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Section 1: 10-Q (FORM 10-Q)

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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                           to                          
Commission file number: 001-37700
NICOLET BANKSHARES, INC.
(Exact Name of Registrant as Specified in its Charter)
WISCONSIN
(State or Other Jurisdiction of Incorporation or Organization)
47-0871001
(I.R.S. Employer Identification No.)
 
 
111 North Washington Street
Green Bay, Wisconsin
(Address of Principal Executive Offices) 
54301
(Zip Code)
 
 
(920) 430-1400
(Registrant’s Telephone Number, Including Area Code)
 
N/A
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)
Securities registered pursuant to Section 12(b) of the Act:
 
 
 
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
NCBS
The NASDAQ Stock Market LLC
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ý No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ¨
Accelerated filer x
 
 
Non-accelerated filer ¨
Smaller reporting company ¨
 
 
Emerging Growth Company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No ý
As of April 27, 2020 there were 10,412,885 shares of $0.01 par value common stock outstanding.





Nicolet Bankshares, Inc.
Quarterly Report on Form 10-Q
March 31, 2020
TABLE OF CONTENTS
 
 
 
PAGE
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

2



PART I – FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS:
NICOLET BANKSHARES, INC.
Consolidated Balance Sheets
(In thousands, except share and per share data)
 
March 31, 2020
 
December 31, 2019
 
(Unaudited)
 
(Audited)
Assets
 
 
 
Cash and due from banks
$
53,741

 
$
75,433

Interest-earning deposits
188,219

 
106,626

Cash and cash equivalents
241,960


182,059

Certificates of deposit in other banks
18,804

 
19,305

Securities available for sale (“AFS”), at fair value
511,860

 
449,302

Other investments
27,176

 
24,072

Loans held for sale
3,929

 
2,706

Loans
2,607,424

 
2,573,751

Allowance for credit losses - loans (“ACL-Loans”)
(26,202
)
 
(13,972
)
Loans, net
2,581,222


2,559,779

Premises and equipment, net
60,276

 
56,469

Bank owned life insurance (“BOLI”)
78,665

 
78,140

Goodwill and other intangibles, net
164,974

 
165,967

Accrued interest receivable and other assets
43,688

 
39,461

Total assets
$
3,732,554


$
3,577,260

 
 
 
 
Liabilities and Stockholders’ Equity
 
 
 
Liabilities:
 
 
 
Noninterest-bearing demand deposits
$
791,563

 
$
819,055

Interest-bearing deposits
2,231,903

 
2,135,398

Total deposits
3,023,466


2,954,453

Short-term borrowings
75,000

 

Long-term borrowings
82,741

 
67,629

Accrued interest payable and other liabilities
39,607

 
38,188

Total liabilities
3,220,814


3,060,270

 
 
 
 
Stockholders’ Equity:
 
 
 
Common stock
104

 
106

Additional paid-in capital
299,903

 
312,733

Retained earnings
203,385

 
199,005

Accumulated other comprehensive income (loss)
7,579

 
4,418

Total Nicolet Bankshares, Inc. stockholders’ equity
510,971


516,262

Noncontrolling interest
769

 
728

Total stockholders’ equity and noncontrolling interest
511,740


516,990

Total liabilities, noncontrolling interest and stockholders’ equity
$
3,732,554

 
$
3,577,260

 
 
 
 
Preferred shares authorized (no par value)
10,000,000

 
10,000,000

Preferred shares issued and outstanding

 

Common shares authorized (par value $0.01 per share)
30,000,000

 
30,000,000

Common shares outstanding
10,408,375

 
10,587,738

Common shares issued
10,428,896

 
10,610,259

See accompanying notes to unaudited consolidated financial statements.

3

ITEM 1. Financial Statements Continued:


NICOLET BANKSHARES, INC.
Consolidated Statements of Income
(In thousands, except share and per share data) (Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Interest income:
 
 
 
Loans, including loan fees
$
33,778

 
$
29,968

Investment securities:
 
 
 
Taxable
2,072

 
1,633

Tax-exempt
491

 
549

Other interest income
662

 
1,009

Total interest income
37,003


33,159

Interest expense:
 
 
 
Deposits
4,957

 
4,777

Short-term borrowings
27

 

Long-term borrowings
756

 
907

Total interest expense
5,740


5,684

Net interest income
31,263

 
27,475

Provision for credit losses
3,000

 
200

Net interest income after provision for credit losses
28,263


27,275

Noninterest income:
 
 
 
Trust services fee income
1,579

 
1,468

Brokerage fee income
2,322

 
1,810

Mortgage income, net
2,327

 
1,203

Service charges on deposit accounts
1,225

 
1,170

Card interchange income
1,562

 
1,420

BOLI income
703

 
459

Asset gains (losses), net
(654
)
 
172

Other income
521

 
1,484

Total noninterest income
9,585

 
9,186

Noninterest expense:
 
 
 
Personnel
13,323

 
12,537

Occupancy, equipment and office
4,204

 
3,750

Business development and marketing
1,359

 
1,281

Data processing
2,563

 
2,355

Intangibles amortization
993

 
1,053

Other expense
1,412

 
1,783

Total noninterest expense
23,854


22,759

Income before income tax expense
13,994

 
13,702

Income tax expense
3,321

 
3,352

Net income
10,673


10,350

Less: Net income attributable to noncontrolling interest
118

 
83

Net income attributable to Nicolet Bankshares, Inc.
$
10,555


$
10,267

Earnings per common share:
 
 
 
Basic
$
1.00

 
$
1.09

Diluted
$
0.98

 
$
1.05

Weighted average common shares outstanding:
 
 
 
Basic
10,515,778

 
9,461,485

Diluted
10,800,636

 
9,758,351

See accompanying notes to unaudited consolidated financial statements.

4

ITEM 1. Financial Statements Continued:


NICOLET BANKSHARES, INC.
Consolidated Statements of Comprehensive Income
(In thousands) (Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Net income
$
10,673

 
$
10,350

Other comprehensive income (loss), net of tax:
 
 
 
Unrealized gains (losses) on securities AFS:
 
 
 
Net unrealized holding gains (losses)
4,329

 
7,711

Net realized (gains) losses included in income

 
(13
)
Income tax (expense) benefit
(1,168
)
 
(2,079
)
Total other comprehensive income (loss)
3,161


5,619

Comprehensive income
$
13,834


$
15,969

See accompanying notes to unaudited consolidated financial statements.

5

ITEM 1. Financial Statements Continued:


NICOLET BANKSHARES, INC.
Consolidated Statements of Stockholders’ Equity
(In thousands) (Unaudited)
 
Nicolet Bankshares, Inc. Stockholders’ Equity
 
 
 
Common
Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated
Other
Comprehensive
Income (Loss)
 
Non-
controlling
Interest
 
Total
Balances at December 31, 2019
$
106

 
$
312,733

 
$
199,005

 
$
4,418

 
$
728

 
$
516,990

Comprehensive income:
 
 
 
 
 
 
 
 
 
 


Net income, three months ended March 31, 2020

 

 
10,555

 

 
118

 
10,673

Other comprehensive income (loss)

 

 

 
3,161

 

 
3,161

Stock-based compensation expense

 
1,299

 

 

 

 
1,299

Exercise of stock options, net

 
851

 

 

 

 
851

Issuance of common stock

 
215

 

 

 

 
215

Purchase and retirement of common stock
(2
)
 
(15,195
)
 

 

 

 
(15,197
)
Distribution to noncontrolling interest

 

 

 

 
(77
)
 
(77
)
Adoption of new accounting pronouncement (see Note 1)

 

 
(6,175
)
 

 

 
(6,175
)
Balances at March 31, 2020
$
104


$
299,903


$
203,385


$
7,579


$
769


$
511,740

 
 
 
 
 
 
 
 
 
 
 
 
Balances at December 31, 2018
$
95

 
$
247,790

 
$
144,364

 
$
(5,640
)
 
$
743

 
$
387,352

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income, three months ended March 31, 2019

 

 
10,267

 

 
83

 
10,350

Other comprehensive income (loss)

 

 

 
5,619

 

 
5,619

Stock-based compensation expense

 
1,108

 

 

 

 
1,108

Exercise of stock options, net

 
698

 

 

 

 
698

Issuance of common stock

 
148

 

 

 

 
148

Purchase and retirement of common stock
(1
)
 
(5,681
)
 

 

 

 
(5,682
)
Balances at March 31, 2019
$
94

 
$
244,063

 
$
154,631

 
$
(21
)
 
$
826

 
$
399,593

See accompanying notes to unaudited consolidated financial statements.


6

ITEM 1. Financial Statements Continued:


NICOLET BANKSHARES, INC.
Consolidated Statements of Cash Flows (Unaudited)
(In thousands)
Three Months Ended March 31,
 
2020
 
2019
Cash Flows From Operating Activities:
 
 
 
Net income
$
10,673

 
$
10,350

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation, amortization, and accretion
2,156

 
1,108

Provision for credit losses
3,000

 
200

Increase in cash surrender value of life insurance
(525
)
 
(459
)
Stock-based compensation expense
1,299

 
1,108

Asset (gains) losses, net
654

 
(172
)
Gain on sale of loans held for sale, net
(3,017
)
 
(1,102
)
Proceeds from sale of loans held for sale
103,950

 
37,338

Origination of loans held for sale
(102,715
)
 
(36,747
)
Net change in:
 
 
 
Accrued interest receivable and other assets
(5,567
)
 
(1,748
)
Accrued interest payable and other liabilities
2,257

 
421

Net cash provided by (used in) operating activities
12,165


10,297

Cash Flows From Investing Activities:
 
 
 
Net (increase) decrease in loans
(32,238
)
 
(21,728
)
Net (increase) decrease in certificates of deposit in other banks
501

 
1

Purchases of securities AFS
(74,759
)
 
(19,064
)
Proceeds from sales of securities AFS

 
8,076

Proceeds from calls and maturities of securities AFS
17,931

 
10,636

Purchases of other investments
(3,673
)
 
(63
)
Net (increase) decrease in premises and equipment
(4,961
)
 
(2,368
)
Net cash provided by (used in) investing activities
(97,199
)

(24,510
)
Cash Flows From Financing Activities:
 
 
 
Net increase (decrease) in deposits
69,143

 
(75,652
)
Net increase in short-term borrowings
75,000

 

Proceeds from long-term borrowings
20,000

 

Repayments of long-term borrowings
(5,000
)
 
(64
)
Purchase and retirement of common stock
(15,197
)
 
(5,682
)
Proceeds from issuance of common stock
215

 
148

Proceeds from exercise of stock options
851

 
698

Distribution to noncontrolling interest
(77
)
 

Net cash provided by (used in) financing activities
144,935


(80,552
)
Net increase (decrease) in cash and cash equivalents
59,901

 
(94,765
)
Cash and cash equivalents:
 
 
 
Beginning
182,059

 
249,526

Ending *
$
241,960


$
154,761

Supplemental Disclosures of Cash Flow Information:
 
 
 
Cash paid for interest
$
6,077

 
$
5,466

Cash paid for taxes

 

Capitalized mortgage servicing rights
559

 
319

* Cash and cash equivalents at March 31, 2020 include restricted cash of $1.9 million pledged as collateral on interest rate swaps and no reserve balance was required with the Federal Reserve Bank. At March 31, 2019, cash and cash equivalents include $9.0 million for the reserve balance required with the Federal Reserve Bank.
See accompanying notes to unaudited consolidated financial statements.

7



NICOLET BANKSHARES, INC.
Notes to Unaudited Consolidated Financial Statements

Note 1Basis of Presentation
General
In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly the consolidated balance sheets, statements of income, comprehensive income, changes in stockholders’ equity and cash flows of Nicolet Bankshares, Inc. (the “Company” or “Nicolet”) and its subsidiaries, for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances have been eliminated. The results of operations for the interim periods are not necessarily indicative of the results to be expected for the entire year.
These interim consolidated financial statements have been prepared according to the rules and regulations of the Securities and Exchange Commission and, therefore, certain information and footnote disclosures normally presented in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) have been omitted or abbreviated. These consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
Critical Accounting Policies and Estimates
Preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying disclosures. These estimates are based on management’s best knowledge of current events and actions the Company may undertake in the future. Estimates are used in accounting for, among other items, the allowance for credit losses, valuation of loans in acquisition transactions, useful lives for depreciation and amortization, fair value of financial instruments, other-than-temporary impairment calculations, valuation of deferred tax assets, uncertain income tax positions and contingencies. Estimates that are particularly susceptible to significant change for the Company include the determination of the allowance for credit losses, the determination and assessment of deferred tax assets and liabilities, and the valuation of loans acquired in acquisition transactions; therefore, these are critical accounting policies. Factors that may cause sensitivity to the aforementioned estimates include but are not limited to: external market factors such as market interest rates and employment rates, changes to operating policies and procedures, changes in applicable banking or tax regulations, and changes to deferred tax estimates. Actual results may ultimately differ from estimates, although management does not generally believe such differences would materially affect the consolidated financial statements in any individual reporting period presented.
There have been no material changes or developments with respect to the assumptions or methodologies that the Company uses when applying what management believes are critical accounting policies and developing critical accounting estimates as disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, except as disclosed in Updates to Significant Accounting Policies and Recent Accounting Developments Adopted below.
Updates to Significant Accounting Policies
Securities Available for Sale: Securities classified as AFS are 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.

The Company evaluates securities AFS in unrealized loss positions on a quarterly basis to determine whether the decline in fair value below the amortized costs 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 the 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 amount 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. See Note 5 for additional disclosures on AFS securities.

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 balance outstanding, net of deferred loan fees and costs and any direct principal charge-offs. 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.

8



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. See Note 6 for additional information and disclosures on loans.

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

Prior to January 1, 2020, as described in further detail in the Company’s 2019 Annual Report on Form 10-K, the Company initially classified acquired loans as either purchased credit impaired (“PCI”) loans (i.e., loans that reflect credit deterioration since origination and it is probable at acquisition that the Company will be unable to collect all contractually required payments) or purchased non-impaired loans (i.e., “performing acquired loans”). The Company estimated the fair value of PCI loans based on the amount and timing of expected principal, interest and other cash flows for each loan. The excess of the loan’s contractual principal and interest payments over all cash flows expected to be collected at acquisition was considered an amount that should not be accreted. These credit discounts (“nonaccretable marks”) were included in the determination of the initial fair value for acquired loans; therefore, no allowance for credit losses was recorded at the acquisition date. Differences between the estimated fair values and expected cash flows of acquired loans at the acquisition date that were not credit-based (“accretable marks”) were subsequently accreted to interest income over the estimated life of the loans. Subsequent to the acquisition date for PCI loans, increases in cash flows over those expected at the acquisition date resulted in a move of the discount from nonaccretable to accretable, while decreases in expected cash flows after the acquisition date were recognized through the provision for credit losses.

Subsequent to January 1, 2020, 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. See Note 6 for additional information and disclosures on loans.

Allowance for Credit Losses - Loans: The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. The Company estimates the ACL-Loans based on the amortized costs 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.

Prior to January 1, 2020, as described in further detail in the Company’s 2019 Annual Report on Form 10-K, the Company used an incurred loss impairment model. This methodology assessed the overall appropriateness of the allowance for credit losses and included allocations for specifically identified impaired loans and loss factors for all remaining loans, with a component primarily based on historical loss rates and another component primarily based on other qualitative factors. Impaired loans were individually assessed and measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or the fair value of the collateral if the loan was collateral dependent. Loans that were determined not to be impaired were collectively evaluated for impairment, stratified by type and allocated loss ranges based on the Company’s actual historical loss ratios for each strata, and adjustments were also provided for certain environmental and other qualitative factors.

Subsequent to January 1, 2020, the Company uses a current expected loss model (“CECL”). This methodology also considers historical loss rates and other qualitative adjustments, as well as a new forward-looking component that considers reasonable and supportable forecasts over the expected life of each loan. To develop the ACL-Loans estimate under the current expected loss model, the Company segments the loan portfolio into loan pools based on loan type and similar credit risk elements; performs an

9



individual evaluation of PCD 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.

Recent Accounting Developments Adopted
In August 2018, the FASB issued Accounting Standards Update (“ASU”) 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. This ASU modifies the disclosure requirements for fair value measurements by removing, modifying or adding certain disclosures. The updated guidance was effective for annual reporting periods, including interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the updated guidance effective January 1, 2020, with no material impact on its consolidated financial statements as the new ASU only revises disclosure requirements. See Note 9 for fair value disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments intended to improve the financial reporting by requiring earlier recognition of credit losses on loans and certain other financial assets. Topic 326 replaces the incurred loss impairment model (which recognizes losses when a probable threshold is met) with a requirement to recognize lifetime expected credit losses immediately when a financial asset is originated or purchased. The measurement of lifetime expected credit losses is based on historical experience, current conditions, and reasonable and supportable forecasts. The ASU was effective for SEC filers for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. The Company adopted the new accounting standard on January 1, 2020, as required, and recorded a cumulative-effect adjustment of $6 million to retained earnings. See Updates to Significant Accounting Policies above for changes to accounting policies and see Note 6 for additional disclosures on this new accounting pronouncement.
Reclassifications
Certain amounts in the 2019 consolidated financial statements have been reclassified to conform to the 2020 presentation.
Note 2Acquisitions
Choice Bancorp, Inc. (“Choice”):
On November 8, 2019, the Company consummated its merger with Choice, pursuant to the terms of the Agreement and Plan of Merger dated June 26, 2019, (the “Choice Merger Agreement”), whereby Choice (at 12% of Nicolet’s then pre-merger asset size) was merged with and into Nicolet, and Choice Bank, the wholly owned bank subsidiary of Choice, was merged with and into the Bank. The system integration was completed, and the two branches of Choice opened on November 12, 2019, as Nicolet National Bank branches, expanding its presence in the Oshkosh marketplace. The Company closed its legacy Oshkosh location concurrently with the consummation of the Choice merger.
The purpose of the merger was to continue Nicolet’s interest in strategic growth, consistent with its plan to improve profitability through efficiency, leverage the strengths of each bank across the combined customer base, and add shareholder value. With the merger, Nicolet became the leading community bank to serve the Oshkosh marketplace.
Pursuant to the Choice Merger Agreement, the final purchase price consisted of issuing 1,184,102 shares of the Company's common stock (given the final stock-for-stock exchange ratio of 0.497, and not exchanging the Choice shares owned by the Company immediately prior to the time of the merger), for common stock consideration of $79.8 million (based on $67.39 per share, the volume weighted average closing price of the Company's common stock over the preceding 30 trading day period) plus cash consideration of $1.7 million. Approximately $0.2 million in direct stock issuance costs for the merger were incurred and charged against additional paid-in capital.
Upon consummation, the Company added $457 million in assets, including $348 million in loans, $289 million in deposits, $1.7 million in core deposit intangible, and $45 million of goodwill. The Company accounted for the transaction under the acquisition method of accounting, and thus, the financial position and results of operations of Choice 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.
Pending Acquisitions:
Commerce Financial Holdings, Inc. (“Commerce”): On February 17, 2020, Nicolet entered into a definitive merger agreement with Commerce Financial Holdings, Inc. (“Commerce”) pursuant to which Commerce will merge with and into Nicolet, providing entry into Wisconsin's largest MSA. The acquisition will involve stock-for-stock consideration at a fixed exchange ratio, subject to a $62 per share collar and an $82 per share cap provision provided for in the merger agreement. Stock markets significantly declined in early March following the declaration of COVID-19 as a pandemic, and remain volatile. Since mid-March, Nicolet’s stock price has been below the collar price. If our price, as defined in the merger agreement, moves above the $62 collar, we expect the transaction will close in third quarter 2020, pending fulfillment of all other closing conditions, including approvals by Commerce shareholders and regulators. As we have communicated to Commerce management, if our price remains below the $62 collar, we expect we will invoke our termination right provided in the merger agreement and the transaction will not close,

10



despite meeting all other closing conditions. Nicolet believes if its common stock price is below $62 per share, such pricing is a signal of the farther reaching and prolonged impacts of the COVID–19 pandemic, which are still volatile and uncertain. If Nicolet’s stock price is below $62, Nicolet believes that consummating a transaction at a fixed exchange ratio reflecting comparative valuations set before the onset of the COVID–19 pandemic is not prudent for Nicolet’s shareholders in today’s unsettled environment

Commerce would represent approximately 16% of the combined company's assets at March 31, 2020. At March 31, 2020, Commerce had total assets of $729 million, loans of $618 million, deposits of $620 million, and equity of $71 million.

Advantage Community Bancshares, Inc. (“Advantage”): On March 2, 2020, Nicolet entered into a definitive merger agreement with Advantage pursuant to which Advantage will merge with and into Nicolet. Due to the relative small size of the transaction, terms of the all-cash deal were not disclosed. At March 31, 2020, Advantage had total assets of $149 million, loans of $94 million, deposits of $126 million, and equity of $20 million. The merger is expected to close in the third quarter of 2020 and remains subject to customary closing conditions, including approval by Advantage shareholders and regulatory approvals.

Note 3Earnings per Common Share
Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of shares adjusted for the dilutive effect of common stock awards (outstanding stock options and unvested restricted stock), if any. Presented below are the calculations for basic and diluted earnings per common share.
 
Three Months Ended March 31,
(In thousands, except per share data)
2020
 
2019
Net income attributable to Nicolet Bankshares, Inc.
$
10,555

 
$
10,267

Weighted average common shares outstanding
10,516

 
9,461

Effect of dilutive common stock awards
285

 
297

Diluted weighted average common shares outstanding
10,801

 
9,758

Basic earnings per common share*
$
1.00

 
$
1.09

Diluted earnings per common share*
$
0.98

 
$
1.05

*Cumulative quarterly per share performance may not equal annual per share totals due to the effects of the amount and timing of capital increases. When computing earnings per share for an interim period, the denominator is based on the weighted average shares outstanding during the interim period, and not on an annualized weighted average basis. Accordingly, the sum of the earnings per share data for the quarters will not necessarily equal the year to date earnings per share data.
For the three months ended March 31, 2020 and 2019, options to purchase approximately 0.1 million shares are excluded from the calculation of diluted earnings per common share as the effect of their exercise would have been anti-dilutive.
Note 4Stock-Based Compensation
The Company may grant stock options and restricted stock under its stock-based compensation plans to certain officers, employees and directors. These plans are administered by a committee of the Board of Directors. In February 2019, with subsequent shareholder approval, the 2011 Long-Term Incentive Plan was amended to increase the shares reserved for potential stock-based awards from 1,500,000 shares to 3,000,000 shares. At March 31, 2020, approximately 1.4 million shares were available for grant under these stock-based compensation plans.
A Black-Scholes model is utilized to estimate the fair value of stock option grants, while the market price of the Company’s stock at the date of grant is used to estimate the fair value of restricted stock awards. The weighted average assumptions used in the Black-Scholes model for valuing stock option grants were as follows.
 
Three Months Ended March 31,
 
2020
 
2019
Dividend yield
%
 
%
Expected volatility
25
%
 
%
Risk-free interest rate
1.67
%
 
%
Expected average life
7 years

 
0 years

Weighted average per share fair value of options
$
21.83

 
$


11



A summary of the Company’s stock option activity is summarized below.
Stock Options
 
Option Shares
Outstanding
 
Weighted
Average
Exercise Price
 
Weighted
Average
Remaining
Life (Years)
 
Aggregate
Intrinsic
Value (in
thousands)
Outstanding - December 31, 2019
 
1,443,733

 
$
48.75

 
 
 
 
Granted
 
39,500

 
71.89

 
 
 
 
Exercise of stock options *
 
(38,702
)
 
23.83

 
 
 
 
Forfeited
 

 

 
 
 
 
Outstanding - March 31, 2020
 
1,444,531

 
$
50.06

 
7.3
 
$
10,543

Exercisable - March 31, 2020
 
554,331

 
$
43.43

 
6.5
 
$
6,293

* The terms of the stock option agreements permit having a number of shares of stock withheld, the fair market value of which as of the date of exercise is sufficient to satisfy the exercise price and/or tax withholding requirements. For the three months ended March 31, 2020, 16,671 such shares were surrendered to the Company.
Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock options. The intrinsic value of options exercised for the three months ended March 31, 2020 and 2019 was approximately $1.8 million and $1.1 million, respectively.
A summary of the Company’s restricted stock activity is summarized below.
Restricted Stock
 
Weighted
Average Grant
Date Fair Value
 
Restricted
Shares
Outstanding
Outstanding - December 31, 2019
 
$
44.94

 
22,521

Granted
 
72.00

 
2,500

Vested *
 
38.89

 
(4,500
)
Forfeited
 

 

Outstanding - March 31, 2020
 
$
49.56

 
20,521

* The terms of the restricted stock agreements permit the surrender of shares to the Company upon vesting in order to satisfy applicable tax withholding requirements at the minimum statutory withholding rate, and accordingly, 1,341 shares were surrendered during the three months ended March 31, 2020.
The Company recognized approximately $1.3 million and $1.1 million of stock-based compensation expense (included in personnel on the consolidated statements of income) for the three months ended March 31, 2020 and 2019, respectively, associated with its common stock awards granted to officers and employees. As of March 31, 2020, there was approximately $12.8 million of unrecognized compensation cost related to equity award grants. The cost is expected to be recognized over the remaining vesting period of approximately 3.2 years. The Company recognized a tax benefit of approximately $0.3 million for the three months ended March 31, 2020 for the tax impact of stock option exercises and vesting of restricted stock.
Note 5Securities Available for Sale
Amortized cost and fair value of securities available for sale are summarized as follows.
 
March 31, 2020
(in thousands)
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
U.S. government agency securities
$
64,180

 
$
288

 
$
216

 
$
64,252

State, county and municipals
155,700

 
1,661

 
25

 
157,336

Mortgage-backed securities
203,575

 
6,499

 
121

 
209,953

Corporate debt securities
78,023

 
2,516

 
220

 
80,319

Total
$
501,478

 
$
10,964

 
$
582

 
$
511,860


12



 
December 31, 2019
(in thousands)
Amortized Cost
 
Gross
Unrealized
Gains
 
Gross
Unrealized
Losses
 
Fair Value
U.S. government agency securities
$
16,516

 
$
4

 
$
60

 
$
16,460

State, county and municipals
155,501

 
1,049

 
157

 
156,393

Mortgage-backed securities
193,223

 
2,492

 
697

 
195,018

Corporate debt securities
78,009

 
3,422

 

 
81,431

Total
$
443,249

 
$
6,967

 
$
914

 
$
449,302

The following table presents gross unrealized losses and the related estimated fair value of securities AFS for which an allowance for credit losses has not been recorded, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position.
 
March 31, 2020
 
Less than 12 months
 
12 months or more
 
Total
($ in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Number of
Securities
U.S. government agency securities
$

 
$

 
$
10,854

 
$
216

 
$
10,854

 
$
216

 
2

State, county and municipals
12,286

 
25

 

 

 
12,286

 
25

 
30

Mortgage-backed securities
9,261

 
32

 
17,829

 
89

 
27,090

 
121

 
50

Corporate debt securities
16,777

 
220

 

 

 
16,777

 
220

 
9

Total
$
38,324

 
$
277

 
$
28,683

 
$
305

 
$
67,007

 
$
582

 
91

 
December 31, 2019
 
Less than 12 months
 
12 months or more
 
Total
($ in thousands)
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
 
Number of
Securities
U.S. government agency securities
$
1,035

 
$
2

 
$
11,091

 
$
58

 
$
12,126

 
$
60

 
6

State, county and municipals
22,451

 
132

 
7,605

 
25

 
30,056

 
157

 
56

Mortgage-backed securities
49,626

 
245

 
47,271

 
452

 
96,897

 
697

 
150

Corporate debt securities

 

 

 

 

 

 

Total
$
73,112

 
$
379

 
$
65,967

 
$
535

 
$
139,079

 
$
914

 
212

The Company evaluates securities AFS in unrealized loss positions to determine whether the impairment is due to credit-related factors or noncredit-related factors. In making this evaluation, management considers the extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuer, and the intent and ability of the Company to hold the security for a period of time sufficient to allow for any anticipated recovery in fair value.
As of March 31, 2020, 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; thus, no allowance for credit losses on securities AFS was recorded. The Company has the ability and intent to hold its securities to maturity. There were no other-than-temporary impairments charged to earnings during the full year 2019.

13



The amortized cost and fair value of securities AFS by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties; as this is particularly inherent in mortgage-backed securities, these securities are not included in the maturity categories below.
 
March 31, 2020
(in thousands)
Amortized Cost
 
Fair Value
Due in less than one year
$
16,942

 
$
16,982

Due in one year through five years
235,471

 
237,604

Due after five years through ten years
35,066

 
35,929

Due after ten years
10,424

 
11,392

 
297,903

 
301,907

Mortgage-backed securities
203,575

 
209,953

Securities AFS
$
501,478

 
$
511,860

Proceeds and realized gains / losses from the sale of securities AFS were as follows.
 
Three Months Ended March 31,
(in thousands)
2020
 
2019
Gross gains
$

 
$
133

Gross losses

 
(120
)
Gains (losses) on sales of securities AFS, net
$

 
$
13

Proceeds from sales of securities AFS
$

 
$
8,076

Note 6Loans, Allowance for Credit Losses - Loans, and Credit Quality
The loan composition is summarized as follows.
 
March 31, 2020
 
December 31, 2019
(in thousands)
Amount
 
% of
Total
 
Amount
 
% of
Total
Commercial & industrial
$
831,257

 
32
%
 
$
806,189

 
31
%
Owner-occupied CRE
499,705

 
19

 
496,372

 
19

Agricultural
95,991

 
3

 
95,450

 
4

CRE investment
448,758

 
17

 
443,218

 
17

Construction & land development
96,055

 
4

 
92,970

 
4

Residential construction
52,945

 
2

 
54,403

 
2

Residential first mortgage
432,126

 
17

 
432,167

 
17

Residential junior mortgage
121,105

 
5

 
122,771

 
5

Retail & other
29,482

 
1

 
30,211

 
1

Loans
2,607,424

 
100
%
 
2,573,751

 
100
%
Less allowance for credit losses - Loans (“ACL-Loans”)
26,202

 
 
 
13,972

 
 
Loans, net
$
2,581,222

 
 
 
$
2,559,779

 
 
Allowance for credit losses - Loans to loans
1.00
%
 
 
 
0.54
%
 
 
Accrued interest on loans of $7 million at both March 31, 2020 and December 31, 2019 is included in accrued interest receivable and other assets on the consolidated balance sheets. See Note 1 for for the Company's accounting policy on accrued interest with respect to loans and the allowance for credit losses.
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.

14



A roll forward of the allowance for credit losses is summarized as follows.
 
Three Months Ended
 
Year Ended
(in thousands)
March 31, 2020
 
March 31, 2019
 
December 31, 2019
Beginning balance
$
13,972

 
$
13,153

 
$
13,153

Adoption of CECL
8,488

 

 

Initial PCD ACL
797

 

 

Total impact for adoption of CECL
9,285

 

 

Provision for credit losses
3,000

 
200

 
1,200

Charge-offs
(93
)
 
(10
)
 
(927
)
Recoveries
38

 
27

 
546

Net (charge-offs) recoveries
(55
)
 
17

 
(381
)
Ending balance
$
26,202

 
$
13,370

 
$
13,972

The following table presents the balance and activity in the ACL-Loans by portfolio segment.
 
TOTAL – Three Months Ended March 31, 2020
(in thousands)
Commercial
& industrial
 
Owner-
occupied
CRE
 
Agricultural
 
CRE
investment
 
Construction & land
development
 
Residential
construction
 
Residential
first mortgage
 
Residential
junior
mortgage
 
Retail
& other
 
Total
ACL-Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,471

 
$
3,010

 
$
579

 
$
1,600

 
$
414

 
$
368

 
$
1,669

 
$
517

 
$
344

 
$
13,972

Adoption of CECL
2,962

 
1,249

 
361

 
1,970

 
51

 
124

 
1,286

 
351

 
134

 
8,488

Initial PCD ACL
797

 

 

 

 

 

 

 

 

 
797

Provision
1,253

 
163

 
95

 
795

 
82

 
(50
)
 
533

 
102

 
27

 
3,000

Charge-offs

 

 

 
(20
)
 

 

 

 

 
(73
)
 
(93
)
Recoveries
30

 

 

 

 

 

 
1

 
3

 
4

 
38

Net (charge-offs) recoveries
30

 

 

 
(20
)
 

 

 
1

 
3

 
(69
)
 
(55
)
Ending balance
$
10,513

 
$
4,422

 
$
1,035

 
$
4,345

 
$
547

 
$
442

 
$
3,489

 
$
973

 
$
436

 
$
26,202

As % of ACL-Loans
40
%
 
17
%
 
4
%
 
16
%
 
2
%
 
2
%
 
13
%
 
4
%
 
2
%
 
100
%

For comparison purposes, the following table presents the balance and activity in the ACL-Loans by portfolio segment for the prior year-end period.
 
TOTAL – Year Ended December 31, 2019
(in thousands)
Commercial
& industrial
 
Owner-
occupied
CRE
 
Agricultural
 
CRE
investment
 
Construction
& land
development
 
Residential
construction
 
Residential
first
mortgage
 
Residential
junior
mortgage
 
Retail &
other
 
 
Total
ACL-Loans:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Beginning balance
$
5,271

 
$
2,847

 
$
422

 
$
1,470

 
$
510

 
$
211

 
$
1,646

 
$
472

 
$
304

 
$
13,153

Provision
(61
)
 
254

 
157

 
130

 
(96
)
 
383

 
9

 
86

 
338

 
1,200

Charge-offs
(159
)
 
(93
)
 

 

 

 
(226
)
 
(22
)
 
(80
)
 
(347
)
 
(927
)
Recoveries
420

 
2

 

 

 

 

 
36

 
39

 
49

 
546

Net (charge-offs) recoveries
261

 
(91
)
 

 

 

 
(226
)
 
14

 
(41
)
 
(298
)
 
(381
)
Ending balance
$
5,471

 
$
3,010

 
$
579

 
$
1,600

 
$
414

 
$
368

 
$
1,669

 
$
517

 
$
344

 
$
13,972

As % of ACL-Loans
39
%
 
22
%
 
4
%
 
11
%
 
3
%
 
3
%
 
12
%
 
4
%
 
2
%
 
100
%
The ACL-Loans at March 31, 2020 was estimated using the current expected credit loss model. See Note 1 for the Company's accounting policy on loans and the allowance for credit losses.
The ACL-Loans represents management’s estimate of expected credit losses in the Company’s loan portfolio at the balance sheet date. To assess the appropriateness of the ACL-Loans, an allocation methodology is applied by Nicolet which focuses on evaluation of qualitative and environmental factors, including but not limited to: (i) evaluation of facts and issues related to specific loans; (ii) management’s ongoing review and grading of the loan portfolio; (iii) consideration of historical loan loss and delinquency experience on each portfolio segment; (iv) trends in past due and nonperforming loans; (v) the risk characteristics of the various loan segments; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect expected credit losses. Assessing these numerous factors involves significant judgment.

15



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, all loans determined to be troubled debt restructurings (“restructured loans”), plus 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 ACL-Loans using the qualitative factors mentioned above. Consideration is given to those current qualitative or environmental factors that are likely to cause estimated credit losses as of the evaluation date to differ from the historical loss experience of each loan segment. Lastly, management considers reasonable and supportable forecasts to assess the collectability of future cash flows.
A loan is considered collateral dependent when the borrower is experiencing financial difficulty and repayment is expected to be provided substantially through the operation or sale of the collateral. The following table presents collateral dependent loans by portfolio segment and collateral type, including those loans with and without a related allowance allocation as of March 31, 2020.
March 31, 2020
Collateral Type
 
 
 
(in thousands)
Real Estate
Other Business Assets
Total
Without an Allowance
With an Allowance
Allowance Allocation
Commercial & industrial
$

$
5,544

$
5,544

$
978

$
4,566

$
1,683

Owner-occupied CRE
3,168


3,168

3,168



Agricultural
611

921

1,532

663

869

61

CRE investment
1,029


1,029

1,029



Construction & land development
533


533

533



Residential construction






Residential first mortgage






Residential junior mortgage






Retail & other






Total loans
$
5,341

$
6,465

$
11,806

$
6,371

$
5,435

$
1,744


The following table presents impaired loans and their respective allowance for credit loss allocations at December 31, 2019, as determined in accordance with historical accounting guidance.
 
Total Impaired Loans – December 31, 2019
(in thousands)
Recorded
Investment
 
Unpaid Principal
Balance
 
Related
Allowance
 
Average Recorded
Investment
 
Interest Income
Recognized
Commercial & industrial
$
5,932

 
$
7,950

 
$
625

 
$
5,405

 
$
1,170

Owner-occupied CRE
3,430

 
4,016

 

 
3,677

 
256

Agricultural
2,134

 
2,172

 
116

 
2,311

 
37

CRE investment
2,426

 
2,790

 

 
2,497

 
364

Construction & land development
382

 
382

 

 
460

 

Residential construction

 

 

 

 

Residential first mortgage
2,357

 
2,629

 

 
2,412

 
178

Residential junior mortgage
218

 
349

 

 
224

 
58

Retail & other
12

 
12

 

 
12

 

Total
$
16,891

 
$
20,300

 
$
741

 
$
16,998

 
$
2,063


16




Past Due and Nonaccrual Loans:
The following tables present past due loans by portfolio segment.
 
March 31, 2020
(in thousands)
30-89 Days Past
Due (accruing)
 
90 Days & Over or nonaccrual
 
Current
 
Total
Commercial & industrial
$
1,060

 
$
6,050

 
$
824,147

 
$
831,257

Owner-occupied CRE
1,961

 
3,837

 
493,907

 
499,705

Agricultural
1

 
1,801

 
94,189

 
95,991

CRE investment
484

 
1,029

 
447,245

 
448,758

Construction & land development
210

 
533

 
95,312

 
96,055

Residential construction
100

 

 
52,845

 
52,945

Residential first mortgage
1,985

 
953

 
429,188

 
432,126

Residential junior mortgage
249

 
566

 
120,290

 
121,105

Retail & other
80

 

 
29,402

 
29,482

Total loans
$
6,130

 
$
14,769

 
$
2,586,525

 
$
2,607,424

Percent of total loans
0.2
%
 
0.6
%
 
99.2
%
 
100.0
%
 
December 31, 2019
(in thousands)
30-89 Days Past
Due (accruing)
 
90 Days & Over or nonaccrual
 
Current
 
Total
Commercial & industrial
$
1,729

 
$
6,249

 
$
798,211

 
$
806,189

Owner-occupied CRE
112

 
3,311

 
492,949

 
496,372

Agricultural

 
1,898

 
93,552

 
95,450

CRE investment

 
1,073

 
442,145

 
443,218

Construction & land development
2,063

 
20

 
90,887

 
92,970

Residential construction
302

 

 
54,101

 
54,403

Residential first mortgage
2,736

 
1,090

 
428,341

 
432,167

Residential junior mortgage
217

 
480

 
122,074

 
122,771

Retail & other
110

 
1

 
30,100

 
30,211

Total loans
$
7,269

 
$
14,122

 
$
2,552,360

 
$
2,573,751

Percent of total loans
0.3
%
 
0.5
%
 
99.2
%
 
100.0
%
The following table presents nonaccrual loans by portfolio segment. The nonaccrual loans without a related allowance for credit losses have been reflected in the collateral dependent loans table above.
 
March 31, 2020
 
December 31, 2019
(in thousands)
Nonaccrual Loans
% of Total
 
Nonaccrual Loans
% of Total
Commercial & industrial
$
6,050

41
%
 
$
6,249

44
%
Owner-occupied CRE
3,837

26

 
3,311

23

Agricultural
1,801

12

 
1,898

14

CRE investment
1,029

7

 
1,073

8

Construction & land development
533

4

 
20


Residential construction


 


Residential first mortgage
953

6

 
1,090

8

Residential junior mortgage
566

4

 
480

3

Retail & other


 
1


Nonaccrual loans
$
14,769

100
%
 
$
14,122

100
%
Percent of total loans
0.6
%
 
 
0.5
%
 


17



Credit Quality Information:
The following table presents total loans by risk categories and year of origination.
March 31, 2020
Amortized Cost Basis by Origination Year
 
 
 
(in thousands)
2020
2019
2018
2017
2016
Prior
Revolving
Revolving to Term
TOTAL
Commercial & industrial
 
 
 
 
 
 
 
 
 
Grades 1-4
$
45,598

$
151,079

$
118,171

$
77,690

$
31,727

$
64,618

$
291,990

$

$
780,873

Grade 5
39

3,470

7,446

576

1,479

2,830

7,845


23,685

Grade 6

23

823

4

1

37

4,946


5,834

Grade 7
113

2,078

1,115

1,404

1,372

7,393

7,390


20,865

Total
$
45,750

$
156,650

$
127,555

$
79,674

$
34,579

$
74,878

$
312,171

$

$
831,257

 
 
 
 
 
 
 
 
 
 
Owner-occupied CRE
 
 
 
 
 
 
 
 
 
Grades 1-4
$
21,337

$
68,525

$
84,981

$
64,514

$
50,402

$
175,204

$
2,340

$

$
467,303

Grade 5

576

1,706

7,882

396

6,676

488


17,724

Grade 6



1,749


56



1,805

Grade 7

168

285

2,197

1,797

8,426



12,873

Total
$
21,337

$
69,269

$
86,972

$
76,342

$
52,595

$
190,362

$
2,828

$

$
499,705

 
 
 
 
 
 
 
 
 
 
Agricultural
 
 
 
 
 
 
 
 
 
Grades 1-4
$
4,321

$