MSRs and the related valuation allowance (to the extent a valuation allowance is available) and then against earnings. A direct write-down permanently reduces the carrying value of the MSRs and valuation allowance, precluding subsequent recoveries.

Loan Servicing Rights (“LSRs”): The Company acquired loan servicing rights in connection with its acquisition of County Bancorp, Inc. (“County”) on December 3, 2021. The LSRs were recorded at estimated fair value upon acquisition, and are subsequently accounted for utilizing the amortization method. Thus, the LSRs are amortized in proportion to and over the period of estimated net servicing income, with the amortization charged to earnings. The LSRs are assessed for impairment at each reporting date based on estimated fair value. Impairment is determined by stratifying the rights into tranches based on predominant characteristics, such as interest rate, loan type, and investor type. A valuation allowance is established through a charge to earnings to the extent that estimated fair value is less than the carrying amount of the servicing assets for an individual tranche. The valuation allowance is adjusted to reflect changes in the measurement of impairment through either recovery or additions to the valuation allowance, with such changes reported as a component of loan servicing fees on the consolidated statements of income. Fair value in excess of the carrying amount of servicing assets is not recognized. The amortization of loan servicing rights is reflected net of loan servicing fee income. Loan servicing fee income for servicing loans is based on a contractual percentage of the outstanding principal and is recorded as income when earned.

Bank-owned Life Insurance (“BOLI”): The Company owns BOLI on certain executives and employees. BOLI balances are recorded at their cash surrender values. Changes in the cash surrender values and death proceeds exceeding carrying values are included in BOLI income.

Partnership Investments: The Company has invested in certain tax-advantaged projects promoting renewable energy. These investments are designed to generate returns primarily through the realization of federal and state income tax credits and other tax benefits. Such investments are accounted for using the equity method where the Company owns less than fifty percent and has the ability to exercise significant influence over the partnership, while investments where the Company does not have the ability to exercise significant influence are accounted for at fair value less impairment (if any) or cost less impairment if the fair value is not readily determinable. The Company uses the hypothetical liquidation book value (“HLBV”) method for equity investments when the liquidation rights and priorities as defined by an equity investment agreement differ from what is reflected by the underlying percentage ownership interests. The HLBV method is commonly applied to equity investments in the renewable energy industry, where the economic benefits corresponding to an equity investment that may vary at different points in time and / or are not directly linked to an investor’s ownership percentage. A calculation is prepared at each balance sheet date to determine the amount that the Company would receive if any equity investment entity were to liquidate all of its assets (as valued in accordance with U.S. GAAP) and distribute that cash to the investors based on the contractually defined liquidation priorities. The balance of these investments at December 31, 2022 was $7.6 million and is included in accrued interest receivable and other assets on the consolidated balance sheets. There was no similar investment at December 31, 2021.

Stock-based Compensation: Stock-based payments to employees, including grants of restricted stock or stock options, are valued at fair value of the award on the date of grant and expensed on a straight-line basis as compensation expense over the applicable vesting period. A Black-Scholes model is utilized to estimate the fair value of stock options and the quoted market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards.

Income Taxes: The Company files a consolidated federal income tax return with its wholly owned subsidiaries and files state income tax returns with the various taxing jurisdictions based on its taxable presence. Amounts equal to tax benefits of those subsidiaries having taxable federal or state losses or credits are reimbursed by the entities that incur federal or state tax liabilities.

Amounts provided for income tax expense are based on income reported for financial statement purposes and do not necessarily represent amounts currently payable under tax laws. Deferred income tax assets and liabilities are computed quarterly for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in

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the future based on enacted tax rates applicable to the periods in which the differences are expected to affect taxable income. As changes in tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through income tax expense. Valuation allowances are established when it is more likely than not that a portion of the full amount of the deferred tax asset will not be realized. In assessing the ability to realize deferred tax assets, management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies.

At acquisition, deferred taxes were evaluated in respect to the acquired assets and assumed liabilities (including the acquired net operating losses), and a net deferred tax asset was recorded. Certain limitations within the provisions of the tax code are placed on the amount of net operating losses which can be utilized as part of acquisition accounting rules and were incorporated into the calculation of the deferred tax asset. In addition, a portion of the fair value discounts on PCD loans which resolved in the first twelve months after the acquisition were disallowed under provisions of the tax code.

The Company may also recognize a liability for unrecognized tax benefits from uncertainty in income tax positions. Unrecognized tax benefits represent the differences between a tax position taken or expected to be taken in a tax return and the benefit recognized and measured in the consolidated financial statements. At December 31, 2022, the Company determined it had no significant uncertainty in income tax positions. Interest and penalties related to unrecognized tax benefits are classified as income tax expense.

At December 31, 2022, the Company was not under examination by any taxing authority.

Earnings per Common Share: Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share includes the dilutive effect of outstanding common stock awards unless the impact is anti-dilutive, by application of the treasury stock method.

Treasury Stock: Treasury stock is accounted for at cost on a first-in-first-out basis. It is the Company’s general practice to cancel treasury stock shares in the same quarter as purchased, and thus, not carry a treasury stock balance.

Comprehensive Income: Accounting principles generally require that recognized revenue, expenses, gains and losses be included in net income. Certain changes in assets and liabilities, such as unrealized gains and losses on securities AFS, are reported in accumulated other comprehensive income, as a separate component of the equity section of the balance sheet. Realized gains or losses are reclassified to current period income. Changes in these items, along with net income, are components of comprehensive income. The Company presents comprehensive income in a separate consolidated statement of comprehensive income.

Revenue Recognition: Accounting principles (Revenue from Contracts with Customers, Topic 606) require that an entity recognize revenue to depict the transfer of promised goods and services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods and services. The guidance includes a five-step model to apply to revenue recognition, consisting of the following: (1) identify the contract; (2) identify the performance obligation in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations; and (5) recognize revenue when or as the performance obligation is satisfied. Topic 606 does not apply to revenue associated with financial instruments, including revenue from loans and securities, as well as certain noninterest income categories, such as gains or losses associated with mortgage servicing rights and income from BOLI. Descriptions of the Company’s primary revenue contracts within the scope of Topic 606 are discussed in detail below.

Trust services and brokerage fee income: A contract between the Company and its customers to provide fiduciary and / or investment administration services on trust accounts and brokerage accounts in exchange for a fee. Trust services and brokerage fee income is generally based upon the month-end market value of the assets under management and the applicable fee rate, which is recognized over the period the underlying trust or brokerage account is serviced (generally on a monthly basis). Such contracts are generally cancellable at any time, with the customer subject to a pro-rated fee in the month of termination.

Service charges on deposit accounts: The deposit contract obligates the Company to serve as a custodian of the customer’s deposited funds and generally can be terminated at will by either party. This contract permits the customer to access the funds on deposit and request additional services related to the deposit account. Service charges on deposit accounts consist of account analysis fees (net fees earned on analyzed business and public checking accounts), monthly service charges, nonsufficient fund (“NSF”) charges, and other deposit account related charges. The Company’s performance obligation for account analysis fees and monthly service charges is generally satisfied, and the related revenue recognized, over the period in which the service is provided

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(typically on a monthly basis); while NSF charges and other deposit account related charges are largely transactional based and the related revenue is recognized at the time the service is provided.

Card interchange income: A contract between the Company, as a card-issuing bank, and its customers whereby the Company receives a transaction fee from the merchant’s bank whenever a customer uses a debit or credit card to make a purchase. The performance obligation is completed and the fees are recognized as the service is provided (i.e., when the customer uses a debit or credit card).

Future Accounting Pronouncements: In March 2022, the FASB issued ASU 2022-02, Financial Instruments - Credit Losses (Topic 326): Troubled Debt Restructurings (“TDRs”) and Vintage Disclosures. This ASU eliminates the accounting guidance for TDRs by creditors, while enhancing the disclosure requirements for certain loan refinancings and restructurings by creditors when a borrower is experiencing financial difficulty. The ASU also requires public business entities to expand the vintage disclosures to include gross charge-offs by year of origination. The updated guidance is effective for fiscal years beginning after December 15, 2022, with early adoption permitted. Adoption of this amendment is not expected to have a material impact on the Company’s consolidated financial statements; though, it will result in new disclosures of gross charge-offs by year of origination and on the types of loan modifications to borrowers experiencing financial difficulties. Current TDR disclosures will also be removed.

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

Reclassifications: Certain amounts in the 2021 and 2020 consolidated financial statements have been reclassified to conform to the 2022 presentation.

NOTE 2. ACQUISITIONS

Completed Acquisitions:

Charter Bankshares, Inc. (“Charter”): On August 26, 2022, Nicolet completed its merger with Charter, pursuant to the Agreement and Plan of Merger dated March 29, 2022 (the “Charter Merger Agreement”), at which time Charter merged with and into Nicolet, and Charter Bank, the wholly owned bank subsidiary of Charter, was merged with and into the Bank.

Pursuant to the Charter Merger Agreement, each share of Charter common stock issued and outstanding immediately prior to the effective time of the merger was converted into the right to receive 15.458 shares of Nicolet common stock and $475 in cash. As a result, Nicolet issued approximately 1.26 million shares of Nicolet common stock for stock consideration of $98 million and cash consideration of $39 million, or a total purchase price of $137 million. With the Charter merger, Nicolet expanded into Western Wisconsin and Minnesota.

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Notes to Consolidated Financial Statements

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

Assets Acquired:

Cash and cash equivalents $ 10 $ — $ 10

Investment securities 218 — 218

ACL-Loans (9) 7 (2)

Premises and equipment 9 1 10

Core deposit intangible — 19 19

Liabilities Assumed:

Other liabilities 3 — 3

Net assets acquired $ 87

Purchase Price:

Nicolet common stock issued (in shares) 1,262,360

Value of Nicolet common stock consideration $ 98

Cash consideration paid 39

Total purchase price $ 137

Preliminary goodwill $ 50

The Company purchased loans through the acquisition of Charter for which there was, at the 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.

Purchase price of PCD loans at acquisition $ 24,031

Allowance for credit losses on PCD loans at acquisition 1,709

Par value of PCD acquired loans at acquisition $ 25,740

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

County Bancorp, Inc. (“County”): On December 3, 2021, Nicolet completed its merger with County, pursuant to the terms of the Agreement and Plan of Merger dated June 22, 2021 (the “County Merger Agreement”), at which time County merged with and into Nicolet, and Investors Community Bank, the wholly owned bank subsidiary of County, was merged with and into the Bank.

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Notes to Consolidated Financial Statements

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

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

Assets Acquired:

Cash and cash equivalents $ 20 $ — $ 20

Premises and equipment 21 (4) 17

Core deposit intangible — 7 7

Loan servicing rights 20 — 20

Other assets 6 (2) 4

Liabilities Assumed:

Other liabilities 8 — 8

Net assets acquired $ 155

Purchase Price:

Nicolet common stock issued (in shares) 2,366,243

Value of Nicolet common stock consideration $ 176

Cash consideration paid 48

Total purchase price $ 224

Write-off prior investment in County (1)

Goodwill $ 70

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

(In thousands) December 3, 2021

Purchase price of PCD loans at acquisition $ 64,720

Allowance for credit losses on PCD loans at acquisition 3,490

Par value of PCD acquired loans at acquisition $ 68,210

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

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Notes to Consolidated Financial Statements

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 (approximating 20% in cash and 80% in stock), resulting in the issuance of 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 expands Nicolet prominently into Northern Michigan and the Upper Peninsula of Michigan, and adds 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.

Assets Acquired:

Cash and cash equivalents $ 448 $ — $ 448

Investment securities 104 — 104

ACL-Loans (6) 4 (2)

Premises and equipment 24 (3) 21

Other intangibles 4 3 7

Liabilities Assumed:

Net assets acquired $ 147

Purchase Price:

Nicolet common stock issued (in shares) 2,337,230

Value of Nicolet common stock consideration $ 180

Cash consideration paid 49

Total purchase price $ 229

Write-off prior investment in Mackinac (2)

Goodwill $ 84

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

(In thousands) September 3, 2021

Purchase price of PCD loans at acquisition $ 10,605

Allowance for credit losses on PCD loans at acquisition 1,896

Par value of PCD acquired loans at acquisition $ 12,501

The Company accounted for the Mackinac acquisition under the acquisition method of accounting, and thus, the financial position and results of operations of Mackinac prior to the consummation date were not included in the accompanying consolidated financial statements. The accounting required assets purchased and liabilities assumed to be recorded at their respective estimated fair values

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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, 2020, 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.

Years Ended

(In thousands, except per share data) December 31, 2021 December 31, 2020

Diluted earnings per common share $ 5.91 $ 5.21

Advantage Community Bancshares, Inc. (“Advantage”): On August 21, 2020, Nicolet completed its merger with Advantage, pursuant to the terms of the definitive merger agreement dated March 2, 2020, whereby Advantage merged with and into Nicolet, and Advantage Community Bank, the wholly owned bank subsidiary of Advantage, was merged with and into the Bank. Advantage’s four branches in Dorchester, Edgar, Mosinee, and Wausau opened as Nicolet National Bank branches on August 24, 2020, expanding our presence in Central Wisconsin and the Wausau area. Due to the small size of the transaction, terms of the all-cash deal were not disclosed.

Upon consummation, Advantage added total assets of approximately $172 million (representing 4% of Nicolet’s then pre-merger asset size), loans of $88 million, deposits of $141 million, core deposit intangible of $1 million, and goodwill of $12 million.

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Notes to Consolidated Financial Statements

NOTE 3. 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.

The amortized cost and fair value of securities available for sale and held to maturity are summarized as follows.

Securities AFS:

Securities HTM:

Securities AFS:

U.S. government agency securities 999 6 — 1,005

Securities HTM:

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Notes to Consolidated Financial Statements

All mortgage-backed securities included in the tables above were issued by U.S. government agencies and corporations. Securities with a fair value of $883 million and $277 million as of December 31, 2022 and 2021, 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 securities totaled $6 million and $5 million at December 31, 2022 and 2021, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

The following tables present 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 the length of time the individual securities have been in a continuous unrealized loss position.

Less than 12 months 12 months or more Total

Securities AFS:

Securities HTM:

Less than 12 months 12 months or more Total

Securities AFS:

U.S. government agency securities 160 — — — 160 — 3

Securities HTM:

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Notes to Consolidated Financial Statements

The Company does not consider its securities AFS with unrealized losses to be attributable to credit-related factors, as the unrealized losses in each category have occurred as a result of changes in noncredit-related factors such as changes in interest rates, market spreads and market conditions subsequent to purchase, not credit deterioration. Furthermore, the Company does not have the intent to sell any of these securities AFS and believes that it is more likely than not that we will not have to sell any such securities before a recovery of cost. As of December 31, 2022, 2021, and 2020, no allowance for credit losses on securities AFS was recognized.

The Company evaluated the securities HTM and determined no allowance for credit losses was necessary at December 31, 2022 and 2021. The U.S. Treasury and U.S. government agency securities are guaranteed by the U.S. government. For the state, county and municipal securities, management considered issuer bond ratings, historical loss rates by bond ratings, whether issuers continue to make timely principal and interest payments per the contractual terms of the investment securities, internal forecasts, and whether or not such investment securities provide insurance, other credit enhancement, or are pre-refunded by the issuers. For the mortgage-backed securities, all such securities were issued by U.S. government agencies and corporations, which are currently explicitly or implicitly guaranteed by the U.S. government and have a long history of no credit losses.

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 December 31, 2022 Securities AFS Securities HTM

(in thousands) Amortized Cost Fair Value Amortized Cost Fair Value

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

Years Ended December 31,

Gains (losses) on sales of securities AFS, net $ (244) $ (283) $ 395

* Includes proceeds of $21 million recognized on the sale of securities AFS upon acquisition of Charter for which no gain or loss was recognized in the income statement as the investment securities were marked to fair value through purchase accounting.

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Notes to Consolidated Financial Statements

Other Investments

Other investments include “restricted” equity securities, equity securities with readily determinable fair values, and private company securities. The carrying value of other investments are summarized as follows.

Equity securities with readily determinable fair values 4,376 5,660

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Notes to Consolidated Financial Statements

NOTE 4. LOANS, ALLOWANCE FOR CREDIT LOSSES - LOANS, AND CREDIT QUALITY

Loans:

The loan composition was as follows.

(in thousands) Amount % of Total Amount % of Total

ACL-Loans to loans 1.00 % 1.07 %

Commercial and industrial loans included $0.2 million and $25 million of PPP loans at December 31, 2022 and December 31, 2021, respectively. Accrued interest on loans totaled $15 million and $11 million at December 31, 2022 and December 31, 2021, respectively, and is included in accrued interest receivable and other assets on the consolidated balance sheets.

Allowance for Credit Losses-Loans:

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

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

Years Ended December 31,

Adoption of CECL — — 8,488

Initial PCD ACL — — 797

Total impact for adoption of CECL — — 9,285

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Notes to Consolidated Financial Statements