S-4 1 d30138.htm S-4

As filed with the Securities and Exchange Commission on February 1, 2013

Registration No. 333-____

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-4

REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

NICOLET BANKSHARES, INC.
(Exact name of registrant as specified in its charter)

Wisconsin (State or other jurisdiction of incorporation or organization)				6021 (Primary Standard Industrial Classification Code Number)				47-0871001 (I.R.S. Employer Identification No.)
111 North Washington Street Green Bay, Wisconsin 54301 (920) 430-1400 (Address, including zip code, and telephone number, including area code, of Registrant’s principal executive offices)

Robert B. Atwell
Chairman, President, and Chief Executive Officer
Nicolet Bankshares, Inc.
111 North Washington Street
Green Bay, Wisconsin 54301
(920) 430-1400

(Name, address, including zip code, and telephone number, including
area code, of agent for service)

Copies to:
Katherine M. Koops, Esq. Bryan Cave LLP 1201 West Peachtree Street, NW Atlanta, Georgia (404) 572-6600				Robert M. Fleetwood, Esq. Barack Ferrazzano Kirschbaum & Nagelberg, LLP 220 West Madison Street, Suite 3900 Chicago, Illinois 60606 (312) 984-3100

Approximate Date of Commencement of Proposed Sale of the Securities to the Public: As soon as practicable after the effective date of this Registration Statement and the satisfaction or waiver of all other conditions to the proposed merger described herein.

If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box. o

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o __________

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o
(Do not check if a smaller reporting company)

Smaller reporting company [X]

Title of each class of securities to be registered				Amount to be registered⁽¹⁾				Proposed maximum offering price per unit				Proposed maximum aggregate offering price⁽²⁾				Amount of registration fee⁽³⁾
Common stock, $0.01 par value				617,608				Not applicable				$9,611,290.20				$1,310.98

(1)

The maximum number of shares of Nicolet Bankshares, Inc. (“Nicolet”) common stock estimated to be issuable upon completion of the merger of Nicolet and Mid-Wisconsin Financial Services, Inc. (“MWFS”), as described herein. This number is based on 617,608 shares of Nicolet common stock issuable in exchange for all shares of MWFS common stock issued and outstanding immediately prior to the completion of the merger, pursuant to the terms of the Agreement and Plan of Merger by and between Nicolet and MWFS, dated as of November 28, 2012, and, as amended, attached to the joint proxy statement-prospectus as Appendix A, and assuming that no cash will be paid by the registrant in connection with the merger.

(2)

The proposed maximum aggregate offering price of the registrant’s common stock was calculated based upon the market value of shares of MWFS common stock (the securities to be cancelled in the merger) in accordance with Rules 457(c) and 457(f) under the Securities Act as follows: (A) the product of (i) $5.80, the average of the high and low prices per share of MWFS common stock as reported on the OTCQB on January 30, 2013, and (ii) 1,657,119, the estimated maximum number of shares of MWFS common stock that may be exchanged for the merger consideration.

(3)

Computed pursuant to Rules 457(f) and 457(c) under the Securities Act, based on a rate of $136.40 per $1,000,000 of the proposed maximum aggregate offering price.

The registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment that specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.

The information in this joint proxy statement-prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This joint proxy statement-prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Preliminary — Subject to Completion Dated February __, 2013


PROXY STATEMENT OF MID-WISCONSIN FINANCIAL SERVICES, INC.				PROXY STATEMENT AND PROSPECTUS OF NICOLET BANKSHARES, INC.

PROPOSED MERGER — YOUR VOTE IS VERY IMPORTANT

The boards of directors of Mid-Wisconsin Financial Services, Inc. (“Mid-Wisconsin”) and Nicolet Bankshares, Inc. (“Nicolet”) have each unanimously approved a transaction that will result in the merger of Mid-Wisconsin with and into Nicolet. Nicolet will be the surviving bank holding company in the merger. If the merger is completed, Mid-Wisconsin shareholders will receive for each of their shares 0.3727 shares of Nicolet common stock or, for holders of 200 or fewer shares of Mid-Wisconsin common stock (subject to adjustment as described herein) or residents of states in which the Nicolet common stock cannot be offered without unreasonable effort or expense, $6.15 in cash. After the merger is completed, we expect that current Nicolet shareholders will own approximately 84.9% of the issued and outstanding common stock of the combined company and current Mid-Wisconsin shareholders will own approximately 15.1% of the combined issued and outstanding shares of common stock of the company.

The Nicolet common stock issued pursuant to the merger will be registered under the Securities Act of 1933, as amended. Although Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system at or before the closing of the merger, its common stock is not currently traded on any securities exchange or quotation system.

We cannot complete the merger unless we obtain the necessary governmental approvals and unless the shareholders of both companies approve the merger agreement. Each of us is asking our shareholders to consider and vote on this merger proposal at our respective companies’ special meetings of shareholders. Whether or not you plan to attend your company’s meeting, please take the time to vote by following the voting instructions included in the enclosed proxy card. If you sign, date and mail your proxy card without indicating how you want to vote, your proxy will be counted as a vote FOR the merger agreement. If you do not vote your shares as instructed in the enclosed proxy card, or if you do not instruct your broker how to vote any shares held for you in “street name,” the effect will be a vote against the merger agreement.

The places, dates and times of the shareholders’ meetings are as follows:

For shareholders of Nicolet: For shareholders of Mid-Wisconsin:

This document contains a more complete description of the shareholders’ meetings and the terms of the merger. We urge you to review this entire document carefully. You may also obtain information about Mid-Wisconsin from documents that it has filed with the Securities and Exchange Commission and information about Nicolet’s and Mid-Wisconsin’s respective bank subsidiaries from Call Reports that they have filed with the Federal Deposit Insurance Corporation.

Nicolet and the Mid-Wisconsin boards of directors recommend that the Nicolet and Mid-Wisconsin shareholders, respectively, vote FOR approval of the merger agreement.

[Signature]				[Signature]

Robert B. Atwell Chairman, President and Chief Executive Officer Nicolet Bankshares, Inc.				Kim A. Gowey Chairman of the Board Mid-Wisconsin Financial Services, Inc.

You should read this entire joint proxy statement-prospectus carefully because it contains important information about the merger. In particular, you should read carefully the information under the section entitled “Risk Factors,” beginning on page 15.

Neither the Securities and Exchange Commission nor any state securities regulators have approved or disapproved of the securities to be issued in the merger or determined if this document is truthful or complete. Any representation to the contrary is a criminal offense.

The shares of Nicolet common stock to be issued in the merger are not deposits or savings accounts or other obligations of any bank or savings association and are not insured by the Federal Deposit Insurance Corporation or any other governmental agency.

This joint proxy statement-prospectus is dated ______________, 2013 and is first being mailed to Mid-Wisconsin’s shareholders on or about _____________, 2013 and to Nicolet’s shareholders on or about ______________, 2013.

PLEASE NOTE

We have not authorized anyone to provide you with any information other than the information included in this joint proxy statement-prospectus and the documents to which we refer you herein. If someone provides you with other information, please do not rely on it as being authorized by us.

This joint proxy statement—prospectus has been prepared as of the date on the cover page. There may be changes in the affairs of Nicolet or Mid-Wisconsin since that date that are not reflected in this document.

As used in this joint proxy statement-prospectus, the terms “Nicolet” and “Mid-Wisconsin” refer to Nicolet Bankshares, Inc. and Mid-Wisconsin Financial Services, Inc., respectively, and, where the context requires, “Nicolet” may refer to Nicolet Bankshares, Inc. and its subsidiary, Nicolet National Bank. Similarly, where context requires, “Mid-Wisconsin” may refer to Mid-Wisconsin Financial Services, Inc. and its subsidiary, Mid-Wisconsin Bank.

Unless the context indicates otherwise, all references to the “merger agreement” refer to the Agreement and Plan of Merger dated November 28, 2012 by and among Nicolet and Mid-Wisconsin, as amended by Amendment No. 1 thereto dated January 17, 2013.

MID-WISCONSIN FINANCIAL SERVICES, INC.
132 West State Street
Medford, Wisconsin 54451

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 2013

To the Shareholders of Mid-Wisconsin Financial Services, Inc.:

Mid-Wisconsin Financial Services, Inc. will hold a special meeting of shareholders at ______________________, on ___________, 2013 at ____ __.m., local time, for the following purposes:

1. Merger. To authorize, approve and adopt the Agreement and Plan of Merger, as amended, by and among Nicolet Bankshares, Inc. and Mid-Wisconsin Financial Services, Inc., pursuant to which Mid-Wisconsin will merge with and into Nicolet on and subject to the terms and conditions contained therein. A copy of the merger agreement, as amended, is attached to the accompanying joint proxy statement-prospectus as Appendix A.

2. Other business. To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Only shareholders of record at the close of business on __________, 2013, the record date, are entitled to notice of and to vote at the special meeting or any adjournments or postponements of the special meeting. The approval of the Agreement and Plan of Merger requires the affirmative vote of at least a majority of the shares of Mid-Wisconsin common stock issued and outstanding on the record date.

After careful consideration, your board of directors supports the merger and unanimously recommends that you vote FOR approval of the Agreement and Plan of Merger.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special meeting, please take the time to vote by following the instructions in the enclosed proxy card. You may revoke your proxy at any time before it is voted by giving written notice of revocation to Mid-Wisconsin’s Corporate Secretary or by filing a properly executed proxy card of a later date with Mid-Wisconsin’s Corporate Secretary at or before the meeting. You may also revoke your proxy by attending the meeting, giving oral notice of your revocation, and voting your shares in person at the meeting.

Mid-Wisconsin’s shareholders have dissenters’ rights with respect to the merger under Wisconsin law. Shareholders who wish to assert their dissenters’ rights and comply with the procedural requirements of Subchapter XIII of the Wisconsin Business Corporation Law will be entitled to receive payment of the fair value of their shares in cash in accordance with Wisconsin law. A copy of Subchapter XIII of the Wisconsin Business Corporation Law is attached as Appendix B to the joint proxy statement-prospectus.

We do not know of any other matters to be presented at the special meeting, but if other matters are properly presented, the persons named as proxies will vote on such matters at their discretion.

Medford, Wisconsin
__________, 2013

NICOLET BANKSHARES, INC.
111 North Washington Street
Green Bay, Wisconsin 54301

NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON ______________, 2013

To the Shareholders of Nicolet Bankshares, Inc.:

Nicolet Bankshares, Inc. will hold a special meeting of shareholders at ________________________, on ________, 2013 at ____ __.m., local time, for the following purposes:

2. Other business. To transact such other business as may properly come before the special meeting or any adjournments or postponements of the special meeting.

Only shareholders of record at the close of business on __________, 2013, the record date, are entitled to notice of and to vote at the special meeting or any adjournments or postponements of the special meeting. The approval of the Agreement and Plan of Merger requires the affirmative vote of at least a majority of the shares of Nicolet common stock issued and outstanding on the record date.

After careful consideration, your board of directors supports the merger and unanimously recommends that you vote FOR approval of the Agreement and Plan of Merger.

YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend the special meeting, please take the time to vote by following the voting instructions included in the enclosed proxy card. You may revoke your proxy at any time before it is voted by giving written notice of revocation to Nicolet’s Corporate Secretary or by filing a properly executed proxy card of a later date with Nicolet’s Corporate Secretary at or before the meeting. You may also revoke your proxy by attending the meeting, giving oral notice of your revocation, and voting your shares in person at the meeting.

Nicolet’s shareholders have dissenters’ rights with respect to the merger under Wisconsin law. Shareholders who wish to assert their dissenters’ rights and comply with the procedural requirements of Subchapter XIII of the Wisconsin Business Corporation Law will be entitled to receive payment of the fair value of their shares in cash in accordance with Wisconsin law. A copy of Subchapter XIII of the Wisconsin Business Corporation Law is attached as Appendix B to the joint proxy statement-prospectus.

We do not know of any other matters to be presented at the special meeting, but if other matters are properly presented, the persons named as proxies will vote on such matters at their discretion.

				By Order of the Board of Directors

				Robert B. Atwell Chairman, President and Chief Executive Officer

Green Bay, Wisconsin
_______, 2013

TABLE OF CONTENTS

				Page
QUESTIONS AND ANSWERS					i

SUMMARY					1
THE COMPANIES					1
THE MERGER AGREEMENT					2
WHAT YOU WILL RECEIVE IN THE MERGER					2
EFFECT OF THE MERGER ON MID-WISCONSIN OPTIONS					2
YOUR EXPECTED TAX TREATMENT AS A RESULT OF THE MERGER					3
DISSENTERS’ RIGHTS					3
COMPARATIVE STOCK PRICES					3
REASONS FOR THE MERGER					3
OPINION OF MID-WISCONSIN’S FINANCIAL ADVISOR					5
OPINION OF NICOLET’S FINANCIAL ADVISOR					5
BOTH BOARDS OF DIRECTORS RECOMMEND SHAREHOLDER APPROVAL OF THE MERGER AGREEMENT					5
INFORMATION ABOUT THE SHAREHOLDERS’ MEETINGS					5
QUORUM AND VOTE REQUIRED AT THE MEETINGS					6
SHARE OWNERSHIP OF MANAGEMENT					6
STRUCTURE OF THE MERGER					6
WE MUST OBTAIN REGULATORY APPROVAL TO COMPLETE THE MERGER					7
WE MUST MEET SEVERAL CONDITIONS TO COMPLETE THE MERGER					7
TERMINATION AND TERMINATION FEE					8
MID-WISCONSIN’S DIRECTORS AND EXECUTIVE OFFICERS HAVE INTERESTS IN THE MERGER THAT DIFFER FROM ITS SHAREHOLDERS’ INTERESTS					8
EMPLOYEE BENEFITS OF MID-WISCONSIN EMPLOYEES AFTER THE MERGER					8
DIFFERENCES IN RIGHTS OF MID-WISCONSIN’S SHAREHOLDERS AFTER THE MERGER					9
ACCOUNTING TREATMENT					9

UNAUDITED COMPARATIVE PER SHARE DATA					10

SELECTED UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION					11

RISK FACTORS					15

A WARNING ABOUT FORWARD-LOOKING STATEMENTS					26

THE MID-WISCONSIN SPECIAL SHAREHOLDERS’ MEETING					27
PURPOSE					27
RECORD DATE; QUORUM AND VOTE REQUIRED					27
SOLICITATION AND REVOCATION OF PROXIES					28
DISSENTERS’ RIGHTS					29
RECOMMENDATION OF THE BOARD OF DIRECTORS OF MID-WISCONSIN					29

THE NICOLET SPECIAL SHAREHOLDERS’ MEETING					30

PROPOSAL 1: THE MERGER AGREEMENT					33
BACKGROUND OF THE MERGER					33
REASONS FOR THE MERGER					35

OPINION OF MID-WISCONSIN’S FINANCIAL ADVISOR					37

OPINION OF NICOLET’S FINANCIAL ADVISOR					45

THE MERGER AGREEMENT					54

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER					66

CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS					71

DISSENTERS’ RIGHTS					76

				Page

BUSINESS OF NICOLET					83
GENERAL					83
BUSINESS AND PROPERTIES					84
COMPETITION					86
EMPLOYEES					86
LEGAL PROCEEDINGS					86
MARKET PRICES OF AND DIVIDENDS DECLARED ON NICOLET COMMON STOCK					86
CERTAIN PROVISIONS OF NICOLET’S ARTICLES OF INCORPORATION AND BYLAWS REGARDING CHANGE OF CONTROL					87

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT					88

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NICOLET					90

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION					92

MANAGEMENT OF NICOLET					137
CONTINUING DIRECTORS					137
NEW DIRECTORS OF THE COMBINED ENTITY					138
NOMINATIONS					139
DIRECTOR COMPENSATION					140
EXECUTIVE OFFICERS					140

EXECUTIVE COMPENSATION					141

RELATED PARTY TRANSACTIONS					144

INFORMATION ABOUT MID-WISCONSIN					145
AVAILABLE INFORMATION					145
MARKET PRICES OF AND DIVIDENDS DECLARED ON MID-WISCONSIN COMMON STOCK					146

SUPERVISION AND REGULATION					147

OTHER MATTERS					159

EXPERTS					159

LEGAL MATTERS					159

IMPORTANT NOTICE FOR MID-WISCONSIN’S SHAREHOLDERS					159

WHERE YOU CAN FIND ADDITIONAL INFORMATION					160

CONSOLIDATED FINANCIAL STATEMENTS OF NICOLET BANKSHARES, INC.					F-1

QUESTIONS AND ANSWERS

On what am I being asked to vote?

You are being asked to approve the Agreement and Plan of Merger, as amended, by and between Nicolet and Mid-Wisconsin which we may refer to as the merger agreement, and which provides for the merger of Mid-Wisconsin with and into Nicolet.

Why have Nicolet and Mid-Wisconsin decided to merge?

Nicolet and Mid-Wisconsin agreed to merge for strategic reasons that benefit both parties. Their boards of directors believe that the merger will stabilize Mid-Wisconsin’s operations while allowing Nicolet to expand and enter into new markets.

How does my board of directors recommend I vote on the merger agreement?

The boards of directors of Mid-Wisconsin and Nicolet have unanimously approved and adopted the merger agreement and recommend that their respective shareholders vote “FOR” approval of the merger agreement.

What will happen to Nicolet National Bank and Mid-Wisconsin Bank as a result of the merger?

If the merger occurs, Mid-Wisconsin Bank, which is a wholly owned subsidiary of Mid-Wisconsin, will be merged with and into Nicolet National Bank, which is a wholly owned subsidiary of Nicolet. We may refer to this transaction as the bank merger. Nicolet National Bank will be the surviving entity in the bank merger.

What vote is required to approve the merger agreement?

Approval of the merger agreement requires the affirmative vote of a majority of the issued and outstanding shares of Mid-Wisconsin common stock as of [MWFS record date] and the affirmative vote of a majority of the issued and outstanding shares of Nicolet common stock as of [Nicolet record date].

What will I receive in the merger?

Mid-Wisconsin shareholders will receive for each of their shares either (i) 0.3727 shares of Nicolet common stock or, (ii) for holders of 200 or fewer shares of Mid-Wisconsin common stock (subject to adjustment as described herein) or residents of states in which the Nicolet common stock cannot be offered without unreasonable effort or expense, $6.15 in cash. In lieu of any fractional shares of Nicolet common stock, Mid-Wisconsin shareholders will receive $16.50 per share in cash, which is the per share value assigned the Nicolet common stock for purposes of the merger. After the merger is completed, we expect that current Nicolet shareholders will own approximately 84.9% of the issued and outstanding shares of common stock of the combined company and current Mid-Wisconsin shareholders will own approximately 15.1% of the issued and outstanding shares of common stock of the combined company. See page __ for further explanation.

What are the federal income tax consequences of the merger to me?

Bryan Cave LLP has issued an opinion, which it will confirm as of the effective date of the merger, that the merger will qualify as a reorganization under Section 368(a) of the Internal Revenue Code. Mid-Wisconsin shareholders receiving stock consideration in the merger will not recognize gain for U.S. federal income tax purposes as a result of the surrender of Mid-Wisconsin common stock for receipt of Nicolet common stock. However, to the extent that shareholders may receive cash either as a result of the exercise of dissenters’ rights, in lieu of a state-restricted fractional share, because they hold fewer than 200 shares of Mid-Wisconsin common stock, or because they are residents of states in which Nicolet common stock cannot be offered without unreasonable effort or expense, they may recognize gain for U.S. federal income tax purposes. Your tax treatment will depend on your specific situation and many variables not within our control. You should consult your own tax advisor for a full understanding of the tax consequences of the merger to you.

When do you expect the merger to be completed?

We are working to complete the merger in the second quarter of 2013, shortly after the special shareholders’ meetings, assuming Mid-Wisconsin and Nicolet shareholders and the applicable bank regulatory agencies approve the merger and other conditions to closing are met. We could experience delays in meeting these conditions or be unable to meet them at all. See “Risk Factors” beginning on page 15 for a discussion of these and other risks relating to the merger.

Will I be able to sell the Nicolet common stock I receive pursuant to the merger?

Yes. The Nicolet common stock issued pursuant to the merger will be registered under the Securities Act of 1933, as amended, and Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system at or before closing of the merger. All shares of Nicolet common stock that you receive pursuant to the merger will be freely transferable unless you are deemed an affiliate of Nicolet. Affiliates of Nicolet may, however, be able to sell the shares they receive pursuant to the merger subject to applicable securities regulations. See “Resale of Nicolet Common Stock” on page 63.

What should I do now?

After carefully reading and considering the information in this joint proxy statement-prospectus, follow the voting instructions included in the enclosed proxy card in order to vote your shares as soon as possible, so that your shares will be represented at your company’s special meeting.

NOTE: If you sign and send in your proxy card and do not indicate how you want to vote, your proxy will be voted “FOR” the proposal to approve the merger agreement.

What if I do not vote?

If you do not vote, it will have the same effect as voting your shares against the merger.

If my shares are held in “street name” by my broker, will my broker automatically vote my shares for me?

No. Your broker will vote your shares of stock on the merger agreement only if you provide instructions on how to vote. You should instruct your broker on how to vote your shares, following the directions your broker provides. If you do not provide instructions to your broker, and your broker submits an unvoted proxy, the resulting broker nonvote will not be counted toward a quorum and your shares will not be voted at your company’s special meeting, which will have the same effect as voting your shares against the merger.

Can I change my vote after I deliver my proxy?

Yes. You can change your vote at any time before your proxy is voted at the special meeting. You can do this in three ways. First, you can revoke your proxy by giving written notice of revocation to your company’s Corporate Secretary. Second, you can submit a new properly executed proxy with a later date to your company’s Corporate Secretary at or before your company’s special meeting. The latest proxy actually received before the meeting will be counted, and any earlier proxies will be revoked. Third, you can attend your company’s special meeting, give oral notice of your revocation, and vote your shares in person. Any earlier proxy will be thereby revoked. However, simply attending the meeting without voting will not revoke your proxy. If you hold shares in “street name,” you must contact your broker prior to your company’s special meeting if you wish to revoke your proxy or change your vote.

Should I send in my stock certificates now?

No. If you are a Nicolet shareholder, your shares of Nicolet common stock will remain outstanding and unchanged in the merger. Consequently, you do not need to surrender your stock certificates or exchange them for new ones.

If you are a Mid-Wisconsin shareholder and the merger is completed, Nicolet’s exchange agent will send all Mid-Wisconsin shareholders written instructions for exchanging Mid-Wisconsin common stock

certificates for the merger consideration they are entitled to receive. In any event, do not send your stock certificates with your proxy card.

Who can help answer my questions?

If you would like additional copies of this document, or if you would like to ask any questions about the merger and related matters, you should contact:

For Mid-Wisconsin shareholders: _______________, Mid-Wisconsin Financial Services, Inc., 132 West State Street, Medford, Wisconsin, 54451, telephone: (____) ____________.

For Nicolet shareholders: Robert B. Atwell, Nicolet Bankshares, Inc., 111 North Washington Street, Green Bay, Wisconsin 54301, telephone: (920) 430-1400.

iii

SUMMARY

We have prepared this summary of certain material information to assist you in your review of this joint proxy statement-prospectus. It is necessarily general and abbreviated, and it is not intended to be a complete explanation of all of the matters covered in this joint proxy statement-prospectus. To understand the merger and the issuance of cash and shares of Nicolet common stock in the merger, please see the more complete and detailed information in the sections that follow this summary, as well as the financial statements and appendices included in this joint proxy statement-prospectus by reference. For more information about Nicolet or Mid-Wisconsin, please see the section entitled “Where You Can Find Additional Information.” We urge you to read all of these documents in their entirety prior to returning your proxy or voting at the special meeting of your company’s shareholders.

Each item in this summary refers to the page of this document on which that subject is discussed in more detail.

The Companies
(See page ___ for Nicolet and page ___ for Mid-Wisconsin)

NICOLET BANKSHARES, INC.
111 North Washington Street
Green Bay, Wisconsin 54301
(920) 430-1400

Nicolet is a Wisconsin corporation and was incorporated as Green Bay Financial Corporation, a Wisconsin corporation, on April 5, 2000 to serve as the holding company for and the sole shareholder of Nicolet National Bank. It amended and restated its articles of incorporation and changed its name to Nicolet Bankshares, Inc. on March 14, 2002. It subsequently became the holding company for Nicolet National Bank upon completion of Nicolet National Bank’s reorganization into a holding company structure on June 6, 2002.

Nicolet is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and under the bank holding company laws of the State of Wisconsin. It conducts operations through its wholly-owned subsidiary, Nicolet National Bank, which was organized in 2000 as a national bank under the laws of the United States and opened for business on November 1, 2000. Nicolet National Bank provides a full range of traditional banking services throughout northeastern Wisconsin and the upper peninsula of Michigan. Nicolet offers commercial, retail and wealth management services through 11 branch locations in Green Bay, De Pere, Appleton, Marinette and Crivitz, Wisconsin and Menominee, Michigan.

As of September 30, 2012, Nicolet had consolidated total assets of approximately $683 million, consolidated total gross loans of approximately $546 million, consolidated total deposits of approximately $555 million and consolidated shareholders’ equity of approximately $77 million.

MID-WISCONSIN FINANCIAL SERVICES, INC.
132 West State Street
Medford, Wisconsin 54451
(715) 748-8300

Mid-Wisconsin Financial Services, Inc. is a registered bank holding company headquartered in Medford, Wisconsin. Mid-Wisconsin Bank, Mid-Wisconsin’s wholly-owned banking subsidiary was incorporated on September 1, 1890, as a state bank under the laws of Wisconsin. Mid-Wisconsin Bank operates 11 retail banking locations throughout North Central Wisconsin serving markets in Clark, Eau Claire, Marathon, Oneida, Price, Taylor and Vilas Counties.

As of September 30, 2012, Mid-Wisconsin had consolidated total assets of approximately $464 million, consolidated total gross loans of approximately $308 million, consolidated total deposits of approximately $364 million and consolidated shareholders’ equity of approximately $37 million.

The Merger Agreement
(See page 54)

Under the terms of the merger agreement, Mid-Wisconsin will merge with and into Nicolet with Nicolet being the surviving corporation. Following the merger of Mid-Wisconsin with and into Nicolet, Mid-Wisconsin Bank will merge with and into Nicolet National Bank with Nicolet National Bank being the surviving bank. Both Nicolet and Nicolet National Bank will continue their existence under Wisconsin law and the laws of the United States, respectively, while Mid-Wisconsin and Mid-Wisconsin Bank will cease to exist. The merger agreement is attached to this document as Appendix A and is incorporated into this joint proxy statement-prospectus by reference. We encourage you to read the entire merger agreement carefully as it is the legal document that governs the proposed merger.

What You Will Receive in the Merger
(See page 54)

If the merger is completed, Mid-Wisconsin shareholders will receive 0.3727 shares of Nicolet common stock for each of their shares except in the circumstances described below.

Fractional Shares. No fractional shares of Nicolet common stock will be issued in connection with the merger. Instead, Nicolet will make a cash payment without interest to each shareholder of Mid-Wisconsin who would otherwise receive a fractional share of Nicolet common stock. The amount of such cash payment will be determined by multiplying the fraction of a share of Nicolet common stock otherwise issuable to such shareholder by $16.50, the value attributed to each share of Nicolet common stock solely for purposes of this transaction.

State-Restricted Shares. A record holder of shares of Mid-Wisconsin common stock who resides in a state in which shares of Nicolet common stock cannot be issued in the merger under that state’s securities laws without commercially unreasonable effort or expense will receive, in lieu of shares of Nicolet common stock, $6.15 in cash for each share of Mid-Wisconsin common stock he, she or it owns. In this joint proxy statement-prospectus, we refer to these shares as “state-restricted shares.” Nicolet will be permitted to issue its common stock in the merger based on a self-executing exemption that is available in all states except the District of Columbia, Minnesota, New Hampshire, New York, and Utah. In those states, a notice or other filing is required. Although Nicolet presently anticipates that it will be able to issue stock in the merger in those states as well without unreasonable commercial effort or expense, it is possible that it could encounter a condition to issuance that would make it economically unreasonable to issue shares to any shareholders residing in that state.

Effect of the Merger on Mid-Wisconsin Options
(See page 56)

As of September 30, 2012, there were 30,510 outstanding options to purchase Mid-Wisconsin common stock, with a weighted average exercise price of $28.13 per share. The merger agreement requires that all outstanding options to acquire Mid-Wisconsin common stock be cancelled effective upon the closing of the merger without payment.

Your Expected Tax Treatment as a Result of the Merger
(See page ___)

We expect that Mid-Wisconsin shareholders who receive only Nicolet common stock for their shares of Mid-Wisconsin common stock will not recognize any gain or loss for U.S. federal income tax purposes as a result of the merger. The completion of the merger is conditioned on receipt of a tax opinion from Bryan Cave LLP that the merger qualifies as a tax-free reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”) and that Mid-Wisconsin shareholders will not recognize gain or loss in connection with the exchange of their shares (except with respect to any cash received). The opinion will not bind the Internal Revenue Service, which could take a different view. This tax treatment will not apply to any Mid-Wisconsin shareholder who receives cash consideration in the merger in exchange for Mid-Wisconsin common stock, or who receives cash pursuant to the exercise of dissenters’ rights.

Any shareholder of Mid-Wisconsin who receives cash in the merger, as a result of perfecting dissenters’ rights under Wisconsin law, or otherwise, will recognize gain to the extent the cash received exceeds the shareholder’s tax basis in his or her Mid-Wisconsin common stock. See “Material Federal Income Tax Consequences of the Merger” for a more detailed discussion of the tax consequences of the merger.

Determining the actual tax consequences of the merger to you as an individual taxpayer can be complicated. The tax treatment will depend on your specific situation and many variables not within our control. For these reasons, we recommend that you consult your tax advisor concerning the federal and any applicable state, local or other tax consequences of the merger to you.

Dissenters’ Rights
(See page ___)

If the merger is completed, shareholders of Mid-Wisconsin or Nicolet who do not vote for the merger and who follow certain procedures as required by Wisconsin law and described in this joint proxy statement-prospectus will be entitled to exercise dissenters’ rights and receive the “fair value” of their shares in cash under Wisconsin law. If you assert and perfect your dissenters’ rights, you will not receive any merger consideration but will be entitled to receive the “fair value” of your shares of stock in cash as determined in accordance with Wisconsin law. The “fair value” of your shares may be more or less than the consideration to be paid in the merger. Appendix B includes the relevant provisions of Wisconsin law regarding these rights. See “Dissenters’ Rights” beginning on page __ of this joint proxy statement-prospectus.

Comparative Stock Prices
(See page __ for Nicolet and page __ for Mid-Wisconsin)

Nicolet. The Nicolet common stock does not currently trade on any securities exchange or interdealer quotation system, but Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system on or before the closing date of the merger. The last known sale price for a share of Nicolet common stock prior to the mailing of this joint proxy statement-prospectus was $ ______ on _________, 2013.

Mid-Wisconsin. The Mid-Wisconsin common stock currently trades on the OTCQB market of the OTC Markets Group, Inc. under the symbol “MWFS.” The last known sale price for a share of Mid-Wisconsin common stock prior to the mailing of this joint proxy statement-prospectus was $_____ on ___________, 2013.

Reasons for the Merger
(See page 35)

Nicolet

In deciding to pursue an acquisition of Mid-Wisconsin, Nicolet’s management and board of directors noted, among other things, the following:

•

information concerning the business, operations, earnings, asset quality, and financial condition of Mid-Wisconsin and Mid-Wisconsin Bank;

•

the financial terms of the merger, including the relationship of the value of the consideration issuable in the merger to the market value, tangible book value, and earnings per share of Mid-Wisconsin’s common stock;

•

the ability of Mid-Wisconsin’s operations to contribute to Nicolet’s earnings after the merger;

•

the recent comparative earnings and financial performance of Mid-Wisconsin and Nicolet;

•

the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the proposed merger;

•

the various effects of Nicolet becoming a public reporting company under the regulation of the Securities and Exchange Commission (the “SEC”) as a result of the merger, including increased liquidity for holders of Nicolet’s common stock;

•

evaluation of redemption strategies available to Mid-Wisconsin and Nicolet for the preferred stock issued by Mid-Wisconsin to the U.S. Treasury (“Treasury”) under the Troubled Asset Relief Program Capital Purchase Program (“TARP”);

•

the compatibility of Mid-Wisconsin’s management team, strategic objectives and geographic footprint with those of Nicolet;

•

the opportunity to leverage the infrastructure of Nicolet;

•

the nonfinancial terms of the merger, including the treatment of the merger as a tax-free reorganization for U.S. federal income tax purposes;

•

the opinion of Sandler O’Neill + Partners, L.P. (“Sandler O’Neill”) that the consideration to be received by Mid-Wisconsin’s common shareholders in the merger is fair, from a financial point of view, to the shareholders of Nicolet; and

•

the likelihood of the merger being approved by applicable regulatory authorities without undue conditions or delay.

Mid-Wisconsin

In deciding to engage in the merger transaction, Mid-Wisconsin’s board of directors consulted with its management, as well as its legal counsel and financial advisor, and considered numerous factors, including the following:

•

the value of the consideration to be received by Mid-Wisconsin’s shareholders compared to shareholder value for Mid-Wisconsin as an independent entity;

•

information concerning business, operations, earnings, asset quality, and financial condition, prospects, and capital levels of Mid-Wisconsin and Nicolet, both individually and as a combined entity;

•

the perceived risks and uncertainties attendant to Mid-Wisconsin’s operation as an independent banking organization, including risks and uncertainties related to the continuing deferral of dividends and interests on its Fixed Rate Cumulative Preferred Stock, Series A (the “Series A Preferred Stock”) and its Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “Preferred Stock”) and Floating/Fixed Rate Junior Subordinated Deferrable Interest Debentures, due 2035 (the “Debentures”), the continuing low-interest rate environment, operating under enhanced regulatory scrutiny and the formal written agreements between Mid-Wisconsin and the Federal Deposit Insurance Corporation (the “FDIC”) and the Wisconsin Department of Financial Institutions (“WDFI”), and increased capital requirements;

•

the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the proposed merger;

•

the receipt of the stock consideration by Mid-Wisconsin’s shareholders on a tax-free basis;

•

the opinion of Raymond James & Associates, Inc. (“Raymond James”) that the consideration to be received by Mid-Wisconsin’s common shareholders in the merger is fair from a financial point of view; and

•

the likelihood of the merger being approved by applicable regulatory authorities without undue conditions or delay.

Opinion of Mid-Wisconsin’s Financial Advisor
(See page 37)

In deciding to approve the merger, the board of directors of Mid-Wisconsin considered the opinion of its financial advisor, Raymond James. Raymond James, an investment banking and financial advisory firm, has given a fairness opinion to the Mid-Wisconsin board of directors that the terms of the merger are fair, from a financial point of view, to the shareholders of Mid-Wisconsin. The opinion is based on and subject to the procedures, matters and limitations described in the opinion and other matters that Raymond James considered relevant. The fairness opinion is attached to this joint proxy statement-prospectus as Appendix C. We urge all shareholders of Mid-Wisconsin to read the entire opinion, which describes the procedures followed, matters considered and limitations on the review undertaken by Raymond James in providing its opinion.

Opinion of Nicolet’s Financial Advisor
(See page 45)

In deciding to approve the merger, the board of directors of Nicolet considered the opinion of its financial advisor, Sandler O’Neill. Sandler O’Neill, an investment banking and financial advisory firm, has given a fairness opinion to the Nicolet board of directors that the consideration to be provided to Mid-Wisconsin’s common shareholders in the merger is fair, from a financial point of view, to the shareholders of Nicolet. The opinion is based on and subject to the procedures, matters and limitations described in the opinion and other matters that Sandler O’Neill considered relevant. The fairness opinion is attached to this joint proxy statement-prospectus as Appendix D. We urge all shareholders of Nicolet to read the entire opinion, which describes the procedures followed, matters considered and limitations on the review undertaken by Sandler O’Neill in providing its opinion.

Both Boards of Directors Recommend Shareholder Approval of the Merger Agreement
(See page __)

Mid-Wisconsin. The board of directors of Mid-Wisconsin has unanimously approved the merger agreement and believes that the merger is in the best interests of Mid-Wisconsin’s shareholders. The board unanimously recommends that you vote FOR approval of the merger agreement.

Nicolet. The board of directors of Nicolet has unanimously approved the merger agreement and believes that the merger is in the best interests of Nicolet’s shareholders. The board unanimously recommends that you vote FOR approval of the merger agreement.

Information About the Shareholders’ Meetings
(See pages __ and ___)

A special meeting of the shareholders of Mid-Wisconsin will be held on _________, 2013, at __.m., central time. The meeting will be held at _____________________. At the meeting, the shareholders of Mid-Wisconsin will vote on the merger agreement described herein. If Mid-Wisconsin’s shareholders approve the merger agreement and the conditions to completing the merger are satisfied, we expect to complete the merger shortly after the special shareholders’ meeting.

A special meeting of the shareholders of Nicolet will be held on ________, 2013, at __.m., local time. The meeting will be held at _____________________. At the meeting, the shareholders of Nicolet will vote on the merger agreement described above and in the notice for the meeting. If Nicolet’s shareholders approve

the merger agreement and the other conditions to completing the merger are satisfied, we expect to complete the merger shortly after the special shareholders’ meeting.

Quorum and Vote Required at the Meetings
(See pages __ and __)

Mid-Wisconsin. Shareholders who own Mid-Wisconsin common stock at the close of business on _________________, 2013, the record date, will be entitled to vote at the meeting. A majority of the issued and outstanding shares of Mid-Wisconsin common stock, as of the record date for the meeting, must be present in person or by proxy at the meeting in order for a quorum to be present. If a quorum is not present at the meeting, the meeting will be adjourned, and no vote will be taken until and unless a quorum is present.

Approval of the merger agreement requires the affirmative vote of a majority of the shares of Mid-Wisconsin common stock issued and outstanding on the record date.

Nicolet. Shareholders who own Nicolet common stock at the close of business on ______________, 2013, the record date, will be entitled to vote at the meeting. A majority of the issued and outstanding shares of Nicolet common stock, as of the record date for the meeting, must be present in person or by proxy at the meeting in order for a quorum to be present. If a quorum is not present at the meeting, the meeting will be adjourned, and no vote will be taken until and unless a quorum is present.

Approval of the merger agreement requires the affirmative vote of a majority of the shares of Nicolet common stock issued and outstanding on the record date.

Share Ownership of Management
(See page __)

Mid-Wisconsin. As of the record date for the special meeting, directors and executive officers of Mid-Wisconsin had or shared voting or dispositive power over approximately ____% of the issued and outstanding Mid-Wisconsin common stock. It is anticipated that these individuals will vote their shares of Mid-Wisconsin common stock in favor of the merger agreement. Certain of these individuals have entered into a written agreement with Nicolet providing that they will vote the shares over which they have voting power, subject to their fiduciary duties, in favor of the merger agreement. A copy of the form of such agreement is included as an exhibit to the merger agreement.

As of the record date for the meeting, directors and executive officers of Nicolet had or shared no voting or dispositive power over any of the issued and outstanding shares of Mid-Wisconsin common stock.

Nicolet. As of the record date for the special meeting, directors and executive officers of Nicolet had or shared voting or dispositive power over approximately ____% of the issued and outstanding Nicolet common stock. It is anticipated that these individuals will vote their shares of Nicolet common stock in favor of the merger agreement. Certain of these individuals have entered into a written agreement with Mid-Wisconsin providing that they will vote the shares over which they have voting power, subject to their fiduciary duties, in favor of the merger agreement. A copy of the form of such agreement is included as an exhibit to the merger agreement.

The directors and executive officers of Mid-Wisconsin do not have or share voting or dispositive power over any of the issued and outstanding shares of Nicolet common stock.

Structure of the Merger
(See page 33)

•

Mid-Wisconsin Financial Services, Inc. and Mid-Wisconsin Bank will cease to exist after the merger.

•

Subsequent to the merger, the business of Mid-Wisconsin Bank will be conducted through Nicolet National Bank.

•

Two current Mid-Wisconsin directors, Kim A. Gowey and Christopher Ghidorzi, will be appointed to Nicolet’s board of directors upon consummation of the merger. They will also be appointed to Nicolet National Bank’s board of directors upon consummation of the bank merger.

We Must Obtain Regulatory Approval to Complete the Merger
(See page ___)

We cannot complete the merger unless we receive the approval of the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and other applicable governmental authorities. The merger also requires approval from the Office of the Comptroller of the Currency (“OCC”) and WDFI and non-objection from the FDIC. All regulatory applications and notices required to be filed prior to the merger have been filed. Although we do not know of any reason why we could not obtain the necessary regulatory approvals in a timely manner, we cannot be certain whether or when we will obtain them.

We Must Meet Several Conditions to Complete the Merger
(See page ___)

In addition to the required regulatory approvals, the merger will only be completed if certain mutual conditions are met, including the following:

•

approval by Mid-Wisconsin’s shareholders and Nicolet’s shareholders of the merger agreement by the required vote;

•

approval of the merger and the transactions contemplated thereby by applicable regulatory authorities without imposing conditions that in the opinion of the board of directors of either Nicolet or Mid-Wisconsin would materially adversely affect the economic or business benefits of the transaction to either Nicolet or Mid-Wisconsin (a “Materially Burdensome Condition”);

•

receipt of all third-party consents (other than the regulatory consents described above) necessary to consummate the merger, other than those that would not have a material adverse effect on the party required to obtain the consent;

•

receipt by Mid-Wisconsin and Nicolet of an opinion from Bryan Cave LLP that the merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code;

•

the absence of a stop order suspending the effectiveness of Nicolet’s registration statement under the Securities Act with respect to the shares of Nicolet common stock to be issued to the Mid-Wisconsin shareholders;

•

the absence of an order, decree or injunction enjoining or prohibiting completion of the merger;

•

Mid-Wisconsin’s redemption of its outstanding Preferred Stock in accordance with its terms or, if such redemption is not permitted by applicable regulatory authorities, the purchase of such stock by Nicolet for a maximum payment of $12.0 million;

•

payment by Mid-Wisconsin of all accrued but unpaid interest on its Debentures or, if such payment is not permitted by applicable regulatory authorities, by Nicolet, and Nicolet’s execution of a supplemental indenture assuming the related indebtedness;

•

receipt by each party of an opinion from its independent financial advisor (which opinion shall not have been withdrawn) that the consideration to be paid to Mid-Wisconsin’s shareholders in the merger is fair to that party’s shareholders from a financial standpoint;

•

cancellation of all outstanding Mid-Wisconsin stock options;

•

the appointment of Kim A. Gowey and Christopher Ghidorzi to Nicolet’s Board of Directors to serve following the merger;

•

issuance of certain legal opinions by counsel for Mid-Wisconsin and Nicolet; and

•

each party’s certification to the other as to the continued accuracy of the representations and warranties contained in the merger agreement, compliance with covenants and closing conditions and the satisfaction of all other matters applicable to the transaction.

If all regulatory approvals are received and the other conditions to completion are satisfied, Nicolet and Mid-Wisconsin contemplate that they will complete the merger in the second quarter of 2013, shortly after their special shareholders’ meetings.

Termination and Termination Fee
(See page ___)

The merger agreement may be terminated, either before or after shareholder approval, under certain circumstances described in detail later in this joint proxy statement-prospectus. If either party terminates the merger agreement because Mid-Wisconsin’s board withdraws or changes its recommendation of the merger agreement, cancels the meeting at which Mid-Wisconsin’s shareholders or board will vote on the merger agreement, or recommends, approves or announces a transaction for the sale to or merger with an entity other than the Nicolet merger (such transaction, an “acquisition transaction”), or if Mid-Wisconsin terminates the agreement because it has received an offer for such an acquisition transaction, then Mid-Wisconsin (or its successor) must pay Nicolet a termination fee of $750,000. Similarly, if Mid-Wisconsin terminates the merger agreement because Nicolet’s board withdraws or changes its recommendation of the merger agreement, cancels the meeting at which Nicolet’s shareholders or board will vote on the merger agreement, or resolves to do any of those things, then Nicolet (or its successor) must pay Mid-Wisconsin a termination fee of $750,000. In addition, if the merger agreement is terminated by a party based on a material breach by the other party, then the breaching party will be required to pay the non-breaching party liquidated damages of $1.0 million plus documented out-of-pocket legal, investment banking, accounting, consulting and other expenses incurred by the non-breaching party in connection or associated with the preparation, negotiation, and execution of the merger agreement.

Mid-Wisconsin’s Directors and Executive Officers Have Interests in the Merger that Differ from its Shareholders’ Interests
(See page ___)

The executive officers and directors of Mid-Wisconsin have interests in the merger in addition to their interests as shareholders of Mid-Wisconsin generally. The members of the Mid-Wisconsin board of directors knew about these additional interests and considered them when they adopted the merger agreement. Such interests include, among others:

•

payments to directors under Mid-Wisconsin’s Deferred Compensation Plan and its Director Retirement Benefit Policy;

•

the continuation of employee benefits;

•

provisions in the merger agreement relating to director and officer liability insurance and the indemnification of officers and directors of Mid-Wisconsin for certain liabilities; and

•

the appointment of Kim Gowey and Christopher Ghidorzi to Nicolet’s Board of Directors.

These interests are more fully described in this joint proxy statement-prospectus under the heading “The Merger Agreement — Interests of Certain Persons in the Merger” at page 60.

Employee Benefits of Mid-Wisconsin Employees after the Merger
(See page __)

Nicolet has agreed to offer to all current employees of Mid-Wisconsin who become Nicolet employees as a result of the merger substantially similar employee benefits to those that Nicolet offers to its employees in similar positions.

Differences in Rights of Mid-Wisconsin’s Shareholders after the Merger
(See page ___)

Mid-Wisconsin shareholders who receive Nicolet common stock in the merger will become Nicolet shareholders as a result of the merger. Their rights as shareholders after the merger will be governed by Wisconsin law and by Nicolet’s articles of incorporation and bylaws. The rights of Nicolet shareholders are different in certain respects from the rights of Mid-Wisconsin’s shareholders. The material differences are described later in this joint proxy statement-prospectus.

Accounting Treatment
(See page 65)

Nicolet is required to account for the merger as a purchase transaction for accounting and financial reporting purposes under accounting principles generally accepted in the United States of America (“GAAP”). Under purchase accounting, the assets (including any identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Mid-Wisconsin at the effective time of the merger will be recorded at their respective fair values and added to those of Nicolet. Any excess of purchase price over the fair values is recorded as goodwill. Any excess of the fair values over the purchase price is recorded in earnings as a bargain purchase gain. Consolidated financial statements of Nicolet issued after the merger will reflect those fair values and will not be restated retroactively to reflect the historical consolidated financial position or results of operations of Mid-Wisconsin.

UNAUDITED COMPARATIVE PER SHARE DATA

The following summary presents per share information for Nicolet and Mid-Wisconsin on a historical, pro forma combined and pro forma diluted equivalent basis for the periods and as of the dates indicated below. The pro forma information gives effect to the merger using the purchase method of accounting. This information should be read in conjunction with the companies’ historical financial statements and related notes as well as financial data included elsewhere in this joint proxy statement-prospectus. The pro forma information should not be relied upon as being indicative of the historical results the companies would have had if the merger had occurred before such periods or the future results that the companies will experience after the merger.

The pro forma combined net income per diluted share has been computed based on the diluted average number of outstanding common shares of Nicolet adjusted for the additional shares to be issued in connection with the acquisition of Mid-Wisconsin, assuming no Mid-Wisconsin shares are converted to cash under the limited circumstances provided for in the merger agreement. The Mid-Wisconsin merger equivalent net income per diluted share is based on the number of shares of Nicolet common stock into which each share of Mid-Wisconsin common stock will be converted in the merger.

The pro forma combined net book value per share is based upon the pro forma combined equity of Nicolet divided by the pro forma number of outstanding shares of the combined companies. The Mid-Wisconsin merger equivalent net book value per share is based on the number of shares of Nicolet common stock into which each share of Mid-Wisconsin common stock will be converted in the merger.

The foregoing assumes that the shares of Nicolet common stock to be issued will have a value of $16.50 per share, which was the value assigned to the Nicolet common stock in the merger agreement.

	Nine Months Ended September 30, 2012			Year Ended December 31, 2011
Net income per common share:
Income (loss) per diluted common share:
Nicolet	$	0.34		$	0.01
Mid-Wisconsin		(1.63	)		(2.78	)
Pro forma combined		(0.11	)		(0.68	)
Mid-Wisconsin merger equivalent⁽¹⁾		(0.04	)		(0.25	)

	As of September 30, 2012		As of December 31, 2011
Balance Sheet Data:
Net book value per common share:
Nicolet	$	15.38	$	14.83
Mid-Wisconsin		16.04		17.65
Pro forma combined		18.61		17.79
Mid-Wisconsin merger equivalent⁽¹⁾		6.94		6.63

(1)

Calculated by multiplying the pro forma combined information by the exchange ratio of 0.3727.

SELECTED UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION

The following unaudited pro forma condensed consolidated balance sheet and statements of income as of and for the nine months ended September 30, 2012 and for the year ended December 31, 2011 have been prepared to reflect the acquisition by Nicolet of Mid-Wisconsin after giving effect to the adjustments described in the notes to the pro forma condensed consolidated financial statements. In the acquisition, Mid-Wisconsin common shareholders will receive total consideration of up to 617,608 shares of Nicolet common stock, subject to adjustments as set forth herein, having an estimated aggregate value of approximately $10.19 million. The foregoing assumes that the shares of Nicolet common stock to be issued will have a value of $16.50 per share, which is the per-share value that was assigned to Nicolet common stock in the merger agreement, and assumes no Mid-Wisconsin shares are converted to cash under the limited circumstances provided for in the merger agreement.

The acquisition will be accounted for as a purchase transaction. Under the acquisition method of accounting, Nicolet records the assets and liabilities of the acquired entities at their fair values on the closing date of the acquisition. The pro forma condensed consolidated balance sheet has been prepared assuming the transaction was consummated on September 30, 2012. The pro forma condensed consolidated statement of income has been prepared assuming the transaction was consummated on January 1, 2011.

The selected unaudited pro forma condensed consolidated financial information is presented for illustrative purposes only and does not indicate either the operating results that would have occurred had the acquisition been consummated before September 30, 2012 or at January 1, 2011, as the case may be, or future results of operations or financial condition. The selected unaudited pro forma condensed financial information is based upon assumptions and adjustments that Nicolet believes are reasonable. Only such adjustments as have been noted in the accompanying footnotes have been applied in order to give effect to the proposed transaction described in this joint proxy statement-prospectus. Such assumptions and adjustments are subject to change as future events materialize and fair value estimates are refined.

These selected unaudited pro forma condensed consolidated financial statements should be read in conjunction with Mid-Wisconsin’s Annual Report on Form 10-K for the year ended December 31, 2011, and its Form 10-Q for the nine months ended September 30, 2012, which are attached as Appendices E and F, respectively, to this joint proxy statement-prospectus as well as the financial information for Nicolet, including the audited consolidated financial statements for the year ended December 31, 2011 and related notes and the unaudited consolidated financial statements for the nine months ended September 30, 2012 beginning on page F-1 of this joint proxy statement-prospectus.

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
COMBINED WITH MID-WISCONSIN FINANCIAL SERVICES, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (Unaudited)
AS OF SEPTEMBER 30, 2012
(Dollars in Thousands)

	Historical
	Nicolet		Mid- Wisconsin		Pro Forma Adjustments			Pro Forma Combined
Assets
Cash and due from banks	$	27,552	$	33,352	$	(13,700	)^(1,2)	$	47,204
Investment securities		57,075		110,335		(600	)⁽⁴⁾		166,810
Loans held for sale		3,484		2,287		—			5,771
Loans, net		539,217		297,060		(14,071	)⁽⁴⁾		822,206
Other real estate owned		617		4,472		(2,500	)⁽⁴⁾		2,589
Goodwill and intangible assets		3,152		—		6,100	⁽⁴⁾		9,252
Other assets		51,705		16,556		6,040	^{(4, 5)}		74,301
Total assets	$	682,802	$	464,062	$	(18,731	)	$	1,128,133

Liabilities and Equity
Deposits	$	554,858	$	364,404	$	—		$	919,262
Junior subordinated debentures		6,186		10,310		(5,500	)⁽⁴⁾		10,996
Other borrowings & debt		39,525		49,228		2,400	⁽⁴⁾		91,153
Other liabilities		5,354		3,191		(1,200	)⁽²⁾		7,345
Total liabilities		605,923		427,133		(4,300	)		1,028,756

Equity
Preferred equity		24,400		10,349		(10,349	)⁽¹⁾		24,400
Common equity		52,349		26,580		(4,082	)^(1,3)		74,847
Stockholders’ equity		76,749		36,929		(14,431	)		99,247
Noncontrolling interest		130		—		—			130
Total equity and non-controlling interest		76,879		36,929		(14,431	)		99,377
	$	682,802	$	464,062	$	(18,731	)	$	1,128,133

(1)

Mid-Wisconsin’s redemption by consummation of its outstanding Preferred Stock for cash at $10,500 stated value (which includes $151 of unaccreted discount against common equity). Common equity and cash also reflect $2 million estimated one-time merger related expenses.

(2)

Payment by Mid-Wisconsin by consummation of accrued and unpaid dividends on Preferred Stock $900 and of accrued and unpaid interest on its Debentures $300.

(3)

Issuance of 617,608 shares of Nicolet common stock (with an assumed market value of $16.50 per share) for total consideration of $10,191, in exchange for 100% of the common equity of Mid-Wisconsin, assuming no Mid-Wisconsin shares are converted to cash under the limited circumstances provided for in the merger agreement. Net adjustments of footnotes (4) and (5) result in $1,931 debit to common equity. Mid-Wisconsin common equity eliminated ($26,429). Excess of the fair value of net assets acquired over the purchase price, $14,389, recorded directly to common equity.

(4)

Adjustments to mark acquired assets and assumed liabilities to estimated fair values at September 30, 2012 (All such estimates are subject to change as fair market value estimates are refined): a) Mid-Wisconsin’s investments ($600), fixed assets $5,000, long-term debt $2,400 and junior subordinated debentures ($5,500); b) Core deposit intangible estimated at $6,100; c) Estimated fair market value adjustment to the loan portfolio of ($24,600) and other real estate owned of ($2,500) and reversal of Mid-Wisconsin’s allowances of $10,529 (net $16,571 pre-tax credit).

(5)

A deferred tax estimate of 35% or $1,040 debit, calculated on the pre-tax aggregate of the fair value marks totaling $2,971 credit.

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
COMBINED WITH MID-WISCONSIN FINANCIAL SERVICES, INC. AND SUBSIDIARY
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(In Thousands, Except Per Share Data)

	Nine months ended September 30, 2012
	Historical
	Nicolet		Mid- Wisconsin			Pro Forma Adjustments			Pro Forma Combined
Interest income	$	21,059	$	14,836		$	—		$	35,895
Interest expense		5,006		3,671			187	^(2,4)		8,864
Net interest income		16,053		11,165			—			27,031
Provision for loan loss		3,350		3,680			—	⁽⁵⁾		7,030
Net interest income after provision for loan losses		12,703		7,485			—			20,001
Other income		7,985		2,911			—			10,896
Other expense		17,722		11,458			928	^(1,3)		30,108
Income from continuing operations before income taxes		2,966		(1,062	)		—			789
Income taxes		828		1,152			(1,712	)*		268
Income from continuing operations		2,138		(2,214	)		—			521
Net income from noncontrolling interest		39		—			—			39
Preferred stock dividends and discount accretion		915		487			(487	)⁽⁶⁾		915
Net income available to common shareholders	$	1,184	$	(2,701	)				$	(433	)
Weighted average number of common shares outstanding —
basic		3,449		1,657			(1,039	)⁽⁷⁾		4,067
diluted		3,465		1,657			(1,039	)⁽⁷⁾		4,067
Net income (loss) per common share from continuing operations —
basic	$	0.34	$	(1.63	)				$	(0.11	)
diluted	$	0.34	$	(1.63	)				$	(0.11	)

	Year Ended December 31, 2011
	Historical
	Nicolet		Mid- Wisconsin			Pro Forma Adjustments			Pro Forma Combined
Interest income	$	29,830	$	22,039		$	—		$	51,869
Interest expense		8,383		6,485			250	^(2,4)		15,118
Net interest income		21,447		15,554			—			36,751
Provision for loan loss		6,600		4,750			—	⁽⁵⁾		11,350
Net interest income after provision for loan losses		14,847		10,804			—			25,401
Other income		8,444		4,287			—			12,731
Other expense		21,443		17,187			1,420	^(1,3)		40,050
Income from continuing operations before income taxes		1,848		(2,096	)		—			(1,918	)
Income taxes		318		1,861			(2,831	)*		(652	)
Income from continuing operations		1,530		(3,957	)		—			(1,266	)
Net income from noncontrolling interest		40		—			—			40
Preferred stock dividends and discount accretion		1,461		644			(644	)⁽⁶⁾		1,461
Net income (loss) available to common shareholders	$	29	$	(4,601	)		—		$	(2,767	)
Weighted average number of common shares outstanding —
basic		3,469		1,654			(1,036	)⁽⁷⁾		4,087
diluted		3,488		1,654			(1,036	)⁽⁷⁾		4,087
Net income (loss) per common share from continuing operations —
basic	$	0.01	$	(2.78	)				$	(0.68	)
diluted	$	0.01	$	(2.78	)				$	(0.68	)

Reflects the tax impact at a tax rate of 34%.

(1)

Estimated depreciation expense resulting from premises pro forma adjustment using straight-line over 25-year estimated useful life.

(2)

Estimated fair value adjustment on FHLB advances assuming straight-line over 3-year weighted average life.

(3)

Estimated amortization of core deposit intangible resulting from the fair value pro forma adjustment amortized
over 10 years using sum-of-years-digits.

(4)

Estimated fair value adjustment on Trust Preferred Securities (TruPS) using straight line amortization over 10 years.

(5)

No adjustment for the provision for loan loss is reflected in the pro-forma statement of income. Upon consummation of this transaction, Nicolet expects reduction in the provision.

(6)

Reversal of dividends on Mid-Wisconsin’s outstanding Preferred Stock, which will be repurchased prior to consummation as part of the transaction in accordance with the terms of the merger agreement.

(7)

Mid-Wisconsin common stock will be exchanged in the merger at a ratio of 0.3727 shares of Nicolet common stock for each share of Mid-Wisconsin common stock.

RISK FACTORS

In addition to the other information included in this joint proxy statement-prospectus, you should carefully consider the matters described below in determining whether to adopt and approve the merger agreement.

Risk Relating to the Merger

The merger consideration is fixed despite any changes in Nicolet’s or Mid-Wisconsin’s stock prices.

Each share of Mid-Wisconsin common stock owned by Mid-Wisconsin shareholders will be converted into the right to receive 0.3727 shares of Nicolet common stock or, in certain limited circumstances, $6.15 in cash. The market price of the Nicolet common stock received, as well as the market price of the Mid-Wisconsin common stock currently owned, may vary between the date of this joint proxy statement-prospectus, the date of Mid-Wisconsin’s special meeting and the closing of the merger. Such variations in the prices of Nicolet and Mid-Wisconsin common stock may result from changes in the business, operations or prospects of Nicolet or Mid-Wisconsin, regulatory considerations, general market and economic conditions as well as other factors. Despite any such variations, the merger consideration Mid-Wisconsin’s shareholders are entitled to receive will not change.

In addition, there is currently no established public trading market for shares of Nicolet common stock, and the market for the Mid-Wisconsin common stock on the OTCQB market of the OTC Markets Group, Inc. has been illiquid and irregular. There is no guarantee that a more liquid or regular market for Nicolet common stock will develop after the merger. At the time of the special meeting, you will not know the exact market value of Nicolet common stock. See “The Merger Agreement — What Mid-Wisconsin Shareholders will Receive in the Merger” at page 54.

Because there is no public market for Nicolet common stock, it is difficult to determine how the fair value of Nicolet common stock compares with the merger consideration.

The outstanding shares of Nicolet common stock are privately held and are not traded in any public market. This lack of public market makes it difficult to determine the fair value of Nicolet common stock. Nicolet’s and Mid-Wisconsin’s boards of directors, respectively, did obtain fairness opinions from their financial advisors; however, because there is no public market for Nicolet’s common stock such opinions may not be indicative of the fair value of the shares of Nicolet common stock.

Combining our two companies may be more difficult, costly, or time-consuming than we expect.

Nicolet and Mid-Wisconsin have operated, and, until completion of the merger, will continue to operate, independently. It is possible that the integration process could result in the loss of key employees or disruption of each company’s ongoing business or inconsistencies in standards, procedures and policies that would adversely affect our ability to maintain relationships with clients and employees or to achieve the anticipated benefits of the merger. If we have difficulties with the integration process, we might not achieve the economic benefits we expect to result from the acquisition. As with any merger of banking institutions, there also may be business disruptions that cause the combined entity to lose customers or cause customers to take their deposits out of our banks and move their business to other financial institutions.

Nicolet and Mid-Wisconsin will be subject to business uncertainties while the merger is pending, which could adversely affect their respective businesses.

Uncertainty about the effect of the merger on employees and customers may have an adverse effect on Mid-Wisconsin and Nicolet and consequently on the business and stock price of the combined company after the merger. Although Mid-Wisconsin and Nicolet intend to take steps to reduce any adverse effects, these uncertainties may impair their ability to attract, retain, and motivate key personnel until the merger is consummated and for a period of time thereafter, and could cause customers and others that deal with them to seek to change their existing business relationships. Employee retention could be particularly challenging during the merger, as employees may experience uncertainty about their roles in the combined company

following the merger. If key employees depart because of issues relating to the perceived uncertainty and difficulty of integration or a desire not to remain with the combined company, the combined company’s business following the merger could be harmed and the market price of its common stock could decrease.

Regulatory approvals may not be received, may take longer than expected or may impose conditions that are not presently anticipated.

The merger must be approved by the Federal Reserve, the OCC and the WDFI. The Federal Reserve, the OCC and the WDFI will consider, among other factors, the competitive impact of the merger, our financial and managerial resources and the convenience and needs of the communities to be served. As part of that consideration, we expect that the Federal Reserve, the OCC and the WDFI will review the capital position, safety and soundness, and legal and regulatory compliance matters and Community Reinvestment Act (“CRA”) matters. There can be no assurance as to whether other necessary approvals will be received, the timing of those approvals, or whether any conditions will be imposed.

The market price of Nicolet common stock after the merger may be affected by factors different from those affecting the market price of Mid-Wisconsin common stock or the Nicolet common stock currently.

The businesses of Nicolet and Mid-Wisconsin differ in some respects and, accordingly, the results of operations of Nicolet and the market price of Nicolet’s shares of common stock after the merger may be affected by factors different from those currently affecting the independent results of operations of each of Nicolet or Mid-Wisconsin. For a discussion of the businesses of Nicolet and Mid-Wisconsin and of certain factors to consider in connection with those businesses, see, “Information About Mid-Wisconsin,” at page 145, as well as, “Information About Nicolet,” at page __.

The merger agreement limits Mid-Wisconsin’s ability to pursue alternatives to the merger.

The merger agreement contains provisions that limit Mid-Wisconsin’s ability to discuss competing third-party proposals to acquire all or a significant part of Mid-Wisconsin. In addition, Mid-Wisconsin has agreed to pay Nicolet a fee of $750,000 if the transaction is terminated because Mid-Wisconsin decides to pursue another acquisition transaction, among other things. These provisions might discourage a potential competing acquirer that might have an interest in acquiring all or a significant part of Mid-Wisconsin from considering or proposing that acquisition, even if it were prepared to pay consideration with a higher per share price than that proposed in the merger, or might result in a potential competing acquirer proposing to pay a lower per share price to acquire Mid-Wisconsin than it might otherwise have proposed to pay.

Certain directors and executive officers of Mid-Wisconsin have interests in the merger other than their interests as shareholders.

Certain directors and executive officers of Mid-Wisconsin have interests in the merger other than their interests as shareholders. The board of directors of Mid-Wisconsin was aware of these interests at the time it approved the merger. These interests may cause Mid-Wisconsin’s directors and executive officers to view the merger proposal differently than you may view it. See, “The Merger Agreement — Interests of Certain Persons in the Merger,” at page 60.

You will experience a substantial reduction in percentage ownership and voting power with respect to your shares as a result of the merger.

Mid-Wisconsin shareholders will experience a substantial reduction in their respective percentage ownership interests and effective voting power through their stock ownership in Nicolet relative to their percentage ownership interest in Mid-Wisconsin prior to the merger. If the merger is consummated, discounting the potential impact of the exercise of dissenters’ rights or the payment of cash for Mid-Wisconsin shares under the terms of the merger agreement, current Mid-Wisconsin shareholders would own approximately 15.1% of Nicolet’s issued and outstanding common stock, on a fully diluted basis, based on the number of shares of outstanding Nicolet common stock as of September 30, 2012 and assuming no Mid-Wisconsin shares are converted to cash under the limited circumstances provided for in the merger agreement.

Accordingly, even if such shareholders were to vote as a group, such a group could still be outvoted by other Nicolet shareholders.

In addition, the current holders of Nicolet common stock will have their ownership interest in Nicolet diluted by the issuance of common stock to the common stock holders of Mid-Wisconsin. Consequently, while the current Nicolet shareholders will still own a majority of the Nicolet common stock after the merger, they will have less voting power per share. See, “The Merger Agreement — What Mid-Wisconsin Shareholders will Receive in the Merger,” at page 54.

Risk Relating to Nicolet and the Combined Company

Nicolet’s recent results may not be indicative of its future results.

Nicolet may not be able to sustain its historical rate of growth and may not even be able to grow its business at all following the merger. In addition, Nicolet’s recent growth may distort some of its historical financial ratios and statistics. In the future, Nicolet may not have the benefit of a generally predictable interest rate environment or the ability to find suitable expansion opportunities. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may also impede or prohibit Nicolet’s ability to expand its market presence. If Nicolet experiences a significant decrease in its historical rate of growth, its results of operations, financial condition, and share price may be adversely affected due to the prolonged low-rate environment pressuring net interest margins and to a high percentage of its operating costs, such as salaries, lease payment and insurance premiums, being fixed expenses.

Nicolet’s financial projections are based on numerous assumptions about future events and its actual financial performance may differ materially from its projections if its assumptions are inaccurate.

If the communities in which Nicolet operates do not grow or if the prevailing economic conditions locally or nationally are less favorable than we have assumed, Nicolet’s ability to reduce its non-performing loans and other real estate owned (“OREO”) and implement its business strategies may be adversely affected and its actual financial performance may be materially different from its projections.

Moreover, Nicolet cannot give any assurance that it will benefit from any market growth or favorable economic conditions in its market areas even if they do occur. If its senior management team is unable to provide the effective leadership necessary to implement its strategic plan, including the successful integration of Mid-Wisconsin, its actual financial performance may be materially adversely different from its projections. Additionally, to the extent that any component of its strategic plan requires regulatory approval, if it is unable to obtain necessary approval, it will be unable to completely implement its strategy, which may adversely affect its actual financial results. Nicolet’s inability to successfully implement its strategic plan could adversely affect the price of its common stock.

Nicolet may experience increased delinquencies and credit losses, which could have a material adverse effect on its capital, financial condition, and results of operations.

Like other lenders, Nicolet faces the risk that its customers will not repay their loans. A customer’s failure to repay Nicolet is usually preceded by missed monthly payments. In some instances, however, a customer may declare bankruptcy prior to missing payments, and, following a borrower filing bankruptcy, a lender’s recovery of the credit extended is often limited. Since its loans are secured by collateral, Nicolet may attempt to seize the collateral when and if customers default on their loans. However, the value of the collateral may not equal the amount of the unpaid loan, and Nicolet may be unsuccessful in recovering the remaining balance from its customers. Rising delinquencies and rising rates of bankruptcy in its market area, generally and among its customers specifically, can be precursors of future charge-offs and may require Nicolet to increase its allowance for loan losses. Higher charge-off rates and an increase in its allowance for loan losses may hurt its overall financial performance if Nicolet is unable to increase revenue to compensate for these losses and may also increase its cost of funds.

The impact of the current economic environment on performance of other financial institutions in its markets; actions taken by its competitors to address the current economic downturn; and public perception of and confidence in the economy generally, and the banking industry specifically, may present significant challenges for Nicolet and could adversely affect its performance.

Nicolet is operating in a challenging and uncertain economic environment, including generally uncertain national conditions and adverse local conditions in its primary markets. Financial institutions continue to be affected by decreasing valuations in real estate markets and constrained financial markets. While Nicolet is taking steps to decrease and limit its exposure to certain types of loans secured by commercial real estate collateral, Nicolet nonetheless retains direct exposure to the real estate markets, and is affected by these events. Continued declines in real estate values and financial stress on borrowers as a result of the uncertain economic environment, including job losses, could have an adverse effect on its borrowers or their customers, which could adversely affect its financial condition and results of operations.

The impact of events in recent years relating to housing and commercial real estate markets has not been limited to those directly involved in the real estate industry, but rather it has affected a number of related businesses such as building materials suppliers, equipment leasing firms, and real estate attorneys, among others. All of these affected businesses have banking relationships, and when their businesses suffer from recession, the banking relationship suffers as well.

In addition, the market value of the real estate securing Nicolet’s loans as collateral has been adversely affected by the slowing economy and unfavorable changes in economic conditions in its market areas and could be further adversely affected in the future. As of September 30, 2012, approximately 38% of its loans were secured by commercial-based real estate and 24% of its loans receivable were secured by residential real estate. Any sustained period of increased payment delinquencies, foreclosures, or losses caused by the adverse market and economic conditions, including the downturn in the real estate market, in its markets will continue to adversely affect the value of its assets, revenues, results of operations, and financial condition. Its market area has for the past several years experienced, and certain portions of its market area are currently experiencing such a sustained economic downturn, and if it continues or if economic conditions otherwise worsen, its earnings could be further adversely affected.

The overall deterioration in economic conditions may subject Nicolet to increasing regulatory scrutiny. In addition, further deterioration in national economic conditions or the economic conditions in its local markets could drive losses beyond the amount provided for in its allowance for loan losses, resulting in the following other consequences: increased loan delinquencies, problem assets, and foreclosures; decline in demand for its products and services; decrease in deposits, adversely affecting its liquidity position; and decline in value of collateral, reducing its customers’ borrowing power and the value of assets and collateral associated with its existing loans. These consequences could also result in decreased earnings or a decline in the market value of Nicolet’s common stock. As a community bank, Nicolet National Bank is less able to spread the risk of unfavorable economic conditions than larger national or regional banks. Moreover, Nicolet cannot give any assurance that it will benefit from any market growth or favorable economic conditions in its primary market areas even if they do occur.

Nicolet’s business strategy includes the continuation of significant growth plans, and its financial condition and results of operations could be negatively affected if it fails to manage its growth effectively.

Nicolet has grown over the past several years and intends to continue to pursue a significant growth strategy for its business. Nicolet’s prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in significant growth stages of development. Nicolet may not be able to further expand its market presence in existing markets or to enter new markets successfully, nor can it guarantee that any such expansion would not adversely affect its results of operations. Failure to manage growth effectively could have a material adverse effect on the business, future prospects, financial condition or results of operations of Nicolet, and could adversely affect its ability to successfully implement business strategies. Also, if such growth occurs more slowly than anticipated or declines, Nicolet’s operating results could be materially adversely affected.

Nicolet’s ability to grow successfully will depend on a variety of factors including the continued availability of desirable business opportunities, the competitive responses from other financial institutions in its market areas and the ability to manage its growth. While management believes it has the management resources and internal systems in place to manage future growth successfully, there can be no assurance that growth opportunities will be available or that any growth will be managed successfully.

Nicolet is subject to extensive regulation that could limit or restrict its activities.

Nicolet operates in a highly regulated industry and is subject to examination, supervision, and comprehensive regulation by various regulatory agencies. Its compliance with these regulations, including compliance with its regulatory commitments, is costly and restricts certain of its activities, including the declaration and payment of cash dividends to stockholders, mergers and acquisitions, investments, loans and interest rates charged, interest rates paid on deposits, and locations of offices. Nicolet is also subject to capitalization guidelines established by its regulators, which require Nicolet to maintain adequate capital to support its growth and operations.

The laws and regulations applicable to the banking industry have recently changed and may continue to change, and Nicolet cannot predict the effects of these changes on its business and profitability. Because government regulation greatly affects the business and financial results of all commercial banks and bank holding companies, the cost of compliance could adversely affect its ability to operate profitably.

The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) was enacted on July 21, 2010. The full implications of the Dodd-Frank Act, or its implementing regulations, on Nicolet’s business are unclear at this time, but it may adversely affect its business, results of operations, and the underlying value of its stock. The full effect of this legislation will not be even reasonably certain until all implementing regulations are promulgated, which could take several years in some cases.

Some or all of the changes, including the new rulemaking authority granted to the newly-created Consumer Financial Protection Bureau, may result in greater reporting requirements, assessment fees, operational restrictions, capital requirements, and other regulatory burdens for Nicolet National Bank and Nicolet, and many of their competitors that are not banks or bank holding companies may remain free from such limitations. This could affect Nicolet’s ability to attract and maintain depositors, to offer competitive products and services, and to expand its business.

Congress may consider additional proposals to substantially change the financial institution regulatory system and to expand or contract the powers of banking institutions and bank holding companies. Such legislation may change existing banking statutes and regulations, as well as the current operating environment significantly. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand its permissible activities, or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. Nicolet cannot predict whether new legislation will be enacted and, if enacted, the effect that it, or any regulations, would have on its business, financial condition, or results of operations.

Its financial condition and results of operations are affected by credit policies of monetary authorities, particularly the Federal Reserve. Actions by monetary and fiscal authorities, including the Federal Reserve, could have an adverse effect on its deposit levels, loan demand, stock price, ability to pay dividends, or business and earnings. See “Supervision and Regulation” at page 147.

Changes in the interest rate environment could reduce its net interest income, which could reduce its profitability.

As a financial institution, Nicolet’s earnings significantly depend on net interest income, which is the difference between the interest income that it earns on interest-earning assets, such as investment securities and loans, and the interest expense that it pays on interest-bearing liabilities, such as deposits and borrowings. Therefore, any change in general market interest rates, including changes in federal fiscal and monetary policies, affects Nicolet more than non-financial institutions and can have a significant effect on its net interest income and total income. Its assets and liabilities may react differently to changes in overall market rates or conditions because there may be mismatches between the repricing or maturity characteristics of the assets

and liabilities. As a result, an increase or decrease in market interest rates could have material adverse effects on its net interest margin and results of operations.

In addition, Nicolet cannot predict whether interest rates will continue to remain at present levels. Changes in interest rates may cause significant changes, up or down, in its net interest income. Depending on its portfolio of loans and investments, its results of operations may be adversely affected by changes in interest rates. If there is a substantial increase in interest rates, its investment portfolio is at risk of experiencing price declines that may negatively impact Nicolet’s total capital position of Nicolet through changes in other comprehensive income. In addition, any significant increase in prevailing interest rates could adversely affect its mortgage banking business because higher interest rates could cause customers to request fewer refinancings and purchase money mortgage originations.

Changes in the allowance for loan losses could adversely affect the profitability of Nicolet and Nicolet National Bank.

Nicolet’s success depends to a significant extent upon the quality of its assets, particularly loans. In originating loans, there is a substantial likelihood that Nicolet will experience credit losses. The risk of loss will vary with, among other things, general economic conditions, the type of loan, the creditworthiness of the borrower over the term of the loan, and, in the case of a collateralized loan, the quality of the collateral for the loan.

Its loan customers may not repay their loans according to the terms of these loans, and the collateral securing the payment of these loans may be insufficient to assure repayment. As a result, Nicolet may experience significant loan losses, which could have a material adverse effect on its operating results. Management makes various assumptions and judgments about the collectability of its loan portfolio, including the creditworthiness of its borrowers and the value of the real estate and other assets serving as collateral for the repayment of many of its loans. Nicolet maintains an allowance for loan losses in an attempt to cover any loan losses that may occur. In determining the size of the allowance, it relies on an analysis of its loan portfolio based on historical loss experience, volume and types of loans, trends in classification, volume and trends in delinquencies and non-accruals, national and local economic conditions, and other pertinent information. Nicolet has reviewed Mid-Wisconsin’s loan portfolio and allowance for loan losses and will include Mid-Wisconsin’s portfolio in its analysis after the merger. However, Nicolet cannot predict what effect, if any, the integration of Mid-Wisconsin’s loan portfolio will have on Nicolet.

If management’s assumptions are wrong, or if the inclusion of Mid-Wisconsin’s loan portfolio after the merger results in unanticipated asset quality issues, Nicolet’s current allowance may not be sufficient to cover future loan losses, and it may need to make adjustments to allow for different economic conditions or adverse developments in its loan portfolio. Material additions to its allowance would materially decrease its net income. Nicolet expects its allowance to continue to fluctuate; however, given current and future market conditions, Nicolet can make no assurance that its allowance will be adequate to cover future loan losses.

In addition, federal and state regulators periodically review its allowance for loan losses and may require Nicolet to increase its provision for loan losses or recognize further loan charge-offs, based on judgments different than those of its management. Any increase in its allowance for loan losses or loan charge-offs as required by these regulators could have a negative effect on its operating results.

Nicolet currently holds a significant amount of bank-owned life insurance.

At September 30, 2012, Nicolet held $18.5 million of bank-owned life insurance on certain key and former employees and executives, with a cash surrender value of $18.5 million. The eventual repayment of the cash surrender value is subject to the ability of the various insurance companies to pay death benefits or to return the cash surrender value to Nicolet if needed for liquidity purposes. Nicolet monitors the financial strength of the various companies with whom it carries these policies. However, any one of these companies could experience a decline in financial strength, which could impair its ability to pay benefits or return Nicolet’s cash surrender value. If Nicolet needs to liquidate these policies for liquidity purposes, it would be subject to taxation on the increase in cash surrender value and penalties for early termination, both of which would adversely impact earnings.

Nicolet is subject to liquidity risk in its operations

Liquidity risk is the possibility of being unable, at a reasonable cost and within acceptable risk tolerances, to pay obligations as they come due, to capitalize on growth opportunities as they arise, or to pay regular dividends because of an inability to liquidate assets or obtain adequate funding on a timely basis. Liquidity is required to fund various obligations, including credit obligations to borrowers, mortgage originations, withdrawals by depositors, repayment of debt, dividends to stockholders, operating expenses, and capital expenditures. Liquidity is derived primarily from retail deposit growth and retention, principal and interest payments on loans and investment securities, net cash provided from operations, and access to other funding sources. Nicolet’s access to funding sources in amounts adequate to finance its activities could be impaired by factors that affect Nicolet specifically or the financial services industry in general. Factors that could detrimentally affect its access to liquidity sources include a decrease in the level of its business activity due to a market downturn or adverse regulatory action. Nicolet’s ability to borrow could also be impaired by factors that are not specific to Nicolet, such as a severe disruption in the financial markets or negative views and expectations about the prospects for the financial services industry as a whole, given the recent turmoil faced by banking organizations in the domestic and worldwide credit markets. Currently, Nicolet has access to liquidity to meet its current anticipated needs; however, its access to additional borrowed funds could become limited in the future, and Nicolet may be required to pay above market rates for additional borrowed funds, if Nicolet is able to obtain them at all, which may adversely affect its results of operations.

Competition in the banking industry is intense and Nicolet faces strong competition from larger, more established competitors.

The banking business is highly competitive, and Nicolet experiences strong competition from many other financial institutions. Nicolet competes with commercial banks, credit unions, savings and loan associations, mortgage banking firms, consumer finance companies, securities brokerage firms, insurance companies, money market funds, and other financial institutions that operate in its primary market areas and elsewhere.

Nicolet competes with these institutions both in attracting deposits and in making loans. In addition, Nicolet has to attract its customer base from other existing financial institutions and from new residents. Many of its competitors are well-established, much larger financial institutions. While Nicolet believes it can and does successfully compete with these other financial institutions in its markets, it may face a competitive disadvantage as compared to large national or regional banks as a result of its smaller size and lack of geographic diversification.

Although Nicolet competes by concentrating its marketing efforts in its primary market area with local advertisements, personal contacts, and greater flexibility in working with local customers, Nicolet can give no assurance that this strategy will be successful.

As a community bank, Nicolet has different lending risks than larger banks.

Nicolet National Bank provides services to its local communities. It’s ability to diversify its economic risks is limited by its own local markets and economies. Nicolet National Bank lends primarily to individuals and to small to medium-sized businesses, which may expose it to greater lending risks than those of banks lending to larger, better-capitalized businesses with longer operating histories.

Nicolet National Bank manages its credit exposure through careful monitoring of loan applicants and loan concentrations in particular industries, and through loan approval and review procedures. It has established an evaluation process designed to determine the adequacy of its allowance for loan losses. While this evaluation process uses historical and other objective information, the classification of loans and the establishment of loan losses is an estimate based on experience, judgment and expectations regarding borrowers and economic conditions, as well as regulator judgments. Nicolet National Bank can make no assurance that its loan loss reserves will be sufficient to absorb future loan losses or prevent a material adverse effect on its business, profitability or financial condition.

Nicolet’s success depends upon local and regional economic conditions.

The core industries in Nicolet’s market area are paper, packaging, food production, food processing, and tourism. The area has a broad range of diversified equipment manufacturing services related to these core industries and others. The Mid-Wisconsin market areas are concentrated in agriculture, tourism, and forest products, as well as diversified small manufacturing. The residential and commercial real estate markets throughout these areas depend primarily on the strength of these core industries. A material decline in any of these sectors will affect the communities Nicolet serves and could negatively impact its financial results and have a negative impact on profitability.

Nicolet may not be able to maintain its historical growth rate, which may adversely affect its results of operations and financial condition.

Nicolet has grown substantially in the recent past from approximately $471 million in total consolidated assets at December 31, 2005 to approximately $683 million in total consolidated assets at September 30, 2012. This growth has been achieved primarily through internal organic growth. Nicolet’s future profitability will depend in part on its continued ability to grow. Nicolet may not be able to sustain its historical rate of growth or may not be able to grow its business at all after the merger. Nicolet may also not be able to obtain the capital or financing necessary to fund additional growth and may not be able to find suitable candidates for additional acquisitions in the future. Various factors, such as economic conditions, regulatory and legislative considerations and competition, may impede or prohibit Nicolet’s ability to acquire additional banks and bank holding companies and open new branch offices. The acquisition of Mid-Wisconsin and the transactional costs associated therewith, both from the perspective of tangible costs such as technology conversion as well as less tangible but very real costs to management time, may likewise impede the ability of Nicolet to maintain its historic growth rate.

The FDIC Deposit Insurance assessments that Nicolet National Bank is required to pay may continue to materially increase in the future, which would have an adverse effect on its earnings.

As a member institution of the FDIC, Nicolet is assessed a quarterly deposit insurance premium. Failed banks nationwide have significantly depleted the insurance fund and reduced the ratio of reserves to insured deposits. As a result, Nicolet National Bank may be required to pay significantly higher premiums or additional special assessments that could adversely affect its earnings.

On October 19, 2010, the FDIC adopted a Deposit Insurance Fund (“DIF”) Restoration Plan, which requires the DIF to attain a 1.35% reserve ratio by September 30, 2020. In addition, the FDIC modified the method by which assessments are determined and, effective April 1, 2011, adjusted assessment rates, which will range from 2.5 to 45 basis points (annualized), subject to adjustments for unsecured debt and, in the case of small institutions outside the lowest risk category and certain large and highly complex institutions, brokered deposits. Further increased FDIC assessment premiums, due to its risk classification, emergency assessments, or implementation of the modified DIF reserve ratio, could adversely impact its earnings.

Nicolet may need to raise additional capital in the future, including through proposed increased minimum capital thresholds established by its regulators as part of their implementation of Basel III, but that capital may not be available when it is needed or may be dilutive to its shareholders.

Nicolet is required by federal and state regulatory authorities to maintain adequate capital levels to support its operations. New regulations implementing the proposed Basel III capital standards could require financial institutions to maintain higher minimum capital rations and may place a greater emphasis on common equity as a component of Tier 1 capital. In order to support its operations and comply with regulatory standards, Nicolet may need to raise capital in the future. Its ability to raise additional capital will depend on conditions in the capital markets at that time, which are outside its control, on its financial performance and on the successful integration of Mid-Wisconsin. Accordingly, Nicolet cannot assure you of its ability to raise additional capital, if needed, on favorable terms. The capital and credit markets have experienced significant volatility in recent years. In some cases, the markets have produced downward pressure on stock prices and credit availability for certain issuers without regard to those issuers’ underlying

financial strength. If current levels of volatility continue or worsen, its ability to raise additional capital may be disrupted. If Nicolet cannot raise additional capital when needed, its results of operations and financial condition may be adversely affected, and its banking regulators may subject Nicolet to regulatory enforcement action, including receivership. In addition, the issuance of additional shares of its equity securities will dilute the economic ownership interest of its common and preferred shareholders.

Nicolet’s directors and executive officers own a significant portion of its common stock and can influence stockholder decisions.

The directors and executive officers of Nicolet, as a group, beneficially owned approximately 23.1% of its fully diluted issued and outstanding common stock as of December 31, 2012. Following the merger, the directors and executive officers of the combined company, as a group, are expected to beneficially own approximately 20.5% of the fully diluted outstanding common stock of the combined company. As a result of their ownership, the directors and executive officers of Nicolet have the ability, if they voted their shares in concert, to influence the outcome of all matters submitted to its shareholders for approval, including the election of directors.

Nicolet continually encounters technological change and it may have fewer resources than its competition to continue to invest in technological improvements; Nicolet’s information systems may experience an interruption or breach in security.

The banking and financial services industry is undergoing rapid technological changes, with frequent introductions of new technology-driven products and services. In addition to better serving customers, the effective use of technology increases efficiency and enables financial institutions to reduce costs. Nicolet’s future success will depend, in part, upon its ability to address the needs of its customers by using technology to provide products and services that enhance customer convenience, as well as create additional efficiencies in operations. Many of Nicolet’s competitors have greater resources to invest in technological improvements, and Nicolet may not be able to effectively implement new technology-driving products and services, which could reduce its ability to effectively compete.

In addition, Nicolet relies heavily on communications and information systems to conduct its business. Any failure, interruption or breach in security of these systems could result in failures or disruptions in customer relationship management, general ledger, deposit, loan functionality and the effective operation of other systems. While Nicolet has policies and procedures designed to prevent or limit the effect of a failure, interruption or security breach of its information systems, there can be no assurance that any such failures, interruptions or security breaches will not occur or, if they do occur, that they will be adequately addressed. The occurrence of any failures, interruptions or security breaches of Nicolet’s information systems could damage its reputation, result in a loss of customer business, subject Nicolet and/or Nicolet National Bank to additional regulatory scrutiny, or expose Nicolet to civil litigation and possible financial liability, any of which could have a material adverse effect on Nicolet’s financial condition and results of operations.

Risks Related to Ownership of Nicolet’s Common Stock

The Nicolet common stock does not currently have an established trading market, and a liquid market for its common stock may not develop after the merger.

Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system at or before closing of the merger, but is not currently traded on any securities exchange or quotation system. Although price quotations will be available, a liquid market for the stock may not develop after the merger. As a result, it may be difficult for you to sell your shares of Nicolet common stock at the times or prices that you desire.

Substantial sales of Nicolet common stock could cause its stock price to fall.

If shareholders sell substantial amounts of Nicolet common stock in the public market following the merger, the market price of Nicolet common stock could fall. Such sales also might make it more difficult for Nicolet to sell equity or equity-related securities in the future at a time and price that it deems appropriate.

Nicolet has not historically paid dividends to its common shareholders and cannot guarantee that it will pay dividends to such shareholders in the future, including after the merger.

The holders of Nicolet common stock, including those who will receive Nicolet common stock pursuant to the merger agreement, receive dividends if and when declared by the Nicolet board of directors out of legally available funds. Nicolet’s board of directors has not declared a dividend on the common stock since its inception in 2000 and does not expect to do so in the foreseeable future. Any future determination relating to dividend policy will be made at the discretion of Nicolet’s board of directors and will depend on a number of factors, including the company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the board of directors may deem relevant.

The principal business operations of Nicolet are conducted through Nicolet National Bank. Cash available to pay dividends to shareholders of Nicolet is derived primarily, if not entirely, from dividends paid by Nicolet National Bank. After the merger, the ability of Nicolet National Bank to pay dividends to Nicolet, as well as Nicolet’s ability to pay dividends to its shareholders, will continue to be subject to and limited by certain legal and regulatory restrictions. Further, any lenders making loans to Nicolet may impose financial covenants that may be more restrictive than regulatory requirements with respect to the payment of dividends by Nicolet. There can be no assurance of whether or when Nicolet may pay dividends after the merger.

Holders of Nicolet’s subordinated debentures have rights that are senior to those of its common stockholders.

Nicolet has supported its continued growth by issuing trust preferred securities and accompanying junior subordinated debentures. As of September 30, 2012, Nicolet had outstanding trust preferred securities and associated junior subordinated debentures with an aggregate principal amount of approximately $6.2 million, and Nicolet will assume Mid-Wisconsin’s obligations with respect to an additional $10.3 million in principal amount of junior subordinated debentures associated with Mid-Wisconsin’s outstanding trust preferred securities in the merger.

Nicolet has unconditionally guaranteed the payment of principal and interest on its trust preferred securities and will do the same when it assumes Mid-Wisconsin’s obligations as described above. Also, the junior debentures issued to the special purpose trusts that relate to those trust preferred securities are senior to Nicolet common stock, including shares that it issues to holders of Mid-Wisconsin common stock in the merger. As a result, Nicolet must make payments on the junior subordinated debentures before it can pay any dividends on its common stock, and in the event of Nicolet’s bankruptcy, dissolution or liquidation, holders of its junior subordinated debentures must be satisfied before any distributions can be made on its common stock. Nicolet does have the right to defer distributions on its junior subordinated debentures (and related trust preferred securities) for up to five years, but during that time would not be able to pay dividends on its common or preferred stock.

Holders of Nicolet’s SBLF Preferred Stock have rights that are senior to those of its common stock, and contractual restrictions relative to Nicolet’s SBLF Preferred Stock may limit or prevent Nicolet from paying dividends on and repurchasing its common stock.

Nicolet has supported its capital operations by issuing preferred stock to the Treasury pursuant to the Small Business Lending Fund (“SBLF”) program (such preferred stock, the “SBLF Preferred Stock”).

The SBLF Preferred Stock issued to and currently held by the Treasury has dividend rights that are senior to those of Nicolet’s common stock; therefore, Nicolet must pay dividends on the SBLF Preferred Stock before it can pay any dividends to holders of its common stock. In the event of Nicolet’s bankruptcy, dissolution, or liquidation, the holders of the SBLF Preferred Stock must be satisfied before Nicolet can make

any distributions to holders of its common stock. In addition, under the terms of the SBLF Preferred Stock and the securities purchase agreement between Nicolet and the Treasury in connection with the SBLF transaction, Nicolet is generally unable to pay dividends on or repurchase its common stock where such payment or repurchase would result in a reduction of Nicolet’s Tier 1 capital from the level on September 1, 2011, the date on which the SBLF Preferred Stock was issued, by more than 10%. Under the terms of the SBLF Preferred Stock, Treasury does not have voting rights with respect to the proposed merger.

Holders of Nicolet’s SBLF Preferred Stock have limited voting rights.

Other than under certain limited circumstances, holders of Nicolet’s SBLF Preferred Stock have no voting rights except with respect to matters that would involve certain fundamental changes to the terms of the SBLF Preferred Stock or as required by law. These matters include the authorization of stock senior to the SBLF Preferred Stock, amendments that adversely affect the rights of the holders of the SBLF Preferred Stock, and certain business combination transactions. These rights could make it more difficult to consummate a transaction that the common shareholders wish to approve.

Because Nicolet is a regulated bank holding company, your ability to obtain “control” or to act in concert with others to obtain control over Nicolet without the prior consent of the Federal Reserve or other applicable bank regulatory authorities is limited and may subject you to regulatory oversight.

Nicolet is a bank holding company and, as such, is subject to significant regulation of its business and operations. In addition, under the provisions of the Bank Holding Company Act of 1956, as amended, and the Change in Bank Control Act, certain regulatory provisions may become applicable to individuals or groups who are deemed by the regulatory authorities to “control” Nicolet or its subsidiary bank. Nicolet does not believe that the merger would result in any unwitting acquisitions by any current Mid-Wisconsin shareholders of “control” of Nicolet, as that term is defined under applicable law and regulation. However, the Federal Reserve and other bank regulatory authorities have very broad interpretive discretion in this regard and it is possible that the Federal Reserve or some other bank regulatory authority may, whether through the merger or through subsequent acquisition of Nicolet’s shares, deem one or more of Nicolet’s shareholders to control or to be acting in concert for purposes of gaining or exerting control over Nicolet. Such a determination may require a shareholder or group of shareholders, among other things, to make voluminous regulatory filings under the Change in Bank Control Act, including disclosure to the regulatory authorities of significant amounts of confidential personal or corporate financial information. In addition, certain groups or entities may also be required to either register as a bank holding company under the Bank Holding Company Act of 1956, as amended, becoming themselves subject to regulation by the Federal Reserve under that Act and the rules and regulations promulgated thereunder, which may include requirements to materially limit other operations or divest other business concerns, or to divest immediately their investments in Nicolet. Furthermore, in the event that Nicolet or Nicolet National Bank may seek to undertake the acquisition of the assets of failed financial institutions through submitting bids on such assets to the FDIC, whether pursuant to a loss-sharing agreement or otherwise, it is possible that individuals deemed to “control” Nicolet may become further subject to the FDIC’s 2009 Statement of Policy on Qualifications for Failed Bank Acquisitions. Failure to abide by these requirements may subject such shareholders to sanctions up to and including the imposition of civil money penalties.

In addition, these limitations on the acquisition of Nicolet’s stock may generally serve to reduce the potential acquirers of its stock or to reduce the volume of its stock that any potential acquirer may be able to acquire. These restrictions may serve to generally limit the liquidity of its stock and, consequently, may adversely affect its value.

Nicolet’s securities are not FDIC insured.

Nicolet’s securities, including the shares of Nicolet common stock to be issued in the merger, are not savings or deposit accounts or other obligations of Nicolet National Bank, and are not insured by the Deposit Insurance Fund, or any other agency or private entity and are subject to investment risk, including the possible loss of some or all of the value of your investment.

A WARNING ABOUT FORWARD-LOOKING STATEMENTS

This joint proxy statement-prospectus includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss future expectations, describe future plans and strategies, contain projections of results of operations or of financial condition or state other forward-looking information. Forward-looking statements are generally identifiable by the use of forward-looking terminology such as “anticipate,” “believe,” “continue,” “could,” “endeavor,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “may,” “objective,” “potential,” “predict,” “project,” “seek,” “should,” “will” and other similar words and expressions of future intent.

The ability of Nicolet and Mid-Wisconsin to predict results or the actual effect of future plans or strategies is inherently uncertain. Although Nicolet and Mid-Wisconsin believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, actual results and performance could differ materially from those set forth in the forward-looking statements. Factors that could cause actual results and performance to differ from those expressed in the forward-looking statements include, but are not limited to:

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The costs of integrating Nicolet’s and Mid-Wisconsin’s operations, which may be greater than expected.

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Potential customer loss and deposit attrition as a result of the merger, and the failure to achieve expected gains, revenue growth and/or expense savings from such transactions.

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Nicolet’s ability to effectively manage interest rate risk and other market risk, credit risk and operational risk both before and after the merger.

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Nicolet’s ability to manage fluctuations in the value of assets and liabilities and off-balance sheet exposure so as to maintain sufficient capital and liquidity to support Nicolet’s business.

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Nicolet’s ability to keep pace with technological changes.

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Nicolet’s ability to develop competitive new products and services in a timely manner and the acceptance of such products and services by its customers and potential customers.

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Nicolet’s ability to expand into new markets.

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The cost and other effects of material contingencies, including litigation contingencies.

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Further easing of restrictions on participants in the financial services industry, such as banks, securities brokers and dealers, investment companies and finance companies, which may increase competitive pressures and affect Nicolet’s ability to preserve its customer relationships and margins.

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Possible changes in general economic and business conditions in the United States in general and in the larger region and communities Nicolet serves in particular, which may lead to deterioration in credit quality, thereby requiring increases in its provision for credit losses, or a reduced demand for credit, thereby reducing earning assets.

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The threat or occurrence of war or acts of terrorism and the existence or exacerbation of general geopolitical instability and uncertainty.

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Possible changes in trade, monetary and fiscal policies, laws, and regulations, and other activities of governments, agencies, and similar organizations, including changes in accounting standards.

The cautionary statements in the “Risk Factors” section and elsewhere in this joint proxy statement-prospectus also identify important factors and possible events that involve risk and uncertainties that could cause actual results to differ materially from those contained in the forward-looking statements. Nicolet and Mid-Wisconsin do not intend, and undertake no obligation, to update or revise any forward-looking statements, whether as a result of differences in actual results, changes in assumptions or changes in other factors affecting such statements.

THE MID-WISCONSIN SPECIAL SHAREHOLDERS’ MEETING

Purpose

Mid-Wisconsin shareholders are receiving this joint proxy statement-prospectus because on ____________, 2013, the record date for a special meeting of shareholders to be held on ______________, 2013, at__________ at __.m., they owned shares of the common stock of Mid-Wisconsin Financial Services, Inc., and the board of directors of Mid-Wisconsin is soliciting proxies for the matter to be voted on at this special meeting, as described in more detail below. Each copy of this joint proxy statement-prospectus was mailed to holders of Mid-Wisconsin common stock on [______________] and is accompanied by a proxy card for use at the meeting and at any adjournment(s) of the meeting.

At the meeting, Mid-Wisconsin shareholders will consider and vote upon the merger agreement and any other matters that are properly brought before the meeting, or any adjournments(s) of the meeting.

When you sign the enclosed proxy card or otherwise vote pursuant to the instructions set forth on the proxy card, you appoint the proxy holder as your representative at the meeting. The proxy holder will vote your shares as you have instructed in the proxy card, thereby ensuring that your shares will be voted whether or not you attend the meeting. Even if you plan to attend the meeting, we ask that you instruct the proxies how to vote your shares in advance of the meeting just in case your plans change. In the event that other matters arise at the special meeting, the proxy holder will vote your shares according to his or her discretion.

If you have not already done so, please complete, date and sign the accompanying proxy card and return it promptly in the enclosed, postage paid envelope. If you do not return your properly executed card, or if you do not attend and cast your vote at the special meeting, the effect will be a vote against the merger agreement.

Record Date; Quorum and Vote Required

The record date for the Mid-Wisconsin special meeting is ____________, 2013. Mid-Wisconsin’s shareholders of record as of the close of business on that day will receive notice of and will be entitled to vote at the special meeting. As of December 31, 2012, there were 1,657,119 shares of Mid-Wisconsin common stock issued and outstanding and entitled to vote at the meeting. The issued and outstanding shares are held by approximately 840 holders of record.

The presence, in person or by proxy, of a majority of the shares of Mid-Wisconsin common stock entitled to vote on the merger agreement is necessary to constitute a quorum at the meeting. Each share of Mid-Wisconsin common stock outstanding on the record date, entitles its holder to one vote on the merger agreement and any other proposal that may properly come before the meeting.

To determine the presence of a quorum at the meeting, Mid-Wisconsin will also count as present at the meeting the shares of Mid-Wisconsin common stock present in person but not voting, and the shares of common stock for which Mid-Wisconsin has received proxies but with respect to which the holders of such shares have abstained or signed without providing instructions as described in “— Solicitation and Revocation of Proxies” below. On ____________, 2013, the record date for the meeting, there were __________ shares of Mid-Wisconsin common stock issued and outstanding. Therefore at least __________ shares need to be present at the special meeting, whether in person or by proxy, to constitute a quorum.

Approval of the merger agreement requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Mid-Wisconsin common stock as of the record date for the special meeting.

As of the record date for the meeting, Mid-Wisconsin’s directors and executive officers beneficially owned a total of _________ shares, or approximately __% of the issued and outstanding shares, of Mid-Wisconsin common stock. We anticipate that these individuals will vote their shares in favor of the merger agreement. Certain of these individuals have entered into a written agreement with Nicolet that they will vote their shares in favor of the merger agreement, except as may be limited by their fiduciary obligations.

Solicitation and Revocation of Proxies

If you have delivered a signed proxy card for the Mid-Wisconsin special meeting, you may revoke it at any time before it is voted by:

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attending the meeting and voting in person;

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giving written notice revoking your proxy to Mid-Wisconsin’s Corporate Secretary prior to the date of the meeting; or

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submitting a signed proxy card that is dated later than your initial proxy card to Mid-Wisconsin’s Corporate Secretary.

The proxy holders will vote as directed on all valid proxies that are received at or prior to the meeting and that are not subsequently revoked. If you complete, date and sign your proxy card but do not provide instructions as to your vote, the proxy holders will vote your shares FOR approval of the merger agreement. If any other matters are properly presented at the meeting for consideration, the persons named in the proxy card will have discretionary authority to vote your shares on those matters. Mid-Wisconsin’s board of directors is not aware of any matter to be presented at the meeting other than the proposal to approve the merger agreement.

If you hold shares in “street name” with a broker, bank, or other fiduciary, you will receive voting instructions from the holder of record of your shares. Under the rules of various national and regional securities exchanges, brokers, banks and other fiduciaries may generally vote your shares on routine matters, such as the ratification of an independent registered public accounting firm, even if you provide no instructions, but may not vote on non-routine matters, such as the matters being brought before the special meeting, unless you provide voting instructions. Shares for which a broker does not have the authority to vote are recorded as “broker nonvotes,” are not counted in the vote by shareholders but will count for purposes of a quorum. As a result, any broker nonvotes will have the practical effect of a vote against the merger proposal but will not affect the adjournment proposal. We therefore encourage you to provide directions to your broker as to how you want your shares voted on all matters to be brought before the special meeting. You should do this by carefully following the instructions your broker gives you concerning its procedures. If you hold shares in “street name” and wish to change your vote at any time, you must contact your broker.

Mid-Wisconsin will bear the cost of soliciting proxies from its shareholders. Mid-Wisconsin will solicit shareholder votes by mail, and may also solicit certain shareholders by other means of communication, including telephone or in person. If anyone solicits your vote in person, by telephone, or by other means of communication, they will receive no additional compensation for doing so. Mid-Wisconsin will reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation material to those beneficial owners.

How to Vote Your Shares

Shareholders of record (i.e., those who own shares in their own name) can vote by telephone, on the internet, or by mail as follows:

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Voting by Telephone. Call the toll-free number listed on the proxy card and follow the instructions. You will need to have your proxy card with you when you call.

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Voting on the Internet. Go to www.___________.com and follow the instructions. You will need to have your proxy card with you when you link to the website.

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Voting by Mail. Complete, sign, date, and return the enclosed proxy card in the envelope provided.

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Voting at the Mid-Wisconsin Special Meeting. If you decide to attend the special meeting and vote in person, you may deposit your proxy card with a representative of Mid-Wisconsin at the special meeting registration desk. You may also complete a ballot that will be distributed at the meeting. Whether or not you plan to attend the special meeting, please submit your proxy promptly in the enclosed envelope or vote telephonically or through the Internet by following the instructions on the proxy card.

“Street name” shareholders (i.e., those who own their shares in the name of a broker, bank, or other fiduciary) should refer to the information you receive from your broker to see which voting methods are available to you. Please note, if you are a street name shareholder, and wish to vote in person at the special meeting, you must obtain a proxy executed in your favor from your broker to be able to vote at the special meeting.

You should not send any stock certificates with your proxy card. If the merger agreement is approved, you will receive instructions for exchanging your stock certificates after the merger has been completed.

Dissenters’ Rights

Mid-Wisconsin’s shareholders have dissenters’ rights with respect to the merger under Wisconsin law. Shareholders who wish to assert their dissenters’ rights and comply with the procedural requirements of Subchapter XIII of the Wisconsin Business Corporation Law (“WBCL”) will be entitled to receive payment of the fair value of their shares in cash in accordance with Wisconsin law. For more information regarding the exercise of these rights, see, “Dissenters’ Rights,” at page 76.

Recommendation of the Board of Directors of Mid-Wisconsin

Mid-Wisconsin’s board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, believes that the merger is in the best interests of Mid-Wisconsin and its shareholders, and recommends that you vote FOR approval of the merger agreement.

In the course of reaching its decision to approve the merger agreement and the transactions contemplated in the merger agreement, Mid-Wisconsin’s board of directors, among other things, consulted with its legal advisor, Barack Ferrazzano Kirschbaum & Nagelberg LLP, regarding the legal terms of the merger agreement, and with its financial advisor, Raymond James., regarding the fairness of the merger consideration to Mid-Wisconsin’s common shareholders from a financial point of view. For a discussion of the factors considered by the board of directors in reaching its conclusion, see, “Background of and Reasons for the Merger — Background of the Merger,” at page 33, and “- Mid-Wisconsin’s Reasons for the Merger,” at page 35.

Shareholders should note that Mid-Wisconsin’s directors have certain interests in, and may derive benefits as a result of, the merger that are in addition to their interests as shareholders of Mid-Wisconsin. See, “The Merger Agreement — Interests of Certain Persons in the Merger,” at page __.

THE NICOLET SPECIAL SHAREHOLDERS’ MEETING

Purpose

Nicolet shareholders have received this joint proxy statement-prospectus because on ______________, 2013, the record date for a special meeting of shareholders to be held on ________, 2013, at ______________ at ____ __.m., they owned shares of the common stock of Nicolet Bankshares, Inc, and the board of directors of Nicolet is soliciting proxies for the matter to be voted on at this special meeting, as described in more detail below. Each copy of this joint proxy statement-prospectus was mailed to holders of Nicolet common stock on [____________] and is accompanied by a proxy card for use at the meeting and at any adjournment(s) of the meeting.

At the meeting, Nicolet shareholders will consider and vote upon the merger agreement and any other matters that are properly brought before the meeting or any adjournment(s) of the meeting.

If you have not already done so, please complete, date and sign the accompanying proxy card and return it promptly in the enclosed, postage paid envelope or otherwise vote pursuant to the instructions set forth on the proxy card. If you do not vote your shares as instructed on the proxy card, or if you do not attend and cast your vote at the special meeting, the effect will be a vote against the merger agreement.

Record Date; Quorum and Vote Required

The record date for the Nicolet special meeting is ___________, 2013. Nicolet’s shareholders of record as of the close of business on that day will receive notice of and will be entitled to vote at the special meeting. As of ______________, 2013, there were ________ shares of Nicolet common stock issued and outstanding and entitled to vote at the meeting. The issued and outstanding shares are held by approximately ________ holders of record.

The presence, in person or by proxy, of a majority of the shares of Nicolet common stock entitled to vote on the merger agreement is necessary to constitute a quorum at the meeting. Each share of Nicolet common stock outstanding on the record date, entitles its holder to one vote on the merger agreement and any other proposal that may properly come before the meeting.

To determine the presence of a quorum at the meeting, Nicolet will also count as present at the meeting the shares of Nicolet common stock present in person but not voting, and the shares of common stock for which Nicolet has received proxies but with respect to which the holders of such shares have abstained or signed without providing instructions as described in “— Solicitation and Revocation of Proxies” below. On ____________, 2013, the record date for the meeting, there were _______ shares of Nicolet common stock issued and outstanding. Therefore at least _____ shares need to be present at the special meeting, whether in person or by proxy, to constitute a quorum.

Approval of the merger agreement requires the affirmative vote of the holders of a majority of the issued and outstanding shares of Nicolet common stock as of the record date for the special meeting.

As of the record date for the meeting, Nicolet’s directors and executive officers beneficially owned a total of __________ shares, or approximately ____% of the issued and outstanding shares, of Nicolet common stock. We anticipate that these individuals will vote their shares in favor of the merger agreement. Certain of these individuals have entered into a written agreement with Mid-Wisconsin that they will vote their shares in favor of the merger agreement, except as may be limited by their fiduciary obligations.

Solicitation and Revocation of Proxies

If you have delivered a signed proxy card for the Nicolet special meeting or otherwise voted pursuant to the instructions set forth on the proxy card, you may revoke it at any time before it is voted by:

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attending the meeting and voting in person;

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giving written notice revoking your proxy to Nicolet’s Corporate Secretary prior to the date of the meeting; or

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submitting a signed proxy card that is dated later than your initial proxy card to Nicolet’s Corporate Secretary.

The proxy holders will vote as directed on all valid proxies that are received at or prior to the meeting and that are not subsequently revoked. If you complete, date and sign your proxy card but do not provide instructions as to your vote, the proxy holders will vote your shares FOR approval of the merger agreement. If any other matters are properly presented at the meeting for consideration, the persons named in the proxy card will have discretionary authority to vote your shares on those matters. Nicolet’s board of directors is not aware of any matter to be presented at the meeting other than the proposal to approve the merger agreement.

Nicolet will bear the cost of soliciting proxies from its shareholders. Nicolet will solicit shareholder votes by mail, and may also solicit certain shareholders by other means of communication, including telephone or in person. If anyone solicits your vote in person, by telephone, or by other means of communication, they will receive no additional compensation for doing so. Nicolet will reimburse brokerage firms and other persons representing beneficial owners of shares for their reasonable expenses in forwarding solicitation material to those beneficial owners.

How to Vote Your Shares

Shareholders of record (i.e., those who own shares in their own name) can vote by telephone, on the Internet, or by mail as follows:

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Voting by Telephone. Call the toll-free number listed on the proxy card and follow the instructions. You will need to have your proxy card with you when you call.

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Voting on the Internet. Go to www.________.com and follow the instructions. You will need to have your proxy card with you when you link to the website.

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Voting by Mail. Complete, sign, date, and return the enclosed proxy card in the envelope provided.

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Voting at the Nicolet Special Meeting. If you decide to attend the special meeting and vote in person, you may deposit your proxy card with a representative of Nicolet at the special meeting registration desk. You may also complete a ballot that will be distributed at the meeting. Whether or not you plan to attend the special meeting, please submit your proxy promptly in the enclosed envelope or vote telephonically or through the internet by following the instructions on the proxy card.

Dissenters’ Rights

Nicolet’s shareholders have dissenters’ rights with respect to the merger under Wisconsin law. Shareholders who wish to assert their dissenters’ rights and comply with the procedural requirements of Subchapter XIII of the WBCL will be entitled to receive payment of the fair value of their shares in cash in accordance with Wisconsin law. For more information regarding the exercise of these rights, see, “Dissenters’ Rights,” at page 29.

Recommendation of the Board of Directors of Nicolet

Nicolet’s board of directors has unanimously approved the merger agreement and the transactions contemplated thereby, believes that the merger is in the best interests of Nicolet and its shareholders, and recommends that you vote FOR approval of the merger agreement.

In the course of reaching its decision to approve the merger agreement and the transactions contemplated in the merger agreement, Nicolet’s board of directors, among other things, consulted with its legal advisor, Bryan Cave LLP, regarding the legal terms of the merger agreement, and with its financial advisor, Sandler O’Neill regarding the fairness of the merger consideration to Nicolet’s common shareholders from a financial point of view. For a discussion of the factors considered by the board of directors in reaching its conclusion, see, “Background of and Reasons for the Merger — Background of the Merger,” at page 33, and “- Nicolet’s Reasons for the Merger,” at page 35.

PROPOSAL 1: THE MERGER AGREEMENT

Structure of the Merger

The merger agreement provides for the merger of Mid-Wisconsin with and into Nicolet, with Nicolet being the surviving entity in the merger. After the merger, Mid-Wisconsin Bank will merge with and into Nicolet National Bank, with Nicolet National Bank being the surviving entity. Each share of Mid-Wisconsin common stock issued and outstanding at the effective time of the merger will be converted into the right to receive either 0.3727 shares of Nicolet common stock or, in certain limited circumstances, $6.15 in cash. Nicolet will appoint Kim A. Gowey and Christopher Ghidorzi, who are both current Mid-Wisconsin directors, to the boards of directors of Nicolet and Nicolet National Bank.

Background of the Merger

Mid-Wisconsin’s board regularly assesses strategic alternatives for maximizing shareholder value. During the past two years, Mid-Wisconsin, like many other banks, has experienced certain stresses, such as the matters addressed in Mid-Wisconsin’s formal written agreement with the Federal Reserve dated May 10, 2011 and Mid-Wisconsin Bank’s written agreement with the FDIC and WDFI on November 9, 2010 (together, the “Consent Order”) that led to the need for additional capital and a more robust infrastructure during a difficult time for the banking industry as a whole. Consequently, Mid-Wisconsin was required to defer its regularly scheduled quarterly payments on its Preferred Stock and the Debentures and is in arrears with the dividend payments on the Preferred Stock and the interest payments on the Debentures. In light of these challenges, Mid-Wisconsin’s board determined that it was in the best interest of its shareholders to more actively explore its strategic options to determine whether there was a possible merger partner that shared their desire to maximize shareholder value while providing exemplary service to the communities and customers that they serve.

Like the Mid-Wisconsin board, Nicolet’s board of directors engages in regular assessments of strategic alternatives for maximizing shareholder value. Since Nicolet’s inception in 2000, its objective has been to build, through organic growth and acquisitions, a community bank of sufficient size to address efficiently the compliance and capital requirements presented by an uncertain regulatory and economic environment while enhancing shareholder value, expanding product lines and continuing to deliver personalized customer service with local decision-making. From time to time, Nicolet’s Chairman, President, and Chief Executive Officer, Robert B. Atwell, would engage in informal, non-binding discussions with potential acquisition candidates, with limited due diligence occurring on such occasions. Until discussions of the proposed merger with Mid-Wisconsin began, however, none of these potential transactions progressed beyond a non-binding expression of interest.

In late 2011, the Mid-Wisconsin board of directors invited representatives of Raymond James to make a presentation to the board regarding potential strategic alternatives. On December 21, 2011, representatives of Raymond James met with the Mid-Wisconsin board and discussed various strategic alternatives. On January 6, 2012, Mid-Wisconsin retained Raymond James to serve as its financial advisor and to ascertain potential market interest in an acquisition of Mid-Wisconsin and its subsidiary bank.

From January through May 2012, Raymond James contacted potential likely acquirers, with one potential acquirer conducting limited off-site due diligence on Mid-Wisconsin Bank’s asset quality and other business matters during the first quarter. Following this due diligence and several discussions between the parties, the third party elected not to pursue an opportunity with Mid-Wisconsin at that time, citing its need to raise additional capital to facilitate the transaction as well as possible difficulties receiving regulatory approval for a transaction at this time. On May 30, 2012, Raymond James updated the Mid-Wisconsin board on the process and was authorized by the board to continue to contact potential acquirers.

As part of this process, representatives of Raymond James met with Mr. Atwell in Green Bay, Wisconsin to discuss a potential acquisition of Mid-Wisconsin by Nicolet. On June 21, 2012, following the execution of confidentiality agreements, Mr. Atwell and Michael E. Daniels, President and Chief Operating Officer of Nicolet National Bank, met with representatives of Raymond James, Dr. Gowey, Mid-Wisconsin’s chairman, and Scot Thompson, the President of Mid-Wisconsin Bank, in Wausau, Wisconsin.

Following that meeting, Nicolet commenced initial onsite due diligence on Mid-Wisconsin in Medford, Wisconsin, which concluded during the week of July 9, 2012. Nicolet retained Sandler O’Neill as its independent financial advisor to assist in the evaluation of the proposed merger on July 17, 2012.

On July 23, 2012, Nicolet submitted a draft letter of intent to Mid-Wisconsin, and on July 25, 2012, Mid-Wisconsin’s board approved continued negotiations with Nicolet.

After further negotiations, Nicolet and Mid-Wisconsin signed a non-binding letter of intent setting forth the proposed terms of the merger on August 3, 2012. The letter of intent contemplated that the merger consideration would consist of Nicolet common stock at an exchange ratio to be determined based on an assumed value of $6.50 to $8.00 per share for the Mid-Wisconsin common stock and an assumed value of $16.50 per share for the Nicolet common stock. The letter of intent contemplated that Mid-Wisconsin’s Preferred Stock issued to the Treasury would be purchased by Nicolet for up to $5.0 million, representing a discount to its $10.5 million face value.

During the remainder of the month of August, Nicolet and its advisors conducted legal and business due diligence on Mid-Wisconsin and discussed with Mid-Wisconsin and its legal and financial advisors various alternative approaches to the Preferred Stock. On August 21, 2012, representatives of Sandler O’Neill met with Nicolet’s board of directors to discuss these alternatives, which included a cash purchase of the Preferred Stock at a discount negotiated with Treasury, Nicolet’s participation as the “designated bidder” in Treasury’s private “Dutch auction” process, delaying a possible merger to allow negotiation with third-party purchasers of the securities following the Treasury auction process, and assuming Mid-Wisconsin’s obligations under the securities. Based on these discussions, as well as discussions with Treasury representatives, the parties agreed that Nicolet would act as the “designated bidder” for the Preferred Stock in Treasury’s private auction process.

From September 4 through September 6, 2012, representatives of Nicolet conducted additional onsite loan due diligence in Medford, Wisconsin. Nicolet’s management team and legal and financial advisors also continued their due diligence review of documents provided by Mid-Wisconsin. From September 10 through September 14, 2012, Nicolet’s compliance officer and internal auditor, and an external compliance auditor performed a limited scope review on Mid-Wisconsin’s compliance to selected regulations. On September 17 and 18, 2012, Mid-Wisconsin’s management team and legal and financial advisors conducted onsite due diligence on Nicolet in Green Bay, Wisconsin. On September 25, 2012, Mid-Wisconsin notified Treasury of its intent to opt out of the pooled auction process and identified Nicolet as the “designated bidder” for the Preferred Stock.

During the month of October, counsel to Nicolet drafted the form of merger agreement and circulated the initial draft to all parties on October 23, 2012. During the following week, the parties continued their discussions with representatives of Treasury regarding Nicolet’s potential purchase of the Mid-Wisconsin Preferred Stock. Based on these discussions, the parties agreed that a purchase of the securities at a discount to the stated value was unlikely and that their respective interests would best be served by structuring the merger to contemplate Mid-Wisconsin’s redemption of the Preferred Stock at its $10.5 million stated value, together with accrued and unpaid dividends, and an exchange ratio for the Nicolet common stock based on an assumed value of $6.15 per share for the Mid-Wisconsin common stock. On October 31, 2012, following consultation with its legal and financial advisors, the Mid-Wisconsin board authorized management to proceed with the negotiation of a definitive merger agreement on the revised terms described above. The parties subsequently notified Treasury of their decision and Nicolet withdrew as the designated bidder for the Preferred Stock.

During the month of November, the parties and their advisors negotiated the terms of the merger agreement and continued the due diligence process. On November 20, 2012, Nicolet’s board of directors met with representatives of Sandler O’Neill and counsel from Bryan Cave LLP to review the terms of the merger agreement. At the meeting, representatives of Sandler O’Neill provided the board with its analysis of the fairness of the merger consideration to Nicolet’s shareholders from a financial point of view and counsel reviewed the board’s fiduciary duties and the terms and conditions of the merger agreement. Following a discussion of these matters and the other factors listed under “—Nicolet’s Reasons for the Merger,” the board concluded that the proposed merger would be in the best interest of Nicolet and its shareholders and approved

the merger agreement in substantially the form presented, with Nicolet’s executive officers being authorized to negotiate, execute and deliver the final agreement on behalf of Nicolet.

On November 28, 2012, Mid-Wisconsin’s board of directors met with representatives of Raymond James and counsel from Barack Ferrazzano Kirschbaum & Nagelberg LLP to review the terms of the merger agreement. At the meeting, representatives of Raymond James provided the board with its analysis of the fairness of the merger consideration to Mid-Wisconsin’s shareholders from a financial point of view and counsel reviewed the board’s fiduciary duties and the terms and conditions of the merger agreement. Following a discussion of these matters and the other factors listed under “—Mid-Wisconsin’s Reasons for the Merger,” the board concluded that the proposed merger would be in the best interest of Mid-Wisconsin and its shareholders and approved the merger agreement in substantially the form presented, with Mid-Wisconsin’s executive officers being authorized to negotiate, execute and deliver the final agreement on behalf of Mid-Wisconsin.

The parties executed the merger agreement on November 28, 2012 and issued a press release announcing the proposed merger on November 29, 2012. Mid-Wisconsin also filed a Current Report on Form 8-K attaching the merger agreement and press release with the SEC on November 29, 2012. Nicolet’s board of directors unanimously ratified the merger agreement, as executed, at a board meeting on December 18, 2012 and approved a technical amendment to the merger agreement that was executed by the parties on January 17, 2013.

Reasons for the Merger

General

The financial and other terms of the merger agreement resulted from arm’s-length negotiations between Nicolet’s and Mid-Wisconsin’s representatives. The following discussion of the information and factors considered by the Nicolet and Mid-Wisconsin boards of directors is not intended to be exhaustive but includes all of the material factors the respective boards considered in determining whether to enter into the merger agreement. In reaching their determinations to approve the merger and to recommend that their respective shareholders approve the merger, neither the Nicolet board of directors nor the Mid-Wisconsin board of directors assigned any relative or specific weight to the following factors, and individual directors may have given.

Nicolet

In deciding to pursue an acquisition of Mid-Wisconsin, Nicolet’s management and board of directors considered, among other things, the following:

•

information concerning the business, operations, earnings, asset quality, and financial condition of Mid-Wisconsin and Mid-Wisconsin Bank;

•

the ability of Mid-Wisconsin’s operations to contribute to Nicolet’s earnings after the merger;

•

the recent comparative earnings and financial performance of Mid-Wisconsin and Nicolet;

•

the financial terms of recent business combinations in the financial services industry and a comparison of the financial terms of such business combinations with the terms of the proposed merger;

•

the market for alternative merger or acquisition transactions in the banking industry and the likelihood of other material strategic transactions;

•

the increased importance of scale in the banking industry, the fact that the merger would increase Nicolet’s size to over $1 billion in total assets, and would provide Nicolet’s banking franchise with additional access to a broader base of middle market and small business prospects;

•

the various effects of Nicolet becoming a public reporting company under the regulation of the SEC as a result of the merger, including increased liquidity for holders of Nicolet’s common stock;

•

the compatibility of Mid-Wisconsin’s management team, strategic objectives, culture, and geographic footprint with those of Nicolet;

•

Mid-Wisconsin’s familiarity with the central Wisconsin market;

•

the opportunity to leverage the infrastructure of Nicolet;

•

the nonfinancial terms of the merger, including the treatment of the merger as a tax-free reorganization for U.S. federal income tax purposes;

•

the opinion of Sandler O’Neill that the consideration to be provided to Mid-Wisconsin’s common shareholders in the merger is fair, from a financial point of view, to the shareholders of Nicolet; and

•

the likelihood of the merger being approved by applicable regulatory authorities without undue conditions or delay.

Mid-Wisconsin

•

the value of the consideration to be received by Mid-Wisconsin’s shareholders compared to shareholder value for Mid-Wisconsin as an independent entity;

•

information concerning business, operations, earnings, asset quality, and financial condition, prospects, and capital levels of Mid-Wisconsin and Nicolet, both individually and as a combined entity;

•

the perceived risks and uncertainties attendant to Mid-Wisconsin’s operation as an independent banking organization, including risks and uncertainties related to the continuing deferral of dividends and interests on its Preferred Stock, and Debentures, the continuing low-interest rate environment, operating under enhanced regulatory scrutiny and the formal written agreements between Mid-Wisconsin and the FDIC and the WDFI, and increased capital requirements;

•

the financial terms of recent business combinations in the financial services industry and a comparison of the multiples of selected combinations with the terms of the proposed merger;

•

the receipt of the stock consideration by Mid-Wisconsin’s shareholders on a tax-free basis;

•

the opinion of Raymond James that the consideration to be received by Mid-Wisconsin’s common shareholders in the merger is fair from a financial point of view; and

•

the likelihood of the merger being approved by applicable regulatory authorities without undue conditions or delay.

OPINION OF MID-WISCONSIN’S FINANCIAL ADVISOR

Mid-Wisconsin retained Raymond James as financial advisor on January 6, 2012. In connection with that engagement, the Mid-Wisconsin Board of Directors requested that Raymond James evaluate the fairness, from a financial point of view, to the holders of Mid-Wisconsin’s outstanding common stock of the price per share merger consideration to be received by such holders pursuant to the merger agreement.

At the November 28, 2012 meeting of the Mid-Wisconsin Board of Directors, Raymond James gave its opinion that, as of such date and based upon and subject to various qualifications and assumptions described with respect to its opinion, the merger consideration to be received by the holders of Mid-Wisconsin common stock pursuant to the merger agreement was fair, from a financial point of view, to the holders of Mid-Wisconsin’s outstanding common stock.

The full text of the written opinion of Raymond James, dated November 28, 2012, which sets forth assumptions made, matters considered, and limits on the scope of review undertaken, is attached as Appendix C to this joint proxy statement-prospectus. The summary of the opinion of Raymond James set forth in this joint proxy statement-prospectus is qualified in its entirety by reference to the full text of such opinion.

Holders of Mid-Wisconsin common stock are urged to read Raymond James’ written opinion in its entirety. Raymond James’ opinion, which is addressed to the Mid-Wisconsin Board of Directors, is directed only to the fairness, from a financial point of view, of the merger consideration to be received by holders of Mid-Wisconsin common stock in connection with the proposed merger. Raymond James’ opinion does not constitute a recommendation to any holder of Mid-Wisconsin common stock as to how such stockholder should vote at the special meeting of Mid-Wisconsin shareholders and does not address any other aspect of the proposed merger or any related transaction. Raymond James does not express any opinion as to the likely trading range of Nicolet common stock following the merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Nicolet at that time.

In connection with rendering its opinion, Raymond James, among other things:

•

reviewed the financial terms and conditions as stated in the merger agreement;

•

reviewed the audited financial statements of Mid-Wisconsin as of and for the years ended December 31, 2010 and December 31, 2011, and the unaudited financial statements for the quarter ending September 30, 2012;

•

reviewed Mid-Wisconsin’s Annual Reports filed on Form 10-K for the years ended December 31, 2010 and December 31, 2011 and Quarterly Reports filed on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2012;

•

reviewed other Mid-Wisconsin financial and operating information requested from and/or provided by Mid-Wisconsin;

•

reviewed certain other publicly available information on Mid-Wisconsin;

•

reviewed financial projections of Mid-Wisconsin provided to Nicolet by Mid-Wisconsin’s management;

•

reviewed financial information for comparable companies with similar publicly-traded securities;

•

reviewed the financial terms of recent business combinations involving companies deemed to be similar;

•

discussed with members of the senior management of Mid-Wisconsin certain information relating to the aforementioned factors and any other matters which we have deemed relevant to our inquiry; and

•

reviewed other information and conducted such other analyses we deemed relevant.

In connection with its review, Raymond James assumed and relied upon the accuracy and completeness of all information supplied or otherwise made available to Raymond James by Mid-Wisconsin, Nicolet or any

other party, and did not undertake any duty or responsibility to verify independently any of such information. Raymond James has not made or obtained an independent appraisal of the assets or liabilities (contingent or otherwise) of Mid-Wisconsin. With respect to financial forecasts and other information and data provided to or otherwise reviewed by or discussed with Raymond James, Raymond James assumed that such forecasts and other information and data were reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management, and relied upon each party to advise Raymond James promptly if any information previously provided became inaccurate or was required to be updated during the period of its review.

In rendering its opinion, Raymond James assumed that the merger would be consummated on the terms described in the merger agreement. Furthermore, Raymond James assumed, in all respects material to its analysis, that the representations and warranties of each party contained in the merger agreement were true and correct, that each party will perform all of the covenants and agreements required to be performed by it under the merger agreement and that all conditions to the consummation of the merger will be satisfied without being waived. Raymond James also assumed that all material governmental, regulatory or other consents and approvals will be obtained and that, in the course of obtaining any necessary governmental, regulatory or other consents and approvals, or any amendments, modifications or waivers to any documents to which Mid-Wisconsin is a party, as contemplated by the merger agreement, no restrictions will be imposed or amendments, modifications or waivers made that would have any material adverse effect on Mid-Wisconsin. In its financial analyses, Raymond James assumed the merger consideration had a value of $6.15 per Mid-Wisconsin common share. Raymond James expressed no opinion as to the underlying business decision to effect the merger, the structure or tax consequences of the merger agreement, or the availability or advisability of any alternatives to the merger. In rendering the opinion, Raymond James reviewed the terms of the merger agreement and offered no judgment as to the negotiations resulting in such terms.

In conducting its investigation and analyses and in arriving at its opinion, Raymond James took into account such accepted financial and investment banking procedures and considerations as it deemed relevant, including the review of: (i) historical and projected revenues, operating earnings, net income and capitalization of Mid-Wisconsin and certain other publicly held companies in businesses Raymond James believed to be comparable to Mid-Wisconsin; (ii) the current and projected financial position and results of operations of Mid-Wisconsin; (iii) the historical market prices and trading activity of the common stock of Mid-Wisconsin; (iv) financial and operating information concerning selected business combinations which Raymond James deemed comparable in whole or in part; and (v) the general condition of the securities markets.

The following summarizes the material financial analyses presented by Raymond James to the Mid-Wisconsin Board of Directors at its meeting on November 28, 2012, which was considered by Raymond James in rendering the opinion described below. No company or transaction used in the analyses described below is directly comparable to Mid-Wisconsin, Nicolet or the contemplated merger.

Trading Analysis

Raymond James analyzed historical closing prices of Mid-Wisconsin common stock and compared them to the value of the proposed merger consideration. The results of this analysis are summarized below:

	Price Per Share
Merger consideration value	$	6.15	—
Mid-Wisconsin closing stock price as of November 27, 2012	$	4.00	53.8	%
52-week high Mid-Wisconsin stock price (May 18, 2012)	$	6.50	–5.4	%
52-week low Mid-Wisconsin stock price (December 27, 2011 and November 27, 2012)	$	4.00	53.8	%

Comparable Company Analysis

Raymond James reviewed and compared certain financial information of Mid-Wisconsin to corresponding financial information, ratios and public market multiples observed for two sets of publicly-traded banks.

The first set included publicly-traded banks and thrifts headquartered in the Midwest with assets between $200.0 million and $1.0 billion, nonperforming assets to total assets between 4.0% and 10.0%, a return on

average assets less than 0.50% over the last-twelve-months, and an average daily trading volume of their respective common stock of at least 100 shares per day. The financial data used was as of September 30, 2012 (or in four instances, June 30, 2012 when more current financial information was not readily available). The institutions included in the first set of comparable companies included:

• Centrue Financial Corp.	• Mercantile Bancorp, Inc.	• Fentura Financial Inc.
• First Community Financial Partners	• HMN Financial, Inc.	• Wolverine Bancorp Inc.
• Camco Financial Corp	• CIB Marine Bancshares, Inc.	• Bremen Bancorp
• Baraboo Bancorp.	• Ameriana Bancorp	• Central Federal Corp.

The second set included publicly-traded banks and thrifts based nationwide that have some amount of outstanding preferred stock issued through TARP, assets between $200.0 million and $1.0 billion, nonperforming assets to total assets between 4.0% and 10.0%, a return on average assets less than 0.50% over the last-twelve-months, and an average daily trading volume of their respective common stock of at least 100 shares per day. The financial data used was as of September 30, 2012 (or in six instances, June 30, 2012 when more current financial information was not readily available). The institutions included in the second set of comparable companies included:

• Centrue Financial Corp.	• SouthCrest Financial Group Inc	• IBW Financial Corp
• Royal Bancshares of PA	• First Reliance Bancshares	• M&F Bancorp Inc
• Unity Bancorp Inc	• Delmar Bancorp	• Carolina Trust Bank
• Baraboo Bancorp	• Citizens Bancshares Corp	• United American Bank
• 1^st Financial Services Corp.	• Northwest Bancorp
• HMN Financial Inc.	• Provident Community Bancshares

Raymond James attained various financial multiples and ratios for the selected public companies and Mid-Wisconsin based on publicly available financial information, information provided by Mid-Wisconsin’s management, and common stock closing prices on November 27, 2012. For each of the selected public companies and Mid-Wisconsin, Raymond James reviewed:

•

Common stock price as a multiple of tangible book value as of September 30, 2012 or, in certain instances, June 30, 2012; and

•

Common stock price as a multiple of earnings per share for the last-twelve-months as of September 30, 2012 or, in certain instances, June 30, 2012.

The results of these analyses are summarized below:

				Trading Multiples of Comp. Publicly-Traded Companies
	Proposed Transaction			Low			Mean			Median			High
Comparable Companies — Midwest Banks
Price/Tangible Book Value Per Share		38.3	%		11.7	%		46.5	%		39.8	%		81.4	%
Price/LTM Earnings Per Share⁽¹⁾		NM			6.5	x		19.4	x		20.5	x		30.0	x

Comparable Companies — TARP Banks
Price/Tangible Book Value Per Share		38.3	%		7.3	%		36.9	%		33.9	%		82.5	%
Price/LTM Earnings Per Share⁽¹⁾		NM			4.9	x		23.6	x		22.4	x		43.2	x

(1)

Mid-Wisconsin’s last-twelve-months (“LTM”) earnings as of September 30, 2012 were negative, thus its price / LTM earnings per share was not material.

Raymond James also applied the mean, median, minimum, and maximum relative multiples for each of the metrics to Mid-Wisconsin’s actual financial results and determined the implied market value of Mid-Wisconsin common stock and then compared those implied prices per share to Mid-Wisconsin’s closing stock price of $4.00 on November 27, 2012, one day before the merger announcement. These results are summarized below:

	Implied Mid-Wisconsin Price Per Share Based on Trading Multiples of Comp. Publicly Traded Companies
	Low		Mean		Median		High
Comparable Companies — Midwest Banks
Price/Tangible Book Value Per Share	$	1.87	$	7.46	$	6.39	$	13.06
Price/LTM Earnings Per Share⁽¹⁾		NM		NM		NM		NM

Comparable Companies — TARP Banks
Price/Tangible Book Value Per Share	$	1.18	$	5.91	$	5.44	$	13.24
Price/LTM Earnings Per Share⁽¹⁾		NM		NM		NM		NM

(1)

Mid-Wisconsin’s LTM earnings as of September 30, 2012 were negative, thus rendering the implied values as not material

Precedent Transactions Analysis

Raymond James analyzed publicly available information relating to two sets of selected acquisitions of bank and thrift targets announced since January 1, 2010. The first set included targets which had outstanding preferred stock issued through the TARP, assets between $200.0 million and $1.0 billion and nonperforming assets to total assets greater than 4.0% at the time of the announced acquisition. The transactions included in the first set include:

Announce Date	Acquirer/Target	Announce Date	Acquirer/Target
6/5/12	Equity Bancshares Inc. (KS)/First Community Bancshares Inc (KS)	6/24/11	SCJ Inc. (CA)/Santa Lucia Bancorp (CA)
2/9/12	Horizon Bancorp (IN)/Heartland Bancshares (IN)	2/23/11	Piedmont Cmnty Bk Hldgs Inc. (NC)/Crescent Financial Corp. (NC)
1/12/12	First Volunteer Corp. (TN)/Gateway Bancshares Inc. (GA)	2/10/11	CBM Florida Holding Co. (FL)/First Community Bk of America (FL)
12/19/11	SCBT Financial Corp. (SC)/Peoples Bancorporation Inc. (SC)

Note: Only transactions with available pricing data shown

The second set included targets with assets between $200.0 million and $1.0 billion and nonperforming assets to total assets between 4.0% and 10.0% and a return on average assets of less than 0.50% for the last-twelve-months prior to the announced acquisition. The transactions included in the second set include:

Announce Date	Acquirer/Target	Announce Date	Acquirer/Target
8/7/12	SCBT Financial Corp. (SC)/Savannah Bancorp Inc. (GA)	3/30/11	Home Bancorp Inc. (LA)/GS Financial Corp. (LA)
7/19/12	SKBHC Holdings LLC (WA)/ICB Financial (CA)	3/30/11	Park Sterling Corporation (NC)/Community Capital Corp. (SC)
6/5/12	Equity Bancshares Inc. (KS)/First Community Bancshares Inc (KS)	2/21/11	IBERIABANK Corp. (LA)/Omni Bancshares Inc. (LA)
4/4/12	Washington Federal Inc. (WA)/South Valley Bancorp Inc. (OR)	2/10/11	CBM Florida Holding Co. (FL)/First Community Bk of America (FL)
3/19/12	IBERIABANK Corp. (LA)/Florida Gulf Bancorp Inc. (FL)	12/15/10	American National Bankshares (VA)/MidCarolina Financial Corp. (NC)
2/9/12	Horizon Bancorp (IN)/Heartland Bancshares (IN)	10/20/10	Modern Capital Partners L.P. (NY)/Madison National Bancorp Inc. (NY)
1/24/12	Old National Bancorp (IN)/Indiana Community Bancorp (IN)	10/5/10	Old National Bancorp (IN)/Monroe Bancorp (IN)
1/12/12	First Volunteer Corp. (TN)/Gateway Bancshares Inc. (GA)	9/30/10	FNB United Corp. (NC)/Bank of Granite Corp. (NC)
12/21/11	BNC Bancorp (NC)/KeySource Financial Inc. (NC)	9/1/10	Old Line Bancshares Inc (MD)/Maryland Bankcorp Inc. (MD)
12/19/11	SCBT Financial Corp. (SC)/Peoples Bancorporation Inc. (SC)	7/14/10	Grandpoint Capital Inc. (CA)/First Commerce Bancorp (CA)
12/14/11	First Farmers Financial Corp (IN)/First Citizens of Paris Inc. (IL)	5/10/10	Jacksonville Bancorp Inc. (FL)/Atlantic BancGroup Inc. (FL)
7/25/11	Wintrust Financial Corp. (IL)/Elgin State Bancorp Inc. (IL)	3/17/10	Roma Financial Corp. (MHC) (NJ)/Sterling Banks Inc. (NJ)
6/9/11	SKBHC Holdings LLC (AZ)/Sunrise Bank(CA)

Note: Only transactions with available pricing data shown

For the first set of precedent transactions, Raymond James examined multiples of:

•

transaction value as a multiple of tangible book value; and

•

transaction value as a multiple of the target’s earnings for the last-twelve-months.

For the second set of precedent transactions, Raymond James examined multiples of:

•

transaction value as a multiple of tangible book value;

•

transaction value as a multiple of the target’s earnings for the last-twelve-months; and

•

transaction value premium over tangible book value as a percentage of core deposits.

Raymond James reviewed the means, medians, minimums, and maximums of these multiples for the selected transactions and compared them to the corresponding multiples for Mid-Wisconsin implied by the merger consideration.

				Multiples of Precedent Transactions
	Proposed Transaction			Low			Mean			Median			High
TARP Related M&A Transactions
Transaction Value/
Tangible Book Value Per Share		38.3	%		21.5	%		54.6	%		52.8	%		96.0	%
LTM Earnings Per Share⁽¹⁾		NM			14.4	x		20.2	x		22.0	x		24.3	x
General M&A Transactions
Transaction Value/
Tangible Book Value Per Share		38.3	%		27.8	%		90.2	%		92.2	%		161.7	%
LTM Earnings Per Share⁽¹⁾		NM			14.4	x		39.4	x		45.0	x		69.1	x
Transaction Value less TBV/
Core Deposits⁽²⁾		–4.7	%		–5.5	%		–0.6	%		–0.8	%		6.2	%

(1)

Mid-Wisconsin’s LTM earnings as of September 30, 2012 were negative, thus its transaction value / LTM earnings per share was not material

(2)

Core deposits defined as total deposits less time deposits greater than $100,000

Raymond James also applied the mean, median, minimum, and maximum relative multiples for each of the metrics to Mid-Wisconsin’s actual financial results and determined the implied change of control price per share of Mid- Wisconsin as indicated by the precedent transactions and then compared those implied prices per share to the merger consideration of $6.15 per share.

	Implied Mid-Wisconsin Price Per Share Based on Precedent Transaction Multiples
	Low		Mean		Median		High
TARP Related M&A Transactions
Transaction Value/
Tangible Book Value Per Share	$	3.44	$	8.75	$	8.47	$	15.39
LTM Earnings Per Share⁽¹⁾		NM		NM		NM		NM

General M&A Transactions
Transaction Value/
Tangible Book Value Per Share	$	4.45	$	14.47	$	14.79	$	25.93
LTM Earnings Per Share⁽¹⁾		NM		NM		NM		NM
Transaction Value less TBV/
Core Deposits⁽²⁾	$	4.62	$	14.79	$	14.29	$	29.09

(1)

Mid-Wisconsin’s LTM earnings as of September 30, 2012 were negative, thus its transaction value / LTM earnings per share was not material

(2)

Core deposits defined as total deposits less time deposits greater than $100,000

Net Present Value Analysis

Raymond James performed a net present value analysis to estimate a range of implied fully-diluted equity values for the holders of Mid-Wisconsin common stock. The analysis used financial projections provided by Mid-Wisconsin’s management for the years ending December 31, 2012 through 2015, which represented the best available estimates and judgment of management. The net income projections were modeled assuming Mid-Wisconsin continues to operate as an independent entity. The valuation range was determined by adding (i) the present value of estimated economic dividends from the time period December 31, 2012 to December 31, 2015 and (ii) the present value of the “terminal value” of Mid-Wisconsin. In calculating terminal values, Raymond James used tangible book value multiples of estimated 2015 year end tangible equity and price/earnings multiples of estimated 2015 net income. The tangible book value multiples ranged from 50.0% to 110.0%, while the price/earnings multiples ranged from 8.0x to 14.0x.

The projected dividends paid and terminal values were discounted using discount rates ranging from 16.0% to 22.0%, which are rates Raymond James viewed as appropriate for a company with Mid-Wisconsin’s risk characteristics and size. This analysis yielded a range of implied present values of Mid-Wisconsin price per share of common stock of $1.01 to $2.09 when applying a price / earnings multiple and $5.84 to $15.14 when applying a price / tangible book value multiple. Greater weight was placed on the price-to-earnings multiple analysis as a bank’s ability to generate earnings has historically had a more significant impact on its resulting stock price than its tangible book value.

Premium Paid Analysis

Raymond James analyzed the stock price premiums paid in the 25 merger and acquisition transactions used in the second set of precedent transactions above. These transactions were all announced since January 1, 2010 and included targets with assets between $200.0 million and $1.0 billion and nonperforming assets to total assets between 4.0% and 10.0% and a return on average assets of less than 0.50% for the last-twelve-months prior to the announced acquisition. In those transactions where the selling institution was a publicly-traded bank or thrift, Raymond James measured each transaction price per share relative to each target’s closing price per share one day, five days and 30 days prior to announcement of the transaction. Raymond James compared the mean, median, minimum and maximum premiums paid from this set of transactions to the Mid-Wisconsin merger consideration expressed as a premium relative to the closing stock price of Mid-Wisconsin on November 27, November 23, and October 29, 2012. The results of the premium paid analysis are summarized below:

	Premiums Paid in Precedent Transactions
	1-day			5-day			30-day
Minimum		–49.6	%		16.8	%		–40.3	%
Mean		29.2	%		58.2	%		53.4	%
Median		24.0	%		55.2	%		61.7	%
Maximum		69.1	%		143.0	%		149.2	%

	Proposed Transaction
	1-day			5-day			30-day
Merger consideration	$	6.15		$	6.15		$	6.15
Mid-Wisconsin closing stock price per share	$	4.00		$	4.50		$	4.95
Implied Transaction premium		53.8	%		36.7	%		24.2	%

Furthermore, Raymond James applied the mean, median, minimum, and maximum premiums for each of the metrics to Mid-Wisconsin’s actual corresponding closing stock prices to determine the implied equity price per share and then compared those implied equity values per share to the merger consideration of $6.15 per share. The results of this are summarized below:

	Implied Mid-Wisconsin Price Per Share Based on Premiums Paid in Precedent Transactions
	1-day		5-day		30-day
Minimum	$	2.02	$	5.26	$	2.95
Mean	$	5.17	$	7.12	$	7.59
Median	$	4.96	$	6.98	$	8.00
Maximum	$	6.76	$	10.94	$	12.34

	Proposed Transaction
	1-day			5-day			30-day
Merger consideration	$	6.15		$	6.15		$	6.15
Implied Transaction Premium		53.8	%		36.7	%		24.2	%

Additional Considerations

The preparation of a fairness opinion is a complex process and is not necessarily susceptible to a partial analysis or summary description. Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering the analyses taken as a whole, would create an incomplete view of the process underlying the analyses set forth in its opinion. In addition, Raymond James considered the results of all such analyses and did not assign relative weights to any of the analyses, but rather made qualitative judgments as to significance and relevance of each analysis and factor. As such, the ranges of valuations resulting from any particular analysis described above should not be taken to be Raymond James’ view of the actual value of Mid-Wisconsin.

In performing its analyses, Raymond James made numerous assumptions with respect to industry performance, general business, economic and regulatory conditions and other matters, many of which are beyond the control of Mid-Wisconsin. The analyses performed by Raymond James are not necessarily indicative of actual values, trading values or actual future results which might be achieved, all of which may be significantly more or less favorable than suggested by such analyses. Such analyses were provided to the Mid-Wisconsin Board of Directors and were prepared solely as part of Raymond James’ analysis of the fairness, from a financial point of view, to the holders of Mid-Wisconsin common stock of the price per share merger consideration to be received by such holders in connection with the proposed merger. The analyses do not purport to be appraisals or to reflect the prices at which companies may actually be sold, and such estimates are inherently subject to uncertainty. The opinion of Raymond James was one of many factors taken into consideration by the Mid-Wisconsin Board of Directors in making its determination to approve the merger. Consequently, the analyses described above should not be viewed as determinative of the Mid-Wisconsin Board of Directors’ or Mid-Wisconsin management’s opinion with respect to the value of Mid-Wisconsin. Mid-Wisconsin placed no limits on the scope of the analysis performed, or opinion expressed, by Raymond James.

Raymond James’ opinion was necessarily based upon market, economic, financial, and other circumstances and conditions existing and disclosed to it on November 27, 2012, and any material change in such circumstances and conditions may affect Raymond James’ opinion, but Raymond James does not have any obligation to update, revise or reaffirm that opinion.

For services rendered in connection with the delivery of its opinion, Mid-Wisconsin paid Raymond James a customary investment banking fee upon delivery of its opinion. Mid-Wisconsin will also pay Raymond James a customary fee for advisory services in connection with the merger, which is contingent upon the closing of the merger. Mid-Wisconsin also agreed to reimburse Raymond James for its expenses incurred in connection with its services, including the fees and expenses of its counsel, and will indemnify Raymond James against certain liabilities arising out of its engagement.

Raymond James is actively involved in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. In the ordinary course of business, Raymond James may trade in the securities of Mid-Wisconsin and Nicolet for its own account and for the accounts of its customers and, accordingly, may at any time hold a long or short position in such securities.

OPINION OF NICOLET’S FINANCIAL ADVISOR

By letter dated July 17, 2012, Nicolet retained Sandler O’Neill to act as its financial advisor in connection with a potential merger with Mid-Wisconsin. Sandler O’Neill is a nationally recognized investment banking firm whose principal business specialty is financial institutions. In the ordinary course of its investment banking business, Sandler O’Neill is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions.

Sandler O’Neill acted as financial advisor to Nicolet in connection with the proposed transaction and participated in certain of the negotiations leading to the execution of the merger agreement. At a meeting of the Nicolet board of directors on November 20, 2012, Sandler O’Neill delivered to the Nicolet board of directors its oral opinion, followed by delivery of its written opinion, that, as of such date, the common stock consideration was fair to the holders of Nicolet common stock from a financial point of view. The full text of Sandler O’Neill’s written opinion dated November 28, 2012 is attached as Appendix D to this joint proxy statement prospectus. The opinion outlines the procedures followed, assumptions made, matters considered and qualifications and limitations on the review undertaken by Sandler O’Neill in rendering its opinion. The description of the opinion set forth below is qualified in its entirety by reference to the opinion. Nicolet stockholders are urged to read the entire opinion carefully in connection with their consideration of the proposed merger.

Sandler O’Neill’s opinion speaks only as of the date of the opinion. The opinion was directed to the Nicolet board of directors and is directed only to the fairness, from a financial point of view, to the holders of Nicolet common stock of the common stock consideration to be paid to the holders of Mid-Wisconsin common stock. It does not address the underlying business decision of Nicolet to engage in the merger or any other aspect of the merger and is not a recommendation to any Nicolet stockholder as to how such stockholder should vote at the special meeting with respect to the merger or any other matter.

In connection with rendering its November 28, 2012 opinion, Sandler O’Neill reviewed and considered, among other things:

•

the merger agreement;

•

certain publicly available financial statements and other historical financial information of Nicolet that Sandler O’Neill deemed relevant;

•

certain publicly available financial statements and other historical financial information of Mid-Wisconsin that Sandler O’Neill deemed relevant;

•

internal financial projections for Nicolet for the years ending December 31, 2012 through December 31, 2014 as provided by and discussed with senior management of Nicolet;

•

internal financial projections for Mid-Wisconsin for the years ending December 31, 2012 through 2016 as provided by and discussed with senior management of Mid-Wisconsin;

•

the pro forma financial impact of the merger on Nicolet, based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies as determined by the management of Nicolet;

•

a comparison of certain financial information for Nicolet and Mid-Wisconsin with similar institutions for which public information is available;

•

the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available;

•

the current market environment generally and the banking environment in particular; and

•

such other information, financial studies, analyses and investigations and financial, economic and market criteria as Sandler O’Neill considered relevant.

Sandler O’Neill also discussed with certain members of senior management of Nicolet the business, financial condition, results of operations and prospects of Nicolet.

In performing its review, Sandler O’Neill has relied upon the accuracy and completeness of all of the financial and other information that was available to Sandler O’Neill from public sources, that was provided to Sandler O’Neill by Nicolet and by Mid-Wisconsin or their financial representatives or that was otherwise reviewed by Sandler O’Neill and Sandler O’Neill assumed such accuracy and completeness for purposes of rendering its opinion. Sandler O’Neill has further relied on the assurances of management of each of Nicolet and Mid-Wisconsin that they were not aware of any facts or circumstances that would make any of such information inaccurate or misleading. Sandler O’Neill has not been asked to and has not undertaken an independent verification of any of such information and it did not assume any responsibility or liability for the accuracy or completeness thereof. Sandler O’Neill did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Nicolet and Mid-Wisconsin or any of their subsidiaries, or the collectability of any such assets, nor was it furnished with any such evaluations or appraisals.

Sandler O’Neill did not make an independent evaluation of the adequacy of the allowance for credit losses of Nicolet and Mid-Wisconsin and has not reviewed any individual credit files relating to Nicolet and Mid-Wisconsin. Sandler O’Neill assumed, with Nicolet’s consent, that the respective allowances for credit losses for both Nicolet and Mid-Wisconsin are adequate to cover such losses.

With respect to the internal financial projections for Nicolet and Mid-Wisconsin and as provided by and discussed with the respective managements of Nicolet and Mid-Wisconsin and used by Sandler O’Neill in its analyses, the respective managements of Nicolet and Mid-Wisconsin confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of such respective management of the future financial performances of Nicolet and Mid-Wisconsin, respectively, and Sandler O’Neill assumed that such performances would be achieved. With respect to the projections of transaction expenses, purchase accounting adjustments and cost savings provided by the management of Nicolet, management confirmed to Sandler O’Neill that they reflected the best currently available estimates and judgments of such management and Sandler O’Neill assumed that such performances would be achieved. Sandler O’Neill expressed no opinion as to such financial projections or the assumptions on which they are based. Sandler O’Neill has also assumed that there has been no material change in Nicolet and Mid-Wisconsin assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to Sandler O’Neill. Sandler O’Neill has assumed in all respects material to its analysis that Nicolet and Mid-Wisconsin will remain as going concerns for all periods relevant to the analyses, that all of the representations and warranties contained in the merger agreement are true and correct, that each party to the merger agreement will perform all of the covenants required to be performed by such party under the merger agreement and that the conditions precedent in the merger agreement are not waived. Sandler O’Neill expressed no opinion as to any of the legal, accounting or tax matters relating to the merger and the other transactions contemplated by the merger agreement.

Sandler O’Neill’s opinion was necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to Sandler O’Neill as of, the date of the opinion. Events occurring after the date of the opinion could materially affect the opinion. Sandler O’Neill has not undertaken to update, revise, reaffirm or withdraw the opinion or otherwise comment upon events occurring after the date of the opinion. Sandler O’Neill expressed no opinion as to what the value of Nicolet common stock will be when issued to Mid-Wisconsin stockholders pursuant to the merger agreement or the prices at which Nicolet and Mid-Wisconsin common stock may trade at any time.

Sandler O’Neill’s opinion is directed only to the fairness, from a financial point of view, of the merger consideration to Nicolet and does not address the underlying business decision of Nicolet to engage in the merger, the relative merits of the merger as compared to any other alternative business strategies that might exist for Nicolet or the effect of any other transaction in which Nicolet might engage. Sandler O’Neill’s opinion was approved by Sandler O’Neill’s fairness opinion committee. Sandler O’Neill has consented to inclusion of its opinion and a summary thereof in this joint proxy statement/prospectus and in the registration statement on Form S-4 which includes this joint proxy statement/prospectus. Sandler O’Neill did not express any opinion as to the fairness of the amount or nature of the consideration to be received in the merger by any Nicolet or Mid-Wisconsin officer, director, or employee, or class of such persons, relative to the consideration to be received in the merger by any other stockholders.

In rendering its November 28, 2012 opinion, Sandler O’Neill performed a variety of financial analyses. The following is a summary of the material analyses performed by Sandler O’Neill, but is not a complete description of all the analyses underlying Sandler O’Neill’s opinion. The summary includes information presented in tabular format. In order to fully understand the financial analyses, these tables must be read together with the accompanying text. The tables alone do not constitute a complete description of the financial analyses. The preparation of a fairness opinion is a complex process involving subjective judgments as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances. In arriving at its opinion, Sandler O’Neill did not attribute any particular weight to any analysis or factor that it considered. Rather Sandler O’Neill made qualitative judgments as to the significance and relevance of each analysis and factor. Sandler O’Neill did not form an opinion as to whether any individual analysis or factor (positive or negative) considered in isolation supported or failed to support its opinion; rather Sandler O’Neill made its determination as to the fairness of the common stock consideration on the basis of its experience and professional judgment after considering the results of all its analyses taken as a whole. The process, therefore, is not necessarily susceptible to a partial analysis or summary description. Sandler O’Neill believes that its analyses must be considered as a whole and that selecting portions of the factors and analyses to be considered without considering all factors and analyses, or attempting to ascribe relative weights to some or all such factors and analyses, could create an incomplete view of the evaluation process underlying its opinion. Also, no company included in Sandler O’Neill’s comparative analyses described below is identical to Nicolet or Mid-Wisconsin and no transaction is identical to the merger. Accordingly, an analysis of comparable companies or transactions involves complex considerations and judgments concerning differences in financial and operating characteristics of the companies and other factors that could affect the public trading values or merger transaction values, as the case may be, of Nicolet or Mid-Wisconsin and the companies to which they are being compared.

In performing its analyses, Sandler O’Neill also made numerous assumptions with respect to industry performance, business and economic conditions and various other matters, many of which cannot be predicted and are beyond the control of Nicolet, Mid-Wisconsin and Sandler O’Neill. The analysis performed by Sandler O’Neill is not necessarily indicative of actual values or future results, both of which may be significantly more or less favorable than suggested by such analyses. Sandler O’Neill prepared its analyses solely for purposes of rendering its opinion and provided such analyses to the Nicolet board of directors at the November 20, 2012 meeting. Estimates on the values of companies do not purport to be appraisals or necessarily reflect the prices at which companies or their securities may actually be sold. Such estimates are inherently subject to uncertainty and actual values may be materially different. The analysis and opinion of Sandler O’Neill was among a number of factors taken into consideration by the Nicolet board of directors in making its determination to adopt the plan of merger contained in the merger agreement and the analyses described below should not be viewed as determinative of the decision the Nicolet board of directors with respect to the fairness of the merger.

At the November 20, 2012 meeting of the Nicolet board of directors, Sandler O’Neill presented certain financial analyses of the merger. The summary below is not a complete description of the analyses underlying the opinions of Sandler O’Neill or the presentation made by Sandler O’Neill to the Nicolet board of directors, but is instead a summary of the material analyses performed and presented in connection with the opinion.

Summary of Proposal

Sandler O’Neill reviewed the financial terms of the proposed transaction. Using the per share cash consideration of the fixed exchange ratio of 0.3727x multiplied by Nicolet’s stock price of $16.50 as agreed upon in the merger agreement, as amended, Sandler O’Neill calculated that Nicolet would pay a transaction value of $6.15 per share, or a transaction value of $10.2 million for the common shares of Mid-Wisconsin, plus the redemption of $10.5 million for the Mid-Wisconsin Preferred Stock and $1.2 million for deferred Preferred Stock dividends and accured and unpaid interest on the Debentures. Based upon financial information for Mid-Wisconsin as or for the quarter ended September 30, 2012, Sandler O’Neill calculated the following ratios related to the transaction:


Transaction price/Last twelve months EPS	NM		23.9	x	16.4	x
Transaction price/Estimated 2012 EPS	NM		—		—
Transaction price/Book value	38	%	76	%	109	%
Transaction price/Tangible book value	38	%	76	%	109	%
Transaction price/Adj. tangible book value (1)	52	%	—		—
Core deposit premium (2)	(5.4	)%	(2.1	)%	0.9	%
Premium to market (3)	28.1	%	37.2	%	—

(1)

Stated 9/30/12 Tangible Common Equity adjusted for estimated purchase accounting adjustments; includes impact of pre-tax mark-to-market of –$24.6 mm on gross loans (–7.94%), –$2.5 mm on OREO (–55.9%), $0.6 mm on Investment Securities; $5.0 mm on fixed assets; $2.4 mm on FHLB borrowings and –$5.5 mm on Trust Preferred Securities.

(2)

Core deposits measured as total deposits less all time deposits greater than $100,000.

(3)

Based on Mid-Wisconsin’s closing price as of November 14, 2012 of $4.80.

(4)

Includes all bank and thrift transactions announced since January 1, 2011 with Target NPAs / Assets > 5.5% and disclosed Deal Values $5 mm–$50 mm (31 transactions).

(5)

Includes all bank and thrift transactions announced since January 1, 2011 for institutions headquartered in WI, MN and MI with disclosed Deal Values $5 mm–$50 mm (6 transactions).

The aggregate transaction value for the common stock of Mid-Wisconsin of approximately $10.2 million is based upon the offer price per share of $6.15 and 1,657,119 shares of Mid-Wisconsin common stock outstanding.

Comparable Company Analysis

Sandler O’Neill used publicly available information to perform a comparison of selected financial and market trading information for Mid-Wisconsin and Nicolet. Sandler O’Neill also used publicly available information to compare selected financial and market trading information for Mid-Wisconsin and a group of financial institutions selected by Sandler O’Neill. The Mid-Wisconsin peer group consisted of the following publicly-traded commercial banks headquartered in Wisconsin and Michigan with total assets greater than $300 million and less than $1.0 billion as selected by Sandler O’Neill¹:

Baylake Corporation				Citizens Community Bancorp
First Manitowoc Bancorp Inc.				Southern Michigan Bancorp Inc.
United Bancorp Inc.				ChoiceOne Financial Services
Baraboo Bancorp				CIB Marine Bancshares Inc.
PSB Holdings Inc.				Denmark Bancshares Inc.
HMN Financial Inc.				Commercial National Financial
Blackhawk Bancorp Inc.				West Shore Bank Corporation
Mackinac Financial Corp.				Sturgis Bancorp

The analysis compared publicly available financial information for Mid-Wisconsin, Nicolet and the median financial and market trading data for the Mid-Wisconsin peer group as of and for the last twelve months ended September 30, 2012. The table below sets forth the data for Mid-Wisconsin, Nicolet and the

median data for the Mid-Wisconsin peer group as of and for the last twelve months ended September 30, 2012, with pricing data as of November 12, 2012.

	Mid-Wisconsin			Nicolet			Comparable Group Median
Total assets (in millions)	$	464		$	682		$	542
Tangible common equity/tangible assets		5.73	%		7.25	%		8.19	%
Total risk based capital ratio		16.14	%		15.12	%		14.67	%
Return on average assets		0.32	%		0.57	%		0.7	%
Net interest margin		3.32	%		3.81	%		3.68	%
Efficiency ratio		73.2	%		68.1	%		67.5	%
Non-performing assets/assets		5.64	%		2.31	%		2.91	%
Loan loss reserve/total loans		3.40	%		1.18	%		1.75	%
Net charge-offs/average loans		1.47	%		0.40	%		0.83	%
Market capitalization (in millions)	$	8.0			NA		$	30.7
Price/Last twelve months earnings per share		NM			NA			10.0
Price/tangible book value		30	%		NA			73	%

Financial data as of or for period ending September 30, 2012
Pricing data as of November 12, 2012

				Balance Sheet				Capital Adequacy						Profitability (MRQ)								Asset Quality						Valuation
																												Price/
Company	City, State	Ticker		Total Assets ($mm)		Loans/ Deposits (%)		TCE/ TA (%)		Leverage Ratio (%)		Total RBC (%)		ROAA (%)		ROAE (%)		NIM (%)		Eff. Ratio (%)		Res./ Loans (%)		NPAs/ Assets (%)		NCOs/ Loans (%)		TBV (%)		LTM EPS (x)		Market Cap. ($mm)
Baylake Corp.	Sturgeon Bay, WI		BYLK		985		75.2		8.63		8.48		15.28		0.80		9.3		3.53		64.2		1.77		2.73		2.03		73		10.3		61.5
First Manitowoc Bancorp Inc.	Manitowoc, WI		FMWC		938		90.1		9.72		9.28		12.28		0.97		9.3		3.78		51.6		1.09		1.14		0.27		111		9.8		100.0
United Bancorp Inc.	Ann Arbor, MI		UBMI		899		76.3		8.50		10.10		16.40		0.62		5.8		3.65		67.4		3.72		4.32		1.10		73		13.3		55.9
Baraboo Bancorp.	Baraboo, WI		BAOB		746		81.8		6.07		8.81		12.63		0.67		7.3		3.41		67.1		2.47		8.51		1.19		30		NM		13.6
PSB Holdings Inc.	Wausau, WI		PSBQ		693		87.7		7.77		8.58		14.72		0.70		9.2		3.39		59.9		1.54		2.48		0.19		83		7.8		44.9
HMN Financial Inc.²	Rochester, MN		HMNF		644		97.9		5.38		9.55		14.61		0.40		4.2		3.71		74.4		4.10		7.38		1.29		45		NM		15.5
Blackhawk Bancorp Inc.³	Beloit, WI		BHWB		559		73.4		5.72		7.93		12.29		0.50		6.0		3.63		69.0		1.74		4.47		2.64		45		6.4		14.3
Mackinac Financial Corp	Manistique, MI		MFNC		551		98.8		11.24		11.93		15.15		0.76		6.1		4.10		67.5		1.20		1.60		0.04		65		5.0		40.2
Citizens Community Bncp^{2 4}	Eau Claire, WI		CZWI		533		101.1		10.09		10.18		15.00		0.26		2.6		3.90		74.2		1.32		2.15		0.81		54		NM		29.3
Southern Michigan Bancorp Inc.	Coldwater, MI		SOMC		516		81.3		7.89		9.00		13.70		0.91		8.6		3.83		67.2		1.52		2.20		0.18		81		7.6		32.1
ChoiceOne Financial Services⁴	Sparta, MI		COFS		510		72.2		9.05		8.47		13.40		0.88		7.5		4.06		65.2		1.90		1.91		0.44		107		11.4		47.9
CIB Marine Bancshares Inc.	Waukesha, WI		CIBH		495		80.2		3.25		13.80		18.55		0.76		5.7		3.75		103.2		3.69		6.10		1.35		34		NM		5.5
Denmark Bancshares Inc.⁴	Denmark, WI		DMKB		430		91.2		13.50		13.79		19.92		0.91		6.8		3.42		61.5		2.11		3.09		0.53		64		10.2		37.1
Commercial National Financial^{2 4}	Ithaca, MI		CEFC		365		89.4		5.65		8.08		14.59		0.51		8.9		3.61		71.1		0.84		3.89		0.86		127		12.5		26.0
West Shore Bank Corporation	Ludington, MI		WSSH		345		81.7		9.20		8.85		15.26		0.69		7.5		3.84		70.4		1.34		2.50		0.84		86		12.3		27.3
Sturgis Bancorp	Sturgis, MI		STBI		317		109.5		6.84		8.69		13.26		0.66		7.9		3.61		72.4		2.10		6.06		0.07		76		7.7		16.2

High					985		109.5		13.50		13.80		19.92		0.97		9.3		4.10		103.2		4.10		8.51		2.64		127		13.3		100.0
Low					317		72.2		3.25		7.93		12.28		0.26		2.6		3.39		51.6		0.84		1.14		0.04		30		5.0		5.5
Mean					595		86.7		8.03		9.72		14.82		0.69		7.0		3.70		69.1		2.03		3.78		0.86		72		9.5		35.4
Median					542		84.8		8.19		8.93		14.67		0.70		7.4		3.68		67.5		1.75		2.91		0.83		73		10.0		30.7

Mid-Wisconsin Financial	Medford, WI		MWFS		464		84.4		5.73		9.70		16.14		0.32		4.1		3.32		73.2		3.40		5.64		1.47		30		NM		8.0

Nicolet Bankshares, Inc.	Green Bay, WI		—		678		98.9		7.25		11.54		15.12		0.57		5.1		3.81		68.1		1.18		2.31		0.40		—		—		—

(1)

Includes public banks and thrifts headquartered in WI, MN, and MI with assets between $300 mm—$1.0 bn. Excludes companies with less than 1.0% of one year average trading volume / total shares.

(2)

Bank level regulatory financial data for the period ended September 30, 2012.

(3)

Regulatory financial data for the period ended September 30, 2012.

(4)

GAAP Financial data for the period ended June 30, 2012.

Net Present Value Analysis of Mid-Wisconsin Common Stock

Sandler O’Neill performed an analysis that estimated the present value per share of Mid-Wisconsin common stock through December 31, 2016. Sandler O’Neill based the analysis on Mid-Wisconsin projected earnings stream as derived from the internal financial projections provided by Mid-Wisconsin management for the years ending December 31, 2012 through 2016. To approximate the terminal value of Mid-Wisconsin common stock at December 31, 2016, Sandler O’Neill applied price to forward earnings multiples of 12.0x to 16.0x and multiples of tangible book value ranging from 100% to 180%. The income streams and terminal values were then discounted to present values using different discount rates ranging from 12.0% to 15.0%, which were assumed deviations, both up and down, as selected by Sandler O’Neill based on the Mid-Wisconsin discount rate of 13.4% as determined by Sandler O’Neill. The discount rate is determined by adding the 10 year Treasury Bond rate (1.61%), the published Ibbotson 60 year equity risk premium (5.70%), the published Ibbotson size premium (3.89%) and the published Ibbotson Industry Premium (2.20%).

Earnings Per Share Multiples
(Value shown in $ per share)

Discount Rate
12.0%	12.65	13.71	14.76	15.82	16.87
13.0%	12.18	13.20	14.22	15.23	16.25
13.4%	12.00	13.00	14.00	15.00	16.00
14.0%	11.74	12.71	13.69	14.67	15.65
15.0%	11.31	12.25	13.19	14.14	15.08

Sandler O’Neill also considered and discussed with Nicolet’s board of directors how this analysis would be affected by changes in the underlying assumptions, including variations with respect to net income. To illustrate this impact, Sandler O’Neill performed a similar analysis assuming Mid-Wisconsin net income varied from 20% above projections to 20% below projections. This analysis resulted in the following reference ranges of indicated per share values for Mid-Wisconsin common stock, using a discount rate of 13.40%:

Earnings Per Share Multiples
(Value shown in $ per share)

EPS Projection Change from Base Case
–20.0%	9.60	10.40	11.20	12.00	12.80
–10.0%	10.80	11.70	12.60	13.50	14.40
0.0%	12.00	13.00	14.00	15.00	16.00
10.0%	13.20	14.30	15.40	16.50	17.60
20.0%	14.40	15.60	16.80	18.00	19.20

Analysis of Selected Merger Transactions

Sandler O’Neill reviewed the terms of merger transactions announced from January 1, 2011 through November 20, 2012 involving Midwest banks with announced transaction values of greater than $5 million and less than $50 million and nationwide banks where the target had an Nonperforming Assets/Assets ratio greater than 5.5% with announced transaction values of greater than $5 million and less than $50 million. Sandler O’Neill deemed these transactions to be reflective of the proposed Mid-Wisconsin and Nicolet combination. Sandler O’Neill reviewed the following ratios and multiples: transaction price to stated book value, transaction price to stated tangible book value, transaction price to last twelve months earnings per share, and market price premium at announcement. As illustrated in the following table, Sandler O’Neill compared the proposed merger multiples to the median multiples of the comparable transactions.


Transaction price/book value	38	%	76	%	109	%
Transaction price/tangible book value	38	%	76	%	109	%
Transaction price/last twelve months earnings per share	NM		23.9	x	16.4	x
Core deposit premium	(5.4	)%	(2.1	)%	0.9	%
Premium to market	28.1	%	37.2	%	NA

Transactions Announced with a Nationwide Bank Target with NPAs/Assets > 5.5%

Announced Deal Value $5mm-$50mm

				Transaction Information														Seller Information
						Price/
Acquiror	Target	State	Annc. Date	Deal Value ($mm)		LTM EPS (x)		Book Value (%)		TBV (%)		Core Deposit Premium (%)			1 Day Market Premium (%)			Total Assets ($mm)		TCE/ TA (%)		YTD ROAA (%)			NPAs/ Assets (%)
Talmer Bancorp Inc.	First Place Bank	OH	10/26/12		45.0		1.6		29		29		(5.3	)		—			2,639		5.79		1.31			7.74
BBCN Bancorp Inc.	Pacific International Bancorp	WA	10/22/12		14.7		NM		37		37		(7.2	)		—			209		11.68		(2.83	)		12.04
Sterling Financial Corp.	American Heritage Holdings	CA	10/22/12		6.5		NM		51		51		(5.1	)		—			150		9.88		(0.34	)		11.97
Strategic Growth Bank Inc.	Mile High Banks	CO	09/27/12		5.5		NM		27		27		(1.9	)		—			844		2.41		(0.49	)		15.71
Old Line Bancshares Inc	WSB Holdings Inc.	MD	09/10/12		49.0		43.7		89		89		(2.8	)		—			374		14.76		0.24			10.04
City Holding Co.	Community Financial Corp.	VA	08/02/12		37.9		23.9		66		66		(3.8	)		46.8			504		7.53		0.35			7.27
Hana Financial Group Inc.	BNB Financial Services Corp.	NY	07/21/12		11.3		NM		42		42		(7.7	)		—			355		11.97		(0.54	)		6.59
Drummond Banking Co.	Williston Holding Co.	FL	06/14/12		15.6		NM		83		83		(2.1	)		—			188		7.45		(2.55	)		7.21
BNC Bancorp	First Trust Bank	NC	06/04/12		36.0		14.0		76		76		(4.3	)		27.7			437		10.86		0.76			10.43
Northfield Bancorp Inc. (MHC)	Flatbush Fed Bncp Inc. (MHC)	NY	02/29/12		18.2		NM		120		120		3.8			90.1			144		10.53		(0.73	)		7.17
Arvest Bank Group Inc.	Union Bank	MO	01/30/12		34.0		NM		189		189		3.9			—			459		3.91		(3.13	)		25.59
First Volunteer Corp.	Gateway Bancshares Inc.	GA	01/12/12		16.4		24.3		69		69		(3.2	)		—			267		9.24		(0.44	)		6.09
BNC Bancorp	KeySource Financial Inc.	NC	12/21/11		12.2		14.4		60		60		(5.0	)		—			206		10.86		0.18			7.36
First Farmers Financial Corp	First Citizens of Paris Inc.	IL	12/14/11		16.9		49.0		88		90		(1.1	)		—			219		10.13		0.33			5.89
Bitterroot Holding Co.	Ravalli County Bankshares Inc.	MT	10/12/11		18.1		NM		89		89		(1.7	)		—			187		10.92		0.10			8.66
SKBHC Holdings LLC	Viking Fncl. Services Corp.	WA	09/08/11		7.2		NM		68		68		(1.0	)		—			405		2.62		(1.91	)		11.61
Investors Bancorp Inc. (MHC)	BFS Bancorp MHC	NY	08/16/11		10.3		NM		25		25		(9.5	)		—			470		8.67		(1.58	)		24.93
Wintrust Financial Corp.	Elgin State Bancorp Inc.	IL	07/25/11		15.5		NM		92		92		(0.6	)		—			288		6.44		0.02			6.41
Security Star Bancshares Inc.	Bank of Texas Bcshs Inc.	TX	07/22/11		5.1		NM		113		113		1.7			—			50		9.15		(2.06	)		5.71
SKBHC Holdings LLC	Sunrise Bank	CA	06/09/11		18.5		NM		92		92		(1.0	)		—			232		8.67		0.95			6.07
SKBHC Holdings LLC	Bank of the Northwest	WA	05/24/11		16.8		NM		111		111		1.5			—			146		10.38		0.22			5.72
North American Finl Hldgs Inc.	Green Bankshares Inc	TN	05/05/11		9.9		NM		8		8		(7.6	)		—			2,406		2.89		(3.21	)		10.77
Banco do Brasil S.A.	EuroBank	FL	04/06/11		6.0		NM		109		109		1.3			—			102		5.39		(3.47	)		12.39
First Bank Lubbock Bcshs Inc.	Jefferson Bank	TX	04/03/11		11.0		NM		92		92		(1.1	)		—			205		5.83		(0.91	)		10.55
Park Sterling Corporation	Community Capital Corp.	SC	03/30/11		32.3		NM		68		70		(3.2	)		21.2			656		7.05		(0.75	)		6.62
First Foundation Inc.	Desert Commercial Bank	CA	03/22/11		20.1		NM		126		126		4.8			—			153		10.40		(1.01	)		5.98
Embarcadero Bank	Coronado First Bank	CA	03/22/11		9.3		NM		100		100		(0.0	)		48.4			83		11.21		(0.12	)		7.45
Opus Bank	Cascade Financial Corp.	WA	03/03/11		21.8		NM		26		27		(3.4	)		(19.9	)		1,498		1.39		(4.27	)		9.76
Piedmont Cmnty Bk Hldgs Inc.	Crescent Financial Corp.	NC	02/23/11		30.6		NM		44		44		(10.4	)		—			973		5.65		(1.00	)		5.51
IBERIABANK Corp.	Omni Bancshares Inc.	LA	02/21/11		40.0		NM		121		121		1.4			—			746		4.42		(0.04	)		8.71
CBM Florida Holding Co.	First Community Bk of America	FL	02/10/11		10.0		NM		37		37		(5.5	)		—			471		5.74		(3.48	)		9.75

				Transaction Information														Seller Information
						Price/
Acquiror	Target	State	Annc. Date	Deal Value ($mm)		LTM EPS (x)		Book Value (%)		TBV (%)		Core Deposit Premium (%)			1 Day Market Premium (%)			Total Assets ($mm)		TCE/ TA (%)		YTD ROAA (%)			NPAs/ Assets (%)
			High		49.0		49.0		189		189		4.8			90.1			2,639		14.76		1.31			25.59
			Low		5.1		1.6		8		8		(10.4	)		(19.9	)		50		1.39		(4.27	)		5.51
			Mean		19.4		24.4		76		76		(2.4	)		35.7			518		7.86		(0.98	)		9.60
			Median		16.4		23.9		76		76		(2.1	)		37.2			288		8.67		(0.54	)		7.74

Transactions Announced with a Bank Target with Headquarters located in Wisconsin, Michigan or Minnesota

Announced Deal Value $5mm-$50mm

				Transaction Information													Seller Information
						Price/
Acquiror	Target	State	Annc. Date	Deal Value ($mm)		LTM EPS (x)		Book Value (%)		TBV (%)		Core Deposit Premium (%)			1 Day Market Premium (%)		Total Assets ($mm)		TCE/ TA (%)		YTD ROAA (%)		NPAs/ Assets (%)
Centra Ventures Inc	Richmond Bank Holding Co.	MN	09/14/12		8.3		10.4		70		70		(5.0	)		—		86		14.27		0.81		0.30
Heartland Financial USA Inc.	First Shares Inc.	WI	07/31/12		11.0		34.7		85		85		(1.8	)		—		130		11.00		0.26		1.96
Frandsen Financial Corporation	Clinton Bancshares Inc.	MN	07/27/12		11.2		11.9		120		120		3.5			—		66		14.16		2.92		0.88
PSB Holdings Inc.	Marathon State Bank	WI	03/15/12		5.6		9.9		100		100		0.0			—		108		18.42		0.54		0.00
Golden Oak Bancshares, Inc	Park Bank	WI	05/18/11		6.3		21.0		123		123		4.6			—		44		14.45		0.82		5.17
Finlayson Bancshares Inc.	First NB of the North	MN	01/20/11		7.1		51.6		119		119		1.9			—		70		8.60		0.64		2.59

			High		11.2		51.6		123		123		4.6			—		130		18.42		2.92		5.17
			Low		5.6		9.9		70		70		(5.0	)		—		44		8.60		0.26		0.00
			Mean		8.3		23.2		103		103		0.5			—		84		13.48		1.00		1.82
			Median		7.7		16.4		109		109		0.9			—		78		14.21		0.73		1.42

Pro Forma Merger Analysis

Sandler O’Neill analyzed certain potential pro forma effects of the merger, assuming the following: (1) the merger is completed at the end of the first quarter of 2013; (2) the deal value per share is equal to $6.15 per Mid-Wisconsin share, given an exchange ratio of 0.3727 of a share of Nicolet common stock for each share of Mid-Wisconsin common stock; (3) management prepared earnings projections for Mid-Wisconsin for the years ending December 31, 2013 through 2016 as adjusted by senior management of Nicolet; (4) certain purchase accounting adjustments, including a credit mark against Mid-Wisconsin’s loan portfolio, and additional marks on securities, fixed assets, and borrowings; (5) cost savings of 20% of Mid-Wisconsin’s annual operating expenses, fully phased-in in 2013; (6) approximately $2.0 million in pre-tax transaction costs and expenses; and (7) certain other assumptions pertaining to costs and expenses associated with the transaction, intangible amortization, opportunity cost of cash and other items.

For each of the years 2013 and 2014, Sandler O’Neill compared the earnings per share of Nicolet common stock to the earnings per share, on the basis of GAAP, of the combined company common stock using the foregoing assumptions.

The following table sets forth the results of the analysis:

				GAAP Basis Accretion
2013 Estimated EPS				$	1.14
2014 Estimated EPS				$	1.53

The analyses indicated that the merger would be accretive to Nicolet’s projected 2011 and 2012 earnings per share. The actual results achieved by the combined company may vary from projected results and the variations may be material.

At the anticipated close of the transaction, Sandler O’Neill compared the estimated tangible book value (“TBV”) per share of Nicolet to the estimated pro forma tangible book value of the combined company using the foregoing assumptions. The following table sets forth the results of the analysis:

				TBV per Share at March 31, 2013
Nicolet stand alone estimate				$	14.66
Pro forma combined estimate				$	16.48

Sandler O’Neill’s Compensation and Other Relationships with Nicolet

Nicolet’s board of directors selected Sandler O’Neill as financial advisor in connection with the merger based on Sandler O’Neill’s qualifications, expertise, reputation and experience in mergers and acquisitions. Nicolet agreed to pay Sandler O’Neill a transaction fee of $500,000. $150,000 of the transaction fee was payable upon the signing of the merger agreement and delivery of Sandler O’Neill’s fairness opinion to the board of directors. The remainder of the transaction fee is contingent upon completion of the merger. Nicolet has also agreed to reimburse Sandler O’Neill for its expenses and to indemnify Sandler O’Neill against certain liabilities arising out of its engagement. Sandler O’Neill’s fairness opinion was approved by Sandler O’Neill’s fairness opinion committee.

In the ordinary course of their respective broker and dealer businesses, Sandler O’Neill may purchase securities from and sell securities to Mid-Wisconsin and Nicolet and their affiliates. Sandler O’Neill may also actively trade the debt and/or equity securities of Mid-Wisconsin and Nicolet or their affiliates for their own accounts and for the accounts of their customers and, accordingly, may at any time hold a long or short position in such securities. Sandler O’Neill in the past has provided and in the future may provide investment banking and other financial services to Nicolet. In the past two years, Sandler O’Neill has received no compensation other than fees referenced above for such services and in the future may receive compensation for rendering of such services.

THE MERGER AGREEMENT

This section of the proxy statement-prospectus describes certain terms of the merger agreement. It is not intended to include every term of the merger, but rather addresses only the significant aspects of the merger. This discussion is qualified in its entirety by reference to the merger agreement, which is attached as Appendix A to this joint proxy statement-prospectus and is incorporated herein by reference, and the opinions of the parties’ respective financial advisors, which are attached as Appendices C and D to this joint proxy statement-prospectus and are incorporated herein by reference. We urge you to read these documents as well as the discussion in this document carefully.

General; Business and Operations after the Merger

If the shareholders of Mid-Wisconsin and Nicolet approve the merger agreement and the other conditions to the consummation of the merger are satisfied, Nicolet will acquire Mid-Wisconsin. Nicolet will exchange 0.3727 shares of Nicolet common stock for each outstanding share of Mid-Wisconsin common stock, except for fractional shares, dissenting shares, state-restricted shares and cash-out shares which will receive cash as described further below. Each share of Nicolet common stock issued and outstanding immediately prior to the effective date of the merger, except for shares as to which dissenters’ rights have been exercised, will remain issued and outstanding and unchanged as a result of the merger.

Following the consummation of the merger, Mid-Wisconsin Bank will merge with and into Nicolet National Bank with Nicolet National Bank surviving the merger. Mid-Wisconsin Financial Services, Inc. and Mid-Wisconsin Bank will cease to exist after the merger, and the business of Mid-Wisconsin Bank will be conducted through Nicolet National Bank. Two current Mid-Wisconsin directors, Kim A. Gowey and Christopher Ghidorzi, will be appointed to the boards of directors of Nicolet Bankshares, Inc. and Nicolet National Bank to serve on their respective boards following the merger. With the exception of the aforementioned additions, it is expected that the current directors and executive officers of Nicolet and Nicolet National Bank will remain in place following the merger.

What Mid-Wisconsin’s Shareholders Will Receive in the Merger

Stock Merger Consideration

If the merger is completed, holders of Mid-Wisconsin common stock will receive for each of their shares 0.3727 shares of Nicolet common stock, except in the cases referred to under “— Cash Merger Consideration” and “Dissenters’ Rights” below.

Although the Mid-Wisconsin common stock is traded on the Over-the-Counter Bulletin Board on the OTCQB marketplace, historical transactions in its stock have been sporadic and irregular. Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system at or before the closing of the merger, but its common stock is not currently traded on any securities exchange or quotation system. The last sale of Nicolet common stock known to management prior to the mailing of this joint proxy statement-prospectus occurred on ________, 2013 at $_____ per share, and the last sale of Mid-Wisconsin common stock reported on the OTCQB occurred on ________, 2013 at $_____ per share. However, given the historical absence of a fully liquid market for Nicolet and Mid-Wisconsin common stock, neither the price at which Nicolet or Mid-Wisconsin common stock was last sold nor the price of Nicolet common stock for the purposes of cashing out fractional shares in this transaction should be considered indicative of the value of Nicolet common stock following this transaction.

Any shares of Mid-Wisconsin common stock held in the treasury of Mid-Wisconsin immediately prior to the effective time of the merger will be canceled and extinguished. No payment will be made with respect to such shares. In addition, all outstanding options to purchase Mid-Wisconsin common stock will be cancelled effective upon the closing of the merger without payment.

Cash Merger Consideration

Fractional Shares. No fractional shares of Nicolet common stock will be issued in connection with the merger. Instead, Nicolet will make a cash payment without interest to each shareholder of Mid-Wisconsin who would otherwise receive a fractional share. The amount of such cash payment will be determined by multiplying the fraction of a share of Nicolet common stock otherwise issuable to such shareholder by $16.50, the value attributed to each share of Nicolet common stock solely for purposes of this transaction.

State-Restricted Shares. A record holder of shares of Mid-Wisconsin common stock who resides in a state in which shares of Nicolet common stock cannot be issued in the merger under that state’s securities laws without commercially unreasonable effort or expense will receive, in lieu of shares of Nicolet common stock, $6.15 in cash, which reflects the value attributed to a share of Mid-Wisconsin’s common stock for purposes of this transaction, for each share of Mid-Wisconsin common stock he, she or it owns. Nicolet will be permitted to issue its common stock in the merger based on a self-executing exemption that is available in all states except the District of Columbia, Minnesota, New Hampshire, New York, and Utah. In those states, a notice or other filing is required. Although Nicolet presently anticipates that it will be able to issue stock in the merger in those states as well without unreasonable commercial effort or expense, it is possible that it could encounter a condition to issuance that would make it economically unreasonable to issue shares to any shareholders residing in that state.

Cash-Out Shares. As a means of reducing the administrative burden and expense relating to servicing holders of small numbers of shares of Nicolet common stock after the merger, Nicolet intends to pay cash in the amount of $6.15 per share to Mid-Wisconsin shareholders who own 200 or fewer shares of Mid-Wisconsin common stock of record as of the closing date of the merger. This cash payment is in lieu of the issuance of shares of Nicolet common stock in the merger. Nicolet may adjust the 200-share threshold if, after deducting payments for fractional shares and state-restricted shares and estimated payments for Mid-Wisconsin dissenting shares from $500,000, the amount of cash payable for cash-out shares at that threshold would not enable each holder of cash-out shares to receive $6.15 per share for all of their shares. In such a case, Nicolet may either: (i) change the 200-share threshold to the highest number of shares that would enable all Mid-Wisconsin shareholders with record ownership of Mid-Wisconsin common stock below the new threshold to receive the cash merger consideration of $6.15 per share for all of their shares or (ii) deliver shares of Nicolet common stock as merger consideration to all holders of cash-out shares in accordance with the terms of the merger agreement.

Series A and B Preferred Stock

Treasury, as the holder of Mid-Wisconsin’s Preferred Stock, will be paid the $10.5 million stated value of those shares, together with accrued and unpaid dividends, by Mid-Wisconsin (or by Nicolet if Mid-Wisconsin is unable to obtain regulatory approval for such payment, not to exceed a total of $12.0 million) at or before the effective time of the merger.

Debentures

Mid-Wisconsin will pay all accrued and unpaid interest on its Debentures at or before the effective time of the merger, subject to regulatory approval. If Mid-Wisconsin is unable to obtain regulatory approval to pay the accrued and unpaid interest on the Debentures, Nicolet will make such payment.

Dissenters’ Rights

Holders of shares of Mid-Wisconsin common stock who properly elect to exercise the dissenters’ rights provided for in Subchapter XIII of the WBCL will not have their shares converted into the right to receive merger consideration. If a holder’s dissenters’ rights are lost or withdrawn, such holder will receive his, hers or its pro rata portion of the merger consideration. Nicolet shareholders will also have dissenters’ rights in connection with their vote on the merger. See “Dissenters’ Rights” on page 76 and Appendix B for additional information.

Effect of the Merger on Mid-Wisconsin Options

As of September 30, 2012, Mid-Wisconsin had 30,510 options to purchase Mid-Wisconsin common stock outstanding at a weighted average exercise price of $28.13 per share. The merger agreement requires that all outstanding options to acquire shares of Mid-Wisconsin common stock, whether or not then exercisable, be cancelled effective upon the closing of the merger without payment.

Closing and Effective Time of the Merger

The merger will be completed only if all of the following occur:

•

the merger agreement is approved by Mid-Wisconsin’s and Nicolet’s shareholders;

•

all required regulatory consents and approvals are obtained; and

•

all other conditions to the merger discussed in this joint proxy statement-prospectus and the merger agreement are either satisfied or waived.

If all of these conditions are met, the closing of the merger will occur as soon as practicable thereafter on a date mutually agreeable to Nicolet and Mid-Wisconsin.

Representations and Warranties in the Merger Agreement

Mid-Wisconsin and Nicolet have made customary representations and warranties to each other as part of the merger agreement. Mid-Wisconsin’s representations and warranties are contained in Section 5 of the merger agreement and relate to, among other things:

•

its organization and authority to enter into the merger agreement;

•

its capitalization, subsidiaries, properties and financial statements;

•

pending and threatened litigation against Mid-Wisconsin and its subsidiaries;

•

Mid-Wisconsin Bank’s loan portfolio and allowance for loan losses;

•

its insurance, employee benefits, tax and environmental matters;

•

Mid-Wisconsin Bank’s privacy of customer information and the status of technology systems;

•

its legal and regulatory compliance;

•

its contractual obligations and contingent liabilities; and

•

its public reports filed with the SEC.

Nicolet’s representations and warranties are contained in Section 6 of the merger agreement and relate to, among other things:

•

its organization and authority to enter into the merger agreement;

•

its capitalization, subsidiaries and financial statements;

•

pending and threatened litigation against Nicolet and its subsidiaries;

•

Nicolet National Bank’s loan portfolio and allowance for loan losses;

•

tax matters;

•

legal and regulatory compliance; and

•

the shares of Nicolet common stock to be issued in the merger.

Each party’s representations and warranties are for the benefit of the other; they are not for the benefit of and may not be relied upon by shareholders. The representations and warranties of the parties will not survive the closing of the merger.

Conditions to the Merger

The merger agreement contains a number of conditions that must be satisfied or waived (if they are waivable) to complete the merger. The conditions include, among other things:

•

approval by Mid-Wisconsin’s shareholders and Nicolet’s shareholders of the merger agreement by the required vote;

•

approval of the merger and the transactions contemplated thereby by the OCC, the Federal Reserve and the WDFI without imposing conditions that would materially adversely affect the economic or business benefits of the transaction to either Nicolet or Mid-Wisconsin (a “Materially Burdensome Condition”);

•

receipt by Mid-Wisconsin and Nicolet of a tax opinion from counsel to Nicolet that the merger qualifies as a tax-free reorganization under the Internal Revenue Code;

•

the absence of an order, decree or injunction enjoining or prohibiting completion of the merger;

•

receipt by Mid-Wisconsin of an opinion from Raymond James. dated November 28, 2012 (which opinion shall not have been withdrawn) that the consideration to be paid to Mid-Wisconsin’s shareholders in the merger is fair to such shareholders from a financial standpoint;

•

receipt by Nicolet of an opinion from Sandler O’Neill dated November 20, 2012 (which opinion shall not have been withdrawn) that the consideration to be paid to Mid-Wisconsin’s shareholders in the merger is fair to Nicolet’s shareholders from a financial standpoint;

•

cancellation of all outstanding Mid-Wisconsin stock options;

•

appointment of Kim A. Gowey and Christopher Ghidorzi to Nicolet’s Board of Directors;

•

continued accuracy in all material respects of the representations and warranties set forth in the merger agreement and fulfillment in all material respects of the parties’ covenants set forth in the merger agreement as of the closing date;

•

the absence of any material adverse change in the financial condition, results of operations, business or prospects of either Mid-Wisconsin or Nicolet;

•

each party’s receipt of affiliate agreements from certain affiliates of the other party (see “— Affiliate Agreements”); and

•

issuance of certain legal opinions by counsel for Mid-Wisconsin and Nicolet.

The conditions to the merger are set forth in Article 9 of the merger agreement. The parties intend to complete the merger as soon as practicable after all conditions have been satisfied or waived; however, we cannot assure you that all conditions will be satisfied or waived.

Waiver and Amendment

Nearly all of the conditions to completing the merger may be waived at any time by the party for whose benefit they were created; however, the merger agreement provides that the parties may not waive any condition that would result in the violation of any law or regulation. Also, the parties may amend or supplement the merger agreement at any time by written agreement. Any material change in the terms of the merger agreement after the Mid-Wisconsin special shareholders’ meeting may require a re-solicitation of votes from Mid-Wisconsin’s shareholders with respect to the amended merger agreement.

Business of Mid-Wisconsin Pending the Merger

The merger agreement requires Mid-Wisconsin to continue to operate its business as usual and to preserve its business organization, rights and franchises pending the merger and to refrain from taking any action that would materially adversely affect the receipt of required regulatory or other consents or materially adversely affect either party’s ability to perform its covenants and agreements under the merger agreement. Among other things, and subject to certain specified exceptions, Mid-Wisconsin may not, without Nicolet’s consent, take or agree to take any of the following actions:

•

amend its articles of incorporation or bylaws or other governing instruments;

•

incur any additional debt or other obligation in excess of $50,000 or allow any lien or encumbrance to be placed on any asset, except in the ordinary course of business and consistent with past practices;

•

redeem, repurchase, or otherwise acquire any shares of its capital stock (except exchanges in the ordinary course under employee benefit plans) or pay any distribution or dividend on its capital stock, except for dividends on the Preferred Stock;

•

adjust, split, combine, substitute or reclassify any shares of its common stock or dispose of any asset having a book value in excess of $50,000 except in the ordinary course of business for reasonable and adequate consideration;

•

except in the ordinary course of business, purchase investment securities or make any material investments;

•

enter into or modify any agreement requiring the payment of any salary, bonus, extra compensation, pension or severance payment to any of its current or former directors, employees or service providers, or, subject to certain exceptions, increase the compensation of any such person in any manner inconsistent with its past practices;

•

adopt any new employee benefit plan or terminate or amend any existing plans, except as required by law;

•

make any significant change to tax or accounting methods or internal accounting controls, except as required by law, regulation or GAAP;

•

commence any litigation inconsistent with past practices or settle any litigation for over $50,000 in money damages or any restrictions on its operations; or

•

except in the ordinary course of business, enter into, modify, amend, or terminate any contract or waive, release, or assign any right or claim in any amount exceeding $50,000.

The restrictions on Mid-Wisconsin’s business activities are set forth in Section 7.2 of the merger agreement.

Business of Nicolet Pending the Merger

The merger agreement requires Nicolet to continue to operate its business as usual and to preserve its business organization, rights and franchises pending the merger and to refrain from taking any action that would materially adversely affect the receipt of required regulatory or other consents or materially adversely affect either party’s ability to perform its covenants and agreements under the merger agreement. Among other things, and subject to certain specified exceptions, Nicolet may not, without Mid-Wisconsin’s consent, take or agree to take any of the following actions:

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amend its articles of incorporation or bylaws or other governing instruments;

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redeem, repurchase, or otherwise acquire any shares of its capital stock (except exchanges in the ordinary course under employee benefit plans and repurchases of up to an aggregate of 10,000 shares of common stock) or pay any distribution or dividend on its capital stock; except for dividends on its SBLF Preferred Stock;

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issue, sell, pledge, encumber, authorize the issuance of, or otherwise permit to become outstanding, any additional shares of its common stock, except pursuant to the exercise of currently outstanding stock options, transactions in the ordinary course of administration of Nicolet’s employee benefit plans, and potential incentive grants to executive officers in connection with annual compensation determinations by Nicolet’s Compensation Committee;

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make any significant change to tax or accounting methods or internal accounting controls, except as required by law, regulation or GAAP.

The restrictions on Nicolet’s business activities are set forth in Section 7.3 of the merger agreement.

No Solicitation of Alternative Transactions

Mid-Wisconsin was required to immediately cease any negotiations with any person regarding any acquisition transaction existing at the time the merger agreement was executed. In addition, Mid-Wisconsin may not solicit, directly or indirectly, inquiries or proposals with respect to, or, except to the extent determined by Mid-Wisconsin’s board of directors in good faith, after consultation with its legal counsel, to be required to discharge properly the directors’ fiduciary duties, furnish any information relating to, or participate in any negotiations or discussions concerning, any sale of all or substantially all of its assets, any purchase of a substantial equity interest in it or any merger or other combination with it. Subject to the same fiduciary duties, Mid-Wisconsin’s board may not withdraw its recommendation to its shareholders of the merger or recommend to its shareholders any such other transaction.

Mid-Wisconsin was also required to instruct its respective officers, directors, agents, and affiliates to refrain from taking action prohibited by Mid-Wisconsin and is required to notify Nicolet immediately if it receives any inquires from third parties. However, no director or officer of Mid-Wisconsin is prohibited from taking any action that the board of directors of Mid-Wisconsin determines in good faith, after consultation with counsel, is required by law or is required to discharge such director’s or officer’s fiduciary duties.

Termination of the Merger Agreement; Termination Fee

The merger agreement specifies the circumstances under which the parties may terminate the agreement and abandon the merger. Those circumstances are:

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by mutual consent of Mid-Wisconsin’s board of directors and Nicolet’s board of directors;

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by either party if the other party materially breaches any representation, warranty or covenant, such breach cannot be, or is not, cured within 30 days after written notice and the existence of such breach would result in a “material adverse effect,” as defined in the merger agreement, on the breaching party;

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by either party if Mid-Wisconsin’s or Nicolet’s shareholders do not approve the merger agreement or if any required consent of any regulatory authority is denied or issued subject to a Materially Burdensome Condition;

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by either party if the merger has not been consummated or a condition precedent cannot be satisfied or waived by April 30, 2013 (or May 31, 2013 if the impediment is the result of a delay in receiving regulatory approval or effectiveness of the Registration Statement), so long as the failure to consummate is not caused by a breach of the merger agreement by the party electing to terminate;

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by Nicolet if Mid-Wisconsin’s board of directors withdraws, modifies or changes its recommendation to its shareholders of the merger agreement; cancels the shareholders’ or board meeting at which the shareholders or directors will vote on the merger agreement; recommends or approves a merger, sale of assets or other business combination or substantial investment by a third party (other than the Nicolet merger); or resolves or announces any agreement to do any of those things;

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by Mid-Wisconsin if Mid-Wisconsin receives a bona fide written offer for an acquisition transaction that the Mid-Wisconsin board determines in good faith, after consultation with its financial advisors and counsel, to be more favorable to the Mid-Wisconsin shareholders than the Nicolet merger

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by Nicolet if the holders of more than 5% of the outstanding Mid-Wisconsin common stock or if more than 2% of the outstanding Nicolet common stock exercise dissenters’ rights; or

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by Mid-Wisconsin if Nicolet’s board of directors withdraws, modifies or changes its recommendation to its shareholders of the merger agreement; cancels the shareholders’ or board meeting at which the shareholders or directors will vote on the merger agreement, or resolves to do any of those things.

If either party terminates the merger agreement because Mid-Wisconsin’s board withdraws or changes its recommendation of the merger agreement, cancels the meeting at which Mid-Wisconsin’s shareholders or board will vote on the merger agreement, or recommends, approves or announces an acquisition transaction other than the Nicolet merger, or if Mid-Wisconsin terminates the agreement because it has received an offer for such an acquisition transaction, then Mid-Wisconsin (or its successor) must pay Nicolet a termination fee of $750,000. Similarly, if Mid-Wisconsin terminates the merger agreement because Nicolet’s board withdraws or changes its recommendation of the merger agreement, cancels the meeting at which Nicolet’s shareholders or board will vote on the merger agreement, or resolves to do any of those things, then Nicolet (or its successor) must pay Mid-Wisconsin a termination fee of $750,000. In addition, if the merger agreement is terminated by a party based on a Material Breach by the other party, then the breaching party will be required to pay the non-breaching party liquidated damages of $1.0 million plus documented out-of-pocket legal, investment banking, accounting, consulting and other expenses incurred by the non-breaching party in connection or associated with the preparation, negotiation, and execution of the merger agreement.

Provisions of the merger agreement regarding confidentiality, payment of the termination fee and indemnification of Mid-Wisconsin and its controlling persons will survive any termination of the merger agreement.

Payment of Expenses Relating to the Merger

Subject to their obligations in the event of a Material Breach as described above, the parties will pay all of their own expenses related to negotiating and completing the merger.

Interests of Certain Persons in the Merger

Some of Mid-Wisconsin’s directors and executive officers have interests in the transaction in addition to their interests generally as shareholders of Mid-Wisconsin. These interests are described below. Mid-Wisconsin’s board of directors was aware of these interests and considered them, in addition to other matters, in approving the merger agreement.

Mid-Wisconsin Directors’ Deferred Compensation Plan

Mid-Wisconsin has a Directors’ Deferred Compensation Plan in which certain directors participated prior to 2005 and that is considered grandfathered for purposes of Code Section 409A. The plan is a nonqualified deferred compensation plan that allowed directors to elect to defer all or a portion of their compensation for service as directors before 2005 into either a cash account or an account tied to Mid-Wisconsin’s stock price, with payment of their accrued balances being made after their resignation from the board in a lump-sum or in installments over a period not in excess of five years. In the event of a director’s termination of service in connection with a change in control (such as the proposed Nicolet merger), the director’s account balance is to be paid in a lump sum to the director as of the last day of the month in which the director’s termination of service occurs. The board may terminate this plan at any time and pay all amounts deferred under the plan to directors.

Mid-Wisconsin also has a Directors’ Deferred Compensation Plan in which its directors currently participate. The plan is a nonqualified deferred compensation plan that allows directors to elect to defer all or a portion of their compensation for service as directors after 2004 into either a cash account or an account tied to Mid-Wisconsin’s stock price, with payment of their accrued balances being made after their resignation from the board in a lump-sum or in installments over a period not in excess of five years. In the event of a director’s termination of service in connection with a change in control (such as the proposed Nicolet merger), the director’s account balance is to be paid in a lump sum to the director as of the last day of the month in which the director’s termination of service occurs. In connection with a change in control (such as the proposed Nicolet merger), the board may terminate this plan in accordance with Code Section 409A within the 30 days preceding or the 12 months following the change in control and pay all amounts deferred under the plan to directors within 12 months of the date the board takes action to terminate the plan.

Nicolet has requested that Mid-Wisconsin terminate the Directors’ Deferred Compensation Plan prior to the closing of the merger. As a result of such termination, no directors are expected to receive any compensation based on or related to the merger that has not already accrued to or vested in them. As of December 31, 2012, lump sum distributions due to Dr. Gowey and Messrs. Hallgren, Mertens, Ghidorzi, Hager and Sczygelski in connection with such termination were $157,347; $85,107; $89,622; $12,697; $26,323; and $515, respectively.

Mid-Wisconsin Directors’ Retirement Policy

Mid-Wisconsin directors who complete at least 20 years of service as non-employee directors are eligible for a cash retirement benefit equal to the retainer fees in effect during the first year following the director’s termination of service. Directors who complete less than 20 years of service as non-employee directors are eligible for a benefit equal to the product of (a) the retainer fees in effect during the first year following the director’s termination of service, multiplied by (b) a fraction, the numerator of which is the greater of (i) 10 or (ii) the director’s full and partial years of service as a director, and the denominator of which is 20. The benefit is payable on the same schedule as applies to payments of retainer fees to directors who continue to serve on the board. In connection with a change in control (such as the proposed Nicolet merger) , the board may terminate this policy in accordance with Code Section 409A within the 30 days preceding or the 12 months following the change in control and pay all amounts deferred under the plan to directors within 12 months of the date the board takes action to terminate the plan.

Nicolet has requested that Mid-Wisconsin terminate this policy prior to the closing of the merger. As a result of such termination, no directors are expected to receive any compensation based on or related to the merger that has not already accrued to or vested to them. As of December 31, 2012, lump sum distributions due to Dr. Gowey and Messrs. Hallgren, Mertens, Ghidorzi, Hager, and Sczygelski in connection with such termination were $3,746; $3,435; $4,693; $2,850; $3,889; and $2,850, respectively.

Mid-Wisconsin Stock Options

As of the date of the merger agreement, Mid-Wisconsin’s directors and executive officers held options to purchase an aggregate of 30,510 shares of Mid-Wisconsin common stock, with a weighted average exercise

price of $28.13 per share. The merger agreement requires Mid-Wisconsin to take such actions as may be necessary to cancel these options effective upon consummation of the merger without payment.

Indemnification and Insurance

Nicolet has agreed that all rights to indemnification and all limitations of liability existing in favor of indemnified parties under Mid-Wisconsin’s articles of incorporation and bylaws as in effect on November 28, 2012 with respect to matters occurring prior to or at the effective time of the merger will survive for a period concurrent with the applicable statute of limitations. In addition, Nicolet has agreed to indemnify, under certain conditions, Mid-Wisconsin’s directors, officers and controlling persons against certain expenses and liabilities, including certain liabilities arising under federal securities laws. Mid-Wisconsin will use its best efforts to cause the officers and directors of Mid-Wisconsin to be covered by Mid-Wisconsin’s directors and officers liability insurance policy (or a substitute policy) for six years following the effective time of the merger, subject to certain conditions.

Trading Market for Nicolet Stock

The shares of Nicolet common stock issued pursuant to the merger will be registered under the Securities Act of 1933, as amended, and will be freely transferable under applicable securities laws, except to the extent of any limitations or restrictions applicable to any shares received by any shareholder who may be deemed an affiliate of Nicolet following completion of the merger. See “—Resale of Nicolet Common Stock,” at page ___.

Although Nicolet plans to cause its common stock to be quoted on the Over-the-Counter Bulletin Board or other quotation system at or before the closing of the merger, its common stock is not currently traded on any securities exchange or quotation system. There is, however, no guarantee that a liquid market for shares of Nicolet common stock will develop.

Nicolet Dividends

The holders of Nicolet common stock receive dividends if and when declared by the Nicolet board of directors out of legally available funds. Nicolet’s board of directors has not declared a dividend since its inception in 2000 and does not currently expect to do so in the foreseeable future. Instead, the board currently anticipates that all earnings, if any, will be used for working capital, to support Nicolet’s operations and to finance the growth and development of its business, including the merger and integration of Mid-Wisconsin. Any future determination relating to dividend policy will be made at the discretion of Nicolet’s board of directors and will depend on a number of factors, including the company’s future earnings, capital requirements, financial condition, future prospects, regulatory restrictions and other factors that the board of directors may deem relevant.

Surrender and Exchange of Mid-Wisconsin Stock Certificates

At the effective time of the merger, Mid-Wisconsin shareholders who will receive Nicolet common stock in the merger will automatically become entitled to all of the rights and privileges afforded to Nicolet shareholders as of that time, and Mid-Wisconsin shareholders who will receive cash in the merger will be entitled to receipt of that cash upon their surrender of their Mid-Wisconsin stock certificates. However, the actual physical exchange of Mid-Wisconsin common stock certificates for cash and certificates representing shares of Nicolet common stock will occur after the merger.

Computershare Investor Services, Inc. will serve as exchange agent for the merger. Within five business days after the effective date of the merger, Nicolet will send or cause to be sent to all Mid-Wisconsin’s shareholders (other than any shareholders who have exercised their dissenters’ rights) a letter of transmittal with instructions for exchanging their Mid-Wisconsin stock certificates for the merger consideration to which they are entitled. Each Mid-Wisconsin stock certificate issued and outstanding immediately prior to the effective time of the merger will be deemed for all purposes to evidence the right to receive the merger consideration to which such holder is entitled, regardless of when they are actually exchanged.

Nicolet will delay paying former shareholders of Mid-Wisconsin who become holders of Nicolet common stock pursuant to the merger any dividends or other distributions that may become payable to holders of record of Nicolet common stock following the effective time of the merger until they have surrendered their certificates evidencing their Mid-Wisconsin common stock, at which time Nicolet will pay any such dividends or other distributions without interest.

You should not send in your Mid-Wisconsin stock certificate(s) until you have received a letter of transmittal and further written instructions after the effective date of the merger. Please do NOT send in your stock certificates with your proxy card.

After the exchange agent receives your Mid-Wisconsin certificate(s), together with a properly completed election form/letter of transmittal, it will deliver to you the merger consideration to which you are entitled, consisting of any Nicolet common stock certificates (together with any withheld dividends or other distributions, but without interest thereon) and any cash payments due for a fractional share, state-restricted shares or cash-out shares without interest.

Because the determination of the appropriate share threshold for ownership of cash-out shares will be made based on record ownership of Mid-Wisconsin common stock on the closing date of the merger, it is not presently possible to state with certainty whether a Mid-Wisconsin shareholder who owns 200 or fewer shares will receive cash instead of Nicolet stock as merger consideration. The letter of transmittal that is mailed after the merger will specify the form of consideration that the recipient will receive.

Shareholders who cannot locate their stock certificates are urged to contact promptly:

Mid-Wisconsin Financial Services, Inc.
132 West State Street
Medford, Wisconsin 54451
Attention: _____________
Telephone: (____) ___________

Mid-Wisconsin will issue a new stock certificate to replace the lost certificate(s) only if the shareholder of Mid-Wisconsin signs an affidavit certifying that his, her or its certificate(s) cannot be located and containing an agreement to indemnify Mid-Wisconsin and Nicolet against any claim that may be made against Mid-Wisconsin or Nicolet by the owner of the certificate(s) alleged to have been lost or destroyed. Mid-Wisconsin or Nicolet may also require the shareholder to post a bond in an amount sufficient to support the shareholder’s agreement to indemnify Mid-Wisconsin and Nicolet.

Resale of Nicolet Common Stock

The shares of Nicolet common stock to be issued in the merger will be registered under the Securities Act. Mid-Wisconsin shareholders who are not affiliates of Nicolet may generally freely trade their Nicolet common stock upon completion of the merger. The term “affiliate” generally means each person who is an executive officer, director or 10% shareholder of Nicolet after the merger.

Those shareholders who are deemed to be affiliates of Nicolet may only sell their Nicolet common stock as provided by Rule 144 under the Securities Act or as otherwise permitted under the Securities Act. Rule 144 requires the availability of current public information about the issuer, a holding period for shares issued without SEC registration, volume limitations and other restrictions on the manner of sale of the shares.

Affiliate Agreements

Mid-Wisconsin has caused each executive officer and director of Mid-Wisconsin to execute an Affiliate Agreement, in which each such officer or director agrees to vote all of his or her shares of Mid-Wisconsin common stock in favor of the merger agreement. Nicolet has obtained similar Affiliate Agreements from its directors and certain executive officers relating to their shares of Nicolet common stock.

Forms of the Affiliate Agreements are attached as Exhibits C-1 and C-2 to the merger agreement, which is attached to this joint proxy statement-prospectus as Appendix A. These agreements may have the effect of

discouraging third parties from making a proposal for an acquisition transaction involving Mid-Wisconsin. The following is a brief summary of the material provisions of the agreements:

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The executive officer or director agrees to vote, or cause to be voted, in person or by proxy, all of the Mid-Wisconsin or Nicolet common stock as to which he or she owns beneficially or of record in favor of the merger agreement unless Mid-Wisconsin or Nicolet, as applicable, is then in breach of the agreement.

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The executive officer or director agrees, except for certain specific transfers set forth in the agreement, not to directly or indirectly transfer any of his or her Mid-Wisconsin or Nicolet common stock until the closing date of the merger without prior written consent of Nicolet or Mid-Wisconsin, as applicable.

Regulatory and Other Required Approvals

Federal Reserve

The Federal Reserve must approve the merger before it can be completed. Nicolet and Mid-Wisconsin must then wait at least 30 days after the date of Federal Reserve approval before they may complete the merger. During this waiting period, the U.S. Department of Justice may object to the merger on antitrust grounds. Nicolet filed an application for approval of the merger with the Federal Reserve on January 24, 2013. In reviewing that application, the Federal Reserve is required to consider the following:

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competitive factors, such as whether the merger will result in a monopoly or whether the benefits of the merger to the public in meeting the needs and convenience of the community clearly outweigh the merger’s anticompetitive effects or restraints on trade; and

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banking and community factors, which includes an evaluation of:

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the financial and managerial resources of Nicolet, including its subsidiaries, and of Mid-Wisconsin, and the effect of the proposed transaction on these resources;

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management expertise;

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internal control and risk management systems;

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the capital of Nicolet;

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the convenience and needs of the communities to be served; and

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the effectiveness of Nicolet and Mid-Wisconsin in combating money laundering activities.

The application process includes publication and opportunity for comment by the public. The Federal Reserve may receive, and must consider, properly filed comments and protests from community groups and others regarding (among other issues) each institution’s performance under the Community Reinvestment Act of 1977, as amended. The Federal Reserve is also required to ensure that the proposed transaction would not violate Wisconsin law regarding the number of years a bank must be in operation before it can be acquired, deposit concentration limits, Wisconsin community reinvestment laws and any Wisconsin antitrust statutes.

OCC and WDFI

The merger of Mid-Wisconsin Bank with and into Nicolet National Bank requires the approval of the OCC and the WDFI. Nicolet filed an Interagency Bank Merger Application for approval of the bank merger with the OCC (which will forward the application to the WDFI) on January 17, 2013. In evaluating the bank merger, the OCC and the WDFI must consider, among other factors, the financial and managerial resources and future prospects of the institutions and the convenience and needs of the communities to be served. The relevant statutes prohibit the OCC from approving the bank merger if:

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it would result in a monopoly or be in furtherance of any combination or conspiracy to monopolize or attempt to monopolize the business of banking in any part of the United States; or

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its effect in any section of the country could be to substantially lessen competition or to tend to create a monopoly, or if it would result in a restraint of trade in any other manner.

However, if the OCC should find that any anticompetitive effects are outweighed clearly by the public interest and the probable effect of the transaction in meeting the convenience and needs of the communities to be served, it may approve the bank merger. The bank merger may not be consummated until the 30th day (which the OCC may reduce to 15 days) following the later of the date of OCC approval, during which time the U.S. Department of Justice would be afforded the opportunity to challenge the transaction on antitrust grounds. The commencement of any antitrust action would stay the effectiveness of the approval of the agencies, unless a court of competent jurisdiction should specifically order otherwise.

In connection with or as a result of the merger, Nicolet or Mid-Wisconsin may be required, pursuant to other laws and regulations, either to notify or obtain the consent of other regulatory authorities and organizations to which such companies or subsidiaries of either or both of them may be subject. The Nicolet common stock to be issued in exchange for Mid-Wisconsin common stock in the merger has been registered with the SEC and will be issued pursuant to available exemptions from registration under state securities laws.

Preferred Stock and Debentures

Pursuant to the terms of the merger agreement, Mid-Wisconsin will seek regulatory approval to redeem the Preferred Stock and to pay all accrued but unpaid interest on the Debentures at or before the effective time of the merger. If Mid-Wisconsin is unable to obtain regulatory approval for such payment or redemption, Nicolet will purchase the Preferred Stock and pay all accrued but unpaid interest on the Debentures.

Status and Effect of Approvals

All regulatory applications and notices required to be filed prior to the merger have been filed. Nicolet and Mid-Wisconsin contemplate that they will complete the merger shortly after the later of the Mid-Wisconsin or Nicolet special shareholders’ meeting, assuming all required approvals are received.

Nicolet and Mid-Wisconsin believe that the proposed merger is compatible with the regulatory requirements described in the preceding paragraphs; however, we cannot assure you that we will be able to comply with any required conditions or that compliance or noncompliance with any such conditions would not have adverse consequences for the combined company after the merger.

While Nicolet and Mid-Wisconsin believe that the requisite regulatory approvals for the merger will be obtained, we can give you no assurance regarding the timing of the approvals, our ability to obtain the approvals on satisfactory terms or the absence of litigation challenging those approvals or otherwise. Similarly, we cannot assure you that any state attorney general or other regulatory authority will not attempt to challenge the merger on antitrust grounds or for other reasons, or, if such a challenge is made, project the result thereof. The merger is conditioned upon the receipt of all consents, approvals and actions of governmental authorities and the filing of all other notices with such authorities in respect of the merger.

We are not aware of any regulatory approvals that would be required for completion of the transactions contemplated by the merger agreement other than as described above. Should any other approvals be required, those approvals would be sought, but we cannot assure you that they will be obtained.

Accounting Treatment of the Merger

Nicolet is required to account for the merger as a purchase transaction for accounting and financial reporting purposes under GAAP. Under purchase accounting, the assets (including any identifiable intangible assets) and liabilities (including executory contracts and other commitments) of Mid-Wisconsin at the effective time of the merger will be recorded at their respective fair values and added to those of Nicolet. Any excess of purchase price over the fair values is recorded as goodwill. Any excess of the fair values over the purchase price is recorded in earnings as a bargain purchase gain. Consolidated financial statements of Nicolet issued after the merger will reflect those fair values and will not be restated retroactively to reflect the historical consolidated financial position or results of operations of Mid-Wisconsin.

MATERIAL UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER

The following is a summary description of the anticipated material U.S. federal income tax consequences of the merger generally applicable to U.S. Shareholders (as defined below) of Mid-Wisconsin who hold the common stock as capital assets within the meaning of Section 1221 of the Internal Revenue Code. This summary description deals only with the U.S. federal income tax consequences of the merger. No information is provided regarding the tax consequences of the merger under state, local, gift, estate, foreign or other tax laws. We do not intend it to be a complete description of the U.S. federal income tax consequences of the merger to all Mid-Wisconsin shareholders in light of their particular circumstances or to Mid-Wisconsin shareholders subject to special treatment under U.S. federal income tax laws, such as:

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Non-U.S. Shareholders (as defined below) (except to the extent discussed under the subheading “Tax Implications to Non-U.S. Shareholders,” below);

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entities treated as partnerships for U.S. federal income tax purposes or Mid-Wisconsin shareholders who hold their shares through entities treated as partnerships for U.S. federal income tax purposes;

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qualified insurance plans;

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tax-exempt organizations;

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qualified retirement plans and individual retirement accounts;

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brokers or dealers in securities or currencies;

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traders in securities that elect to use a mark-to-market method of accounting;

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regulated investment companies;

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real estate investment trusts;

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persons whose functional currency is not the U.S. dollar;

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shareholders who received their stock upon the exercise of employee stock options or otherwise acquired their stock as compensation;

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persons who purchased or sell their shares of Mid-Wisconsin common stock as part of a wash sale; or

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shareholders who hold the common stock as part of a “hedge,” “straddle” or other risk reduction, “constructive sale,” or “conversion transaction,” as these terms are used in the Internal Revenue Code.

This discussion is based upon, and subject to, the Internal Revenue Code, the treasury regulations promulgated under the Internal Revenue Code, existing interpretations, administrative rulings and judicial decisions all of which are in effect as of the date of this statement, and all of which are subject to change, possibly with retroactive effect. Any such change could affect the continuing validity of this discussion. Tax laws are complex, and your individual circumstances may affect the tax consequences to you. We urge you to consult a tax advisor regarding the tax consequences of the merger to you.

U.S. Shareholders

For purposes of this discussion, the term “U.S. Shareholder” means a beneficial owner of Mid-Wisconsin common stock that is:

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a citizen or resident of the U.S.;

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a corporation (including any entity treated as a corporation for U.S. federal income tax purposes) created or organized under the laws of the U.S. or any of its political subdivisions;

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a trust that (i) is subject to both the primary supervision of a court within the U.S. and the control of one or more U.S. persons, or (ii) has a valid election in effect under applicable U.S. treasury regulations to be treated as a U.S. person; or

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an estate that is subject to U.S. federal income tax on its income regardless of its source.

If a partnership (including any entity or arrangement, domestic or foreign, that is treated as a partnership for U.S. federal income tax purposes) holds Mid-Wisconsin common stock, the tax treatment of a partner will generally depend on the status of the partners and the activities of the partnership. Partnerships and partners in such a partnership should consult their tax advisors regarding the tax consequences of the merger to them.

Qualification of the Merger as a Reorganization

Nicolet and Mid-Wisconsin have structured the merger to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code. The obligation of Nicolet and Mid-Wisconsin to complete the merger is condition upon the receipt of a tax opinion from Bryan Cave LLP to the effect that:

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the merger will constitute a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code; and

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the exchange in the merger of Mid-Wisconsin common stock for Nicolet common stock will not give rise to a gain or loss to the shareholders of Mid-Wisconsin with respect to such exchange, except to the extent of any cash received.

The tax opinion will be based upon law existing on the date of the opinion and upon certain facts, assumptions, limitations, representations and covenants including those contained in representation letters executed by officers of Mid-Wisconsin and Nicolet that, if incorrect in certain material respects, would jeopardize the conclusions reached by Bryan Cave LLP in its opinion. The tax opinion will not bind the Internal Revenue Service or prevent the Internal Revenue Service from successfully asserting a contrary opinion. No ruling will be requested from the Internal Revenue Service in connection with the merger.

Tax Implications to U.S. Shareholders

The following discussion summarizes the material U.S. federal income tax consequences of the merger to U.S. Shareholders, assuming the merger qualifies as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

Tax Consequences to U.S. Shareholders. The U.S. federal income tax consequences of the merger to an owner of Mid-Wisconsin common stock that is a U.S. Shareholder generally will depend on whether the U.S. Shareholder exchanges Mid-Wisconsin common stock for cash, Nicolet common stock or a combination of cash and Nicolet common stock.

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Exchange Solely for Nicolet Stock. No gain or loss will be recognized by U.S. Shareholders upon the exchange of shares of Mid-Wisconsin common stock solely for shares of Nicolet common stock pursuant to the merger, except in respect of cash received in lieu of the issuance of a fractional share of Nicolet common stock (as discussed below).

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Exchange for Cash and Nicolet Common Stock. A U.S. Shareholder who receives a combination of cash (not including cash received in lieu of the issuance of a fractional share of Nicolet common stock) and Nicolet common stock in exchange for Mid-Wisconsin common stock will generally recognize gain (but not loss) in an amount equal to the lesser of: (i) the excess, if any, of (a) the sum of the amount of cash treated as received in exchange for Mid-Wisconsin common stock in the merger (excluding cash received in lieu of a fractional share) plus the fair market value of Nicolet common stock (including the fair market value of any fractional share) received in the merger, over (b) the U.S. Shareholder’s adjusted tax basis in the shares of Mid-Wisconsin common stock exchanged, or (ii) the amount of cash (excluding cash received in lieu of a fractional share) received in the merger. Any taxable gain to a U.S. Shareholder on the exchange of Mid-Wisconsin common stock generally will be treated as capital gain (either long-term or short-term capital gain depending on whether the shareholder has held such Mid-Wisconsin common stock for more than one (1) year in the case of long-term capital gain or one (1) year or less in the case of short-term capital gain). If a U.S. Shareholder acquired different blocks of Mid-Wisconsin common stock at different times or at different prices, such U.S. Shareholder’s basis and holding period in its shares of Nicolet common

stock may be determined with reference to each block of Mid-Wisconsin common stock. Such U.S. Shareholder should consult its individual tax advisor regarding the manner in which gain or loss should be determined. If, however, the cash received has the effect of the distribution of a dividend (as discussed below), the gain will be treated as a dividend to the extent of the U.S. Shareholder’s ratable share of accumulated earnings and profits as calculated for U.S. federal income tax purposes.

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Exchange of Cash in Lieu of Fractional Share. A U.S. Shareholder who receives cash in lieu of the issuance of a fractional share of Nicolet common stock will generally be treated as having received such factional share pursuant to the merger and then as having received cash in exchange for such fractional share. Gain or loss generally will be recognized in an amount equal to the difference between the amount of cash received instead of the fractional share and the portion of the U.S. Shareholder’s aggregate adjusted tax basis of the Mid-Wisconsin shares exchanged in the merger which is allocable to the fractional share of Nicolet common stock. Such gain or loss generally will be capital gain or loss, and will be long-term capital gain or loss if, as of the effective date of the merger, the holding period for such shares of Mid-Wisconsin common stock is more than one year.

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Tax Basis of Nicolet Common Stock Received in the Merger. The aggregate tax basis of the Nicolet common stock (including a fractional share deemed received and sold for cash as described above) received in the merger will equal the aggregate tax basis of the Mid-Wisconsin common stock surrendered in the exchange, reduced by the amount of cash received, if any, that is treated as received in exchange for Mid-Wisconsin common stock (excluding any cash received in lieu of a fractional share of Nicolet common stock), and increased by the amount of gain, if any, recognized in the exchange (including any portion of the gain that is treated as a dividend but excluding any gain resulting from a fractional share deemed received and sold for cash as described above).

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Holding Period of Nicolet Common Stock Received in the Merger. The holding period for any Nicolet common stock received in the merger will include the holding period of the Mid-Wisconsin common stock surrendered in the exchange.

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Possible Treatment of Cash as a Dividend. There are certain circumstances in which all or part of the gain recognized by a U.S. Shareholder will be treated as a dividend rather than capital gain. In general, the determination of whether the gain recognized in the exchange (other than gain with respect to fractional shares) will be treated as capital gain or has the effect of a distribution of a dividend depends upon whether, and to what extent, the exchange reduces the U.S. Shareholder’s deemed percentage stock ownership in Nicolet. These rules are complex and dependent upon the specific factual circumstances particular to each U.S. Shareholder, including the application of certain constructive ownership rules. Consequently, each U.S. Shareholder should consult its tax advisor regarding the potential tax consequences of the merger to such shareholder.

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Exchange Solely for Cash. A U.S. Shareholder who receives solely cash in exchange for Mid-Wisconsin common stock, whether as a result of exercising dissenter’s rights, state-restricted shares, cash-out shares, or otherwise, will generally recognize gain or loss in an amount equal to the difference between the cash received and the U.S. Shareholder’s adjusted tax basis in the shares of Mid-Wisconsin common stock surrendered by such shareholder. Any taxable gain to a U.S. Shareholder on the exchange of Mid-Wisconsin common stock will generally be treated as capital gain, either long-term or short-term capital gain depending on such shareholder’s holding period for the Mid-Wisconsin common stock. Each holder of Mid-Wisconsin common stock who contemplates exercising statutory dissenters’ or appraisal rights should consult its tax advisor as to the possibility that all or a portion of the payment received pursuant to the exercise of such rights will be treated as dividend income.

Tax Consequences to Nicolet and Mid-Wisconsin. Neither Nicolet nor Mid-Wisconsin will recognize taxable gain or loss as a result of the merger, except for, in the case of Mid-Wisconsin, gain, if any, that has been deferred in accordance with the consolidated return regulations.

Tax Implications to Non-U.S. Shareholders

For purposes of this discussion, the term “Non-U.S. Shareholder” means a beneficial owner of Mid-Wisconsin common stock (other than an entity treated as a partnership for U.S. federal income tax purposes) that is not a U.S. Shareholder. The rules governing the U.S. federal income taxation of Non-U.S. Shareholders are complex, and no attempt will be made herein to provide more than a limited summary of those rules.

Tax Consequences to Non-U.S. Shareholders. Any gain a Non-U.S. Shareholder recognizes from the exchange of Mid-Wisconsin common stock for Nicolet common stock and cash in the merger generally will not be subject to U.S. federal income tax unless (a) the gain is effectively connected with a trade or business conducted by the Non-U.S. Shareholder in the United States, or (b) in the case of a Non- U.S. Shareholder who is an individual, such shareholder is present in the United States for 183 days or more in the taxable year of the sale and other conditions are met. Non-U.S. Shareholders described in (a) above will be subject to tax on gain recognized at applicable U.S. federal income tax rates and, in addition, Non-U.S. Shareholders that are corporations (or treated as corporations for U.S. federal income tax purposes) may be subject to a branch profits tax equal to 30% (or a lesser rate under an applicable income tax treaty) on their effectively connected earnings and profits for the taxable year, which would include such gain. Non-U.S. Shareholders described in (b) above will be subject to a flat 30% tax on any gain recognized, which may be offset by U.S. source capital losses.

Dividends Paid with Respect to Nicolet Common Stock. As a result of the merger, current shareholders of Mid-Wisconsin common stock will hold Nicolet common stock. Dividends paid to Non-U.S. Shareholders (to the extent paid out of Nicolet’s current or accumulated earnings and profits, as determined for U.S. federal income tax purposes) with respect to such shares of Nicolet common stock will be subject to withholding at a 30% rate or such lower rate as may be specified by an applicable income tax treaty unless the dividends are effectively connected with the conduct of a trade or business within the United States and, if certain tax treaties apply, are attributable to a U.S. permanent establishment, as discussed below. Even if a Non-U.S. Shareholder is eligible for a lower treaty rate, Nicolet will generally be required to withhold at a 30% rate (rather than the lower treaty rate) on dividend payments unless Nicolet has received a valid IRS Form W-8BEN or other documentary evidence establishing entitlement to a lower treaty rate with respect to such payments. If a Non-U.S. Shareholder holds the Nicolet common stock through a foreign financial institution or other foreign non-financial entity, a 30% withholding tax will be imposed on dividends paid after December 31, 2012, to such “foreign financial institution” or other foreign non-financial entity unless (i) the foreign financial institution undertakes certain diligence and reporting obligations or (ii) the foreign non-financial entity either certifies it does not have any substantial U.S. owners or furnishes identifying information regarding each substantial U.S. owner.

If a Non-U.S. Shareholder is subject to withholding at a rate in excess of a reduced rate for which it is eligible under a tax treaty or otherwise, it may be able to obtain a refund of or credit for any amounts withheld in excess of the applicable rate. Investors are encouraged to consult with their own tax advisers regarding the possible implications of these withholding requirements.

Dividends that are effectively connected with the conduct of a trade or business within the United States and, if certain tax treaties apply, are attributable to a U.S. permanent establishment, are not subject to withholding tax, but instead are subject to U.S. federal income tax on a net income basis at applicable graduated rates. Special certification and disclosure requirements must be satisfied for effectively connected income to be exempt from withholding. Any such effectively connected dividend received by a Non-U.S. Shareholder that is a corporation for U.S. federal income tax purposes may be subject to an additional branch profits tax at a 30% rate or such lower rate as may be specified by an applicable income tax treaty.

Tax Consequences if the Merger Does Not Qualify as a Reorganization

If the merger fails to qualify as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, the merger will be a fully taxable transaction to the shareholders of Mid-Wisconsin common stock. In such case, U.S. Shareholders will recognize gain or loss measured by the difference between the total consideration received in the merger and such shareholders’ tax basis in the shares of Mid-Wisconsin common stock surrendered in the merger. Each shareholder of Mid-Wisconsin common stock is urged to

consult its tax advisor regarding the manner in which gain or loss should be calculated among different blocks of Mid-Wisconsin common stock surrendered in the merger. The aggregate tax basis in the shares of Nicolet common stock received pursuant to the merger will be equal to the fair market value of such Nicolet common stock as of the closing date of the merger. The holding period of such shares of Nicolet common stock will begin on the date immediately following the closing date of the merger.

Backup Withholding and Information Reporting

In general, information reporting requirements may apply to the cash payments made to shareholders of Mid-Wisconsin common stock in connection with the merger, unless an exemption applies. Backup withholding may be imposed on the above payments at a rate of 31% if a U.S. Shareholder or Non-U.S. Shareholder (i) fails to provide a taxpayer identification number or appropriate certificates, or (ii) otherwise fails to comply with all applicable requirements of the backup withholding rules.

Any amounts withheld from payments to shareholders of Mid-Wisconsin common stock under the backup withholding rules are not an additional tax and will be allowed as a refund or credit against your applicable U.S. federal income tax liability, provided the required information is furnished to the Internal Revenue Service. Both U.S. Shareholders and Non-U.S. Shareholders should consult their own tax advisors regarding the application of backup withholding based on their particular circumstances and the availability and procedure for obtaining an exemption from backup withholding.

Recent Tax Legislation

Under recently enacted legislation, net long term capital gains and qualified dividend income recognized in taxable years beginning on or after January 1, 2013 will be taxed generally at a maximum rate of 20% (for individuals earning $400,000 or more per year and married individuals filing jointly earning $450,000 or more or $250,000 or more per year for married individuals filing separately). Shareholders of Mid-Wisconsin common stock should consult their own tax advisors regarding the availability of the preferential tax rates in light of such shareholders’ particular circumstances.

Beginning in 2013, a U.S. Shareholder will be subject to a 3.8% Medicare tax on certain net investment income earned by individuals, estates and trusts. For these purpose, net investment income generally includes a shareholder’s allocable share of income and gain realized by a shareholder from a sale of stock. In the case of an individual, the tax will be imposed on the lesser of (i) the shareholder’s net investment income, or (ii) the amount by which the shareholder’s modified adjusted gross income exceeds a certain threshold (which is $250,000 in the case of married individuals filing jointly, $125,000 in the case of married individuals filing separately, and $200,000 in all other cases).

CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS

If the merger is completed, Mid-Wisconsin’s shareholders (other than those exercising dissenters’ rights or who receive only cash for their Mid-Wisconsin shares) will become Nicolet shareholders. Their rights as shareholders will then be governed by Nicolet’s articles of incorporation and bylaws rather than by Mid-Wisconsin’s articles of incorporation and bylaws.

Nicolet and Mid-Wisconsin are both Wisconsin corporations organized under the laws of the State of Wisconsin. The corporate affairs of Nicolet and Mid-Wisconsin are governed generally by the provisions of the WBCL. The following is a summary of differences between the rights of Mid-Wisconsin shareholders and Nicolet shareholders not described elsewhere in this joint proxy statement-prospectus. The summary is necessarily general, and it is not intended to be a complete statement of all differences affecting the rights of shareholders. It is qualified in its entirety by reference to the WBCL, as well as the articles of incorporation and bylaws of each corporation. Mid-Wisconsin shareholders should consult their own legal counsel with respect to specific differences and changes in their rights as shareholders that would result from the proposed merger.

Authorized Capital Stock

Nicolet. Nicolet’s articles of incorporation authorize it to issue 30,000,000 shares of common stock, $0.01 par value, and 10,000,000 shares of preferred stock, no par value, with such preferences, limitations and relative rights as determined by the board of directors. As of the date of the merger agreement, there were 3,479,888 shares (including 54,475 shares of restricted stock granted but not yet vested under Nicolet’s employee benefit plans) of common stock issued and 3,425,413 shares of common stock outstanding. Of the authorized preferred stock, (i) 14,964 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and 748 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, were authorized but no shares of either series were issued or outstanding, and (ii) 24,400 shares of Non-Cumulative Perpetual Preferred Stock, Series C, were authorized, issued and outstanding as of the date of the merger agreement. In addition, as of the date of the merger agreement, 839,107 shares of Nicolet common stock were subject to outstanding options.

Mid-Wisconsin. Mid-Wisconsin’s articles of incorporation authorize it to issue 6,000,000 shares of common stock, $0.10 par value, and 50,000 shares of preferred stock, no par value. As of the date of the merger agreement, there were 1,657,119 shares of Mid-Wisconsin common stock issued and outstanding. Of the authorized preferred stock, 10,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and 500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, were authorized, issued and outstanding as of the date of the merger agreement. In addition, as of the date of the merger agreement, 30,510 shares of Mid-Wisconsin common stock were subject to outstanding options.

Composition and Election of the Board of Directors

Nicolet. Nicolet’s articles of incorporation and bylaws provide that the board of directors shall consist of not fewer than two nor more than 25 directors, with the exact number of directors to be set by resolution of the board. Its articles of incorporation provide for the election of directors by cumulative voting, which means that the number of votes each common shareholder may cast is determined by multiplying the number of shares he, she or it owns by the number of directors to be elected. Those votes may be cumulated and cast for a single candidate or may be distributed among two or more candidates in the manner selected by the shareholder.

Mid-Wisconsin. Mid-Wisconsin’s articles of incorporation provide that the board shall consist of such number of directors as the bylaws of Mid-Wisconsin may provide, but not fewer than three or more than 11, and that the board shall be divided into three classes. Each class of directors serves a three-year term, and directors of each class are elected by plurality vote at successive annual meetings of shareholders. Cumulative voting for directors is denied under Mid-Wisconsin’s articles of incorporation.

Director Nominations

Nicolet. Under Nicolet’s bylaws, either directors or shareholders may nominate persons for election as Nicolet directors. Nominations that are not made by or on behalf of Nicolet’s management must be delivered in writing to Nicolet’s President no less than 14 and no more than 50 days before the meeting at which directors will be elected. If less than 21 days’ notice of such meeting is given, then the delivery deadline for the shareholder’s written notice is the close of business on the seventh day after the date on which notice of the meeting was mailed. The shareholder’s nomination must specify (to the extent known to the shareholder) the nominee’s name, address and principal occupation; the number of shares of capital stock that will be voted in favor of the nominee; and the nominating shareholder’s name, address and beneficial ownership of Nicolet capital stock.

Mid-Wisconsin. Shareholder nominations of directors are subject to the provisions of Mid-Wisconsin’s bylaws described under “—Advance Notice of Shareholder Proposals” below. In addition to the matters specified in that paragraph, a shareholder’s nomination of a director must include all information relating to the nominee that would be required to be disclosed in solicitations of proxies for the election of directors under the Securities Exchange Act of 1934, as amended, including the nominee’s written consent to being named in a proxy statement as a nominee and to serving as a director if elected. If the number of directors to be elected is increased and Mid-Wisconsin does not issue a public announcement identifying all of the nominees or specifying the size of the increased board at least 70 days before the first anniversary of the preceding year’s annual meeting, a shareholder’s notice of nomination will also be considered timely, but only as to nominees for any new positions created by such increase, if it is delivered to Mid-Wisconsin’s Corporate Secretary no later than the 10th day following the day on which Mid-Wisconsin first made such public announcement.

Board Committees

Nicolet. Under the WBCL, unless the articles of incorporation or bylaws provide otherwise, a board of directors may create one or more committees, appoint members of the board of directors to serve on the committees and designate other members of the board of directors to serve as alternates. The WBCL provides that a committee may exercise the authority of the full board of directors except that it cannot approve or recommend to shareholders matters that require shareholder approval under the WBCL and it cannot adopt, amend or repeal a corporate bylaw. In addition to these restrictions, Nicolet’s bylaws provide that no board committee may approve dividends, fill board vacancies without express authorization by the full board, amend the articles of incorporation, approve a plan of merger not requiring shareholder approval, approve the reacquisition of outstanding Nicolet capital stock except pursuant to parameters established by the full board, or approve the issuance of capital stock except to the extent authorized by the full board.

Mid-Wisconsin. Subject to the provisions of the WBCL as described above, Mid-Wisconsin’s bylaws permit the board of directors to establish an Executive Committee that may exercise the authority of the full board of directors to the extent provided in the resolution appointing the committee, except that it may not take action with respect to dividends to shareholders, election of principal officer or the filling of vacancies in the board of directors or any committee thereof.

Director Removal

Nicolet. Directors may be removed for cause by the affirmative vote of the holders of a majority of the issued and outstanding shares of Nicolet common stock entitled to vote in the election of directors, except that a director may not be removed if a number of cumulative votes sufficient to elect him or her is cast against his or her removal. Removal must be voted upon at a special shareholders’ meeting called for that purpose, and any vacancy so created may be filled by majority vote of the remaining directors. “Cause” is defined as conviction of a felony, a demand for removal by regulatory authorities or a determination by two-thirds of the directors then in office (excluding the director whose removal is being sought) that the director’s conduct was inimical to the best interests of Nicolet.

Mid-Wisconsin. Directors may be removed with or without cause by the affirmative vote of a majority of the outstanding shares entitled to vote at a special meeting called for that purpose, and any vacancy so created may be filled by the shareholders at such meeting or by majority vote of the remaining directors.

Advance Notice of Shareholder Proposals

Nicolet. Nicolet’s bylaws provide that in addition to any other requirements generally applicable to matters to be brought before an annual meeting of shareholders under Nicolet’s articles of incorporation or bylaws or the WBCL, a Nicolet shareholder who wishes to present a matter for consideration at such meeting must notify Nicolet’s Corporate Secretary in writing no later than 60 days before the meeting. The shareholder’s notice must specify the nature and reason for the business proposed to be conducted; the shareholder’s name, address and beneficial ownership of Nicolet stock; and any material interest of the shareholder in the matter proposed for consideration. See “—Director Nominations” above for special provisions relating to shareholder nominations of candidates for the board of directors.

Mid-Wisconsin. Mid-Wisconsin’s bylaws contain a similar advance notice provision for shareholder proposals relating to the annual meeting. The notice to Mid-Wisconsin’s Corporate Secretary must be delivered no less than 60 and no more than 90 days prior to the first anniversary of the preceding year’s annual meeting; provided, however, than if the date of the annual meeting is advanced by more than 30 days or delayed by more than 60 days from such anniversary date, notice must be delivered no earlier than the 90^th day prior to such annual meeting and no later than the close of business on the later of: (i) the 60^th day prior to such annual meeting; or (ii) the 10^th day following the day on which public announcement of the date of such meeting is first made. The shareholder’s notice must set forth the same matters as are described above with respect to Nicolet. See “—Director Nominations” above for special provisions relating to shareholder nominations of candidates for the board of directors.

Meetings of Shareholders

Nicolet. Nicolet’s bylaws provide that annual meetings of shareholders will be held at such date as may be specified by the board of directors or Corporate Secretary. Subject to any contrary requirements of the WBCL, special meetings of shareholders may be called by either Nicolet’s Chief Executive Officer or President at the direction of the board of directors or by the holder(s) of at least 10% of Nicolet’s outstanding stock. Nicolet’s bylaws require at least 10 and not more than 60 days’ notice of any meeting of shareholders.

Mid-Wisconsin. Mid-Wisconsin’s bylaws provide that annual meetings of shareholders will be held on the fourth Tuesday in April each year or on such other date as the board of directors designates. Special meetings of shareholders may be called by either Mid-Wisconsin’s President or Board of Directors or by the Corporate Secretary at the request of the holder(s) of at least 10% of the outstanding shares entitled to vote at the meeting. Mid-Wisconsin’s bylaws require at least 10 and not more than 50 days’ notice of any meeting of shareholders, except that if the meeting is called to consider a proposal for a merger, consolidation or sale of substantially all assets of Mid-Wisconsin, at least 20 days’ notice is required.

Shareholder Vote Requirements

Nicolet. Except as described under “—Board of Directors” above and “—Mergers, Consolidations and Sales of Assets” below, and unless a greater number of votes is required under Nicolet’s articles of incorporation or the WBCL, a matter voted upon by Nicolet shareholders will be approved if more votes are cast in favor of a matter than against it, assuming a quorum is present.

Mid-Wisconsin. Except as described under “—Board of Directors” above, and unless a greater number of votes is required under Mid-Wisconsin’s articles of incorporation, the bylaws or the WBCL, a matter voted upon by Mid-Wisconsin shareholders will be approved if more votes are cast in favor of a matter than against it, assuming a quorum is present.

Mergers, Consolidations and Sales of Assets

Nicolet. Nicolet’s articles of incorporation provide that any merger or share exchange of Nicolet with or into any other corporation, or any sale, lease, exchange or other disposition of substantially all of its assets to any other person or entity will require the approval of either: (i) two-thirds of the directors then in office and a majority of the issued and outstanding shares entitled to vote; or (ii) a majority of the directors then in office and two-thirds of the issued and outstanding shares entitled to vote. A merger of Nicolet into another corporation would also require the approval of the Federal Reserve and the OCC and the non-objection of the FDIC.

Mid-Wisconsin. The merger of Mid-Wisconsin requires the affirmative vote of a majority of the board of directors and a majority of the issued and outstanding shares entitled to vote. Such a merger must also be approved by the Federal Reserve and the WDFI.

Dividends

Nicolet. The holders of Nicolet common stock are entitled to receive dividends when, as and if declared by Nicolet’s board of directors and paid by Nicolet out of funds legally available therefor. Under Federal Reserve policy, a bank holding company such as Nicolet generally should not maintain a rate of cash dividends unless the available net income of the bank holding company is sufficient to fully fund the dividends. Further, the prospective rate of earnings retention should appear to be consistent with its capital needs, asset quality, and overall financial condition. In addition, Nicolet may not pay dividends that would render it insolvent. Nicolet has not declared a dividend on its common stock since its inception in 2000 and does not expect to do so in the foreseeable future. Instead, Nicolet anticipates that all earnings, if any, will be used for working capital, to support operations and to finance the growth and development of its business.

Mid-Wisconsin. Mid-Wisconsin is subject to a written agreement with the Federal Reserve Bank of Minneapolis dated May 10, 2011 that prohibits Mid-Wisconsin from paying dividends without the Federal Reserve’s prior written approval. Subject to the foregoing, holders of Mid-Wisconsin common stock are entitled to receive dividends when, as and if declared by Mid-Wisconsin’s board of directors and paid by Mid-Wisconsin out of funds legally available therefor. Similar to Nicolet, Mid-Wisconsin must adhere to the Federal Reserve Policy for bank holding companies and cannot pay dividends that would render it insolvent.

Indemnification

Nicolet. Nicolet’s bylaws provide for the mandatory indemnification of a director, officer, employee or agent of Nicolet (or a person concurrently serving in such a capacity with another entity at Nicolet’s request), to the extent such person has been successful on the merits or otherwise in the defense of any threatened, pending or completed civil, criminal, administrative or investigative action, suit, arbitration or other proceeding brought by or in the right of Nicolet or by any other person or entity to which such person is a party because he or she is a director, officer, employee or agent, for all reasonable fees, costs, charges, disbursements, attorneys’ fees and other expenses incurred in connection with proceeding. In all other cases, Nicolet shall indemnify a director or officer, and may indemnify and employee or agent, of Nicolet against all liability and reasonable fees, costs, charges, disbursements, attorneys’ fees and other expenses incurred by such person in any proceeding brought by or in the right of Nicolet or by any other person or entity to which such person is a party because he or she is a director, officer, employee or agent, unless it has been proven by final adjudication that such person breached or failed to perform a duty owed to Nicolet that constituted:

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a willful failure to deal fairly with Nicolet or its shareholders in connection with a matter in which the director, officer, employee or agent has a material conflict of interest;

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a violation of criminal law, unless the director, officer, employee or agent had reasonable cause to believe his or her conduct was lawful or no reasonable cause to believe his or her conduct was unlawful;

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a transaction from which the director, officer, employee or agent derived an improper personal profit; or

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willful misconduct.

Unless modified by written agreement, the determination as to whether indemnification is proper shall be made in accordance with the WBCL. The right to indemnification under Nicolet’s bylaws may only be amended by the vote of two-thirds of the outstanding shares of Nicolet capital stock entitled to vote on the matter. Nicolet is authorized to purchase and maintain insurance on behalf of its directors, officers, employees or agents in connection with the foregoing indemnification obligations.

Mid-Wisconsin. Mid-Wisconsin’s bylaws state that any person who has served as a director, officer, employee or agent of Mid-Wisconsin, or of any other enterprise at Mid-Wisconsin’s request, shall be indemnified by Mid-Wisconsin in accordance with, and to the fullest extent permitted by, the provisions of the WBCL. The WBCL requires indemnification of a director or officer to the extent that he or she has been successful on the merits or otherwise in the defense of a proceeding, for all reasonable expenses incurred in the proceeding if the director or officer was a party because he or she is a director or officer of the corporation. In other cases, the WBCL requires indemnification of a director or officer against liability incurred in a proceeding to which he or she was a party because of his or her status as a director or officer of the corporation, unless liability was incurred because he or she breached or failed to perform a duty owed to the corporation and the breach or failure to perform constitutes any of the following:

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a willful failure to deal fairly with the corporation or its shareholders in connection with a matter in which the director, officer, employee or agent has a material conflict of interest;

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a transaction from which the director, officer, employee or agent derived an improper personal profit; or

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willful misconduct.

The merger agreement provides that Nicolet will assume Mid-Wisconsin’s indemnification obligations after the merger.

Amendments to Articles of Incorporation and Bylaws

Nicolet. Nicolet’s articles of incorporation may be amended as provided in the WBCL, which provides that unless the articles of incorporation, bylaws or WBCL require a higher vote, and subject to any rights of a class to vote separately on the amendment under the WBCL, an amendment to the articles of incorporation will be approved if the number of votes cast in favor of the amendment exceed the votes cast against it. Nicolet’s bylaws may be amended by the shareholders or by majority vote of the board of directors, except as otherwise provided in the WBCL and except as specified under “—Indemnification” above. The WBCL requires shareholder approval for an amendment to any shareholder-adopted bylaw that states that the board may not amend it. Additionally, a bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for shareholders may not be adopted, amended or repealed by the board of directors. A bylaw that fixes a greater or lower quorum requirement or a greater voting requirement for the board of directors may be amended or repealed as follows: (i) if originally adopted by the shareholders, only by the shareholders, unless the bylaw also permits board approval of the amendment, or (ii) if originally adopted by the board of directors, either by the shareholders or by the board of directors.

Mid-Wisconsin. Mid-Wisconsin’s articles of incorporation and bylaws may be amended as provided in the WBCL, as summarized for Nicolet above. Mid-Wisconsin’s bylaws also state that they may be amended by the shareholders or by majority vote of the board of directors, except that the board may not amend or repeal any bylaw adopted by the shareholders unless such authority has been conferred upon the directors by that bylaw.

DISSENTERS’ RIGHTS

The following discussion is not a complete description of the law relating to dissenters’ rights available to holders and beneficial holders of Mid-Wisconsin and Nicolet common stock under Wisconsin law. This description is qualified in its entirety by the full text of the relevant provisions of the WBCL, which are reprinted in their entirety as Appendix B to this joint proxy statement-prospectus. If you desire to exercise dissenters’ rights, you should review carefully the WBCL and consult a legal advisor before electing or attempting to exercise these rights.

Mid-Wisconsin

Pursuant to the provisions of sections. 180.1301 to 180.1331 of the WBCL, holders and beneficial holders of Mid-Wisconsin common stock have the right to dissent from the merger and to receive the fair value of their shares in cash. Holders and beneficial holders of Mid-Wisconsin common stock who fulfill the requirements of the WBCL summarized below and set forth in Appendix B will be entitled to assert dissenters’ rights in connection with the merger. Shareholders or beneficial shareholders considering initiation of a dissenters’ proceeding should review this section and should also review Appendix B in its entirety. A dissenters’ proceeding may involve litigation.

Preliminary Procedural Steps

Pursuant to the provisions of the WBCL, if the merger is consummated, in order to exercise dissenter’s rights you must have:

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Given to Mid-Wisconsin, prior to the vote at the special meeting with respect to the approval of the merger, written notice of your intent to demand payment for your shares of common stock (hereinafter referred to as “shares”);

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Not voted in favor of the merger; and

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Complied with the statutory requirements summarized below.

If you have perfected your dissenters’ rights and the merger is consummated, you will receive the fair value of your shares as of the effective date of the merger. A shareholder or beneficial shareholder who fails to deliver written notice of his, her or its intent to demand payment for his, her or its shares if the merger is consummated in accordance with the requirements of the WBCL is not entitled to payment for his or her shares pursuant to the provisions of the WBCL.

Brokers or others who hold shares in their name that are beneficially owned by others may assert dissenters’ rights as to fewer than all of the shares registered in your name only if they dissent with respect to all shares beneficially owned by any one person and notify Mid-Wisconsin in writing of the name and address of each person on whose behalf they are asserting dissenters’ rights. The rights of a shareholder who asserts dissenters’ rights as to fewer than all of the shares registered in his, her or its name are determined as if the shares as to which that holder dissents and that holder’s other shares were registered in the names of different shareholders.

Written Dissent Demand

Voting against the merger will not satisfy the written demand requirement. In addition to not voting in favor of the merger, if you wish to preserve the right to dissent and seek appraisal, you must give a separate written notice of your intent to demand payment for your shares if the merger is effected.

Any written notice of intent to dissent to the merger, satisfying the requirements discussed above, should be addressed to Mid-Wisconsin Financial Services, Inc., 132 West State Street, Medford, Wisconsin 54451, Attn: Corporate Secretary.

Dissenters’ Notice

If the shareholders of Mid-Wisconsin approve the merger at the special meeting, Mid-Wisconsin (or Nicolet as its successor) must deliver a written dissenters’ notice (the “Dissenters’ Notice”) to all of its shareholders who satisfy the foregoing requirements. The Dissenters’ Notice must be sent no later than 10 days after the date that the merger is approved by Mid-Wisconsin’s shareholders and must:

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State where dissenting shareholders should send the demand for payment and where and when dissenting shareholders should deposit certificates for the shares;

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Inform holders of uncertificated shares as to what extent transfer of these shares will be restricted after the demand for payment is received;

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Include a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the merger and requires the shareholder or beneficial shareholder asserting dissenters’ rights to certify whether he, she or it acquired beneficial ownership of the shares prior to that date;

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Set a date by which Mid-Wisconsin (or Nicolet as its successor) must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters’ Notice is delivered); and

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Be accompanied by a copy of sections 180.1301 to 180.1331 of the WBCL.

A shareholder or beneficial shareholder who receives the Dissenters’ Notice or a beneficial shareholder whose shares are held by a nominee who is sent a Dissenters’ Notice must demand payment and certify as to his or her ownership of the shares in accordance with the Dissenters’ Notice. A shareholder or beneficial shareholder who holds certificated shares must also deposit his, her or its share certificates with Mid-Wisconsin (or Nicolet as its successor) in accordance with the terms of the Dissenters’ Notice.

A dissenting shareholder or beneficial shareholder who demands payment and deposits his, her or its share certificate in accordance with the terms of the Dissenters’ Notice will retain all of the rights of a shareholder or beneficial shareholder, respectively, until those rights are canceled or modified by the consummation of the merger. Mid-Wisconsin may restrict the transfer of uncertificated shares from the date that the demand for payment for those shares is received until the merger is effected or the restrictions released, in the event that it does not consummate the merger.

A shareholder or beneficial shareholder with certificated or uncertificated shares who does not demand payment by the date set forth in the Dissenters’ Notice is not entitled to payment for his, her or its shares under sections 180.1301 to 180.1331 of the WBCL. A shareholder or beneficial shareholder with certificated shares who does not deposit his, her or its share certificates where required and by the date set forth in the Dissenters’ Notice is not entitled to payment for his, her or its shares under sections 180.1301 to 180.1331 of the WBCL. Mid-Wisconsin (or Nicolet as its successor) may elect to withhold payment from a dissenter and instead make an offer of payment if that dissenter was not the beneficial owner of his, her or its shares prior to the date specified in the Dissenters’ Notice as the date on which the first announcement of the merger was made to the news media or to Mid-Wisconsin’s shareholders.

Payment

Except as described below, Mid-Wisconsin (or Nicolet as its successor) must, as soon as the merger is effected or upon receipt of a payment demand, whichever is later, pay each shareholder who has complied with the payment demand and deposit requirements described above the amount Mid-Wisconsin (or Nicolet as its successor) estimates to be the fair value of the shares, plus accrued interest. The offer of payment must be accompanied by:

•

Recent financial statements of Mid-Wisconsin;

•

A statement of the estimate of the fair value of the shares;

•

An explanation of how the interest was calculated;

•

A statement of the dissenter’s right to demand payment under section 180.1328 of the WBCL; and

•

A copy of sections 180.1301 to 180.1331 of the WBCL.

If the merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, Mid-Wisconsin must return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. Mid-Wisconsin (or Nicolet as its successor) must send a new Dissenters’ Notice if the merger is consummated after the return of certificates and any dissenting shareholders must repeat the payment demand procedure described above.

Section 180.1328 of the WBCL provides that a dissenter may notify Mid-Wisconsin (or Nicolet as its successor) in writing of his, her or its own estimate of the fair value of such holder’s shares and the interest due, and may demand payment of such holder’s estimate, less any payment received from Mid-Wisconsin (or Nicolet as its successor), if:

•

He or she believes that the amount paid or offered by Mid-Wisconsin (or Nicolet as its successor) is less than the fair value of his or her shares or that Mid-Wisconsin (or Nicolet as its successor) has calculated incorrectly the interest due;

•

Mid-Wisconsin (or Nicolet as its successor) fails to make payment within 60 days after the date set in the Dissenters’ Notice for demanding payment; or

•

Mid-Wisconsin, having failed to consummate the merger, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment in the Dissenters’ Notice.

A dissenting shareholder waives his or her right to demand payment under sections 180.1328 unless his, her or its provides Mid-Wisconsin (or Nicolet as its successor) with notice of his or her demand, in conformance with the notice requirements of section 180.0141, within 30 days after Mid-Wisconsin (or Nicolet as its successor) making or offering of payment for the dissenting shareholder’s shares.

Litigation

If a demand for payment under section 180.1328 remains unsettled, Mid-Wisconsin (or Nicolet as its successor) must commence a nonjury equity valuation proceeding in the Circuit Court of Taylor County, Wisconsin (in the case of Mid-Wisconsin) or Brown County, Wisconsin (in the case of Nicolet), within 60 days after having received the payment demand under section 180.1328 and must petition the court to determine the fair value of the shares and accrued interest. If Mid-Wisconsin (or Nicolet as its successor) does not commence the proceeding within those 60 days, the WBCL requires Mid-Wisconsin (or Nicolet as its successor) to pay each dissenting shareholder whose demand remains unsettled the amount demanded. Mid-Wisconsin (or Nicolet as its successor) is required to make all dissenting shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each of them.

The jurisdiction of the court in which the proceeding is brought is plenary and exclusive. The court may appoint one or more appraisers to receive evidence and to recommend a decision on fair value. An appraiser has the powers delegated to such appraiser in the court order appointing him or her or in any amendment to the order. Dissenters are entitled to the same discovery rights as parties in other civil proceedings.

Each dissenting shareholder made a party to the proceeding is entitled to judgment for the amount, if any, by which the court finds the fair value of such holder’s shares, plus interest, exceeds the amount paid or offered, as applicable, by Mid-Wisconsin (or Nicolet as its successor) .

The court in an appraisal proceeding commenced under the foregoing provision must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against Mid-Wisconsin (or Nicolet as its successor), except that the court may assess the costs against all or some of the dissenting shareholders to the extent the court finds they acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 180.1328 of the WBCL. The court also may assess the fees and expenses of attorneys and experts for the respective parties against Mid-Wisconsin (or Nicolet as its successor) if the court finds Mid-Wisconsin (or Nicolet as its successor) did not substantially

comply with the requirements of the WBCL, or against either Mid-Wisconsin (or Nicolet as its successor) or a dissenting shareholder if the court finds that such party acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by the WBCL.

If the court finds that the services of attorneys or experts for any dissenter were of substantial benefit to other dissenters similarly situated, the court may award those attorneys reasonable fees out of the amounts awarded the dissenters who were benefited.

This is a summary of the material rights of a dissenting shareholder and is qualified in its entirety by reference to the applicable portions of the WBCL, which are included as Appendix B to this joint proxy statement-prospectus. If you intend to dissent from approval of the merger, you should review carefully the text of Appendix B and should also consult with your attorney. We will not give you any further notice of the events giving rise to dissenters’ rights or any steps associated with perfecting dissenters’ rights, except as indicated above or otherwise required by law.

We have not made any provision to grant you access to any of the corporate files of Nicolet or Mid-Wisconsin, except as may be required by the WBCL, or to obtain legal counsel or appraisal services at the expense of Mid-Wisconsin (or Nicolet as its successor).

Any dissenting shareholder who perfects his, her or its right to be paid the “fair value” of his, her or its shares will recognize taxable gain or loss upon receipt of cash for such shares for federal income tax purposes. See “Material Federal Income Tax Consequences of the Merger” at page 66.

You must do all of the things described in this section and as set forth in the WBCL in order to preserve your dissenters’ rights and to receive the fair value of your shares in cash (as determined in accordance with those provisions). If you do not follow each of the steps as described above, you will have no right to receive cash for your shares as provided in the WBCL. In view of the complexity of these provisions of Wisconsin law, shareholders of Mid-Wisconsin who are considering exercising their dissenters’ rights should consult their legal advisors.

Nicolet

Pursuant to the provisions of sections 180.1301 to 180.1331 of the WBCL, holders and beneficial holders of Nicolet’s common stock have the right to dissent from the merger and to receive the fair value of their shares in cash. Holders and beneficial holders of Nicolet common stock who fulfill the requirements of the WBCL summarized below and set forth in Appendix B will be entitled to assert dissenters’ rights in connection with the merger. Shareholders or beneficial shareholders considering initiation of a dissenters’ proceeding should review this section and should also review Appendix B in its entirety. A dissenters’ proceeding may involve litigation.

Preliminary Procedural Steps

Pursuant to the provisions of the WBCL, if the merger is consummated, in order to exercise your dissenter’s rights you must have:

•

Given to Nicolet, prior to the vote at the special meeting with respect to the approval of the merger, written notice of your intent to demand payment for your shares of common stock (hereinafter referred to as “shares”);

•

Not voted in favor of the merger; and

•

Complied with the statutory requirements summarized below.

If you have perfected your dissenters’ rights and the merger is consummated, you will receive the fair value of your shares as of the effective date of the merger. A shareholder or beneficial shareholder who fails to deliver written notice of his, her or its intent to demand payment for his, her or its shares if the merger is consummated in accordance with the requirements of the WBCL is not entitled to payment for his, her or its shares pursuant to the provisions of the WBCL.

You may assert dissenters’ rights as to fewer than all of the shares registered in your name only if you dissent with respect to all shares beneficially owned by any one person and you notify Nicolet in writing of the name and address of each person on whose behalf you are asserting dissenters’ rights. The rights of a shareholder who asserts dissenters’ rights as to fewer than all of the shares registered in his or her name are determined as if the shares as to which that holder dissents and that holder’s other shares were registered in the names of different shareholders.

Written Dissent Demand

Any written notice of intent to dissent to the merger, satisfying the requirements discussed above, should be addressed to Nicolet Bankshares, Inc., 111 North Washington Street, Green Bay, WI 54301, Attn: Corporate Secretary.

Dissenters’ Notice

If the shareholders of Nicolet approve the merger at the special meeting, Nicolet must deliver a written dissenters’ notice (the “Dissenters’ Notice”) to all of its shareholders who satisfy the foregoing requirements. The Dissenters’ Notice must be sent no later than 10 days after the date that the merger is approved by Nicolet’s shareholders and must:

•

State where dissenting shareholders should send the demand for payment and where and when dissenting shareholders should deposit certificates for the shares;

•

Inform holders of uncertificated shares as to what extent transfer of these shares will be restricted after the demand for payment is received;

•

Include a form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the merger and requires the shareholder or beneficial shareholder asserting dissenters’ rights to certify whether he or she acquired beneficial ownership of the shares prior to that date;

•

Set a date by which Nicolet must receive the demand for payment (which date may not be fewer than 30 nor more than 60 days after the Dissenters’ Notice is delivered); and

•

Be accompanied by a copy of sections 180.1301 to 180.1331 of the WBCL.

A shareholder or beneficial shareholder who receives the Dissenters’ Notice or a beneficial shareholder whose shares are held by a nominee who is sent a Dissenters’ Notice must demand payment and certify as to his or her ownership of the shares in accordance with the Dissenters’ Notice. A shareholder or beneficial shareholder who holds certificated shares must also deposit his, her or its share certificates with Nicolet in accordance with the terms of the Dissenters’ Notice.

A dissenting shareholder or beneficial shareholder who demands payment and deposits his, her or its share certificate in accordance with the terms of the Dissenters’ Notice will retain all of the rights of a shareholder or beneficial shareholder, respectively, until those rights are canceled or modified by the consummation of the merger. Nicolet may restrict the transfer of uncertificated shares from the date that the demand for payment for those shares is received until the merger is effected or the restrictions released, in the event that Nicolet does not consummate the merger.

that dissenter was not the beneficial owner of his, her or its shares prior to the date specified in the Dissenters’ Notice as the date on which the first announcement of the merger was made to the news media or to Nicolet’s shareholders.

Payment

Except as described below, Nicolet must, as soon as the merger is effected or upon receipt of a payment demand, whichever is later, pay each shareholder who has complied with the payment demand and deposit requirements described above the amount Nicolet estimates to be the fair value of the shares, plus accrued interest. Nicolet’s offer of payment must be accompanied by:

•

Recent financial statements of Nicolet;

•

A statement of Nicolet’s estimate of the fair value of the shares;

•

An explanation of how the interest was calculated;

•

A statement of the dissenter’s right to demand payment under sections 180.1328 of the WBCL; and

•

A copy of sections 180.1301 to 180.1331 of the WBCL.

If the merger is not consummated within 60 days after the date set for demanding payment and depositing share certificates, Nicolet must return the deposited certificates and release the transfer restrictions imposed on uncertificated shares. Nicolet must send a new Dissenters’ Notice if the merger is consummated after the return of certificates and any dissenting shareholders must repeat the payment demand procedure described above.

Section 180.1328 of the WBCL provides that a dissenter may notify Nicolet in writing of his or her own estimate of the fair value of such holder’s shares and the interest due, and may demand payment of such holder’s estimate, less any payment received from Nicolet, if:

•

He or she believes that the amount paid or offered by Nicolet is less than the fair value of his or her shares or that Nicolet has calculated incorrectly the interest due;

•

Nicolet fails to make payment within 60 days after the date set in the Dissenters’ Notice for demanding payment; or

•

Nicolet, having failed to consummate the merger, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set for demanding payment in the Dissenters’ Notice.

A dissenting shareholder waives his or her right to demand payment under section 180.1328 unless he or she provides Nicolet with notice of his or her demand, in conformance with the notice requirements of section 180.0141, within 30 days after Nicolet making or offering of payment for the dissenting shareholder’s shares.

Litigation

If a demand for payment under section 180.1328 remains unsettled, Nicolet must commence a nonjury equity valuation proceeding in the Circuit Court of Brown County, Wisconsin, within 60 days after having received the payment demand under section 180.1328 and must petition the court to determine the fair value of the shares and accrued interest. If Nicolet does not commence the proceeding within those 60 days, the WBCL requires Nicolet to pay each dissenting shareholder whose demand remains unsettled the amount demanded. Nicolet is required to make all dissenting shareholders whose demands remain unsettled parties to the proceeding and to serve a copy of the petition upon each of them.

The court in an appraisal proceeding commenced under the foregoing provision must determine the costs of the proceeding, excluding fees and expenses of attorneys and experts for the respective parties, and must assess those costs against Nicolet, except that the court may assess the costs against all or some of the dissenting shareholders to the extent the court finds they acted arbitrarily, vexatiously, or not in good faith in demanding payment under section 180.1328 of the WBCL. The court also may assess the fees and expenses of attorneys and experts for the respective parties against Nicolet if the court finds Nicolet did not substantially comply with the requirements the WBCL, or against either Nicolet or a dissenting shareholder if the court finds that such party acted arbitrarily, vexatiously, or not in good faith with respect to the rights provided by the WBCL.

You must do all of the things described in this section and as set forth in the WBCL in order to preserve your dissenters’ rights and to receive the fair value of your shares in cash (as determined in accordance with those provisions). If you do not follow each of the steps as described above, you will have no right to receive cash for your shares as provided in the WBCL. In view of the complexity of these provisions of Wisconsin law, shareholders of Nicolet who are considering exercising their dissenters’ rights should consult their legal advisors.

BUSINESS OF NICOLET

General

Nicolet is a Wisconsin corporation and was incorporated as Green Bay Financial Corporation, a Wisconsin corporation, on April 5, 2000 to serve as the holding company for and the sole shareholder of Nicolet National Bank. It amended and restated its articles of incorporation and changed its name to Nicolet Bankshares, Inc. on March 14, 2002. It subsequently became the holding company for Nicolet National Bank upon completion of the Nicolet National Bank’s reorganization into a holding company structure on June 6, 2002.

Nicolet is a registered bank holding company under the Bank Holding Company Act of 1956, as amended, and under the bank holding company laws of the State of Wisconsin. It conducts operations through its wholly-owned subsidiary, Nicolet National Bank, which was organized in 2000 as a national bank under the laws of the United States and opened for business on November 1, 2000. Nicolet National Bank provides a full range of traditional commercial and retail banking services, as well as wealth management services, throughout northeastern Wisconsin and the upper peninsula of Michigan. Nicolet primarily markets its services to owner-managed companies as well as the individual owners of these businesses and other residents of its market area through 11 branch locations in Green Bay, De Pere, Appleton, Marinette and Crivitz, Wisconsin and Menominee, Michigan.

Since its opening in late 2000, Nicolet has grown to $683 million in assets as of September 30, 2012. Over this time, to supplement its organic growth, Nicolet National Bank purchased a Menominee, Michigan branch office and deposits from a Michigan-based bank in December 2003. In July 2010, Nicolet National Bank purchased four Brown County, Wisconsin branch offices from a Madison-based thrift, acquiring assets with a fair value of approximately $107 million, including $25 million of loans, $4 million of core deposit intangible and $78 million in cash, and assumed liabilities with a fair value of approximately $107 million, including $106 million of deposits. In 2005, Nicolet effected a reorganization through a cash-out merger to shareholders owning 1,500 or fewer shares of common stock as a means of reducing its number of shareholders of record to a level that would permit Nicolet to suspend its SEC filing obligations, which it did in March 2005. In late 2007, Nicolet effected a voluntary stock repurchase. In December 2008, Nicolet raised $9.5 million in capital through a private placement of common stock and also raised $14.96 million through the issuance of preferred stock to Treasury under TARP. On September 1, 2011, Nicolet redeemed this preferred stock for its $15.7 million stated value and issued $24.4 million of SBLF Preferred Stock to Treasury in connection with its participation in the federal government’s Small Business Lending Fund.

As of September 30, 2012, Nicolet had consolidated total assets of $683 million, consolidated total gross loans of $546 million, consolidated total deposits of $555 million and consolidated shareholders’ equity of $77 million.

Target Markets

Nicolet, through its subsidiary Nicolet National Bank, provides a full range of traditional banking services throughout northeastern Wisconsin and the upper peninsula of Michigan. Based on deposit market share data published by the FDIC as of June 30, 2012, Nicolet National Bank ranks third in the Brown County, Wisconsin market and in the top six in the Marinette, Wisconsin and Menominee, Michigan county markets. With its second branch opened in Appleton in December 2011, Nicolet National Bank is increasing its market share in Outagamie County, Wisconsin. It employs seasoned banking and wealth management professionals with experience in the market area and who are active in their communities.

This emphasis on meeting customer needs in a relationship-focused manner, combined with local decision-making on extensions of credit, distinguishes Nicolet from its competitors, particularly in the case of large financial institutions. Nicolet believe it further distinguishes itself by providing a range of products and services characteristic of a large financial institution while providing the personalized service and convenience characteristic of a community bank.

Products and Services Overview

Nicolet National Bank is a full-service community bank. Its principal business is banking, consisting of lending and deposit gathering (as well as other banking-related products and services) to businesses and individuals of the communities it serves, and the operational support to deliver, fund and manage such banking services. Additionally, Nicolet National Bank offers wealth management services to the businesses and individuals it serves. Profitability is significantly dependent upon net interest income (interest income earned on loans and other interest-earning assets such as investments, net of interest expense on deposits and other borrowed funds), noninterest income sources (including but not limited to service charges on deposits, trust and brokerage fees, and mortgage fee income from sales of residential mortgages into the secondary market), the level of the provision for loan losses, noninterest expense (largely employee compensation and overhead expenses tied to processing and operating Nicolet National Bank’s business).

Nicolet National Bank offers a variety of loans, deposits and related services to business customers (especially small and medium-sized businesses and professional concerns), including but not limited to: business checking and other business deposit products and services, business loans, lines of credit, commercial real estate loans, construction loans and letters of credit, and retirement planning services. Similarly, it offers a variety of banking products and services to consumers, including but not limited to: home equity loans and lines, residential mortgage loans and mortgage refinancing, residential construction loans, personal loans, checking, savings and money market accounts, various certificate of deposit and individual retirement accounts and safe deposit boxes, and personal brokerage, trust and fiduciary services. It also provides on-line services, including commercial, retail and trust on-line banking, automated bill payment, remote deposit capture, and telephone banking, and other services such as wire transfers, courier services, debit cards, credit cards, direct deposit, official bank checks, and U.S. Savings Bonds.

Business and Properties

The main office of both Nicolet and Nicolet National Bank is located at 111 North Washington Street, Green Bay, Wisconsin 54301. Including the main office, Nicolet National Bank operates eleven branches, most are free-standing, newer buildings that provide adequate access, customer parking, and drive-through and/or ATM service. The following table summarizes pertinent details of Nicolet National Bank’s branches.

Office Address	Owned/ Leased
111 North Washington Street Green Bay, Brown County, Wisconsin (main office)	Leased	38,000

2380 Dousman Street, Suites 100 and 200 Green Bay, Brown County, Wisconsin¹	Owned	7,700

2363 Holmgren Way Green Bay, Brown County, Wisconsin¹	Leased	4,200

1610 Lawrence Drive De Pere, Brown County, Wisconsin¹	Leased	4,100

1011 North Broadway De Pere, Brown County, Wisconsin	Owned	3,500

2082 Monroe Road De Pere, Brown County, Wisconsin¹	Leased	4,200

2400 S. Kensington Ave., Suite 100 Appleton, Outagamie County, Wisconsin	Leased	3,500

900 West College Avenue Appleton, Outagamie County, Wisconsin	Leased	3,800

Office Address	Owned/ Leased
315 N. US Highway 141 Crivitz, Marinette County, Wisconsin	Owned	2,900

2009 Hall Avenue Marinette, Marinette County, Wisconsin	Owned	3,000

1015 Tenth Avenue Menominee, Menominee County, Michigan²	Owned	1,400

(1)

Branch was acquired through a purchase and assumption transaction from a thrift, which was consummated in July 2010.

(2)

Branch was acquired through a purchase and assumption transaction from another bank, which was consummated in December 2003.

Lending Services

Lending. Nicolet National Bank seeks creditworthy borrowers within a limited geographic area. Its primary lending function is to make commercial loans, consisting of commercial and business loans and owner-occupied commercial real estate loans; commercial real estate (“CRE”) loans, consisting of commercial investment real estate loans and construction and land development loans; residential real estate, including residential first mortgages, residential junior mortgages (such as home equity loans and lines), and to a lesser degree residential construction loans; and other loans, mainly consumer in nature. As of September 30, 2012, Nicolet National Bank’s loan portfolio mix was as follows:

Loan Category
Commercial and industrial	37	%
Owner-occupied commercial real estate	20	%
Total commercial loans	57	%
CRE-investment	13	%
Construction and land development	5	%
Total CRE loans	18	%
Residential first mortgages	15	%
Residential junior mortgages	8	%
Residential construction	1	%
Total residential real estate loans	24	%
Other	1	%

Loan Policies and Procedures. Nicolet National Bank has and follows extensive loan policies and procedures to standardize processes, meet compliance requirements and prudently manage underwriting, credit and other risks. These include, but are not limited to: loan approval policies at various levels (individual officers and committees), lending limits (some imposed by law and others to address risks based on loan type or nature of borrower; such limits may increase or decrease with the capital level of the bank or for other reasons), appraisal policies (some imposed by law, but including quality of appraiser and loan-to-appraised value guidelines for different loan types), and various review and documentation procedures.

Credit Risks. The principal economic risk associated with lending in each type of loan Nicolet National Bank makes is the creditworthiness of the borrower. The ability of borrowers to repay their loans is influenced and affected by numerous things, including but not limited to: general economic conditions, such as the health of the economy as a whole, levels and trends in the interest rate environment, inflation, employment rates and trends; demand for a commercial borrower’s product or services; factors affecting a borrower’s customers, suppliers or employees; business management abilities; tenant vacancy rates; supply, demand and price of residential or commercial real estate; and in general a borrower’s financial stability, as well as personal factors (such as job loss, divorce, illness and other personal hardships). Credit risk is controlled and monitored through active asset quality management, including the use of lending standards, the thorough review of

potential borrowers through Nicolet’s underwriting process, close relationships with and regular check-ins with borrowers, and active asset quality administration. For further discussion of credit risk management, see “Management’s Discussion and Analysis of Financial Condition and Results of Operation” at page 92.

Competition

The financial services industry is highly competitive. Nicolet competes for loans, deposits, and financial services in all of its principal markets. It competes directly with other bank and nonbank institutions located within its markets, internet-based banks, out-of-market banks and bank holding companies that advertise or otherwise serve its markets, along with money market and mutual funds, brokerage houses, mortgage companies, and insurance companies or other commercial entities that offer financial services products. Competition involves efforts to retain current customers, obtain new loans and deposits, increase the scope and type of services offered, and offer competitive interest rates paid on deposits and charged on loans. Many of Nicolet’s competitors enjoy competitive advantages, including greater financial resources, a wider geographic presence, more accessible branch office locations, the ability to offer additional services, more favorable pricing alternatives and lower origination and operating costs. Some of Nicolet’s competitors have been in business for a long time and have an established customer base and name recognition. Nicolet believes that its competitive pricing, personalized service and community involvement enable it to effectively compete in the communities in which it operates.

Employees

Nicolet and Nicolet National Bank currently employ approximately 175 persons on a full-time or part-time basis.

Legal Proceedings

From time to time, Nicolet is involved in litigation relating to claims arising out of operations in the normal course of business. As of the date hereof, Nicolet is not engaged in any legal proceedings that are expected, individually or in the aggregate, to have a material adverse effect on Nicolet National Bank.

Market Prices of and Dividends Declared on Nicolet Common Stock

There is no established public trading market for shares of Nicolet common stock. As a result, any market in Nicolet common stock prior to the merger should be characterized as illiquid and irregular. As of ________, 2013, Nicolet had approximately ________ shareholders of record. The last known privately negotiated trade of Nicolet common stock prior to the mailing of this joint proxy statement-prospectus occurred on ________, 2013 at a price of $____ per share, and the last known privately negotiated trade of which management was aware prior to the November 28, 2012 announcement of the proposed merger occurred on October 29, 2012 at a price of $16.50 per share. Additional information available to management regarding the high and low trade prices (to the extent known to management) for Nicolet common stock is provided below. For quarters where there were no sales of Nicolet common stock to management’s knowledge, neither high nor low prices are given.

	High		Low
2012
Fourth Quarter	$	16.50	$	16.50
Third Quarter		16.50		16.50
Second Quarter		16.50		16.50
First Quarter		16.50		16.50

2011
Fourth Quarter	$	15.00	$	15.00
Third Quarter		—		—
Second Quarter		16.50		16.50
First Quarter		16.50		16.50

	High		Low
2010
Fourth Quarter	$	17.15	$	16.00
Third Quarter		17.15		17.15
Second Quarter		16.80		16.50
First Quarter		16.80		16.80

The payment of dividends by Nicolet and Nicolet National Bank are subject to certain regulations that may limit or prevent the payment of dividends except in certain circumstances. See “Supervision and Regulation — Payment of Dividends” at page 156. Moreover, the payment of dividends is further subject to the discretion of the boards of directors of Nicolet and Nicolet National Bank, and the payment of dividends on the common stock of Nicolet is subject to the rights of the holders of its senior securities. Nicolet has not paid any dividends on its common stock since its inception in 2000, nor does it currently have any plans to pay dividends to its holders of its common stock in the foreseeable future.

Nicolet anticipates that its earnings, if any, will be held for purposes of enhancing its capital. No assurances can be given that any dividends on Nicolet’s common stock will be declared in the future or, if declared, what the amount of such dividends will be or whether such dividends will continue for future periods.

Certain Provisions of Nicolet’s Articles of Incorporation and Bylaws Regarding Change of Control.

Supermajority Voting Requirements

Any transaction that would involve the merger or share exchange of Nicolet with or into any other corporation or any sale, lease, exchange or other disposition of substantially all of the assets of Nicolet to any other corporation, person or other entity would require either (i) the affirmative vote of at least two-thirds (2/3) of the directors of Nicolet and the affirmative vote of at least a majority of the issued and outstanding shares of Nicolet entitled to vote or (ii) the affirmative vote of at least the majority of the directors of Nicolet and the affirmative vote of at least two-thirds (2/3) of the issued and outstanding shares of Nicolet entitled to vote. This provision could make such a transaction that did not have the support of at least a super-majority of the board of directors more difficult for the shareholders to approve, and without the approval of at least a supermajority of the board of directors, such a transaction may not be approved, even if more than a majority (but less than a supermajority) of the shareholders of Nicolet supported such a transaction.

Ability to Consider Other Constituencies

Nicolet’s articles of incorporation require its board of directors, when evaluating a tender or exchange offer for the securities of Nicolet or a proposed merger, share exchange or combination of Nicolet with any other corporation, or an offer to purchase or otherwise acquire all or substantially all of the assets of Nicolet and in determining what is believed to be in the best interest of Nicolet and its shareholders to give due consideration to all relevant factors, including (but not necessarily limited to) the short- and long-term social and economic effects of such a transaction on Nicolet’s employees, customers, shareholders and other constituencies, and on the communities in which it and its subsidiaries operate in addition to the consideration being offered by the other party in relation to the current and estimated future value of Nicolet as an independent entity. This provision requires Nicolet’s board of directors to consider numerous judgmental or subjective factors affecting a proposal, including some non-financial matters, and on the basis of these considerations Nicolet’s board of directors may oppose a business combination or some other transaction which, viewed exclusively from a financial perspective, might be attractive to some, or even a majority, of its shareholders.

Limitations on Matters Brought Before Nicolet’s Shareholders

Nicolet’s bylaws limit the way in which matters may properly be brought before its shareholders by individuals other than management or the board of directors of Nicolet. Under Nicolet’s bylaws, matters other than the election of directors may only be brought before the shareholders of Nicolet for consideration at Nicolet’s annual meeting by Nicolet’s management or board of directors or by a shareholder that has complied with the notice requirements of Nicolet’s bylaws. These provisions require that a shareholder deliver to the secretary of Nicolet no less than 60 days prior to the date fixed for the annual meeting a notice (i) describing briefly the business desired to be brought before the meeting and the reasons for conducting such business at the annual meeting, (ii) the name and the record address of the shareholder proposing such business, (iii) the classes and number of shares of each class of shares beneficially owned by the shareholder and (iv) any material interest the shareholder has in the business being proposed. The chairman of the annual meeting has final interpretive discretion as to the propriety of matters brought before the shareholders, and any matters determined by the chairman to be not properly brought before the meeting shall not be transacted at the meeting. In addition, special meetings of Nicolet’s shareholders may only be called by the management and board of directors of Nicolet or by shareholders owning, in the aggregate, no less than ten percent (10%) of Nicolet’s stock. These provisions may limit the ability of a shareholder of Nicolet to bring proposed transactions before the shareholders for approval, whether as initial offers or as competing transactions, unless such proposed transactions are also supported by the board and management of Nicolet.

Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information with respect to the beneficial ownership, as of December 31, 2012, of shares of Nicolet common stock by (i) each person known by Nicolet to be the beneficial owner of more than 5% of Nicolet’s issued and outstanding common stock; (ii) each of Nicolet’s current directors and executive officers; (iii) all current Nicolet directors and executive officers as a group; (iv) each new director to be appointed to the Nicolet board of directors upon the closing of the merger; and (v) all current and prospective Nicolet directors and executive officers as a group. Except as noted below, management believes that each person listed below has sole investment and voting power with respect to the shares included in the table.

Information relating to beneficial ownership of Nicolet common stock is based upon “beneficial owner” concepts set forth in rules under the Securities and Exchange Act of 1934, as amended. Under these rules, a person is deemed to be a “beneficial owner” of a security if that person has sole or shared “voting power” or “investment power” over the security. Voting power includes the power to vote or to direct the voting of the security, and investment power includes the power to dispose or to direct the disposition of the security. Under the rules, more than one person may be deemed to be a beneficial owner of the same securities.

				Percentage of Issued and Outstanding Shares⁽¹⁾
Name	Number of Shares			Before Merger			After Merger
Current Directors and Executive Officers
Robert B. Atwell		173,243	⁽²⁾		4.6	%		4.0	%
Michael E. Daniels		176,263	⁽³⁾		4.7			4.0
John N. Dykema		49,905	⁽⁴⁾		1.3			1.1
Gary L. Fairchild		2,104	⁽⁵⁾		*			*
Michael F. Felhofer		72,000			1.9			1.7
Andrew F. Hetzel, Jr.		42,074	⁽⁶⁾		1.1			*
Donald J. Long, Jr.		89,407	⁽⁷⁾		2.4			2.0
Benjamin P. Meeuwsen		5,200	⁽⁸⁾		*			*
Susan L. Merkatoris		125,000	⁽⁹⁾		3.3			2.9
Therese Pandl		1,022	⁽¹⁰⁾		*			*
Randy J. Rose		30,451	⁽¹¹⁾		*			*
Robert J. Weyers		73,978	⁽¹²⁾		2.0			1.7

				Percentage of Issued and Outstanding Shares⁽¹⁾
Name	Number of Shares			Before Merger		After Merger
Current Non-Director Executive Officers
Ann K. Lawson		23,900	⁽¹³⁾		*		*
All Current Directors and Executive Officers as a Group (13 persons)		864,547	⁽¹⁴⁾		23.1		19.8
Prospective Directors
Kim A. Gowey		0			0		*⁽¹⁵	)
Christopher Ghidorzi		0			0		0	⁽¹⁵⁾
All Current and Prospective Directors and Executive Officers as a Group (15 persons)		864,547	⁽¹⁴⁾		23.1		20.5	⁽¹⁵⁾

Represents less than one percent.

(1)

For purposes of this table, the percentages shown treat shares subject to exercisable options held by the indicated director or executive officer as if they were issued and outstanding. Unvested shares of restricted stock are entitled to vote and are therefore included with the issued and outstanding shares reflected in this table. Percentage ownership after the merger assumes that 617,608 shares of common stock are issued in the merger and that each director and executive officer’s beneficial ownership of Nicolet common stock does not change prior to consummation of the merger.

(2)

Includes exercisable options to purchase 124,014 shares of common stock, 6,379 shares Mr. Atwell owns in his Nicolet 401(k) plan, and 19,550 shares of unvested restricted stock.

(3)

Includes 3,420 shares held by his minor children, 9,803 shares held in his spouse’s IRA, exercisable options to purchase 124,014 shares of common stock, 4,910 shares Mr. Daniels owns in his Nicolet 401(k) plan, and 19,550 shares of unvested restricted stock.

(4)

Includes 3,055 shares Mr. Dykema purchased through the Deferred Compensation Plan for Non-Employee Directors.

(5)

Includes 1,854 shares Mr. Fairchild purchased through the Deferred Compensation Plan for Non-Employee Directors.

(6)

Includes 2,074 shares Mr. Hetzel purchased through the Deferred Compensation Plan for Non-Employee Directors.

(7)

Includes 2,007 shares Mr. Long purchased through the Deferred Compensation Plan for Non-Employee Directors.

(8)

Includes 1,825 shares Mr. Meeuwsen purchased through the Deferred Compensation Plan for Non-Employee Directors.

(9)

Includes 13,000 shares held by Ms. Merkatoris’ children.

(10)

Includes 922 shares Ms. Pandl purchased through the Deferred Compensation Plan for Non-Employee Directors.

(11)

Includes 151 shares Mr. Rose purchased through the Deferred Compensation Plan for Non-Employee Directors.

(12)

Includes 3,228 shares Mr. Weyers purchased through the Deferred Compensation Plan for Non-Employee Directors.

(13)

Includes exercisable options to purchase 18,500 shares of common stock held by Ms. Lawson, 1,650 shares of unvested restricted stock, and exercisable options to purchase 1,250 shares of common stock held by Ms. Lawson’s spouse.

(14)

Includes exercisable options to purchase 267,778 shares of common stock and 40,750 shares of unvested restricted stock.

(15)

Reflects the conversion of 80,544 shares of Mid-Wisconsin common stock held by Dr. Gowey into 30,018 shares of Nicolet common stock pursuant to the terms of the merger. Mr. Ghidorzi does not own any shares of Mid-Wisconsin common stock and will not receive any Nicolet common stock in the merger. Neither Dr. Gowey nor Mr. Ghidorzi currently owns any shares of Nicolet common stock.

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF NICOLET

The following table presents Nicolet’s selected historical consolidated financial data as of and for the periods indicated and should be read in conjunction with its consolidated financial statements and the notes thereto included elsewhere in this joint proxy statement-prospectus. The financial data as of December 31, 2011 and 2010 and for the years ended December 31, 2011, 2010 and 2009 is derived from Nicolet’s audited consolidated financial statements beginning on page F-1 of this joint proxy statement-prospectus, and the financial data as of December 31, 2009, 2008 and 2007 and for the years ended December 31, 2008 and 2007 is derived from Nicolet’s audited consolidated financial statements that are not included in this joint proxy-statement prospectus. The financial data as of and for the nine months ended September 30, 2012 and 2011 is unaudited, but management of Nicolet believes that such amounts reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of its results of operations and financial condition as of and for the periods indicated. You should not assume the results of operations for past periods and for the nine months ended September 30, 2012 indicate results for any future period.

(dollars in thousands, except per share data)	At and for the nine month period ended September 30,					At and for the year ended December 31,
	2012		2011			2011		2010		2009			2008			2007
	(unaudited)
Results of operations:
Interest income	$	21,059	$	22,668		$	29,830	$	31,420	$	31,582		$	33,384		$	36,463
Interest expense		5,006		6,451			8,383		11,291		15,218			19,872			20,229
Net interest income		16,053		16,217			21,447		20,129		16,364			13,512			16,234
Provision for loan losses		3,350		4,800			6,600		8,500		6,000			4,029			1,160
Net interest income after provision for loan losses		12,703		11,417			14,847		11,629		10,364			9,483			15,074
Other income		7,985		6,015			8,444		8,968		7,531			6,124			6,312
Other expense		17,722		16,287			21,443		19,316		16,684			16,440			14,813
Income (loss) before income taxes		2,966		1,145			1,848		1,281		1,211			(833	)		6,573
Income tax (benefit) expense		828		133			318		136		45			(996	)		2,106
Net income (loss)		2,138		1,012			1,530		1,145		1,166			163			4,467
Net income (loss) attributable to noncontrolling interest		39		30			40		35		(11	)		(26	)		(80	)
Net income attributable to Nicolet Bankshares, Inc.		2,099		982			1,490		1,110		1,177			189			4,547
Preferred stock dividends and discount accretion		915		1,156			1,461		985		1,001			—			—
Net income (loss) available to common equity	$	1,184	$	(174	)	$	29	$	125	$	176		$	189		$	4,547
Earnings (loss) per common share:
Basic	$	0.34	$	(0.05	)	$	0.01	$	0.04	$	0.05		$	0.07		$	1.53
Diluted		0.34		(0.05	)		0.01		0.04		0.05			0.06			1.41
Weighted average common shares outstanding:
Basic		3,449		3,467			3,469		3,452		3,500			2,899			2,970
Weighted		3,445		3,487			3,488		3,481		3,528			3,045			3,228

Year-End Balances:
Loans	$	545,708	$	479,052		$	472,489	$	513,761	$	486,571		$	479,179		$	442,357
Allowance for loan losses		6,491		5,746			5,899		8,635		6,232			5,546			5,383
Investment securities available-for-sale, at fair value		57,074		57,060			56,759		52,388		54,273			50,525			55,756
Total assets		682,802		615,508			678,249		674,754		675,403			694,019			561,555
Deposits		554,858		490,551			551,536		558,464		556,984			571,248			450,921
Other debt		39,525		38,693			39,506		39,972		43,486			47,076			59,969
Junior subordinated debentures		6,186		6,186			6,186		6,186		6,186			6,186			6,186
Common equity		52,349		51,187			51,623		50,417		49,790			50,557			39,182
Stockholders’ equity		76,749		75,768			76,023		65,620		64,824			65,420			39,194
Book value per common share		15.38		14.74			14.83		14.57		14.47			14.43			13.26

Average Balances:
Loans	$	509,536	$	510,852		$	503,362	$	499,193	$	478,267		$	455,247		$	416,942
Earning assets		606,227		586,540			582,486		603,182		579,803			578,639			482,673
Total assets		659,400		642,298			642,353		653,710		633,284			624,476			525,225
Deposits		531,795		524,727			522,297		530,682		510,741			516,887			422,231
Interest-bearing liabilities		502,011		505,639			500,895		524,461		507,223			532,278			443,955
Common equity		51,928		50,920			50,968		51,661		50,441			40,931			38,937
Stockholders’ equity		76,328		67,185			69,284		66,923		65,387			40,931			41,140

(dollars in thousands, except per share data)	At and for the nine month period ended September 30,						At and for the year ended December 31,
	2012			2011			2011			2010			2009			2008			2007
	(unaudited)
Financial Ratios:
Return on average assets		0.43	%		0.20	%		0.23	%		0.17	%		0.19	%		0.03	%		0.87	%
Return on average equity		3.67	%		1.95	%		2.15	%		1.66	%		1.80	%		0.46	%		11.05	%
Return on average common equity		3.05	%		—0.46	%		0.06	%		0.24	%		0.35	%		0.46	%		11.05	%
Average equity to average assets		11.58	%		10.46	%		10.79	%		10.22	%		10.32	%		6.55	%		7.83	%
Net interest margin		3.59	%		3.76	%		3.75	%		3.39	%		2.89	%		2.39	%		3.42	%
Stockholders’ equity to assets		11.24	%		12.28	%		11.21	%		9.73	%		9.60	%		9.43	%		6.98	%
Net loan charge-offs to average loans		0.72	%		2.01	%		1.85	%		1.22	%		1.11	%		0.85	%		0.18	%
Nonperforming loans to total loans		2.78	%		2.46	%		2.01	%		2.10	%		1.69	%		1.44	%		0.18	%
Nonperforming assets to total assets		2.31	%		2.06	%		1.49	%		1.81	%		1.42	%		0.99	%		0.16	%

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION

For the Years Ended December 31, 2011, 2010, and 2009

Critical Accounting Policies

The consolidated financial statements of Nicolet Bankshares, Inc. and its subsidiaries are prepared in conformity with GAAP and follow general practices within the industry in which we operate. This preparation requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates that are particularly susceptible to significant change include the determination of the allowance for loan losses and income taxes and, therefore, are critical accounting policies.

Allowance for Loan Losses

The allowance for loan losses (the “ALLL”) is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the ALLL. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the ALLL. A provision for loan losses, which is a charge against earnings, is recorded to bring the ALLL to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio. Management’s evaluation process used to determine the appropriateness of the ALLL is subject to the use of estimates, assumptions, and judgment. The evaluation process involves gathering and interpreting many qualitative and quantitative factors which could affect probable 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 loan losses and therefore the appropriateness of the ALLL could change significantly.

The allocation methodology applied by Nicolet is designed to assess the appropriateness of the ALLL and includes allocations for specifically identified impaired 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 factors. The methodology includes evaluation and consideration of several factors, such as but not limited to management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and nonaccrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying collectability of loans. Because each of the criteria used is subject to change, the allocation of the ALLL is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the ALLL is appropriate. The allowance analysis is reviewed by the board of directors on a quarterly basis in compliance with regulatory requirements. In addition, various regulatory agencies periodically review the ALLL. These agencies may require Nicolet National Bank to make additions to the ALLL based on their judgments of collectability based on information available to them at the time of their examination.

Income taxes

The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretation, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings.

Nicolet files a consolidated federal income tax return and a combined state income tax return (both of which include Nicolet and its wholly-owned subsidiaries). Accordingly, amounts equal to tax benefits of those companies having taxable federal losses or credits are reimbursed by the companies that incur federal 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 annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax law 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 provision for income tax expense. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Nicolet may also recognize a liability for unrecognized tax benefits from uncertain 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 financial statements. Penalties related to unrecognized tax benefits are classified as income taxes.

Unless noted otherwise, all remaining information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are shown in thousands, except per share data.

The following discussion is Nicolet management’s analysis of the understanding and evaluation of the consolidated financial condition and results of operations of Nicolet. It should be read in conjunction with Nicolet’s audited consolidated financial statements as of December 31, 2011 and 2010, and for the three years ended December 31, 2011.

Overview

Nicolet is a bank-holding company headquartered in Green Bay, Wisconsin, providing a diversified range of traditional banking and wealth management services to individuals and businesses in its market area through the 11 branch offices of its banking subsidiary, Nicolet National Bank, in Green Bay, De Pere, Appleton, Marinette and Crivitz, Wisconsin and Menominee, Michigan.

Nicolet’s primary revenue sources are net interest income from loans and other interest earning assets such as investments, less interest expense on deposits and other borrowings; and noninterest income, including, among others, trust fees, secondary mortgage income and other fees or revenue from financial services provided to customers or ancillary to loans and deposits. Business volumes and pricing drive revenue potential and tend to be influenced by overall economic factors, including market interest rates, business spending, consumer confidence, economic growth and competitive conditions within the marketplace.

During 2011, Nicolet continued to aggressively work through its credit quality issues, which resulted in a decrease in problem loans for the year. In line with its growth strategies, Nicolet experienced a full year of contribution from the four Brown County branches purchased in July 2010 and opened a new branch in Appleton, Wisconsin in December 2011. In September 2011, Nicolet redeemed its senior preferred stock under TARP, paying the Treasury $15,712 and accelerating the accretion of the remaining discount of $396, which unfavorably affected 2011 net income available to common shareholders. Such redemption was in connection with Nicolet’s September 2011 participation in the Small Business Lending Fund (“SBLF”), whereby Nicolet received $24,400 from Treasury for the issuance of new senior preferred stock. See “Business of Nicolet — General” on page 83 for additional information.

Performance Summary

Nicolet reported $1,490 in net income for 2011, $380 greater than $1,110 for 2010. Net income available to common shareholders for 2011 was $29, or $0.01 per diluted common share, compared to net income available to common shareholders of $125, or $0.04 per diluted common share, for 2010. A $476 increase in preferred stock dividends and discount accretion reduced net income available to common shareholders in 2011. The $1,461 of preferred dividends and discount accretion for 2011 included $396 in accelerated discount accretion resulting from the repayment of the TARP senior preferred stock and higher dividends given the increase in its senior preferred stock from the SBLF.

•

Net interest income was $21,447 for 2011, an increase of $1,318 or 6.5% compared to 2010. On a tax-equivalent basis, the net interest margin for 2011 increased to 3.75% from 3.39% in 2010. The average yield on earning assets was 5.18% for 2011, down 7 basis points (“bps”) from 5.25% for 2010, while the cost of interest-bearing liabilities fell 48 bps to 1.67% for 2011 versus 2.15% for 2010. The improvement in net interest income and net interest margin was primarily due to lower interest expense and cost of funds, principally from the maturity of high-cost brokered deposits.

•

Loans of $472,489 at December 31, 2011 decreased $41,272 from December 31, 2010. Lower utilization of commercial lines of credit accounted for 80% of the year-over-year decline, as commercial customers were cautious about debt levels. On average for the year, loans increased $4,169 to $503,362 for 2011.

•

Net charge-offs were $9,336 for 2011 and $6,097 for 2010. The provision for loan losses was $6,600 for 2011, compared with $8,500 for 2010. The continued higher provision levels accommodated aggressive problem loan resolutions. The allowance to loans ratio at December 31, 2011 was 1.25% compared to 1.68% at December 31, 2010, and the decline is primarily attributable to the higher level of net charge-offs in 2011 and lower nonperforming loans.

•

Total deposits were $551,536 at December 31, 2011, down $6,928 from December 31, 2010. Brokered deposits declined $48,454 since year end 2010, as maturing brokered CDs were not renewed given strong customer deposit growth during 2011. On average for the year, total deposits were $522,297, down $8,385, of which brokered deposits declined $63,724 and were almost fully replaced by customer deposit growth.

•

Noninterest income for 2011 was $8,444, down $524, or 5.8%, compared to 2010. The decline was driven by lower mortgage banking income from the sales of residential real estate loans into the secondary market which fell $852 to $1,767 for 2011. Mortgage banking income increased in the second half of 2011 as compared to the first half due to declines in interest rates; however, the activity was not as high as 2010 levels. Offsetting the mortgage banking decline were increases in trust fees, service charges on deposits, and brokerage fees.

•

Noninterest expense for 2011 was $21,443, an increase of $2,127, or 11.0%, over 2010, due primarily to carrying a full year of costs associated with the four branches purchased in July 2010 (mainly in employment and occupancy costs, as well as a $412 increase in core deposit intangible amortization). Nicolet benefited from the FDIC’s change in its assessment calculation, with FDIC assessments declining $297 to $630 for 2011.

Net Interest Income

Net interest income in the consolidated statements of income (which excludes the taxable equivalent adjustment) was $21,447 in 2011 compared to $20,129 in 2010 and $16,364 in 2009. Taxable equivalent adjustments (adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that been subject to a 34% tax rate) were $660, $596 and $665 for 2011, 2010 and 2009, respectively, resulting in taxable equivalent net interest income of $22,107 for 2011, $20,725 for 2010 and $17,029 for 2009.

Taxable equivalent net interest income is a non-GAAP measure, but is a preferred industry measurement of net interest income (and its use in calculating a net interest margin) as it enhances the comparability of net interest income arising from taxable and tax-exempt sources.

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 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.

Tables 1, 2, and 3 present information to facilitate the review and discussion of selected average balance sheet items, taxable equivalent net interest income, interest rate spread and net interest margin.

Table 1: Average Balance Sheet and Net Interest Income Analysis — Taxable-Equivalent Basis
For the Years Ended December 31,
(dollars in thousands)

	Years Ended December 31
	2011							2010							2009
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
ASSETS
Earning assets
Loans	$	503,362	$	28,190		5.54	%	$	499,193	$	29,466		5.84	%	$	478,267	$	28,956		5.99	%
Investment securities
Taxable		20,866		689		3.30	%		22,295		865		3.88	%		17,534		767		4.37	%
Tax-exempt		32,540		1,445		4.44	%		29,860		1,460		4.89	%		32,780		1,691		5.16	%
Other interest-earning assets		25,718		166		0.64	%		51,834		225		0.53	%		51,222		833		1.73	%
Total interest-earning assets		582,486	$	30,490		5.18	%		603,182	$	32,016		5.25	%		579,803	$	32,247		5.51	%
Cash and due from banks		18,785							11,382							17,926
Other assets		41,082							39,146							35,555
Total assets	$	642,353						$	653,710						$	633,284
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Savings	$	16,829	$	45		0.27	%	$	12,273	$	31		0.25	%	$	9,916	$	34		0.34	%
Interest-bearing demand		63,346		404		0.64	%		76,489		360		0.47	%		41,258		232		0.56	%
MMA		156,471		1,142		0.73	%		115,973		1,105		0.95	%		97,902		1,153		1.18	%
Core CD’s and IRA’s		154,115		2,664		1.73	%		140,828		3,225		2.29	%		101,387		3,360		3.31	%
Brokered deposits		63,749		2,255		3.54	%		127,473		4,633		3.63	%		204,139		7,909		3.87	%
Total interest-bearing deposits		454,510		6,510		1.43	%		473,036		9,354		1.98	%		454,602		12,688		2.79	%
Other interest-bearing liabilities		46,385		1,873		4.04	%		51,425		1,937		3.77	%		52,621		2,530		4.81	%
Total interest-bearing liabilities		500,895		8,383		1.67	%		524,461		11,291		2.15	%		507,223		15,218		3.00	%
Noninterest-bearing demand		67,787							57,647							56,139
Other liabilities		4,387							4,679							4,536
Total equity		69,284							66,923							65,387
Total liabilities and stockholders’ equity	$	642,353						$	653,710						$	633,284
Net interest income and rate spread			$	22,107		3.51	%			$	20,725		3.11	%			$	17,029		2.51	%
Net interest margin						3.75	%						3.39	%						2.89	%

(1)

Nonaccrual loans 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 34% and adjusted for the disallowance of interest expense.

(3)

Interest income includes loan fees of $396 in 2011, $492 in 2010 and $470 in 2009.

Table 2: Volume/Rate Variance — Taxable-Equivalent Basis
(dollars in thousands)

	2011 Compared to 2010 Increase (decrease) Due to Changes in									2010 Compared to 2009 Increase (decrease) Due to Changes in
	Volume			Rate*			Net			Volume			Rate*			Net
Earning assets
Loans (2)	$	236		$	(1,512	)	$	(1,276	)	$	1,196		$	(686	)	$	510
Investment securities
Taxable		(21	)		(119	)		(140	)		224			(135	)		89
Tax-exempt (2)		(58	)		6			(51	)		(178	)		(44	)		(222	)
Other interest-earning assets		(66	)		8			(58	)		(332	)		(277	)		(609	)
Total interest-earning assets	$	91		$	(1,617	)	$	(1,525	)	$	910		$	(1,142	)	$	(232	)

Interest-bearing liabilities
Interest-bearing demand	$	(12	)	$	2		$	14		$	7		$	(10	)	$	(3	)
Savings deposits		(69	)		113			44			171			(43	)		128
MMA		332			(295	)		37			193			(241	)		(48	)
Core CD’s and IRA’s		284			(845	)		(561	)		1,082			(1,217	)		(135	)
Brokered deposits		(2,257	)		(121	)		(2,378	)		(2,813	)		(463	)		(3,276	)
Total interest-bearing deposits		(1,698	)		(1,146	)		(2,844	)		(1,360	)		(1,974	)		(3,334	)
Other interest-bearing liabilities		(74	)		10			(64	)		12			(605	)		(593	)
Total interest-bearing liabilities		(1,772			(1,136	)		(2,908	)		(1,348	)		(2,579	)		(3,927	)
Net interest income	$	1,863		$	(481	)	$	1,383		$	2,258		$	1,437		$	3,695

Nonaccrual loans are included in the daily average loan balances outstanding.

(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)

The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 34% adjusted for the disallowance of interest expense.

Table 3: Interest Rate Spread, Margin and Average Balance Mix — Tax Equivalent Basis
(dollars in thousands)

	Years Ended December 31,
	2011								2010								2009
	Average Balance		% of Earning Assets			Yield/Rate			Average Balance		% of Earning Assets			Yield/Rate			Average Balance		% of Earning Assets			Yield/Rate
Total loans	$	503,362		86.4	%		5.54	%	$	499,193		82.8	%		5.84	%	$	478,267		82.5	%		5.99	%
Securities and other earning assets		79,124		13.6	%		2.91	%		103,989		17.2	%		2.45	%		101,536		17.5	%		3.23	%
Total interest-earning assets	$	582,486		100.0	%		5.19	%	$	603,182		100.0	%		5.26	%	$	579,803		100.0	%		5.51	%

Interest-bearing liabilities	$	500,895		88.1	%		1.67	%	$	524,461		90.1	%		2.15	%	$	507,223		90.0	%		3.00	%
Noninterest-bearing demand		67,787		11.9	%					57,647		9.9	%					56,139		10.0	%
Total funds sources	$	568,682		100.0	%		1.44	%	$	582,107		100.0	%		1.87	%	$	563,361		100.0	%		2.62	%
Interest rate spread							3.52	%							3.11	%							2.51	%
Contribution from net free funds							0.23	%							0.28	%							0.38	%
Net interest margin							3.75	%							3.39	%							2.89	%

Comparison of 2011 versus 2010

Taxable-equivalent net interest income was $22,107 for 2011, an increase of $1,382, or 6.7%, from 2010 predominantly attributable to lower volumes of high-rate brokered deposits (as brokered CDs matured without replacement) and lower rates on customer time deposits (given renewals in the lower rate environment), offset

partly by lower rates on loans (given renewals in the lower rate environment and competitive pricing pressures on new loans).

The taxable-equivalent net interest margin was 3.75% for 2011, up from 3.39% for 2010. For 2011, the earning asset yield was 5.18%, 7 bps lower than last year, affected mainly by a decline in loan yields (down 30 bps to 5.54%), but aided by loans representing a higher percentage of earning assets (to 86.4% for 2011 versus 82.8 % in 2010) since loans yield more than other earning assets. All other earning assets combined yielded 2.91% for 2011, up 46 bps over last year, given a lower proportion of low-earning cash balances in 2011 versus 2010 from cash being utilized to support the average loan growth and payoff of maturing brokered deposits.

The cost of interest-bearing liabilities of 1.67% for 2011 was 48 bps lower than 2010, aided by a number of positive factors. The average cost of interest-bearing deposits for 2011 was 1.43%, down 55 bps versus 2010. This favorable decline was predominantly due to high-cost brokered deposits (3.54% for 2011 and 3.63% for 2010) representing a lower proportion of average interest-bearing deposits (14% for 2011 compared to 27% for 2010), and the cost of the remaining interest-bearing customer deposits combined (i.e. savings, interest-bearing demand, MMA and time deposits) falling 28 bps to 1.09% for 2011, led by time deposits. The cost of other interest-bearing liabilities (comprised of short- and long-term borrowings) increased 27 bps to 4.04% for 2011, mainly as a result of less lower-cost short-term borrowings in the mix of funds.

Average earning assets were $582,486 for 2011, $20,697 lower than 2010, primarily from lower interest-bearing cash balances (down nearly $26,000 from 2010), offset partly by higher average loans. Average loans increased $4,169 to $503,362, despite high 2011 charge off levels, with relatively steady growth through the first half but declining sharply in the second half of 2011, mainly from lower commercial line usage and business customers being more cautious about debt levels and economic conditions.

Average interest-bearing liabilities were $500,895 for 2011, down $23,566 from 2010. Average brokered deposits declined $63,724 as maturing CDs were not renewed, while the remaining interest-bearing customer deposits combined grew $45,199, impacted largely from a full year contribution of the deposits acquired in the July 2010 branch acquisition. Other interest-bearing liabilities declined $5,040 to $46,385, mainly in lower-cost short-term funds.

Comparison of 2010 versus 2009

Taxable equivalent net interest income for 2010 was $20,725, an increase of $3,696, or 21.7%, over 2009. The increase in taxable equivalent net interest income was a function of favorable volume and rate variances in interest-bearing liabilities (contributing $1,348 from lower funding balances, particularly brokered deposits, and $2,579 from lower funding costs, across all fund sources but mostly customer CDs and IRAs renewing in the lower rate environment), but an unfavorable net variance from earning assets (as lower yields on loans and other earning assets decreased net interest income by $1,141, offset partly by improved volumes contributing $910 to net interest income, especially from loans).

The net interest margin for 2010 was 3.39%, compared to 2.89% in 2009. The 50 bps improvement came largely from an 85 bps improvement in the cost of funds, offset by 25 bps decline in the yield on earning assets and 10 bps lower net free funds. For 2010, the yield on earning assets of 5.25% was 25 bps lower than 2009, with loan yields down 15 bps to 5.84%, impacted by renewals and competitive pricing pressures in a low interest rate environment and carrying more low-interest cash balances in the mix of 2011 other earning assets.

The cost of average interest-bearing liabilities of 2.15% in 2010 was 85 bps lower than 2009. The average cost of interest-bearing deposits in 2010 was 1.98%, 81 bps lower than 2009, reflecting heavy runoff of high-cost brokered deposits and growth in other lower-cost deposits, mainly from the part year contribution of deposits acquired in the July 2010 branch acquisition. The cost of other interest-bearing liabilities decreased 111 bps to 3.63% for 2010, as 2009 carried prepayment interest on certain long-term advances that were refinanced early given the low rate environment.

Average earning assets of $603,182 in 2010 were $23,379 higher than 2009, of which $20,926 was attributable to loan growth. Average interest-bearing liabilities of $524,461 in 2010 were up $17,238 versus

2009, attributable largely to growth from the July 2010 branch acquisition, offset by a decline in brokered deposits from maturities.

Provision for Loan Losses

The provision for loan losses in 2011 was $6,600, compared to $8,500 and $6,000 for 2010 and 2009, respectively. The continued higher than historical level of provision was due primarily to aggressive work-outs of problem loans, the levels of loan charge-offs, nonperforming loan trends, depressed collateral values, and continuing economic conditions. Net charge-offs were $9,336 for 2011, compared to $6,097 for 2010 and $5,314 for 2009. The increase in net charge-offs during 2011 was primarily due to the resolution of issues relating to certain impaired loans identified in late 2010. At December 31, 2011, the ALLL was $5,899, compared to $8,635 at December 31, 2010, and $6,232 at December 31, 2009. The ratio of the allowance to total loans was 1.25%, 1.68%, and 1.28% at December 31, 2011, 2010, and 2009, respectively. Nonperforming loans at December 31, 2011, were $9,476, compared to $10,803 at December 31, 2010, and $8,212 at December 31, 2009, representing 2.0%, 2.1%, and 1.7% of total loans, respectively.

The provision for loan losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the adequacy of the ALLL. The adequacy of the allowance is affected by changes in the size and character of the loan portfolio, changes in levels of impaired 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 ALLL, see “Balance Sheet Analysis — Loans,” and “Balance Sheet Analysis — Impaired Loans and Nonperforming Assets.”

Noninterest Income

Table 4: Noninterest Income
(dollars in thousands)

	Years Ended December 31,									Change From Prior Year
										$ Change			% Change			$ Change			% Change
	2011			2010			2009			2011			2011			2010			2010
Service charges on deposit accounts	$	1,180		$	1,087		$	932		$	93			8.6	%	$	155			16.6	%
Trust services fee income		2,899			2,811			2,858			88			3.1	%		(47	)		(1.6%)
Mortgage fee income		1,767			2,619			1,547			(852	)		(32.5%)			1,072			69.3	%
Brokerage fee income		334			291			208			43			14.8	%		83			39.9	%
Loss on sale, disposal and write down of assets, net		(55	)		(59	)		(150	)		4			6.8	%		91			60.7	%
Bank owned life insurance		572			574			558			(2	)		(0.3%)			16			2.9	%
Rent income		955			970			1,003			(15	)		(1.5%)			(33	)		(3.3%)
Investment advisory fees		330			308			357			22			7.1	%		(49	)		(13.7%)
Other		462			367			218			95			25.9	%		149			68.3	%
Total other income	$	8,444		$	8,968		$	7,531		$	(524	)		(5.8%)		$	1,437			19.1	%

Comparison of 2011 versus 2010

Noninterest income was $8,444 for 2011, down $524, or 5.8%, from 2010, led by lower mortgage fee income.

Service fees on deposit accounts for 2011 were $1,180, up $93, or 8.6%, over 2010. The increase in service fees for 2011 was due mainly to higher non-sufficient funds (“NSF”) fees from the larger deposit base carried all year given the four Brown County branches acquired in July 2010.

Trust service fees were $2,899 in 2011, up $88 compared to 2010, primarily from slight market improvements on assets under management, on which fees are based. Brokerage fees were up $43 over 2010, as a result of increased sales and the noted market improvement.

Mortgage fee income represents net gains received from the sale of residential real estate loans service-released into the secondary market and to a small degree, some related income. During the second half of 2010, mortgage rates fell to historically low levels, prompting a wave of residential refinancing activity generating $2,619 of mortgage banking income for the year. Mortgage banking income was $1,767 for 2011, reflecting a similar slow first half and stronger second half pattern, but not as dramatic as 2010.

Nicolet recognized a $55 net loss on sale, disposal and write down of assets in 2011 consisting of a $128 other-than-temporary impairment (“OTTI”) charge on a private equity security, and $73 net gains on other real estate owned (“OREO”) and other assets sold. Comparatively 2010 carried a $59 net loss, consisting of an OTTI charge of $428 on the same private equity security, $283 gains on investment sales and $86 net gain on OREO and other assets sold. Other income increased $95 to $462 in 2011 compared to 2010 largely from ancillary fees tied to deposit- related products.

Comparison of 2010 versus 2009

Noninterest income was $8,968 for 2010, an increase of $1,437, or 19.1%, from 2009.

For 2010, mortgage banking income was $2,619, up $1,072 from 2009. Sales of residential loan originations and refinancing activity reached a high in 2010 due to the historically low interest rate environment spurring refinancing activity.

The net loss on sale, disposal and write down of assets was $59 for 2010 compared to $150 in 2009, with 2009 carrying a $157 net loss on OREO sales offset by $7 gain on a small investment sale.

Noninterest Expense

Table 5: Noninterest Expense
(dollars in thousands)

	Years Ended December 31,						Change From Prior Year
							$ Change			% Change			$ Change			% Change
	2011		2010		2009		2011			2011			2010			2010
Salaries and employee benefits	$	11,334	$	10,165	$	8,282	$	1,169			11.5	%	$	1,883			22.7	%
Occupancy, equipment and office		4,409		3,748		3,254		661			17.6	%		494			15.2	%
Business development and marketing		1,362		1,243		1,285		119			9.6	%		(42	)		(3.3%)
Data processing		1,360		1,293		1,143		67			5.2	%		150			13.1	%
FDIC assessments		630		927		1,144		(297	)		(32.0%)			(217	)		(19.0%)
Core deposit intangible amortization		741		329		—		412			125.0	%		329			100	%
Other		1,607		1,611		1,576		(4	)		(0.2%)			35			2.3	%

Total other expenses	$	21,443	$	19,316	$	16,684	$	2,127			11.0	%	$	2,632			15.8	%

Comparison of 2011 versus 2010

Total noninterest expense was $21,443 for 2011, an increase of $2,127, or 11.0%, over 2010 due primarily to increased salaries and employee benefits as well as occupancy costs. These expenses were largely impacted from carrying a full year of costs associated with the four branches purchased in July 2010, as well as normal merit increases between the years.

Salaries and employee benefits increased by $1,169, or 11.5%, over 2010. As noted above, this increase is largely due to the full year of salary and benefits paid as a result of the 2010 branch acquisition transaction.

Occupancy, equipment and office increased $661, or 17.6%, over 2010. The increase was mainly the result of increasing rent and depreciation expense related to the larger branch network as well as continued investment in facilities consistent with plans for future growth.

FDIC assessments were $630 for 2011, $297 lower than 2010. Nicolet benefited from the FDIC’s change in assessment calculation effective in 2011.

The core deposit intangible amortization increased $412 from 2010 as a full year impact of the 2010 branch acquisition was realized.

Other operating expenses were $1,606 for 2011, a decrease of $6 over 2010. Nicolet continues to manage its costs commensurate with its operational requirements.

Comparison of 2010 versus 2009

Noninterest expense increased $2,632, or 15.8%, from 2009, primarily from increases in salaries and employee benefits, occupancy and data processing costs. Remaining noninterest expenses were stable or declining.

Salaries in 2010 increased mainly from personnel added with the July 2010 branch acquisition, as well as normal merit adjustments, and cash and equity incentive increases given better 2010 versus 2009 performance.

Occupancy expenses increased $494, or 15.2% from 2009 amounts. The majority of this increase was in rent expense which increased from $89 in 2009 to $355 in 2010, given the July 2010 branch acquisition.

Data processing increased $150, from general rate increases and the larger processing volumes added in 2010 with the branch acquisition.

Income Taxes

Income tax expense was $318 for 2011, $136 for 2010 and $45 for 2009. The effective tax rates were 17.2%, 10.6%, and 3.8% for 2011, 2010, and 2009, respectively, influenced largely by the amount of income before tax and the mix of tax-exempt income each year. The basic principles for accounting for income taxes require that deferred income taxes 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. At December 31, 2011 and 2010, no valuation allowance was determined to be necessary except for state NOL carry forwards.

At December 31, 2011, state tax net operating losses at Nicolet of approximately $3,700 existed to offset future taxable income resulting in a deferred tax asset of $200 for which a valuation allowance of $187 has been recognized as it is not expected to be realized under current regulations.

BALANCE SHEET ANALYSIS

Loans

Nicolet National Bank services a diverse customer base throughout Northeast Wisconsin and Michigan including the following industries: manufacturing, wholesaling, retail, service, and businesses supporting the general building industry. It continues to concentrate its efforts in originating loans in its local markets and assisting its current loan customers. It actively utilizes government loan programs such as those provided by the U.S. Small Business Administration to help these customers weather current economic conditions and position their businesses for the future.

Total loans were $472,489 at December 31, 2011, a decrease of $41,272, or 8.0%, from December 31, 2010. Lower utilization of commercial lines of credit accounted for 80% of this decline. During 2011, Nicolet actively pursued loan growth, but the decline in loan balances was primarily a result of reduced borrower demand, particularly during the second half of 2011, due to economic contraction.

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Table 6: Loan Composition
As of December 31,
(dollars in thousands)

	2011					2010					2009					2008					2007
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Commercial & industrial	$	154,011		32.6	%	$	170,919		33.3	%	$	146,121		30.0	%	$	162,216		33.8	%	$	132,570		30.0	%
CRE owner-occupied		111,179		23.5			123,122		24.0			142,621		29.3			139,710		29.2			148,525		33.6
CRE investment		66,577		14.1			63,839		12.4			37,908		7.8			41,393		8.6			37,349		8.4
Construction & land development		24,774		5.2			31,464		6.1			40,619		8.3			29,729		6.2			39,946		9.0
Residential construction		9,363		2.0			8,893		1.7			12,940		2.7			14,279		3.0			4,595		1.0
Residential-1st Mortgage		56,393		11.9			56,533		11.0			47,352		9.7			38,881		8.1			29,360		6.7
Residential-Junior mortgage		42,699		9.1			46,621		9.1			47,020		9.7			46,945		9.8			41,328		9.3
Retail & other		7,493		1.6			12,370		2.4			11,990		2.5			6,026		1.3			8,684		2.0
Total Loans	$	472,489		100.0	%	$	513,761		100.0	%	$	486,571		100.0	%	$	479,179		100.0	%	$	442,357		100.0	%

Commercial and industrial, real estate commercial, and construction and land development loans comprised 75.4% of the loan portfolio at December 31, 2011. Such loans are considered to have more inherent risk of default than residential mortgage or installment loans. The commercial balance per borrower is typically larger than that for residential and mortgage loans, implying higher potential losses on an individual customer basis. Commercial loan growth throughout 2010 and 2011 was hampered by soft loan demand (most predominantly during the second half of 2011) across all markets, Nicolet’s aggressive approach to recognizing risks associated with specific borrowers and the recognition of charge-offs on nonperforming loans in a timely manner.

Commercial and industrial loans were $154,011 at December 31, 2011, down $16,908, or 9.9%, since year end 2010, and comprised 32.6% of total loans. The commercial loan classification primarily consists of commercial loans to small businesses and loans to municipalities. Owner-occupied commercial real estate loans primarily consist of loans secured by business real estate that is occupied by borrowers that also have commercial and industrial loans. Owner-occupied commercial real estate loans were $111,179 at December 31, 2011, down $11,943, or 9.7%, since year end 2010, and comprised 23.5% of total loans. Both of these loan segments include a diverse range of industries. The credit risk related to commercial loans and owner-occupied commercial real estate 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. The decline in these commercial loan segments was primarily due to soft loan demand from business borrowers resulting from generally poor economic conditions.

Commercial investment real estate loans totaled $66,577 at December 31, 2011, up $2,738, or 4.3%, from December 31, 2010, and comprised 14.1% of total loans, up from 12.4% at the end of 2010. The investment real estate 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.

Construction and land development loans totaled $24,774 at December 31, 2011, down $6,690, or 21.3%, from December 31, 2010, and comprised 5.2% of total loans, down from 6.1% at the end of 2010. Loans in this classification provide financing for the development of commercial income properties, multi-family residential development, and land designated for future development. 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. The decrease in this segment was due to charge-offs, pay downs, and Nicolet National Bank decreasing its credit exposure by encouraging the refinancing of certain loan relationships with other financial institutions. Future lending in this segment will focus on loans that are secured by commercial income-producing properties as opposed to speculative real estate development. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationships on an ongoing basis. Residential

101

construction loans totaled $9,363 at the end of 2011, up $470, or 5.3%, from the prior year end, and comprised 2.0% and 1.7% of total loans outstanding at year end 2011 and 2010, respectively.

Residential first-mortgage real estate loans declined $140, or 0.2%, to $56,393 at December 31, 2011, representing 11.9% and 11.0% of the total loan portfolio at the end of 2011 and 2010, respectively. Residential first mortgage loans include conventional first-lien home mortgages, not including loans held for sale in the secondary market. Residential junior-lien real estate loans declined $3,922, or 8.4%, to $42,699, representing 9.0% and 9.1% of the total loan portfolio at the end of 2011 and 2010, respectively. Residential junior-lien real estate loans consist of home equity lines and term loans secured by junior mortgage liens. If the declines in market values that have occurred in the residential real estate markets worsen, particularly in Nicolet’s market area, the value of collateral securing its real estate loans could decline further, which could cause an increase in the provision for loan losses. In light of the uncertainty that exists in the economy and credit markets, there can be no guarantee that Nicolet will not experience additional deterioration resulting from a downturn in credit performance by its residential real estate loan customers. As part of its management of originating residential mortgage loans, nearly all of Nicolet’s long-term, fixed-rate residential real estate mortgage loans are sold in the secondary market without retaining the servicing rights. At December 31, 2011, $11,373 of residential mortgages were held for resale to the secondary market, compared to $5,334 at December 31, 2010.

Retail consumer loans totaled $7,493 at December 31, 2011, down $4,877, or 39.4%, compared to 2010, and represented 1.6% and 2.4% of the 2011 and 2010 yearend loan portfolio, respectively. The decline in aggregate consumer loan balances is largely a result of reduced consumer demand due to economic conditions. Loans in this classification include short-term and other personal installment loans not secured by real estate. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

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 adequate ALLL, and sound nonaccrual and charge-off policies. An active credit risk management process is used for commercial loans to further ensure that sound and consistent credit decisions are made. The credit management process is regularly reviewed and the process has been modified over the past several years to further strengthen the controls.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2011, no significant industry concentrations existed in Nicolet’s portfolio in excess of 25% of total loans. Nicolet National Bank has also developed guidelines to manage its exposure to various types of concentration risks.

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The following table presents the maturity distribution of the loan portfolio at December 31, 2011:

Table 7: Loan Maturity Distribution
(dollars in thousands)

	Loan Maturity
	One Year or Less			Over One Year to Five Years			Over Five Years			Totals
Commercial & industrial	$	82,136		$	64,931		$	6,944		$	154,011
CRE owner-occupied		35,741			66,167			9,271			111,179
CRE investment		26,120			33,784			6,673			66,577
Construction & land development		19,410			5,316			48			24,774
Residential construction		9,285			—			78			9,363
Residential 1st mortgage		12,097			17,977			26,318			56,393
Residential junior mortgage		7,672			14,708			20,319			42,699
Retail & other		5,404			1,624			466			7,493
Total Loans	$	197,865		$	204,507		$	70,117		$	472,489
Percent by maturity distribution		41.9	%		43.3	%		14.8	%		100.0	%

Allowance for Loan and Lease Losses

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 on-going 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.

The ALLL is established through a provision for loan losses charged to expense to appropriately provide for potential credit losses in the existing loan portfolio. Loans are charged against the ALLL when management believes that the collection of principal is unlikely. The level of the ALLL represents management’s estimate of an amount of reserves that provides for estimated probable credit losses in the loan portfolio at the balance sheet date. To assess the ALLL, 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 and forecasted economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect potential credit losses. Nicolet’s methodology reflects guidance by regulatory agencies to all financial institutions.

At December 31, 2011, the ALLL was $5,899, compared to $8,635 at December 31, 2010 and $6,232 at December 31, 2009. The ALLL as a percentage of total loans was 1.3%, 1.7%, and 1.3% at December 31, 2011, 2010 and 2009, respectively. This trend has improved in 2011. The level of the provision for loan losses is directly correlated to the amount of net charge-offs, as it is Nicolet’s policy that the loan loss provisions, over time, exceed net charge-offs and provide coverage for potential credit losses in the existing loan portfolio.

Nicolet’s maagement allocates the ALLL by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First, a specific reserve, for the estimated collateral shortfall, is established for all loans determined to be impaired. Loans measured for impairment include all loans risk-weighted as “substandard” and “doubtful” with balances greater than $25 and all troubled debt-restructurings (“restructured loans”), determined to be impaired by Nicolet. The specific reserve in the ALLL is equal to the aggregate collateral shortfall calculated from the impairment analysis. Second, Nicolet’s management allocates ALLL with historical loss rates by loan segment. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels on an

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annual basis. Lastly, management allocates ALLL to the remaining loan portfolio 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

The ALLL was 62.3%, 83.8% and 75.9% of nonperforming loans at December 31, 2011, 2010 and 2009, respectively. Gross charge-offs were $9,401 for 2011, $6,292 for 2010, and $5,427 for 2009, while recoveries for the corresponding periods were $65, $195, and $113, respectively. As a result, net charge-offs for 2011 were $9,336, or 1.9%, of average loans, compared to $6,097, or 1.2% of average loans, for 2010 and $5,314, or 1.1% of average loans, for 2009. The 2011 increase in net charge-offs of $3,239 was primarily due to a $1,429 increase in commercial & industrial loan net charge-offs, an $880 increase in construction & land development, a $299 increase in other commercial real estate, and a $673 increase in residential first- and junior-lien mortgage loans offset by a $42 decrease in retail and other. Issues impacting asset quality over the past few years have included historically depressed economic factors, such as depressed commercial and residential real estate markets, volatile energy prices, heightened unemployment, and depressed consumer confidence. Declining collateral values have significantly contributed to elevated levels of nonperforming loans, net charge-offs, and ALLL. Nicolet has been focused on reducing its exposure within these portfolio segments by pursuing rigorous workout and resolution plans on problem credits, and by implementing enhancements to the credit management process to address and enhance underwriting, and recognition and mitigation of risk on new extensions of credit. The level of the provision for loan losses is directly correlated to the amount of net charge-offs, as it is Nicolet’s policy that the loan loss provisions, over time, exceed net charge-offs and provide coverage for potential credit losses in the existing loan portfolio. Loans charged-off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, accrued interest, and related expenses.

The largest portion of the ALLL at year end 2011 was allocated to construction and land development loans and was $2,035, representing 34.5% of the ALLL at year end 2011 compared to 25.1% at year end 2010. The increase in the percentage amount allocated to construction and land development was mostly attributable to the decrease in the percentage of the total portfolio represented by construction and land development, to $24,774 or 5.2% of total loans at year end 2011, down from $31,464 or 6.1% at year end 2010. The ALLL allocated to commercial and industrial loans was $1,964 at year end 2011, a decrease of $2,608 from year end 2010, and represented 33.3% of the ALLL at year end 2011, compared to 53.0% at year end 2010. The decrease in the commercial and industrial allocation was due to a $1,970 decrease in impaired Commercial and Industrial loans, which represented 18.4% of impaired loans at year end 2011 compared to 34.3% at year end 2010. In comparison to the construction and land development and commercial and industrial loan segments, allocations to the ALLL for other loan segments are relatively small, and did not change appreciably from December 31, 2010 to December 31, 2011

Management performs ongoing intensive analyses of its loan portfolios 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 ALLL.

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

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Table 8: Loan Loss Experience
For the Years Ended December 31,
(dollars in thousands)

	2011			2010			2009			2008			2007
Allowance for loan losses (ALLL):
Beginning balance	$	8,635		$	6,232		$	5,546		$	5,383		$	4,954
Loans charged off:
Commercial & industrial		2,553			1,217			1,694			3,018			130
CRE owner-occupied		428			292			418			572			—
CRE investment		181			53			478			—			522
Construction & land development		5,243			4,335			300			108			131
Residential construction		42			—			500			68			—
Residential 1^st mortgage		488			167			397			56			12
Residential junior mortgage		459			136			811			347			24
Retail & other		7			92			829			16			26
Total loans charged off		9,401			6,292			5,427			4,185			845
Recoveries of loans previously charged off:
Commercial & industrial		23			116			7			67			95
CRE — owner-occupied		3			5			23			27			—
CRE — investment		—			33			76			211			6
Construction & land development		28			—			—			8			—
Residential construction		—			—			—			1			—
Residential 1^st mortgage		9			40			7			—			10
Residential junior mortgage		2			—			—			2			—
Retail & other		—			1			—			4			3
Total recoveries		65			195			113			320			114
Total net charge offs		9,336			6,097			5,314			3,865			731
Provision for loan losses		6,600			8,500			6,000			4,028			1,160
Ending balance of ALLL	$	5,899		$	8,635		$	6,232		$	5,546		$	5,383
Ratios at the end of year:
ALLL to total loans		1.25	%		1.68	%		1.28	%		1.16	%		1.22	%
ALLL to net charge offs		63.2	%		141.6	%		117.3	%		143.5	%		736.4	%
Net charge offs to average loans		1.9	%		1.2	%		1.1	%		.8	%		.2	%
Net loan charge-offs:
Commercial & industrial	$	2,530		$	1,101		$	1,687		$	2,951		$	35
CRE owner-occupied		425			287			395			545			—
CRE investment		181			20			402			(211	)		516
Construction & land development		5,215			4,335			300			100			131
Residential construction		42			—			500			67			—
Residential 1^st mortgage		479			127			390			56			2
Residential junior mortgage		457			136			811			345			24
Retail & other		7			91			829			12			23
Total net charge offs	$	9,336		$	6,097		$	5,314		$	3,865		$	731

The allocation of the ALLL for each of the past five years is based on Nicolet’s estimate of loss exposure by category of loans is shown in Table 9.

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Table 9: Allocation of the Allowance for Loan Losses
As of December 31,
(dollars in thousands)

	2011					2010*					2009*					2008*					2007*
ALLL allocation
Commercial & industrial	$	1,964		32.6	%	$	4,572		33.3	%	$	2,849		30.0	%	$	4,448		33.8	%	$	4,442		30.0	%
CRE owner-occupied*		347		23.5	%		556		24.0	%		799		29.3	%		—		29.2	%		—		33.6	%
CRE investment		392		14.1	%		209		12.4	%		237		7.8	%		599		8.6	%		539		8.4	%
Construction & land development		2,035		5.2	%		2,165		6.1	%		1,404		8.3	%		211		6.2	%		169		9.0	%
Residential construction*		311		2.0	%		285		1.7	%		187		2.7	%		—		3.0	%		—		1.0	%
Residential 1^st mortgage		405		11.9	%		304		11.0	%		343		9.7	%		102		8.1	%		110		6.7	%
Residential junior mortgage*		420		9.1	%		482		9.1	%		389		9.7	%		—		9.8	%		—		9.3	%
Retail & other		25		1.6	%		62		2.4	%		24		2.5	%		186		1.3	%		123		2.0	%
Total ALLL	$	5,899		100.0	%	$	8,635		100.0	%	$	6,232		100.0	%	$	5,546		100.0	%	$	5,383		100.0	%
ALLL category as a percent of total ALLL:
Commercial & industrial		33.3	%				53.0	%				45.8	%				80.2	%				82.6	%
CRE owner-occupied		5.9	%				6.4	%				12.8	%				—					—
CRE investment		6.6	%				2.4	%				3.8	%				10.8	%				10.0	%
Construction &land development		34.5	%				25.1	%				22.5	%				3.8	%				3.1	%
Residential construction		5.3	%				3.3	%				3.0	%				—					—
Residential 1^st mortgage		6.9	%				3.5	%				5.5	%				1.8	%				2.0	%
Residential junior mortgage		7.1	%				5.6	%				6.2	%				—					—
Retail & other		.4	%				.7	%				.4	%				3.4	%				2.3	%
Total ALLL		100.0	%				100.0	%				100.0	%				100.0	%				100.0	%

The allocation of the ALLL is calculated using the categories indicated in Table 9 starting in 2011. The amounts for 2010 and 2009 were “recast” using these categories for purposes of comparability. Data was unavailable to calculate the categorical information for 2008 and 2007. Commercial RE- Owner Occupied balances were included in total Commercial RE — Investment, Residential Construction was included in total Construction & Development and Residential Junior Mortgage was included with total retail and other.

Impaired Loans and Nonperforming Assets

As part of its overall credit risk management process, Nicolet’s management has been committed to an aggressive problem loan identification philosophy. This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified early and the risk of loss is minimized.

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans, including those defined as impaired under current accounting standards, 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. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash after a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan principal.

Nonaccrual loans were $9,476, $10,303 and $8,212 at December 31, 2011, 2010, and 2009, respectively, reflecting the continued impact of the economy on Nicolet’s customers. Total nonaccrual loans at December 31, 2011 were down $827 since year end 2010, with commercial and industrial nonaccrual loans down $1,970. In contrast, commercial investment real estate nonaccruals were up $586, and residential first- and junior-lien

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nonaccruals were up $584, as these real-estate secured segments continue to exhibit signs of stress. Between year end 2010 and 2009, total nonaccrual loans increased $2,091, with commercial and industrial nonaccrual loans up $2,039 and construction and land development nonaccruals up $953. Nicolet’s ALLL methodology at December 31, 2011 included an impairment analysis on specifically identified loans defined by Nicolet as impaired, and incorporated the level of specific reserves for these credit relationships in determining the overall appropriate level of the ALLL.

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 adequacy of the ALLL. 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 loans covering a diverse range of businesses and real estate property types. Potential problem loans totaled $23,232 at December 31, 2011 and $31,217 at December 31, 2010. Potential problem loans require a heightened management review of the pace at which a credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

OREO decreased to $641 at December 31, 2011, compared to $1,443 at December 31, 2010 and $1,370 at December 31, 2009. The decrease in OREO during 2011 was primarily attributable to disposition and sale of development land that was recorded in OREO as of the previous year end. Nicolet’s management actively seeks to ensure properties held are monitored to minimize Nicolet’s risk of loss. Evaluations of the fair market value of the OREO properties are done quarterly and valuation adjustments, if necessary, are recorded in Nicolet’s consolidated financial statements.

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Table 10: Nonperforming Assets
As of December 31,
(dollars in thousands)

	2011			2010			2009			2008			2007
Nonaccrual loans considered impaired:
Commercial & industrial	$	1,745		$	3,715		$	1,676		$	422		$	40
CRE owner-occupied		934			1,092			1,449			—			—
CRE investment		716			130			500			1,216			317
Construction & land development		3,367			3,331			2,378			4,729			451
Residential construction		1,480			1,380			1,748			—			—
Residential 1^st mortgage		1,129			595			461			200			—
Residential junior mortgage		105			55			—			220			—
Retail & other		—			5			—			104			—
Total nonaccrual loans considered impaired		9,476			10,303			8,212			6,891			808
Impaired loans still accruing interest		—			—			—			—			—
Accruing loans past due 90 days or more		—			500			—			—			—
Total nonperforming loans		9,476			10,803			8,212			6,891			808
OREO		641			1,443			1,370			9			68
Total nonperforming assets	$	10,117		$	12,246		$	9,582		$	6,900		$	876
Total restructured loans accruing		—			—			—			—			—
Ratios
Nonperforming loans to total loans		2.0	%		2.1	%		1.7	%		1.4	%		.2	%
Nonperforming loans to total loans plus OREO		2.0	%		2.1	%		1.7	%		1.4	%		.2	%
Nonperforming loans to total assets		1.4	%		1.6	%		1.2	%		1.0	%		.1	%
ALLL to nonperforming loans		62.3	%		79.9	%		75.9	%		80.0	%		666.2	%
ALLL to total loans at end of year		1.2	%		1.7	%		1.3	%		1.2	%		1.2	%
Nonperforming assets by type:
Commercial & industrial	$	1,745		$	4,215		$	1,676		$	422		$	40
CRE owner-occupied		934			1,092			1,449			—			—
CRE investment		716			130			500			1,216			317
Construction & land development		3,367			3,331			2,378			4,729			451
Residential construction		1,480			1,380			1,748			—			—
Residential 1^st mortgage		1,129			595			461			200			—
Residential junior mortgage		105			55			—			220			—
Retail & other		—			5			—			104			—
Total nonperforming loans	$	9,476		$	10,803		$	8,212		$	6,891		$	808
Commercial real estate owned	$	566		$	1,368		$	1,255		$	9		$	68
Residential real estate owned		75			75			115			—			—
Total other real estate owned	$	641		$	1,443		$	1,370		$	9		$	68
Total nonperforming assets	$	10,117		$	12,246		$	9,582		$	6,900		$	876

The following tables shows the approximate gross interest that would have been recorded if the loans accounted for on nonaccrual basis and restructured loans for the years ended as indicated had performed in accordance with their original terms, in contrast to the amount of interest income that was included in interest income for the period.

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Table 11: Foregone Loan Interest
For the Years Ended December 31,
(dollars in thousands)

	2011			2010			2009
Interest income in accordance with original terms	$	1,390		$	1,004		$	638
Interest income recognized		(220	)		(415	)		(239	)
Reduction in interest income	$	1,170		$	589		$	399

Investment Securities Portfolio

The investment securities portfolio is intended to provide Nicolet National Bank with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to Nicolet. All securities are classified as available-for-sale and are carried at fair value. Unrealized gains and losses are excluded from earnings, but are reported as other comprehensive income in a separate component of shareholders’ equity, net of income tax. Premium amortization and discount accretion are recognized as adjustments to interest income using the interest method. Realized gains or losses on sales are based on the net proceeds and the adjusted carrying value amount of the securities sold using the specific identification method.

Table 12: Investment Securities Portfolio
As of December 31,
(dollars in thousands)

	2011							2010							2009
	Amortized Cost		Fair Value		% of Total			Amortized Cost		Fair Value		% of Total			Amortized Cost		Fair Value		% of Total
State, county and municipals	$	30,130	$	31,848		56	%	$	29,897	$	31,109		59	%	$	31,862	$	33,424		61	%
Mortgage-backed securities		17,450		18,484		33	%		16,852		17,407		33	%		19,043		19,819		36	%
U.S. Government sponsored enterprises		4,995		5,020		9	%		2,502		2,499		5	%		—		—		—
Equity securities		1,624		1,407		2	%		1,624		1,373		3	%		1,753		1,030		3	%
Total	$	54,199	$	56,759		100	%	$	50,875	$	52,388		100	%	$	52,658	$	54,273		100	%

At December 31, 2011, the total carrying value of investment securities was $56,759, an increase of $4,371, or 8.3%, compared to December 31, 2010, and represented 8.4% and 7.8% of total assets at December 31, 2011 and 2010, respectively. Primarily due to weak investment returns and soft loan demand in 2011, much of Nicolet’s excess liquidity was held in low-rate cash accounts rather than committing funds to longer term investments in this low rate environment.

At December 31, 2011, the securities portfolio did not contain securities of any single issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of shareholders’ equity.

In addition to securities available-for-sale, Nicolet had other investments of $5,211 and $4,910 at December 31, 2011 and 2010, respectively, consisting of capital stock in the Federal Reserve and the FHLB (required as members of the Federal Reserve Bank System and the Federal Home Loan Bank System), as well as 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 investments in private companies have no quoted market prices, and are carried at cost less OTTI charges, if any. Nicolet’s management evaluates all these other investments periodically for impairment, considering financial condition and other available relevant information. OTTI charges recorded in 2011 and 2010 were $128 (related to one private equity security classified in other investments) and $428 (related to the same security), respectively, and none for 2009.

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Table 13: Investment Securities Portfolio Maturity Distribution
As of December 31, 2011
(dollars in thousands)

	Within One Year					After One but Within Five Years					After Five but Within Ten Years					After Ten Years					Mortgage- related and Equity Securities					Total Amortized Cost					Total Fair Value
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount
U.S. Government sponsored enterprises		4,995		0.7	%	$	—		—%		$	—		—%		$	—		—%		$	—		—%		$	4,995		0.7	%	$	5,020
State and county municipals		4,045		5.0			18,213		4.6			6,897		4.8			975		0.6			—		—			30,130		4.6			31,848
Mortgage-backed securities		—		—			—		—			—		—			—		—			17,450		3.7			17,450		3.7	%		18,484
Equity securities		—		—			—		—			—		—			—		—			1,624		—			1,624		—			1,407
Total amortized cost	$	9,040		2.6	%	$	18,213		4.6	%	$	6,897		4.8	%	$	975		0.6	%	$	19,074		3.4	%	$	54,199		3.8	%	$	56,759
Total fair value and carrying value	$	9,134				$	19,260				$	7,499				$	975				$	19,891									$	56,759

(1)

The yield on tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 34% adjusted for the disallowance of interest expense.

Deposits

Deposits represent Nicolet’s largest source of funds. Nicolet competes with other bank and nonbank institutions for deposits, as well as with a growing number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Challenges to deposit growth include price changes on deposit products given movements in the rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.

At December 31, 2011, total deposits were $551,536, down $6,928 from year-end 2010. Consistent with Nicolet’s funding strategy, Nicolet continued to reduce brokered deposits during 2011. Total brokered deposits(included in time deposits in Table 14) declined from $86,063 at December 31, 2010 to $38,609 at December 31, 2011, or 56%, as Nicolet did not renew maturing brokered CDs. Excluding brokered deposits, deposits were $512,927, up $40,526 over year-end 2010, largely in response to deposit growth initiatives, new product offerings and deposit features.

Table 14: Deposits
At December 31,
(dollars in thousands)

	2011					2010					2009
	Amount		% of Total			Amount		% of Total			Amount		% of Total
Demand	$	78,154		14.2	%	$	68,202		12.2	%	$	56,873		10.2	%
Money market and NOW accounts		265,817		48.2	%		213,044		38.2	%		212,271		38.1	%
Savings		21,284		3.9	%		13,600		2.4	%		10,184		1.8	%
Time		186,281		33.7	%		263,618		47.2	%		277,656		49.9	%
Total	$	551,536		100.0	%	$	558,464		100.0	%	$	556,984		100.0	%

On average, deposits were $522,297 for 2011, down $8,385, or 1.6%, from the average for 2010. The mix of average deposits was also impacted by shift in customer preferences, predominantly away from time deposits.

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Table 15: Average Deposits
For the Years Ended December 31,
(dollars in thousands)

	2011					2010					2009
	Amount		% of Total			Amount		% of Total			Amount		% of Total
Demand	$	67,787		13.0	%	$	57,647		10.9	%	$	56,139		11.0	%
Money market and NOW accounts		219,817		42.1	%		192,462		36.3	%		139,160		27.3	%
Savings		16,829		3.2	%		12,273		2.3	%		9,916		1.9	%
Time		217,864		41.7	%		268,301		50.5	%		305,526		59.8	%
Total	$	522,297		100.0	%	$	530,683		100.0	%	$	510,741		100.0	%

Table 16: Maturity Distribution of Certificates of Deposit of $100,000 or More
As of the Years Ended December 31,
(dollars in thousands)

	2011		2010
3 months or less	$	36,871	$	39,172
Over 3 months through 6 months		8,361		16,437
Over 6 months through 12 months		25,645		35,804
Over 12 months		22,213		61,984

Total	$	93,090	$	153,397

Other Funding Sources

Other funding sources, which include short-term and long-term borrowings, were $45,691 and $46,157 at December 31, 2011 and 2010, respectively. Short-term borrowings, consisting mainly of customer repurchase agreements, totaled $4,132 at December 31, 2011 and $4,390 at December 31, 2010. Long-term borrowings include a joint venture note, and FHLB advances, totaling $35,374 at December 31, 2011, down $208 from December 31, 2010 attributable to scheduled principal payments on the joint venture note payable. Also included in long-term borrowings are the junior subordinated debentures of $6,186 issued in July 2004 in connection with the $6,000 of trust preferred securities issued by Nicolet Bankshares Statutory Trust I (the “Statutory Trust”), bearing an 8% fixed rate. Nicolet has the right to redeem the debentures purchased by the Statutory Trust, in whole or in part, on or after July 15, 2009. If the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. The maturity date of the debenture, if not redeemed, is July 15, 2034. Further discussion on the junior subordinated debentures is included in Note 8, “Junior Subordinated Debentures” of the Notes to Consolidated Financial Statements for December 31, 2011, and further discussion of the terms of the joint venture note is included in Note 6, “Notes Payable” of the Notes to Consolidated Financial Statements for December 31, 2011.

Off-Balance Sheet Obligations

As of December 31, 2011 and 2010, Nicolet had the following commitments that did not appear on its balance sheet:

Table 17: Commitments
At December 31,
(dollars in thousands)

				2011				2010
Commitments to extend credit — Fixed and variable rate				$	158,261			$	119,751
Standby and irrevocable letters of credit-fixed rate					6,631				6,959

Further discussion of these commitments is included in Note 13, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements.

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Contractual Obligations

Nicolet is party to various contractual obligations requiring the use of funds as part of its normal operations. The table below outlines principal amounts and timing of these obligations, excluding amounts due for interest, if applicable. Most of these obligations are routinely refinanced into similar replacement obligations. However, renewal of these obligations is dependent on its ability to offer competitive interest rates, liquidity needs, or availability of collateral for pledging purposes supporting the long-term advances.

Table 18: Contractual Obligations
As of December 31, 2011
(dollars in thousands)

	Maturity by Years
	Total		1 or less		1-3		3-5		Over 5
Junior Subordinated debentures	$	6,186	$	—	$	—	$	—	$	6,186
Joint venture note		10,374		218		481		9,675		—
FHLB borrowings		25,000		5,000		20,000		—		—

Total long-term borrowing obligations	$	41,560	$	5,218	$	20,481	$	9,675	$	6,186

At the completion of the construction of Nicolet’s headquarters building in 2005 and as part of a joint venture investment related to the building, Nicolet and the other joint venture partners guaranteed a joint venture note to finance certain costs of the building. This note is secured by the building, bears a fixed rate of 5.81% and requires monthly principal and interest payments until its maturity on June 1, 2016. The balance of this joint venture note was $10,374 and $10,581 as of December 31, 2011 and 2010, respectively.

Liquidity and Interest Rate Sensitivity

Liquidity management refers to the ability to ensure that cash is available in a timely and cost-effective manner to meet cash flow requirements of depositors and borrowers and to meet other commitments as they fall due, including the ability to pay dividends to shareholders, service debt, invest in subsidiaries, repurchase common stock, and satisfy other operating requirements.

Funds are available from a number of basic banking activity sources including the core deposit base, the repayment and maturity of loans, investment securities sales, and sales of brokered deposits. All investment securities are classified as available-for-sale and are reported at fair value on the consolidated balance sheet. Approximately $7,487 of the $56,759 investment securities portfolio on hand at December 31, 2011 was pledged to secure public deposits, short-term borrowings, and repurchase agreements and for other purposes as required by law. Other funding sources available include short-term borrowings, federal funds purchased, and long-term borrowings.

Cash and cash equivalents at December 31, 2011 and 2010 were approximately $92,100 and $52,100, respectively. The rise in cash and cash equivalents was predominantly due to strong customer deposit growth and a decline in loans between December 31, 2011 and 2010. Nicolet’s liquidity resources were sufficient as of December 31, 2011 to fund loans and to meet other cash needs as necessary.

Interest Rate Sensitivity Gap Analysis

Table 19 represents a schedule of Nicolet National Bank’s assets and liabilities repricing over various time intervals. The primary market risk faced by Nicolet is interest rate risk. The static gap analysis starts with contractual repricing information for assets, liabilities, and off-balance sheet instruments. These items are then combined with repricing estimations for administered rate (interest-bearing demand deposits, savings, and money market accounts) and non-rate related products (demand deposit accounts, other assets, and other liabilities) to create a baseline repricing balance sheet. In addition to the contractual information, residential mortgage whole loan products and mortgage-backed securities are adjusted based on industry estimates of prepayment speeds that capture the expected prepayment of principal above the contractual amount based on how far away the contractual coupon is from market coupon rates. At the indicated time intervals the cumulative maturity gap was within Nicolet’s established guidelines of not greater than +25% or -25%.

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Table 19: Interest Rate Sensitivity Gap Analysis
(dollars in thousands)

	December 31, 2011
	0-90 Days			91-180 Days			181-365 Days			1-5 years			Beyond 5 Years			Total
Earning Assets:
Loans	$	247,479		$	26,185		$	36,760		$	133,806		$	28,259		$	472,489
Securities at fair value		—			—			5,000			—			51,759			56,759
Other earnings assets		92,444			—			—			—			1,852			94,296
Total	$	339,923		$	26,185		$	41,760		$	133,806		$	81,870		$	623,544

Cumulative rate sensitive assets	$	339,923		$	366,108		$	407,868		$	541,674		$	623,544

Interest-bearing liabilities
Interest bearing deposits	$	352,809		$	16,150		$	53,591		$	50,825		$	6		$	473,381
Borrowings		4,390			258			5,516			24,160			5,182			39,506
Subordinated debentures		774			774			1,548			3,090			—			6,186
Total	$	357,973		$	17,182		$	60,655		$	78,075		$	5,188		$	519,073

Cumulative interest sensitive liabilities	$	357,973		$	375,155		$	435,810		$	513,860		$	519,048

Interest sensitivity gap	$	(18,050	)	$	9,003		$	(18,895	)	$	55,731		$	76,682

Cumulative interest sensitivity gap	$	(18,050	)	$	(9,047	)	$	(27,942	)	$	27,789		$	104,471
Cumulative ratio of rate sensitive assets to rate sensitive liabilities		95	%		98	%		94	%		105	%		120	%

(1)

The interest rate sensitivity assumptions for savings accounts, money market accounts, and interest-bearing demand deposits accounts are based on current and historical experiences regarding portfolio retention and interest rate repricing behavior. Based on these experiences, a portion of these balances are considered to be long-term and fairly stable and are, therefore, included in the “1-5 Years” and “Beyond 5 Years” categories.

In order to limit exposure to interest rate risk, management monitors the liquidity and gap analysis on a monthly basis and adjust pricing, term and product offerings when necessary to stay within applicable guidelines and maximize the effectiveness of asset/liability management.

Along with the static gap analysis, Nicolet’s management also estimates the effect a gradual change and a sudden change in interest rates could have on expected net interest income through income simulation. The simulation is run using the prime rate as the base with the assumption of rates increasing 100, 200, and 300 bps or decreasing 100, 200 and 300 bps. All rates are increased or decreased parallel to the change in prime rate. The simulation assumes a static mix of assets and liabilities. As a result of the simulation, over a 12-month time period ending December 31, 2011, net interest income was estimated to decrease 3.6% if rates increase 100 bps, while in a 100 bps rate environment assumption, net interest income was estimated to increase 2.76% during the same period. These results are in line with Nicolet’s relatively neutral interest rate sensitivity position, relatively short loan maturities and level of variable rate loans with interest floors. These results are based solely on the modeled changes in the market rates and do not reflect the earnings sensitivity that may arise from other factors such as changes in the shape of the yield curve, changes in spreads between key market rates, or changes in consumer or business behavior. These results also do not include any management action to mitigate potential income variances within the modeled process. The simulation results are one indicator of interest rate risk, and actual net interest income is largely impacted by the allocation of assets, liabilities and product mix. Nicolet’s management continually reviews its interest rate risk position through the Asset/Liability Committee process, and such Committee reports to the full board of directors on a monthly basis.

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Capital

Nicolet 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. Nicolet’s management actively reviews capital strategies 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 dividends available to shareholders. Nicolet’s management intends to maintain an optimal capital and leverage mix for growth and for shareholder return.

In December 2008, through a private placement of common stock, Nicolet raised $9,500 in capital. On December 23, 2008, under TARP, Nicolet received $14,964 from the Treasury for the issuance of 14,964 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 5% dividend for the first five years and 9% thereafter) and an additional 748 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 9% dividend) following the Treasury’s immediate exercise of preferred stock warrants. The initial $848 discount recorded on preferred stock that resulted from allocating a portion of the proceeds to the warrants is accreted directly to retained earnings over a five-year period on a straight-line basis.

While the TARP preferred stock was outstanding, Nicolet was subject to various restrictions governed by the executed documents with the Treasury, and by related governmental enactments. Such restrictions included: a) Treasury approval required for any increase in common dividends per share and for any repurchase of outstanding common stock; b) TARP dividends on Nicolet’s TARP preferred stock required to be paid in full before dividends could be paid to common shareholders; c) no tax deduction to Nicolet for any senior executive officer whose compensation was above $500; and d) additional restrictions and compliance requirements on executive compensation. In September of 2009, Nicolet received approval from the Treasury and its regulator to repurchase up to 100,000 shares of its common stock, under which 96,600 shares of common stock at a cost of $1,619 were repurchased and subsequently retired during 2009. Similar approvals were obtained for 2010 and 2011, allowing the repurchase of up to 100,000 shares of common stock pursuant to these authorizations each year. No shares were repurchased under these authorities during 2010 or 2011.

On September 1, 2011, after appropriate regulatory approvals, Nicolet effectively redeemed all the senior preferred stock under TARP, paying the Treasury $15,712 and accelerating the accretion of the remaining discount of $396 against retained earnings. Such redemption was in connection with Nicolet’s participation in the Treasury’s SBLF described below. The SBLF is a program separate and distinct from TARP, and thus, among other things, the restrictions noted above under TARP or related government enactments were no longer applicable to Nicolet.

The SBLF is a Treasury program made available to community banks, designed to boost lending to small businesses by providing participating banks with capital and liquidity. In particular, the SBLF program targets commercial, industrial, owner-occupied real-estate and agricultural-based lending to qualifying small businesses, which include businesses with less than $50 million in revenue, and promotes outreach to women-owned, veteran-owned and minority-owned businesses.

On September 1, 2011, under the SBLF, Nicolet received $24,400 from the Treasury for the issuance of 24,400 shares of Non-Cumulative Perpetual Preferred Stock, Series C, with $1,000 per share liquidation value. The annual dividend rate upon funding and for the following nine calendar quarters is 5%, unless there is growth in qualifying small business loans outstanding over a baseline which could reduce the rate to as low as 1% (as determined under the terms of the Securities Purchase Agreement (the “Agreement”)), adjusted quarterly. The dividend rate is fixed for the tenth quarter after funding through the end of the first four and one-half years at 7% (unless fixed at a lower rate given increased lending as similarly described above); and finally the dividend rate is fixed at 9% after four and one-half years if the preferred stock is not repaid. Nicolet’s weighted average dividend rate for 2011 (since funding) was 5%. Under the terms of the Agreement, Nicolet is required to provide various information, certifications, and reporting to the Treasury. At December 31, 2011, Nicolet believes it was in compliance with the requirements set by the Treasury in the Agreement. The preferred stock (under TARP or SBLF) qualifies as Tier 1 capital for regulatory purposes.

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A summary of Nicolet’s and Nicolet National Bank’s regulatory capital ratios as of December 31, 2011 and 2010 are as follows:

Table 20: Capital
(dollars in thousands)

Nicolet’s and Nicolet National Bank’s actual regulatory capital amounts and ratios as December 31, 2011 and 2010 are presented in the following table:

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions (2)
	Amount		Ratio (1)			Amount		Ratio (1)			Amount		Ratio (1)
As of December 31, 2011
Nicolet
Total capital	$	82,638		16.7	%	$	39,510		8.0	%		N/A		N/A
Tier I capital		76,739		15.5	%		19,755		4.0	%		N/A		N/A
Leverage		76,739		12.1	%		25,468		4.0	%		N/A		N/A

Nicolet National Bank
Total capital	$	74,586		15.6	%	$	38,340		8.0	%	$	47,925		10.0	%
Tier I capital		68,687		14.3	%		19,170		4.0	%		28,755		6.0	%
Leverage		68,687		11.1	%		24,831		4.0	%		31,039		5.0	%
As of December 31, 2010

Nicolet
Total capital	$	72,635		13.8	%	$	42,056		8.0	%		N/A		N/A
Tier I capital		66,259		12.6	%		21,028		4.0	%		N/A		N/A
Leverage		66,259		9.9	%		26,798		4.0	%		N/A		N/A

Nicolet National Bank
Total capital	$	65,796		13.0	%	$	40,623		8.0	%	$	50,779		10.0	%
Tier I capital		59,420		11.7	%		20,312		4.0	%		30,768		6.0	%
Leverage		59,420		9.2	%		25,958		4.0	%		32,447		5.0	%

(1)

The total capital ratio is defined as tier1 capital plus tier 2 capital divided by total risk-weighted assets. The tier 1 capital ratio is defined as tier1 capital divided by total risk-weighted assets. The leverage ratio is defined as tier1 capital divided by the most recent quarter’s average total assets.

(2)

Prompt corrective action provisions are not applicable at the bank holding company level.

A source of income and funds for Nicolet are dividends from Nicolet National Bank. Dividends declared by Nicolet National Bank that exceed the retained net income for the most current year plus retained net income for the preceding two years must be approved by federal regulatory agencies. At December 31, 2011, Nicolet National Bank could pay dividends of approximately $3,585 without seeking regulatory approval.

Effects of Inflation

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, loans and deposits, 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. For additional information regarding interest rates and changes in net interest income see “Liquidity and Interest Rate Sensitivity.”

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Selected Quarterly Financial Data

The following is selected financial data summarizing the results of operations for each quarter in the years ended December 31, 2011, 2010 and 2009:

Table 21: Selected Quarterly Financial Data
(dollars in thousands, except per share data)

	2011 Quarter Ended
	December 31,		September 30,			June 30,			March 31,
Interest income	$	7,162	$	7,310		$	7,427		$	7,931
Interest expense		1,932		2,060			2,074			2,317
Net interest income		5,230		5,250			5,353			5,614
Provision for loan losses		1,800		1,500			1,800			1,500
Noninterest income		2,428		2,137			1,914			1,965
Noninterest expense		5,155		5,487			5,338			5,463
Net income		508		343			210			429
Net income (loss) available to common equity		203		(321	)		(36	)		182
Basic and diluted earnings (loss) per common share		0.06		(0.09	)		(0.01	)		0.05

	2010 Quarter Ended
	December 31,			September 30,		June 30,		March 31,
Interest income	$	7,977		$	8,212	$	7,680	$	7,550
Interest expense		2,610			2,825		2,778		3,078
Net interest income		5,367			5,387		4,902		4,472
Provision for loan losses		4,000			1,500		1,500		1,500
Noninterest income		2,925			2,333		1,872		1,838
Noninterest expense		4,955			5,247		4,462		4,651
Net income		(318	)		670		572		187
Net income (loss) available to common equity		(565	)		423		326		(60	)
Basic and diluted earnings (loss) per common share		(0.16	)		0.12		0.09		(0.01	)

For the Nine Month Periods Ended September 30, 2012 and 2011

Basis of Accounting and Critical Accounting Policies

The consolidated financial statements of Nicolet Bankshares, Inc. and its subsidiaries are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industry in which Nicolet operates. The financial condition and results of operations presented in the consolidated financial statements, accompanying notes to the consolidated financial statements, selected financial data appearing elsewhere within this report, and management’s discussion and analysis are dependent upon Nicolet’s accounting policies. The selection and application of these accounting policies involve judgments about matters that affect the amounts reported in the financial statements and accompanying notes, and may require management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. Nicolet made no significant changes in its critical accounting policies and significant estimates from those disclosed in its attached 2011 consolidated financial statements. The following discussion should be read in conjunction with the consolidated financial statements and accompanying notes.

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Overview

During the first nine months of 2012, Nicolet benefited from contributions of its new Appleton branch opened in December 2011 (adding to both loan and deposit growth), from steady growth in customer deposits, particularly resulting from a new checking product introduced in mid-2011, very strong secondary mortgage fee income from higher refinances than the prior year, and quality loan growth and increased commercial line of credit usage. Additionally, Nicolet continued to aggressively work through its asset quality, with nonperforming loans declining, except for the addition in March 2012 to nonaccrual loans of a large credit relationship with strong collateral of approximately $8.5 million which remained in nonaccrual status at September 30, 2012. Given significantly lower net loan charge offs ($2.8 million for the first nine months of 2012 versus $7.7 million for the first nine months of 2011), Nicolet recognized lower provision for loan losses of $3.3 million for the nine months ended September 30, 2012, compared to $4.8 million for the comparable nine month period in 2011.

Unless otherwise noted, all remaining information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations is shown in thousands, except per share data.

The following management’s discussion and analysis is presented to assist in the understanding and evaluation of Nicolet’s consolidated financial condition as of September 30, 2012 and December 31, 2011 and results of operations for the three-month and nine-month periods ended September 30, 2012 and 2011. It is intended to supplement the unaudited consolidated financial statements, condensed footnotes, and supplemental financial data appearing elsewhere in this document.

Performance Summary

For the first nine months of 2012, Nicolet reported $2,099 of net income, up $1,117 over the 2011 comparable period. Net income available to common shareholders for this same period, was $1,184, or $0.34 per diluted common share, compared to a net loss available to common shareholders of $174, or $0.05 per share, for the first nine months of 2011. The 2011 results included $396 in accelerated discount accretion resulting from the repayment of Nicolet’s TARP senior preferred stock on September 1, 2011.

For the three months ended September 30, 2012, Nicolet reported net income of $965 and net income available to common shareholders of $660, or $0.19 per common share, compared to net income of $343 but a net loss to common shareholders of $320 (after $664 of preferred stock dividends and discount accretion, inflated for the accelerated accretion noted above), or $0.09 per common share net loss, in the comparable 2011 period.

Key financial data includes:

•

For the first nine months of 2012 versus 2011, net income benefited from higher loan volumes though at lower yields than the prior year, growth in the mix of lower costing deposits, strong secondary market mortgage fee income due to increased refinance volume and a lower provision for loan losses, offset by growing expenses attributable to costs of its new branch that opened in December 2011, and higher personnel costs from a larger work force and higher incentives due to improved financial performance in 2012.

•

For the three months ended September 30, 2012 versus 2011, net income benefited mainly from lower interest expense, lower provision for loan loss, and strong mortgage fee income, offset by higher noninterest expense, again concentrated in personnel costs.

•

The provision for loan losses was $3,350 for the first nine months of 2012, exceeding net charge-offs of $2,759; comparatively, the provision for the first nine months of 2011 was $4,800, against $7,690 in net charge offs, primarily as issues contemplated by Nicolet’s management on certain impaired loans that were reserved for in late 2010 came to fruition in early 2011. The provision for loan losses was $975 for the third quarter of 2012, compared with $1,500 for the same period in 2011. The 2012 provision was positively impacted by reduced loan impairments between the years. The ALLL to total loans ratio at September 30, 2012 was 1.19% compared to 1.25% at December 31, 2011.

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•

Net interest income of $16,053 for the nine months ended September 30, 2012 decreased by $164, or 1.0%, from the same period in 2011, as a favorable variance in interest expense (down $1,444) was slightly more than offset by the decline in interest income (down $1,608). Net interest income for the third quarter of 2012 was $5,650, down $400 from third quarter 2011, of which interest expense was favorable by $497 between the comparable third quarters.

•

The net interest margin for the first nine months of 2012 was 3.59%, 17 bps lower than the comparable margin last year. The margin contraction comes largely from downward pressure on earning asset yields (down 54 bps to 4.68% for the first nine months of 2012, led by a 40 bps decline in loan yield to 5.15% and a higher mix of low-earning cash balances between the periods), while Nicolet’s cost of funds continued a favorable decline (down 38 bps to 1.32%, mainly from a dramatic decline in the volume and cost of brokered deposits between the nine month periods). For the third quarter of 2012, the net interest margin was 3.67%, with a 4.67% earning asset yield and a 1.19% cost of funds, compared to 3.71%, 5.14% and 1.68%, respectively, for third quarter 2011.

•

Total assets were $682,802 at September 30, 2012, 1% higher than at December 31, 2011. However, the asset mix at September 30, 2012 reflected a greater percentage of loans than cash as compared to the asset mix at December 31, 2011. Loans were $545,708 at September 30, 2012, $73,219 higher than at December 31, 2011, funded mainly by cash and cash equivalents which declined $64,577. There was moderate and improving loan demand in the markets and higher commercial line of credit usage since December 31, 2011.

•

Total deposits were $554,858 at September 30, 2012, up $3,322, or 1%, from December 31, 2011. Typically there is a pattern in Nicolet’s deposit base where deposits are at their lowest point in September and at their highest point in December. On average, total deposits for the first nine months of 2012 were $531,795, up $7,068 over average deposits for the first nine months of 2011.

•

Noninterest income for the nine months ended September 30, 2012 was $7,986. This is an increase of $1,971, or 32.8%, compared to the nine months ended September 30, 2011. The most significant increase was in mortgage fee income (up $1,410) which continues to experience significant activity in the current low rate environment.

•

For the nine months ended September 30, 2012, noninterest expense increased $1,435, or 8.8%, to $17,722 compared to $16,288 for the nine month period ended September 30, 2011. The most significant increase was in salaries and benefits and data processing expenses. These costs are consistent with Nicolet’s future strategic plans.

Net Interest Income

Net interest income is the primary source of Nicolet’s revenue. Net interest income, which is the difference between interest earned on loans, investments and other earning assets and the interest paid on deposits and other interest-bearing liabilities, is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount 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.

Comparison of nine months ended September 30, 2012 versus September 30, 2011

Net interest income in the consolidated statements of income (which excludes the taxable equivalent adjustment) was $16,053 and $16,217 for the nine months ending September 30, 2012 and 2011, respectively. Taxable equivalent adjustments (adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that been subject to a 34% tax rate) were $464 and $497 for the nine months ending September 30, 2012 and 2011, respectively, resulting in taxable equivalent net interest income of $16,517 and $16,714 for the nine months ending September 30, 2012 and 2011.

For the first nine months of 2012 versus 2011, net interest income benefited from higher loan volumes though at lower yields than the prior year and beneficial growth in the mix of lower costing deposits. The net interest margin for the first nine months of 2012 was 3.59%, 17 bps lower than the comparable margin last

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year. Taxable-equivalent net interest income was $16,517 for the first nine months of 2012, which is a decrease of $197 from the same period in 2011. The margin contraction comes largely from downward pressure on earning asset yields which were down 54 bps to 4.68% for the first nine months of 2012 compared to the same period in 2011. This decline was led by a 40 bps decline in loan yield to 5.15% and a higher mix of low-earning cash balances between the periods.

Nicolet’s cost of funds continued a favorable decline, decreasing 38 bps to 1.32%. This decrease was mainly attributable to a dramatic decline in the volume and cost of brokered deposits between the nine month periods providing a favorable variance to net interest expense of $1,493. The cost of the remaining interest-bearing customer deposits combined (i.e. savings, interest-bearing demand, MMA and time deposits) remained stable, showing a slight unfavorable variance in expense of $73 over the same nine month period in 2011.

Average earning assets were $606,227 for the nine months ending September 30, 2012, compared to $586,540 for the same period in 2011. The increase was primarily from increases in lower interest-bearing cash balances. Loans were declining during the first nine months of 2011 but increasing during the first nine months of 2012 reflecting a similar average balance but with opposite directional trends ending with strong loan growth in 2012. Average interest-bearing liabilities were $502,011 and $505,639 for the nine months ending September 30, 2012 and 2011, respectively.

Comparison of three months ended September 30, 2012 versus September 30, 2011

Net interest income in the consolidated statements of income (which excludes the taxable equivalent adjustment) was $5,650 and $5,250 for the three months ending September 30, 2012 and 2011, respectively. Taxable equivalent adjustments (adjustments to bring tax-exempt interest to a level that would yield the same after-tax income had that been subject to a 34% tax rate) were $147 and $166 for the three months ending September 30, 2012 and 2011, respectively, resulting in taxable equivalent net interest income of $5,797 and $5,416 for the three months ending September 30, 2012 and 2011.

For the third quarter of 2012, the net interest margin was 3.67%, with a 4.67% earning asset yield and a 1.19% cost of funds, compared to 3.71%, 5.14% and 1.68%, respectively, for third quarter 2011. Net interest income for the third quarter of 2012 was $5,797, down $381 from third quarter 2011. Significant favorable volume variances in loans were not enough to offset the continued unfavorable rate variances and total earning assets reflect a decline of $116 in interest income compared to the third quarter of 2011.

Interest expense was favorable by $497 between the comparable third quarters the majority of benefit being reflected in the reductions in brokered deposits. Favorable rate variances continue to be seen in the remaining interest-bearing customer deposits combined.

Average earning assets were $617,172 for the three months ending September 30, 2012, compared to $569,040 for the same quarter in 2011. The increase was primarily from increases in loans. Average interest-bearing liabilities were $469,680 and $440,268 for the quarters ending September 30, 2012 and 2011, respectively, largely from the bigger customer deposit base.

Tables 1 through 4 set forth information to facilitate the review and discussion of selected average balance sheet items, taxable equivalent net interest income, volume and rate differences, interest rate spread and net interest margin.

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Table 1: Year-To-Date Net Interest Income Analysis
(dollars in thousands)


	For the Nine Months Ended September 30,
	2012							2011
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	509,536	$	19,916		5.15	%	$	510,852	$	21,442		5.55	%
Taxable securities		23,066		450		2.56	%		20,678		515		3.27	%
Tax-exempt securities		32,400		1,001		4.06	%		32,600		1,094		4.41	%
Other interest-earning assets		41,225		156		0.70	%		22,410		114		0.67	%
Total interest-earning assets		606,227	$	21,523		4.68	%		586,540	$	23,165		5.22	%
Cash and due from banks		7,740							14,919
Other assets		45,432							40,839
Total assets	$	659,400						$	642,298

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits
Savings	$	29,767	$	99		0.44	%	$	15,693	$	28		0.24	%
Interest-bearing demand		86,602		617		0.95	%		60,712		262		0.57	%
Money Markets		161,664		580		0.48	%		155,327		898		0.77	%
Core CD’s and IRA’s		136,907		1,875		1.82	%		155,678		1,910		1.63	%
Brokered deposits		40,395		458		1.51	%		72,063		1,950		3.61	%
Total interest-bearing deposits		455,335		3,629		1.06	%		459,474		5,048		1.46	%
Other interest-bearing liabilities		46,676		1,377		3.88	%		46,165		1,403		3.99	%
Total interest-bearing liabilities	$	502,011	$	5,006		1.32	%	$	505,639	$	6,451		1.70	%
Non-interest-bearing deposits		76,460							65,253
Other liabilities		4,602							4,221
Stockholders’ equity		76,328							67,185
Total liabilities and stockholders’ equity	$	659,400						$	642,298
Net interest income and interest-rate spread			$	16,517		3.36	%			$	16,714		3.52	%
Net interest margin						3.59	%						3.76	%

(1)

Nonaccrual loans are included in the daily average loan balances outstanding.

(2)

Interest income includes loan fees of $100 in 2012 and $300 in 2011.

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Table 2: Volume/Rate Variance
(dollars in thousands)

Comparison of nine months ended September 30, 2012 versus 2011

	Volume			Rate (1)			Net
Loans (1)	$	(69	)	$	(1,457	)	$	(1,526	)
Investment securities
Taxable		73			(138	)		(65	)
Tax-exempt		(9	)		(84	)		(93	)
Other interest-earning assets		34			8			42
Total earning assets	$	30		$	(1,672	)	$	(1,642	)

Interest-bearing demand	$	141		$	(70	)	$	71
Savings deposits		36			319			355
Money Markets		35			(353	)		(318	)
Core CD’s and IRA’s		(245	)		210			(35	)
Brokered deposits		(645	)		(848	)		(1,492	)
Total interest-bearing deposits		(677	)		(742	)		(1,419	)
Other interest-bearing liabilities		9			(35	)		(26	)
Total interest-bearing liabilities		(668	)		(777	)		(1,445	)
Net interest income	$	698		$	(895	)	$	(197	)

(1)

Nonaccrual loans are included in the daily average loan balances outstanding.

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Table 3: Quarterly Net Interest Income Analysis
(dollars in thousands)

	For the Three Months Ended September 30,
	2012							2011
	Average Balance		Interest		Average Rate			Average Balance		Interest		Average Rate
ASSETS
Interest-earning assets:
Loans, net of unearned income (1)(2)	$	538,989	$	6,852		4.97	%	$	491,361	$	6,902		5.50	%
Taxable securities		24,331		149		2.40	%		20,953		173		3.24	%
Tax-exempt securities		32.412		318		3.84	%		32,961		362		4.30	%
Other interest-earning assets		21,439		41		0.74	%		23,766		39		0.63	%
Total interest-earning assets		617,172	$	7,360		4.67	%		569,040		7,476		5.14	%
Cash and due from banks		14,654							17,404
Other assets		46,406							42,477
Total assets	$	678,232						$	628,921

LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits
Savings	$	35,358	$	40		0.45	%	$	16,765	$	11		0.27	%
Interest-bearing demand		91,455		228		0.99	%		63,322		108		0.67	%
Money Markets		156,079		177		0.45	%		148,613		254		0.68	%
Core CD’s and IRA’s		132,153		584		1.75	%		150,192		697		1.84	%
Brokered CD’s		54,634		83		0.60	%		61,375		519		3.36	%
Total interest-bearing deposits		469,680		1,113		0.94	%		440,268		1,588		1.43	%
Other interest-bearing liabilities		47,275		450		3.72	%		45,512		471		4.05	%
Total interest-bearing liabilities	$	516,955	$	1,563		1.19	%	$	485,780	$	2,060		1.68	%
Non-interest-bearing deposits		79,905							69,111
Other liabilities		5,024							4,627
Stockholders’ equity		76,349							69,404
Total liabilities and stockholders’ equity	$	678,232						$	628,921
Net interest income and interest-rate spread			$	5,797		3.47	%			$	5,416		3.46	%
Net interest margin						3.67	%						3.71	%

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Table 4: Volume/Rate Variance
(dollars in thousands)

Comparison of three months ended September 30, 2012 versus 2011

	Volume			Rate (1)			Net
Loans (1)	$	626		$	(676	)	$	(50	)
Taxable securities		58			(82	)		(24	)
Tax-exempt securities		(23	)		(21	)		(44	)
Other interest-earning assets		—			2			2
Total earning assets	$	662		$	(778	)	$	(116	)

Interest-bearing demand	$	59		$	(29	)	$	29
Savings deposits		18			103			120
Money Markets		12			(89	)		(76	)
Core CD’s and IRA’s		(81	)		(32	)		(113	)
Brokered deposits		(52	)		(385	)		(436	)
Total interest-bearing deposits		(44	)		(432	)		(476	)
Other interest-bearing liabilities		2			(24	)		(21	)
Total interest-bearing liabilities		(41	)		(456	)		(497	)
Net interest income	$	703		$	(322	)	$	381

(1)

Nonaccrual loans are included in the daily average loan balances outstanding.

Provision for Loan Losses

The provision for loan losses for the nine months ended September 30, 2012 and 2011 was $3,350 and $4,800 respectively. The provision for loan losses for the three months ended September 30, 2012 and 2011 was $975 and $1,500, respectively. While decreasing, the level of provision remains higher to accommodate continued loan-workout and loan growth. Net charge-offs were $529 and $1,656 for the third quarter ended September 30, 2012 and 2011, respectively. The decrease in net charge-offs in 2012 was primarily due to aggressive work-out of problem loans occurring in 2011 resulting in overall improved asset quality. At September 30, 2012, December 31, 2011 and September 30, 2011, the ALLL was $6,491, $5,899 and $5,746, respectively. The ratio of the ALLL to total loans for the same period ends was 1.19%, 1.25% and 1.19%, respectively. Nonperforming loans at September 30, 2012, were $15,152, compared to $11,826 at September 30, 2011 representing 2.8% and 2.5% of total loans, respectively, with nonperforming loans at September 30, 2012 including one large credit relationship with strong collateral of approximately $8,800.

The provision for loan losses is predominantly a function of Nicolet’s methodology and judgment as to qualitative and quantitative factors used to determine the adequacy of the ALLL. The adequacy of the allowance is affected by changes in the size and character of the loan portfolio, changes in levels of impaired 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 ALLL, see sections “Financial Condition —Loans,” “—Allowance For Loan Losses,” and “—Impaired Loans and Nonperforming Assets.”

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Noninterest Income

Table 5: Noninterest Income
(dollars in thousands)

	Three months ended										Nine months ended
	September 30, 2012		September 30, 2011		$ Change			% Change			September 30, 2012		September 30, 2011		$ Change			% Change
Service charges on deposit accounts	$	293	$	281	$	12			4.3	%	$	859	$	886	$	(27	)		(3.0	)%
Trust services fee income		759		743		16			2.2	%		2,213		2,231		(18	)		(0.8	)%
Mortgage fee income		846		410		436			106.3	%		2,254		844		1,410			167.1	%
Brokerage fee income		77		77		—			—			241		258		(17	)		(6.6	)%
Gain on sale, disposal and writedown of assets, net		5		54		(49	)		(90.7	)%		388		59		329			557.6	%
Bank owned life insurance		186		146		40			27.4	%		523		433		90			20.8	%
Rent income		264		237		27			11.4	%		744		717		27			3.8	%
Investment advisory fees		82		79		3			3.8	%		254		246		8			3.3	%
Other		173		110		63			57.3	%		509		341		168			49.3	%
Total noninterest income	$	2,685	$	2,137	$	548			25.6	%	$	7,985	$	6,015	$	1,970			32.8	%

Comparison of nine months ended September 30, 2012 versus the nine months ended September 30, 2011

Noninterest income for the first nine months of 2012 was $7,985, up $1,970, or 33%, from the same period in 2011, largely attributable to mortgage banking income which was $2,254, up $1,410 over the comparable period in 2011, which had a slower pace of refinance activity. Mortgage banking income represents net gains received from the sale of residential real estate loans sold (service-released) into the secondary market. Service fees on deposit accounts for the first nine months of 2012 were $859, down $27, or 3%, from the comparable 2011 period, primarily in NSF fees. For the first nine months of 2012, Nicolet recognized a $388 net gain on the sale of assets, as a result of securities sales to recognize accumulated increases, offset by OREO sale losses. Bank-owned life insurance (“BOLI”) income for the first nine months of 2012 was $523, up $90, or 21%, due to a new BOLI investment purchased in the first quarter of 2012. Other income was $509, up $168 over the first nine months of 2011, primarily from higher ancillary fees tied to deposits, such as debit card income and wire transfer fees.

Comparison of three months ended September 30, 2012 versus the three months ended September 30, 2011

Total noninterest income for the quarter ended September 30, 2012 was $2,685 compared to $2,137 during the September 30, 2011 quarter, an increase of $548, or 26%. Third quarter 2012 noninterest income increased primarily due to increased mortgage fee income and other income. The remaining noninterest income categories were relatively stable or slightly improved.

Noninterest Expense

Table 6: Noninterest Expense
(dollars in thousands)

	Three months ended										Nine months ended
	September 30, 2012		September 30, 2011		$ Change			% Change			September 30, 2012		September 30, 2011		$ Change			% Change
Salaries and employee benefits	$	3,325	$	2,926	$	399			13.6	%	$	9,991	$	8,681	$	1,310			15.1	%
Occupancy, equipment and office		1,093		1,108		(15	)		(1.3	)		3,334		3,287		47			1.4
Business development and marketing		438		326		112			34.4			1,134		962		172			17.9
Data processing		444		348		96			27.6			1,255		1,026		229			22.3
FDIC assessments		134		134		—			—			408		504		(96	)		(19.0	)
Core deposit intangible amortization		154		178		(24	)		(13.5	)		490		573		(83	)		(14.5	)
Other		340		467		(127	)		(27.2	)		1,110		1,255		(145	)		(11.6	)
Total noninterest expense	$	5,928	$	5,487	$	441			8.0	%	$	17,722	$	16,288	$	1,434			8.8	%

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Comparison of nine months ended September 30, 2012 versus the nine months ended September 30, 2011

Total noninterest expense was $17,722 for the first nine months of 2012, an increase of $1,434, or 9%, compared to the first nine months of 2011, in part due to carrying costs related to the new branch opened in December 2011. The majority of the noninterest expense increase was due to increased salaries and employee benefits of $1,310, or 15%, higher than the first nine months of 2011, mainly from carrying a larger work force and higher incentives due to improved financial performance in 2012. Data processing increased mainly from the conversion of Nicolet trust system platform in mid-2012. Business development and marketing increased with more loan and deposit gathering initiatives and events in 2012.

Comparison of three months ended September 30, 2012 versus the nine months ended September 30, 2011

Noninterest expense for the third quarter of 2012 increased $441, or 8%, compared to the third quarter of 2011. Salaries and employee benefits increased in conjunction with the growth plans of Nicolet, and data processing costs, business development and marketing expenses increased as a result of asset and customer growth over the prior year. Costs related to occupancy, core deposit intangible amortization and other expenses were reduced.

Income Taxes and Deferred Tax Asset

Nicolet recorded income tax expense of $453 for the third quarter of 2012, compared to $54 for the third quarter of 2011. For the first nine months of 2012, income tax expense totaled $828 compared with expense of $133 for the same period of 2011. The increase in tax expense for the three months and nine months ended September 30, 2012 was due to increased taxable income compared to the 2011 periods.

Under GAAP, Nicolet must periodically analyze its deferred tax asset to determine if a valuation allowance is required. A valuation allowance is required to be recognized if it is “more likely than not” that such deferred tax assets will not be realized. In making that determination, management is required to evaluate both positive and negative evidence, including recent historical financial performance, forecasts of future income, tax planning strategies and assessments of the current and future economic and business conditions. Based upon consideration of the available evidence, including historical losses, which must be treated as substantial negative evidence, and the potential of future taxable income, no valuation allowance was determined to be necessary at September 30, 2012 or 2011, other than for state NOL carry forwards expected to expire unused.

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FINANCIAL CONDITION

Investment Securities Portfolio

The investment securities portfolio is intended to provide Nicolet National Bank with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimum credit exposure to Nicolet National Bank. All securities are classified as available-for-sale and are carried at fair market value. Unrealized gains and losses are excluded from earnings, but are reported as other comprehensive income in a separate component of stockholders’ equity, net of income tax. Premium amortization and discount accretion are recognized as adjustments to interest income using the interest method. Realized gains or losses on sales are based on the net proceeds and the adjusted carrying value amount of the securities sold using the specific identification method.

Table 7: Investments
(dollars in thousands)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012
State, county and municipals	$	32,315	$	1,304	$	—	$	33,619
Mortgage-backed securities		17,412		951		—		18,363
U.S. Government sponsored enterprises		2,499		4		—		2,503
Equity securities		1,624		966		—		2,590
	$	53,850	$	3,225	$	—	$	57,075

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
December 31, 2011
State, county and municipals	$	30,130	$	1,718	$	—	$	31,848
Mortgage-backed securities		17,450		1,042		7		18,484
U.S. Government sponsored enterprises		4,995		24		—		5,020
Equity securities		1,624		—		217		1,407
	$	54,199	$	2,784	$	224	$	56,759

At September 30, 2012, the total carrying value of investment securities was $57,075, an increase of $316, or 0.6%, compared to December 31, 2011, and represented 8.4% of total assets. Primarily due to weak investment returns in 2012, much of Nicolet’s excess liquidity was held in low-rate cash accounts rather than committing funds to longer term investments in this low rate environment.

At September 30, 2012, the securities portfolio did not contain securities of any single issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of shareholders’ equity.

Loans

Total loans were $545,708 at September 30, 2012, an increase of $73,219, or 15.5%, from December 31, 2011. This increase was primarily the result of increased commercial lines and industrial loans, and residential first mortgage loans, which increased by $47,352 and $23,150, respectively, as a result of increased borrower demand, maintaining selected residential mortgages in the portfolio, and active marketing for new loans in Nicolet’s various markets.

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Table 8: Loan Composition
(dollars in thousands)

	As of
	September 30, 2012					June 30, 2012					March 31, 2012					December 31, 2011					September 30, 2011
	Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
Commercial & Industrial	$	201,363		36.9	%	$	199,212		38.5	%	$	168,808		34.9	%	$	154,011		32.6	%	$	157,989		33.0	%
CRE Owner-occupied		112,040		20.5			116,451		22.5			114,037		23.6			111,179		23.5			110,451		23.1
CRE Investment		71,520		13.1			62,857		12.2			62,797		13.0			66,577		14.1			65,966		13.8
Construction & Land Development		26,964		5.0			24,612		4.8			27,934		5.8			24,774		5.2			27,360		5.7
Residential Construction		7,670		1.4			5,961		1.2			4,143		0.9			9,363		2.0			9,794		2.0
Residential First Mortgage		79,543		14.6			63,155		12.2			58,375		12.1			56,392		11.9			55,756		11.6
Residential Junior Mortgage		40,928		7.5			38,082		7.4			40,484		8.3			42,699		9.0			43,848		9.2
Retail & Other		5,680		1.0			6,662		1.2			7,284		1.4			7,494		1.7			7,888		1.6
Total loans	$	545,708		100.0	%	$	516,992		100.0	%	$	483,862		100.0	%	$	472,489		100.0	%	$	479,052		100.0	%

Commercial and commercial real estate loans comprised 75.5% of the loan portfolio at September 30, 2012. Such loans are considered to have more inherent risk of default than residential mortgage or installment loans. The commercial balance per borrower is typically larger than for residential and mortgage loans, implying higher potential losses on an individual customer basis. Commercial loan growth throughout 2012 has been positively impacted by generally improving economic conditions and growth in borrower demand in each of Nicolet’s markets, including the development of new borrowing relationships in the market of its new branch opened in December 2011.

Commercial and industrial loans were $201,363 at September 30, 2012, an increase of $47,352, or 31%, since year-end 2011, and comprised 36.9% of total loans. The commercial business loan classification primarily consists of commercial loans to small businesses, multi-family residential income-producing real estate, and loans to municipalities. Loans of this type include a diverse range of industries. Owner-occupied commercial real estate loans primarily consist of loans secured by business real estate that is occupied by borrowers that also have commercial and industrial loans. Owner-occupied commercial real estate loans were $112,040 at September 30, 2012, up $861, or 0.8%, since year-end 2011, and comprised 20.5% of total loans. Both of these loan segments include a diverse range of industries. The credit risk related to commercial loans and owner-occupied commercial real estate 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. The increase in these commercial loan segments during 2012 was primarily due to increased loan demand from business borrowers, spurred by generally improving economic conditions, as well as development of new commercial business relationships in all of its markets.

Commercial investment real estate loans totaled $71,520 at September 30, 2012, up $4,943, or 7.4%, from December 31, 2011, and comprised 13.1% of total loans, down from 14.1% at the end of 2011. The investment real estate loan classification primarily includes commercial-based mortgage loans that are secured by non-owner occupied, nonfarm/nonresidential real estate properties, as well as multi-family residential properties. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and overall relationship on an ongoing basis.

Construction and land development loans totaled $26,964 at September 30, 2012, up $2,190, or 8.8%, from December 31, 2011, and comprised 5.0% of total loans, down from 5.2% at the end of 2011. Loans in this classification provide financing for the development of commercial income properties, residential subdivisions and lots, multi-family residential development, and land designated for future development. 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

127

analysis of construction advances. Future lending in this segment will focus on loans that are secured by commercial income-producing properties as opposed to speculative real estate development. Residential construction loans totaled $7,670 at September 30, 2012, down $1,693, or 18.1%, from the prior year end, and comprised 1.4% and 2.0% of total loans outstanding at September 30, 2012 and year end 2011, respectively.

Residential first-mortgage real estate loans increased $23,151, or 41.1%, to $79,543, representing 14.6% and 11.9% of the total loan portfolio at September 30, 2012 and the end of 2011, respectively. Residential first mortgage loans include conventional first-lien home mortgages, not including loans held for sale in the secondary market. Residential junior-mortgage real estate loans declined $1,771, or 4.1%, to $40,928, representing 7.5% and 9.0% of the total loan portfolio as of September 30, 2012 and the end of 2011, respectively. Residential junior-mortgage real estate loans consist of home equity lines and term loans secured by junior mortgage liens. The increase in residential first-lien mortgage loans is due to increased borrower demand for new and refinance loans, driven by stabilizing market values and historically low interest rates. In addition, during 2012, Nicolet elected to expand the quantity and amount of first-lien mortgages held in its own portfolio. As part of its management of originating residential mortgage loans, Nicolet continues to sell the majority of its long-term, fixed-rate residential real estate mortgage loans in the secondary market without retaining the servicing rights. At September 30, 2012, $3,484 of residential mortgages were held for resale in the secondary market, compared to $11,373 at December 31, 2011.

Retail consumer loans totaled $5,680 at September 30, 2012, down $1,814, or 24.2%, compared to December 31, 2011, and represented 1.0% and 1.7% of the loan portfolio at September 30, 2012 and year end 2011, respectively. The decline in aggregate consumer loan balances is largely a result of reduced consumer demand and debt retirement. Loans in this classification include short-term and other personal installment loans not secured by real estate. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At September 30, 2012, no significant industry concentrations existed in Nicolet’s portfolio in excess of 25% of total loans. Nicolet National Bank has also developed guidelines to manage its exposure to various types of concentration risks.

Allowance for Loan Losses

At September 30, 2012, the ALLL was $6,491, compared to $5,899 at December 31, 2011. The ALLL as a percentage of total loans was 1.19% and 1.25% at September 30, 2012 and December 31, 2011, respectively. The provision for loan losses for the first nine months of 2012 was $3,350, compared to $4,800 for the first nine months of 2011. Net charge-offs were $2,758 for the nine months ended September 30, 2012, compared to $7,690 for the comparable period in 2011. The ALLL for individually evaluated impaired loans was $165 and $591 at September 30, 2012 and December 31, 2011, respectively, or 1.1% and 6.1% of the respective impaired loan balances.

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The ALLL was 42.8% and 62.3% of nonperforming loans at September 30, 2012 and December 31, 2011, respectively. Gross charge-offs were $2,837 for the first nine months of 2012 compared to $7,743 for the first nine months of 2011, while recoveries for the corresponding periods were $79 and $53, respectively. As a result, net charge-offs at September 30, 2012 were 0.55% of average loans, compared to 1.52% of average loans at September 30, 2011. The decrease in net charge-offs of $4,932 was primarily due a $2,054 decrease in the commercial and industrial loan segment, a $4,023 decrease in the construction and land development loan segment, and net decreases of $85 and $251 in the residential first- and junior lien mortgage segments, respectively. These decreases were partially offset by an $892 increase in the owner-occupied commercial real estate segment, a $305 increase in the investment commercial real estate segment, a $396 increase in the residential construction segment, and a $37 increase in retail and other loans. Nicolet’s improved charge-off experience in 2012 is a result of aggressive recognition of charge-offs in 2011, together with improving asset quality in the current year due to strong efforts to resolve problem loans as well as generally improving economic conditions.

The largest portion of the ALLL at September 30, 2012 was allocated to commercial and industrial loans and was $2,676, an increase of $711 from year-end 2011, and represented 41.2% of the ALLL at September 30, 2012 compared to 33.3% at year-end 2011. The increase in the amount allocated to commercial and industrial loans was attributable to the increase in the balances in the commercial and industrial loan segment, which grew to 36.7% of total loans at September 30, 2012 from 32.6% at year-end 2011. The ALLL allocated to construction and land development loans was $1,904 at September 30, 2012, a decrease of $131 from year-end 2011, and represented 29.3% of the ALLL at September 30, 2012, compared to 34.5% at year-end 2011. The decrease in the construction and land development allocation was due to lower specific allocations for individual loans in this segment, as well as improvement in the risk profile of this segment. No other allocations to the ALLL for other loan segments represented more than 10% of the total ALLL as of September 30, 2012 or year-end 2011. Changes in the amount of ALLL allocation for these remaining loan segments were not significant, and reflect changes in the risk profile of the individual loan segments as well as the composition of the total loan portfolio. Nicolet’s management performs ongoing analyses of its loan portfolios 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 ALLL. Nicolet believes that at September 30, 2012 the ALLL was appropriate to absorb probable incurred losses on existing loans that may become uncollectible.

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Table 9: Loan Loss Experience
(dollars in thousands)

	For the Three Months Ended						For the Nine Months Ended
	September 30, 2012			September 30, 2011			September 30, 2012			September 30, 2011
Allowance for loan losses:
Balance at beginning of period	$	6,045		$	5,901		$	5,899		$	8,635
Loans charged-off:
Commercial & Industrial		52			65			129			2,166
CRE Owner-occupied		301			177			1,327			428
CRE Investment		150			100			305			100
Construction & Land Development		—			1,135			307			4,334
Residential Construction		1			—			396			43
Residential First Mortgage		48			7			216			302
Residential Junior Mortgage		—			198			118			364
Retail & Other		—			5			38			5
Total loans charged-off		552			1,687			2,836			7,742
Recoveries of loans previously charged-off:
Commercial & Industrial		4			3			34			17
CRE Owner-occupied		1			1			9			2
CRE Investment		—			—			—			—
Construction & Land Development		17			26			22			26
Residential Construction		—			—			—			—
Residential First Mortgage		—			2			7			8
Residential Junior Mortgage		1			—			5			—
Retail & Other		—			—			1			—
Total recoveries		23			32			78			53
Total net charge-offs		529			1,655			2,758			7,689
Provision for loan losses		975			1,500			3,350			4,800
Balance at end of period	$	6,491		$	5,746		$	6,491		$	5,746
Ratios at end of period:
Allowance for loan losses to total loans		1.19	%		1.20	%		1.19	%		1.20	%
Allowance for loan losses to net charge-offs		1227.0	%		347.2	%		235.4	%		74.7	%
Net charge-offs to average loans		.10	%		.34	%		.54	%		1.51	%
Net loan charge-offs (recoveries):
Commercial & Industrial	$	48		$	62		$	95		$	2,149
CRE Owner-occupied		300			176			1,318			426
CRE Investment		150			100			305			100
Construction & Land Development		(17	)		1,109			285			4,308
Residential Construction		1			—			396			43
Residential First Mortgage		48			5			209			294
Residential Junior Mortgage		(1	)		198			113			364
Retail & Other		—			5			37			5
Total net charge-offs	$	529		$	1,655		$	2,758		$	7,689

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The allocation of the ALLL is based on management’s estimate of loss exposure by category of loans shown in following table.

Table 10: Allocation of the ALLL
(dollars in thousands)

	September 30, 2012					June 30, 2012					March 31, 2012					December 31, 2011					September 30, 2011
ALLL allocation:
Commercial & Industrial	$	2,676		36.67	%	$	2,645		38.5	%	$	2,192		34.9	%	$	1,965		32.6	%	$	2,733		33.0	%
CRE Owner-occupied		536		20.40	%		552		22.5	%		746		23.6	%		347		23.5	%		486		23.1	%
CRE Investment		298		13.02	%		262		12.2	%		247		13.0	%		393		14.1	%		378		13.8	%
Construction & Land Development		1,904		4.91	%		1,666		4.8	%		1,887		5.8	%		2,035		5.2	%		1,099		5.7	%
Residential Construction		120		1.40	%		79		1.2	%		47		0.9	%		311		2.0	%		122		2.0	%
Residential First Mortgage		506		15.12	%		416		12.2	%		412		12.1	%		405		11.9	%		450		11.6	%
Residential Junior Mortgage		431		7.45	%		401		7.4	%		416		8.3	%		419		9.0	%		446		9.2	%
Retail & Other		20		1.03	%		24		1.2	%		26		1.4	%		24		1.7	%		32		1.6	%
Total allowance for loan losses	$	6,491		100.0	%	$	6,045		100.0	%	$	5,973		100.0	%	$	5,899		100.0	%	$	5,746		100.0	%

ALLL category as a percent of total ALLL:
Commercial & Industrial		41.2	%				43.8	%				36.7	%				33.3	%				47.6	%
CRE Owner-occupied		8.3	%				9.1	%				12.5	%				5.9	%				8.5	%
CRE Investment		4.6	%				4.3	%				4.1	%				6.6	%				6.6	%
Construction & Land Development		29.3	%				27.6	%				31.6	%				34.5	%				19.1	%
Residential Construction		1.9	%				1.3	%				0.8	%				5.3	%				2.1	%
Residential First Mortgage		7.8	%				6.9	%				6.9	%				6.9	%				7.8	%
Residential Junior Mortgage		6.6	%				6.6	%				7.0	%				7.1	%				7.8	%
Retail & Other		0.3	%				0.4	%				0.4	%				0.4	%				0.5	%
Total allowance for loan losses		100.0	%				100.0	%				100.0	%				100.0	%				100.0	%

Impaired Loans and Nonperforming Assets

Nonperforming loans are considered one indicator of potential future loan losses. Nonperforming loans are defined as nonaccrual loans, including those defined as impaired under current accounting standards, loans 90 days or more past due but still accruing interest, and nonaccrual restructured loans. 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. Previously accrued and uncollected interest on such loans is reversed, amortization of related loan fees is suspended, and income is recorded only to the extent that interest payments are subsequently received in cash after a determination has been made that the principal balance of the loan is collectible. If collectability of the principal is in doubt, payments received are applied to loan

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principal. Management considers a loan to be impaired when it is probable Nicolet will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.

Nonperforming loans were $15,152 at September 30, 2012, compared to $9,476 at year-end 2011. Total nonperforming loans have increased $5,676, or 59.9%, since year-end 2011. During the first quarter of 2012, one loan relationship totaling $5.6 million, which was previously classified as a Substandard accruing loan, was moved to nonaccrual status.

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 adequacy of the ALLL. Potential problem loans are generally defined by management to include performing loans rated as Substandard by management, but having 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. Potential problem loans are predominantly commercial loans covering a diverse range of businesses and real estate property types. At September 30, 2012, potential problem loans totaled $11,542. Identifying potential problem loans requires a heightened management review of the pace at which a credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by Nicolet’s customers and on underlying real estate values.

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Table 11: Nonperforming Loans and OREO
(dollars in thousands)

	As of,
	September 30, 2012			June 30, 2012			March 31, 2012			December 31, 2011			September 30, 2011
Nonaccrual loans:
Commercial & Industrial	$	3,986		$	4,088		$	4,473		$	1,744		$	2,424
CRE Owner-occupied		354			389			1,235			934			745
CRE Investment		380			544			555			716			858
Construction & Land Development		8,558			8,531			8,820			3,367			4,740
Residential Construction		397			1,200			1,231			1,480			1,843
Residential First Mortgage		1,326			396			900			1,129			888
Residential Junior Mortgage		—			36			105			106			328
Retail & Other		151			151			151			—			—
Total nonaccrual loans	$	15,152		$	15,335		$	17,470		$	9,476		$	11,826
Accruing loans past due 90 days or more		—			—			—			—			—
Total nonperforming loans	$	15,152		$	15,335		$	17,470		$	9,476		$	11,826
OREO		617			890			260			641			858
Other repossessed assets		—			—			—			—			—
Total nonperforming assets	$	15,769		$	16,225		$	17,730		$	10,117		$	12,684
Total restructured loans accruing	$	—		$	—		$	—		$	—		$	—

RATIOS
Nonperforming loans to total loans		2.78	%		2.97	%		3.61	%		2.01	%		2.47	%
Nonperforming assets to total loans plus OREO		2.89	%		3.13	%		3.66	%		2.14	%		2.64	%
ALLL to nonperforming loans		42.8	%		39.4	%		34.2	%		62.3	%		48.6	%
ALLL to total loans at end of period		1.19	%		1.17	%		1.23	%		1.25	%		1.20	%
Nonperforming loans by type:
Commercial & Industrial	$	3,986		$	4,088		$	4,473		$	1,744		$	2,424
CRE Owner-occupied		354			389			1,235			934			745
CRE Investment		380			544			555			716			858
Construction & Land Development		8,558			8,531			8,820			3,367			4,740
Residential Construction		397			1,200			1,231			1,480			1,843
Residential First Mortgage		1,326			396			900			1,129			888
Residential Junior Mortgage		—			36			105			106			328
Retail & Other		151			151			151			—			—
Total nonperforming loans		15,152			15,335			17,470			9,476			11,826
Commercial real estate owned		412			437			117			566			783
Residential real estate owned		205			453			143			75			75
Total OREO		617			890			260			641			858
Other repossessed assets		—			—			—			—			—
Total nonperforming assets	$	15,769		$	16,225		$	17,730		$	10,117		$	12,684

Deposits

Deposits represent Nicolet’s largest source of funds. Nicolet competes with other bank and nonbank institutions for deposits, as well as with a growing number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Competition for deposits remains high. Challenges to deposit growth include price changes on deposit products given movements in the rate environment, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.

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At September 30, 2012, total deposits were $554,858, up $3,323, or 0.6%, from year-end 2011, primarily due to seasonal fluctuations in noninterest-bearing demand deposits, decreased time deposits, and Nicolet’s strategy to continue to reduce noncore funding sources with continued rewards and other core deposit growth.

Time deposits were $176,246 at September 30, 2012, down $10,034 from December 31, 2011, as customers have moved time deposits into liquid, short-term, non-maturing deposits as time deposit rates have decreased to levels relative to certain non-maturity deposit accounts.

Brokered deposits were approximately $45,607 and $38,609 at September 31, 2012 and December 31, 2011, respectively.

Table 12: Deposit Distribution
(dollars in thousands)

	September 30, 2012				December 31, 2011
Noninterest-bearing demand deposits	$	91,578	16.5	%	$	78,154	14.2	%
Interest-bearing demand deposits		248,947	44.9	%		270,738	49.1	%
Savings deposits		38,087	6.9	%		21,781	3.9	%
Time deposits		176,246	31.7	%		180,862	32.8	%
Total	$	554,858	100.0	%	$	551,535	100.0	%

Contractual Obligations

Nicolet is a party to various contractual obligations requiring the use of funds as part of its normal operations. The table below outlines the principal amounts and timing of these obligations, excluding amounts due for interest, if applicable. Most of these obligations are routinely refinanced into similar replacement obligations. However, renewal of these obligations is dependent on Nicolet’s ability to offer competitive interest rates, liquidity needs, or availability of collateral for pledging purposes.

Table 13: Contractual Obligations
(dollars in thousands)

	Payments due by period
	Total		< 1 year		1-3 years		3-5 years		> 5 years
Subordinated debentures	$	6,186	$	—	$	—	$	—	$	6,186
Other long-term borrowings		10,212		230		503		9,480		—
FHLB borrowings		25,000		10,000		10,000		5,000		—
Total long-term borrowing obligations	$	41,398	$	10,230	$	10,503	$	14,480	$	6,186

Liquidity

Funds are available from a number of basic banking activity sources including the core deposit base, the repayment and maturity of loans, investment securities sales, and sales of brokered deposits. All investment securities are classified as available-for-sale and are reported at fair value on the consolidated balance sheet. Approximately $8,761 of the $57,075 investment securities portfolio on hand at September 30, 2012, was pledged to secure public deposits, short-term borrowings, and repurchase agreements and for other purposes as required by law. Other funding sources available include short-term borrowings, federal funds purchased, and long-term borrowings.

Cash and cash equivalents at September 30, 2012 and December 31, 2011, were $27,552 and $92,129, respectively. The decrease in cash and cash equivalents was due to strong loan growth between December 31, 2011 and September 30, 2012 which was accompanied by modest deposit growth during the same period.

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Nicolet’s liquidity resources were sufficient as of September 30, 2012 to fund its loans and to meet other cash needs when necessary.

Capital

Nicolet 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. Management actively reviews capital strategies for Nicolet and Nicolet National Bank in light of perceived business risks associated with current and prospective earning levels, liquidity, asset quality, economic conditions in the markets served, and the level of dividends available to shareholders.

Nicolet (on a consolidated basis) and Nicolet National Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on Nicolet and Nicolet National Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, Nicolet and Nicolet National Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require Nicolet and Nicolet National Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2011 and 2010, that Nicolet and Nicolet National Bank met all capital adequacy requirements to which they are subject.

As of September 30, 2012 and December 31, 2011, the most recent notifications from the regulatory agencies categorized Nicolet National Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, an institution must maintain minimum Total risk-based, Tier 1 risk- based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since these notifications that management believes have changed Nicolet National Bank’s category.

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A summary of Nicolet’s and Nicolet National Bank’s regulatory capital ratios as of September 30, 2012 and December 31, 2011 are as follows:

Table 14: Capital Ratios
(dollars in thousands)

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions (2)
	Amount		Ratio (1)			Amount		Ratio (1)			Amount		Ratio (1)
As of September 30, 2012
Nicolet
Total capital	$	84,090		15.1	%	$	44,487		8.0	%		N/A		N/A
Tier I capital		77,599		14.0	%		22,243		4.0	%		N/A		N/A
Leverage		77,599		11.5	%		26,897		4.0	%		N/A		N/A
Nicolet National Bank
Total capital	$	78,458		14.5	%	$	43,387		8.0	%	$	54,234		10.0	%
Tier I capital		71,967		13.3	%		21,694		4.0	%		32,541		6.0	%
Leverage		71,967		10.9	%		26,328		4.0	%		32,910		5.0	%
As of December 31, 2011
Nicolet
Total capital	$	82,638		16.7	%	$	39,510		8.0	%		N/A		NA/
Tier I capital		76,739		15.5	%		19,755		4.0	%		N/A		N/A
Leverage		76,739		12.1	%		25,468		4.0	%		N/A		N/A
Nicolet National Bank
Total capital	$	74,586		15.6	%	$	38,340		8.0	%	$	47,925		10.0	%
Tier I capital		68,687		14.3	%		19,170		4.0	%		28,755		6.0	%
Leverage		68,687		11.1	%		24,831		4.0	%		31,039		5.0	%

(1)

The total capital ratio is defined as tier 1 capital plus tier 2 capital divided by total risk-weighted assets. The tier 1 capital ratio is defined as tier 1 capital divided by total risk-weighted assets. The leverage ratio is defined as tier 1 capital divided by the most recent quarter’s average total assets.

(2)

Prompt corrective action provisions are not applicable at the bank holding company level.

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MANAGEMENT OF NICOLET

Continuing Directors

The following table shows for each current director of Nicolet who will remain a director of the combined entity following the merger: (1) his or her name; (2) his or her age at December 31, 2012; (3) how long he or she has been a director of Nicolet; (4) his or her position(s) with Nicolet, other than as a director; and (5) his or her principal occupation and business experience for the past five years. Except as otherwise indicated, each director has been engaged in his or her present principal occupation for more than five years. All directors of Nicolet are also directors of Nicolet National Bank.

Name (Age)	Director Since	Positions and Business Experience
Robert B. Atwell (55)	2000	Chairman and chief executive officer of Nicolet National Bank since 2000 and chairman, president, and chief executive officer of Nicolet since its formation in 2002.

Michael E. Daniels (48)	2000	President and chief operating officer of Nicolet National Bank since 2007, executive vice president and chief lending officer of Nicolet National Bank from 2000 to 2007 and secretary of Nicolet since 2002.

John N. Dykema (49)	2006	Owner, president and chief executive officer of Campbell Wrapper Corporation and Circle Packaging Machinery, Inc., manufacturers of custom packaging machinery.

Gary L. Fairchild (61)	2008	President, owner and chief executive officer of Fairchild Equipment, Inc. serving Wisconsin, Minnesota, and the Upper Peninsula of Michigan. A franchise dealer of forklift trucks, construction equipment, and various handling equipment.

Michael F. Felhofer (55)	2000	Owner and president of Candleworks of Door County, Inc., a candle manufacturer and retailer.

Andrew F. Hetzel, Jr. (56)	2001	President and chief executive officer of NPS Corp. and Blue Ridge Tissue Corp. These companies market and manufacture spill control products, towel and tissue products for the washroom and protective packaging materials. Managing member of Hetzel Enterprises LLC, a real estate holding company.

Donald J. Long, Jr. (55)	2000	Former owner and chief executive officer of Century Drill & Tool Co., Inc., an expediter of power tool accessories.

Benjamin P. Meeuwsen (44)	2008	President and owner of Fourinox, Inc., a custom equipment manufacturing company.

Susan L. Merkatoris (49)	2003	Certified Public Accountant; Owner of Larboard Enterprises, LLC, a packing and shipping franchise doing business as The UPS Stores; Co-owner and vice president of Midwest Stihl Inc., a distributor of Stihl Power Products.

Therese B. Pandl (59)	2010	President and chief executive officer of the Hospital Sisters Health System’s Division in Eastern Wisconsin, which includes St. Vincent Hospital and St. Mary’s Hospital Medical Center in Green Bay and St. Nicholas Hospital in Sheboygan; President and chief executive officer of St. Mary’s Hospital Medical Center and St. Vincent Hospital in Green Bay.

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Name (Age)	Director Since	Positions and Business Experience

Randy J. Rose (58)	2012	Retired president and chief executive officer of Schwabe North America. Currently serves as a member of the Executive Strategic Committee for Dr. Willmar Schwabe GmbH and Co. KG, parent of Schwabe North America, which encompasses Nature’s Way Holding Company, Enzymatic Therapy, and Integrative Therapeutics.

Robert J. Weyers (48)	2000	Co-owner of Weyers Group, a private equity investment firm; Commercial Horizons, Inc., a commercial property development company; and PBJ Holdings, LLC, a real estate holding company (see “Related Party Transactions”).

New Directors of the Combined Entity

In addition to the above listed directors who will remain directors of Nicolet following the merger, Nicolet will appoint two current directors of Mid-Wisconsin, Kim A. Gowey and Christopher Ghidorzi, to its board of directors effective upon the consummation of the merger as a condition of the merger agreement. Dr. Gowey and Mr. Ghidorzi will serve until Nicolet’s next annual meeting of shareholders or their earlier resignation or removal under Nicolet’s bylaws and will be nominated for election at the first Nicolet annual meeting of shareholders following the expiration of their initial term. They will also serve as directors of Nicolet National Bank upon consummation of the bank merger.

Meetings and Committees of the Board of Directors

Nicolet’s board of directors conducts its business through meetings of the full board and through committees. Board committees include, among others, an Executive Committee, an Audit Committee and a Compensation Committee. During 2012, the board of directors held 12 meetings; the Executive Committee held three meetings; the Audit Committee held 6 meetings and the Compensation Committee held three meetings.

Executive Committee

The Executive Committee is authorized to exercise the board of directors’ authority between board meetings, subject to specific limitations. It functions as a nominating committee to select nominees for election to the board of directors and supports strategic discussions presented by management. The Executive Committee does not have a charter. The Executive Committee will consider nominees recommended by shareholders if submitted to Nicolet in accordance with the procedures set forth in Section 2.6 of Nicolet’s bylaws. See “Director Nominations and Shareholder Communications” below.

Current Executive Committee members are Robert B. Atwell, Michael E. Daniels, John Dykema, Donald J. Long, Jr., and Robert J. Weyers.

Audit Committee

The Audit Committee is responsible for reviewing, with Nicolet’s independent accountants, its audit plan, the scope and results of its audit engagement and the accompanying management letter, if any; reviewing the scope and results of Nicolet’s internal auditing procedures; consulting with the independent accountants and management with regard to Nicolet’s accounting methods and the adequacy of Nicolet’s internal accounting controls; pre-approving all audit and permissible non-audit services provided by the independent accountants; reviewing the independence of the independent accountants; and reviewing the range of the independent accountants’ audit and non-audit fees.

The current members of the Audit Committee are Susan L. Merkatoris, John N. Dykema, Michael F. Felhofer, and Ben Meeuwsen. Although Nicolet’s common stock is not listed on an exchange, each member of the Audit Committee meets the requirements for independence as defined by Nasdaq Stock Market listing

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standards. In addition, Ms. Merkatoris meets the criteria specified under applicable SEC regulations for an “audit committee financial expert.”

Compensation Committee

The Compensation Committee is responsible for, among other duties as may be directed by the board, determining compensation to be paid to Nicolet’s executive officers and directors and reviewing and administering Nicolet’s incentive plans, including making grants under those plans. The Compensation Committee also reviews Nicolet’s incentive compensation programs with senior risk officers to (i) ensure that the programs do not encourage officers to take unnecessary and excessive risks that threaten the value of Nicolet and (ii) identify and implement means of limiting such risks. The Compensation Committee is also responsible for discussing evaluating and reviewing employee compensation plans to ensure that such plans do not encourage the manipulation of Nicolet’s reported earnings. Finally, the Compensation Committee is responsible for submitting to various regulators such reports relating to Nicolet’s compensation practices as may be required.

The current members of the Compensation Committee are Donald J. Long, Jr., John Dykema, and Robert J. Weyers. Each member is an independent director under the standards promulgated by the NASDAQ Stock Market, with the exception of Mr. Weyers due to his ownership interest in PBJ Holdings, LLC. For further discussion, see “Related Party Transactions” at page 144.

Nominations

Nicolet’s board of directors has not created a standing nominating committee for director nominees and has not adopted a nominating committee charter. Rather, the full board of directors participates in the consideration of director nominees. Because of its current size, Nicolet believes a standing nominating committee for director nominees is not necessary.

Any shareholder of any class of outstanding capital stock of the corporation entitled to vote on the election of directors may also nominate individuals for election to the board of directors. Nominations, other than those made by the board of directors, must be in writing and must be delivered or mailed to the President of Nicolet not less than 14 days nor more than 50 days prior to any meeting of shareholders called for the election of directors, provided, however, that if less than 21 days’ notice of such meeting is given to shareholders, nominations by a shareholder must be delivered or mailed to the President of Nicolet no later than the close of business on the 7^th day following the day on which notice of the meeting was given to shareholders. Written nominations by shareholders must contain, to the extent known to the nominating shareholder, the name and address of each proposed nominee, the principal occupation of each proposed nominee, the total number of shares of Nicolet that will be voted for each nominee, the name and address of the nominating shareholder, and the number of shares of capital stock owned by the nominating shareholder. Nominations not made in accordance with these requirements may be disregarded by the chairman of the meeting, and votes for such nominees disregarded.

Nicolet’s board of directors has not adopted a formal policy or process for identifying or evaluating nominees, but informally solicits and considers recommendations from a variety of sources, including other directors, members of the community, customers and shareholders of Nicolet, and professionals in the financial services and other industries. Similarly, the board does not prescribe any specific qualifications or skills that a nominee must possess, although it considers the potential nominee’s business experience; knowledge of Nicolet and the financial services industry; experience in serving as a director of Nicolet or another financial institution or public company generally; wisdom, integrity and analytical ability; familiarity with and participation in the communities served by Nicolet; commitment to and availability for service as a director; and any other factors the board deems relevant.

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Director Compensation

In 2012, directors received $500 for each board meeting and $250 for each committee meeting attended. The audit committee chair received $400 for each audit committee meeting. In 2011, directors received $400 for each board meeting and $200 for each committee meeting attended. Compensation for employee/directors of Nicolet is included in the table below.

The following table shows information concerning the compensation paid to the directors of Nicolet and its subsidiaries for their services as Directors during the fiscal year ended December 31, 2012. See “Executive Compensation” below for additional information regarding the compensation paid to Messrs. Atwell and Daniels in their capacities as executive officers of Nicolet.

Name	Fees earned or paid in cash*
Robert B. Atwell	$	14,750
Michael E. Daniels		16,750
John N. Dykema*		10,000
Gary L. Fairchild*		9,250
Michael F. Felhofer		14,250
Andrew F. Hetzel, Jr.*		7,250
Donald J. Long, Jr.		11,000
Benjamin P. Meeuwsen*		9,250
Susan L. Merkatoris		13,150
Therese B. Pandl*		7,000
Randy J. Rose*		5,500
Robert J. Weyers*		11,000

Directors have the option of receiving their compensation in the form of Nicolet common stock through the Deferred Compensation Plan for Non-Employee Directors. For the seven directors noted, their 2012 cash director fees were remitted to the plan and used by the plan to purchase Nicolet common stock on behalf of the director.

Executive Officers

Executive officers are appointed annually at the meetings of the board of directors of Nicolet, to serve until their successors are chosen and qualified. The following table sets forth for each executive officer of Nicolet: (1) the person’s name; (2) his or her age at December 31, 2012; (3) the year he or she was first elected as an officer of Nicolet; and (4) his or her positions with Nicolet, and his or her recent business experience for the past five years. The listed executive officers will continue to be Nicolet’s executive officers after the merger.

Name (Age)	Officer Since	Business Experience and Position with Nicolet
Robert B. Atwell (55)	2000	Chairman and chief executive officer of Nicolet National Bank since 2000 and chairman, president and chief executive officer of Nicolet since its formation in 2002.

Michael E. Daniels (48)	2000	President and chief operating officer of Nicolet National Bank since 2007, executive vice president and chief lending officer of Nicolet National Bank from 2000 to 2007 and secretary of Nicolet since 2002.

Ann K. Lawson (52)	2009	Chief financial officer of Nicolet National Bank and of Nicolet since February 2, 2009. Ms. Lawson previously served as the director of corporate accounting and reporting with a large regional bank holding company headquartered in Green Bay, Wisconsin, from September 1998 to January 2009.

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EXECUTIVE COMPENSATION

Summary Compensation Table

Nicolet has designated its chief executive officer and two other officers as “executive officers” in accordance with SEC reporting requirements. The following table provides certain summary information for the years ended December 31, 2012 and 2011 concerning the compensation paid or accrued by Nicolet and its subsidiaries to or on behalf of these officers.

Name
Robert B. Atwell	2012	350,000	140,000	322,575	⁽⁶⁾	314,115	82,923	⁽²⁾	1,209,613
	2011	350,000	30,000	0		0	22,536	⁽²⁾	402,536

Michael E. Daniels	2012	295,000	118,000	322,575	⁽⁶⁾	314,115	71,654	⁽³⁾	1,121,344
	2011	295,000	25,000	0		0	21,309	⁽³⁾	341,309

Ann K. Lawson	2012	150,026	30,000	27,225		24,350	10,502	⁽⁴⁾	242,103
	2011	145,656	25,000	0		0	8,739	⁽⁴⁾	179,395

(1)

All bonuses are reported for the year in which they are earned.

(2)

Includes $15,000 and $14,700 of 401(k) company matching contributions and discretionary profit sharing and $7,923 and $7,836 of life insurance premiums for 2012 and 2011, respectively. 2012 also includes $60,000 cash consideration paid to Mr. Atwell for signing a revised employment agreement in 2012.

(3)

Includes $15,000 and $14,700 of 401(k) company matching contributions and discretionary profit sharing and $6,654 and $6,609 of life insurance premiums for 2012 and 2011, respectively. 2012 also includes $50,000 cash consideration paid to Mr. Daniels for signing a revised employment agreement in 2012.

(4)

Includes $10,502 and $8,739 of 401(k) company matching contributions and discretionary profit sharing for 2012 and 2011, respectively.

(5)

Nicolet have omitted information on perquisites and other personal benefits with an aggregate value below $10,000.

(6)

Reflects the fair value of restricted stock on the date of grant. Does not include 5,303 shares of restricted stock issued to each of Messrs. Atwell and Daniels in January 2013 and described in “— 2013 Restricted Stock Awards” below.

Employment Agreements.

Robert B. Atwell. Effective April 7, 2000, Nicolet National Bank entered into a rolling three-year employment agreement with Robert B. Atwell regarding Mr. Atwell’s employment. Under the terms of the agreement, Mr. Atwell received a fixed annual base salary during the initial three-year term, plus benefits, and annual bonus compensation pursuant to any incentive compensation program as may be adopted from time to time by the Board of Directors. Mr. Atwell’s compensation, including incentive compensation, is subject to annual review by the Board of Directors, and his 2011 and 2012 compensation is described in the Summary Compensation Table above.

Mr. Atwell’s agreement automatically renews for an additional day each day after April 7, 2000, so that it always has a three-year term, unless either of the parties to the agreement gives notice of his or its intent not to renew the agreement, which will cause the agreement to terminate on the third anniversary of the 30th day following the date of notice. The agreement also provides various other benefits and change in control provisions, and subjects Mr. Atwell to non-compete restrictions. Mr. Atwell’s employment agreement was amended and restated on April 17, 2012 to expand the geographic region subject to the non-compete

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restrictions. Additionally, under Mr. Atwell’s agreement, Nicolet is obligated to pay Mr. Atwell his base salary and health insurance reimbursement, as indicated, for the following terminating events:

Terminating Event				Payment Obligation of Base Salary
Mr. Atwell becomes disabled, as defined				Maximum of six (6) months

Nicolet National Bank terminates Mr. Atwell’s employment without cause, as defined				Maximum of twelve (12) months salary and health insurance reimbursement

Mr. Atwell terminates his employment for cause, as defined				Maximum of twelve (12) months salary and health insurance reimbursement

Mr. Atwell terminates his employment for cause within six months after a change of control, as defined				One and one-half times base salary and bonus and twelve (12) months health insurance reimbursement

Michael E. Daniels. Effective April 7, 2000, Nicolet National Bank entered into a rolling three-year employment agreement with Michael E. Daniels regarding Mr. Daniels’ employment. Under the terms of the agreement, Mr. Daniels received a fixed annual base salary during the initial three-year term, plus benefits and annual bonus compensation pursuant to any incentive compensation program as may be adopted from time to time by the Board of Directors. Mr. Daniels’ compensation is subject to annual review by the Board of Directors, and his 2011 and 2012 compensation is described in the Summary Compensation Table above.

Mr. Daniels’ agreement automatically renews for an additional day each day after April 7, 2000, so that it always has a three-year term, unless any of the parties to the agreement gives notice of his or its intent not to renew the agreement, which will cause the agreement to terminate on the third anniversary of the 30th day following the date of notice. The agreement also provides various other benefits and change in control provisions, and subjects Mr. Daniels to non-compete restrictions. Mr. Daniels’ employment agreement was amended and restated on April 17, 2012 to expand the geographic region subject to the non-compete restrictions. Additionally, under Mr. Daniels’ agreement, Nicolet is obligated to pay Mr. Daniels his base salary and health insurance reimbursement following the termination of his agreement under the same conditions and terms as described above for Mr. Atwell’s employment agreement.

2013 Restricted Stock Awards

Nicolet has, from time to time and as reflected in each of the Summary Compensation Table, above, and the Outstanding Equity Awards at 2012 Fiscal Year End Table, below, provided incentive equity awards to certain of its executive officers. In addition, in 2012, Nicolet’s Compensation Committee approved annual incentive targets for the performance of its Chief Executive Officer and Chief Operating Officer in 2012, which were met and resulted in the granting of equity awards to each officer in early 2013. In January 2013, Nicolet granted awards of restricted stock to Messrs. Atwell and Daniels in the amount of 5,303 shares each. The terms of this restricted stock provide for vesting in equal increments, with one-third of the granted shares vesting immediately, one-third of the granted shares vesting on the first anniversary of the grant date, and one-third of the granted shares vesting on the second anniversary of the grant date, with immediate, accelerated vesting in the event of a termination of employment based on death or disability or upon a change in control of Nicolet. The terms of the restricted stock also permit the surrender of shares to Nicolet on vesting in order to satisfy applicable tax withholding requirements, and each of Messrs. Atwell and Daniels surrendered 583 shares in connection with that portion of their respective awards that vested immediately in January 2013.

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Outstanding Equity Awards at 2012 Fiscal Year End Table

The following table sets forth information at December 31, 2012, concerning outstanding awards previously granted to the named executive officers.

	Option Awards									Stock Awards
Name	Number of securities underlying unexercised options exercisable (#)		Number of securities underlying unexercised options Unexercisable (#)			Equity Incentive Plan Awards: Number of shares underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date		Number of shares of units of stock that have not vested (#)			Market value of shares or units of stock that have not vested ($)		Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Robert B. Atwell		79,570		0			0		18.00		12/13/2015
		44,444		11,111	⁽¹⁾		0		18.00		12/13/2015
		0		64,500	⁽²⁾		0		16.50		4/10/2022
													19,550	^{(7) (8)}		322,575		0		0
Michael E. Daniels		79,570		0			0		18.00		12/13/2015
		44,444		11,111	⁽¹⁾		0		18.00		12/13/2015
		0		64,500	⁽²⁾		0		16.50		4/10/2022
													19,550	^{(7) (8)}		322,575		0		0
Ann K. Lawson		12,000		8,000	⁽³⁾		0		16.00		2/2/2019
		6,000		4,000	⁽⁴⁾		0		16.80		12/15/2019
		355		710	⁽⁵⁾		0		16.50		4/10/2012
		145		3,790	⁽⁶⁾		0		16.50		4/10/2022
													1,650	⁽⁹⁾		27,225		0		0

(1)

Represents the unvested remainder of a grant of 55,555 options made on December 13, 2005, which vest in 10 equal annual increments beginning on the date of grant.

(2)

Granted on April 10, 2012, and vesting in 5 equal increments over a 5-year period on the anniversaries of the initial grant.

(3)

Represents the unvested remainder of a grant of 20,000 options made on February 2, 2009, which vest in 5 equal increments over a 5-year period on the anniversaries of the initial grant.

(4)

Represents the unvested remainder of a grant of 10,000 options made on December 15, 2009, which vest in 5 equal increments over a 5-year period on the anniversaries of the initial grant.

(5)

Represents the unvested remainder of a grant of 1,065 options made on April 10, 2012, of which one-third vested immediately and one-third vest on each of the first and second anniversaries of the initial grant.

(6)

Represents the unvested remainder of a grant of 3,935 options made on April 10, 2012, of which 145 vested immediately, 145 will vest on each of April 10, 2013 and April 10, 2014, and the remainder will vest in equal increments of 500 over the seven years subsequent to 2014 on the anniversaries of the initial grant.

(7)

Represents the unvested remainder of a grant of 19,550 restricted shares made on April 10, 2012, which vest in 5 equal increments over a 5-year period on the anniversaries of the initial grant.

(8)

Excludes restricted stock granted in January, 2013.

(9)

Represents the unvested remainder of a grant of 1,650 restricted shares made on April 10, 2012, which vest in 10 equal increments over a 10-year period on the anniversaries of the initial grant.

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RELATED PARTY TRANSACTIONS

Nicolet and its subsidiary Nicolet National Bank have banking and other business transactions in the ordinary course of business with directors and officers of Nicolet and Nicolet National Bank and their affiliates, including members of their families, corporations, partnerships or other organizations in which such directors and officers have a controlling interest. These transactions take place on substantially the same terms as those prevailing at the same time for comparable transactions with unrelated parties.

One of Nicolet’s directors, Robert J. Weyers, is a director of, and holds a one-third ownership interest in, PBJ Holdings, LLC, a real estate development and investment firm. In 2004, Nicolet entered into a joint venture with PBJ Holdings, LLC in connection with the development of the site of Nicolet’s headquarters facility. Mr. Weyers abstained from discussion or deliberations regarding the transaction in his capacity as a director of Nicolet and Nicolet National Bank. The joint venture involves a 50% investment by Nicolet on standard commercial terms reached through arms-length negotiation. During 2012, Nicolet National Bank paid approximately $978,000 in rent expense to the joint venture. For 2012, the joint venture’s net income was approximately $113,000, benefiting Nicolet and PBJ Holdings, LLC by approximately $56,500 each. Additionally, in 2011, Nicolet National Bank entered into a five-year facility lease through an arms-length negotiation with an LLC entity of which PBJ Holdings is the sole member. Nicolet National Bank pays approximately $ 64,000 per year in rent and CAM to the LLC under this lease. Management believes that the terms of the joint venture and lease described above are no less favorable to Nicolet National Bank or Nicolet than would have been achieved in a transaction with an unaffiliated third party.

From time to time, Nicolet National Bank will make loans to the directors and officers of Nicolet and Nicolet National Bank and their affiliates. None of these loans are currently nonaccrual, past due, restructured or potential problem loans. All such loans were: (i) made in the ordinary course of business; (ii) made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable loans with persons not related to Nicolet or Nicolet National Bank, and did not involve more than the normal risk of collectibility or present other unfavorable features.

Nicolet National Bank has employed certain employees who are related to Nicolet’s executive officers and/or directors. These individuals are compensated consistent with the policies of Nicolet National Bank that apply to all employees.

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INFORMATION ABOUT MID-WISCONSIN

General

Mid-Wisconsin was established as a Wisconsin corporation in 1986 to serve as a bank holding company for Mid-Wisconsin Bank, its current operating subsidiary. Both Mid-Wisconsin and Mid-Wisconsin Bank have their principal offices in Medford, Wisconsin. As the sole shareholder of Mid-Wisconsin Bank, Mid-Wisconsin is a bank holding company registered with, and subject to, regulation by the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended.

Mid-Wisconsin Bank

Mid-Wisconsin Bank was incorporated on September 1, 1890, as a state bank under the laws of Wisconsin. Mid-Wisconsin Bank operates 11 retail banking locations throughout North Central Wisconsin serving markets in Clark, Eau Claire, Lincoln, Marathon, Oneida, Price, Taylor and Vilas counties.

The day-to-day management of Mid-Wisconsin Bank rests with its officers with oversight provided by the board of directors. Mid-Wisconsin Bank is engaged in general commercial and retail banking services, including wealth management services. Mid-Wisconsin Bank serves individuals, businesses and governmental units and offers most forms of commercial and consumer lending, including lines of credit, term loans, real estate financing, mortgage lending and agricultural lending. In addition, Mid-Wisconsin Bank provides a full range of personal banking services, including checking accounts, savings and time products, installment and other personal loans, as well as mortgage loans. To expand services to its customers on a 24-hour basis, Mid-Wisconsin Bank offers ATM services, merchant capture, cash management, express phone, online and mobile banking. New services are frequently added.

Mid-Wisconsin Bank’s wealth management division (“Wealth Management”) consists of two delivery methods of providing financial products and services to assist customers in building, investing, or protecting their wealth. Through its state granted trust powers, Wealth Management provides fiduciary, administrative, and investment management services to personal trusts, estates, individuals, businesses, non-profits, and foundations for an asset based fee. Through a third-party broker/dealer, LPL Financial, which is a member of FINRA and SIPC and a registered broker/dealer, Wealth Management makes available a variety of retail investment and insurance products including equities, bonds, fixed and variable annuities, mutual funds, life insurance, long-term care insurance and brokered certificates of deposits, which are commission-based transactions.

All of Mid-Wisconsin Bank’s products and services are directly or indirectly related to the business of community banking and all activity is reported as one segment of operations. All revenue, profit and loss, and total assets are reported in one segment and represent Mid-Wisconsin Bank’s entire operations.

At September 30, 2012, Mid-Wisconsin had total consolidated assets of approximately $464 million, total consolidated deposits of approximately $364 million, total consolidated gross loans of approximately $308 million, and consolidated shareholders’ equity of approximately $37 million.

Available Information

Financial information, information relating to executive compensation, various benefit plans, voting securities and the principal holders of voting securities, relationships and related transactions and other related matters as to Mid-Wisconsin are set forth in Mid-Wisconsin’s Form 10-K Annual Report for the year ended December 31, 2011, a copy of which is included as Appendix E to this joint proxy statement-prospectus. Additional financial information as to Mid-Wisconsin for the nine months ended September 30, 2012 is set forth in Mid-Wisconsin’s Form 10-Q Quarterly Report, a copy of which is included as Appendix F to this joint proxy statement-prospectus.

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Market Prices of and Dividends Declared on Mid-Wisconsin Common Stock

The Mid-Wisconsin common stock is currently traded on the OTCQB market of the OTC Markets Group under the symbol “MWFS.” The last reported sale price of Mid-Wisconsin’s common stock prior to the mailing of this joint proxy statement-prospectus on , 2013 was $ on , 2013, and the last reported sale price prior to the announcement of the merger was $3.94 on November 28, 2012. Additional information available to management regarding the quarterly high and low bid prices for the Mid-Wisconsin common stock is provided below. For quarters where there were no sales of Mid-Wisconsin common stock, neither high nor low prices are given. As of , 201 , Mid-Wisconsin had shares of common stock issued and outstanding and approximately shareholders of record.

	High		Low
2012
Fourth Quarter	$	4.75	$	4.05
Third Quarter	$	6.50	$	4.50
Second Quarter	$	6.00	$	4.80
First Quarter	$	5.60	$	3.94

2011
Fourth Quarter	$	5.00	$	3.50
Third Quarter	$	8.70	$	4.75
Second Quarter	$	8.00	$	4.75
First Quarter	$	8.05	$	7.90

The holders of Mid-Wisconsin common stock receive dividends if and when declared by the Mid-Wisconsin board of directors out of legally available funds. However, Mid-Wisconsin has paid no dividends on its common stock since August 2009 and is subject to a written agreement with the Federal Reserve Bank of Minneapolis that, among other things, prohibits Mid-Wisconsin’s payment of dividends absent the prior written consent of the Federal Reserve. In addition, Mid-Wisconsin’s ability to pay dividends on its common stock is restricted by the terms of certain of its other securities. For example, under the terms of the Debentures, Mid-Wisconsin may not pay dividends on its capital stock unless all accrued and unpaid interest payments on the Debentures have been fully paid. Additionally, the terms of the Preferred Stock provide that no dividends on any common or preferred stock that ranks equal to or junior to the Preferred Stock may be paid unless and until all accrued and unpaid dividends for all past dividend periods on the Preferred Stock have been fully paid. The principal source of Mid-Wisconsin cash flow, including cash flow to pay dividends to its shareholders, stems from dividends that Mid-Wisconsin Bank pays to Mid-Wisconsin as its sole shareholder. Statutory and regulatory limitations, as well as other factors that their board of directors deems relevant, apply to Mid-Wisconsin Bank’s payment of dividends to the Mid-Wisconsin, as well as to Mid-Wisconsin’s payment of dividends to its shareholders.

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SUPERVISION AND REGULATION

Both Nicolet and Nicolet National Bank are subject to extensive state and federal banking laws and regulations that impose restrictions on and provide for general regulatory oversight of their operations. These laws and regulations are generally intended to protect depositors and not stockholders. Legislation and regulations authorized by legislation influence, among other things:

•

how, when, and where Nicolet and Nicolet National Bank may expand geographically;

•

into what product or service markets Nicolet and Nicolet National Bank may enter;

•

how Nicolet and Nicolet National Bank must manage their assets; and

•

under what circumstances money may or must flow between the parent bank holding company and the subsidiary bank.

Set forth below is an explanation of the major pieces of legislation and regulation affecting the banking industry and how that legislation and regulation affects Nicolet’s actions. The following summary is qualified by reference to the statutory and regulatory provisions discussed. Changes in applicable laws or regulations may have a material effect on the business and prospects of Nicolet or Nicolet National Bank, and legislative changes and the policies of various regulatory authorities may significantly affect their operations. Nicolet cannot predict the effect that fiscal or monetary policies, or new federal or state legislation may have on the future business and earnings of Nicolet or Nicolet National Bank.

Regulation of Nicolet

Because Nicolet owns all of the capital stock of Nicolet National Bank, it is a bank holding company under the federal Bank Holding Company Act of 1956 (the “Bank Holding Company Act”). As a result, Nicolet is primarily subject to the supervision, examination, and reporting requirements of the Bank Holding Company Act and the regulations of the Board of Governors of the Federal Reserve System (the “Federal Reserve”). As a bank holding company located in Wisconsin, the WDFI also regulates and monitors all significant aspects of its operations.

Acquisitions of Banks

The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve before:

•

acquiring direct or indirect ownership or control of any voting shares of any bank if, after the acquisition, the bank holding company will directly or indirectly own or control more than 5% of the bank’s voting shares;

•

acquiring all or substantially all of the assets of any bank; or

•

merging or consolidating with any other bank holding company.

Additionally, The Bank Holding Company Act provides that the Federal Reserve may not approve any of these transactions if it would result in or tend to create a monopoly, substantially lessen competition, or otherwise function as a restraint of trade, unless the anti-competitive effects of the proposed transaction are clearly outweighed by the public interest in meeting the convenience and needs of the community to be served. The Federal Reserve is also required to consider the financial and managerial resources and future prospects of the bank holding companies and banks involved in the transaction and the convenience and needs of the community to be served. The Federal Reserve’s consideration of financial resources generally focuses on capital adequacy, which is discussed below.

Under The Bank Holding Company Act, if adequately capitalized and adequately managed, Nicolet or any other bank holding company located in Wisconsin may purchase a bank located outside of Wisconsin. Conversely, an adequately capitalized and adequately managed bank holding company located outside of Wisconsin may purchase a bank located inside Wisconsin. In each case, however, restrictions may be placed

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on the acquisition of a bank that has only been in existence for a limited amount of time or will result in specified concentrations of deposits.

Change in Bank Control

Subject to various exceptions, The Bank Holding Company Act and the Change in Bank Control Act, together with related regulations, require Federal Reserve approval prior to any person or company acquiring “control” of a bank holding company. Control is conclusively presumed to exist if an individual or company acquires 25% or more of any class of voting securities of the bank holding company. Control is rebuttably presumed to exist if a person or company acquires 10% or more, but less than 25%, of any class of voting securities and either:

•

the bank holding company has registered securities under Section 12 of the Securities Act of 1934; or

•

no other person owns a greater percentage of that class of voting securities immediately after the transaction.

Following the completion of the merger, Nicolet’s common stock will not be registered under Section 12 of the Securities Exchange Act of 1934. The regulations provide a procedure for challenging rebuttable presumptions of control.

Permitted Activities

The Bank Holding Company Act has generally prohibited a bank holding company from engaging in activities other than banking or managing or controlling banks or other permissible subsidiaries and from acquiring or retaining direct or indirect control of any company engaged in any activities other than those determined by the Federal Reserve to be closely related to banking or managing or controlling banks as to be a proper incident thereto. Provisions of the Gramm-Leach-Bliley Act have expanded the permissible activities of a bank holding company that qualifies as a financial holding company. Under the regulations implementing the Gramm-Leach-Bliley Act, a financial holding company may engage in additional activities that are financial in nature or incidental or complementary to financial activities. Those activities include, among other activities, certain insurance and securities activities.

To qualify to become a financial holding company, Nicolet National Bank and any other depository institution subsidiary of Nicolet must be well capitalized and well managed and must have a Community Reinvestment Act rating of at least “satisfactory.” Additionally, Nicolet must file an election with the Federal Reserve to become a financial holding company and must provide the Federal Reserve with 30 days’ written notice prior to engaging in a permitted financial activity. While Nicolet meets the qualification standards applicable to financial holding companies, Nicolet has not elected to become a financial holding company at this time.

Support of Subsidiary Institutions

Under Federal Reserve policy, Nicolet is expected to act as a source of financial strength for Nicolet National Bank and to commit resources to support Nicolet National Bank. In addition, pursuant to the Dodd-Frank Act, the federal banking regulators are required to issue, within two years of enactment, rules that require a bank holding company to serve as a source of financial strength for any depository institution subsidiary. This support may be required at times when, without this Federal Reserve policy or the impending rules, Nicolet might not be inclined to provide it. In addition, any capital loans made by Nicolet to Nicolet National Bank will be repaid only after Nicolet National Bank’s deposits and various other obligations are repaid in full. In the unlikely event of its bankruptcy, any commitment that Nicolet gives to a bank regulatory agency to maintain the capital of Nicolet National Bank will be assumed by the bankruptcy trustee and entitled to a priority of payment.

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Sarbanes-Oxley Act of 2002

On July 30, 2002, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) was signed into law and became some of the most sweeping federal legislation addressing accounting, corporate governance, and disclosure issues. The impact of the Sarbanes-Oxley Act is wide-ranging as it applies to all public companies and imposes significant new requirements for public company governance and disclosure requirements.

In general, the Sarbanes-Oxley Act mandated important new corporate governance and financial reporting requirements intended to enhance the accuracy and transparency of public companies’ reported financial results. It established new responsibilities for corporate chief executive officers, chief financial officers and audit committees in the financial reporting process and created a new regulatory body to oversee auditors of public companies. It backed these requirements with new SEC enforcement tools, increases criminal penalties for federal mail, wire and securities fraud, and created new criminal penalties for document and record destruction in connection with federal investigations. It also increased the opportunity for more private litigation by lengthening the statute of limitations for securities fraud claims and provided new federal corporate whistleblower protection.

The economic and operational effects of this legislation on public companies, including us, is significant in terms of the time, resources and costs associated with complying with this law. Because the Sarbanes-Oxley Act, for the most part, applies equally to larger and smaller public companies, Nicolet is presented with additional challenges as a smaller, community-oriented financial institution seeking to compete with larger financial institutions in its market.

On July 21, 2010, the Dodd-Frank Act was signed into law and included a permanent delay of the implementation of section 404(b) of the Sarbanes-Oxley Act for companies with non-affiliated public float under $75,000,000 (“non-accelerated filer”). Section 404(b) is the requirement to have an independent accounting firm audit and attest to the effectiveness of a company’s internal controls. As Nicolet does not exceed the public float threshold described above, there are no additional costs anticipated for complying with Section 404(b) in 2013.

Nicolet National Bank

Regulation of Nicolet National Bank

Because Nicolet National Bank is chartered as a national bank, it is primarily subject to the supervision, examination, and reporting requirements of the National Bank Act and the regulations of the OCC. The OCC regularly examines Nicolet National Bank’s operations and has the authority to approve or disapprove mergers, the establishment of branches and similar corporate actions. The OCC also has the power to prevent the continuance or development of unsafe or unsound banking practices or other violations of law. Because Nicolet National Bank’s deposits are insured by the FDIC to the maximum extent provided by law, it is also subject to certain FDIC regulations and the FDIC also has examination authority and back-up enforcement power over Nicolet National Bank. Nicolet National Bank is also subject to numerous state and federal statutes and regulations that affect Nicolet its business, activities, and operations.

Branching. National banks are required by the National Bank Act to adhere to branching laws applicable to state banks in the states in which they are located. Under Wisconsin law, Nicolet National Bank may open branch offices throughout the state with the prior approval of the OCC. In addition, with prior regulatory approval, Nicolet National Bank may acquire branches of existing banks located in Wisconsin or other states. Prior to the enactment of the Dodd-Frank Act, Nicolet National Bank and any other national- or state-chartered banks were generally permitted to branch across state lines by merging with banks in other states if allowed by the applicable states’ laws. However, interstate branching is now permitted for all national- and state-chartered banks as a result of the Dodd-Frank Act, provided that a state bank chartered by the state in which the branch is to be located would also be permitted to establish a branch.

Prompt Corrective Action. The Federal Deposit Insurance Corporation Improvement Act of 1991 establishes a system of prompt corrective action to resolve the problems of undercapitalized financial institutions. Under this system, the federal banking regulators have established five capital categories: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically

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undercapitalized, in which all institutions are placed. The federal banking agencies have also specified by regulation the relevant capital levels for each category.

As a bank’s capital position deteriorates, federal banking regulators are required to take various mandatory supervisory actions and are authorized to take other discretionary actions with respect to institutions in the three undercapitalized categories. The severity of the action depends upon the capital category in which the institution is placed. Generally, subject to a narrow exception, the banking regulator must appoint a receiver or conservator for an institution that is critically undercapitalized.

A “well-capitalized” bank is one that is not required to meet and maintain a specific capital level for any capital measure, pursuant to any written agreement, order, capital directive, or prompt corrective action directive, and has a total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital ratio of at least 6%, and a Tier 1 leverage ratio of at least 5%. Generally, a classification as well capitalized will place a bank outside of the regulatory zone for purposes of prompt corrective action. However, a well-capitalized bank may be reclassified as “adequately capitalized” based on criteria other than capital, if the federal regulator determines that a bank is in an unsafe or unsound condition, or is engaged in unsafe or unsound practices, which requires certain remedial action.

An “adequately-capitalized” bank meets the required minimum level for each relevant capital measure, including a total risk-based capital ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4% and a Tier 1 leverage ratio of at least 4%. A bank that is adequately capitalized is prohibited from directly or indirectly accepting, renewing or rolling over any brokered deposits, absent applying for and receiving a waiver from the applicable regulatory authorities. Institutions that are not well capitalized are also prohibited, except in very limited circumstances where the FDIC permits use of a higher local market rate, from paying yields for deposits in excess of 75 basis points above a national average rate for deposits of comparable maturity, as calculated by the FDIC. In addition, all institutions are generally prohibited from making capital distributions and paying management fees to controlling persons if, subsequent to such distribution or payment, the institution would be undercapitalized. Finally, an adequately-capitalized bank may be forced to comply with operating restrictions similar to those placed on undercapitalized banks.

An “undercapitalized” bank fails to meet the required minimum level for any relevant capital measure. A bank that reaches the undercapitalized level is likely subject to a formal agreement, consent order or another formal supervisory sanction. An undercapitalized bank is not only subject to the requirements placed on adequately-capitalized banks, but also becomes subject to the following operating and managerial restrictions, which:

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prohibit capital distributions;

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prohibit payment of management fees to a controlling person;

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require the bank to submit a capital restoration plan within 45 days of becoming undercapitalized;

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require close monitoring of compliance with capital restoration plans, requirements and restrictions by the primary federal regulator;

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restrict asset growth by requiring the bank to restrict its average total assets to the amount attained in the preceding calendar quarter;

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prohibit the acceptance of employee benefit plan deposits; and

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require prior approval by the primary federal regulator for acquisitions, branching and new lines of business.

Finally, an undercapitalized institution may be required to comply with operating restrictions similar to those placed on significantly-undercapitalized institutions.

A “significantly-undercapitalized” bank has a total risk-based capital ratio less than 6%, a Tier 1 risk-based capital less than 3%, and a Tier 1 leverage ratio less than 3%. In addition to being subject to the restrictions applicable to undercapitalized institutions, significantly undercapitalized banks may, at the

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discretion of the bank’s primary federal regulator, also become subject to the following additional restrictions, which:

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require the sale of enough capital stock so that the bank is adequately capitalized or, if grounds for conservatorship or receivership exist, the merger or acquisition of the bank;

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restrict affiliate transactions;

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restrict interest rates paid on deposits;

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further restrict growth, including a requirement that the bank reduce its total assets;

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restrict or prohibit all activities that are determined to pose an excessive risk to the bank;

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require the bank to elect new directors, dismiss directors or senior executive officers, or employ qualified senior executive officers to improve management;

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prohibit the acceptance of deposits from correspondent banks, including renewals and rollovers of prior deposits;

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require prior approval of capital distributions by holding companies;

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require holding company divestiture of the financial institution, bank divestiture of subsidiaries and/or holding company divestiture of other affiliates; and

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require the bank to take any other action the federal regulator determines will “better achieve” prompt corrective action objectives.

Finally, without prior regulatory approval, a significantly undercapitalized institution must restrict the compensation paid to its senior executive officers, including the payment of bonuses and compensation that exceeds the officer’s average rate of compensation during the 12 calendar months preceding the calendar month in which the bank became undercapitalized.

A “critically-undercapitalized” bank has a ratio of tangible equity to total assets that is equal to or less than 2%. In addition to the appointment of a receiver in not more than 90 days, or such other action as determined by an institution’s primary federal regulator, an institution classified as critically undercapitalized is subject to the restrictions applicable to undercapitalized and significantly-undercapitalized institutions, and is further prohibited from doing the following without the prior written regulatory approval:

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entering into material transactions other than in the ordinary course of business;

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extending credit for any highly leveraged transaction;

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amending the institution’s charter or bylaws, except to the extent necessary to carry out any other requirements of law, regulation or order;

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making any material change in accounting methods;

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engaging in certain types of transactions with affiliates;

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paying excessive compensation or bonuses, including golden parachutes;

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paying interest on new or renewed liabilities at a rate that would increase the institution’s weighted average cost of funds to a level significantly exceeding the prevailing rates of its competitors; and

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making principal or interest payment on subordinated debt 60 days or more after becoming critically undercapitalized.

In addition, a bank’s primary federal regulator may impose additional restrictions on critically-undercapitalized institutions consistent with the intent of the prompt corrective action regulations. Once an institution has become critically undercapitalized, subject to certain narrow exceptions such as a material capital remediation, federal banking regulators will initiate the resolution of the institution.

FDIC Insurance Assessments. Nicolet National Bank’s deposits are insured by the Deposit Insurance Fund (the “DIF”) of the FDIC up to the maximum amount permitted by law, which was permanently

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increased to $250,000 by the Dodd-Frank Act. The FDIC uses the DIF to protect against the loss of insured deposits if an FDIC-insured bank or savings association fails. Pursuant to the Dodd-Frank Act, the FDIC must take steps, as necessary, for the DIF reserve ratio to reach 1.35% of estimated insured deposits by September 30, 2020. Nicolet National Bank is thus subject to FDIC deposit premium assessments.

Currently, the FDIC uses a risk-based assessment system that assigns insured depository institutions to one of four risk categories based on three primary sources of information — supervisory risk ratings for all institutions, financial ratios for most institutions, including Nicolet National Bank, and a “scorecard” calculation for large institutions. The FDIC adopted new rules, effective April 1, 2011, redefining the assessment base and adjusting the assessment rates. Under the old rules, the assessment base was domestic deposits; the new rule uses an assessment base of average consolidated total assets minus tangible equity, which is defined as Tier 1 Capital. Under the new rules, institutions assigned to the lowest risk category must pay an annual assessment rate now ranging between 2.5 and 9 cents per $100 of the assessment base. For institutions assigned to higher risk categories, assessment rates now range from 9 to 45 cents per $100 of the assessment base. These ranges reflect a possible downward adjustment for unsecured debt outstanding and, in the case of institutions outside the lowest risk category, possible upward adjustments for brokered deposits.

The new rules retain the FDIC Board’s flexibility to, without further notice-and-comment rulemaking, adopt rates that are higher or lower than the stated base assessment rates, provided that the FDIC cannot (1) increase or decrease the total rates from one quarter to the next by more than two basis points, or (2) deviate by more than two basis points from the stated base assessment rates. Although the Dodd-Frank Act requires that the FDIC eliminate its requirement to pay dividends to depository institutions when the reserve ratio exceeds a certain threshold, the FDIC’s new rule establishes a decreasing schedule of assessment rates that would take effect when the DIF reserve ratio first meets or exceeds 1.15%. If the DIF reserve ratio meets or exceeds 1.15% but is less than 2%, base assessment rates would range from 1.5 to 40 basis points; if the DIF reserve ratio meets or exceeds 2% but is less than 2.5%, base assessment rates would range from 1 to 38 basis points; and if the DIF reserve ratio meets or exceeds 2.5%, base assessment rates would range from 0.5 to 35 basis points.

On November 12, 2009, the FDIC adopted a rule requiring nearly all FDIC-insured depository institutions, including Nicolet National Bank, to prepay their DIF assessments for the fourth quarter of 2009 and for the following three years on December 30, 2009. At that time, the FDIC indicated that the prepayment of DIF assessments was in lieu of additional special assessments; however, there can be no guarantee that continued pressures on the DIF will not result in additional special assessments being collected by the FDIC in the future.

On October 19, 2010, the FDIC adopted a new DIF Restoration Plan that foregoes the uniform three basis point-increase previously scheduled to take effect on January 1, 2011. The FDIC indicated that this change was based on revised projections calling for lower than previously expected DIF losses for the period 2010 through 2014, continued stresses on the earnings of insured depository institutions, and the additional time afforded to reach the DIF reserve ratio required by the Dodd-Frank Act.

The FDIC also collects a deposit-based assessment from insured financial institutions on behalf of The Financing Corporation (“FICO”). The funds from these assessments are used to service debt issued by FICO in its capacity as a financial vehicle for the Federal Savings & Loan Insurance Corporation. The FICO assessment rate is set quarterly and in 2011 and 2012 ranged from 0.66 cents to 1.00 cents per $100 of assessable deposits. These assessments will continue until the debt matures between 2017 and 2019.

The FDIC may terminate its insurance of deposits if it finds that the institution has engaged in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations, or has violated any applicable law, regulation, rule, order, or condition imposed by the FDIC.

Allowance for Loan Losses. The ALLL represents one of the most significant estimates in Nicolet National Bank’s financial statements and regulatory reports. Because of its significance, Nicolet National Bank has developed a system by which it develops, maintains, and documents a comprehensive, systematic, and consistently applied process for determining the amounts of the ALLL and the provision for loan losses. “The Interagency Policy Statement on the Allowance for Loan and Lease Losses,” issued on December 13, 2006,

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encourages all banks to ensure controls are in place to consistently determine the ALLL in accordance with GAAP, Nicolet National Bank’s stated policies and procedures, management’s best judgment, and relevant supervisory guidance. Consistent with supervisory guidance, Nicolet National Bank maintains a prudent and conservative, but not excessive, ALLL, that is at a level that is appropriate to cover estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the remainder of the loan and lease portfolio. Nicolet National Bank’s estimate of credit losses reflects consideration of all significant factors that affect the collectability of the portfolio as of the evaluation date. See “Management’s Discussion and Analysis — Critical Accounting Policies.”

Commercial Real Estate Lending. On December 6, 2006, the federal banking regulators issued final guidance to remind financial institutions of the risk posed by commercial real estate (“CRE”) lending concentrations. CRE loans generally include land development, construction loans, and loans secured by multifamily property, and nonfarm, nonresidential real property where the primary source of repayment is derived from rental income associated with the property. The guidance prescribes the following guidelines for its examiners to help identify institutions that are potentially exposed to significant CRE risk and may warrant greater supervisory scrutiny:

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total reported loans for construction, land development and other land represent 100% or more of the institutions total capital, or

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total commercial real estate loans represent 300% or more of the institution’s total capital, and the outstanding balance of the institution’s commercial real estate loan portfolio has increased by 50% or more.

Enforcement Powers. The Financial Institution Reform Recovery and Enforcement Act (“FIRREA”) expanded and increased civil and criminal penalties available for use by the federal regulatory agencies against depository institutions and certain “institution-affiliated parties.” Institution-affiliated parties primarily include management, employees, and agents of a financial institution, as well as independent contractors and consultants such as attorneys and accountants and others who participate in the conduct of the financial institution’s affairs. These practices can include the failure of an institution to timely file required reports or the filing of false or misleading information or the submission of inaccurate reports. Civil penalties may be as high as $1,100,000 per day for such violations. Criminal penalties for some financial institution crimes have been increased to 20 years. In addition, regulators are provided with greater flexibility to commence enforcement actions against institutions and institution-affiliated parties.

Possible enforcement actions include the termination of deposit insurance. Furthermore, banking agencies’ power to issue regulatory orders were expanded. Such orders may, among other things, require affirmative action to correct any harm resulting from a violation or practice, including restitution, reimbursement, indemnifications or guarantees against loss. A financial institution may also be ordered to restrict its growth, dispose of certain assets, rescind agreements or contracts, or take other actions as determined by the ordering agency to be appropriate. The Dodd-Frank Act increases regulatory oversight, supervision and examination of banks, bank holding companies and their respective subsidiaries by the appropriate regulatory agency.

Community Reinvestment Act. The Community Reinvestment Act requires that, in connection with examinations of financial institutions within their respective jurisdictions, the federal banking agencies evaluate the record of each financial institution in meeting the credit needs of its local community, including low- and moderate-income neighborhoods. These facts are also considered in evaluating mergers, acquisitions, and applications to open a branch or facility. Failure to adequately meet these criteria could impose additional requirements and limitations on Nicolet National Bank. Additionally, Nicolet National Bank must publicly disclose the terms of various Community Reinvestment Act-related agreements.

Other Regulations. Interest and other charges collected or contracted for by Nicolet National Bank are subject to state usury laws and federal laws concerning interest rates. Nicolet National Bank’s loan operations are also subject to federal laws applicable to credit transactions, such as the:

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Truth-In-Lending Act, governing disclosures of credit terms to consumer borrowers;

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Home Mortgage Disclosure Act of 1975, requiring financial institutions to provide information to enable the public and public officials to determine whether a financial institution is fulfilling its obligation to help meet the housing needs of the community it serves;

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Equal Credit Opportunity Act, prohibiting discrimination on the basis of race, creed, or other prohibited factors in extending credit;

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Fair Credit Reporting Act of 1978, as amended by the Fair and Accurate Credit Transactions Act, governing the use and provision of information to credit reporting agencies, certain identity theft protections, and certain credit and other disclosures;

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Fair Debt Collection Act, governing the manner in which consumer debts may be collected by collection agencies;

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National Flood Insurance Act and Flood Disaster Protection Act, requiring flood insurance to extend or renew certain loans in flood plains;

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Real Estate Settlement Procedures Act, requiring certain disclosures concerning loan closing costs and escrows, and governing transfers of loan servicing and the amounts of escrows in connection with loans secured by one-to-four family residential properties;

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Soldiers’ and Sailors’ Civil Relief Act of 1940, as amended, governing the repayment terms of, and property rights underlying, secured obligations of persons currently on active duty with the United States military;

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Talent Amendment in the 2007 Defense Authorization Act, establishing a 36% annual percentage rate ceiling, which includes a variety of charges including late fees, for certain types of consumer loans to military service members and their dependents;

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Bank Secrecy Act, as amended by the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”), imposing requirements and limitations on specific financial transactions and account relationships, intended to guard against money laundering and terrorism financing;

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sections 22(g) and 22(h) of the Federal Reserve Act which set lending restrictions and limitations regarding loans and other extensions of credit made to executive officers, directors, principal shareholders and other insiders; and

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rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

Nicolet National Bank’s deposit operations are subject to federal laws applicable to depository accounts, such as the following:

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Right to Financial Privacy Act, which imposes a duty to maintain confidentiality of consumer financial records and prescribes procedures for complying with administrative subpoenas of financial records;

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Truth-In-Savings Act, requiring certain disclosures for consumer deposit accounts;

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Electronic Funds Transfer Act and Regulation E issued by the Federal Reserve Board to implement that act, which govern automatic deposits to and withdrawals from deposit accounts and customers’ rights and liabilities arising from the use of automated teller machines and other electronic banking services; and

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rules and regulations of the various federal agencies charged with the responsibility of implementing these federal laws.

As part of the overall conduct of the business, Nicolet and Nicolet National Bank must comply with:

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privacy and data security laws and regulations at both the federal and state level; and

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anti-money laundering laws, including the USA Patriot Act.

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The Consumer Financial Protection Bureau. The Dodd-Frank Act creates the Consumer Financial Protection Bureau (the “Bureau”) within the Federal Reserve Board. The Bureau is tasked with establishing and implementing rules and regulations under certain federal consumer protection laws with respect to the conduct of providers of certain consumer financial products and services. The Bureau has rulemaking authority over many of the statutes governing products and services offered to bank consumers. In addition, the Dodd-Frank Act permits states to adopt consumer protection laws and regulations that are more stringent than those regulations promulgated by the Bureau and state attorneys general are permitted to enforce consumer protection rules adopted by the Bureau against state-chartered institutions.

Capital Adequacy

Nicolet and Nicolet National Bank are required to comply with the capital adequacy standards established by the Federal Reserve Board, in the case of Nicolet, and the OCC, in the case of Nicolet National Bank. The Federal Reserve Board has established a risk-based and a leverage measure of capital adequacy for bank holding companies. Nicolet National Bank is also subject to risk-based and leverage capital requirements adopted by its primary regulator, which are substantially similar to those adopted by the Federal Reserve Board for bank holding companies.

The risk-based capital standards are designed to make regulatory capital requirements more sensitive to differences in risk profiles among banks and bank holding companies, to account for off-balance sheet exposure and to minimize disincentives for holding liquid assets. Assets and off-balance sheet items, such as letters of credit and unfunded loan commitments, are assigned to broad risk categories, each with appropriate risk weights. The resulting capital ratios represent capital as a percentage of total risk-weighted assets and off-balance sheet items.

The minimum guideline for the ratio of total capital to risk-weighted assets, and classification as adequately capitalized, is 8%. A bank that fails to meet the required minimum guidelines is classified as undercapitalized and subject to operating and management restrictions. A bank, however, that exceeds its capital requirements and maintains a ratio of total capital to risk-weighted assets of 10% is classified as well capitalized.

Total capital consists of two components: Tier 1 capital and Tier 2 capital. Tier 1 capital generally consists of common stockholders’ equity, minority interests in the equity accounts of consolidated subsidiaries, qualifying noncumulative perpetual preferred stock, and a limited amount of qualifying cumulative perpetual preferred stock, less goodwill and other specified intangible assets. Tier 1 capital must equal at least 4% of risk-weighted assets. Tier 2 capital generally consists of subordinated debt, other preferred stock and hybrid capital, and a limited amount of loan loss reserves. The total amount of Tier 2 capital is limited to 100% of Tier 1 capital. As of September 30, 2012, Nicolet National Bank’s ratio of total capital to risk-weighted assets was 14.5% and Nicolet National Bank’s ratio of Tier 1 capital to risk-weighted assets was 13.3%.

In addition, the Federal Reserve Board has established minimum leverage ratio guidelines for bank holding companies, which are intended to further address capital adequacy. The OCC has adopted substantially similar requirements for banks. These guidelines provide for a minimum ratio of Tier 1 capital to average assets, less goodwill and other specified intangible assets, of 3% for institutions that meet specified criteria, including having the highest regulatory rating and implementing the risk-based capital measure for market risk. All other institutions generally are required to maintain a leverage ratio of at least 4%. Nicolet National Bank has agreed with the OCC to maintain a leverage ratio of at least 8%. As of September 30, 2012, Nicolet National Bank’s leverage ratio was 10.9%. The guidelines also provide that institutions experiencing internal growth or making acquisitions will be expected to maintain strong capital positions substantially above the minimum supervisory levels without reliance on intangible assets. The banking regulators consider the leverage ratio and other indicators of capital strength in evaluating proposals for expansion or new activities.

Through a provision known as “The Collins Amendment,” the Dodd-Frank Act establishes certain regulatory capital deductions with respect to hybrid capital instruments, such as trust preferred securities, that will effectively disallow the inclusion of such instruments in Tier 1 capital if such capital instrument is issued on or after May 19, 2010. However, preferred shares issued to the Treasury pursuant to the TARP Community

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Development Capital Initiative are exempt from the Collins Amendment and are permanently includable in Tier 1 capital. In addition, securities issued prior to May 19, 2010 by bank holding companies with less than $15 billion in total consolidated assets as of December 31, 2009 will not be subject to these required capital deductions. Finally, bank holding companies subject to the Federal Reserve Board’s Small Bank Holding Company Policy Statement as in effect on May 19, 2010 — generally, holding companies with less than $500 million in consolidated assets — are exempt from the trust preferred treatment changes required by the Dodd-Frank Act.

In June 2012, federal regulators issued proposed rules to implement the capital adequacy recommendations of the Basel Committee on Bank Supervision first proposed in December 2010. These proposals, which are known as “Basel III,” propose significant changes to the minimum capital levels and asset risk-weights for all banks, regardless of size, and bank holding companies with greater than $500 million in assets. Among the many changes in these proposed rules, banks would be required to hold higher levels of capital, a significantly higher portion of which would be required to be Tier 1 capital. Further, beginning in 2016, the ability of a bank or bank holding company to declare and pay dividends or pay discretionary bonuses to certain executive officers would become limited should the bank or bank holding company fail to maintain a “capital conservation buffer” composed of Tier 1 common equity that is 2.5% greater than applicable minimum capital requirements. The proposed Basel III rules would also impose significant changes on the risk-weighting of many assets, including home mortgages with high loan to value ratios, certain acquisition, development and construction loans, and certain past due assets. Finally, the proposed rules would also prevent trust preferred securities from counting as Tier 1 capital for the issuer following a ten-year phase out ending in 2022. The comment period for the proposed rules closed in late October 2012, and final rulemaking is pending.

Failure to meet capital guidelines could subject a bank or bank holding company to a variety of enforcement remedies, including issuance of a capital directive, the termination of deposit insurance by the FDIC, a prohibition on accepting brokered deposits, and certain other restrictions on its business. As described above, significant additional restrictions can be imposed on FDIC-insured depository institutions that fail to meet applicable capital requirements. See “Prompt Corrective Action” above.

The OCC, the Federal Reserve Board, and the FDIC have authority to compel or restrict certain actions if Nicolet National Bank’s capital should fall below adequate capital standards as a result of operating losses, or if its regulators otherwise determine that it has insufficient capital. Among other matters, the corrective actions may include, removing officers and directors; and assessing civil monetary penalties; and taking possession of and closing and liquidating Nicolet National Bank.

Generally, the regulatory capital framework under which Nicolet and Nicolet National Bank operate is in a period of change with likely legislation or regulation that will continue to revise the current standards and very likely increase capital requirements for the entire banking industry. Pursuant to the Dodd-Frank Act, bank regulators are required to establish new minimum leverage and risk-based capital requirements for certain bank holding companies and systematically important non-bank financial companies. The new minimum thresholds will not be lower than existing regulatory capital and leverage standards applicable to insured depository institutions and may, in fact, be higher once established.

Payment of Dividends

Nicolet is a legal entity separate and distinct from Nicolet National Bank. The principal source of Nicolet’s cash flow, including cash flow to pay dividends to its shareholders, are dividends that Nicolet National Bank pays to Nicolet as Nicolet National Bank’s sole shareholder. Statutory and regulatory limitations apply to Nicolet National Bank’s payment of dividends to Nicolet as well as to Nicolet’s payment of dividends to its shareholders. If, in the opinion of the OCC, Nicolet National Bank were engaged in or about to engage in an unsafe or unsound practice, the OCC could require that Nicolet National Bank stop or refrain from engaging in the practice. The federal banking agencies have indicated that paying dividends that deplete a depository institution’s capital base to an inadequate level, would be an unsafe and unsound banking practice.

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Nicolet National 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 Nicolet National Bank in any year will exceed (1) the total of Nicolet National Bank’s net profits for that year, plus (2) Nicolet National Bank’s retained net profits of the preceding two years, less any required transfers to surplus. The payment of dividends by Nicolet and Nicolet National Bank may also be affected by other factors, such as the requirement to maintain adequate capital above regulatory guidelines , any conditions or restrictions that may be imposed by regulatory authorities in connection with their approval of the merger, or the requirements of any written agreements that either Nicolet or Nicolet National Bank may enter into with their respective regulatory authorities.

When Nicolet received its capital investment from the Treasury under the SBLF on September 1, 2011, it became subject to certain contractual limitations on the payment of dividends. These limitations require, among other things, that (1) all dividends for the SBLF Preferred Stock paid before other dividends can be paid and (2) no dividends on or repurchases of Nicolet common stock will be permitted if the payment or dividends would result in a reduction of Nicolet’s Tier 1 capital from the level on the SBLF closing date by more than 10%.

Furthermore, the Federal Reserve Board clarified its guidance on dividend policies for bank holding companies through the publication of a Supervisory Letter, dated February 24, 2009. As part of the letter, the Federal Reserve Board encouraged bank holding companies to consult with the Federal Reserve Board prior to dividend declarations and redemption and repurchase decisions even when not explicitly required to do so by federal regulations. This guidance is largely consistent with prior regulatory statements encouraging bank holding companies to pay dividends out of net income and to avoid dividends that could adversely affect the capital needs or minimum regulatory capital ratios of the bank holding company and its subsidiary bank.

Any future determination relating to its dividend policy will be made at the discretion of the Board of Directors and will depend on many of the statutory and regulatory factors mentioned above.

Restrictions on Transactions with Affiliates

Nicolet and Nicolet National Bank are subject to the provisions of Section 23A of the Federal Reserve Act. Section 23A places limits on the amount of:

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a bank’s loans or extensions of credit to affiliates;

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a bank’s investment in affiliates;

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assets a bank may purchase from affiliates, except for real and personal property exempted by the Federal Reserve Board;

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loans or extensions of credit to third parties collateralized by the securities or obligations of affiliates; and

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a bank’s guarantee, acceptance, or letter of credit issued on behalf of an affiliate.

The total amount of the above transactions is limited in amount, as to any one affiliate, to 10% of a bank’s capital and surplus and, as to all affiliates combined, to 20% of a bank’s capital and surplus. In addition to the limitation on the amount of these transactions, each of the above transactions must also meet specified collateral requirements. Nicolet National Bank must also comply with other provisions designed to avoid taking low-quality assets.

Nicolet and Nicolet National Bank are also subject to the provisions of Section 23B of the Federal Reserve Act which, among other things, prohibit an institution from engaging in the above transactions with affiliates unless the transactions are on terms substantially the same, or at least as favorable to the institution or its subsidiaries, as those prevailing at the time for comparable transactions with nonaffiliated companies.

The Dodd-Frank Act enhances the requirements for certain transactions with affiliates under Section 23A and 23B, including an expansion of the definition of “covered transactions” and increasing the amount of time for which collateral requirements regarding covered transactions must be maintained.

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Nicolet National Bank is also subject to restrictions on extensions of credit to its executive officers, directors, principal shareholders, and their related interests. These extensions of credit (1) must be made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with third parties, and (2) must not involve more than the normal risk of repayment or present other unfavorable features. Effective July 21, 2011, an insured depository institution will be prohibited from engaging in asset purchases or sales transactions with its officers, directors, or principal shareholders unless (1) the transaction is on market terms and, (2) if the transaction represents greater than 10% of the capital and surplus of the bank, a majority of the disinterested directors has approved the transaction.

Limitations on Senior Executive Compensation

In June of 2010, federal banking regulators issued guidance designed to help ensure that incentive compensation policies at banking organizations do not encourage excessive risk-taking or undermine the safety and soundness of the organization. In connection with this guidance, the regulatory agencies announced that they will review incentive compensation arrangements as part of the regular, risk-focused supervisory process. Regulatory authorities may also take enforcement action against a banking organization if (1) its incentive compensation arrangement or related risk management, control, or governance processes pose a risk to the safety and soundness of the organization and (2) the organization is not taking prompt and effective measures to correct the deficiencies. To ensure that incentive compensation arrangements do not undermine safety and soundness at insured depository institutions, the incentive compensation guidance sets forth the following key principles:

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incentive compensation arrangements should provide employees incentives that appropriately balance risk and financial results in a manner that does not encourage employees to expose the organization to imprudent risk;

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incentive compensation arrangements should be compatible with effective controls and risk management; and

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incentive compensation arrangements should be supported by strong corporate governance, including active and effective oversight by the board of directors.

The Dodd-Frank Act

The Dodd-Frank Act has had a broad impact on the financial services industry, including significant regulatory and compliance changes previously discussed and including, among other things, (1) enhanced resolution authority of troubled and failing banks and their holding companies; (2) increased regulatory examination fees; and (3) numerous other provisions designed to improve supervision and oversight of, and strengthening safety and soundness for, the financial services sector. Additionally, the Dodd-Frank Act establishes a new framework for systemic risk oversight within the financial system to be distributed among new and existing federal regulatory agencies, including the Financial Stability Oversight Council, the Federal Reserve Board, the OCC, and the FDIC.

Many of the requirements called for in the Dodd-Frank Act will be implemented over time, and most will be subject to implementing regulations over the course of several years. Given the uncertainty associated with the manner in which the provisions of the Dodd-Frank Act will be implemented by the various regulatory agencies and through regulations, the full extent of the impact such requirements will have on financial institutions’ operations is unclear. The changes resulting from the Dodd-Frank Act may impact the profitability of its business activities; require changes to certain of its business practices; impose upon us more stringent capital, liquidity, and leverage ratio requirements; or otherwise adversely affect its business. These changes may also require us to invest significant management attention and resources to evaluate and make necessary changes in order to comply with new statutory and regulatory requirements.

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Proposed Legislation and Regulatory Action

New regulations and statutes are regularly proposed that contain wide-ranging proposals for altering the structures, regulations, and competitive relationships of financial institutions operating and doing business in the United States. Nicolet cannot predict whether or in what form any proposed regulation or statute will be adopted or the extent to which its business may be affected by any new regulation or statute.

Effect of Governmental Monetary Policies

Nicolet National Bank’s earnings are affected by domestic economic conditions and the monetary and fiscal policies of the United States government and its agencies. The Federal Reserve Board’s monetary policies have had, and are likely to continue to have, an important impact on the operating results of commercial banks through its power to implement national monetary policy in order, among other things, to curb inflation or combat a recession. The monetary policies of the Federal Reserve Board affect the levels of bank loans, investments, and deposits through its control over the issuance of United States government securities, its regulation of the discount rate applicable to member banks, and its influence over reserve requirements to which member banks are subject. Neither Nicolet nor Nicolet National Bank can predict the nature or impact of future changes in monetary and fiscal policies.

OTHER MATTERS

Neither Nicolet’s nor Mid-Wisconsin’s respective management teams are aware of any other matters to be brought before their respective special shareholders’ meeting. However, if any other matters are properly brought before the applicable meeting, the persons named in the enclosed proxy card will have discretionary authority to vote all proxies with respect to such matters in accordance with their judgment.

EXPERTS

The consolidated financial statements and schedules as of December 31, 2011, and for each of the years in the three-year period ended December 31, 2011 included in Mid-Wisconsin’s Annual Report on Form 10-K for the year ended December 31, 2011, which is attached as Appendix E to this joint proxy statement-prospectus have been audited by Wipfli LLP. The consolidated financial statements as of December 31, 2011, and for each of the years in the three-year period ended December 31, 2011 for Nicolet, included beginning on page F-1 of this joint proxy statement-prospectus, and registration statement have been audited by Porter Keadle Moore LLC, Nicolet’s independent registered public accounting firm, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.

LEGAL MATTERS

Godfrey & Kahn LLP will provide an opinion to Nicolet and Mid-Wisconsin as to the validity of the shares of common stock that Nicolet will issue in the merger. The material U.S. federal income tax consequences of the merger will also be passed upon by Bryan Cave LLP. Certain additional legal matters relating to the merger will be passed upon for Nicolet by Bryan Cave LLP and Godfrey & Kahn LLP and for Mid-Wisconsin by Barack Ferrazzano Kirschbaum & Nagelberg LLP.

IMPORTANT NOTICE FOR MID-WISCONSIN’S SHAREHOLDERS

If you cannot locate your Mid-Wisconsin common stock certificate(s), please contact at Mid-Wisconsin, 132 West State Street, Medford, Wisconsin 54451, telephone number (715) 748-8300. If you have misplaced your stock certificates or if you hold certificates in names other than your own and wish to vote in person at the special meeting, we encourage you to resolve those matters before the meeting.

Please do not send your Mid-Wisconsin stock certificates at this time.

159

WHERE YOU CAN FIND ADDITIONAL INFORMATION

Until December 20, 2012, Mid-Wisconsin was required to file certain reports, proxy statements and other information with the SEC. The SEC maintains a web site on the Internet that contains reports, proxy statements and other information about public companies, including Mid-Wisconsin’s filings through December 20, 2012. The address of that site is http://www.sec.gov. You may also read and copy any materials filed with the SEC by Mid-Wisconsin at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.

Nicolet has filed a registration statement on Form S-4 with the SEC that registers the Nicolet common stock to be issued in the merger. This joint proxy statement-prospectus is a part of that registration statement and constitutes a prospectus of Nicolet and a joint proxy statement of Mid-Wisconsin and Nicolet for their respective special meetings.

In addition, both Mid-Wisconsin Bank and Nicolet National Bank file quarterly Consolidated Reports of Condition and Income (“Call Reports”) with the FDIC. All Call Reports are publicly available, free of charge, on the FDIC’s website at www.fdic.gov. Each Call Report consists of a Balance Sheet, Income Statement, Changes in Equity Capital and other supporting schedules as of the end of or for the period to which the Call Report relates. The Call Reports are prepared in accordance with regulatory instructions issued by the Federal Financial Institutions Examination Council. These instructions in most, but not all, cases follow GAAP, including the opinions and statements of the Accounting Principles Board and the Financial Accounting Standards Board. These reports are supervisory and regulatory documents, not primarily accounting documents, and do not provide a complete range of financial disclosure about the reporting bank. Nevertheless, the reports provide important information concerning the bank’s financial condition and results of operations.

This joint proxy statement-prospectus does not contain all of the information in the registration statement. Please refer to the registration statement for further information about Nicolet and the Nicolet common stock to be issued in the merger. Statements contained in this joint proxy statement-prospectus concerning the provisions of certain documents included in the registration statement are not necessarily complete. A complete copy of each document is filed as an exhibit to the registration statement. You may obtain copies of all or any part of the registration statement, including exhibits thereto, upon payment of the prescribed fees, at the offices of the SEC listed above.

Nicolet has supplied all of the information contained in this joint proxy statement-prospectus relating to Nicolet and its subsidiary bank. Mid-Wisconsin has supplied all of the information relating to Mid-Wisconsin and its subsidiary bank.

You should rely only on the information contained or incorporated by reference in this joint proxy statement-prospectus to vote on the proposals to Nicolet and Mid-Wisconsin shareholders in connection with the merger. We have not authorized anyone to provide you with information that is different from what is contained in this joint proxy statement-prospectus. This joint proxy statement-prospectus is dated [ ], 2013. You should not assume that the information contained in this joint proxy statement-prospectus is accurate as of any other date other than such date, and neither the mailing of this joint proxy statement-prospectus nor the issuance of Nicolet common stock as contemplated by the merger agreement will create any implication to the contrary.

160

NICOLET BANKSHARES, INC.
AND SUBSIDIARIES

Consolidated Financial Statements
December 31, 2011

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders
Nicolet Bankshares, Inc.
Green Bay, Wisconsin

We have audited the accompanying consolidated balance sheets of Nicolet Bankshares, Inc. and subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Nicolet Bankshares, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

Atlanta, Georgia
February 29, 2012, except for Note 19, as to which the date is February 1, 2013

F-2

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets
December 31, 2011 and 2010

	2011			2010
Assets
Cash and due from banks	$	13,741,792		$	14,737,396
Interest-earning deposits		77,391,757			36,374,796
Federal funds sold		995,500			990,463
Cash and cash equivalents		92,129,049			52,102,655
Certificates of deposit in other banks		248,000			497,000
Securities available for sale		56,759,395			52,388,150
Other investments		5,211,150			4,910,450
Loans held for sale		11,373,260			5,333,900
Loans		472,488,814			513,760,783
Allowance for loan losses		(5,899,488	)		(8,635,059	)
Loans, net		466,589,326			505,125,724
Premises and equipment, net		19,256,425			19,121,027
Bank owned life insurance		14,236,662			13,664,446
Accrued interest receivable and other assets		12,445,458			21,610,959
Total assets	$	678,248,725		$	674,754,311

Liabilities and Stockholders’ Equity
Liabilities:
Demand	$	78,154,193		$	68,201,600
Money market and NOW accounts		270,738,311			213,043,751
Savings		21,780,998			14,195,129
Time		180,862,028			263,023,433
Total deposits		551,535,530			558,463,913
Short-term borrowings		4,131,892			4,390,436
Notes payable		35,373,896			35,581,489
Junior subordinated debentures		6,185,568			6,185,568
Accrued interest payable and other liabilities		4,808,600			4,466,843
Total liabilities		602,035,486			609,088,249
Stockholders’ Equity:
Preferred equity		24,400,000			15,203,280
Common stock		34,804			34,604
Additional paid-in capital		36,740,711			36,255,430
Retained earnings		13,156,974			13,128,021
Accumulated other comprehensive income		1,690,021			998,530
Total Nicolet Bankshares Inc. stockholders’ equity		76,022,510			65,619,865
Noncontrolling interest		190,729			46,197
Total stockholders’ equity and noncontrolling interest		76,213,239			65,666,062
Total liabilities, noncontrolling interest and stockholders’ equity	$	678,248,725		$	674,754,311

Preferred shares authorized (no par value)		10,000,000			10,000,000
Preferred shares issued		24,400			15,712
Common shares authorized (par value $0.01 per share)		30,000,000			30,000,000
Common shares issued		3,480,355			3,460,437

See Notes to Consolidated Financial Statements

F-3

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income
Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Interest income:
Loans, including loan fees	$	28,033,620		$	29,384,906		$	28,878,744
Investment securities:
Taxable		689,229			865,173			766,632
Non-taxable		941,479			953,850			1,103,039
Federal funds sold		2,492			9,937			21,429
Other interest income		163,355			205,919			811,914
Total interest income		29,830,175			31,419,785			31,581,758
Interest expense:
Money market and NOW accounts		1,546,429			1,465,504			1,384,693
Savings and time deposits		4,963,800			7,888,960			11,303,884
Short term borrowings		9,009			24,193			28,089
Junior subordinated debentures		501,718			501,858			501,718
Notes payable		1,362,045			1,410,080			1,999,116
Total interest expense		8,383,001			11,290,595			15,217,500
Net interest income		21,447,174			20,129,190			16,364,258
Provision for loan losses		6,600,000			8,500,000			6,000,000
Net interest income after provision for loan losses		14,847,174			11,629,190			10,364,258
Other income:
Service charges on deposit accounts		1,180,214			1,087,321			932,025
Trust services fee income		2,898,673			2,811,173			2,857,632
Mortgage fee income		1,766,778			2,618,909			1,546,565
Brokerage fee income		334,209			290,582			207,679
Loss on sale, disposal and writedown of assets, net		(55,055	)		(58,668	)		(150,467	)
Bank owned life insurance		572,216			573,940			557,627
Rent income		954,888			969,809			1,003,402
Investment advisory fees		329,518			307,608			357,456
Other		462,360			367,263			218,742
Total other income		8,443,801			8,967,937			7,530,661

Other expenses:
Salaries and employee benefits		11,333,831			10,165,339			8,281,869
Occupancy, equipment and office		4,408,651			3,747,946			3,253,722
Business development and marketing		1,362,572			1,242,421			1,284,734
Data processing		1,360,463			1,292,704			1,143,296
FDIC assessments		629,845			926,943			1,144,058
Core deposit intangible amortization		740,621			329,165			—
Other		1,606,744			1,611,429			1,576,063
Total other expenses		21,442,727			19,315,947			16,683,742
Income before income tax expense		1,848,248			1,281,180			1,211,177
Income tax expense		318,431			136,326			45,551
Net income		1,529,817			1,144,854			1,165,626
Less: Net income (loss) attributable to noncontrolling interest		39,532			34,505			(11,137	)
Net income attributable to Nicolet Bankshares, Inc.		1,490,285			1,110,349			1,176,763
Less: Preferred stock dividends and discount accretion		1,461,332			985,160			1,001,017
Net income available to common shareholders	$	28,953		$	125,189		$	175,746

Basic earnings per common share	$	0.01		$	0.04		$	0.05
Diluted earnings per common share	$	0.01		$	0.04		$	0.05

Weighted average common shares outstanding:
Basic		3,468,658			3,452,358			3,499,793
Diluted		3,487,760			3,481,042			3,528,102

See Notes to Consolidated Financial Statements

F-4

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders’ Equity
Years Ended December 31, 2011, 2010 and 2009

	Nicolet Bankshares, Inc. Stockholders’ Equity
	Preferred Equity			Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Noncontrolling Interest			Total
Balance, December 31, 2008	$	14,864,000		$	35,025		$	36,706,079		$	12,827,086		$	999,373		$	10,829		$	65,442,392
Net income (loss)		—			—			—			1,176,763			—			(11,137	)		1,165,626
Change in net unrealized gains on securities available for sale, net of tax		—			—			—			—			70,729			—			70,729
Reclassification adjustment for gains realized on securities available for sale, net of tax		—			—			—			—			(4,543	)		—			(4,543	)
Total comprehensive income																				1,231,812
Stock compensation expense		—			—			162,038			—			—			—			162,038
Exercise of stock options, including income tax benefit of $0		—			253			257,248			—			—			—			257,501
Issuance of common stock		—			107			180,222			—			—			—			180,329
Preferred stock accretion		169,640			—			—			(169,640	)		—			—			—
Preferred stock dividends		—			—			—			(831,377	)		—			—			(831,377	)
Common stock repurchase and cancellation (96,600 shares)		—			(966	)		(1,617,914	)		—			—			—			(1,618,880	)
Owner contribution to noncontrolling interest		—			—			—			—			—			12,000			12,000
Balance, December 31, 2009	$	15,033,640		$	34,419		$	35,687,673		$	13,002,832		$	1,065,559		$	11,692		$	64,835,815
Net income		—			—			—			1,110,349			—			34,505			1,144,854
Change in net unrealized gains on securities available for sale, net of tax		—			—			—			—			119,851			—			119,851
Reclassification adjustment for gains realized on securities available for sale, net of tax		—			—			—			—			(186,880	)		—			(186,880	)
Total comprehensive income																				1,077,825
Stock compensation expense		—			—			295,740			—			—			—			295,740
Exercise of stock options, including income tax benefit of $0		—			64			64,436			—			—			—			64,500
Issuance of common stock		—			121			207,581			—			—			—			207,702
Preferred stock accretion		169,640			—			—			(169,640	)		—			—			—
Preferred stock dividends		—			—			—			(815,520	)		—			—			(815,520	)
Balance, December 31, 2010	$	15,203,280		$	34,604		$	36,255,430		$	13,128,021		$	998,530		$	46,197		$	65,666,062
Net income		—			—			—			1,490,285			—			39,532			1,529,817
Change in net unrealized gains on securities available for sale, net of tax		—			—			—			—			691,491			—			691,491
Total comprehensive income																				2,221,308
Stock compensation expense		—			—			294,458			—			—			—			294,458
Exercise of stock options, including income tax benefit of $3,205		—			178			196,073			—			—			—			196,251
Issuance of common stock		—			22			35,750			—			—			—			35,772
Preferred stock accretion		508,720			—			—			(508,720	)		—			—			—
Preferred stock dividends		—			—			—			(952,612	)		—			—			(952,612	)
Preferred stock redemption, CPP		(15,712,000	)		—			—			—			—			—			(15,712,000	)
Issuance of preferred stock, SBLF, net		24,400,000			—			(41,000	)		—			—			—			24,359,000
Owner contribution to noncontrolling interest		—			—			—			—			—			105,000			105,000
Balance, December 31, 2011	$	24,400,000		$	34,804		$	36,740,711		$	13,156,974		$	1,690,021		$	190,729		$	76,213,239

See Notes to Consolidated Financial Statements

F-5

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Cash Flows From Operating Activities:
Net income	$	1,529,817		$	1,144,854		$	1,165,626
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		1,901,875			1,429,973			1,468,196
Provision for loan losses		6,600,000			8,500,000			6,000,000
Provision for deferred taxes		453,803			(880,983	)		(339,774	)
Increase in cash surrender value of life insurance		(572,216	)		(573,940	)		(557,627	)
Stock compensation expense		294,458			295,740			162,037
Loss on sale, disposal or writedown of assets, net		55,055			58,668			150,467
Gain on sale of loans held for sale, net		(1,766,778	)		(2,618,909	)		(1,546,565	)
Proceeds from sale of loans held for sale		108,858,230			161,346,099			120,834,339
Origination of loans held for sale		(113,130,812	)		(158,449,240	)		(121,481,124	)
Net change in:
Accrued interest receivable and other assets		7,151,062			(6,045,475	)		(2,366,799	)
Accrued interest payable and other liabilities		(217,526	)		(358,753	)		395,407
Net cash provided by operating activities		11,156,968			3,848,034			3,884,183
Cash Flows From Investing Activities:
Net decrease in certificates of deposit in other banks		249,000			2,479,000			30,280,000
Net decrease (increase) in loans		30,963,273			(8,965,918	)		(15,400,473	)
Purchases of securities available for sale		(9,704,315	)		(12,111,065	)		(10,771,514	)
Proceeds from sales of securities available for sale		—			3,305,201			14,264
Proceeds from calls and maturities of securities available for sale		6,263,087			10,794,659			7,095,617
Purchases of other investments		(428,450	)		(15,500	)		(323,100	)
Purchases of premises and equipment		(1,736,229	)		(1,612,717	)		(239,746	)
Proceeds from sale of other real estate and other assets		1,839,775			765,893			1,176,415
Net cash received in business combination		—			77,777,555			—
Net cash provided by investing activities		27,446,141			72,417,108			11,831,463

Cash Flows From Financing Activities:
Net decrease in deposits		(6,345,049	)		(104,205,084	)		(14,264,626	)
Net decrease in short term borrowings		(258,544	)		(3,208,398	)		(2,942,514	)
Repayments of notes payable		(207,593	)		(305,762	)		(647,480	)
Proceeds from Federal Home Loan Bank advances		—			—			25,000,000
Repayments of Federal Home Loan Bank advances		—			—			(25,000,000	)
Purchase of treasury stock		—			—			(1,618,880	)
Proceeds from issuance of common stock, net		35,772			207,702			180,329
Proceeds from exercise of common stock options		196,251			64,500			257,501
Proceeds from issuance of preferred stock (SBLF), net		24,359,000			—			—
Repayment of preferred stock (CPP)		(15,712,000	)		—			—
Noncontrolling interest in joint venture		105,000			—			12,000
Cash dividends paid on preferred stock		(749,552	)		(815,520	)		(729,437	)
Net cash provided (used) by financing activities		1,423,285			(108,262,562	)		(19,753,107	)
Net increase (decrease) in cash and cash equivalents		40,026,394			(31,997,420	)		(4,037,461	)
Cash and cash equivalents:
Beginning	$	52,102,655		$	84,100,075		$	88,137,536
Ending	$	92,129,049		$	52,102,655		$	84,100,075

(continued)

See Notes to Consolidated Financial Statements

F-6

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Cash Flows — continued
Years Ended December 31, 2011, 2010 and 2009

	2011			2010			2009
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest	$	9,211,295		$	11,754,089		$	16,322,703
Income taxes		205,000			1,146,000			555,000

Supplemental Schedule of Noncash Investing Activities:
Change in accumulated other comprehensive income relating to unrealized (gains) losses on securities available for sale, net of tax	$	(691,491	)	$	(119,851	)	$	(70,729	)
Transfer of loans to other assets		973,125			512,024			2,694,000

Supplemental Schedules of Noncash Financing Activities:
Accretion of preferred stock discount	$	508,720		$	169,640		$	169,640

See Notes to Consolidated Financial Statements

F-7

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1.

NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES

Nature of Banking Activities: Nicolet Bankshares, Inc. was incorporated on April 5, 2000. Effective June 6, 2002, Nicolet Bankshares, Inc. received approval to become a one-bank holding company owning 100% of the common stock of Nicolet National Bank. Nicolet National Bank opened for business on October 29, 2000.

The consolidated income of Nicolet Bankshares, Inc. (the “Company”) is principally from the income of its wholly-owned subsidiary, Nicolet National Bank (the “Bank”). The Bank grants primarily commercial loans in its trade area of northeastern Wisconsin, but also grants residential and consumer loans, accepts deposits and provides trust and brokerage services to its customers. The Bank is subject to competition from other financial institutions providing financial products. The Company and the Bank are regulated by certain regulatory agencies, including the Office of the Comptroller of the Currency and the Federal Reserve Board and are subject to periodic examination by those agencies.

During 2004, the Company entered into a joint venture, Nicolet Joint Ventures, LLC (the “JV”), with a real estate development and investment firm in connection with the selection and development of a site for a new headquarters facility. The firm that is the joint venture party is considered a related party, as one of its principals is a Board member and shareholder of the Company. The JV involves a 50% ownership by the Company.

During 2008, the Company purchased 100% of Brookfield Investment Partners, LLC (“Brookfield Investments”), an investment advisory firm that provides investment strategy and transactional services to financial institutions.

In 2010, the Company purchased selected assets and assumed the deposits and leases of four Brown County, Wisconsin, branch offices from a Madison-based thrift (the “2010 Branch Acquisition”). See Note 2, “Business Combinations,” for additional disclosures.

A summary of the Company’s significant accounting policies follows.

Principles of Consolidation: The consolidated financial statements of the Company include the accounts of the Bank, Brookfield Investments and the JV. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America 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.

Use of Estimates: In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of foreclosed real estate and deferred tax assets. The fair value disclosure of financial instruments is an estimate that can be computed within a range.

Cash and Cash Equivalents: For purposes of the consolidated statements of cash flows, cash and cash equivalents include cash and due from banks, federal funds sold, and interest-earning deposits in other banks with original maturities of 90 days or less, if any. The Bank maintains amounts in due from banks which, at times, may exceed federally insured limits. Management monitors these correspondent relationships. The Bank has not experienced any losses in such accounts. The Bank has restrictions on cash and due from banks as it is required to maintain certain vault cash and reserve balances with the Federal Reserve Bank to meet specific reserve requirements. The Bank’s reserve requirement was $175,000 at December 31, 2011, and there was no reserve requirement at December 31, 2010.

F-8

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Securities Available For Sale: Securities classified as available for sale 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 available for sale 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 available for sale 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. Premiums and discounts are amortized or accreted into interest income over the life of the related securities using the effective interest method. Management evaluates investment securities for other-than-temporary impairment on at least an annual basis. A decline in the market value of any investment below amortized cost that is deemed other-than-temporary is charged to earnings for the decline in value deemed to be credit related and a new cost basis in the security is established. The decline in value attributed to non-credit related factors considered temporary in nature is recognized in other comprehensive income. In evaluating other-than-temporary impairment, management considers the length of time and extent to which the fair value has been less than cost, and the financial condition and near-term prospects of the issuer for a period sufficient to allow for any anticipated recovery in fair value in the near term. Realized gains or losses on securities sales (using the specific identification method) and declines in value judged to be other-than-temporary are included in the consolidated statements of income under loss on assets, net.

Other Investments: 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 tradable 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 Company investments in other private companies that do not have quoted market prices, carried at cost less other-than-temporary 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.

Loans Held for Sale: Mortgage 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. The amount by which cost exceeds market value is accounted for as a valuation allowance. Changes, if any, in the valuation allowance are included in the determination of net income in the period in which the change occurs. As of December 31, 2011 and 2010, no valuation allowance was necessary. Loans held for sale are sold servicing released and without recourse. Mortgage fee income represents net gains from the sale of mortgage loans held for sale, as well as fees, if any, received from borrowers and loan investors related to these loans.

Loans: Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are carried at their principal amount outstanding. 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 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. 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 period of time.

F-9

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Management considers a loan to be impaired when it is probable the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.

Allowance for Loan Losses: The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. Loans are charged off when management believes that the collectability of the principal is unlikely. Subsequent recoveries, if any, are credited to the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio.

The allocation methodology applied by the Company is designed to assess the appropriateness of the allowance for loan losses and includes allocations for specifically identified impaired 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 factors. The methodology includes evaluation and consideration of several factors, such as but not limited to management’s ongoing review and grading of loans, facts and issues related to specific loans, historical loan loss and delinquency experience, trends in past due and nonaccrual loans, existing risk characteristics of specific loans or loan pools, the fair value of underlying collateral, current economic conditions and other qualitative and quantitative factors which could affect potential credit losses. While management uses the best information available to make its evaluation, future adjustments to the allowance may be necessary if there are significant changes in economic conditions or circumstances underlying collectability of loans. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance is available to absorb losses from any segment of the loan portfolio. Management believes the allowance for loan losses is appropriate. The allowance analysis is reviewed by the Board on a quarterly basis in compliance with regulatory requirements.

In addition, various regulatory agencies periodically review the allowance for loan losses. These agencies may require the Bank to make additions to the allowance for loan losses based on their judgments of collectability based on information available to them at the time of their examination.

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

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.

Premises and Equipment: Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed on straight-line and accelerated methods over the estimated useful lives of the related assets. Leasehold improvements are amortized on the straight-line method 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.

F-10

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

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

Building	25 – 39	years
Leasehold improvements	5 – 15	years
Furniture and equipment	3 – 10	years

Other Real Estate Owned: Other real estate owned, acquired through partial or total satisfaction of loans, is carried at the lower of cost or fair value less estimated costs to sell. Any write-down in the carrying value at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market 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. Other real estate owned, included in other assets in the consolidated balance sheets, was approximately $641,000 and $1,443,000 at December 31, 2011 and 2010, respectively.

Goodwill and Core Deposit Intangible: The excess of the cost of an acquisition over the fair value of the net assets acquired results primarily in goodwill or deposit base premiums which are included in other assets in the consolidated balance sheets. The core deposit intangible (related to the 2010 Branch Acquisition) has an estimated finite life, is amortized on an accelerated basis over a 10-year period, and is subject to periodic impairment evaluation. Goodwill is not amortized but is subject to impairment tests on at least an annual basis. Management periodically reviews the carrying value of its long-lived and intangible assets to determine if any impairment has occurred or whether changes in circumstances have occurred that would require a revision to the remaining useful life, in which case an impairment charge would be recorded as an expense in the period of impairment. 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. The Company’s annual assessments indicated no impairment charge on goodwill or core deposit intangible was required for 2011 or 2010. Goodwill was approximately $762,000 at both December 31, 2011 and 2010. The net book value of core deposit intangible was approximately $2,880,000 and $3,621,000 at December 31, 2011 and 2010, respectively.

Short-term borrowings: Short-term borrowings consist primarily of overnight Federal funds purchased and securities sold under agreements to repurchase (“repos”), or other short-term borrowing arrangements. Repos are with commercial deposit customers, and are treated as financing activities carried at the amounts that will be subsequently repurchased as specified in the respective agreements. Repos generally mature within one to four days from the transaction date. The Company may be required to provide additional collateral based on the fair value of the underlying securities.

Stock-based Compensation Plans: Share-based payment to employees, including grants of employee stock options, are valued at fair value on the date of grant and expensed as compensation expense over the applicable vesting period.

For stock option grants with graded vesting schedules compensation expense is recognized on a straight-line basis over the requisite service period of the award. The fair value of each option is estimated on the date of grant using the Black-Scholes model. There were no stock option grants in 2011. The weighted average assumptions used for valuing option grants in 2010 and 2009 follow:

	2010			2009
Dividend yield		0	%		0	%
Expected volatility		25	%		22	%
Risk-free interest rate		2.12	%		3.00	%
Expected average life		7 years			7 years
Weighted average per share fair value of options	$	5.41		$	5.25

F-11

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

Income taxes: The Company files a consolidated federal income tax return and a combined state income tax return (both of which include the Company and its wholly-owned subsidiaries). Accordingly, amounts equal to tax benefits of those companies having taxable federal losses or credits are reimbursed by the companies that incur federal 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 annually for differences between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws 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 the provision for income taxes. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

The Company may also recognize a liability for unrecognized tax benefits from uncertain 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 financial statements. At December 31, 2011, the Company had determined it had no significant uncertain tax positions. Interest and penalties related to unrecognized tax benefits are classified as income taxes.

Earnings Per Common Share: Basic earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share are calculated by dividing net income available to common shareholders by the weighted average number of common shares adjusted for the dilutive effect of outstanding stock options, and other potential common stock issuances, if any, from instruments such as convertible securities and warrants.

Earnings per share and related information are summarized as follows:

	Years ended December 31,
	2011		2010		2009
Net income, net of noncontrolling interest	$	1,490,285	$	1,110,349	$	1,176,763
Less preferred stock dividends and discount accretion		1,461,332		985,160		1,001,017
Net income available to common shareholders	$	28,953	$	125,189	$	175,746

Weighted average common shares outstanding		3,468,658		3,452,358		3,499,793
Effect of dilutive stock options		19,102		28,684		28,309
Diluted weighted average common shares outstanding		3,487,760		3,481,042		3,528,102

Basic earnings per common share	$	0.01	$	0.04	$	0.05
Diluted earnings per common share	$	0.01	$	0.04	$	0.05

Treasury Stock: Treasury stock is accounted for at cost on a first-in-first-out basis. It is the Company’s general policy to cancel treasury stock shares in the same year as purchased.

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 available for sale securities, bypass the income statement and instead 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 earnings. Changes in these items, along with net income, are components of comprehensive income.

Reclassifications: Certain amounts in the 2010 and 2009 consolidated financial statements have been reclassified to conform to the 2011 presentation.

F-12

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

New Accounting Developments: In July 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-20, Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires additional disclosure to facilitate financial statement users’ evaluation of: (1) the nature of credit risk inherent in the entity’s loan portfolio, (2) how that risk is analyzed and assessed in arriving at the allowance for loan losses, and (3) the changes and reasons for those changes in the allowance for loan losses. The increased disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2011. Increased disclosures about the activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 31, 2011. The Company adopted the accounting standard as of December 31, 2011, except for the activity-related disclosures which are required to be adopted in 2012, with no material impact on its results of operations, financial position and liquidity. See Note 4 for additional disclosures required under this accounting standard.

NOTE 2.

BUSINESS COMBINATION

On July 23, 2010, the Company consummated its cash purchase of four Brown County, Wisconsin, branch offices from a Madison-based thrift (the “2010 Branch Acquisition”), to extend its deposit outreach in this market and to add greater retail diversity to its deposit base. At consummation, the Company acquired assets with a fair value of approximately $107 million, including $25 million of loans, $4 million of core deposit intangible and $78 million in cash, and assumed liabilities with a fair value of approximately $107 million, including $106 million of deposits. The acquired loans were performing loans, carefully and specifically selected, and judged by management to carry pricing appropriately commensurate with loan type, term and borrower creditworthiness; therefore, par was determined to be the initial fair value from both a market price and credit perspective. None of the acquired loans were considered impaired at the time of acquisition. A discounted cash flow method was used to mark the acquired time deposits to estimated fair value based on current comparable market rates for like-term deposits, resulting in a $1 million initial mark (amortized against interest expense over the weighted average remaining life of the acquired term deposits). The value of acquiring long-term relationships with depositors (i.e. the core deposit intangible) was estimated, including consideration of market and competitive information, comparable deposit premiums in other transactions, trend analysis, run-off risks, and other modeling, resulting in a $4 million initial core deposit intangible (amortized on an accelerated basis over its estimated useful life of 10 years). The Company incurred approximately $107,000 of non-recurring expenses in 2010 to consummate and integrate the 2010 Branch Acquisition, included primarily in other expenses in the consolidated statement of income.

NOTE 3.

SECURITIES AVAILABLE FOR SALE

Amortized costs and fair values of securities available for sale are summarized as follows:

	December 31, 2011
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county and municipals	$	30,129,777	$	1,718,153	$	—	$	31,847,930
Mortgage-backed securities		17,449,742		1,041,824		6,851		18,484,715
U.S. Government sponsored enterprises		4,995,463		24,287		—		5,019,750
Equity securities		1,623,775		—		216,775		1,407,000
	$	54,198,757	$	2,784,264	$	223,626	$	56,759,395

F-13

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SECURITIES AVAILABLE FOR SALE (Continued)

	December 31, 2010
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
State, county and municipals	$	29,896,878	$	1,251,118	$	39,271	$	31,108,725
Mortgage-backed securities		16,851,830		555,597		—		17,407,427
U.S. Government sponsored enterprises		2,502,743		—		4,243		2,498,500
Equity securities		1,623,775		—		250,277		1,373,498
	$	50,875,226	$	1,806,715	$	293,791	$	52,388,150

The current fair value and associated unrealized losses on investments in debt and equity securities with unrealized losses at December 31, 2011 and 2010 are summarized in the following table, with the length of time the individual securities have been in a continuous loss position.

	December 31, 2011
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government sponsored enterprises	$	1,015,445	$	6,851	$	—	$	—	$	1,015,445	$	6,851
Equity securities		—		—		1,407,000		216,775		1,407,000		216,775
	$	1,015,445	$	6,851	$	1,407,000	$	216,775	$	2,422,445	$	223,626

	December 31, 2010
	Less than 12 months				12 months or more				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government sponsored enterprises	$	2,498,500	$	4,243	$	—	$	—	$	2,498,500	$	4,243
State, county and municipals		4,961,962		39,271		—		—		4,961,962		39,271
Equity securities		—		—		1,373,498		250,277		1,373,498		250,277
	$	7,460,462	$	43,514	$	1,373,498	$	250,277	$	8,833,960	$	293,791

At December 31, 2011, one U.S. government mortgage-backed security had unrealized losses less than 12 months. The category with unrealized losses greater than 12 months was comprised of one equity security. The unrealized losses in each category have occurred as a result of changes in interest rates, market spreads and market conditions subsequent to purchase. The Company does not consider securities with unrealized losses at December 31, 2011 to be other-than-temporarily impaired. The Company has the ability and intent to hold its securities to maturity.

F-14

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 3. SECURITIES AVAILABLE FOR SALE (Continued)

The amortized cost and fair value of securities available for sale by contractual maturity at December 31, 2011 are shown below. Maturities may differ from contractual maturities in mortgage-backed securities because the mortgages underlying the securities may be called or prepaid without any penalties; therefore, these securities are not included in the maturity categories in the following summary.

	December 31, 2011
	Amortized Cost		Fair Value
Due in less than one year	$	9,040,894	$	9,134,246
Due in one year through five years		18,212,866		19,259,643
Due after five years through ten years		6,896,480		7,498,791
Due after ten years		975,000		975,000
		35,125,240		36,867,680
Mortgage-backed securities		17,449,742		18,484,715
Equity securities		1,623,775		1,407,000
Securities available for sale	$	54,198,757	$	56,759,395

Securities with a carrying value of approximately $7,487,000 and $10,013,000 as of December 31, 2011 and 2010, respectively, were pledged as collateral on public deposits and for other purposes as required or permitted by law.

There were no securities sales during 2011. Proceeds from sales of securities available for sale during 2010 and 2009 were $3,305,200 and $14,264, respectively. Gross gains of $283,152 and $6,883 were realized on sales in 2010 and 2009, respectively. Other-than-temporary impairment charges recorded in 2011 and 2010 were $127,750 (related to one private equity security classified in other investments) and $428,178 (related to the same security), respectively, and none for 2009.

NOTE 4.

LOANS

Major classifications of loans as of December 31, were as follows:

	2011				2010
Commercial	$	265,189,830	56	%	$	294,040,544	57	%
Real Estate-Commercial		66,576,760	14			63,839,435	13
Real Estate-Residential		56,392,417	12			56,532,928	11
Construction		34,136,929	7			40,357,249	8
Consumer		50,192,878	11			58,990,627	11
Loans		472,488,814	100	%		513,760,783	100	%
Less allowance for loan losses		5,899,488				8,635,059
Loans, net	$	466,589,326			$	505,125,724

Loan categories above include the following: Commercial includes business and industrial loans and lines, owner-occupied commercial real estate, and agriculture/farm-based loans. Commercial real estate includes multifamily and other non-owner occupied commercial real estate. Residential real estate includes one- to four-family first-lien loans. Construction loans include land, land development and residential or commercial construction loans. Consumer includes predominantly home equity lending plus retail and other loans.

Practically all of the Bank’s loans, commitments, and standby letters of credit have been granted to customers in the Bank’s market area. Although the Bank 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.

F-15

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (Continued)

Changes in the allowance for loan losses for the years ended December 31, are presented as follows:

	2011			2010			2009
Balance at beginning of year	$	8,635,059		$	6,231,609		$	5,546,212
Provision for loan losses		6,600,000			8,500,000			6,000,000
Loans charged off		(9,400,479	)		(6,292,416	)		(5,426,858	)
Recoveries on loans previously charged off		64,908			195,866			112,255
Balance at end of year	$	5,899,488		$	8,635,059		$	6,231,609
Allowance for loan losses to loans		1.25	%		1.68	%		1.28	%

In determining the appropriateness of the allowance for loan losses, management includes allocations for specifically identified impaired loans and loss factor allocations for all remaining loans, with a component primarily based on historical loss rates and another component primarily based on other qualitative actors. Impaired loans are individually assessed and are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or, as a practical expedient, at the loan’s observable market price or the fair value of the collateral if the loan is collateral dependent.

Loans that are determined to be not impaired are 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 are also provided for certain current environmental and qualitative factors. An internal loan review function rates loans using a grading system based on nine different categories. Loans with grades of seven or higher (“classified loans”) represent loans with a greater risk of loss and may be assigned allocations for loss based on specific review of the weaknesses observed in the individual credits if classified as impaired. Classified loans are constantly monitored by the loan review function to ensure early identification of any deterioration.

A breakdown of the allowance for loan losses and recorded investments in loans at December 31, 2011 is as follows ($ in thousands):

	Commercial			Real Estate- Commercial			Real Estate- Residential			Construction			Consumer			Total
Allowance for Loan Losses (AFLL):
Beginning balance	$	4,865		$	162		$	250		$	2,836		$	522		$	8,635
Provision for loan losses charged to operations		403			411			634			4,767			385			6,600
Loans charged off		2,981			181			488			5,285			466			9,401
Recoveries chargeoffs		26			—			9			28			2			65
Ending balance	$	2,313		$	392		$	405		$	2,346		$	443		$	5,899
As percent of AFLL		39.2	%		6.6	%		6.9	%		39.8	%		7.5	%		100	%

AFLL attributed to individually evaluated loans	$	85		$	163		$	37		$	264		$	—		$	549
AFLL attributed to collectively evaluated loans		2,228			229			368			2,082			443			5,350
Ending balance	$	2,313		$	392		$	405		$	2,346		$	443		$	5,899

Loans:
Individually evaluated	$	2,679		$	716		$	714		$	5,262		$	256		$	9,627
Collectively evaluated		262,511			65,861			55,678			28,875			49,937			462,862
Total loans	$	265,190		$	66,577		$	56,392		$	34,137		$	50,193		$	472,489

Total Loans	$	265,190		$	66,577		$	56,392		$	34,137		$	50,193		$	472,489
Less allowance for loan losses		2,313			392			405			2,346			443			5,899
Net loans	$	262,877		$	66,185		$	55,987		$	31,791		$	49,750		$	466,590

F-16

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (Continued)

The following is a summary of information pertaining to impaired loans as of December 31:

	2011		2010		2009
Impaired loans for which a specific allowance has been provided	$	3,353,000	$	7,789,000	$	12,709,000
Impaired loans for which no specific allowance has been provided		6,274,000		4,860,000		3,130,000
Total loans determined to be impaired	$	9,627,000	$	12,649,000	$	15,839,000
Specific allowance provided for impaired loans, included in the allowance for loan losses	$	549,000	$	3,423,000	$	2,398,000
Average investment in year-end impaired loans	$	19,096,000	$	16,173,000	$	29,932,000
Cash basis interest income recognized on year-end impaired loans	$	373,000	$	612,000	$	1,264,000

A description of the loan grades are as follows:

1-4 Pass: Credits exhibit adequate cash flows, appropriate management and financial ratios within industry norms and/or are supported by sufficient collateral. Some credits in these rating categories may require a need for monitoring but elements of concern are not severe enough to warrant an elevated rating.

5 Watch: Credits with this rating are adequately secured and performing but are being monitored due to the presence of various short term weaknesses which may include unexpected, short term adverse financial performance, managerial problems, potential impact of a decline in the entire industry or local economy and delinquency issues. Loans to individuals or loans supported by guarantors with marginal net worth or collateral may be included in this rating category.

6 Special Mention: Credits with this rating have potential weaknesses that, without the Company’s attention and correction may result in deterioration of repayment prospects. These assets are considered Criticized Assets. Potential weaknesses may include adverse financial trends for the borrower or industry, repeated lack of compliance with Company requests, increasing debt to worth, serious management conditions and decreasing cash flow.

7 Substandard: Assets with this rating are characterized by the distinct possibility the Company will sustain some loss if deficiencies are not corrected. All foreclosures, liquidations, non-accrual loans are considered to be categorized in this rating, regardless of collateral sufficiency.

8 Doubtful: Assets with this rating exhibit all the weaknesses as one rated Substandard with the added characteristic that such weaknesses make collection or liquidation in full highly questionable.

9 Loss: Assets in this category are considered uncollectible. Pursuing any recovery or salvage value is impractical but does not preclude partial recovery in the future.

The following is a breakdown of loan types by risk grading as of December 31, 2011 ($ in thousands):

	Grades 1 – 4		Grade 5		Grade 6		Grade 7		Grade 8		Grade 9		Total
Commercial	$	233,201	$	11,037	$	3,779	$	17,173	$	—	$	—	$	265,190
Real Estate-Commercial		60,656		5,205		—		716		—		—		66,577
Real Estate-Residential		51,950		1,245		213		2,984		—		—		56,392
Construction		14,900		7,334		897		11,006		—		—		34,137
Consumer		49,040		324		—		829		—		—		50,193
Total loans	$	409,747	$	25,145	$	4,889	$	32,708	$	—	$	—	$	472,489

F-17

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4. LOANS (Continued)

A breakdown of past due loans by type as of December 31, 2011 ($ in thousands):

	2011
	30–89 Days Past Due (accruing)			90 Days & Over or on non-accrual			Current			Total
Commercial	$	1,278		$	2,530		$	261,382		$	265,190
Real Estate-Commercial		—			716			65,861			66,577
Real Estate-Residential		330			1,129			54,933			56,392
Construction		1,139			4,847			28,151			34,137
Consumer		123			254			49,816			50,193
Total loans	$	2,870		$	9,476		$	460,143		$	472,489
As a percent of total loans		0.6	%		2.0	%		97.4	%		100.0	%

The following is a summary of nonperforming assets as of December 31:

	2011			2010			2009
Nonaccrual loans	$	9,476,000		$	10,303,000		$	8,212,000
Loans past due 90 days or more, still accruing		—			500,000			—
Nonperforming loans		9,476,000			10,803,000			8,212,000
Other real estate owned		641,000			1,443,000			1,370,000
Nonperforming assets	$	10,117,000		$	12,246,000		$	9,582,000
Nonperforming loans to loans		2.01	%		2.10	%		1.69	%
Nonperforming assets to assets		1.49	%		1.81	%		1.42	%

Interest income of approximately $1,390,000, $1,004,000 and $638,000 would have been earned on the year-end nonaccrual loans had they been performing in accordance with their original terms during the years ended December 31, 2011, 2010 and 2009, respectively. Interest of approximately $220,000, $415,000 and $239,000 was earned on year-end nonaccrual loans and included in income for the years ended December 31, 2011, 2010 and 2009, respectively.

NOTE 5.

PREMISES AND EQUIPMENT

Premises and equipment, less accumulated depreciation, are summarized as follows:

	2011		2010
Land	$	1,785,376	$	1,285,376
Land improvements		1,252,582		1,252,583
Building and improvements		15,611,933		15,126,933
Leasehold improvements		4,052,308		4,034,139
Furniture and equipment		6,894,582		6,227,490
		29,596,781		27,926,521
Less accumulated depreciation		10,340,356		8,805,494
Premises and equipment, net	$	19,256,425	$	19,121,027

Depreciation expense amounted to approximately $1,609,000, $1,440,000 and $1,447,000 in 2011, 2010 and 2009, respectively.

The Company and certain of its subsidiaries are obligated under noncancelable operating leases for facilities, certain of which provide for increased rentals based upon increases in cost of living adjustments and other indices.

F-18

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5. PREMISES AND EQUIPMENT (Continued)

At December 31, 2011, the approximate minimum annual rentals under these noncancelable agreements with remaining terms in excess of one year are as follows ($ in thousands):

2012	$	549
2013		558
2014		550
2015		556
2016		565
Thereafter		3,305
Total	$	6,083

Total rent expense under leases totaled $662,800, $355,200 and $88,900 for 2011, 2010 and 2009 respectively.

NOTE 6.

DEPOSITS

Brokered deposits were approximately $38,609,000 and $87,063,000 at December 31, 2011 and 2010, respectively. The weighted average rate of brokered deposits was 3.08% and 3.89% at December 31, 2011 and 2010, respectively.

At December 31, 2011, the scheduled maturities of time deposits were as follows:

Years Ending December 31,
2012	$	130,031,969
2013		29,588,013
2014		9,249,953
2015		4,559,565
2016		7,427,265
Thereafter		5,263
	$	180,862,028

The aggregate amount of time deposits, each with a minimum denomination of $100,000, was approximately $93,090,000 and $153,397,000 at December 31, 2011 and 2010, respectively.

NOTE 7.

NOTES PAYABLE

At December 31 the Company had the following notes payable:

	2011		2010
Joint Venture note	$	10,373,896	$	10,581,489
FHLB advances		25,000,000		25,000,000
	$	35,373,896	$	35,581,489

At the completion of the construction of the Company’s headquarters building in 2005 and as part of a joint venture investment related to the building, the Company and the other joint venture partners guaranteed a JV note to finance certain costs of the building. This note is secured by the building, bears a fixed rate of 5.81% and requires monthly principal and interest payments until its maturity on June 1, 2016. The balance of this JV note was $10,373,896, and $10,581,489 as of December 31, 2011 and 2010, respectively.

At December 31, 2011 and 2010, the Company’s five fixed-rate FHLB advances total $25,000,000, have a weighted average rate of 2.87%, require interest-only monthly payments, and have maturities between July 2012 and July 2014. The FHLB advances are collateralized by a blanket lien on qualifying first mortgages, home equity loans, multi-family loans and certain farmland loans which totaled approximately $47,316,000

F-19

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 7. NOTES PAYABLE (Continued)

and $49,854,000 at December 31, 2011 and 2010, respectively. During 2009, the Company refinanced its FHLB advances into the five advances noted above, in anticipation of possible inflationary pressures at that time, and incurred a prepayment cost of approximately $324,000 charged to 2009 interest expense.

At December 31, 2010, the Company had a zero outstanding balance on its $10,000,000 line of credit with a third party bank, bearing interest of one-month LIBOR plus 2.50%, but not less than a floor rate of 4.50%, with quarterly payments of interest only. On October 17, 2011, the Company replaced this line with a $7,500,000 line of credit with a different third party bank bearing an interest rate of one-month LIBOR plus 2.25%, but not less than a floor rate of 4.25%, with quarterly payments of interest only. The outstanding balance was zero at December 31, 2011.

The following table shows the maturity schedule of the notes payable as of December 31, 2011.

Years Ending December 31,
2012	$	5,218,413
2013		10,233,377
2014		10,247,502
2015		262,481
2016		9,412,123
	$	35,373,896

NOTE 8.

JUNIOR SUBORDINATED DEBENTURES

In July 2004 the Company formed a wholly-owned Connecticut statutory trust, Nicolet Bankshares Statutory Trust I (the “Statutory Trust”), which issued $6.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures that qualify as Tier 1 capital under Federal Reserve Board guidelines. All of the common securities of the Statutory Trust are owned by the Company. The proceeds from the issuance of the common securities and the trust preferred securities were used by the Statutory Trust to purchase $6,185,568 of junior subordinated debentures of the Company, which pay an 8% fixed rate. The proceeds received by the Company from the sale of the junior subordinated debentures were used for general purposes, primarily to provide capital to the Bank. The debentures represent the sole asset of the Statutory Trust. The Statutory Trust is not included in the consolidated financial statements. The net combined effect of all the documents entered into in connection with the trust preferred securities is that the Company is liable to make the distributions and other payments required on the trust preferred securities.

The Company has the right to redeem the debentures purchased by the Statutory Trust, in whole or in part, on or after July 15, 2009. If the debentures are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest. The maturity date of the debenture, if not redeemed, is July 15, 2034.

NOTE 9.

EMPLOYEE AND DIRECTOR BENEFIT PLANS

The Company has purchased life insurance contracts on the lives of certain key officers. At December 31, 2011 and 2010, the cash surrender value of the bank owned life insurance was approximately $14,237,000 and $13,664,000, respectively, as included in the consolidated balance sheets.

The Company sponsors a deferred compensation plan for certain key management employees and directors. Under the management plan, employees designated by the Board of Directors may defer compensation and receive the deferred amounts plus earnings thereon upon termination of employment or at their election. The liability for the cumulative employee contributions and earnings thereon at December 31, 2011 and 2010 totaled approximately $391,000 and $356,000, respectively. Under the director plan, which

F-20

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 9. EMPLOYEE AND DIRECTOR BENEFIT PLANS (Continued)

was approved in 2005, participating directors may defer up to 100% of their Board compensation towards the purchase of Company common stock at market prices on a quarterly basis that is held in a Rabbi Trust. During 2011 and 2010 the plan purchased 3,004 and 3,765 shares of Company common stock, respectively, valued at approximately $49,600 in 2011 and $64,200 in 2010. No distributions of shares under this director plan were made in 2011 or 2010. The common stock outstanding and the related director deferred compensation liability are offsetting components of the Company’s equity in the amount of $315,762 at year end 2011 and $266,196 at year end 2010 representing 16,889 shares and 13,885 shares, respectively.

The Company also sponsors a 401(k) savings plan under which eligible employees may choose to save up to 100% of salary compensation on either a pre-tax or after-tax basis, subject to certain IRS limits. Under the plan, the Company matches 100% of participating employee contributions up to 6% of the participant’s gross compensation. The Company contribution vests over five years. The Company can make additional annual discretionary profit sharing contributions, as determined by the Board of Directors.

For 2011, 2010 and 2009, the Company’s matching expense and discretionary contribution, if any for the year, totaled approximately $462,000, $415,000 and $415,000, respectively.

NOTE 10.

STOCK-BASED COMPENSATION

In 2000, the Company adopted a Stock Incentive Plan covering up to 285,000 shares of the Company’s common stock. During 2002, the Company adopted a second Stock Incentive Plan covering an additional 125,000 shares of the Company’s common stock. During 2005 and 2008, the Company revised the second Stock Incentive Plan to allow for an additional 450,000 shares and 600,000 shares, respectively. A total of 1,460,000 shares have been reserved for potential stock options under these plans.

In 2011, the Company adopted a Long Term Incentive Plan covering up to 500,000 shares of the Company’s common stock. This plan provides for certain stock-based awards, such as but not limited to stock options, stock appreciation rights and restricted common stock, as well as cash performance awards. No awards have been made under this plan since its inception through December 31, 2011.

These plans are administered by a committee of the Board of Directors and provide for the granting of various equity awards per the plan documents to certain eligible officers, employees and directors of the Company.

In general, the exercise price of each option granted under these plans will not be less than the fair market value of the shares of common stock subject to the option on the date of grant as determined by the committee. Options will be exercisable in whole or in part upon such vesting terms as may be determined by the committee. Options expire ten years after the date of grant.

F-21

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 10. STOCK-BASED COMPENSATION (Continued)

As of December 31, 2011 approximately 944,000 shares were available for grant under these plans (collectively the “Stock Incentive Plans”).

Activity of the Stock Incentive Plans is summarized in the following table:

	Weighted- Average Fair Value of Options Granted				Weighted- Average Exercise Price
Balance — December 31, 2008			582,357		$	17.52	444,807
Granted	$	5.25	222,500			16.70
Exercise of stock options			(25,250	)		10.20
Cancelled			(24,000	)		18.00
Balance — December 31, 2009			755,607			17.51	432,852
Granted	$	5.41	12,500			17.15
Exercise of stock options			(6,450	)		10.00
Cancelled			(32,000	)		17.03
Balance — December 31, 2010			729,657			17.59	491,780
Granted		—	—			—
Exercise of stock options			(17,750	)		11.06
Cancelled			(9,000	)		15.76
Balance — December 31, 2011			702,907		$	17.78	533,074

Options outstanding at December 31, 2011 are exercisable at option prices ranging from $10.00 to $26.00. There are 252,083 options outstanding in the range from $10.00–$17.00, 403,824 options outstanding in the range from $17.01–$22.00, and 47,000 options outstanding in the range from $22.01–$26.00. The exercisable options have a weighted average remaining contractual life of approximately 5 years as of December 31, 2011.

The Company recognized approximately $294,000, $296,000, and $162,000 of stock-based employee compensation expense during the years ended December 31, 2011, 2010 and 2009, respectively, associated with its stock option grants. As of December 31, 2011, there was approximately $667,500 of unrecognized compensation cost related to stock option grants. The cost is expected to be recognized over the remaining vesting period of approximately three years.

Intrinsic value represents the amount by which the fair market value of the underlying stock exceeds the exercise price of the stock options. The total intrinsic value of options exercised in 2011, 2010 and 2009 was approximately $97,000, $45,000 and $156,000, respectively. The weighted average exercise price of stock options exercisable at December 31, 2011 was $17.84.

NOTE 11.

STOCKHOLDERS’ EQUITY

On March 18, 2005, the stockholders of the Company approved a reorganization plan for the purpose of taking the Company private by reducing its number of stockholders of record below 300. The reorganization plan permitted the Company to discontinue reporting to the Securities and Exchange Commission based on the reduced number of stockholders. The reorganization was accomplished through a cash-out merger whereby stockholders owning 1,500 or fewer shares of common stock were paid cash for each share owned.

In December 2008, through a private placement, the Company raised $9,500,000 in capital, issuing 594,083 shares. The $100,000 of incurred costs related to the private placement issuance was charged against additional paid-in capital.

F-22

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 11. STOCKHOLDERS’ EQUITY (Continued)

On December 23, 2008, under the federal government’s Capital Purchase Program (“CPP”), the Company received $14,964,000 from the U.S. Treasury Department (“the UST”) for the issuance of 14,964 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 5% dividend for the first five years and 9% thereafter) and an additional 748 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 9% dividend) following the UST’s immediate exercise of preferred stock warrants. The $100,000 of incurred costs related to the preferred stock issuance was charged directly against preferred stock. The initial $848,200 discount recorded on preferred stock that resulted from allocating a portion of the proceeds to the warrants is accreted directly to retained earnings over a five-year period on a straight-line basis.

While the preferred stock under CPP was outstanding, the Company was subject to various restrictions governed by the executed documents with the UST, and by related governmental enactments. Such restrictions included: a) UST approval required for any increase in common dividends per share and for any repurchase of outstanding common stock; b) CPP period dividends required to be paid in full before dividends could be paid to common shareholders; c) no tax deduction to the Company for any senior executive officer whose compensation was above $500,000; and d) additional restrictions and compliance requirements on executive compensation. In September of 2009, the Company received approval from the UST and its regulator to repurchase up to 100,000 shares of its common stock, under which 96,600 shares of common stock at a cost of $1,618,880 were repurchased and subsequently retired during 2009. Similar approvals were obtained for 2010 and 2011, allowing repurchase of up to 100,000 shares of common stock each year. No shares were repurchased under these authorities during 2010 or 2011.

On September 1, 2011, after appropriate regulatory approvals, the Company effectively redeemed all the senior preferred stock under the CPP, paying the UST $15,712,000 and accelerating the accretion of the remaining discount. Such redemption was in connection with the Company’s participation in the UST’s Small Business Lending Fund (“SBLF”) described below. The SBLF is a program separate and distinct from the Troubled Asset Relief Program (“TARP”), and thus, among other things, the restrictions noted above under the CPP or related government enactments are no longer applicable to the Company.

The SBLF is a UST program made available to community banks, designed to boost lending to small businesses by providing participating banks with capital and liquidity. In particular, the SBLF program targets commercial, industrial, owner-occupied real-estate and agricultural-based lending to qualifying small businesses, which include businesses with less than $50 million in revenue, and promotes outreach to women-owned, veteran-owned and minority-owned businesses.

On September 1, 2011, under the SBLF, the Company received $24,400,000 from the UST for the issuance of 24,400 shares of Non-cumulative Perpetual Preferred Stock, Series C, with $1,000 per share liquidation value. The $41,000 of incurred issuance costs was charged against additional paid-in capital. The annual dividend rate upon funding and for the following nine calendar quarters is 5%, unless there is growth in qualifying small business loans outstanding over a baseline which could reduce the rate to as low as 1% (as determined under the terms of the Securities Purchase Agreement (the “Agreement”)), adjusted quarterly. The dividend rate is fixed for the tenth quarter after funding through the end of the first four and one-half years at 7% (unless fixed at a lower rate given increased lending as similarly described above); and finally the dividend rate is fixed at 9% after four and one-half years if the preferred stock is not repaid. The Company’s weighted average dividend rate for 2011 (since funding) was 5%. Under the terms of the Agreement, the Company will be required to provide various information, certifications, and reporting to the UST. At December 31, 2011, the Company believes it was in compliance with the requirements set by the UST in the Agreement. The preferred stock (under CPP or SBLF) qualifies as Tier 1 capital for regulatory purposes.

F-23

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12.

INCOME TAXES

The current and deferred amounts of income tax expense (benefit) were as follows:

	2011			2010			2009
Current	$	(135,372	)	$	1,017,309		$	385,325
Deferred		461,598			(880,983	)		(233,732	)
Change in valuation allowance		(7,795	)		—			(106,042	)
Income tax expense	$	318,431		$	136,326		$	45,551

The differences between the income tax expense recognized and the amount computed by applying the statutory federal income tax rate to the earnings before income taxes, less noncontrolling interest, for the years ended December 31, 2011, 2010 and 2009 are included in the following table.

	2011			2010			2009
Tax on pretax income, less noncontrolling interest, at statutory rates	$	614,963		$	423,870		$	415,586
State income taxes, net of federal effect		90,996			59,589			51,726
Tax-exempt interest income		(410,944	)		(374,066	)		(421,346	)
Non-deductible interest disallowance		52,973			63,762			86,624
Increase in cash surrender value life insurance		(194,553	)		(195,140	)		(189,593	)
Non-deductible business entertainment		84,077			75,023			70,415
Stock based employee compensation		96,911			100,552			55,080
Other, net		(15,992	)		(17,264	)		(22,941	)
Income tax expense	$	318,431		$	136,326		$	45,551

The net deferred tax asset included with other assets into the accompanying consolidated balance sheets includes the following amounts of deferred tax assets and liabilities at December 31:

	2011			2010			2009
Deferred tax assets:
Allowance for loan losses	$	2,322,653		$	3,399,659		$	2,247,654
State net operating loss carryforwards		199,887			194,490			194,490
Credit carryforwards		450,226			—			117,091
Other real estate		12,702			50,772			50,772
Investment securities		218,871			168,575			147,466
Compensation		278,436			244,987			206,792
Core deposit intangible		299,537			217,594			—
Other		200,600			53,303			249,379
Total deferred tax asset		3,982,912			4,329,380			3,213,644
Less valuation allowance		(186,695	)		(194,490	)		(194,490	)
Deferred tax asset		3,796,217			4,134,890			3,019,154
Deferred tax liabilities:
Premises and equipment		(487,317	)		(347,898	)		(193,532	)
Prepaid expenses		(99,402	)		(32,558	)		(43,304	)
Other		—			(91,133	)		—
Unrealized gain on securities available for sale		(870,620	)		(514,394	)		(548,924	)
Total deferred tax liability		(1,457,339	)		(985,983	)		(785,760	)
Net deferred tax asset	$	2,338,878		$	3,148,907		$	2,233,394

F-24

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 12. INCOME TAXES (Continued)

The Company has a state net operating loss carryforward of approximately $3,700,000 resulting in a deferred tax asset of approximately $200,000. A valuation allowance of $187,000 has been recognized on this asset relating to the parent company’s state loss carryforward which is not expected to be realized under current regulations. The remaining state net operating loss carryforward will not expire until 2026. At December 31, 2011, the Company has available alternative minimum tax credit carryforwards for federal tax purposes of approximately $450,000 which may be used indefinitely.

NOTE 13.

COMMITMENTS AND CONTINGENCIES

The Company is party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit, financial guarantees, and standby letters of credit. They involve, to varying degrees, elements of credit risk in excess of amounts recognized on the consolidated balance sheets.

The Company’s exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The Company uses the same credit policies in making commitments and issuing letters of credit as they do for on-balance-sheet instruments.

A summary of the contract or notional amount of the Company’s exposure to off-balance-sheet risk as of December 31 is as follows:

	2011		2010
Financial instruments whose contract amounts represent credit risk:
Commitments to extend credit	$	158,261,000	$	119,751,000
Standby letters of credit		6,631,000		6,959,000

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. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Credit card commitments are generally unsecured.

Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third-party. Those guarantees are primarily issued to support public and private borrowing arrangements and, generally, have terms of one year or less. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The Bank holds collateral, which may include accounts receivable, inventory, property, equipment, and income-producing properties, supporting those commitments if deemed necessary. In the event the customer does not perform in accordance with the terms of the agreement with the third-party, the Bank would be required to fund the commitment. The maximum potential amount of future payments the Bank could be required to make is represented by the contractual amount. If the commitment is funded, the Bank would be entitled to seek recovery from the customer. At December 31, 2011 and 2010, no amounts have been recorded as liabilities for the Bank’s potential obligations under these guarantees.

The Company has federal funds accommodations with other financial institutions where funds may be borrowed on a short-term basis at the market rate in effect at the time of the borrowing. The total federal funds accommodations as of December 31, 2011 and 2010 are $65,000,000 and $80,000,000, respectively. At December 31, 2011 and 2010, the Company had no outstanding balance on these lines.

In the normal course of business, the Company is involved in various legal proceedings. In the opinion of management, any liability resulting from such proceedings would not have a material adverse effect on the consolidated financial statements.

F-25

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 14.

RELATED PARTY TRANSACTIONS

The Company conducts transactions, in the normal course of business, with its directors and officers, including companies in which they have a beneficial interest. It is the Company’s policy to comply with federal regulations that require that these transactions with directors and executive officers be made on substantially the same terms as those prevailing at the time made for comparable transactions to other persons. Related party loans totaled approximately $24,510,000 at December 31, 2011 and $25,120,000 at December 31, 2010.

During 2004, the Company entered into a joint venture (50% ownership by the Company) with a real estate development and investment firm (the “Firm”) in connection with the new headquarters facility. The Firm is considered a related party, as one of its principals is a Board member and shareholder of the Company. During 2009, the Company entered into an additional transaction with the Firm involving a 40% ownership of another entity resulting from an arm’s length workout of a loan originally held by the Bank. This 40% ownership was subsequently sold during 2010 at a gain to the Company of approximately $88,000. Finally, in August 2011, the Company opened a new branch location in a facility which is leased from an entity owned by the Firm on terms considered by management to be arms-length.

NOTE 15.

GAIN (LOSS) ON ASSETS

Components of the gain (loss) on assets are as follows for the years ended December 31:

	2011			2010			2009
Gain on sale of securities, net	$	—		$	283,152		$	6,883
Other than temporary impairment charge on securities		(127,750	)		(428,178	)		—
Gain (loss) on sale of other real estate owned, net		64,472			(10,307	)		(157,350	)
Gain on sale of other assets, net		8,223			96,665			—
Loss on assets, net	$	(55,055	)	$	(58,668	)	$	(150,467	)

NOTE 16.

REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS OF DIVIDENDS

The Company (on a consolidated basis) and the Bank are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company and Bank’s financial statements.

Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company and Bank must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance-sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk-weightings, and other factors. Prompt corrective action provisions are not applicable to bank holding companies.

Quantitative measures established by regulation to ensure capital adequacy require the Company and Bank to maintain minimum amounts and ratios of Total and Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and Tier 1 capital (as defined) to average assets (as defined). Management believes, as of December 31, 2011 and 2010, that the Company and the Bank met all capital adequacy requirements to which they are subject.

As of December 31, 2011 and 2010, the most recent notifications from the regulatory agencies categorized the Bank as well-capitalized under the regulatory framework for prompt corrective action. To be categorized as well-capitalized, an institution must maintain minimum Total risk-based, Tier I risk-based, and Tier 1 leverage ratios as set forth in the following table. There are no conditions or events since these notifications that management believes have changed the Bank’s category.

F-26

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16. REGULATORY CAPITAL REQUIREMENTS AND RESTRICTIONS OF DIVIDENDS
(Continued)

The Company’s and the Bank’s actual regulatory capital amounts and ratios as December 31, 2011 and 2010 are presented in the following table.

	Actual					For Capital Adequacy Purposes					To Be Well Capitalized Under Prompt Corrective Action Provisions (2)
($ in thousands)	Amount		Ratio (1)			Amount		Ratio (1)			Amount		Ratio (1)
As of December 31, 2011:
Company
Total capital	$	82,638		16.7	%	$	39,510		8.0	%
Tier I capital		76,739		15.5			19,755		4.0
Leverage		76,739		12.1			25,468		4.0

Bank
Total capital	$	74,586		15.6	%	$	38,340		8.0	%	$	47,925		10.0	%
Tier I capital		68,687		14.3			19,170		4.0			28,755		6.0
Leverage		68,687		11.1			24,831		4.0			31,039		5.0

As of December 31, 2010:
Company
Total capital	$	72,635		13.8	%	$	42,056		8.0	%
Tier I capital		66,259		12.6			21,028		4.0
Leverage		66,259		9.9			26,798		4.0

Bank
Total capital	$	65,796		13.0	%	$	40,623		8.0	%	$	50,779		10.0	%
Tier I capital		59,420		11.7			20,312		4.0			30,468		6.0
Leverage		59,420		9.2			25,958		4.0			32,447		5.0

(1)

The Total capital ratio is defined as tier 1 capital plus tier 2 capital divided by total risk-weighted assets. The Tier 1 capital ratio is defined as tier 1 capital divided by total risk-weighted assets. The Leverage ratio is defined as tier 1 capital divided by the most recent quarter’s average total assets.

(2)

Prompt corrective action provisions are not applicable at the bank holding company level.

A source of income and funds for the Company are dividends from the Bank. Dividends declared by the Bank that exceed the retained net income for the most current year plus retained net income for the preceding two years must be approved by Federal regulatory agencies. At December 31, 2011, the Bank could pay dividends of approximately $3,585,000 without seeking regulatory approval.

NOTE 17.

FAIR VALUE OF FINANCIAL INFORMATION

Disclosure of the fair value of financial instruments, whether recognized or not recognized in the balance sheet, is required for those instruments for which it is practicable to estimate that value, with the exception of certain financial instruments and all nonfinancial instruments as provided for by the accounting standards. For financial instruments recognized at fair value in the consolidated balance sheets, the fair value disclosure requirements also apply.

F-27

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. FAIR VALUE OF FINANCIAL INFORMATION (Continued)

permit fair value measurements; accordingly, the standard amends numerous accounting pronouncements but does not require any new fair value measurements of reported balances. The standard emphasizes that fair value (i.e. the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement versus an entity-specific measurement. The standard was effective for the Company as of January 1, 2008, with the exception of the application to nonfinancial assets and liabilities measured at fair value on a nonrecurring basis (such as other real estate owned and goodwill or other intangibles for impairment testing) to which the standard became effective on January 1, 2009.

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels. Level 1 inputs are quoted market prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liability, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the fair value measurement is based on inputs from different levels, the level within which the entire fair value measurement will be categorized is based on the lowest level input that is significant to the fair value measurement in its entirety; this assessment of the significance of an input requires management judgment.

The table following presents items measured at fair value on a recurring basis as of December 31, 2011 and 2010, aggregated by the level in the fair value hierarchy within which those measurements fall, as well as a roll forward of 2010 activity for Level 3 (significant unobservable inputs) fair value measurements.

			Fair Value Measurements Using
Measured at Fair Value on a Recurring Basis:	Total		Level 1		Level 2		Level 3
($ in thousands)
State, county and municipals	$	31,848	$	—	$	30,873	$	975
Mortgage-backed securities		18,484		—		18,484		—
US Government sponsored enterprises		5,020		—		5,020		—
Equity securities		1,407		1,407		—		—
Securities available for sale, December 31, 2011	$	56,759	$	1407	$	54,377	$	975

State, county and municipals	$	31,109	$	—	$	30,059	$	1,050
Mortgage-backed securities		17,407		—		17,407		—
US Government sponsored enterprises		2,499		—		2,499		—
Equity securities		1,373		1,373		—		—
Securities available for sale, December 31, 2010	$	52,388	$	1,373	$	49,965	$	1,050

	Securities Available for Sale
Level 3 Fair Value Measurements ($ in thousands):	2011			2010
Balance at beginning of year	$	1,050		$	1,250
Purchases/(sales)/(settlements), net		(75	)		(200	)
Net change in gain/(loss), realized and unrealized		—			—
Transfers in/(out) of Level 3		—			—
Balance at end of year	$	975		$	1,050

F-28

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. FAIR VALUE OF FINANCIAL INFORMATION (Continued)

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. Where quoted market prices on securities exchanges are available, the investment is classified in Level 1 of the fair value hierarchy. Level 1 investments primarily include exchange-traded equity securities available for sale. If quoted market prices are not available, fair value is generally determined using pricing models (such as matrix pricing which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities), quoted market prices of securities with similar characteristic (adjusted for differences between the quoted instruments and the instrument being valued), or discounted cash flows, and are classified in Level 2 of the fair value hierarchy. Examples of these investments include mortgage-related securities and obligations of state, county and municipals. Finally, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, investments are classified within Level 3 of the hierarchy. Examples of these include auction rate securities available for sale (for which there has been no liquid market since 2008). At December 31, 2011 and 2010, it was determined that carrying value was the best approximation of fair value for these Level 3 securities, based primarily on receipt of par from refinances for the auction rate securities.

The table following presents the Company’s collateral-dependent impaired loans and other real estate owned measured at fair value on a nonrecurring basis as of December 31, 2011 and 2010, aggregated by the level in the fair value hierarchy within which those measurements fall.

			Fair Value Measurements Using
Measured at Fair Value on a Nonrecurring Basis:	Total		Level 1		Level 2		Level 3
($ in thousands)
December 31, 2011:
Collateral-dependent impaired loans	$	8,878	$	—	$	8,878	$	—
Other real estate owned		641		—		641		—

December 31, 2010:
Collateral-dependent impaired loans	$	8,067	$	—	$	8,067	$	—
Other real estate owned		1,443		—		1,443		—

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. Per the applicable accounting standard, the use of observable market price or estimated fair value of collateral on collateral-dependent impaired loans and other real estate owned is considered a fair value measurement subject to the fair value hierarchy and provisions of the accounting standard. The primary inputs underlying estimated fair value of collateral- dependent impaired loans and other real estate owned classified within Level 2 are appraised values obtained from external parties for real estate collateral and current financial statements for non-real estate collateral (i.e. usually current assets in nature, such as accounts receivable or inventories). Appraised values of other real estate owned are adjusted for the expected costs to sell.

F-29

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. FAIR VALUE OF FINANCIAL INFORMATION (Continued)

Summarized below are the estimated fair values of the Company’s financial instruments at December 31, 2011 and 2010, along with the methods and assumptions used by the Company in estimating the fair value disclosures.

	2011				2010
($ in thousands)	Carrying Amount		Estimated Fair Value		Carrying Amount		Estimated Fair Value
Financial assets:
Cash and cash equivalents	$	92,129	$	92,129	$	52,103	$	52,103
Certificates of deposits in other banks		248		248		497		497
Securities available for sale		56,759		56,759		52,388		52,388
Other investments		5,211		5,211		4,910		4,910
Loans held for sale		11,373		11,373		5,334		5,334
Loans, net		466,589		469,734		505,126		504,773
Bank owned life insurance		14,237		14,237		13,664		13,664

Financial liabilities:
Deposits	$	551,536	$	553,761	$	558,464	$	561,458
Short-term borrowings		4,132		4,132		4,390		4,390
Notes payable		35,374		36,557		35,581		36,535
Junior subordinated debentures		6,186		6,186		6,186		6,069

Cash and cash equivalents and certificates of deposits in other banks: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities available for sale and other investments: Fair values for securities are based on quoted market prices on securities exchanges, when available. If quoted market prices are not available, fair value is generally determined using pricing models, quoted market prices of securities with similar characteristics, or discounted cash flows. For other investments, the carrying amount of Federal Reserve Bank and FHLB stock is a reasonably accepted fair value estimate given their restricted nature, while the carrying amount of the remaining other investments (particularly common stocks of companies or other banks that are not publicly traded) approximates their fair value, determined primarily by analysis of company financial statements and recent capital issuances of the respective companies or banks, if any.

Loans held for sale: The carrying amount of loans held for sale approximates the fair value, given the short-term nature of the loans between origination and sale.

Loans, net: For variable-rate loans that reprice frequently and with no significant change in credit risk or other optionality, fair values are based on carrying values. Fair values for all other loans are estimated by discounting contractual cash flows using estimated market discount rates, which reflect the credit and interest rate risk inherent in the loan. Collateral-dependent impaired loans are included in loans, net.

Bank owned life insurance: The carrying value of these assets approximates fair value.

Deposits: The fair value of deposits with no stated maturity (such as demand deposits, savings, interest and non-interest checking, and money market accounts) is, by definition, equal to the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates within the market place.

Short-term borrowings: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

F-30

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 17. FAIR VALUE OF FINANCIAL INFORMATION (Continued)

Notes payable and junior subordinated debentures: The fair values of notes payable and junior subordinated debentures are estimated using discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and credit quality.

Off-balance-sheet instruments: The estimated fair value of letters of credit at December 31, 2011 and 2010 was insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at December 31, 2011 and 2010.

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.

NOTE 18.

PARENT COMPANY ONLY FINANCIAL INFORMATION

The following reflects the condensed financial statements (for the parent company) of Nicolet Bankshares, Inc.:

Balance Sheets

	December 31,
	2011		2010
Assets
Cash and due from subsidiary	$	4,604,894	$	117,860
Investments		3,384,750		3,479,000
Investments in subsidiaries		74,147,607		64,921,594
Loans		—		3,100,000
Other assets		498,779		545,552
Total assets	$	82,636,030	$	72,164,006

Liabilities and Stockholders’ Equity
Junior subordinated debentures	$	6,185,568	$	6,185,568
Other liabilities		427,953		358,573
Stockholders’ equity		76,022,509		65,619,865
Total liabilities and stockholders’ equity	$	82,636,030	$	72,164,006

F-31

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18. PARENT COMPANY ONLY FINANCIAL INFORMATION (Continued)

Statements of Income

	For the years ended December 31,
	2011			2010			2009
Interest income	$	55,935		$	135,763		$	17,292
Interest expense		502,562			538,073			517,538
Net interest expense		(446,627	)		(402,310	)		(500,246	)
Dividend income		1,500,000			—			—
Operating expense		(75,938	)		(65,594	)		(133,975	)
Gain (loss) on assets, net		(127,750	)		(260,214	)		6,883
Income tax benefit		303,425			381,720			287,560
Earnings (loss) before equity in undistributed earnings of subsidiaries		1,153,110			(346,398	)		(339,778	)
Equity in undistributed earnings of subsidiaries, net of dividends received		337,175			1,456,747			1,516,541
Net income	$	1,490,285		$	1,110,349		$	1,176,763

Statements of Cash Flows

	For the years ended December 31,
	2011			2010			2009
Cash Flows From Operating Activities:
Net Income attributable to Nicolet Bankshares, Inc.	$	1,490,285		$	1,110,349		$	1,176,763
Adjustments to reconcile net income to net cash provided (used) by operating activities:
Loss (gain) on assets, net		127,750			260,214			(6,883	)
Change in other assets and liabilities, net		(98,297	)		1,503,702			(629,562	)
Equity in undistributed earnings of subsidiaries, net of dividends received		(337,175	)		(1,456,747	)		(1,516,541	)
Net cash provided (used) by operating activities		1,182,563			1,417,518			(976,223	)
Cash Flows from Investing Activities:
Decrease (Increase) in loans		3,100,000			(3,100,000	)		—
Purchase of investments and other assets, net		—			(38,000	)		(633,812	)
Proceeds from sale of investments and other assets		—			548,185			—
Capital infusion to subsidiaries		(7,925,000	)		—			(712,000	)
Net cash used in investing activities		(4,825,000	)		(2,589,815	)		(1,345,812	)
Cash Flows From Financing Activities:
Purchase of treasury stock		—			—			(1,618,880	)
Proceeds from issuance of common stock, net		35,772			207,702			180,329
Exercise of common stock options		196,251			64,500			257,501
Proceeds from issuance of preferred stock (SBLF), net		24,359,000			—			—
Redemption of preferred stock (CPP)		(15,712,000	)		—			—
Cash dividends on preferred stock		(749,552	)		(815,520	)		(729,437	)
Net cash provided (used) by financing activities		8,129,471			(543,318	)		(1,910,487	)
Net increase (decrease) in cash		4,487,034			(1,715,615	)		(4,232,523	)
Beginning cash		117,860			1,833,475			6,065,997
Ending cash	$	4,604,894		$	117,860		$	1,833,475

F-32

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19.

SUBSEQUENT EVENTS

On November 28, 2012, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Mid-Wisconsin Financial Services, Inc. (“MWFS”), the holding company of Mid-Wisconsin Bank. Pursuant to the terms of the Merger Agreement, MWFS will be merged with and into Nicolet Bankshares, Inc. with Nicolet Bankshares, Inc. surviving the merger. After the merger, Mid-Wisconsin Bank will be merged with and into Nicolet National Bank with Nicolet National Bank surviving the merger. The transactions contemplated by the Merger Agreement are expected to be completed in the second quarter of 2013 and are contingent on customary conditions, including regulatory approval and the approval of the shareholders of both the Company and MWFS.

Under the terms of the Merger Agreement, MWFS shareholders will receive 0.3727 shares of Nicolet Bankshares, Inc. common stock, except in certain limited circumstances outlined in the Merger Agreement, which include, among other instances, cash in lieu of shares for fractional shares or for certain MWFS shareholders who own a small number of shares of MWFS common stock, all as defined or adjusted pursuant to the terms of the Merger Agreement. As a condition of the merger, MWFS shall have redeemed by the closing of the merger its preferred stock (issued to the UST by MWFS as part of its participation in the CPP with par value of $10.5 million) plus all accrued and unpaid dividends thereon; or if such redemption is not permitted by regulatory authorities for MWFS, the redemption of such stock by the Company for a maximum payment of $12.0 million.

F-33

NICOLET BANKSHARES, INC.
AND SUBSIDIARIES

Consolidated Financial Statements
Unaudited

September 30, 2012

F-34

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Balance Sheets

	September 30, 2012 (Unaudited)			December 31, 2011 (Audited)
Assets
Cash and due from banks	$	17,220,607		$	13,741,792
Interest-earning deposits		10,322,108			77,391,757
Federal funds sold		9,000			995,500
Cash and cash equivalents		27,551,715			92,129,049
Certificates of deposit in other banks		—			248,000
Securities available for sale		57,074,520			56,759,395
Other investments		5,220,550			5,211,150
Loans held for sale		3,483,625			11,373,260
Loans		545,707,995			472,488,814
Allowance for loan losses		(6,490,649	)		(5,899,488	)
Loans, net		539,217,346			466,589,326
Premises and equipment, net		19,787,545			19,256,425
Bank owned life insurance		18,509,274			14,236,662
Accrued interest receivable and other assets		11,957,011			12,445,458
Total assets	$	682,801,586		$	678,248,725

Liabilities and Stockholders’ Equity
Liabilities:
Demand	$	91,577,676		$	78,154,193
Money market and NOW accounts		262,509,341			270,738,311
Savings		38,889,295			21,780,998
Time		161,881,207			180,862,028
Total deposits		554,857,519			551,535,530
Short-term borrowings		4,313,240			4,131,892
Notes payable		35,212,115			35,373,896
Junior subordinated debentures		6,185,568			6,185,568
Accrued interest payable and other liabilities		5,354,367			4,808,600
Total liabilities		605,922,809			602,035,486

Stockholders’ Equity:
Preferred equity		24,400,000			24,400,000
Common stock		34,043			34,804
Additional paid-in capital		35,845,032			36,740,711
Retained earnings		14,341,038			13,156,974
Accumulated other comprehensive income		2,128,469			1,690,021
Total Nicolet Bankshares Inc. stockholders’ equity		76,748,582			76,022,510
Noncontrolling interest		130,195			190,729
Total stockholders’ equity and noncontrolling interest		76,878,777			76,213,239
Total liabilities, noncontrolling interest and stockholders’ equity	$	682,801,586		$	678,248,725

Preferred shares authorized (no par value)		10,000,000			10,000,000
Preferred shares issued		24,400			24,400
Common shares authorized (par value $0.01 per share)		30,000,000			30,000,000
Common shares issued		3,404,312			3,480,355

See accompanying notes to consolidated financial statements.

F-35

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Income
(Unaudited)

	Three Months Ended					Nine Months Ended
	September 30,		September 30,			September 30,		September 30,
	2012		2011			2012		2011
Interest income:
Loans, including loan fees	$	6,815,026	$	6,862,388		$	19,800,654	$	21,324,399
Investment securities:
Taxable		149,309		172,813			449,758		514,997
Tax-exempt		200,555		236,519			639,699		714,089
Federal funds sold		516		688			2,018		1,861
Other interest income		46,815		37,835			167,361		112,601
Total interest income		7,212,221		7,310,243			21,059,490		22,667,947
Interest expense:
Money market and NOW accounts		418,325		361,292			1,222,126		1,159,089
Savings and time deposits		694,250		1,227,201			2,406,966		3,888,530
Short term borrowings		1,261		2,239			3,395		7,801
Junior subordinated debentures		126,461		126,461			376,632		375,258
Notes payable		322,308		342,698			997,342		1,020,161
Total interest expense		1,562,605		2,059,891			5,006,461		6,450,839
Net interest income		5,649,616		5,250,352			16,053,029		16,217,108
Provision for loan losses		975,000		1,500,000			3,350,000		4,800,000
Net interest income after provision for loan losses		4,674,616		3,750,352			12,703,029		11,417,108
Other income:
Service charges on deposit accounts		292,816		280,590			859,340		886,674
Trust services fee income		758,991		742,768			2,213,482		2,230,542
Mortgage fee income		845,797		410,188			2,254,232		844,012
Brokerage fee income		76,719		77,113			241,282		257,503
Gain on sale, disposal and write-down of assets, net		5,341		54,444			388,243		59,202
Bank owned life insurance		186,339		146,235			522,612		432,956
Rent income		263,878		237,314			743,899		716,845
Investment advisory fees		82,431		78,815			253,732		246,268
Other		172,251		109,089			508,750		341,386
Total other income		2,684,563		2,136,556			7,985,572		6,015,388
Other expenses:
Salaries and employee benefits		3,325,001		2,925,690			9,991,271		8,680,789
Occupancy, equipment and office		1,093,872		1,108,480			3,334,457		3,287,177
Business development and marketing		437,506		326,081			1,134,115		961,592
Data processing		443,723		347,715			1,255,252		1,026,112
FDIC assessments		133,951		134,378			407,751		503,690
Core deposit intangible amortization		154,708		177,749			490,456		572,747
Other		339,586		466,642			1,109,150		1,255,619
Total other expenses		5,928,347		5,486,735			17,722,452		16,287,726

Income before income tax expense		1,430,832		400,173			2,966,149		1,144,770
Income tax expense		452,852		54,356			827,619		133,002
Net income		977,980		345,817			2,138,530		1,011,768
Less: Net income attributable to noncontrolling interest		13,142		2,659			39,466		29,706
Net income attributable to Nicolet Bankshares, Inc.		964,838		343,158			2,099,064		982,062
Less: Preferred stock dividends and discount accretion		305,000		663,752			915,000		1,156,332
Net income (loss) available to common shareholders	$	659,838	$	(320,594	)	$	1,184,064	$	(174,270	)
Basic earnings (loss) per common share	$	0.19	$	(0.09	)	$	0.34	$	(0.05	)
Diluted earnings (loss) per common share	$	0.19	$	(0.09	)	$	0.34	$	(0.05	)

Weighted average common shares outstanding:
Basic		3,414,561		3,472,064			3,448,916		3,466,960
Diluted		3,431,321		3,472,064			3,465,031		3,466,960

See accompanying notes to consolidated financial statements.

F-36

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income
(Unaudited)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2012			2011			2012			2011
Net income	$	977,980		$	345,817		$	2,138,530		$	1,011,768

Other comprehensive income, net of tax:

Unrealized gains on securities available for sale:

Net unrealized holding gains arising during the period		470,530			185,760			1,104,583			928,252

Reclassification adjustment for net gains included earnings		—			—			(440,268	)		—

Income tax expense		(159,980	)		(63,158	)		(225,867	)		(315,606	)

Total other comprehensive income		310,550			122,602			438,448			612,646

Comprehensive income	$	1,288,530		$	468,419		$	2,576,978		$	1,624,414

See accompanying notes to consolidated financial statements.

F-37

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
(Unaudited)

	Preferred Equity			Common Stock		Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (“AOCI”)		Noncontrolling Interest		Total
Balance, December 31, 2010	$	15,203,280		$	34,604	$	36,255,430		$	13,128,021		$	998,530	$	46,197	$	65,666,062
Net income		—			—		—			982,062			—		29,706		1,011,768
Other Comprehensive income		—			—		—			—			612,646		—		612,646
Stock compensation expense		—			—		223,559			—			—		—		223,559
Exercise of stock options, including income tax benefit of $2,000		—			105		123,645			—			—		—		123,750
Issuance of common stock		—			15		25,428			—			—		—		25,443
Preferred stock accretion		508,720			—		—			(508,720	)		—		—		—
Preferred stock dividends		—			—		—			(647,612	)		—		—		(647,612	)
Preferred stock redemption, CPP		(15,712,000	)		—		—			—			—		—		(15,712,000	)
Issuance of preferred stock, SBLF, net		24,400,000			—		(41,000	)		—			—		—		24,359,000
Owner contribution to Noncontrolling interest		—			—		—			—			—		105,000		105,000
Balance, September 30, 2011	$	24,400,000		$	34,724	$	36,587,062		$	12,953,751		$	1,611,176	$	180,903	$	75,767,616

	Preferred Equity		Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income (“AOCI”)		Noncontrolling Interest			Total
Balance, December 31, 2011	$	24,400,000	$	34,804		$	36,740,711		$	13,156,974		$	1,690,021	$	190,729		$	76,213,239
Net income		—		—			—			2,099,064			—		39,466			2,138,530
Other Comprehensive income		—		—			—			—			438,448		—			438,448
Stock compensation expense		—		—			376,270			—			—		—			376,270
Exercise of stock options, including income tax benefit of $2,720		—		45			56,205			—			—		—			56,250
Retirement of common stock		—		(806	)		(1,328,154	)		—			—		—			(1,328,960	)
Preferred stock dividends		—		—			—			(915,000	)		—		—			(915,000	)
Disbursement from noncontrolling interest		—		—			—			—			—		(100,000	)		(100,000	)
Balance, September 30, 2012	$	24,400,000	$	34,043		$	35,845,032		$	14,341,038		$	2,128,469	$	130,195		$	76,878,777

See accompanying notes to consolidated financial statements.

F-38

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows
(Unaudited)

	Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Cash Flows From Operating Activities:
Net income	$	2,138,530		$	1,011,768
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, amortization and accretion		1,824,496			1,567,410
Provision for loan losses		3,350,000			4,800,000
Increase in cash surrender value of life insurance		(522,612	)		(432,956	)
Stock compensation expense		376,270			223,559
Gain on sale, disposal and write-down of assets, net		(388,243	)		(59,202	)
Gain on sale of loans held for sale, net		(2,254,232	)		(844,012	)
Proceeds from sale of loans held for sale		144,716,375			49,799,969
Origination of loans held for sale		(134,572,509	)		(57,540,689	)
Net change in:
Accrued interest receivable and other assets		(42,703	)		7,114,696
Accrued interest payable and other liabilities		319,900			(470,912	)
Net cash provided by operating activities		14,945,272			5,169,631

Cash Flows From Investing Activities:
Net decrease in certificates of deposit in other banks		248,000			—
Net (increase) decrease in loans		(77,484,015	)		24,264,444
Purchases of securities available for sale		(11,829,910	)		(7,294,616	)
Proceeds from sales of securities available for sale		5,415,008			—
Proceeds from calls and maturities of securities available for sale		7,075,315			3,462,899
Purchase of other investments		(9,400	)		(187,150	)
Purchase of BOLI		(3,750,000	)		—
Purchase of premises and equipment		(1,720,051	)		(1,149,639	)
Proceeds from sale of other real estate and other assets		1,478,601			1,541,283
Net cash provided by (used in) investing activities		(80,576,452	)		20,637,221

Cash Flows From Financing Activities:
Net increase (decrease) in deposits		3,321,989			(67,329,687	)
Net increase (decrease) in short term borrowings		181,348			(1,125,009	)
Repayments of notes payable		(161,781	)		(154,137	)
Proceeds from Federal Home Loan Bank advances		5,000,000			—
Repayments of Federal Home Loan Bank advances		(5,000,000	)		—
Purchase of treasury stock		(1,328,960	)		—
Proceeds from issuance of common stock, net		—			25,443
Proceeds from exercise of common stock options		56,250			123,750
Proceeds from issuance of preferred stock (SBLF), net		—			24,359,000
Repayment of preferred stock (CPP), net		—			(15,712,000	)
Noncontrolling interest in joint venture		(100,000	)		105,000
Cash dividends paid on preferred stock		(915,000	)		(647,885	)
Net cash provided by (used in) by financing activities		1,053,846			(60,355,525	)
Net decrease in cash and cash equivalents		(64,577,334	)		(34,548,673	)
Cash and cash equivalents:
Beginning		92,129,049			52,102,655
Ending	$	27,551,715		$	17,553,982

See accompanying notes to consolidated financial statements.

F-39

NICOLET BANKSHARES, INC. AND SUBSIDIARIES

Consolidated Statement of Cash Flows, Continued
(Unaudited)

	Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Supplemental Disclosure of Cash Flow Information:
Cash paid for interest	$	5,075,456		$	7,423,265
Cash paid for taxes		704,500			205,000
Change in AOCI for unrealized gains on AFS, net of tax		(438,448	)		(612,646	)
Transfer of loans to other real estate owned		1,505,994			905,125
Accretion of preferred stock discount		—			508,720

See accompanying notes to consolidated financial statements.

F-40

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 1.

BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES

General: In the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments necessary to present fairly Nicolet Bankshares, Inc. (the “Company”) and its subsidiaries, consolidated balance sheets, statements of income, comprehensive income, changes in stockholders’ equity and cash flows for the periods presented, and all such adjustments are of a normal recurring nature. All material intercompany transactions and balances are 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. The information contained in the audited consolidated financial statements and footnotes for the year ended December 31, 2011 should be referred to in connection with the reading of these unaudited interim financial statements.

In preparing the consolidated financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses during the reporting period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses, and the valuation of deferred tax assets.

Reclassification: Certain amounts in the 2011 consolidated financial statements have been reclassified to conform to the 2012 presentation.

Recent Accounting Pronouncements: In July 2012, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment (the revised standard). It allows companies to perform a “qualitative” assessment to determine whether further impairment testing of indefinite-lived intangible assets is necessary, similar in approach to the goodwill impairment test. The revised standard is effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012, and entities can choose to early adopt the revised guidance. It is not expected to have a material impact on the Company’s financial position, results of operations or disclosures.

In April 2012, the FASB issued a proposed ASU to address the subsequent measurement of indemnification assets recognized as a result of a government assisted acquisition of a financial institution. The proposal requires an indemnification asset recognized as a result of a government assisted acquisition to be subsequently measured on the same basis as the indemnified item subject to the contractual limitations and amounts of the underlying contract. Comment letters on this proposed guidance were due by July 16, 2012. Because this standard is still in the proposal stage, the impact on the Company’s financial position, results of operations and disclosures has not been assessed.

In May 2011, the FASB issued an accounting standard that requires companies to disclose more of the processes for valuing items categorized as Level 3 in the fair value hierarchy, provide quantitative information about the significant unobservable inputs used in the measurement and, in certain cases, explain how sensitive the measurements are to changes in the inputs. Other than requiring additional disclosures, the adoption of this new guidance does not have a material impact on the Company’s financial condition, results of operations or liquidity.

F-41

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 1. BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES (Continued)

and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. The accounting pronouncement eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity, but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The Company adopted this standard effective with its 2012 reporting, electing to present a consolidated statement of comprehensive income separate from, but consecutive to, its consolidated income statement.

NOTE 2.

BUSINESS COMBINATION

NOTE 3.

EARNINGS (LOSS) PER COMMON SHARE

Earnings (loss) per common share is calculated by dividing net income (loss) available to common equity by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is calculated by dividing net income (loss) available to common equity by the weighted average number of shares adjusted for the dilutive effect of common stock awards, if any. Presented below are the calculations for basic and diluted earnings (loss) per common share.

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2012		2011			2012		2011
(in thousands)
Net income, net of noncontrolling interest	$	965	$	343		$	2,099	$	982
Less preferred stock dividends and discount accretion		305		664			915		1,156
Net income (loss) available to common shareholders’	$	660	$	(321	)	$	1,184	$	(174	)
Weighted average common shares outstanding		3,415		3,472			3,449		3,467
Effect of dilutive stock instruments		16		—			16		—
Diluted weighted average common shares outstanding		3,431		3,472			3,465		3,467
Basic earnings (loss) per common share	$	0.19	$	(0.09	)	$	0.34	$	(0.05	)
Diluted earnings (loss) per common share	$	0.19	$	(0.09	)	$	0.34	$	(0.05	)

F-42

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 4.

SECURITIES

Amortized costs and fair values of securities available for sale are summarized as follows:

(in thousands)	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
September 30, 2012
State, county and municipals	$	32,315	$	1,304	$	—	$	33,619
Mortgage-backed securities		17,412		951		—		18,363
U.S. Government sponsored enterprises		2,499		4		—		2,503
Equity securities		1,624		966		—		2,590
	$	53,850	$	3,225	$	—	$	57,075

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Values
December 31, 2011
State, county and municipals	$	30,130	$	1,718	$	—	$	31,848
Mortgage-backed securities		17,450		1,042		7		18,485
U.S. Government sponsored enterprises		4,995		24		—		5,019
Equity securities		1,624		—		217		1,407
	$	54,199	$	2,784	$	224	$	56,759

The following table represents gross unrealized losses and the related fair value of securities available for sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at December 31, 2011. The Company did not have any individual securities in an unrealized loss position at September 30,2012.

	December 31, 2011
	Less than 12 months				12 months or more				Total
(in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
U.S. Government sponsored enterprises	$	1,015	$	7	$	—	$	—	$	1,015	$	7
Equity securities		—		—		1,407		217		1,407		217
	$	1,015	$	7	$	1,407	$	217	$	2,422	$	224

The amortized cost and fair values of securities available for sale at September 30, 2012, 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. Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair value.

	September 30, 2012
(in thousands)	Amortized Cost		Fair Value
Due in less than one year	$	6,381	$	6,410
Due in one year through five years		20,978		21,973
Due after five years through ten years		7,080		7,364
Due after ten years		375		375
		34,814		36,122
Mortgage-backed securities		17,412		18,363
Equity securities		1,624		2,590
Securities available for sale	$	53,850	$	57,075

F-43

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 4. SECURITIES (Continued)

There were no securities sales during 2011. Proceeds from sales of securities available for sale during the nine months ended September 30, 2012 were $5.4 million, recognizing gross gains of approximately $440,000. There were no other-than-temporary impairment (“OTTI”) charges recorded during the nine months ended September 30, 2012 or 2011.

NOTE 5.

LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY

The loan composition as of September 30, 2012 and December 31, 2011 is summarized as follows:

	2012					2011
(in thousands)	Amount		% of Total			Amount		% of Total
Commercial & Industrial	$	201,363		36.9	%	$	154,011		32.6	%
Commercial real estate (“CRE”) Owner-occupied		112,040		20.5	%		111,179		23.5	%
CRE Investment		71,520		13.1	%		66,577		14.1	%
Construction & Land Development		26,964		5.0	%		24,774		5.2	%
Residential Construction		7,670		1.4	%		9,363		2.0	%
Residential First Mortgage		79,543		14.6	%		56,392		11.9	%
Residential Junior Mortgage		40,928		7.5	%		42,699		9.0	%
Retail & Other		5,680		1.0	%		7,494		1.7	%
Loans		545,708		100.0	%		472,489		100.0	%
Less allowance for loan losses		6,491					5,899
Loans, net	$	539,217				$	466,590

The allowance for loan losses (“ALLL”) represents management’s estimate of probable and inherent credit losses in the Bank’s loan portfolio at the balance sheet date. In general, estimating the amount of the ALLL 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 impaired loans, and the level of potential problem loans, all of which may be susceptible to significant change. To the extent actual outcomes differ from management estimates, additional provisions for loan losses could be required that could adversely affect our earnings or financial position in future periods. Allocations of the ALLL may be made for specific loans but the entire ALLL is available for any loan that, in management’s judgment, should be charged-off or for which an actual loss is realized.

F-44

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 5. LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Continued)

A year-to-date summary of the changes in the ALLL by portfolio segment for the periods indicated is as follows (in thousands):


Allowance for Loan Losses (ALLL):	Commercial & Industrial		Owner-occ. CRE		Investment CRE		Construction & Land Development		Residential Construction		Residential First Mortgage		Residential Junior Mortgage		Retail & Other		Total
Beginning balance December 31, 2011	$	1,965	$	347	$	393	$	2,035	$	311	$	405	$	419	$	24	$	5,899
Provision for loan losses charged to operations		806		1,507		210		154		205		310		125		33		3,350
Loans charged off		129		1,327		305		307		396		216		118		38		2,836
Recoveries		34		9		—		22		—		7		5		1		78
Ending balance September 30, 2012	$	2,676	$	536	$	298	$	1,904	$	120	$	506	$	431	$	20	$	6,491
As percent of ALLL

ALLL attributed to individually evaluated loans	$	—	$	165	$	—	$	—	$	—	$	—	$	—	$	—	$	165
ALLL attributed to collectively evaluated loans		2,676		371		298		1,904		120		506		431		20		6,326
Ending balance	$	2,676	$	536	$	298	$	1,904	$	120	$	506	$	431	$	20	$	6,491

Loans:
Individually evaluated	$	3,986	$	354	$	380	$	8,558	$	397	$	1,326	$	—	$	151	$	15,152
Collectively evaluated		197,377		111,686		71,140		18,406		7,273		78,217		40,928		5,529		530,556
Total loans	$	201,363	$	112,040	$	71,520	$	26,964	$	7,670	$	79,543	$	40,928	$	5,680	$	545,708

Less ALLL	$	2,676	$	536	$	298	$	1,904	$	120	$	506	$	431	$	20	$	6,491
Net loans	$	198,687	$	111,504	$	71,222	$	25,060	$	7,550	$	79,037	$	40,497	$	5,660	$	539,217

The allocation methodology used by the Company includes specific allocations for impaired loans evaluated individually for impairment based on collateral values and for the remaining loan portfolio collectively evaluated for impairment primarily based on historical loss rates and other qualitative factors. Loan charge-offs and recoveries are based on actual amounts charged-off or recovered by loan category. Management allocates the ALLL by pools of risk within each loan portfolio.

The following table presents nonaccrual loans by portfolio segment as of September 30, 2012 and December 31, 2011:

(in thousands)	2012				2011
Commercial & Industrial	$	3,986	26.3	%	$	1,596	16.8	%
CRE Owner-occupied		354	2.3	%		934	9.9	%
CRE Investment		380	2.5	%		716	7.6	%
Construction & Land Development		8,558	56.5	%		3,367	35.5	%
Residential Construction		397	2.6	%		1,480	15.6	%
Residential First Mortgage		1,326	8.8	%		1,129	11.9	%
Residential Junior Mortgage		—	—%			105	1.1	%
Retail & Other		151	1.0	%		149	1.6	%
Loans	$	15,152	100.0	%	$	9,476	100	%

F-45

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 5. LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Continued)

Loans are generally placed on nonaccrual status when management has determined collection of the interest on a loan is doubtful or when a loan is contractually past due 90 days or more as to interest or principal payments. When loans are placed on nonaccrual status or charged-off, all current year unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash basis until qualifying for return to accrual status. If collectability of the principal is in doubt, payments received are applied to loan principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured. Management considers a loan to be impaired when it is probable the Bank will be unable to collect all contractual principal and interest payments due in accordance with the terms of the loan agreement.

A summary of loans by credit quality indicator based on internally assigned credit grade as of September 30, 2012 is as follows:

(in thousands)	Grades 1–4		Grade 5		Grade 6		Grade 7		Grade 8		Grade 9		Total
Commercial & Industrial	$	193,018	$	958	$	1,381	$	6,006	$	—	$	—	$	201,363
CRE Owner-occupied		101,139		7,042		2,054		1,640		165		—		112,040
CRE Investment		60,375		10,009		—		1,136		—		—		71,520
Construction & Land Development		11,240		923		885		13,916		—		—		26,964
Residential Construction		6,739		—		—		931		—		—		7,670
Residential First Mortgage		76,066		1,102		—		2,375		—		—		79,543
Residential Junior Mortgage		40,091		216		249		372		—		—		40,928
Retail & Other		5,529		—		—		151		—		—		5,680
Total loans	$	494,197	$	20,250	$	4,569	$	26,527	$	165	$	—	$	545,708

Loans risk rated Acceptable (1–4) and Watch (5) are credits performing in accordance with the original terms, have adequate sources of repayment and little identifiable collectability risk. Special Mention (6) credits have potential weaknesses that deserve management’s attention. If left unremediated, these potential weaknesses may result in deterioration of the repayment of the credit. Substandard (7) loans typically have weaknesses in the paying capability of the obligor and/or guarantor or in collateral coverage. These loans have a well-defined weakness that jeopardizes the liquidation of the debt and are characterized by the possibility that the Company will sustain some loss if the deficiencies are not corrected. Loans classified as Doubtful (8) have all the weaknesses of substandard loans with the added characteristic that the collection of all amounts due according to the original contractual terms is highly unlikely and the amount of the loss is reasonably estimable. Loans classified as loss are considered uncollectible. All substandard and doubtful loans are evaluated individually for impairment based on collateral values.

The following table presents loans by past due status as of the dates indicated:

	September 30, 2012
(in thousands)	30–89 Days Past Due (accruing)			90 Days & Over or non-accrual			Current			Total
Commercial & Industrial	$	100		$	3,986		$	197,277		$	201,363
CRE Owner-occupied		1,857			354			109,829			112,040
CRE Investment		—			380			71,140			71,520
Construction & Land Development		—			8,558			18,406			26,964
Residential Construction		—			397			7,273			7,670
Residential First Mortgage		—			1,326			78,217			79,543
Residential Junior Mortgage		—			—			40,928			40,928
Retail & Other		14			151			5,515			5,680
Total loans	$	1,971		$	15,152		$	528,585		$	545,708
As a percent of total loans		0.4	%		2.8	%		96.8	%		100.0	%

F-46

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 5. LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Continued)

	December 31, 2011
	30–89 Days Past Due (accruing)			90 Days & Over or on non-accrual			Current			Total
Commercial	$	1,278		$	2,530		$	261,382		$	265,190
Real Estate-Commercial		—			716			65,861			66,577
Real Estate-Residential		330			1,129			54,933			56,392
Construction		1,139			4,847			28,151			34,137
Consumer		123			254			49,816			50,193
Total loans	$	2,870		$	9,476		$	460,143		$	472,489
As a percent of total loans		0.6	%		2.0	%		97.4	%		100.0	%

The following table presents impaired loans as of the dates indicated:

(in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
September 30, 2012
With no related allowance:
Commercial & Industrial	$	3,986	$	4,432	$	—	$	2,330	$	274
CRE Owner-occupied		60		60		—		298		12
CRE Investment		380		409		—		370		17
Construction & Land Development		8,558		8,692		—		7,289		374
Residential Construction		397		446		—		811		18
Residential First Mortgage		1,326		1,369		—		739		49
Residential Junior Mortgage		—		—		—		62		—
Retail & Other		151		151		—		151		—
With a related allowance:						—
Commercial & Industrial	$	—	$	—		—	$	1,243	$	—
CRE Owner-occupied		294		294		165		431		—
CRE Investment		—		—		—		179		—
Construction & Land Development.		—		—		—		30		—
Residential Construction		—		—		—		370		—
Residential First Mortgage		—		—		—		95		—
Residential Junior Mortgage		—		—		—		—		—
Retail & Other		—		—		—		—		—
Total:
Commercial & Industrial	$	3,986	$	4,432		—	$	3,573	$	274
CRE Owner-occupied		354		354		165		728		12
CRE Investment		380		409		—		549		17
Construction & Land Development		8,558		8,692		—		7,319		374
Residential Construction		397		446		—		1,181		18
Residential First Mortgage		1,326		1,369		—		834		49
Residential Junior Mortgage		—		—		—		62		—
Retail & Other		151		151		—		151		—
Total	$	15,152	$	15,853	$	165	$	14,397	$	744

F-47

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 5. LOANS, ALLOWANCE FOR LOAN LOSSES, AND CREDIT QUALITY (Continued)

The following is a summary of information pertaining to impaired loans as of December 31, 2011:

Impaired loans for which a specific allowance has been provided	$	3,353,000
Impaired loans for which no specific allowance has been provided		6,274,000
Total loans determined to be impaired	$	9,627,000
Specific allowance provided for impaired loans, included in the allowance for loan losses	$	549,000
Average investment in year-end impaired loans	$	19,096,000
Cash basis interest income recognized on year-end impaired loans	$	373,000

NOTE 6.

NOTES PAYABLE

The Company had the following notes payable:

(in thousands)	September 30, 2012		December 31, 2011
Joint Venture note	$	10,212	$	10,374
FHLB advances		25,000		25,000
	$	35,212	$	35,374

At the completion of the construction of the Company’s headquarters building in 2005 and as part of a joint venture investment related to the building, the Company and the other joint venture partners guaranteed a Joint Venture (“JV”) note to finance certain costs of the building. This note is secured by the building, bears a fixed rate of 5.81% and requires monthly principal and interest payments until its maturity on June 1, 2016. This note was current at September 30, 2012.

At September 30, 2012 and December 31, 2011, the Company’s five fixed-rate FHLB advances total $25,000,000, have a weighted average rate of 2.61% and 2.87%, respectively, and require interest-only monthly payments. At September 30, 2012, the FHLB advances have maturities between June 2013 and August 2016.The FHLB advances are collateralized by a blanket lien on qualifying first mortgages, home equity loans, multi-family loans and certain farmland loans which totaled approximately $43,997,000 and $47,316,000 at September 30, 2012 and December 31, 2011, respectively.

NOTE 7.

JUNIOR SUBORDINATED DEBENTURES

In July 2004 the Company formed a wholly-owned Connecticut statutory trust, Nicolet Bankshares Statutory Trust I (the “Statutory Trust”), which issued $6.0 million of guaranteed preferred beneficial interests in the Company’s junior subordinated deferrable interest debentures that qualify as Tier I capital under Federal Reserve Board guidelines. All of the common securities of the Statutory Trust are owned by the Company. The proceeds from the issuance of the common securities and the trust preferred securities were used by the Statutory Trust to purchase $6,186 of junior subordinated debentures of the Company, which pay an 8% fixed rate. The proceeds received by the Company from the sale of the junior subordinated debentures were used for general purposes, primarily to provide capital to the Bank. The debentures represent the sole asset of the Statutory Trust. The Statutory Trust is not included in the consolidated financial statements. The net combined effect of all the documents entered into in connection with the trust preferred securities is that the Company is liable to make the distributions and other payments required on the trust preferred securities.

F-48

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 8.

STOCKHOLDERS’ EQUITY

On December 23, 2008, under the federal government’s Capital Purchase Program (“CPP”), the Company received $14,964,000 from the U.S. Treasury Department (“the UST”) for the issuance of 14,964 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 5% dividend for the first five years and 9% thereafter) and an additional 748 shares of senior preferred stock with $1,000 per share liquidation value (bearing a 9% dividend) following the UST’s immediate exercise of preferred stock warrants. The $100,000 of incurred costs related to the preferred stock issuance was charged directly against preferred stock. The initial $848,000 discount recorded on preferred stock that resulted from allocating a portion of the proceeds to the warrants is accreted directly to retained earnings over a five- year period on a straight-line basis.

On September 1, 2011, under the SBLF, the Company received $24,400,000 from the UST for the issuance of 24,400 shares of Non-cumulative Perpetual Preferred Stock, Series C, with $1,000 per share liquidation value. The $41,000 of incurred issuance costs was charged against additional paid-in capital. The annual dividend rate upon funding and for the following nine calendar quarters is 5%, unless there is growth in qualifying small business loans outstanding over a baseline which could reduce the rate to as low as 1% (as determined under the terms of the Securities Purchase Agreement (the “Agreement”)), adjusted quarterly. The dividend rate is fixed for the tenth quarter after funding through the end of the first four and one-half years at 7% (unless fixed at a lower rate given increased lending as similarly described above); and finally the dividend rate is fixed at 9% after four and one-half years if the preferred stock is not repaid. The Company’s weighted average dividend rate for the nine month period ended September 30, 2012 and the period from funding through September 30, 2011 was 5%. Under the terms of the Agreement, the Company will be required to provide various information, certifications, and reporting to the UST. At September 30, 2012 and December 31, 2011, the Company believes it was in compliance with the requirements set by the UST in the Agreement. The preferred stock (under CPP or SBLF) qualifies as Tier 1 capital for regulatory purposes.

For the nine months ended September 30, 2012 the Company had repurchased 80,692 shares of its common stock for gross proceeds of approximately $1,331,000.

F-49

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 9.

FAIR VALUE MEASUREMENTS

The relevant accounting standard (codified in ASC Topic 820, “Fair Value Measurements and Disclosures”) defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This standard applies under other accounting pronouncements that require or permit fair value measurements; accordingly, the standard amends numerous accounting pronouncements but does not require any new fair value measurements of reported balances. The standard emphasizes that fair value (i.e. the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, should include assumptions about risk such as nonperformance risk in liability fair values, and is a market-based measurement versus an entity-specific measurement.

The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels. Level 1inputs are quoted market prices in active markets for identical assets or liabilities that a company has the ability to access at the measurement date. Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3 inputs are unobservable inputs for the asset or liabilities, which are typically based on an entity’s own assumptions, as there is little, if any, related market activity. In instances where the fair value measurement is based on inputs from different levels, the level within which the entire fair value measurement will be categorized is based on the lowest level input that is significant to the fair value measurement in its entirety; this assessment of the significance of an input requires management judgment.

The following table presents items measured at fair value on a recurring basis as of September 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall, as well as a roll forward of activity for Level 3 (significant unobservable inputs) fair value measurements.

	September 30, 2012
Measured at Fair Value on a Recurring Basis	Fair Value Measurements Using
(in thousands)	Total		Level 1		Level 2		Level 3
State, county and municipals	$	33,619	$	—	$	32,644	$	975
Mortgage-backed securities		18,363		—		18,363		—
U.S. Government sponsored enterprises		2,503		—		2,503		—
Equity securities		2,590		2,590		—		—
Securities available-for-sale	$	57,075	$	2,590	$	53,510	$	975

	December 31, 2011
	Fair Value Measurements Using
	Total		Level 1		Level 2		Level 3
State, county and municipals	$	31,848	$	—	$	30,873	$	975
Mortgage-backed securities		18,484		—		18,484		—
U.S. Government sponsored enterprises		5,020		—		5,020		—
Equity securities		1,407		1,407		—		—
Securities available-for-sale	$	56,759	$	1,407	$	54,377	$	975

	Securities Available for Sale
Level 3 Fair Value Measurements:	Nine Months Ended September 30, 2012		Year Ended December 31, 2012
(in thousands)
Balance at beginning of year	$	975	$	1,050
Purchases/(sales)/(settlements), net		—		(75	)
Net change in gain/(loss), realized and unrealized		—		—
Transfers in/(out) of Level 3		—		—
Balance at end of period	$	975	$	975

F-50

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 9. FAIR VALUE MEASUREMENTS (Continued)

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. Where quoted market prices on securities exchanges are available, the investment is classified in Level 1 of the fair value hierarchy. Level1investments primarily include exchange-traded equity securities available for sale. If quoted market prices are not available, fair value is generally determined using pricing models (such as matrix pricing which is a mathematical technique used widely in the industry to value debt securities without relying exclusively on quoted market prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities), quoted market prices of securities with similar characteristic (adjusted for differences between the quoted instruments and the instrument being valued), or discounted cash flows, and are classified in Level 2 of the fair value hierarchy. Examples of these investments include mortgage-related securities and obligations of state, county and municipals. Finally, in certain cases where there is limited activity or less transparency around inputs to the estimated fair value, investments are classified within Level 3 of the hierarchy. Examples of these include auction rate securities available for sale (for which there has been no liquid market since 2008). At September 30, 2012 and December 31, 2011, it was determined that carrying value was the best approximation of fair value for these Level 3 securities, based primarily on receipt of par from refinances for the auction rate securities.

The following table presents the Company’s collateral-dependent impaired loans and other real estate owned measured at fair value on a nonrecurring basis as of September 30, 2012 and December 31, 2011, aggregated by the level in the fair value hierarchy within which those measurements fall.

Measured at Fair Value on a Nonrecurring Basis			Fair Value Measurements Using
(in thousands)	September 30, 2012		Level 1		Level 2		Level 3
Collateral-dependent impaired loans	$	15,152	$	—	$	15,152	$	—
Other real estate owned		617		—		617		—

			Fair Value Measurements Using
	December 31, 2011		Level 1		Level 2		Level 3
Collateral-dependent impaired loans	$	8,878	$	—	$	8,878	$	—
Other real estate owned		641		—		641		—

The following is a description of the valuation methodologies used by the Company for the items noted in the table above, including the general classification of such instruments in the fair value hierarchy. Per the applicable accounting standard, the use of observable market price or estimated fair value of collateral on collateral-dependent impaired loans and other real estate owned is considered a fair value measurement subject to the fair value hierarchy and provisions of the accounting standard. The primary inputs underlying estimated fair value of collateral dependent impaired loans and other real estate owned classified within Level 2 are appraised values obtained from external parties for real estate collateral and current financial statements for non-real estate collateral (i.e. usually current assets in nature, such as accounts receivable or inventories). Appraised values of other real estate owned are adjusted for the expected costs to sell.

F-51

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 9. FAIR VALUE MEASUREMENTS (Continued)

Summarized below are the estimated fair values of the Company’s financial instruments at September 30, 2012 and December 31, 2011, along with the methods and assumptions used by the Company in estimating the fair value disclosures.

	September 30, 2012
					Fair Value Measurements Using
(in thousands)	Carrying Amount		Fair Value		Level 1		Level 2		Level 3
Financial assets:
Cash and cash equivalents	$	27,552	$	27,552	$	27,552	$	—	$	—
Securities available for sale		57,075		57,075		2,590		53,510		975
Other investments		5,221		5,221		—		—		5,221
Loans held for sale		3,484		3,484		—		—		3,484
Loans, net		539,217		543,263		—		15,152		528,111
Bank owned life insurance		18,509		18,509		—		18,509		—

Financial liabilities:
Deposits	$	554,858	$	556,741	$	—	$	—	$	556,741
Short-term borrowings		4,313		4,313		—		4,313		—
Notes payable		35,212		35,994		—		35,994		—
Junior subordinated debentures		6,186		6,186		—		—		6,186

	December 31, 2011
	Carrying Amount		Fair Value
Financial assets:
Cash and cash equivalents	$	92,129	$	92,129
Certificates of deposits in other banks		248		248
Securities available for sale		56,759		56,759
Other investments		5,211		5,211
Loans held for sale		11,373		11,373
Loans, net		466,589		469,734
Bank owned life insurance		14,237		14,237

Financial liabilities:
Deposits	$	551,536	$	553,761
Short-term borrowings		4,132		4,132
Notes payable		35,374		36,557
Junior subordinated debentures		6,186		6,186

The following is a description of the valuation methodologies used to estimate the fair value of financial instruments.

Cash and cash equivalents and certificates of deposits in other banks: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Securities available for sale and other investments: Fair values for securities are based on quoted market prices on securities exchanges, when available. If quoted market prices are not available, fair value is generally determined using pricing models, quoted market prices of securities with similar characteristics, or discounted cash flows. For other investments, the carrying amount of Federal Reserve Bank and FHLB stock is a reasonably accepted fair value estimate given the irrestricted nature, while the carrying amount of the remaining other investments (particularly common stocks of companies or other banks that are not publicly

F-52

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 9. FAIR VALUE MEASUREMENTS (Continued)

traded) approximates their fair value, determined primarily by analysis of company financial statements and recent capital issuances of the respective companies or banks, if any.

Loans held for sale: The carrying amount of loans held for sale approximates the fair value, given the short-term nature of the loans between origination and sale.

Loans, net: For variable-rate loans that reprice frequently and with no significant change in credit risk or other optionality, fair values are based on carrying values. Fair values for all other loans are estimated by discounting contractual cash flows using estimated market discount rates, which reflect the credit and interest rate risk inherent in the loan. Collateral-dependent impaired loans are included in loans, net.

Bank owned life insurance: The carrying value of these assets approximates fair value.

Deposits: The fair value of deposits with no stated maturity (such as demand deposits, savings, interest and non-interest checking, and money market accounts) is, by definition, equal to the amount payable on demand at the reporting date. Fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates within the marketplace.

Short-term borrowings: For these short-term instruments, the carrying amount is a reasonable estimate of fair value.

Notes payable and junior subordinated debentures: The fair values of notes payable and junior subordinated debentures are estimated using discounted cash flow analysis based on current interest rates being offered by instruments with similar terms and credit quality.

Off-balance-sheet instruments: The estimated fair value of letters of credit at September 30, 2012 and December 31, 2011 was insignificant. Loan commitments on which the committed interest rate is less than the current market rate are also insignificant at September 30, 2012 and December 31,2011.

Limitations: Fair value estimates are made at a specific point in time, based on relevant market information and information about the financial instrument. These estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument. Fair value estimates may not be realizable in an immediate settlement of the instrument. In some instances, there are no quoted market prices for the Company’s various financial instruments, in which case fair values may be based on estimates using present value or other valuation techniques, or based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of the financial instruments, or other factors. Those techniques are significantly affected by the assumptions used, including the discount rate and estimate of future cash flows. Subsequent changes in assumptions could significantly affect the estimates.

NOTE 10.

STOCK-BASED COMPENSATION

The Company has stock incentive plans administered by a committee of the Board of Directors that provide for the granting of various equity awards per the plan documents to certain eligible officers, employees and directors of the Company.

F-53

NICOLET BANKSHARES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS UNAUDITED

NOTE 10. STOCK-BASED COMPENSATION (Continued)

Activity of the stock incentive plans for options is summarized in the following table:

	Weighted- Average Fair Value per share of Options Granted				Weighted- Average Exercise Price
Balance — December 31, 2010			729,657		$	17.59	491,780
Granted		—	—			—
Exercise of stock options			(17,750	)		11.06
Cancelled			(9,000	)		15.76
Balance — December 31, 2011			702,907			17.78	533,074
Granted	$	4.87	184,625			16.50
Exercise of stock options			(4,500	)		12.50
Cancelled			(22,175	)		17.01
Balance — September 30, 2012			860,857		$	17.55	540,937

Activity of the restricted stock awards is summarized in the following table:

	Weighted- Average Fair Value per share of Restricted Stock
Balance — December 31, 2011			—
Granted	$	16.50	54,725
Vested			—
Forfeited		16.50	(250	)
Balance — September 30, 2012	$	16.50	54,475

The Company recognized stock-based employee compensation expense of approximately $376,000 and $224,000 for nine months ended September 30, 2012 and 2011, respectively.

NOTE 11.

SUBSEQUENT EVENTS

F-54

APPENDIX A

AGREEMENT AND PLAN OF MERGER, AS AMENDED

AGREEMENT AND PLAN OF MERGER

BY AND AMONG

NICOLET BANKSHARES, INC.

AND

MID-WISCONSIN FINANCIAL SERVICES, INC.

Dated as of November 28, 2012

TABLE OF CONTENTS


Parties		1

Preamble		1

ARTICLE 1	TRANSACTIONS AND TERMS OF MERGER	1

1.1	Merger	1
1.2	Bank Merger	1
1.3	Effective Time	1
1.4	Time and Place of Closing	1

ARTICLE 2	TERMS OF MERGER	2

2.1	Articles of Incorporation	2
2.2	Bylaws	2
2.3	Directors	2
2.4	Officers	2

ARTICLE 3	MANNER OF CONVERTING SHARES	2

3.1	Conversion of Target Shares	2
3.2	Cancellation of Stock Options	3

ARTICLE 4	EXCHANGE OF SHARES	3

4.1	Exchange Procedures	3
4.2	Rights of Former Target Shareholders	3

ARTICLE 5	REPRESENTATIONS AND WARRANTIES OF TARGET	4
5.1	Organization, Standing, and Power	4
5.2	Authority of Target; No Breach By Agreement	4
5.3	Capital Stock	5
5.4	Target Subsidiaries	5
5.5	SEC Filings; Financial Statements	6
5.6	Absence of Undisclosed Liabilities	6
5.7	Loan Portfolio	6
5.8	Absence of Certain Changes or Events	6
5.9	Tax Matters	7
5.10	Allowance for Possible Loan Losses	8
5.11	Assets	8
5.12	Intellectual Property	9
5.13	Environmental Matters	9
5.14	Compliance with Laws	10
5.15	Labor Relations	10
5.16	Employee Benefit Plans	10
5.17	Material Contracts	14
5.18	Legal Proceedings	15
5.19	Regulatory Reports	15
5.20	Internal Accounting and Disclosure Controls	15
5.21	Community Reinvestment Act	15


5.22	Privacy of Customer Information	15
5.23	Technology Systems	16
5.24	Bank Secrecy Act Compliance	16
5.25	Target Disclosure Memorandum	16
5.26	Board Recommendation	16
5.27	Brokers	16

ARTICLE 6	REPRESENTATIONS AND WARRANTIES OF PURCHASER	16

6.1	Organization, Standing and Power	16
6.2	Authority of Purchaser; No Breach By Agreement	17
6.3	Capital Stock	17
6.4	Purchaser Subsidiaries	18
6.5	Financial Statements	18
6.6	Absence of Undisclosed Liabilities	18
6.7	Absence of Certain Changes or Events	19
6.8	Tax Matters	19
6.9	Compliance with Laws	20
6.10	Legal Proceedings	20
6.11	Internal Accounting and Disclosure Controls	21
6.12	Community Reinvestment Act	21
6.13	Board Recommendation	21
6.14	Brokers	21
6.15	Loan and Investment Portfolios	21
6.16	Allowance for Possible Loan Losses	21
6.17	Regulatory Reports	21
6.18	Bank Secrecy Act Compliance	22

ARTICLE 7	CONDUCT OF BUSINESS PENDING CONSUMMATION	22

7.1	Affirmative Covenants of Each Party	22
7.2	Negative Covenants of Target	22
7.3	Negative Covenants of Target	23
7.4	Adverse Changes in Condition	24
7.5	Reports	24

ARTICLE 8	ADDITIONAL AGREEMENTS	24

8.1	Registration Statement; Proxy Statement; Shareholder Approval	24
8.2	Applications	25
8.3	Filings of Articles of Merger	25
8.4	Investigation and Confidentiality	25
8.5	No Solicitations	26
8.6	Press Releases	26
8.7	Tax Treatment	26
8.8	Agreement of Affiliates	26
8.9	Indemnification	27
8.10	Employee Benefits and Contracts	28
8.11	Authorization and Approval of Purchaser Common Stock	28
8.12	Supplemental Indenture	28
8.13	Repurchase or Redemption of Target Preferred Stock	28
8.14	Payment of Target Trust Preferred Interest Payments	28
8.15	Prosecution of Regulatory Approvals	29


8.16	Meetings of Shareholders	29

ARTICLE 9	CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE	29

9.1	Conditions to Obligations of Each Party	29
9.2	Conditions to Obligations of Purchaser	30
9.3	Conditions to Obligations of Target	31

ARTICLE 10	TERMINATION	31

10.1	Termination	31
10.2	Effect of Termination	32
10.3	Non-Survival of Representations and Covenants	33
10.4	Termination Payments	33

ARTICLE 11	MISCELLANEOUS	34

11.1	Definitions	34
11.2	Expenses	40
11.3	Entire Agreement	40
11.4	Amendments	40
11.5	Waivers	40
11.6	Assignment	41
11.7	Notices and Service of Process	41
11.8	Governing Law	41
11.9	Counterparts	41
11.10	Captions; Articles and Sections	41
11.11	Interpretations	41
11.12	Severability	42

EXHIBITS

Exhibit A	Bank Plan of Merger
Exhibit B	Target Director Nominees
Exhibit C-1	Form of Target Affiliate Agreement
Exhibit C-2	Form of Purchaser Affiliate Agreement
Exhibit D	Matters to be Opined Upon by Target Counsel
Exhibit E	Matters to be Opined Upon by Purchaser Counsel

iii

AGREEMENT AND PLAN OF MERGER

THIS AGREEMENT AND PLAN OF MERGER (this “Agreement”) is made and entered into as of November 28, 2012, by and between NICOLET BANKSHARES, INC. (“Purchaser”), a Wisconsin corporation, and MID-WISCONSIN FINANCIAL SERVICES, INC. (“Target”), a Wisconsin corporation.

Preamble

The respective Boards of Directors of Target and Purchaser are of the opinion that the transactions described herein are in the best interests of the parties to this Agreement and their respective shareholders. This Agreement provides for the merger of Target with and into Purchaser (the “Merger”), pursuant to which the outstanding shares of Target Common Stock shall be converted into the right to receive either cash or shares of Purchaser Common Stock and the shareholders of Target (other than those shareholders who exchange their shares solely for cash) shall become shareholders of Purchaser. Following the consummation of the Merger, Mid-Wisconsin Bank (“Target Bank”), a Wisconsin chartered bank, will merge with and into Nicolet National Bank (“Purchaser Bank”), a national bank chartered under the laws of the United States of America, in accordance with the terms of the Plan of Merger attached as Exhibit A. The transactions described in this Agreement are subject to the approvals of the shareholders of Target and of Target Bank, the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Wisconsin Department of Financial Institutions (the “DFI”), the Office of the Comptroller of the Currency (the “OCC”), the Federal Deposit Insurance Corporation (the “FDIC”) and the satisfaction of certain other conditions described in this Agreement. It is the intention of the parties of this Agreement that the Merger for federal income tax purposes shall qualify as a “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code.

Certain terms used in this Agreement but not otherwise defined herein are defined in Section 11.1 of this Agreement.

NOW, THEREFORE, in consideration of the above and the mutual warranties, representations, covenants, and agreements set forth herein, the parties agree as follows:

ARTICLE 1
TRANSACTIONS AND TERMS OF MERGER

1.1 Merger. Subject to the terms and conditions of this Agreement, Target shall be merged with and into Purchaser in accordance with the provisions of the Wisconsin Business Corporation Law (the “WBCL”). Purchaser shall be the Surviving Entity resulting from the Merger and shall continue to be governed by the Laws of the State of Wisconsin. The Merger shall be consummated pursuant to the terms of this Agreement, which has been approved and adopted by the respective Boards of Directors of Target and Purchaser.

1.2 Bank Merger. Following the consummation of the Merger, Target Bank shall be merged with and into Purchaser Bank in accordance with the provisions of Section 18(c) of the Federal Deposit Insurance Act and Subchapter VII of the Wisconsin Banking Law and pursuant to the terms and conditions of the Bank Plan of Merger attached hereto as Exhibit A.

1.3 Effective Time. The Merger and other transactions contemplated by this Agreement shall become effective on the date and at the time Articles of Merger reflecting the Merger shall become effective with the DFI (the “Effective Time”). At the Effective Time, the separate corporate existence of Target shall cease, with Purchaser continuing as the Surviving Entity in the Merger.

1.4 Time and Place of Closing. The closing of the transactions contemplated hereby (the “Closing”) will take place at 9:00 A.M. Central Time on the date (the “Closing Date”) on which the Effective Time occurs (or the immediately preceding day if the Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties, acting through their authorized officers, may mutually agree. The Closing shall be held at the office of Bryan Cave LLP, 1201 West Peachtree Street, Atlanta, GA 30309, or at such location as may be mutually agreed upon by the Parties.

ARTICLE 2
TERMS OF MERGER

2.1 Articles of Incorporation. At the Effective Time, the Articles of Incorporation of Purchaser in effect immediately prior to the Effective Time shall be the Articles of Incorporation of the Surviving Entity of the Merger.

2.2 Bylaws. At the Effective Time, the Bylaws of Purchaser in effect immediately prior to the Effective Time shall be the Bylaws of the Surviving Entity of the Merger.

2.3 Directors. From and after the Effective Time, the directors of Purchaser in office immediately prior to the Effective Time, together with the two nominees set forth in Exhibit B who are submitted by Target and approved by Purchaser’s Board of Directors (with such approval not to be unreasonably withheld) shall serve as the directors of the Surviving Entity of the Merger. The two nominees submitted by Target set forth on Exhibit B shall serve until their terms expire or their earlier resignation or removal under the provisions of Purchaser’s Bylaws and shall thereafter be nominated for election at the first meeting of the Purchaser’s shareholders, as applicable, after the expiration of such nominees’ initial term.

2.4 Officers. At the Effective Time, the officers of Purchaser in office immediately prior to the Effective Time shall serve as the officers of the Surviving Entity of the Merger.

ARTICLE 3
MANNER OF CONVERTING SHARES

3.1 Conversion of Target Shares. Subject to the provisions of this Article 3, at the Effective Time, by virtue of the Merger and without any action on the part of Purchaser, Target, or the shareholders of either of the foregoing, the shares of the constituent corporations shall be converted as follows:

(a) Each share of capital stock of Purchaser issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time.

(b) Each share of Target Common Stock outstanding immediately prior to the Effective Time, other than Dissenting Shares, shares held by Target, State-Restricted Shares or Cash-Out Shares, shall automatically be converted at the Effective Time into the right to receive 0.3727 shares of Purchaser Common Stock (the “Stock Merger Consideration”). Each share of Target Common Stock outstanding immediately prior to the Effective Time that is held by a holder of record of State-Restricted Shares or Cash-Out Shares shall automatically be converted at the Effective Time into the right to receive $6.15 in cash (the “Cash Merger Consideration”), payable by Purchaser. Such shares to be converted are sometimes referred to herein as the “Outstanding Target Shares,” and the shares of Purchaser Common Stock and any cash to be delivered pursuant to this Section 3.1(b) or Section 3.1(c) are referred to as the “Merger Consideration.” The Merger Consideration will be adjusted proportionately for any stock split, stock dividend, recapitalization, reclassification, or similar transaction that is effected by either Party, or for which a record date occurs, prior to the Effective Time, and the 200-share threshold for determining ownership of Cash-Out Shares may be adjusted by Purchaser if, after deducting payments for fractional shares, Dissenting Shares (assuming a $6.15 per share payment) and State-Restricted Shares from $500,000, the amount of cash payable for Cash-Out Shares at that threshold would not enable each holder of Cash-Out Shares to receive cash Merger Consideration for all of their shares. In such a case, Purchaser may either (i) change the 200-share threshold to the highest number of shares that would enable all holders of Target Common Stock with record ownership of Target Common Stock below such threshold to receive Cash Merger Consideration for all of their shares of Target Common Stock or (ii) deliver Stock Merger Consideration in lieu of Cash Merger Consideration to all holders of Cash-Out Shares.

(c) Notwithstanding any other provision of this Agreement, each holder of Outstanding Target Shares exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Purchaser Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Purchaser Common Stock multiplied by $6.15. No such holder will be entitled to dividends, voting rights, or any other rights as a shareholder in respect of any fractional shares.

(d) At the Effective Time, each share of Target Common Stock that is held by Target shall be cancelled without consideration therefor.

(e) No Dissenting Shares shall be converted in the Merger. All such shares shall be canceled, and the holders thereof shall thereafter have only such rights as are granted to dissenting shareholders under Subchapter XIII of the WBCL; provided, however, that if any such shareholder fails to perfect his, her or its rights as a dissenting shareholder with respect to his, her or its Dissenting Shares in accordance with Subchapter XIII of the WBCL or withdraws or loses such holder’s Dissenter’s Rights, such shares held by such shareholder shall be deemed to have been converted into, and become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration to which the holder of such shares would have been entitled as of the Effective Time, without interest thereon.

3.2 Cancellation of Stock Options. Prior to the Effective Time, Target will take such action as may be necessary or appropriate to cancel, as of the Effective Time, all outstanding stock options granted by Target under the Target Plans (“Target Options”), without any payment made in exchange therefor.

ARTICLE 4
EXCHANGE OF SHARES

4.1 Exchange Procedures. Prior to the Effective Time, Purchaser shall select a transfer agent, bank or trust company to act as exchange agent (the “Exchange Agent”) to effect the delivery of the Merger Consideration to holders of Target Common Stock. At the Effective Time, Purchaser shall deliver the Merger Consideration to the Exchange Agent. Within five (5) days following the Effective Time, the Exchange Agent shall send to each holder of Outstanding Target Shares that owns shares of Target Common Stock as of the Effective Time a letter of transmittal (the “Letter of Transmittal”) for use in exchanging certificates previously evidencing shares of Target Common Stock (“Old Certificates”). The Letter of Transmittal will contain instructions with respect to the surrender of Old Certificates and the distribution of the Merger Consideration to holders of Target Common Stock. If any certificates for shares of Purchaser Common Stock are to be issued in a name other than that for which an Old Certificate surrendered or exchanged is issued, the Old Certificate so surrendered shall be properly endorsed and otherwise in proper form for transfer and the person requesting such exchange shall affix any requisite stock transfer tax stamps to the Old Certificate surrendered or provide funds for their purchase or establish to the satisfaction of the Exchange Agent that such taxes are not payable. Subject to applicable law and to the extent that the same has not yet been paid to a public official pursuant to applicable abandoned property laws, upon surrender of his, her or its Old Certificates, the holder thereof shall be paid the consideration to which he, she or it is entitled. All such property, if held by the Exchange Agent for payment or delivery to the holders of unsurrendered Old Certificates and unclaimed at the end of one (1) year from the Effective Time, shall at such time be paid or redelivered by the Exchange Agent to Purchaser, and after such time any holder of an Old Certificate who has not surrendered such certificate shall, subject to applicable laws and to the extent that the same has not yet been paid to a public official pursuant to applicable abandoned property laws, look as a general creditor only to Purchaser for payment or delivery of such property. In no event will any holder of Target Common Stock exchanged in the Merger be entitled to receive any interest on any amounts held by the Exchange Agent or Purchaser.

4.2 Rights of Former Target Shareholders.

(a) At the Effective Time, the stock transfer books of Target shall be closed as to holders of Target Common Stock immediately prior to the Effective Time and no transfer of Target Common Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 4.1, each certificate theretofore representing Target Common Stock shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Section 3.1 in exchange therefor. To the extent permitted by Law, former shareholders of record of Target shall be entitled to vote after the Effective Time at any meeting of Purchaser shareholders the number of whole shares of Purchaser Common Stock into which their respective shares of Target Common Stock are converted, regardless of whether such holders have exchanged their Old Certificates for certificates representing Purchaser Common Stock in accordance with the provisions of this Agreement.

(b) Whenever a dividend or other distribution is declared by Purchaser on the Purchaser Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares of Purchaser Common Stock issuable pursuant to this Agreement, but no dividend or other distribution payable to the holders of record of Purchaser Common Stock as of any time subsequent to the Effective Time shall be delivered to the holder of any Old Certificate until such holder surrenders such Old Certificate for exchange as provided in Section 4.1. However, upon surrender of such Old Certificate, both the Purchaser Common Stock certificate and any undelivered dividends and cash payments payable hereunder (without interest) shall be delivered and paid with respect to each share represented by such Old Certificate.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF TARGET

Target hereby represents and warrants to Purchaser as follows:

5.1 Organization, Standing, and Power.

(a) Target is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Wisconsin, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. Target is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of the Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect. The minute book and other organizational documents for Target have been made available to Purchaser for its review and accurately reflect all amendments thereto and all proceedings of the Board of Directors and shareholders thereof.

(b) Target Bank is a bank duly organized, validly existing, and in good standing under the Laws of the State of Wisconsin, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. Target Bank is duly qualified or licensed to transact business and in good standing in jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect. The minute books and other organizational documents and corporate records for Target Bank have been made available to Purchaser for its review and are true and complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceeding of the Board of Directors and shareholder thereof. Target Bank is an “insured institution” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder.

5.2 Authority of Target; No Breach By Agreement.

(a) Target has the corporate power and authority necessary to execute and deliver this Agreement, and each of the Target Entities has the corporate power and authority necessary to perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery, and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Target. Subject to the requisite approval by Target’s shareholders and any applicable Consents of Regulatory Authorities, this Agreement represents a legal, valid, and binding obligation of Target, enforceable against Target in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

(b) Neither the execution and delivery of this Agreement by Target, nor the consummation by Target of the transactions contemplated hereby, nor compliance by Target with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Target’s Articles of Incorporation or

Bylaws or the certificate or articles of incorporation or bylaws of any Target Entity or any resolution adopted by the board of directors or the shareholders of any Target Entity that is currently in effect, (ii) except as disclosed in Section 5.2(b) of the Target Disclosure Memorandum or except to the extent it would not have a Target Material Adverse Effect, constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any Target Entity under, any Contract or Permit of any Target Entity, or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b) or except to the extent it would not have a Target Material Adverse Effect, constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any Target Entity or any of its Assets (including any Purchaser Entity or Target Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any Purchaser Entity or Target Entity being reassessed or revalued by any Taxing authority, except where such Default would not have a Target Material Adverse Effect).

(c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the Over-the-Counter Bulletin Board, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, no notice to, filing with, or Consent of, any public body or authority is necessary for the consummation by Target of the Merger or the other transactions contemplated in this Agreement.

5.3 Capital Stock.

(a) The authorized capital stock of Target consists of 6,000,000 shares of $0.10 par value per share Target Common Stock, of which 1,657,119 shares are issued and outstanding, and 50,000 shares of Target Preferred Stock, of which 10,000 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, are issued and outstanding and 500 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, are issued and outstanding. In addition, 30,510 shares of Target Common Stock are reserved for issuance pursuant to outstanding Target Options. All of the issued and outstanding shares of capital stock of Target are duly and validly issued and outstanding and are fully paid and nonassessable under the WBCL. To Target’s Knowledge, none of the outstanding shares of capital stock of Target has been issued in violation of any preemptive rights of the current or past shareholders of Target.

(b) The authorized capital stock of Target Bank consists of 668,500 shares of common stock, $5.00 par value per share. All of the issued and outstanding shares of capital stock of Target Bank are duly and validly issued and outstanding and are fully paid and nonassessable.

(c) Except as set forth in Section 5.3(a) or 5.3(b) of this Agreement, there are no (i) shares of capital stock, preferred stock or other equity securities of Target or Target Bank outstanding or (ii) outstanding Equity Rights relating to the capital stock of Target or Target Bank.

5.4 Target Subsidiaries. Except as set forth in Section 5.4 of the Target Disclosure Memorandum, Target or one of its wholly owned Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each Target Subsidiary. No capital stock (or other equity interest) of any Target Subsidiary is or may become required to be issued (other than to another Target Entity) by reason of any Equity Rights, and there are no Contracts by which any Target Subsidiary is bound to issue (other than to another Target Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any Target Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any Target Subsidiary (other than to another Target Entity). There are no Contracts relating to the rights of any Target Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any Target Subsidiary. All of the shares of capital stock (or other equity interests) of each Target Subsidiary held by a Target Entity are fully paid and nonassessable and are owned by the Target Entity free and clear of any Lien. Each Target Subsidiary is either a bank, corporation or statutory trust, and each such Target Subsidiary is duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease and operate its Assets and to carry on its business as now conducted. Each Target Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except

for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect.

5.5 SEC Filings; Financial Statements.

(a) Target has timely filed all SEC Documents required to be filed by Target since January 1, 2010 (the “Target SEC Reports”). The Target SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Laws and other applicable Laws and (ii) did not, at the time they were filed (or, if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Target SEC Reports or necessary in order to make the statements in such Target SEC Reports, in light of the circumstances under which they were made, not misleading. No Target Subsidiary is required to file any SEC Documents.

(b) Each of the Target Financial Statements (including, in each case, any related notes) contained in the Target SEC Reports, including any Target SEC Reports filed after the date of this Agreement until the Effective Time, complied as to form in all material respects with the applicable published rules and regulations of the SEC with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited interim statements, as permitted by Form 10-Q of the SEC), and fairly presented in all material respects the consolidated financial position of Target and its Subsidiaries as at the respective dates and the consolidated results of operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount or effect.

5.6 Absence of Undisclosed Liabilities. To Target’s Knowledge, the Target Entities have no Liabilities of a nature required to be reflected on the consolidated balance sheets prepared in accordance with GAAP, except Liabilities that are accrued or reserved against in the consolidated balance sheets of the Target Entities as of September 30, 2012, included in the Target Financial Statements or reflected in the notes thereto. The Target Entities have not incurred or paid any Liability since September 30, 2012, except for such Liabilities incurred or paid (i) in the ordinary course of business consistent with past business practice and that are not reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect; (ii) to legal, financial and other advisers in connection with the transactions contemplated by this Agreement; or (iii) set forth in Section 5.6 of the Target Disclosure Memorandum.

5.7 Loan Portfolio. As of the date of this Agreement, all loans, discounts and financing leases reflected on the Target Financial Statements were, and with respect to the Target Financial Statements delivered as of the dates subsequent to the execution of this Agreement, will be as of the dates thereof, (a) at the time and under the circumstances in which made, made for good, valuable and adequate consideration in the ordinary course of business, (b) evidenced by genuine notes, agreements or other evidences of indebtedness and (c) to the extent secured, have been secured by valid liens and security interests that have been perfected. Except as specifically set forth in Section 5.7 of the Target Disclosure Memorandum, no Target Entity is a party to any written or oral loan agreement, note or borrowing arrangement, including any loan guaranty, that was, as of the most recent month-end (i) delinquent by more than 30 days in the payment of principal or interest, (ii) known by the Target Entities to be otherwise in Default for more than 30 days, (iii) classified as “substandard,” “doubtful,” “loss,” “other assets especially mentioned” or any comparable classification by Target, the FDIC or the DFI, or (iv) an obligation of any director, executive officer or 10% shareholder of Target who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), or any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing.

5.8 Absence of Certain Changes or Events. Since September 30, 2012, except as disclosed in the Target Financial Statements or in Section 5.8 of the Target Disclosure Memorandum, (i) to Target’s Knowledge, there have been no events, changes, or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect, (ii) Target has not declared, set aside for payment or paid any dividend to holders of, or declared or made any distribution on, any shares of Target Common Stock and (iii) no Target Entity has taken any action, or failed to take any action, prior to the date

of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of Target provided in Article 7. Except as may result from the transactions contemplated by this Agreement, or as set forth in Section 5.8 of the Target Disclosure Memorandum, no Target Entity has since September 30, 2012:

(a) borrowed any money other than deposits or overnight fed funds or entered into any capital lease or leases; or, except in the ordinary course of business and consistent with past practices: (i) lent any money or pledged any of its credit in connection with any aspect of its business whether as a guarantor, surety, issuer of a letter of credit or otherwise, (ii) mortgaged or otherwise subjected to any Lien any of its assets, sold, assigned or transferred any of its assets in excess of $50,000 in the aggregate or (iii) incurred any other Liability or loss representing, individually or in the aggregate, over $50,000;

(b) suffered over $50,000 in damage, destruction or loss to immovable or movable property, whether or not covered by insurance;

(c) failed to operate its business in the ordinary course consistent with past practices, or failed to use reasonable efforts to preserve its business or to preserve the goodwill of its customers and others with whom it has business relations;

(d) forgiven any debt owed to it in excess of $50,000, or canceled any of its claims or paid any of its noncurrent obligations or Liabilities except in the ordinary course of business;

(e) made any capital expenditure or capital addition or betterment in excess of $50,000;

(f) entered into any agreement requiring the payment, conditionally or otherwise, of any salary, bonus, extra compensation (including payments for unused vacation or sick time), pension or severance payment to any of its present or former directors, officers or employees, except such agreements as are terminable at will without any penalty or other payment by it or increased (except for increases of not more than 5% consistent with past practices) the compensation (including salaries, fees, bonuses, profit sharing, incentive, pension, retirement or other similar payments) of any such person whose annual compensation would, following such increase, exceed $50,000;

(g) except as required in accordance with GAAP, changed any accounting practice followed or employed in preparing the Target Financial Statements;

(h) authorized or issued any additional shares of Target Common Stock, Target Preferred Stock, or Equity Rights; or

(i) entered into any agreement, contract or commitment to do any of the foregoing.

5.9 Tax Matters.

(a) All Tax Returns required to be filed by or on behalf of any Target Entity have been timely filed or requests for extensions have been timely filed, granted, and have not expired for all periods ended on or before the date of the most recent fiscal year end immediately preceding the Effective Time and all Tax Returns filed are complete and accurate in all material respects. All Taxes shown on filed Tax Returns have been paid. There is no audit examination, deficiency, or refund Litigation with respect to any Taxes, except as reserved against in the Target Financial Statements delivered prior to the date of this Agreement or as disclosed in Section 5.9 of the Target Disclosure Memorandum. Target’s federal income Tax Returns have not been audited by the IRS. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid. There are no Liens with respect to Taxes upon any of the Assets of Target.

(b) No Target Entity has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect.

(c) The provision for any Taxes due or to become due for any Target Entity for the period or periods through and including the date of the respective Target Financial Statements that has been made and is reflected on such Target Financial Statements is sufficient to cover all such Taxes.

(d) Deferred Taxes of the Target Entities have been provided for in accordance with GAAP.

(e) The Target Entities are in compliance with, and its records contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except where any such failure to comply would not reasonably be expected to have a Target Material Adverse Effect.

(f) No Target Entity has experienced a change in ownership with respect to its stock, within the meaning of Section 382 of the Internal Revenue Code, other than the ownership change that will occur as a result of the transactions contemplated by this Agreement.

(g) There is no pending claim by any taxing authority of a jurisdiction where either the Target or Target Bank has not filed Tax Returns that either Target or Target Bank is subject to taxation in that jurisdiction.

(h) Neither Target nor Target Bank has ever been a member of an “affiliated group” within the meaning of Code Section 1504(a) filing a consolidated federal income tax return, other than any “affiliated group” of which Target is the “common parent.” Except as set forth in Section 5.9 of the Target Disclosure Memorandum, neither Target nor Target Bank is a party to any Tax sharing or Tax allocation agreement that will remain in affect after consummation to the Mergers contemplated by this Agreement.

(i) Target has not taken or agreed to take any action, and has no Knowledge of any fact or circumstance that is reasonably likely, to prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code.

5.10 Allowance for Possible Loan Losses. The allowance for possible loan or credit losses (the “Allowance”) shown on the consolidated balance sheets of the Target Entities included in the Target Financial Statements and the allowance shown on the consolidated balance sheets of the Target Entities as of dates subsequent to the execution of this Agreement will be, as of the dates thereof, adequate in the judgment of Target’s management and consistent with GAAP and applicable regulatory requirements or guidelines to provide for all known or reasonably anticipated losses relating to or inherent in the loan and lease portfolios (including accrued interest receivables) of the Target Entities and other extensions of credit (including letters of credit and commitments to make loans or extend credit) by Target as of the dates thereof.

5.11 Assets.

(a) Except as disclosed in Section 5.11 of the Target Disclosure Memorandum or as disclosed or reserved against in the Target Financial Statements, the Target Entities have good and marketable title, free and clear of all Liens, to their respective Assets, except for (i) mortgages and encumbrances that secure indebtedness that is properly reflected in the Target Financial Statements or that secure deposits of public funds as required by law; (ii) Liens for taxes accrued but not yet payable; (iii) Liens arising as a matter of law in the ordinary course of business, provided that the obligations secured by such Liens are not delinquent or are being contested in good faith; (iv) such imperfections of title and encumbrances, if any, as do not materially detract from the value or materially interfere with the present use of any of such properties or Assets; and (v) capital leases and leases, if any, to third parties for fair and adequate consideration. All tangible properties used in the business of the Target Entities are in satisfactory working condition, reasonable wear and tear excepted, and are usable in the ordinary course of business consistent with Target’s past practices. All Assets which are material to the Target Entities’ businesses on a consolidated basis, held under leases or subleases by a Target Entity, are held under valid Contracts enforceable against such Target Entity in accordance with their respective terms (except as enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or other Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceedings may be brought), and each such Contract is in full force and effect.

(b) The Target Entities have paid all amounts due and payable under any insurance policies and guarantees applicable to the Target Entities and their respective Assets and operations; all such insurance policies and guarantees are in full force and effect, and all of the Target Entities’ material properties are

insured in amounts, events and with deductibles, as set forth in Section 5.11(b) of the Target Disclosure Memorandum. Since January 1, 2010 no Target Entity has received written notice from any insurance carrier that (i) any policy of insurance will be canceled or that coverage thereunder will be reduced or eliminated, or (ii) premium costs with respect to such policies of insurance will be substantially increased. There are presently no claims for amounts exceeding in any individual case $50,000 pending under such policies of insurance, and no notices of claims in excess of such amounts have been given by a Target Entity under such policies. Except as set forth in Section 5.11(b) of the Target Disclosure Memorandum, the Target Entities are not aware of any circumstances that could give rise to any claim for an amount exceeding $50,000, nor has any notice of such circumstance been given under such policies.

(c) With respect to each lease of any real property or personal property to which any Target Entity is a party (whether as lessee or lessor) set forth on Section 5.11(c) of the Target Disclosure Memorandum, except for financing leases in which a Target Entity is lessor (i) such lease is in full force and effect in accordance with its terms against the Target Entity that is a party to the lease; (ii) all rents and other monetary amounts that have become due and payable thereunder have been paid by the Target Entity that is a party to the lease; (iii) there exists no Default under such lease by the Target Entity that is party to the lease; and (iv) upon receipt of the consents described in Section 5.11(c) of the Target Disclosure Memorandum, the Mergers will not constitute a default or a cause for termination or modification of such lease.

(d) No Target Entity has a legal obligation, absolute or contingent, to any other person to sell or otherwise dispose of any substantial part of its Assets except in the ordinary course of business consistent with past practices.

(e) The Target Entities’ Assets include all Assets reasonably required to operate the businesses of the Target Entities as presently conducted.

5.12 Intellectual Property. The Target Entities own or have a license to use the Intellectual Property used by the Target Entities in the course of their businesses. The Target Entities own or have a license to any Intellectual Property sold or licensed to a third party by a Target Entity in connection with the Target Entities’ business operations, and the Target Entities have the right to convey by sale or license any Intellectual Property so conveyed. No Target Entity has received notice of Default under any of their respective Intellectual Property licenses. No proceedings have been instituted, or are pending or overtly threatened, that challenge the rights of the Target Entities with respect to Intellectual Property used, sold or licensed by the Target Entities in the course of their businesses, nor, to Target’s Knowledge, has any Person claimed or alleged any rights to such Intellectual Property. To the Knowledge of the Target Entities, the conduct of the Target Entities’ businesses does not infringe any Intellectual Property of any other person. Except as disclosed in Section 5.12 of the Target Disclosure Memorandum, no Target Entity is obligated to pay any recurring royalties to any Person with respect to any such Intellectual Property.

5.13 Environmental Matters.

(a) The Target Entities and their Operating Properties are, and have been, in compliance with all Environmental Laws.

(b) There is no Litigation pending or threatened before any court, governmental agency, or authority or other forum in which the Target Entities or any of their Operating Properties (or the Target Entities in respect of such Operating Property) has been or, with respect to threatened Litigation, may be named as a defendant (i) for alleged noncompliance (including by any predecessor) with any Environmental Law or (ii) relating to the Release into the indoor or outdoor Environment of any Hazardous Material, whether or not occurring in, at, on, under, about, adjacent to, or affecting (or potentially affecting) an Asset currently or formerly owned, leased, or operated by the Target Entities or any of its Operating Properties or Participation Facilities, nor is there any reasonable basis for any Litigation of a type described in this sentence.

(c) During the period of (i) the Target Entities’ ownership or operation of any of their Assets, or (ii) the Target Entities’ holding of a security interest in an Operating Property, to the Knowledge of the Target Entities, there has been no Release of any Hazardous Material in, at, on, under, about, adjacent to, or affecting (or potentially affecting) such properties. Prior to the period of (i) the Target Entities’ ownership

or operation of any of its Assets, or (ii) the Target Entities’ holding of a security interest in an Operating Property, to the Knowledge of the Target Entities, there was no Release of any Hazardous Material in, at, on, under, about, or affecting any such property or Operating Property.

(d) Target has delivered to Purchaser true and complete copies and results of any reports, studies, analyses, tests, or monitoring possessed or initiated by a Target Entity pertaining to Hazardous Materials in, at, on, under, about, or affecting (or potentially affecting) any Asset, or concerning compliance by the Target Entities or any other Person for whose conduct it is or may be held responsible, with Environmental Laws.

(e) To Target’s Knowledge, there are no aboveground or underground storage tanks, whether in use, out-of-service or closed, in, at, on, under, affecting or potentially affecting any of the Operating Properties. Any above-ground or underground storage tanks removed by or on behalf of the Target Entities at or from any Asset were removed in accordance with Environmental Laws and no soil or groundwater contamination or Release resulted from the operation or removal of such tanks.

5.14 Compliance with Laws. Target is a Wisconsin corporation and a registered bank holding company under the BHC Act, as amended, and has in effect all Permits necessary for it to own, lease, or operate its Assets and to carry on its business as now conducted, and there has occurred no Default under any such Permit, except where such Default would not have a Target Material Adverse Effect. No Target Entity is:

(a) in Default under any of the provisions of its respective Articles of Incorporation or Bylaws (or other governing instruments);

(b) in Default under any Laws, Orders, or Permits applicable to its business or employees conducting its business except where such Default would not have a Target Material Adverse Effect; or

(c) since January 1, 2010, in receipt of any written notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any Target Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits or (iii) except as set forth in Section 5.14(c) of the Target Disclosure Memorandum, requiring the Target Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business or in any manner relates to its capital adequacy, its credit or reserve policies or its management.

(d) Target Bank is a Wisconsin state bank whose deposits are, and will at the Effective Time be, insured by the FDIC to the extent such insurance is available.

5.15 Labor Relations. No Target Entity is a party to any Litigation asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state law) or seeking to compel it to bargain with any labor organization or other employee representative to wages or conditions of employment, nor is any Target Entity party to any collective bargaining agreement, nor is there any pending or, to the Knowledge of the Target Entities, threatened strike, slowdown, picketing, work stoppage or other labor dispute involving Target. To the Knowledge of Target, there is no activity involving any employees of the Target Entities seeking to certify a collective bargaining unit or engaging in any other organization activity.

5.16 Employee Benefit Plans.

(a) Target and any other entities which now or in the past five years constitute a single employer within the meaning of Internal Revenue Code Section 414 are hereinafter collectively referred to as the “Target Group.”

(b) The following agreements, plans or arrangements, whether formal or informal and whether or not documented in writing, which are presently in effect and which cover current or former

employees, directors and/or other service providers of any member of the Target Group (collectively “Participants”) are referred to as the “Target Plans”:

(i) Any employee benefit plan as defined in Section 3(3) of ERISA, and any trust or other funding agency created thereunder, or under which any member of the Target Group, with respect to employees, has any outstanding, present, or future obligation or liability, or under which any employee or former employee has any present or future right to benefits which are covered by ERISA; or

(ii) Any other pension, profit sharing, retirement, deferred compensation, stock purchase, stock option, incentive, bonus, vacation, severance, disability, hospitalization, medical, life insurance, split dollar or other employee benefit plan, program, policy, or arrangement, whether written or unwritten, formal or informal, which any member of the Target Group maintains or to which any member of the Target Group has any outstanding, present or future obligations to contribute or make payments under, whether voluntary, contingent or otherwise.

With respect to each Target Plan, Target has delivered to Purchaser true, complete and correct copies of the following (as applicable): (1) the written document evidencing such Target Plan or, with respect to any such plan that is not in writing, a written description thereof; (2) the summary plan description; (3) any related trust agreements, insurance contracts or documents of any other funding arrangements; (4) material third party service provider agreements; (5) all amendments, modifications or supplements to any such document; (6) the three most recent Internal Revenue Service Forms 5500 required to have been filed, including all schedules thereto; (7) the three most recent audit and/or actuarial reports; (8) the most recent determination letter from the Internal Revenue Service; and (9) any notices to or from the Internal Revenue Service, any office or representative of the Department of Labor or any other governmental entity relating to any compliance issues in respect of any Target Plan.

(c) Except as to those plans identified in Section 5.16 of the Target Disclosure Memorandum as Target Plans intended to be qualified under Section 401(a) of the Internal Revenue Code (the “Target Qualified Plans”), no member of the Target Group maintains a Target Plan which meets or was intended to meet the requirements of Section 401(a). As to each Target Qualified Plan, the Internal Revenue Service has issued favorable determination letter(s) to the effect that such Target Qualified Plan is a tax-qualified plan in form and that any related trust is exempt from taxation, and such determination letter(s) remain in effect and have not been revoked or, in the alternative, the Internal Revenue Service has issued favorable determination letter(s) to the effect that the prototype plan under which such Target Qualified Plan has been adopted is a tax-qualified plan in form and that any related trust is exempt from taxation, and that Target may rely upon such favorable determination letter(s) and, to the Knowledge of Target, such favorable determination letter(s) remain in effect and have not been revoked. Copies of the most recent favorable determination letters and any outstanding requests for a favorable determination letter with respect to each Target Qualified Plan, if any, have been delivered to the Purchaser. Except as to those plans identified in Section 5.16 of the Target Disclosure Memorandum, no Target Qualified Plan has been amended since the issuance of each respective most recent favorable determination letter. The Target Qualified Plans currently are intended to comply in form with the requirements under Internal Revenue Code Section 401(a), other than changes required by statutes, regulations and rulings for which amendments are not yet required. To the Knowledge of Target, no issue concerning qualification of the Target Qualified Plans is pending before or is threatened by the Internal Revenue Service. The Target Qualified Plans have been administered according to their terms (except for those terms which are inconsistent with the changes required by statutes, regulations, and rulings for which changes are not yet required to be made, in which case the Target Qualified Plans have been administered in accordance with the provisions of those statutes, regulations and rulings) and in accordance with the requirements of Internal Revenue Code Section 401(a). To the Knowledge of Target, no member of the Target Group or any fiduciary of any Target Qualified Plan has done anything that would adversely affect the qualified status of the Target Qualified Plans or the related trusts. Any Target Qualified Plan which is required to satisfy Internal Revenue Code Sections 401(k)(3) and 401(m)(2) has been, or will be, tested for compliance with, and has satisfied, or will satisfy, the requirements of, such Sections of the Internal Revenue Code for each plan year ending prior to the Closing Date in accordance with the requirements of the Internal Revenue Code.

(d) Except as set forth in Section 5.16 of the Target Disclosure Memorandum, each member of the Target Group is in, or will be in prior to the Closing Date, material compliance with the requirements prescribed by any and all statutes, orders, governmental rules and regulations applicable to the Target Plans and all reports and disclosures relating to the Target Plans required to be filed with or furnished to any governmental entity, Participants or beneficiaries prior to the Closing Date have been or will be filed or furnished in a timely manner and in accordance with applicable Law. Each member of the Target Group has made full and timely payment through all due dates falling on or before the Closing Date of all contributions which are required under the terms of each of the Target Plans and in accordance with applicable Law and Contracts and, to the extent applicable, consistent with past practice and actuarial recommendations, to be paid as a contribution to each Target Plan. All insurance premiums have been paid in full, subject only to normal retrospective adjustments in the ordinary course, with regard to Target Plans providing insured benefits for policy years or other applicable policy periods ending on or before the Closing Date. Except as set forth in Section 5.16 of the Target Disclosure Memorandum, all other material obligations, whether arising by operation of applicable Law or by Contract, required to be performed with respect to each Target Plan on or before the Closing Date have been timely performed, and there have been no material defaults, omissions or violations by any party with respect to any Target Plan. No member of the Target Group has made or is obligated to make any nondeductible contributions to any Target Plan.

(e) Except as set forth in Section 5.16 of the Target Disclosure Memorandum, no member of the Target Group or any predecessors thereto maintains or has ever maintained, an “employee benefit pension plan” within the meaning of Section 3(2) of ERISA that is or was subject to Title IV of ERISA or Section 412 of the Internal Revenue Code. No member of the Target Group or any predecessors thereto has any obligation or liability to contribute or has ever contributed to any “multiemployer plan” as defined in Section 3(37) of ERISA. No member of the Target Group has incurred any current or projected liability in respect of post-retirement health, medical or life insurance benefits for Participants, except as required to avoid an excise tax under Section 4980B of the Internal Revenue Code or comparable State benefit continuation laws. Except as set forth in Section 5.16 of the Target Disclosure Memorandum, no Target Plan is or has been funded by, associated with, or related to a “voluntary employee’s beneficiary association” within the meaning of Section 501(c)(9) of the Internal Revenue Code, a “welfare benefit fund” within the meaning of Section 419 of the Internal Revenue Code, a “qualified asset account” within the meaning of Section 419A of the Internal Revenue Code or a “multiple employer welfare arrangement” within the meaning of Section 3(40) of ERISA.

(f) Except as set forth in Section 5.16 of the Target Disclosure Memorandum, no member of the Target Group is obligated, contingently or otherwise, under any agreement to pay any amount which would be treated as a “parachute payment,” as defined in Internal Revenue Code Section 280G(b) (determined without regard to Internal Revenue Code Section 280G(b)(2)(A)(ii)) or would be subject to tax under Section 4999 of the Internal Revenue Code.

(g) Except as contemplated by Section 8.10 of this Agreement, no termination or partial termination of any Target Qualified Plan has occurred, or will occur, prior to the Closing Date and no notice of intent to terminate any Target Qualified Plan has been, or will be, issued by a member of the Target Group prior to the Closing Date.

(h) No member of the Target Group has any remaining liability under any previously maintained Target Plan, whether maintained as a written or unwritten, formal or informal arrangement.

(i) To the Knowledge of the Target Group, no member of the Target Group nor any other “disqualified person” or “party in interest” (as defined in Internal Revenue Code Section 4975 and ERISA Section 3(14), respectively) with respect to the Target Plans, has engaged in any non-exempt “prohibited transaction” (as defined in Internal Revenue Code Section 4975 or ERISA Section 406). To the Knowledge of Target, all members of the Target Group and all fiduciaries with respect to the Target Plans, including any members of the Target Group which are fiduciaries as to a Target Plan, have complied in all respects with the requirements of ERISA Section 404, and to the Knowledge of Target, no member of the Target Group and no party in interest or disqualified person with respect to the Target Plans has taken or omitted any action which could lead to the imposition of an excise tax under the Internal Revenue Code or a fine under ERISA.

(j) Other than routine claims for benefits, to the Knowledge of Target, there are no actions, audits, investigations, suits or claims pending, or threatened against any Target Plan, any trust or other funding agency created thereunder, or against any fiduciary of any Target Plan or against the assets of any Target Plan.

(k) All assets attributable to any Target Plan that is subject to ERISA have been held in trust, unless a statutory or administrative exemption to the trust requirements of Section 403(a) of ERISA applies. Except as disclosed in Section 5.16 of the Target Disclosure Memorandum, no Target Plan is a self-funded or self-insured arrangement, and, with respect to each Target Plan that is funded in whole or in part through an insurance policy, no member of the Target Group has any liability in the nature of a retroactive rate adjustment, loss-sharing arrangement or other actual or contingent liability arising wholly or partially out of events occurring on or before the date of this Agreement or is reasonably expected to have such liability with respect to periods through the Closing Date. Any Target Plan funded in whole or in part with pre-tax contributions from Participants have been made in accordance with a written plan instrument that for all relevant periods has complied in form with the requirements under Internal Revenue Code Section 125, other than changes required by statutes, regulations and rulings for which amendments are not yet required.

(l) The actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) maintained by the Target Group for Participants have been fully and accurately reflected on the Target Financial Statements to the extent required by and in accordance with GAAP. Except as disclosed in Section 5.16 of the Target Disclosure Memorandum, (i) the actuarial present values of all accrued deferred compensation entitlements (including entitlements under any executive compensation, supplemental retirement, or employment agreement) for which the members of the Target Group are obligated have been fully and accurately reflected on the Target Financial Statements to the extent required by and in accordance with GAAP, and (ii) the assets of each Target Plan are reported at their fair market value on the books and records of such plans, unless otherwise stated in such books and records.

(m) Each Target Plan that is a nonqualified plan of deferred compensation, within the meaning of Section 409A of the Internal Revenue Code, (i) is exempt from Parts 2, 3 and 4 of Title I of ERISA as an unfunded plan that is maintained primarily for the purpose of providing deferred compensation or life insurance for a select group of management or highly compensated employees, pursuant to Sections 201(2), 301(a)(3) and 401(a)(1) of ERISA or (ii) is exempt from all Parts of ERISA as an unfunded plan maintained exclusively for non-employee service providers. For each such Target Plan, Section 5.16 of the Target Disclosure Memorandum contains a list of assets that are associated with such plan.

(n) Each Target Plan that is a “nonqualified deferred compensation plan,” within the meaning of Section 409A(d)(1) of the Internal Revenue Code, maintained by one or more members of the Target Group has been operated since its date of inception in good faith compliance with the applicable provisions of Section 409A of the Internal Revenue Code; and has been since January 1, 2010, in documentary compliance with the applicable provisions of Section 409A or will be corrected in accordance with IRS Notice 2010-6, as modified by IRS Notice 2010-80, prior to the Closing Date. No member of the Target Group (i) has been required to report to any governmental entity any Taxes due as a result of a failure to comply with Section 409A; or (ii) has any indemnity or gross-up obligation for any Taxes or interest imposed or accelerated under Section 409A. To the Knowledge of Target, nothing has occurred, whether by action or failure to act, or is reasonably expected or intended to occur, that would subject an individual having rights under any such Target Plan to accelerated Tax as a result of Section 409A or a Tax imposed under Section 409A.

(o) The members of the Target Group have complied in all respects with the compensation limitations and corresponding disclosure and certification requirements imposed upon them under the Emergency Economic Stabilization Act of 2008, as amended, and all rules and regulations promulgated by the responsible agencies of the United States government under such Act as a result of the Target’s participation in the United States Treasury’s Capital Purchase Program.

(p) The members of the Target Group, or any successor entity, may terminate any Target Plan prospectively at any time without further liability to any member of the Target Group or the successor entity, including, without limitation, any additional contributions, penalties, premiums, fees, surrender charges,

market value adjustments or any other charges as a result of such termination, except to the extent of funds set aside for such purpose or reflected as reserved for such purpose on the Target Financial Statements.

(q) Since September 30, 2012, except as disclosed in Section 5.16 of the Target Disclosure Memorandum, no member of the Target Group has (i) increased the rate of compensation payable or to become payable to any director, employee or other service provider of the Target Group, other than in the ordinary course of business and consistent with past practice; (ii) amended or entered into any employment, severance, change in control or similar Contract with any such director, employee or other service provider; (iii) paid or agreed to pay any bonuses or other compensation, other than in the ordinary course of business and consistent with past practice, to any such director, employee or other service provider; (iv) amended any Target Plan, other than any amendment required by Law; (v) adopted any new plan, program, policy or arrangement, which if it existed as of the Closing Date, would constitute a Target Plan; or (vi) terminated any existing Target Plan.

(r) Except as disclosed in Section 5.16 of the Target Disclosure Memorandum, neither the execution and delivery of this Agreement, shareholder approval of the Agreement or the transaction contemplated hereby, nor the consummation of the transactions contemplated hereby, either alone or in combination with a subsequent event, will (i) result in any payment (including severance, unemployment compensation, “excess parachute payment” (within the meaning of Section 280G of the Internal Revenue Code, but without regard to whether any such payment or portion thereof is reasonable compensation for personal services performed or to be performed in the future), forgiveness of indebtedness or otherwise) becoming due to any current or former employee, officer or director of the a member of the Target Group under any Target Plan or otherwise, (ii) increase any benefits otherwise payable under any Target Plan, (iii) result in any acceleration of the time of payment or vesting of any such benefits, (iv) require the funding or increase in the funding of any such benefits, (v) result in any limitation on the right of any member of the Target Group to amend, merge, terminate or receive a reversion of assets from any Target Plan or related trust, or (vi) result in any payment or portion of any payment that would not otherwise be deductible under Section 162(m) of the Internal Revenue Code.

5.17 Material Contracts. Except as disclosed in Section 5.17 of the Target Disclosure Memorandum or otherwise reflected in the Target Financial Statements, neither the Target Entities nor any of their Assets, businesses, or operations is a party to, or is bound or affected by, or receives benefits under, (i) any employment, severance, termination, consulting, or retirement Contract, (ii) any Contract relating to the borrowing of money by the Target Entities or the guarantee by a Target Entity of any such obligation (other than Contracts evidencing deposit liabilities, purchases of federal funds, fully-secured repurchase agreements, and Federal Home Loan Bank advances of depository institution Subsidiaries, trade payables and Contracts relating to borrowings or guarantees made in the ordinary course of business), (iii) any Contract that prohibits or restricts any Target Entity or employee thereof from engaging in any business activities in any geographic area, line of business or otherwise in competition with any other Person, (iv) any Contract involving Intellectual Property (other than Contracts entered into in the ordinary course of business with customers), (v) any Contract relating to the provision of data processing, network communication, or other technical services to or by any Target Entity, (vi) any Contract relating to the purchase or sale of any goods or services (other than Contracts entered into in the ordinary course of business and involving payments under any individual Contract not in excess of $50,000) or (vii) any exchange-traded or over-the-counter swap, forward, future, option, cap, floor, or collar financial Contract, or any other interest rate or foreign currency protection Contract not included on its balance sheet that is a financial derivative Contract (the “Target Contracts”). With respect to each Target Contract: (i) the Contract is in full force and effect against the Target Entity; (ii) no Target Entity is in Default thereunder; (iii) no Target Entity has repudiated or waived any material provision of any such Contract; and (iv) to the Knowledge of any Target Entity, no other party to any such Contract is in Default in any respect, or has repudiated or waived any material provision thereunder. All of the indebtedness of the Target Entities for money borrowed is prepayable at any time by such Target Entity without penalty or premium. Payments under Target Contracts for products and services provided, licensed or sub-licensed by, or requiring a license for use or operation from, Jack Henry & Associates, Inc. or Fidelity Information Services, Inc. that are triggered by the consummation of the transactions contemplated hereby will not exceed an aggregate of $600,000, assuming solely for purposes of this calculation a May 31, 2013 Closing Date.

5.18 Legal Proceedings.

(a) Section 5.18 of the Target Disclosure Memorandum contains a summary of all Litigation as of the date of this Agreement to which any Target Entity is a party and that names a Target Entity as a defendant or cross-defendant or for which such Target Entity has any potential Liability in excess of $50,000 or that otherwise would have, or reasonably be expected to have, a Target Material Adverse Effect.

(b) There are no material uncured violations, or violations with respect to which material refunds or restitution may be required, cited in any compliance report to any Target Entity as a result of examination by any bank or bank holding company Regulatory Authority.

5.19 Regulatory Reports.

(a) Since January 1, 2010, the Target Entities have timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities. As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.

(b) Each of the Target Financial Statements (including, in each case, any related notes) contained in the Target Regulatory Reports complied as to form in all material respects with the applicable published rules and regulations of the appropriate Regulatory Authorities, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements), and fairly presented in all material respects the consolidated financial position of the Target Entities as at the respective dates and the consolidated results of operations and cash flows for the periods indicated.

5.20 Internal Accounting. The Target Entities maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.

5.21 Community Reinvestment Act. Target Bank has complied in all material respects with the provisions of the Community Reinvestment Act (“CRA”) and the rules and regulations thereunder, has a CRA rating of not less than “satisfactory,” has received no material criticism from regulators with respect to discriminatory lending practices, and has no Knowledge of any conditions or circumstances that are likely to result in a CRA rating of less than “satisfactory” or material criticism from regulators with respect to discriminatory lending practices.

5.22 Privacy of Customer Information.

(a) The Target Entities are the sole owners or, in the case of participated loans, co-owners with the other participant(s), of all individually identifiable personal information (“IIPI”) relating to customers, former customers and prospective customers that will be transferred to the Purchaser Entities pursuant to this Agreement and the other transactions contemplated hereby. For purposes of this Section 5.22, “IIPI” shall include any information relating to an identified or identifiable natural person.

(b) The collection and use of such IIPI by the Target Entities, the transfer of such IIPI to the Purchaser Entities, and the use of such IIPI by the Purchaser Entities as contemplated by this Agreement complies with all applicable privacy policies, the Fair Credit Reporting Act, the Gramm-Leach-Bliley Act and all other applicable state, federal and foreign privacy Laws, and any contract or industry standard relating to privacy.

5.23 Technology Systems.

(a) Since January 1, 2010, the Technology Systems have not suffered unplanned disruption causing a Target Material Adverse Effect. Except for ongoing payments due under relevant third party agreements, the Technology Systems are free from any Liens. Access to business critical parts of the Technology Systems is not shared with any third party.

(b) Details of the Target Entities’ disaster recovery and business continuity arrangements have been provided to Purchaser.

(c) Except as set forth in Section 5.2(b) of the Target Disclosure Memorandum, no Target Entity has received notice of or is aware of any circumstances including, without limitation, the execution of this Agreement, that would enable any third party to terminate any of the Target Entities’ agreements or arrangements relating to the Technology Systems (including maintenance and support).

5.24 Bank Secrecy Act Compliance. Target Bank is in compliance in all material respects with the provisions of the Bank Secrecy Act of 1970, as amended (the “Bank Secrecy Act”), and all regulations promulgated thereunder including, but not limited to, those provisions of the Bank Secrecy Act that address suspicious activity reports and compliance programs. Target Bank has implemented a Bank Secrecy Act compliance program that adequately covers all of the required program elements as required by 12 C.F.R. §21.21.

5.25 Target Disclosure Memorandum. Target has delivered to Purchaser the Target Disclosure Memorandum containing certain information regarding Target as indicated at various places in this Agreement. All information set forth in the Target Disclosure Memorandum shall be deemed for all purposes of this Agreement to constitute part of the representations and warranties of Target under this Article 5. The information contained in the Target Disclosure Memorandum and any updates thereto shall be deemed to be part of and qualify all representations and warranties contained in this Article 5 and the covenants in Article 7 to the extent applicable.

5.26 Board Recommendation. The Board of Directors of Target, at a meeting duly called and held, has by unanimous vote of the directors present (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, and the Affiliate Agreements as set forth in Exhibit B and the transactions contemplated thereby, taken together, are fair to and in the best interests of the shareholders; (ii) approved this Agreement; and (iii) resolved to recommend that the holders of the shares of Target Common Stock approve this Agreement.

5.27 Brokers. Except for Raymond James & Associates, Inc., no broker, finder, or investment banker is entitled to any brokerage, finder’s, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of any Target Entity.

ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PURCHASER

Purchaser hereby represents and warrants to Target as follows:

6.1 Organization, Standing and Power.

(a) Purchaser is a corporation duly organized, validly existing, and in good standing under the Laws of the State of Wisconsin, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. Purchaser is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of the Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect. The minute book and other organizational documents for Purchaser have been made available to Target for its review and accurately reflect all amendments thereto and all proceedings of the Board of Directors and shareholders thereof.

(b) Purchaser Bank is a national bank duly organized, validly existing, and in good standing under the Laws of the United States of America, and has the corporate power and authority to carry on its business as now conducted and to own, lease and operate its Assets. Purchaser Bank is duly qualified or licensed to transact business and in good standing in jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect. The minute books and other organizational documents and corporate records for Purchaser Bank have been made available to Target for its review and are true and complete in all material respects as in effect as of the date of this Agreement and accurately reflect in all material respects all amendments thereto and all proceeding of the Board of Directors and shareholder thereof. Purchaser Bank is an “insured institution” as defined in the Federal Deposit Insurance Act and applicable regulations thereunder.

6.2 Authority of Purchaser; No Breach By Agreement.

(a) Purchaser has the corporate power and authority necessary to execute and deliver this Agreement, and each of the Purchaser Entities has the corporate power and authority necessary to perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein, including the Merger, have been duly and validly authorized by all necessary corporate action in respect thereof on the part of Purchaser. Subject to receipt of the requisite Consents of Regulatory Authorities, this Agreement represents a legal, valid, and binding obligation of Purchaser, enforceable against Purchaser in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, receivership, conservatorship, moratorium, or similar Laws affecting the enforcement of creditors’ rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought).

(b) Neither the execution and delivery of this Agreement by Purchaser, nor the consummation by Purchaser of the transactions contemplated hereby, nor compliance by Purchaser with any of the provisions hereof, will (i) conflict with or result in a breach of any provision of Purchaser’s Articles of Incorporation or Bylaws or the certificate or articles of incorporation or bylaws of any Purchaser Entity or any resolution adopted by the board of directors or the shareholders of any Purchaser Entity that is currently in effect, or (ii) except to the extent it would not have a Purchaser Material Adverse Effect, constitute or result in a Default under, or require any Consent pursuant to, or result in the creation of any Lien on any Asset of any Purchaser Entity under, any Contract or Permit of any Purchaser Entity or, (iii) subject to receipt of the requisite Consents referred to in Section 9.1(b), and except to the extent it would not have a Purchaser Material Adverse Effect, constitute or result in a Default under, or require any Consent pursuant to, any Law or Order applicable to any Purchaser Entity or any of its Assets (including any Purchaser Entity or Target Entity becoming subject to or liable for the payment of any Tax or any of the Assets owned by any Purchaser Entity or Target Entity being reassessed or revalued by any Taxing authority).

(c) Other than in connection or compliance with the provisions of the Securities Laws, applicable state corporate and securities Laws, and rules of the Over-the-Counter Bulletin Board, and other than Consents required from Regulatory Authorities, and other than notices to or filings with the Internal Revenue Service or the Pension Benefit Guaranty Corporation with respect to any employee benefit plans, no notice to, filing with, or Consent of any public body or authority is necessary for the consummation by Purchaser of the Merger or the other transactions contemplated in this Agreement.

6.3 Capital Stock.

(a) The authorized capital stock of Purchaser consists of 30,000,000 shares, $0.01 par value, of Purchaser Common Stock, of which 3,479,888 shares (including 54,475 shares of restricted stock granted but not yet vested under Purchaser’s employee benefit plans) are issued and 3,425,413 shares are outstanding, and 10,000,000 shares of Purchaser Preferred Stock, no par value, of which: (i) 14,964 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series A, are authorized, but no shares are outstanding; (ii) 748 shares of Fixed Rate Cumulative Perpetual Preferred Stock, Series B, are authorized, but no shares are

outstanding; and (iii) 24,400 shares of Non-Cumulative Perpetual Preferred Stock, Series C (the “Purchaser Series C Preferred Stock”), of which 24,400 shares are authorized, issued and outstanding. In addition, 839,107 shares of Purchaser Common Stock are subject to outstanding Purchaser Options. All of the issued and outstanding shares of Purchaser capital stock are, and all of the shares of Purchaser Common Stock to be issued in exchange for shares of Target Common Stock upon consummation of the Merger, when issued in accordance with the terms of this Agreement, will be, duly and validly issued, fully paid and nonassessable under the WBCL. None of the shares of Purchaser Common Stock to be issued in exchange for shares of Target Common Stock upon consummation of the Merger will be, and to Purchaser’s Knowledge, none of the outstanding shares of Purchaser capital stock has been, issued in violation of any preemptive rights of the current or past shareholders of Purchaser.

(b) Except as set forth in Section 6.3 of this Agreement, there are no (i) shares of capital stock, preferred stock or other equity securities of Purchaser outstanding or (ii) outstanding Equity Rights relating to the capital stock of Purchaser.

6.4 Purchaser Subsidiaries. Except as set forth in Section 6.4 of the Purchaser Disclosure Memorandum, Purchaser or one of its wholly owned Subsidiaries owns all of the issued and outstanding shares of capital stock (or other equity interests) of each Purchaser Subsidiary. No capital stock (or other equity interest) of any Purchaser Subsidiary is or may become required to be issued (other than to another Purchaser Entity) by reason of any Equity Rights, and there are no Contracts by which any Purchaser Subsidiary is bound to issue (other than to another Purchaser Entity) additional shares of its capital stock (or other equity interests) or Equity Rights or by which any Purchaser Entity is or may be bound to transfer any shares of the capital stock (or other equity interests) of any Purchaser Subsidiary (other than to another Purchaser Entity). There are no Contracts relating to the rights of any Purchaser Entity to vote or to dispose of any shares of the capital stock (or other equity interests) of any Purchaser Subsidiary. All of the shares of capital stock (or other equity interests) of each Purchaser Subsidiary held by a Purchaser Entity are fully paid and (except pursuant to 12 U.S.C. Section 55) nonassessable and are owned by the Purchaser Entity free and clear of any Lien. Each Purchaser Subsidiary is either a bank, a corporation, a statutory trust or a limited liability company, and each such Purchaser Subsidiary is duly organized, validly existing, and in good standing under the Laws of the jurisdiction in which it is incorporated or organized, and has the corporate power and authority necessary for it to own, lease and operate its Assets and to carry on its business as now conducted. Each Purchaser Subsidiary is duly qualified or licensed to transact business as a foreign corporation in good standing in the jurisdictions where the character of its Assets or the nature or conduct of its business requires it to be so qualified or licensed, except for such jurisdictions in which the failure to be so qualified or licensed is not reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect.

6.5 Financial Statements. Purchaser has delivered to Target copies of all Purchaser Financial Statements and will deliver to Target copies of all similar financial statements prepared subsequent to the date hereof. The Purchaser Financial Statements and any supplemental financial statements (as of the date thereof and for the periods covered thereby) (a) are, or if dated after the date of this Agreement will be, in accordance with the books and records of Purchaser, which are and will be, as the case may be, complete and correct in all material respects and which have been or will have been, as the case may be, maintained in accordance with good business practices, (b) present or will present, as the case may be and in all material respects, fairly the financial position of Purchaser as of the dates indicated and the results of operation, changes in shareholders’ equity, and cash flows of Purchaser for the periods indicated, in accordance with GAAP (subject to any exceptions as to consistency specified therein or as may be indicated in the notes thereof or, in the case of interim financial statements, to the normal recurring year-end adjustments that are not material in any amount or effect), and (c) do not or will not, as the case may be, contain any untrue statement of a material fact omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading.

6.6 Absence of Undisclosed Liabilities. To Purchaser’s Knowledge, the Purchaser Entities have no Liabilities of a nature required to be reflected on consolidated balance sheets prepared in accordance with GAAP, except Liabilities that are accrued or reserved against in the consolidated balance sheet of the Purchaser Entities as of September 30, 2012, included in the Purchaser Financial Statements or reflected in the

notes thereto. The Purchaser Entities have not incurred or paid any Liability since September 30, 2012, except for such Liabilities incurred or paid (i) in the ordinary course of business consistent with past business practice and that are not reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect, or (ii) in connection with the transactions contemplated by this Agreement.

6.7 Absence of Certain Changes or Events. Since September 30, 2012, except as disclosed in the Purchaser Financial Statements, (i) to Purchaser’s Knowledge, there have been no events, changes or occurrences which have had, or are reasonably likely to have, individually or in the aggregate, a Purchaser Material Adverse Effect, (ii) Purchaser has not declared, set aside for payment or paid any dividend to holders of, or declared or made any distribution on, any Shares of Purchaser Common Stock and (iii) none of the Purchaser Entities has taken any action, or failed to take any action, prior to the date of this Agreement, which action or failure, if taken after the date of this Agreement, would represent or result in a material breach or violation of any of the covenants and agreements of Purchaser provided in Article 8. Except as may result from the transactions contemplated by this Agreement, no Purchaser Entity has, since September 30, 2012:

(a) suffered over $150,000 in damage, destruction or loss to immovable or movable property, whether or not covered by insurance;

(b) failed to operate its business in the ordinary course consistent with past practices, or failed to use reasonable efforts to preserve its business or to preserve the goodwill of its customers and others with whom it has business relations;

(c) forgiven any debt owed to it in excess of $150,000, or canceled any of its claims or paid any of its noncurrent obligations or Liabilities except in the ordinary course of business;

(d) except as required in accordance with GAAP, changed any accounting practice followed or employed in preparing the Purchaser Financial Statements;

(e) except as required by the terms of this Agreement or pursuant to the exercise of outstanding Purchaser Options, authorized or issued any additional shares of Purchaser Common Stock, Purchaser Preferred Stock or Equity Rights of the Purchaser; or

(f) entered into any agreement, contract or commitment to do any of the foregoing.

6.8 Tax Matters.

(a) All Tax Returns required to be filed by or on behalf of any Purchaser Entity have been timely filed or requests for extensions have been timely filed, granted, and have not expired for all periods ended on or before the date of the most recent fiscal year end immediately preceding the Effective Time and all Tax Returns filed are complete and accurate in all material respects. All Taxes shown on filed Tax Returns have been paid. The Purchaser Financial Statements reflect adequate reserves for any audit examination, deficiency, or refund Litigation with respect to any Taxes. Except for an audit of its 2010 consolidated federal income tax return, Purchaser’s federal income Tax Returns have not been audited by the IRS. All Taxes and other Liabilities due with respect to completed and settled examinations or concluded Litigation have been paid and, to Purchaser’s Knowledge, Purchaser shall not incur any interest, penalty or assessment in excess of $150,000 as a result of the audit of Purchaser’s 2010 consolidated federal income tax return. There are no Liens with respect to Taxes upon any of the Assets of Purchaser.

(b) No Purchaser Entity has executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect.

(c) The provision for any Taxes due or to become due for any Purchaser Entity for the period or periods through and including the date of the respective Purchaser Financial Statements that has been made and is reflected on such Purchaser Financial Statements is sufficient to cover all such Taxes.

(d) Deferred Taxes of the Purchaser Entities have been provided for in accordance with GAAP.

(e) The Purchaser Entities are in compliance with, and their records contain all information and documents (including properly completed IRS Forms W-9) necessary to comply with, all applicable information reporting and Tax withholding requirements under federal, state, and local Tax Laws, and such records identify with specificity all accounts subject to backup withholding under Section 3406 of the Internal Revenue Code, except where any such failure to comply would not reasonably be expected to have a Purchaser Material Adverse Effect.

(f) No Purchaser Entity has experienced a change in ownership with respect to its stock, within the meaning of Section 382 of the Internal Revenue Code, other than the ownership change that will occur as a result of the transactions contemplated by this Agreement.

(g) To the Knowledge of the Purchaser Entities, there is no pending claim by any taxing authority of a jurisdiction where either the Purchaser or Purchaser Bank has not filed Tax Returns that either Purchaser or Purchaser Bank is subject to taxation in that jurisdiction.

(h) Neither Purchaser nor Purchaser Bank has ever been a member of an “affiliated group” within the meaning of Code Section 1504(a) filing a consolidated federal income tax return, other than the “affiliated group” of which Purchaser is the “common parent.” Neither Purchaser nor Purchaser Bank is a party to any Tax sharing or Tax allocation agreement that will remain in effect after consummation to the Mergers contemplated by this Agreement.

(i) Purchaser has not taken or agreed to take any action, and has no Knowledge of any fact or circumstance that is reasonably likely, to (i) prevent the Merger from qualifying as a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay receipt of any Consents of Regulatory Authorities referred to in Section 9.1 or result in the imposition of a condition or restriction of the type referred to in the last sentence of such Section.

6.9 Compliance with Laws. Purchaser is a Wisconsin corporation and a registered bank holding company under the BHC Act, as amended, and has in effect all Permits necessary for it to own, lease, or operate its Assets and to carry on its business as now conducted, and there has occurred no Default under any such Permit, except where such Default would not have a Purchaser Material Adverse Effect. No Purchaser Entity is:

(a) in Default under any of the provisions of its respective Articles of Incorporation or Bylaws (or other governing instruments);

(b) in Default under any Laws, Orders, or Permits applicable to its business or employees conducting its business, except where such Default would not have a Purchaser Material Adverse Effect; or

(c) since January 1, 2010, in receipt of any written notification or communication from any agency or department of federal, state, or local government or any Regulatory Authority or the staff thereof (i) asserting that any Purchaser Entity is not in compliance with any of the Laws or Orders which such governmental authority or Regulatory Authority enforces, (ii) threatening to revoke any Permits or (iii) requiring the Purchaser Entity to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business or in any manner relates to its capital adequacy, its credit or reserve policies or its management.

(d) Purchaser Bank is a national bank chartered under the Laws of the United States of America whose deposits are, and will at the Effective Time be, insured by the FDIC to the extent such insurance is available.

6.10 Legal Proceedings.

(a) There is no Litigation instituted, pending or, to the Knowledge of Purchaser, threatened, against any Purchaser Entity, or against any employee benefit plan of the Purchaser Entities, or against any Asset, interest or right of any of them, that in any case individually seeks damages in excess of $50,000 and that otherwise would have, or reasonably be expected to have, a Purchaser Material Adverse Effect.

(b) There are no material uncured violations, or violations with respect to which material refunds or restitution may be required, cited in any compliance report to any Purchaser Entity as a result of examination by any bank or bank holding company regulatory authority.

6.11 Internal Accounting. The Purchaser Entities maintain a system of internal accounting controls sufficient to provide reasonable assurance that (i) transactions are executed in accordance with management’s general or specific authorizations, (ii) transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain asset and liability accountability, (iii) access to assets or incurrence of liabilities is permitted only in accordance with management’s general or specific authorization and (iv) the recorded accountability for assets and liabilities is compared with the existing assets and liabilities at reasonable intervals and appropriate action is taken with respect to any difference.

6.12 Community Reinvestment Act. Purchaser Bank has complied in all material respects with the provisions of the CRA and the rules and regulations thereunder, has a CRA rating of not less than “satisfactory,” and has received no material criticism from regulators with respect to discriminatory lending practices, and has no Knowledge of any conditions or circumstances that are likely to result in CRA ratings of less than “satisfactory” or material criticism from regulators with respect to discriminatory lending practices.

6.13 Board Recommendation. The Board of Directors of Purchaser, at a meeting duly called and held, has by unanimous vote of the directors present (i) determined that this Agreement and the transactions contemplated hereby, including the Merger, taken together, are fair to and in the best interests of the shareholders; and (ii) approved this Agreement.

6.14 Brokers. Except for Sandler O’Neill & Partners, L.P., no broker, finder, or investment banker is entitled to any brokerage fee, finder’s fee, or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchaser.

6.15 Loan and Investment Portfolios. As of the date of this Agreement, all loans, discounts and financing leases reflected on the Purchaser Financial Statements were, and with respect to the Purchaser Financial Statements delivered as of the dates subsequent to the execution of this Agreement, will be as of the dates thereof, (a) at the time and under the circumstances in which made, made for good, valuable and adequate consideration in the ordinary course of business, (b) evidenced by genuine notes, agreements or other evidences of indebtedness and (c) to the extent secured, have been secured by valid liens and security interests that have been perfected. Except as set forth in Section 6.15 of the Purchaser Disclosure Memorandum, no Purchaser Entity is a party to any written or oral loan agreement, note or borrowing arrangement, including any loan guaranty, that was, as of the most recent month-end or other date referenced in such schedule, (i) delinquent by more than 30 days in the payment of principal or interest, (ii) known by the Purchaser Entities to be otherwise in Default for more than 30 days, (iii) classified as “substandard,” “doubtful,” “loss,” “other assets especially mentioned” or any comparable classification by Purchaser, the FDIC or the DFI, or (iv) an obligation of any director, executive officer or 10% shareholder of Purchaser who is subject to Regulation O of the Federal Reserve Board (12 C.F.R. Part 215), or any person, corporation or enterprise controlling, controlled by or under common control with any of the foregoing.

6.16 Allowance for Possible Loan Losses. The Allowance shown on the consolidated balance sheets of the Purchaser Entities included in the Purchaser Financial Statements and the allowance shown on the consolidated balance sheets of the Purchaser Entities as of dates subsequent to the execution of this Agreement will be, as of the dates thereof, adequate in the judgment of Purchaser’s management and consistent with GAAP and applicable regulatory requirements or guidelines to provide for all known or reasonably anticipated losses relating to or inherent in the loan and lease portfolios (including accrued interest receivables) of the Purchaser Entities and other extensions of credit (including letters of credit and commitments to make loans or extend credit) by Purchaser as of the dates thereof.

6.17 Regulatory Reports.

(a) Since January 1, 2010, the Purchaser Entities have timely filed all reports and statements, together with any amendments required to be made with respect thereto, that it was required to file with Regulatory Authorities. As of their respective dates, each of such reports and documents, including the financial statements, exhibits, and schedules thereto, complied in all material respects with all applicable

Laws. As of its respective date, each such report and document did not, in all material respects, contain any untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements made therein, in light of the circumstances under which they were made, not misleading.

(b) Each of the Purchaser Financial Statements (including, in each case, any related notes) contained in the Purchaser Regulatory Reports complied as to form in all material respects with the applicable published rules and regulations of the appropriate Regulatory Authorities, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements), and fairly presented in all material respects the consolidated financial position of the Purchaser Entities as at the respective dates and the consolidated results of operations and cash flows for the periods indicated.

6.18 Bank Secrecy Act Compliance. Purchaser Bank is in compliance in all material respects with the provisions of the Bank Secrecy Act, and all regulations promulgated thereunder including, but not limited to, those provisions of the Bank Secrecy Act that address suspicious activity reports and compliance programs. Purchaser Bank has implemented a Bank Secrecy Act compliance program that adequately covers all of the required program elements as required by 12 C.F.R. §21.21.

ARTICLE 7
CONDUCT OF BUSINESS PENDING CONSUMMATION

7.1 Affirmative Covenants of Each Party. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of the other Party shall have been obtained, and except as otherwise expressly contemplated herein, each Party shall and shall cause each of its Subsidiaries to (a) operate its business only in the usual, regular, and ordinary course, (b) preserve intact its business organization and material Assets and maintain its rights and franchises, and (c) take no action that would (i) materially adversely affect the ability of either Party to obtain any Consents required for the transactions contemplated hereby without imposition of a condition or restriction of the type referred to in the last sentences of Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of either Party to perform its covenants and agreements under this Agreement.

7.2 Negative Covenants of Target. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of Purchaser shall have been obtained, which consent shall not be unreasonably withheld, and except as otherwise expressly contemplated herein, Target covenants and agrees that it will not do or agree or commit to do or permit any Target Entity to agree or commit to do any of the following:

(a) amend the Articles of Incorporation, Bylaws or other governing instruments of any Target Entity in any manner that adversely affects the rights of the holders of Target capital stock, or

(b) incur or permit any Target Subsidiary to incur any additional debt obligation or other obligation for borrowed money in excess of an aggregate of $50,000 except in the ordinary course of business of Target or any Target Subsidiary consistent with past practices (which shall include creation of deposit liabilities, purchases of federal funds, advances from the Federal Reserve Bank or Federal Home Loan Bank, and entry into repurchase agreements fully secured by U.S. government or agency securities), or impose, or suffer the imposition, on any Asset of any Target Entity, of any Lien or permit any such Lien to exist (other than in connection with deposits, repurchase agreements, Bankers acceptances, “treasury tax and loan” accounts established in the ordinary course of business, the satisfaction of legal requirements in the exercise of trust powers, and Liens in effect as of the date hereof; or

(c) repurchase, redeem, or otherwise acquire or exchange (other than exchanges in the ordinary course under employee benefit plans or in connection with the exercise of its existing Target Options), directly or indirectly, any shares, with the exception of the redemption or repurchase of the Target Preferred Stock pursuant to Section 9.1(g) hereof, or any securities convertible into any shares, of Target’s capital stock, or declare or pay any dividend or make any other distribution in respect of Target’s capital stock other than the Target Preferred Stock; or

(d) issue, sell, pledge, encumber, authorize the issuance of, enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become outstanding, any additional shares of Target Common Stock or any other capital stock of Target, or any stock appreciation rights, or any option, warrant, or other Equity Right, except pursuant to the exercise of Target Options; or

(e) adjust, split, combine or reclassify any shares of Target Common Stock or issue or authorize the issuance of any other securities in respect of or in substitution for shares of Target Common Stock or sell, lease, mortgage or otherwise dispose of or otherwise encumber any Asset having a book value in excess of $50,000 other than in the ordinary course of business for reasonable and adequate consideration; or

(f) except for purchases of securities in the ordinary course of business, purchase any securities or make any material investment, either by purchase of stock or securities, contributions to capital, Asset transfers, or purchase of any Assets, in any Person, or otherwise acquire direct or indirect control over any Person, other than in connection with (i) foreclosures in the ordinary course of business, (ii) acquisitions of control by a depository institution Subsidiary in its fiduciary capacity, or (iii) the creation of new wholly owned Subsidiaries organized to conduct or continue activities otherwise permitted by this Agreement; or

(g) (i) increase the rate of compensation payable or to become payable to any director, employee or consultant of the Target Group, other than in the ordinary course of business and consistent with past practice or, in the case of any consultant of the Target Group, payment at his, her or its existing hourly rates in connection with the negotiation of this agreement and the consummation of the transactions contemplated herein; (ii) amend or enter into any employment, severance, change in control or similar Contract with any such director, employee or other service provider; (iii) pay or agree to pay any bonuses or other compensation, other than in the ordinary course of business and consistent with past practice, to any such director, employee or other service provider; (iv) amend any Target Plan, other than any amendment required by Law; (v) adopt any new plan, program, policy or arrangement, which if it existed as of the Closing Date, would constitute a Target Plan; or (vi) terminate any existing Target Plan; or

(h) make any significant change in any Tax or accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in Tax Laws or regulatory accounting requirements or GAAP; or

(i) commence any Litigation other than in accordance with past practice, or settle any Litigation involving any Liability of any Target Entity for over $50,000 in money damages or any restrictions upon the operations of the Target Entities; or

(j) except in the ordinary course of business, enter into, modify, amend or terminate any Contract (including any loan Contract with an unpaid balance) or waive, release, compromise or assign any right or claim in an amount exceeding $50,000.

7.3 Negative Covenants of Purchaser. From the date of this Agreement until the earlier of the Effective Time or the termination of this Agreement, unless the prior written consent of Purchaser shall have been obtained, which consent shall not be unreasonably withheld, and except as otherwise expressly contemplated herein, Purchaser covenants and agrees that it will not do or agree or commit to do or permit any Purchaser Entity to agree or commit to do any of the following:

(a) amend the Articles of Incorporation, Bylaws or other governing instruments of any Purchaser Entity, or

(b) repurchase, redeem, or otherwise acquire or exchange (other than transactions under employee benefit plans in the ordinary course of business or repurchases of up to an aggregate of 10,000 shares of Purchaser Common Stock), directly or indirectly, any shares, or any securities convertible into any shares, of Purchaser’s capital stock, or declare or pay any dividend or make any other distribution in respect of Purchaser’s capital stock except for scheduled dividends on the Purchaser Series C Preferred Stock); or

(c) except as required by the terms of this Agreement or as set forth in Section 7.3(c) of the Purchaser Disclosure Memorandum, issue, sell, pledge, encumber, authorize the issuance of, or enter into any Contract to issue, sell, pledge, encumber, or authorize the issuance of, or otherwise permit to become

outstanding, any additional shares of Purchaser Common Stock or any other capital stock of Purchaser, or any stock appreciation rights, or any option, warrant, or other Equity Right, except in the ordinary course of business; or

(d) adjust, split, combine or reclassify any shares of Purchaser Common Stock or issue or authorize the issuance of any other securities in respect of or in substitution for shares of Purchaser Common Stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber any Asset having a book value in excess of $150,000 other than in the ordinary course of business for reasonable and adequate consideration; or

(e) make any significant change in any Tax or accounting methods or systems of internal accounting controls, except as may be appropriate to conform to changes in Tax Laws or regulatory accounting requirements or GAAP.

7.4 Adverse Changes in Condition. Each Party agrees to give written notice promptly to the other Party upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries that (i) is reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable, or (ii) would cause or constitute a material breach of any of its representations, warranties, or covenants contained herein, and to use its reasonable efforts to prevent or promptly remedy the same.

7.5 Reports. Each Party and its Subsidiaries shall file all reports required to be filed by it with Regulatory Authorities between the date of this Agreement and the Effective Time and shall deliver to the other Party copies of all such reports promptly after the same are filed.

ARTICLE 8
ADDITIONAL AGREEMENTS

8.1 Purchaser Registration Statement.

(a) Purchaser will promptly prepare and file a Registration Statement on Form S-4 (which will include the Proxy Statement) complying with all the requirements of the 1933 Act (and the rules and regulations thereunder) applicable thereto, for the purpose, among other things, of registering the Purchaser Common Stock that will be issued to the holders of Target Common Stock pursuant to the Merger. Purchaser shall use commercially reasonable efforts to file the Registration Statement within 60 days after the date hereof, to cause the Registration Statement to become effective as soon as practicable, to qualify the Purchaser Common Stock under the Securities Laws of such jurisdictions as may be required and to keep the Registration Statement and such qualifications current and in effect for so long as is necessary to consummate the transactions contemplated hereby. As a result of the registration of the Purchaser Common Stock pursuant to the Registration Statement, such stock shall be freely tradable by the shareholders of Target except to the extent that the transfer of any shares of Purchaser Common Stock received by shareholders of Target is subject to the provisions of Rule 145 under the Securities Act or restricted under applicable Tax rules. Target and its counsel shall have reasonable opportunity to review and comment on the Registration Statement being filed with the SEC and any responses filed with the SEC regarding the Registration Statement. The Parties shall deliver to each other copies of all filings, correspondence, orders and any other documents to and from all Regulatory Authorities, including the SEC, and shall promptly relay to each other any oral communications to and from all such Regulatory Authorities, in connection with the Form S-4 and any documents related thereto.

(b) Each of the Parties will cooperate in the preparation of the Registration Statement and Proxy Statement that complies with the requirements of the Securities Laws, for the purpose of submitting this Agreement and the transactions contemplated hereby to the Target’s shareholders and to the Purchaser’s shareholders for approval. Each of the Parties will as promptly as practicable after the date hereof furnish all such data and information relating to it and its Subsidiaries, as applicable, as the other Party may reasonably request for the purpose of including such data and information in the Registration Statement and the Proxy Statement. None of the information to be supplied by the Parties for inclusion in (i) the Registration Statement will, at the time the Registration Statement becomes effective under the Securities Act, contain any untrue

statement of a material fact required to be stated therein or necessary to make the statements therein, not misleading, (ii) the Proxy Statement will, at the date it is first mailed to the Target’s shareholders and at the time of the Target shareholders’ meeting (except to the extent amended or supplemented by a subsequent communication), contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading or (iii) any other document filed with any other regulatory agency in connection herewith will, at the time such document is filed, fail to comply as to form in all material respects with the provisions of applicable Law. The Proxy Statement will comply as to form in all material respects with any applicable requirements of the 1934 Act and the rules and regulations thereunder, except that no representation or warranty is made by either Party with respect to statements made or incorporated by reference therein based on information supplied by the other Party for inclusion or incorporation by reference in the Proxy Statement.

8.2 Applications. Purchaser shall promptly prepare and file, and Target shall cooperate in the preparation and, where appropriate, filing of, applications with all Regulatory Authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite Consents necessary to consummate the transactions contemplated by this Agreement. Purchaser shall use commercially reasonable efforts to file such applications no later than sixty (60) days from the date hereof. The Parties shall deliver to each other copies of all filings, correspondence and orders to and from all Regulatory Authorities and shall promptly relay to each other any oral communications to and from all Regulatory Authorities in connection with the transactions contemplated hereby.

8.3 Filings of Articles of Merger. Upon the terms and subject to the conditions of this Agreement, Purchaser shall execute and file Articles of Merger for the Merger with the DFI in connection with the Closing.

8.4 Investigation and Confidentiality.

(a) Prior to the Effective Time, each Party shall keep the other Party advised of all material developments relevant to its business and to consummation of the Mergers and shall permit the other Party to make or cause to be made such investigation of the business and properties of it and its Subsidiaries and of their respective financial and legal conditions as the other Party reasonably requests, provided that such investigation shall be reasonably related to the transactions contemplated hereby and shall not interfere unnecessarily with normal operations. No investigation by a Party shall affect the representations and warranties of the other Party.

(b) The Parties will not disclose, and will cause their respective representatives to not disclose, directly or indirectly, before or after the consummation or termination of this Agreement, any confidential information, whether written or oral, furnished to it by the other Party concerning its and its Subsidiaries’ businesses, operations, and financial positions, to any Person for any reason other than in connection with the regulatory notice and application process or as otherwise required by Law or, after termination of this Agreement pursuant to Section 10.1 hereof, use such Subject Information for its own purposes or for the benefit of any other Person under any circumstances. The term “Subject Information” does not include any information that (i) at the time of disclosure or thereafter is generally available to and known to the public, other than by a Breach of this Agreement by the disclosing Party, (ii) was available to the disclosing Party on a non-confidential basis from a source other than the non-disclosing Party or (iii) was independently acquired or developed without violating any obligations of this Agreement. If this Agreement is terminated prior to the Effective Time, each Party shall promptly return or certify the destruction of all documents and copies thereof and all work papers containing confidential information received from the other Party.

(c) Each Party agrees to give the other Party notice as soon as practicable after any determination by it of any fact or occurrence relating to the other Party which it has discovered through the course of its investigation and which represents, or is reasonably likely to represent, either a material breach of any representation, warranty, covenant or agreement of the other Party or which has had or is reasonably likely to have a Target Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable.

8.5 No Solicitations.

(a) Except as contemplated by Section 8.5(c) of this Agreement and prior to the Effective Time or until the termination of this Agreement, Target shall not, and shall use its best efforts to ensure that its directors, officers, employees, advisers and agents shall not, directly or indirectly, without the prior written approval of Purchaser,

(i) solicit, initiate or authorize inquiries, discussions, negotiations, or submissions of proposals with respect to, furnish any information regarding, enter into any Contract with respect to or participate in any Acquisition Proposal;

(ii) knowingly provide or furnish any nonpublic information about or with respect to the Target and Target Bank; or

(iii) subject to Section 8.5(c) below, withdraw its recommendation to the holders of Target Common Stock regarding the Merger or make a recommendation regarding any Acquisition Transaction.

(b) Target shall instruct its officers, directors, agents and affiliates to refrain from doing any of the above and will notify Purchaser promptly if any such inquiries or proposals are received by it, any such information is requested from it, or any such negotiations or discussions are sought to be initiated with any of its officers, directors, agents and affiliates.

(c) Nothing contained in this Section 8.5 shall prohibit any officer or director of Target from taking any action that the Board of Directors of Target shall determine in good faith, after consultation with legal counsel, is required by law or is required to discharge his or her fiduciary duties to Target and its shareholders, including the approval of an Acquisition Proposal and the termination of this Agreement.

(d) Target shall immediately cease and cause to be terminated all existing discussions or negotiations with any persons conducted with respect to any Acquisition Transaction except those contemplated by this Agreement.

(e) Each Party shall promptly advise the other Party following the receipt of any Acquisition Proposal and the details thereof, including but not limited to the identity of the Person making the offer, proposal, inquiry or request and the terms of such offer, proposal, inquiry or request, and advise the other Party of any developments with respect to such Acquisition Proposal promptly upon the occurrence thereof.

8.6 Press Releases. Prior to the Effective Time, Target and Purchaser shall consult with each other as to the form and substance of any press release or other public disclosure materially related to this Agreement or any other transaction contemplated hereby; provided, that nothing in this Section 8.6 shall be deemed to prohibit any Party from making any disclosure its legal counsel deems necessary or advisable in order to satisfy such Party’s disclosure obligations imposed by Law, including any disclosure obligations that may be imposed by the SEC.

8.7 Tax Treatment. Each of the Parties undertakes and agrees to use its reasonable efforts to cause the Mergers to qualify as a tax-free “reorganization” within the meaning of Section 368(a) of the Internal Revenue Code for federal income tax purposes and to take no action which would cause the Mergers not to so qualify.

8.8 Agreement of Affiliates.

(a) Target shall use its reasonable efforts to cause each Person set forth on Section 8.8 of the Target Disclosure Memorandum to deliver to Purchaser not later than 30 days after the date of this Agreement, a written agreement substantially in the form of Exhibit C-1.

(b) Purchaser shall use its reasonable efforts to cause each Person set forth in Section 8.8 of the Purchaser’s Disclosure Memorandum to deliver to Target not later than 30 days after the date of this Agreement, a written agreement substantially in the Form of Exhibit C-2.

8.9 Indemnification and Insurance.

(a) Purchaser covenants and agrees that all rights to indemnification (including, without limitation, rights to mandatory advancement of expenses) and all limitations of liability existing in favor of indemnified parties under Target’s Articles of Incorporation and Bylaws as in effect as of the date of this Agreement with respect to matters occurring prior to or at the Effective Time (an “Indemnified Party”) shall survive the Merger and shall continue in full force and effect, without any amendment thereto, for a period concurrent with the applicable statute of limitations; provided, however, that all rights to indemnification in respect of any claim asserted or made as to which Purchaser is notified in writing within such period shall continue until the final disposition of such claim. Promptly after receipt by an Indemnified Party of notice of the commencement of any action, such Indemnified Party shall, if a claim in respect thereof is to be made against Purchaser under such subparagraph, notify Purchaser in writing of the commencement thereof. In case any such action shall be brought against any Indemnified Party, Purchaser shall be entitled to participate therein and, to the extent that it shall wish, to assume the defense thereof, with counsel reasonably satisfactory to such Indemnified Party, and, after notice from Purchaser to such Indemnified Party of its election so to assume the defense thereof, Purchaser shall not be liable to such Indemnified Party under such subparagraph for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Party; provided, however, if Purchaser elects not to assume such defense or if counsel for the Indemnified Party advises Purchaser in writing that there are material substantive issues that raise conflicts of interest between Purchaser or Target and the Indemnified Party, such Indemnified Party may retain counsel satisfactory to it, and Purchaser shall pay all reasonable fees and expenses of such counsel for the Indemnified Party promptly as statements therefor are received. Notwithstanding the foregoing, Purchaser shall not be obligated to pay the fees and expenses of more than one counsel for all Indemnified Parties in respect of such claim unless in the reasonable judgment of an Indemnified Party a conflict of interest exists between an Indemnified Party and any other Indemnified Parties in respect to such claims.

(b) Target covenants and agrees that it shall use its best efforts to cause the persons serving as its officers or directors of the Target Entities immediately prior to the Effective Time to be covered for a period of six years from the Effective Time (or such lesser period of time reasonably acceptable to the Parties) by the directors’ and officers’ liability insurance policy maintained by Target with respect to acts or omissions occurring prior to or at the respective effective times that were committed by such officers and directors in their capacity as such; provided that (i) Purchaser may in its reasonable discretion with the consent of Target, with such consent not to be unreasonably withheld, substitute a policy or policies with at least the same coverage and amounts and terms and conditions that are no less advantageous (or with Target’s consent, given prior to the Effective Time, any other policy); and (ii) the aggregate premium to be paid by Target for such insurance shall not exceed 200% of the most current annual premium paid by Target for its directors and officers liability insurance without Purchaser’s prior approval.

(c) Purchaser covenants and agrees that if Purchaser or any of its successors or assigns (i) shall consolidate with or merge into any corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger or (ii) shall transfer all or substantially all of its properties and assets to any Person, then and in each such case, proper provisions shall be made so that the successors and assigns of Purchaser shall assume the obligations set forth in this Section 8.9.

(d) The provisions of this Section 8.9 are intended to be for the benefit of, and shall be enforceable by, each Indemnified Party and his or her heirs and representatives.

(e) The Parties acknowledge that Section 18(k) of the Federal Deposit Insurance Act provides that no payment may be made by any insured depository institution or its holding company for the benefit of any person who is or was an institution-affiliated party to pay or reimburse such person for any liability or legal expense with regard to any administrative proceeding or civil action instituted by the appropriate federal banking agency which results in a final order under which such person (1) is assessed a civil money penalty, (2) is removed or prohibited from participating in the conduct of the affairs of the insured depository institution, or (3) is required to take an affirmative action to correct or remedy a regulatory violation. Accordingly, the Parties recognize that the indemnification provisions set forth in this Section 8.9

are subject to and limited by the provisions of Section 18(k) of the Federal Deposit Insurance Act and its accompanying regulations.

8.10 Employee Benefits and Contracts. Following the Effective Time, Purchaser shall provide generally to officers and employees of the Target Entities who continue employment with Purchaser or any of its Subsidiaries employee benefits, including compensation, on terms and conditions which, when taken as a whole, are substantially similar to those then currently provided by Purchaser to its other similarly situated officers and employees. For purposes of benefit accrual (but only for purposes of determining benefits accruing under payroll practices such as vacation policy or under fringe benefit programs that do not rise to the level of a “plan” within the meaning of Section 3(3) of ERISA) and for purposes of determining eligibility to participate and vesting determinations in connection with the provision of any such employee benefits generally, service with the Target Entities prior to the Effective Date shall be counted. All accrued balances in Target’s Short Term Disability Bank as of December 31, 2012 shall transfer and otherwise be made available to each eligible employee of Target pursuant to the terms of Purchaser’s Long-Term Sick Pay policies then in effect, provided that upon a termination of employment, any such eligible employee shall be entitled to receive at least his or her accrued balance under Target’s Short Term Disability Bank as of December 31, 2012, to the extent not used under Purchaser’s Long-Term Sick Pay policies. All 2013 accrued and unused paid time off balances of Target’s employees as of the Effective Time shall transfer to Purchaser’s Vacation Pay and Personal Pay policies and their applicable accrual schedules then in effect on a pro-rata basis. If Purchaser shall terminate any “group health plan,” within the meaning of Section 4980B(g)(2) of the Internal Revenue Code, in which one or more employees of a Target Entity participated immediately prior to the Effective Time (a “Company Health Plan”), Purchaser shall cause any successor group health plan to waive any underwriting requirements; to give credit for any such employee’s participation in the Company Health Plan prior to the Effective Time for purposes of applying any waiting period and/or pre-existing condition limitations set forth therein; and, if such transition occurs during the middle of the plan year for such a Company Health Plan, to give credit towards satisfaction of any annual deductible limitation and out-of pocket maximum applied under such successor group health plan for any deductible amounts and co-payments previously paid by any such employee respecting his or her participation in that Company Health Plan during that plan year prior to the Effective Time. Purchaser also shall be considered a successor employer for and shall provide to “qualified beneficiaries,” determined immediately prior to the Effective Time, under any Target Plan appropriate “continuation coverage” (as those terms are defined in Section 4980B of the Internal Revenue Code) following the Effective Time under either the Target Plan or any successor group health plan maintained by Purchaser. At the request of Purchaser, the Target Entities will take all appropriate action to terminate, prior to the Effective Time, the Target’s Directors Deferred Compensation Plan and any retirement plan maintained by the Target Entities that is intended to be qualified under Section 401(a) of the Internal Revenue Code.

8.11 Authorization and Approval of Purchaser Common Stock. Purchaser shall, as of the date hereof, authorize, if necessary, and reserve the maximum number of shares of Purchaser Common Stock to be issued pursuant to this Agreement and take all other necessary corporate action to issue the Purchaser Common Stock pursuant to the terms of this Agreement.

8.12 Supplemental Indenture. On or prior to the Closing Date, the Purchaser shall execute a Supplemental Indenture relating to the Junior Subordinated Debentures issued by Target pursuant to that certain Indenture dated October 14, 2005, between Target, as issuer, and Wilmington Trust Company, as trustee pursuant to which Purchaser shall assume all liabilities outstanding under the Junior Subordinated Debentures as of the Closing Date.

8.13 Repurchase or Redemption of Target Preferred Stock. Purchaser covenants and agrees that if Target is unable to repurchase or redeem the Target Preferred Stock because of an inability to receive the appropriate Consent from the Regulatory Authorities that Purchaser shall purchase all outstanding Target Preferred Stock from the U.S. Department of the Treasury for a maximum purchase price of $12.0 million.

8.14 Payment of Target Trust Preferred Interest Payments. Purchaser covenants and agrees that if Target is unable to pay all accrued and unpaid interest on the Debentures that is due and payable under the terms of the Indenture as of the Closing Date because of an inability to receive the appropriate Consent from the Regulatory Authorities that Purchaser shall pay all such accrued and unpaid interest on the Debentures.

8.15 Prosecution of Regulatory Approvals. Purchaser covenants and agrees that Purchaser shall use its best efforts to ensure that all Consents of Regulatory Authorities required pursuant to Section 9.1(b) are obtained on or prior to the Closing Date and that Purchaser shall satisfy any conditions or remove any restrictions (other than such conditions or restrictions as are referred to in the last sentence of Section 9.1(b)) placed on the Consents by the Regulatory Authorities prior to Closing.

8.16 Meetings of Shareholders. Each Party will, as soon as practicable, take all steps under applicable Law and its Articles of Incorporation and Bylaws to call, give notice of, convene and hold a meeting of its shareholders at such times as may be mutually agreed to by the Parties for the purpose of approving this Agreement and the transactions contemplated hereby. Unless otherwise required by the fiduciary duties of its Board of Directors under applicable Law, each Party’s Board of Directors will recommend to such Party’s shareholders the approval of this Agreement and the transactions contemplated hereby and each Party will use its best efforts to obtain the necessary approval by its shareholders of this Agreement and the transactions contemplated hereby.

ARTICLE 9
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE

9.1 Conditions to Obligations of Each Party. The respective obligations of each Party to perform this Agreement and consummate the Mergers and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by both Parties pursuant to Section 11.5:

(a) Shareholder Approval. The shareholders of Target and the shareholders of Purchaser shall have approved this Agreement, and the consummation of the transactions contemplated hereby, including the Merger and the Bank Merger, as and to the extent required by Law and, by the provisions of any governing instruments.

(b) Regulatory Approvals. All Consents of, filings and registrations with, and notifications to, all Regulatory Authorities required for consummation of the Merger and the Bank Merger shall have been obtained or made and shall be in full force and effect and all waiting periods required by Law shall have expired. No Consent obtained from any Regulatory Authority that is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner (including requirements relating to the raising of additional capital or the disposition of Assets) which in the reasonable judgment of the Board of Directors of either Party would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement.

(c) Consents and Approvals. Each Party shall have obtained any and all Consents required for consummation of the Mergers (other than those referred to in Section 9.1(b)) or for the preventing of any Default under any Contract or Permit of such Party which, if not obtained or made, is reasonably likely to have, individually or in the aggregate, a Target Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable; provided that, with the exception of the Consents referred to in Section 9.1(b), Target shall only be required to deliver those consents set forth in Section 5.2(b) of the Target Disclosure Memorandum. No Consent so obtained which is necessary to consummate the transactions contemplated hereby shall be conditioned or restricted in a manner which in the reasonable judgment of the Board of Directors of either Party would so materially adversely impact the economic or business benefits of the transactions contemplated by this Agreement that, had such condition or requirement been known, such Party would not, in its reasonable judgment, have entered into this Agreement.

(d) Legal Proceedings. No court or governmental or regulatory authority of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law or Order (whether temporary, preliminary or permanent) or taken any other action that prohibits, restricts or makes illegal consummation of the transactions contemplated by this Agreement.

(e) Registration Statement. The Registration Statement shall be effective under the 1933 Act, no stop orders suspending the effectiveness of the Registration Statement shall have been issued, no action, suit, proceeding or investigation by the SEC to suspend the effectiveness thereof shall have been

initiated and be continuing, and all necessary approvals under state securities Laws or the 1933 Act or 1934 Act relating to the issuance or trading of the shares of Purchaser Common Stock issuable pursuant to the Merger shall have been received.

(f) Tax Matters. Each Party shall have received a written opinion of counsel from Bryan Cave LLP, in form reasonably satisfactory to such Parties (the “Tax Opinion”), to the effect that (i) the Merger will constitute a reorganization within the meaning of Section 368(a) of the Internal Revenue Code, and (ii) the exchange in the Merger of Target Common Stock for Purchaser Common Stock will not give rise to gain or loss to the shareholders of Target with respect to such exchange (except to the extent of any cash received).

(g) Repurchase or Redemption of Target Preferred Stock. Target shall have consummated the repurchase or redemption of the Target Preferred Stock effective no later than the Closing Date; provided, however, that if Target is unable to consummate such repurchase or redemption because of an inability to receive the appropriate Consent from the Regulatory Authorities that Purchaser shall purchase the Target Preferred Stock in accordance with the provisions of Section 8.13 of this Agreement.

(h) Target Trust Preferred Interest Payments. Target shall have paid all accrued and unpaid interest on the Debentures that is due and payable under the terms of the Indenture as of the Closing Date; provided, however, that if Target is unable to pay all such accrued and unpaid interest because of an inability to receive the appropriate Consents from the Regulatory Authorities that Purchaser shall pay all such accrued and unpaid interest.

9.2 Conditions to Obligations of Purchaser. The obligations of Purchaser to perform this Agreement and consummate the Mergers and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by Purchaser pursuant to Section 11.5:

(a) Representations and Warranties. The representations and warranties of Target and Target Bank set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties that are confined to a specified date shall speak only as of such date), except for inaccuracies that are not reasonably likely to have a Target Material Adverse Effect.

(b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Target to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with in all material respects, except where such non-performance or non compliance would not have a Target Material Adverse Effect.

(c) Certificates. Target shall have delivered to Purchaser (i) a certificate, dated as of the Effective Time and signed on its behalf by its principal executive officer and its principal financial officer, to the effect that the conditions set forth in Section 9.1 as relates to Target, Section 9.2(a) and Section 9.2(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by Target’s Board of Directors and shareholders evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as Purchaser and its counsel shall request.

(d) Affiliate Agreements. Purchaser shall have received from each Person listed in Section 8.8 of the Target Disclosure Memorandum the affiliate agreement referred to in Section 8.8(a). The affiliate agreements shall be delivered to Purchaser within 30 days from the execution of this Agreement.

(e) Target Option Cancellation. Target shall have cancelled all outstanding Target Options, effective as of the Effective Time, and delivered evidence of such cancellation (including but not limited to such optionee consents as may be required in connection with such cancellation) to Purchaser.

(f) Opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP. Purchaser shall have received the opinion of Barack Ferrazzano Kirschbaum & Nagelberg LLP in the form attached as Exhibit D.

(g) Opinion of Financial Advisor. Purchaser shall have received the opinion of Sandler O’Neill + Partners, L.P., dated November 20, 2012 to the effect that the Merger Consideration to be issued in the Merger is fair, from a financial point of view, to the holders of Purchaser Common Stock, and such opinion shall not have been withdrawn.

9.3 Conditions to Obligations of Target. The obligations of Target to perform this Agreement and consummate the Mergers and the other transactions contemplated hereby are subject to the satisfaction of the following conditions, unless waived by Target pursuant to Section 11.5:

(a) Representations and Warranties. The representations and warranties of Purchaser set forth in this Agreement shall be true and correct as of the date of this Agreement and as of the Effective Time with the same effect as though all such representations and warranties had been made on and as of the Effective Time (provided that representations and warranties that are confined to a specified date shall speak only as of such date), except for inaccuracies that are not reasonably likely to have a Purchaser Material Adverse Effect.

(b) Performance of Agreements and Covenants. Each and all of the agreements and covenants of Purchaser to be performed and complied with pursuant to this Agreement and the other agreements contemplated hereby prior to the Effective Time shall have been duly performed and complied with in all material respects, except where such non performance or non-compliance would not have a Purchaser Material Adverse Effect.

(c) Certificates. Purchaser shall have delivered to Target (i) a certificate, dated as of the Effective Time and signed on its behalf by its chief executive officer and its chief financial officer, to the effect that the conditions set forth in Section 9.1 as relates to Purchaser, Section 9.3(a) and Section 9.3(b) have been satisfied, and (ii) certified copies of resolutions duly adopted by Purchaser’s Board of Directors evidencing the taking of all corporate action necessary to authorize the execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, all in such reasonable detail as Target and its counsel shall request.

(d) Election of Directors. The Board of Directors of Purchaser shall have expanded its size to the extent necessary to create two vacancies and appointed or elected the two nominees listed in Exhibit B and approved by the Board of Directors of Purchaser, with such approval not to be unreasonably withheld to fill such vacancies for terms beginning at the Effective Time and continuing until their successors are duly elected and qualified as set forth in Section 2.3.

(e) Supplemental Indenture. Purchaser and Wilmington Trust Company shall have executed and delivered a Supplemental Indenture relating to the Junior Subordinated Debentures issued by Target pursuant to that certain Indenture dated October 14, 2005 between Target, as issuer, and Wilmington Trust Company, as trustee.

(f) Opinion of Bryan Cave. Target shall have received the opinion of Bryan Cave LLP in the form attached as Exhibit E.

(g) Opinion of Financial Advisor. Target shall have received the opinion of Raymond James & Associates, Inc., dated November 28, 2012, to the effect that the Merger Consideration to be received by the holders of Target Common Stock is fair, from a financial point of view, to such holder, and such opinion shall not have been withdrawn.

(h) Affiliate Agreements. Target shall have received from each Person listed in Section 8.8 of the Purchaser Disclosure Memorandum the affiliate agreement referred to in Section 8.8(b). The affiliate agreements shall be delivered to Target within 30 days from the execution of this Agreement.

ARTICLE 10
TERMINATION

10.1 Termination. Notwithstanding any other provision of this Agreement, and notwithstanding the approval of this Agreement by the shareholders of Target, this Agreement may be terminated and the Mergers abandoned at any time prior to the Effective Time:

(a) By mutual written consent of the Boards of Directors of Purchaser and Target; or

(b) By the Board of Directors of either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material Breach by the other Party which cannot be or has not been cured within 30 days after the giving of written notice to the breaching Party of such breach (provided that the right to effect such cure shall not extend beyond the lesser of 30 days after the giving of such written notice or the date set forth in subparagraph (d) below) and which breach is reasonably likely, in the opinion of the non-breaching Party, to have, individually or in the aggregate, a Target Material Adverse Effect or a Purchaser Material Adverse Effect, as applicable, on the breaching Party; or

(c) By the Board of Directors of either Party in the event (i) any Consent of any Regulatory Authority required for consummation of the Mergers and the other transactions contemplated hereby shall have been denied or any condition or restriction on such Consent (other than a condition or restriction of the type specified in the last sentence of Section 9.1(b)) shall not have been satisfied or removed by Purchaser, or (ii) the shareholders of Target or Purchaser fail to vote their approval of the matters relating to this Agreement and the transactions contemplated hereby at the Shareholders’ Meeting where such matters were presented to such shareholders for approval and voted upon; or

(d) By the Board of Directors of either Party in the event that the Mergers shall not have been consummated by April 30, 2013, if the failure to consummate the transactions contemplated hereby on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this Section 10.1(d); provided that such termination date shall be automatically extended until May 31, 2013 if the sole impediment to Closing is the delay or failure of (i) any Regulatory Authority to provide any necessary Consent, or (ii) the Registration Statement being declared effective by the SEC.

(e) By the Board of Directors of either Party in the event that any of the conditions precedent to the obligations of such Party to consummate the Mergers cannot be satisfied or waived by the date specified in Section 10.1(d), provided that the failure to consummate the Mergers is not caused by the Party electing to terminate pursuant to this Section 10.1(e); or

(f) By the Board of Directors of Purchaser if the Board of Directors of Target

(i) shall withdraw, modify or change its recommendation to the Target shareholders with respect to this Agreement or the Merger, cancel the meeting in which the shareholders or Board of Directors will vote on such Agreement, or shall have resolved to do any of the foregoing or;

(ii) either recommends to the Target shareholders or affirmatively approved any Acquisition Transaction or makes any announcement of any agreement to enter into an Acquisition Transaction; or

(g) By the Board of Directors of Target if Target receives a bona fide written offer with respect to an Acquisition Transaction, and the Board of Directors of Target determines in good faith, after consultation with its financial advisors and counsel, that such Acquisition Transaction is more favorable to Target’s shareholders than the transactions contemplated by this Agreement; or

(h) By the Board of Directors of Purchaser if the holders of more than 5% in the aggregate of the Outstanding Target Shares assert dissenters’ rights in compliance with Section 180,1321(i) of the WBCL.

(i) By the Board of Directors of Target if the Board of Directors of Purchaser shall withdraw, modify or change its recommendation to the Purchaser shareholders with respect to this Agreement or the Merger, cancel the meeting in which the shareholders or Board of Directors will vote on such Agreement, or shall have resolved to do any of the foregoing.

10.2 Effect of Termination. In the event of the termination and abandonment of this Agreement pursuant to Section 10.1, this Agreement shall become void and have no effect, except that (i) the provisions of this Section 10.2, 10.4, and Article 11 and Section 8.5(b) shall survive any such termination and abandonment.

10.3 Non-Survival of Representations and Covenants. The respective representations, warranties, obligations, covenants, and agreements of the Parties shall not survive the Effective Time except this Article 10 and Articles 1, 2, 3, 4 and 11 and Sections 8.4 and 8.9.

10.4 Termination Payments.

(a) (i) If this Agreement is terminated by either of the Parties pursuant to subsection 10.1(f) or 10.1(g), then Target (or its successor) shall pay or cause to be paid to Purchaser, as liquidated damages and not as a penalty, upon demand a termination payment of $750,000 payable in same day funds; provided that Purchaser materially complies with its obligations under this Agreement.

(ii) If this Agreement is terminated by Target pursuant to subsection 10.1(i), then Purchaser (or its successor) shall pay or cause to be paid to Target, as liquidated damages and not as a penalty, upon demand a termination payment of $750,000 payable in same day funds; provided that Target materially complies with its obligations under this Agreement.

(b) In the event that this Agreement is terminated by either party pursuant to subsection 10.1(b), the breaching Party shall pay or cause to be paid to the non-breaching Party, as liquidated damages and not as a penalty, upon demand a termination payment of $1,000,000, plus documented out-of-pocket expenses and costs incurred by the non-breaching Party in connection with the examination and investigation of the breaching Party, the preparation and negotiation of this Agreement and related agreements, regulatory filings and other documents related to the transactions contemplated hereunder, including, without limitation, fees and expenses of investment banking, consultants, accountants, attorneys and other agents.

(c) The Parties agree that the termination payments are a reasonable forecast of the harm that would be caused by termination and that damages from such termination are difficult to estimate as of the date of this Agreement. This Section 10.4 shall be the sole and exclusive remedy for actionable breach by the breaching Party under Section 10.1(b) of this Agreement.

ARTICLE 11
MISCELLANEOUS

11.1 Definitions.

(a) Except as otherwise provided herein, the capitalized terms set forth below shall have the following meanings:

“1933 Act” shall mean the Securities Act of 1933, as amended.

“1934 Act” shall mean the Securities Exchange Act of 1934, as amended.

“Acquisition Proposal” with respect to a Party shall mean any tender offer or exchange offer or any proposal for a merger, acquisition of all of the stock or assets of or other business combination involving the acquisition of such Party or any of its Subsidiaries or the acquisition of a substantial equity interest in, or a substantial portion of the assets of, such Party or any of its Subsidiaries.

“Acquisition Transaction” shall mean: (i) any merger, consolidation, share exchange, business combination or other similar transaction (other than the transactions contemplated by this Agreement); (ii) any sale, lease, transfer other disposition of all or substantially all of the assets of Target, or the beneficial ownership or 15% or more of any class of Target capital stock; or (iii) any acquisition, by any person or group, of the beneficial ownership of 15% or more of any class of Target capital stock.

“Affiliate” of a Person shall mean: (i) any other Person directly, or indirectly through one or more intermediaries, controlling, controlled by or under common control with such Person; (ii) any officer, director, partner, employer, or direct or indirect beneficial owner of any 10% or greater equity or voting interest of such Person; or (iii) any other Person for which a Person described in clause (ii) acts in any such capacity.

“Agreement” shall mean this Agreement and Plan of Merger, including the Exhibits delivered pursuant hereto and incorporated herein by reference.

“Assets” of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person’s business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located.

“BHC Act” shall mean the federal Bank Holding Company Act of 1956, as amended.

“Breach” shall mean, with respect to a representation, warranty, covenant, obligation or other provision of this Agreement, or any instrument delivered pursuant to this Agreement, any inaccuracy in or breach of, or any failure to perform or comply with, such representation, warranty, covenant, obligation or other provision of this Agreement.

“Cash Merger Consideration” shall have the meaning ascribed to it in Section 3.1(b).

“Cash-Out Shares” shall mean those shares held by holders of record of 200 or fewer shares of Target Common Stock (subject to adjustment as provided in Section 3.1(b).

“Closing” shall have the meaning given to it in Section 1.4.

“Closing Date” shall mean the date on which the Closing occurs.

“Consent” shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit.

“Contract” shall mean any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding, or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business.

“Debentures” shall mean the Fixed/Floating Rate Junior Subordinated Deferrable Interest Debentures due 2035 issued by Target.

“Default” shall mean (i) any breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of, default under, contravention of, or conflict with, any Contract, Law, Order, or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right of any Person to exercise any remedy or obtain any relief under, terminate or revoke, suspend, cancel, or modify or change the current terms of, or renegotiate, or to accelerate the maturity or performance of, or to increase or impose any Liability under, any Contract, Law, Order, or Permit.

“Dissenting Shares” shall mean shares with respect to which the holders thereof have perfected dissenters’ rights under Subchapter XIII of the WBCL.

“Environment” shall mean any soil, land surface or subsurface strata, surface waters (including navigable waters, ocean waters, streams, ponds, natural or artificial drainage systems, and wetlands), groundwaters, drinking water supply, stream sediments, ambient air (including indoor air), plant and animal life, biota, and any other environmental media or natural resource.

“Environmental Laws” shall mean any federal, state or local law, statute, ordinance, code, rule, regulation, license, authorization, decision, order, injunction, decree, or rule of common law (including but not limited to nuisance or trespass claims), and any judicial interpretation of any of the foregoing, which pertains to health, safety, any Hazardous Material, or the Environment (including, but not limited to, ground, air, water or noise pollution or contamination, and underground or above-ground storage tanks) and shall include without limitation, the Solid Waste Disposal Act, 42 U.S.C. § 6901 et seq.; the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §9601 et seq. (“CERCLA”), as amended by the Superfund Amendments and Reauthorization Act of 1986 (“SARA”); the Hazardous Materials Transportation Act, 49 U.S.C. § 1801 et seq.; the Federal Water Pollution Control Act, 33 U.S.C. § 1251 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq.; the Toxic Substances Control Act, 15 U.S.C. § 2601 et seq.; the Safe Drinking Water Act, 42 U.S.C. § 300f et seq. and any other state or federal environmental statutes, and all rules, regulations, orders and decrees now or hereafter promulgated under any of the foregoing, as any of the foregoing now exist or may be changed or amended or come into effect in the future.

“Equity Rights” shall mean all arrangements, calls, commitments, Contracts, options, rights to subscribe to, script, understandings, warrants, or other binding obligations of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, shares of the capital stock of a Person or by which a Person is or may be bound to issue additional shares of its capital stock or other Equity Rights.

“ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

“Exhibits” shall mean the Exhibits marked A through F, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached thereto.

“FDIC” shall mean the Federal Deposit Insurance Corporation.

“GAAP” shall mean accounting principles generally accepted in the United States, consistently applied during the periods involved and in the immediately preceding comparable period.

“Hazardous Material(s)” shall mean any substance or material, whether solid, liquid or gaseous in concentration, quantity or location (i) which is listed, defined or is regulated as a “hazardous substance,” “hazardous waste,” “hazardous constituent,” “contaminant,” “medical waste,” “infectious waste” or “solid waste,” or otherwise classified as a hazardous, toxic, or regulated substance, in or pursuant to any Environmental Law; (ii) which is, or is regulated because it contains, lead, asbestos, radon, methane, infectious matter or waste, carcinogenic, mutagenic, pathogenic organism(s), fomites, polychlorinated

biphenyl, perchlorate, any perfluorooctanoic acid or any substance similar to perfluorooctanoic acid, any polybrominated diphenyl ether, bisphenol A, BPA, hexabromobiphenyl, lindane, perfluorooctane, 1,4-dioxane, 1,2,3-trichloropropane, urea formaldehyde foam insulation, any actual or suspected “endocrine-disruptor” that mimics or blocks hormones or effects, impacts or interferes with a human endocrine system, any explosive or radioactive material, unexploded ordinance, fuel, natural or synthetic gas, motor fuel, petroleum product or constituent, or other hydrocarbons; or (iii) which causes or poses a threat to cause personal injury, property damage, diminution in value, contamination, danger, pollution, a nuisance, or a hazard to any Asset, any property, the Environment, or to the health or safety of persons or property.

“Indenture” shall mean that certain Indenture dated as of October 14, 2005 between Target and Wilmington Trust relating to the Debentures.

“Intellectual Property” shall mean copyrights, patents, trademarks, service marks, service names, trade names, applications therefor, technology rights and licenses, computer software (including any source or object codes therefor or documentation relating thereto), trade secrets, franchises, know-how, inventions, and other intellectual property rights.

“Internal Revenue Code” shall mean the Internal Revenue Code of 1986, as amended, and the rules and regulations promulgated thereunder.

“Knowledge” as used with respect to a Person (including references to such Person being aware of a particular matter) shall mean (i) with respect to Purchaser, the personal knowledge after due inquiry of Robert B. Atwell, Michael Daniels, Ann Lawson and Eric Witczak; and (ii) with respect to Target, Kim Gowey, Scot Thompson, Rhonda Norrbom and William Weiland and the knowledge of any such persons set forth if clauses (i) and (ii) above obtained or which would have been obtained from a reasonable investigation.

“Law” shall mean any code, law (including common law), ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities, or business, including those promulgated, interpreted or enforced by any Regulatory Authority.

“Liability” shall mean any liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), claim, deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued or unaccrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, whether due or to become due, or otherwise.

“Lien” shall mean any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in the ordinary course of the Banking business, (iii) Liens which do not materially impair the use of or title to the Assets subject to such Lien; and (iv) the items set forth in Section 5.11(a) of the Target Disclosure Memorandum.

“Litigation” shall mean any action, arbitration, audit, hearing, investigation, litigation or suit (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard before or by, or otherwise involving, any judicial or governmental authority, including a Regulatory Authority, or arbitrator, but shall not include regular, periodic examinations of depository institutions and their Affiliates by Regulatory Authorities.

“Merger Consideration” shall mean the shares of Purchaser Common Stock, the Cash Merger Consideration and cash to be delivered in lieu of fractional shares.

“Operating Property” shall mean any property owned, leased, or operated by the Party in question or by any of its Subsidiaries except for OREO, and, where required by the context, includes the owner or operator of such property, but only with respect to such property.

“Order” shall mean any administrative decision or award, decree, injunction, judgment, order, quasi-judicial decision or award, ruling, or writ of any federal, state, local or foreign or other court, arbitrator, mediator, tribunal, administrative agency, or Regulatory Authority.

“OREO” means any real estate owned by Target Bank and designated as “other real estate owned.”

“Party” shall mean either Target or Purchaser, and “Parties” shall mean both Target and Purchaser.

“Permit” shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets, or business.

“Person” shall mean a natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity.

“Proxy Statement” shall mean the proxy statement used by Target to solicit the approval of its shareholders of the transactions contemplated by this Agreement, which shall include the prospectus of Purchaser relating to the issuance of the Purchaser Common Stock to holders of Target Common Stock.

“Purchaser Bank” shall mean Nicolet National Bank, which is a national bank chartered under the Laws of the United States of America.

“Purchaser Common Stock” shall mean the $0.01 par value common stock of Purchaser.

“Purchaser Options” shall mean options to purchase Purchaser Common Stock under Purchaser’s employee benefit plans.

“Purchaser Disclosure Memorandum” shall mean the written information entitled “Purchaser Disclosure Memorandum” delivered prior to the date of this Agreement to Target and any updates thereto describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section shall be deemed to be disclosed for purposes of any other Section referenced with respect thereto, provided that sufficient details are set forth in such disclosure such that a reasonable person would understand that such disclosure was related to such other representation or warranty.

“Purchaser Entities” shall mean, collectively, Purchaser and all Purchaser Subsidiaries.

“Purchaser Financial Statements” shall mean (i) the consolidated balance sheets (including related notes and schedules, if any) of Purchaser as of December 31, 2011 and 2010, and the related statements of income, changes in shareholders’ equity, and cash flows (including related notes and schedules, if any), and (ii) the unaudited consolidated balance sheet (including related notes and schedules, if any) of Purchaser as of September 30, 2012, and the related statements of income, changes in shareholders’ equity, and cash flows (including related notes and schedules, if any), as delivered by Purchaser to Target prior to execution of this Agreement.

“Purchaser Material Adverse Effect” shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has, or is reasonably likely to have, a material adverse impact on (i) the financial position, business, results of operations or prospects of the Purchaser Entities, taken as a whole, or (ii) the ability of Purchaser to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided that “Material Adverse Effect” shall not be deemed to include the impact of (a) changes in banking and similar Laws of general applicability or interpretations thereof by courts or governmental authorities, or changes in GAAP or regulatory accounting principles generally applicable to banks and their holding companies, so long as such changes or conditions do not adversely affect the Purchaser Entities, taken as a

whole, in a materially disproportionate manner relative to similarly situated banks and their holding companies, (b) actions and omissions of any of the Purchaser Entities taken with the prior informed written Consent of Target in contemplation of the transactions contemplated hereby, (c) the direct effects of compliance with this Agreement on the operating performance of the Purchaser Entities taken as a whole, including expenses incurred by the Purchaser Entities in consummating the transactions contemplated by this Agreement; (d) changes after the date hereof in general United States or global business, political, economic or market (including capital or financial markets) conditions and (e) any outbreak, escalation or worsening of hostilities, declared or undeclared acts of war, sabotage, military action or terrorism.

“Purchaser Regulatory Reports” shall mean the reports, registrations and statements, together with any amendments thereto, that are required to be filed with the Federal Reserve, the FDIC, the OCC or any other regulatory authority having supervisory jurisdiction over the Purchaser Entities.

“Purchaser Subsidiaries” shall mean the Subsidiaries of Purchaser set forth on Section 11.1(a) of the Purchaser Disclosure Memorandum and any corporation, bank, statutory trust, savings association, limited liability company or other organization acquired as a Subsidiary of Purchaser in the future and held as a Subsidiary by Purchaser at the Effective Time.

“Registration Statement” shall mean the Registration Statement on Form S-4, or other appropriate form, including any pre-effective or post-effective amendments or supplements thereto, filed with the SEC by Purchaser under the 1933 Act with respect to the shares of Purchaser Common Stock to be issued to the shareholders of Target in connection with the transactions contemplated by this Agreement.

“Regulatory Authorities” shall mean, collectively, the SEC, the Federal Trade Commission, the United States Department of Justice, the Federal Reserve, the FDIC, the OCC, the DFI, and all other federal, state, county, local or other governmental or regulatory agencies, authorities (including self-regulatory authorities), instrumentalities, commissions, boards or bodies having jurisdiction over the Parties and their respective Subsidiaries.

“Release” or “Released” means any spilling, leaking, pumping, pouring, emptying, injecting, emitting, discharging, depositing, escaping, leaching, migration, filtration, pouring, seepage, disposal, dumping, or other releasing into the indoor or outdoor Environment, whether intentional or unintentional, including, without limitation, the movement of Hazardous Materials in, on, under or through the Environment.

“Representative” shall mean any investment banker, financial advisor, attorney, accountant, consultant, or other representative engaged by a Person.

“SEC” shall mean the United States Securities and Exchange Commission.

“SEC Documents” shall mean all forms, proxy statements, registration statements, reports, schedules, and other documents filed, or required to be filed, by a Party or any of its Subsidiaries with any Regulatory Authority pursuant to the Securities Laws.

“Securities Laws” shall mean the 1933 Act, the 1934 Act, the Investment Company Act of 1940, as amended, the Investment Advisors Act of 1940, as amended, the Trust Indenture Act of 1939, as amended, and the rules and regulations of any Regulatory Authority promulgated thereunder.

“State-Restricted Shares” shall mean shares of Target Common Stock held by residents of states in which the Purchaser Common Stock cannot be issued in the Merger under state Securities Laws without commercially unreasonable effort or expense.

“Subsidiaries” shall mean all those corporations, associations, or other business entities of which the entity in question either (i) owns or controls 50% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 50% or more of the outstanding equity securities is owned directly or indirectly by its parent (provided, there shall not be included any such entity the equity securities of which are owned or controlled in a fiduciary capacity), (ii) in the case of partnerships, serves as a general partner, (iii) in the case of a limited liability company, serves as a managing member, or (iv) otherwise has the ability to elect a majority of the directors, trustees or managing members thereof.

“Surviving Entity” shall mean Nicolet Bankshares, Inc. as the surviving corporation resulting from the Merger.

“Target Bank” shall mean Mid-Wisconsin Bank, a Wisconsin state bank.

“Target Common Stock” shall mean the $0.10 par value common stock of Target.

“Target Disclosure Memorandum” shall mean the written information entitled “Target Disclosure Memorandum” delivered prior to the date of this Agreement to Purchaser and any updates thereto describing in reasonable detail the matters contained therein and, with respect to each disclosure made therein, specifically referencing each Section of this Agreement under which such disclosure is being made. Information disclosed with respect to one Section shall be deemed to be disclosed for purposes of any other Section referenced with respect thereto, provided that sufficient details are set forth in such disclosure such that a reasonable person would understand that such disclosure was related to such other representation or warranty.

“Target Entities” shall mean, collectively, Target and all Target Subsidiaries.

“Target Financial Statements” shall mean (i) the consolidated balance sheets (including related notes and schedules, if any) of Target as of December 31, 2011 and 2010, and the related statements of income, changes in shareholders’ equity, and cash flows (including related notes and schedules, if any) as filed by Target in SEC documents, and (ii) the unaudited consolidated balance sheet (including related notes and schedules, if any) of Target as of September 30, 2012, and the related statements of income, changes in shareholders’ equity, and cash flows (including related notes and schedules, if any), as delivered by Target to Purchaser prior to execution of this Agreement.

“Target Material Adverse Effect” shall mean an event, change or occurrence which, individually or together with any other event, change or occurrence, has, or is reasonably likely to have, a material adverse impact on (i) the financial position, business, results of operations or prospects of the Target Entities, taken as a whole, or (ii) the ability of Target to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided that “Material Adverse Effect” shall not be deemed to include the impact of (a) changes in banking and similar Laws of general applicability or interpretations thereof by courts or governmental authorities, or changes in GAAP or regulatory accounting principles generally applicable to banks and their holding companies, so long as such changes or conditions do not adversely affect the Target Entities, taken as a whole, in a materially disproportionate manner relative to other similarly situated banks and their holding companies, (b) actions and omissions of any of the Target Entities taken with the prior informed written Consent of Purchaser in contemplation of the transactions contemplated hereby, (c) the direct effects of compliance with this Agreement on the operating performance of the Target Entities taken as a whole, including expenses incurred by the Target Entities in consummating the transactions contemplated by this Agreement; (d) changes after the date hereof in general United States or global business, political, economic or market (including capital or financial markets) conditions, and (e) any outbreak, escalation or worsening of hostilities, declared or undeclared acts of war, sabotage, military action or terrorism.

“Target Preferred Stock” shall mean the preferred stock, no par value, of Target, including but not limited to the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, and Fixed Rate Cumulative Perpetual Preferred Stock, Series B.

“Target Regulatory Reports” shall mean the reports, registrations and statements, together with any amendments thereto, that are required to be filed with the Federal Reserve, the FDIC, the DFI or any other regulatory authority having supervisory jurisdiction over the Target Entities.

“Target Shareholders Meeting” shall mean the meeting of the shareholders of Target to be held pursuant to this Agreement, including any adjournment or adjournments thereof.

“Target Subsidiaries” shall mean the Subsidiaries of Target set forth on Section 11.1(a) of the Target Disclosure Memorandum and any corporation, bank, savings association, statutory trust, limited liability company or other organization acquired as a Subsidiary of Target in the future and held as a Subsidiary by Target at the Effective Time.

“Tax Return” shall mean any report, return, information return, or other information required to be supplied to a taxing authority in connection with Taxes, including any return of an affiliated or combined or unitary group that includes a Party or its Subsidiaries.

“Tax” or “Taxes” shall mean any federal, state, county, local, or foreign taxes, charges, fees, levies, imposts, duties, or other assessments, including income, gross receipts, excise, employment, sales, use, transfer, license, payroll, franchise, severance, stamp, occupation, windfall profits, environmental, federal highway use, commercial rent, customs duties, capital stock, paid-up capital, profits, withholding, Social Security, single business and unemployment, disability, real property, personal property, registration, ad valorem, value added, alternative or add-on minimum, estimated, or other tax or governmental fee of any kind whatsoever, imposes or required to be withheld by the United States or any state, county, local or foreign government or subdivision or agency thereof, including any interest, penalties, and additions imposed thereon or with respect thereto.

“WBCL” shall mean the Wisconsin Business Corporation Law.

(b) Any singular term in this Agreement shall be deemed to include the plural, and any plural term the singular. Whenever the words “include,” “includes” or “including” are used in this Agreement, they shall be deemed followed by the words “without limitation.”

11.2 Expenses. Except as otherwise provided in this Agreement, each of the Parties shall bear and pay all direct costs and expenses incurred by it or on its behalf in connection with the transactions contemplated hereunder, including filing, registration and application fees, printing fees, and fees and expenses of its own financial or other consultants, investment bankers, accountants, and counsel.

11.3 Entire Agreement. Except as otherwise expressly provided herein, this Agreement (including the documents and instruments referred to herein) constitutes the entire agreement between the Parties with respect to the transactions contemplated hereunder and supersedes all prior arrangements or understandings with respect thereto, written or oral.

11.4 Amendments. To the extent permitted by Law, this Agreement may be amended by a subsequent writing signed by each of the Parties, whether before or after shareholder approval of this Agreement has been obtained; provided, that after any such approval by the holders of Target Common Stock, there shall be made no amendment that pursuant to Subchapter XI of the WBCL requires further approval by such shareholders without the further approval of such shareholders; and further provided, that after any such approval by the holders of Target Common Stock, the provisions of this Agreement relating to the manner or basis in which shares of Target Common Stock will be exchanged for shares of Purchaser Common Stock shall not be amended after the Target Shareholders’ Meeting in a manner adverse to the holders of Target Common Stock without any requisite approval of the holders of the issued and outstanding shares of Target Common Stock entitled to vote thereon.

11.5 Waivers.

(a) Prior to or at the Effective Time, Purchaser, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by a Target Entity, to waive or extend the time for the compliance or fulfillment by a Target Entity of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of Purchaser under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of Purchaser.

(b) Prior to or at the Effective Time, Target, acting through its Board of Directors, chief executive officer or other authorized officer, shall have the right to waive any Default in the performance of any term of this Agreement by a Purchaser Entity, to waive or extend the time for the compliance or fulfillment by a Purchaser Entity of any and all of its obligations under this Agreement, and to waive any or all of the conditions precedent to the obligations of Target under this Agreement, except any condition which, if not satisfied, would result in the violation of any Law. No such waiver shall be effective unless in writing signed by a duly authorized officer of Target.

(c) The failure of any Party at any time or times to require performance of any provision hereof shall in no manner affect the right of such Party at a later time to enforce the same or any other provision of this Agreement. No waiver of any condition or of the breach of any term contained in this Agreement in one or more instances shall be deemed to be or construed as a further or continuing waiver of such condition or breach or a waiver of any other condition or of the breach of any other term of this Agreement.

11.6 Assignment. Except as expressly contemplated hereby, neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned by any Party hereto (whether by operation of Law or otherwise) without the prior written consent of the other Party. Subject to the preceding sentence, this Agreement will be binding upon, inure to the benefit of and be enforceable by the Parties and their respective successors and assigns.

11.7 Notices and Service of Process. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered:

Target:				Mid-Wisconsin Financial Services, Inc.
				132 West State Street
				Medford, Wisconsin 54451
				Attention: Chief Executive Officer

With a copy to:				Robert M. Fleetwood, Esq.
				Barack Ferrazzano Kirschbaum & Nagelberg LLP
				200 West Madison Street
				Suite 3900
				Chicago, Illinois 60606

Purchaser:				Nicolet Bankshares, Inc.
				111 North Washington Street
				Green Bay, Wisconsin 54305
				Attention: Chief Executive Officer

With a copy to:				Katherine M. Koops, Esq.
				Bryan Cave LLP
				One Atlantic Center, 14^th Floor
				1201 West Peachtree Street, N.E.
				Atlanta, Georgia 30309

The Parties agree that service of process may be effected by certified or registered mail, return receipt requested, directed to the other Party at the addresses set forth in this Section 11.7, and service so made shall be completed when received.

11.8 Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the State of Wisconsin, without regard to any applicable conflicts of Laws.

11.9 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

11.10 Captions; Articles and Sections. The captions contained in this Agreement are for reference purposes only and are not part of this Agreement. Unless otherwise indicated, all references to particular Articles or Sections shall mean and refer to the referenced Articles and Sections of this Agreement.

11.11 Interpretations. Neither this Agreement nor any uncertainty or ambiguity herein shall be construed or resolved against any party, whether under any rule of construction or otherwise. No party to this Agreement shall be considered the draftsman. The parties acknowledge and agree that this Agreement has been reviewed, negotiated, and accepted by all parties and their attorneys and shall be construed and

interpreted according to the ordinary meaning of the words used so as fairly to accomplish the purposes and intentions of all parties hereto.

11.12 Severability. Any term or provision of this Agreement which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. If any provision of this Agreement is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

[Signatures appear on next page]

IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be executed on its behalf by its duly authorized officers as of the day and year first above written.

				NICOLET BANKSHARES, INC.

				By:				/s/ Robert B. Atwell
				Robert B. Atwell Chief Executive Officer

				MID-WISCONSIN FINANCIAL SERVICES, INC.
				By:				/s/ Kim A. Gowey
				Kim A. Gowey Chairman of the Board

EXHIBIT A

PLAN OF MERGER
BY AND BETWEEN
NICOLET NATIONAL BANK
AND
MID-WISCONSIN BANK

This Plan of Merger (the “Plan”) is made and entered into as of the ___ day of _____________, 20__, by and between Nicolet National Bank (“Nicolet National”), a bank organized under the laws of the United States of America and located in Green Bay, Wisconsin, and Mid-Wisconsin Bank (“MWB”), a bank organized under the laws of the State of Wisconsin and located in Medford, Wisconsin.

W I T N E S S E T H:

WHEREAS, on _____________, 2012, Nicolet Bankshares, Inc., and Mid-Wisconsin Financial Services, Inc. (“MWFS”), entered into an Agreement and Plan of Merger (the “Agreement”), pursuant to which Nicolet Bankshares, Inc. will acquire MWFS and MWB;

WHEREAS, pursuant to the Agreement and the terms of this Plan, MWB will merge with and into Nicolet National (the “Bank Merger”);

NOW, THEREFORE, in consideration of the above premises and the mutual warranties, representations, covenants and agreements set forth herein, the parties agree as follows:

1. Merger. Pursuant to the provisions of Section 18(c) of the Federal Deposit Insurance Act and Subchapter VII of the Wisconsin Banking Law, MWB shall be merged with and into Nicolet National. Nicolet National shall be the survivor of the Merger (the “Resulting Bank”), and shall operate with the name “Nicolet National Bank.”

2. Effective Date of the Merger. The Bank Merger shall become effective on the date that Articles of Merger reflecting the Bank Merger become effective with the Office of the Comptroller of the Currency and the Wisconsin Department of Financial Institutions (the “Effective Date”).

3. Location, Articles and Bylaws and Directors of the Resulting Bank. On the Effective Date of the Bank Merger:

(a) The head office of the Resulting Bank shall be located at the head office of Nicolet National immediately prior to the Effective Date.

(b) The Articles of Incorporation of the Resulting Bank shall be the Articles of Association of Nicolet National in effect immediately prior to the Effective Date. The Bylaws of the Resulting Bank shall be the Bylaws of Nicolet National in effect immediately prior to the Effective Date of the Merger.

(c) The directors of Nicolet National in office on the Effective Date, together with two nominees submitted by MWB set forth on Exhibit A-1 and approved by Nicolet National’s Board of Directors (with such approval not to be unreasonably withheld), shall serve as the directors of the Resulting Bank. The two nominees submitted by MWB set forth on Exhibit A-1 shall serve until their terms expire and shall thereafter be nominated for election at the first meeting of the Resulting Bank’s shareholders after the expiration of such nominees’ initial term.

4. Manner of Converting Shares.

(a) By virtue of the Bank Merger, automatically and without any action on the part of the holder thereof, each of the shares of MWB Common Stock issued and outstanding immediately prior to the Effective Date shall be cancelled and retired at the Effective Date and no consideration shall be issued in exchange therefor.

(b) Upon and after the Effective Date, each issued and outstanding share of Nicolet National Common Stock shall remain unchanged and shall continue to evidence the same number of shares of Nicolet National Common Stock.

A-1

5. Conditions Precedent to Consummation. Consummation of the Bank Merger herein provided for is conditioned upon (a) receipt of all necessary consents to the Bank Merger from applicable regulatory authorities, (b) approval of the Plan by MWFS, as sole shareholder of MWB, and (c) approval of the Plan by Nicolet Bankshares, Inc., as sole shareholder of Nicolet National.

6. Termination. This Plan may be terminated by the mutual consent of the Parties at any time prior to the Effective Date.

7. Counterparts, Headings, Governing Law. This Plan may be executed simultaneously in any number of counterparts, each of which shall be deemed an original but all of which shall constitute one and the same instrument. The title of this Plan and the headings herein are for convenience or reference only and shall not be deemed a part of this Plan. This Plan shall be governed by and construed in accordance with the laws of the State of Wisconsin.

[SIGNATURES ON NEXT PAGE]

A-2

IN WITNESS WHEREOF, the parties hereto have caused this Plan of Merger to be executed by their duly authorized officers and their seals to be affixed hereto, all as of the day and year first above written.


				NICOLET NATIONAL BANK

[BANK SEAL]				By:

				Name:

				Title:

ATTEST:


Secretary

				MID-WISCONSIN BANK

[BANKK SEAL]				By:

				Name:

				Title:

ATTEST:


Secretary

A-3

EXHIBIT A-1

Target Bank Director Nominees

Kim Gowey
Christopher Ghidorzi

A-1

EXHIBIT B

Target Director Nominees

Kim A. Gowey
Christopher Ghidorzi

B-1

EXHIBIT C-1

FORM OF TARGET AFFILIATE AGREEMENT

Nicolet Bankshares, Inc.
Attention: Chief Executive Officer

Ladies and Gentlemen:

The undersigned is a shareholder of Mid-Wisconsin Financial Services, Inc. (“Target”), a Wisconsin corporation and a registered bank holding company under the BHC Act. Target is located in Medford, Wisconsin. The undersigned will become a shareholder of Nicolet Bankshares, Inc. (“Purchaser”) pursuant to the transactions described in the Agreement and Plan of Merger, dated as of November 28, 2012 (the “Agreement”), between Target and Purchaser. Under the terms of the Agreement, Target will be merged into and with Purchaser (the “Merger”), and the shares of the $0.10 par value common stock of Target (“Target Common Stock”) will be converted into and exchanged for either shares of the $0.01 par value common stock of Purchaser (“Purchaser Common Stock”) or, in certain circumstances, cash. This Affiliate Agreement represents an agreement between the undersigned and Purchaser regarding certain rights and obligations of the undersigned in connection with the shares of Purchaser Common Stock to be received by the undersigned as a result of the Merger.

In consideration of the benefits the undersigned will receive as a shareholder of Target and the mutual covenants contained herein, the undersigned and Purchaser hereby agree as follows:

1. Vote on the Merger. The undersigned agrees to vote all shares of Target Common Stock that the undersigned owns beneficially or of record in favor of approving the Agreement, unless Purchaser is then in Breach or Default in any material respect as regards any covenant, agreement, representation or warranty as to it contained in the Agreement; provided, however, that nothing in this sentence shall be deemed to require the undersigned to vote any shares of Target Common Stock over which he, she or it has or shares voting power solely in a fiduciary capacity on behalf of any person other than Target, if the undersigned determines, in good faith after consultation with legal counsel, that such a vote would cause a breach of fiduciary duty to such other person.

2. Restriction on Transfer. The undersigned further agrees that he, she or it will not, without the prior written consent of Purchaser, transfer any shares of Target Common Stock prior to the Effective Date, as that term is set forth in the Agreement, except (i) by operation of law, (ii) by will, (iii) under the laws of descent and distribution or (iv) with the prior written consent of Purchaser which consent shall not be unreasonably withheld, for any sales, assignments, transfers or other dispositions necessitated by hardship, or (v) as Target and Purchaser may otherwise agree in writing.

3. Miscellaneous. This Affiliate Agreement is the complete agreement between Purchaser and the undersigned concerning the subject matter hereof. Any notice required to be sent to any party hereunder shall be sent by registered or certified mail, return receipt requested, using the addresses set forth herein or such other address as shall be furnished in writing by the parties. This Affiliate Agreement shall be governed by the laws of the State of Wisconsin.

4. Capitalized Terms. Unless otherwise defined herein, all capitalized terms in this Affiliate Agreement shall have the same meaning as given such terms in the Agreement.

C1-1

This Affiliate Agreement is executed as of the ____ day of ______, 2012.

Very truly yours,

Signature

Print Name

Address Telephone No.

AGREED TO AND ACCEPTED as of

__________________, 2012

NICOLET BANKSHARES, INC.

By:

Its:

C1-1

EXHIBIT C-2

FORM OF AFFILIATE AGREEMENT

Mid-Wisconsin Financial Services, Inc.
Attention: Chief Executive Officer

Ladies and Gentlemen:

The undersigned is a shareholder of Nicolet Bankshares, Inc. (“Purchaser”), a Wisconsin corporation and a registered bank holding company under the BHC Act. Purchaser is located in Green Bay, Wisconsin. This Affiliate Agreement relates to the Agreement and Plan of Merger, dated as of November 28, 2012 (the “Agreement”), between Mid-Wisconsin Financial Services, Inc., a Wisconsin corporation (“Target”) and Purchaser. Under the terms of the Agreement, Target will be merged into and with Purchaser (the “Merger”), and the shares of the $0.10 par value common stock of Target (“Target Common Stock”) will be converted into and exchanged for either shares of the $0.01 par value common stock of Purchaser (“Purchaser Common Stock”) or, in certain circumstances, cash. This Affiliate Agreement represents an agreement between the undersigned and Target regarding certain rights and obligations of the undersigned in connection with the Merger and the shares of Purchaser Common Stock held by the undersigned.

In consideration of the benefits the undersigned will receive as a shareholder of Purchaser and the mutual covenants contained herein, the undersigned and Purchaser hereby agree as follows:

1. Vote on the Merger. The undersigned agrees to vote all shares of Purchaser Common Stock that the undersigned owns beneficially or of record in favor of approving the Agreement, unless Target is then in Breach or Default in any material respect as regards any covenant, agreement, representation or warranty as to it contained in the Agreement; provided, however, that nothing in this sentence shall be deemed to require the undersigned to vote any shares of Purchaser Common Stock over which he, she or it has or shares voting power solely in a fiduciary capacity on behalf of any person other than Purchaser, if the undersigned determines, in good faith after consultation with legal counsel, that such a vote would cause a breach of fiduciary duty to such other person.

2. Restriction on Transfer. The undersigned further agrees that he, she or it will not, without the prior written consent of Target, transfer any shares of Purchaser Common Stock prior to the Effective Date, as that term is set forth in the Agreement, except (i) by operation of law, (ii) by will, (iii) under the laws of descent and distribution or (iv) with the prior written consent of Target which consent shall not be unreasonably withheld, for any sales, assignments, transfers or other dispositions necessitated by hardship, or (v) as Target and Purchaser may otherwise agree in writing.

4. Capitalized Terms. Unless otherwise defined herein, all capitalized terms in this Affiliate Agreement shall have the same meaning as given such terms in the Agreement.

C2-1

This Affiliate Agreement is executed as of the ____ day of ______, 2012.

Very truly yours,

Signature

Print Name

Address Telephone No.

AGREED TO AND ACCEPTED as of

__________________, 2012

MID-WISCONSIN FINANCIAL SERVICES, INC.

By:

Its:

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EXHIBIT D

MATTERS TO BE OPINED UPON BY COUNSEL TO THE TARGET

Capitalized terms used in this Exhibit shall have the meaning set forth in the Agreement.

1. Based solely on a certificate issued by the Secretary of State of the State of Wisconsin dated ___________, Target is validly existing as a corporation and is legally existing under the laws of the State of Wisconsin.

2. Target has the corporate power and authority to own, operate and lease its properties, to carry on its business as it is being conducted in all material respects, and to execute and deliver the Agreement and carry out its obligations thereunder.

3. The execution, delivery and performance by Target of the Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of Target.

4. The execution and delivery by Target of the Agreement and the consummation by Target of its obligations thereunder do not result in any violation by Target of (i) the provisions of Target’s Articles of Incorporation or Bylaws, (ii) any provision of applicable Federal or Wisconsin state statute or regulation that we, based on our experience, recognize as applicable to Target in a transaction of this type, or (iii) to our knowledge, any order, writ, judgment or decree of any Federal or Wisconsin state court or governmental authority or regulatory body having jurisdiction over Target or any of its properties that names or is specifically directed to Target.

D-1

EXHIBIT E

MATTERS TO BE OPINED UPON BY COUNSEL TO THE PURCHASER

Capitalized terms used in this Exhibit shall have the meaning set forth in the Agreement.

1. Based solely on a certificate issued by the Secretary of State of the State of Wisconsin dated ___________, the Company is validly existing as a corporation and is legally existing under the laws of the State of Wisconsin.

2. The Company has the corporate power and authority to own, operate and lease its properties, to carry on its business as it is being conducted in all material respects, and to execute and deliver the Agreement and carry out its obligations thereunder.

3. The shares of Purchaser Common Stock that will be issued to the shareholders of Target as contemplated in the Agreement have been duly and validly authorized, and, when issued and delivered in accordance with the terms of the Agreement, will be duly and validly issued and fully paid and non-assessable.

4. The execution, delivery and performance by the Company of the Agreement and the consummation of the transactions contemplated thereby have been duly authorized by all necessary corporate action on the part of the Company.

5. The execution and delivery by Purchaser of the Agreement and the consummation by Purchaser of its obligations thereunder do not result in any violation by Purchaser of (i) the provisions of Purchaser’s Articles of Incorporation or Bylaws, (ii) any provision of applicable Federal or Wisconsin state statute or regulation that we, based on our experience, recognize as applicable to Purchaser in a transaction of this type, or (iii) to our knowledge, any order, writ, judgment or decree of any Federal or Wisconsin state court or governmental authority or regulatory body having jurisdiction over Purchaser or any of its properties that names or is specifically directed to Purchaser.

6. We have been advised that the Registration Statement is effective under the 1933 Act, and to our knowledge, based solely upon an oral acknowledgement by the staff of the Securities and Exchange Commission, no stop order suspending the effectiveness of the Registration Statement has been issued under the Securities Act or proceedings therefor initiated or threatened by the Commission.

E-1

AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER

AMENDMENT NO. 1, dated as of January 17, 2013 (the “Amendment”) to the AGREEMENT AND PLAN OF MERGER dated November 28, 2012 (the “Agreement”), by and between NICOLET BANKSHARES, INC. (“Purchaser”), a Wisconsin corporation, and MID-WISCONSIN FINANCIAL SERVICES, INC. (“Target”), a Wisconsin corporation.

Preamble

WHEREAS, Purchaser and Target have entered into the Agreement to effect the Merger upon the terms and conditions described therein; and

WHEREAS, Purchaser and Target wish to amend the terms of the Agreement as set forth in greater detail herein;

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Purchaser and Target agree as follows:

ARTICLE 1 DEFINITIONS

All capitalized terms used but not defined in this Amendment shall have the meanings ascribed to them in the Agreement.

ARTICLE 2 AMENDMENTS

2.1

Section 3.1 of Article 3 of the Agreement is hereby amended as follows:

(a)

Section 3.1(a) is deleted in its entirety and replaced with the following:

“(a) Each share of capital stock of Purchaser issued and outstanding immediately prior to the Effective Time, except for any Purchaser Dissenting Shares, shall remain issued and outstanding from and after the Effective Time.”

(b) Section 3.1(b) is amended to replace “Dissenting Shares” with “Target Dissenting Shares” wherever such term appears therein.

(d) Section 3.1(e) is deleted in its entirety and replaced with the following:

“(e) No Target Dissenting Shares shall be converted in the Merger. All such shares shall be canceled, and the holders thereof shall thereafter have only such rights as are granted to dissenting shareholders under Subchapter XIII of the WBCL; provided, however, that if any such shareholder takes any action or fails to take any action the result of which would be to cause such shareholder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights as a dissenting shareholder with respect to his, her or its Target Common Stock in accordance with Subchapter XIII of the WBCL as of the Effective Time, such shares of Target Common Stock held by such shareholder shall be deemed to have been converted into, and become exchangeable for, as of the Effective Time, the right to receive the Merger Consideration to which the holder of such shares would have been entitled as of the Effective Time, without interest thereon. Holders of any Purchaser Dissenting Shares shall have only such rights as are granted to dissenting shareholders under Subchapter XIII of the WBCL; provided, however, that if any such shareholder takes any action or fails to take any action the result of which would be to cause such shareholder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights as a dissenting shareholder with respect to his, her or its Purchaser Common Stock in accordance with Subchapter XIII of the WBCL, such shares of Purchaser Common Stock shall remain issued and outstanding and held by such shareholder.”

2.2

Subsection (h) of Section 10.1 of Article 10 of the Agreement is hereby deleted in its entirety and replaced with the following:

“(h) By the Board of Directors of Purchaser if: (i) the holders of more than 5% in the aggregate of the Outstanding Target Shares shall have, as of the time of such termination, asserted and preserved Dissenters’ Rights with respect to such Target Common Stock pursuant to Subchapter XIII of the WBCL by (A) taking all action required of a dissenting holder by s. 180.1321 of the WBCL and (B) neither taking any action nor failing to take any action the result of which would be to cause such holder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights

as a dissenting holder with respect to his, her or its Target Common Stock in accordance with Subchapter XIII of the WBCL, or (ii) the holders of more than 2% of the outstanding shares of Purchaser Common Stock shall have, as of the time of such termination, asserted and preserved Dissenters’ Rights with respect to such shares of Purchaser Common Stock pursuant to Subchapter XIII of the WBCL by (A) taking all action required of a dissenting holder by s. 180.1321 of the WBCL and (B) neither taking any action nor failing to take any action the result of which would be to cause such holder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights as a dissenting holder with respect to his, her or its Purchaser Common Stock in accordance with Subchapter XIII of the WBCL.”

2.3 Section 11.1 of Article 11 of the Agreement is hereby amended by deleting the definition of “Dissenting Shares” from Section 11.1(a) and adding the following definitions to Section 11.1(a):

“Dissenters’ Rights” shall mean those rights given to dissenting shareholders and beneficial shareholders under Subchapter XIII of the WBCL.

“Purchaser Dissenting Shares” shall mean shares of Purchaser Common Stock with respect to which the holders thereof have asserted and preserved Dissenters’ Rights by (A) taking all action required of a dissenting holder by s. 180.1321 of the WBCL and (B) neither taking any action nor failing to take any action the result of which would be to cause such holder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights as a dissenting holder with respect to such shares of Purchaser Common Stock in accordance with Subchapter XIII of the WBCL.

“Target Dissenting Shares” shall mean shares of Target Common Stock with respect to which the holders thereof have asserted and preserved Dissenters’ Rights by (A) taking all action required of a dissenting holder by s. 180.1321 of the WBCL and (B) neither taking any action nor failing to take any action the result of which would be to cause such holder to withdrawal his, her or its notice of intent to demand payment or to otherwise forfeit his, her or its rights as a dissenting holder with respect to such shares of Target Common Stock in accordance with Subchapter XIII of the WBCL.”

ARTICLE 3 MISCELLANEOUS

3.1 Agreement to Remain in Full Force. All of the terms of the Agreement, as amended hereby, shall remain and continue in full force and effect and are hereby confirmed, as so amended, in all respects. The Agreement, as amended by this Amendment, represents the final agreement between the parties about the subject matter of the Agreement and may not be contradicted by evidence or prior, contemporaneous, or subsequent oral agreements of the parties.

3.2 Notices and Service of Process. All notices or other communications which are required or permitted hereunder shall be in writing and sufficient if delivered by hand, by facsimile transmission, by registered or certified mail, postage pre-paid, or by courier or overnight carrier, to the persons at the addresses set forth below (or at such other address as may be provided hereunder), and shall be deemed to have been delivered as of the date so delivered:

With a copy to:

Katherine M. Koops, Esq.
Bryan Cave LLP
One Atlantic Center, 14th Floor
1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309

3.3

Governing Law. This Amendment shall be governed by and construed in accordance with the Laws of the State of Wisconsin, without regard to any applicable conflicts of Laws.

3.4 Counterparts. This Amendment may be executed in two or more counterparts, each of which shall be deemed to be an original, but all of which together shall constitute one and the same instrument.

3.5 Severability. Any term or provision of this Amendment which is invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of such invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Amendment or affecting the validity or enforceability of any of the terms or provisions of this Amendment in any other jurisdiction. If any provision of this Amendment is so broad as to be unenforceable, the provision shall be interpreted to be only so broad as is enforceable.

[Signatures appear on next page]

IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed on its behalf by its duly authorized officers as of the day and year first above written.

				NICOLET BANKSHARES, INC.

				By:				/s/ Robert B. Atwell
								Robert B. Atwell Chief Executive Officer


				MID-WISCONSIN FINANCIAL SERVICES, INC.

				By:				/s/ Kim A. Gowey
								Kim A. Gowey Chairman of the Board

APPENDIX B

SUBCHAPTER XIII OF THE
WISCONSIN BUSINESS CORPORATION LAW

SUBCHAPTER XIII OF THE
WISCONSIN BUSINESS CORPORATION LAW
DISSENTERS’ RIGHTS

180.1301

Definitions. In ss. 180.1301 to 180.1331.

(1) “Beneficial shareholder” means a person who is a beneficial owner of shares held by a nominee as the shareholder.

(1m) “Business combination” has the meaning given in s. 180.1130 (3).

(2) “Corporation” means the issuer corporation or, if the corporate action giving rise to dissenters’ rights under s. 180.1302 is a merger or share exchange that has been effectuated, the surviving domestic corporation or foreign corporation of the merger or the acquiring domestic corporation or foreign corporation of the share exchange.

(3) “Dissenter” means a shareholder or beneficial shareholder who is entitled to dissent from corporate action under s. 180.1302 and who exercises that right when and in the manner required by ss. 180.1320 to 180.1328.

(4) “Fair value”, with respect to a dissenter’s shares other than in a business combination, means the value of the shares immediately before the effectuation of the corporate action to which the dissenter objects, excluding any appreciation or depreciation in anticipation of the corporate action unless exclusion would be inequitable. “Fair value”, with respect to a dissenter’s shares in a business combination, means market value, as defined in s. 180.1130 (9) (a) 1. to 4.

(5) “Interest” means interest from the effectuation date of the corporate action until the date of payment, at the average rate currently paid by the corporation on its principal bank loans or, if none, at a rate that is fair and equitable under all of the circumstances.

(6) “Issuer corporation” means a domestic corporation that is the issuer of the shares held by a dissenter before the corporate action.

History: 1989 a. 303; 1991 a. 16.

“Date of payment” in sub. (5) refers to the actual payment date by a corporation following a special proceeding, even if the payment occurs after a “verdict, decision or report,” within the meaning of s. 814.04 (4), or after “judgment,” within the meaning of s. 815.05 (8). Thus the definition of interest contained in sub. (5) applies to the time period following a court decision on fair value until final payment is made. HMO-W Incorporated v. SSM Health Care System, 2003 WI App 137, 266 Wis. 2d 69, 667 N.W.2d 733, 02-0042.

The phrase “rate that is fair and equitable under all of the circumstances” in sub. (5) directs the circuit court to consider the circumstances of the particular case in determining the interest rate to be paid. It was appropriate under this standard to look at the borrowing power of a parent corporation to determine if the rate the subsidiary would obtain would be the rate the parent could obtain. HMO-W Incorporated v. SSM Health Care System, 2003 WI App 137, 266 Wis. 2d 69, 667 N.W.2d 733, 02-0042.

180.1302

Right to dissent.

(1) Except as provided in sub. (4) and s. 180.1008 (3), a shareholder or beneficial shareholder may dissent from, and obtain payment of the fair value of his or her shares in the event of, any of the following corporate actions:

(a) Consummation of a plan of merger to which the issuer corporation is a party if any of the following applies:

1. Shareholder approval is required for the merger by s. 180.1103 or by the articles of incorporation.

2. The issuer corporation is a subsidiary that is merged with its parent under s. 180.1104.

3. The issuer corporation is a parent that is merged with its subsidiary under s. 180.1104. This subdivision does not apply if all of the following are true:

a. The articles of incorporation of the surviving corporation do not differ from the articles of incorporation of the parent before the merger, except for amendments specified in s. 180.1002 (1) to (9).

b. Each shareholder of the parent whose shares were outstanding immediately before the effective time of the merger holds the same number of shares with identical designations, preferences, limitations, and relative rights, immediately after the merger.

c. The number of voting shares, as defined in s. 180.1103 (5) (a) 2., outstanding immediately after the merger, plus the number of voting shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights or warrants issued pursuant to the merger, do not exceed by more than 20 percent the total number of voting shares of the parent outstanding immediately before the merger.

d. The number of participating shares, as defined in s. 180.1103 (5) (a) 1., outstanding immediately after the merger, plus the number of participating shares issuable as a result of the merger, either by the conversion of securities issued pursuant to the merger or the exercise of rights or warrants issued pursuant to the merger, do not exceed by more than 20 percent the total number of participating shares of the parent outstanding immediately before the merger.

(b) Consummation of a plan of share exchange if the issuer corporation’s shares will be acquired, and the shareholder or the shareholder holding shares on behalf of the beneficial shareholder is entitled to vote on the plan.

(c) Consummation of a sale or exchange of all, or substantially all, of the property of the issuer corporation other than in the usual and regular course of business, including a sale in dissolution, but not including any of the following:

1. A sale pursuant to court order.

2. A sale for cash pursuant to a plan by which all or substantially all of the net proceeds of the sale will be distributed to the shareholders within one year after the date of sale.

(cm) Consummation of a plan of conversion.

(d) Except as provided in sub. (2), any other corporate action taken pursuant to a shareholder vote to the extent that the articles of incorporation, bylaws or a resolution of the board of directors provides that the voting or nonvoting shareholder or beneficial shareholder may dissent and obtain payment for his or her shares.

(2) Except as provided in sub. (4) and s. 180.1008 (3), the articles of incorporation may allow a shareholder or beneficial shareholder to dissent from an amendment of the articles of incorporation and obtain payment of the fair value of his or her shares if the amendment materially and adversely affects rights in respect of a dissenter’s shares because it does any of the following:

(a) Alters or abolishes a preferential right of the shares.

(b) Creates, alters or abolishes a right in respect of redemption, including a provision respecting a sinking fund for the redemption or repurchase, of the shares.

(d) Excludes or limits the right of the shares to vote on any matter or to cumulate votes, other than a limitation by dilution through issuance of shares or other securities with similar voting rights.

(e) Reduces the number of shares owned by the shareholder or beneficial shareholder to a fraction of a share if the fractional share so created is to be acquired for cash under s. 180.0604.

(3) Notwithstanding sub. (1) (a) to (c), if the issuer corporation is a statutory close corporation under ss. 180.1801 to 180.1837, a shareholder of the statutory close corporation may dissent from a corporate action and obtain payment of the fair value of his or her shares, to the extent permitted under sub. (1) (d) or (2) or s. 180.1803, 180.1813 (1) (d) or (2) (b), 180.1815 (3) or 180.1829 (1) (c).

(4) Unless the articles of incorporation provide otherwise, subs. (1) and (2) do not apply to the holders of shares of any class or series if the shares of the class or series are registered on a national securities exchange or quoted on the National Association of Securities Dealers, Inc., automated quotations system on the record date fixed to determine the shareholders entitled to notice of a shareholders meeting at which shareholders are to vote on the proposed corporate action.

(5) Except as provided in s. 180.1833, a shareholder or beneficial shareholder entitled to dissent and obtain payment for his or her shares under ss. 180.1301 to 180.1331 may not challenge the corporate action creating

his or her entitlement unless the action is unlawful or fraudulent with respect to the shareholder, beneficial shareholder or issuer corporation.

History: 1989 a. 303; 1991 a. 16; 2001 a. 44; 2005 a. 476.

Minority discounts are inappropriate under dissenters’ rights statutes and will not be applied in determining “fair value” under sub. (1). Each dissenting shareholder should be assigned the proportionate interest of his or her shares in the going interest in the entire company. HMO-W Incorporated v. SSM Health Care System, 2000 WI 46, 234 Wis. 2d 707, 611 N.W.2d 250, 98-2834.

The Role of Discounts in Determining “Fair Value” Under Wisconsin’s Dissenters’ Rights Statutes: The Case for Discounts. Emory. 1995 WLR 1155.

180.1303

Dissent by shareholders and beneficial shareholders.

(1) A shareholder may assert dissenters’ rights as to fewer than all of the shares registered in his or her name only if the shareholder dissents with respect to all shares beneficially owned by any one person and notifies the corporation in writing of the name and address of each person on whose behalf he or she asserts dissenters’ rights. The rights of a shareholder who under this subsection asserts dissenters’ rights as to fewer than all of the shares registered in his or her name are determined as if the shares as to which he or she dissents and his or her other shares were registered in the names of different shareholders.

(2) A beneficial shareholder may assert dissenters’ rights as to shares held on his or her behalf only if the beneficial shareholder does all of the following:

(a) Submits to the corporation the shareholder’s written consent to the dissent not later than the time that the beneficial shareholder asserts dissenters’ rights.

(b) Submits the consent under par. (a) with respect to all shares of which he or she is the beneficial shareholder.

History: 1989 a. 303.

180.1320

Notice of dissenters’ rights.

(1) If proposed corporate action creating dissenters’ rights under s. 180.1302 is submitted to a vote at a shareholders’ meeting, the meeting notice shall state that shareholders and beneficial shareholders are or may be entitled to assert dissenters’ rights under ss. 180.1301 to 180.1331 and shall be accompanied by a copy of those sections.

(2) If corporate action creating dissenters’ rights under s. 180.1302 is authorized without a vote of shareholders, the corporation shall notify, in writing and in accordance with s. 180.0141, all shareholders entitled to assert dissenters’ rights that the action was authorized and send them the dissenters’ notice described in s. 180.1322.

History: 1989 a. 303.

When the plaintiff was not a shareholder at the time of the complained of acts, it had no right to vote in dissent to a plan of liquidation and dissolution, and it could not be a dissenter entitled to notice of dissenters’ rights, as only one who can vote in dissent is entitled to such notice under this section. Borne v. Gonstead Advanced Techniques, Inc. 2003 WI App 135, 266 Wis. 2d 253, 667 N.W.2d 709, 01-2624.

180.1321

Notice of intent to demand payment.

(1) If proposed corporate action creating dissenters’ rights under s. 180.1302 is submitted to a vote at a shareholders’ meeting, a shareholder or beneficial shareholder who wishes to assert dissenters’ rights shall do all of the following:

(a) Deliver to the issuer corporation before the vote is taken written notice that complies with s. 180.0141 of the shareholder’s or beneficial shareholder’s intent to demand payment for his or her shares if the proposed action is effectuated.

(b) Not vote his or her shares in favor of the proposed action.

(2) A shareholder or beneficial shareholder who fails to satisfy sub. (1) is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.

History: 1989 a. 303.

180.1322

Dissenters’ notice.

(1) If proposed corporate action creating dissenters’ rights under s. 180.1302 is authorized at a shareholders’ meeting, the corporation shall deliver a written dissenters’ notice to all shareholders and beneficial shareholders who satisfied s. 180.1321.

(2) The dissenters’ notice shall be sent no later than 10 days after the corporate action is authorized at a shareholders’ meeting or without a vote of shareholders, whichever is applicable. The dissenters’ notice shall comply with s. 180.0141 and shall include or have attached all of the following:

(a) A statement indicating where the shareholder or beneficial shareholder must send the payment demand and where and when certificates for certificated shares must be deposited.

(b) For holders of uncertificated shares, an explanation of the extent to which transfer of the shares will be restricted after the payment demand is received.

(c) A form for demanding payment that includes the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action and that requires the shareholder or beneficial shareholder asserting dissenters’ rights to certify whether he or she acquired beneficial ownership of the shares before that date.

(d) A date by which the corporation must receive the payment demand, which may not be fewer than 30 days nor more than 60 days after the date on which the dissenters’ notice is delivered.

(e) A copy of ss. 180.1301 to 180.1331.

History: 1989 a. 303.

180.1323

Duty to demand payment.

(1) A shareholder or beneficial shareholder who is sent a dissenters’ notice described in s. 180.1322, or a beneficial shareholder whose shares are held by a nominee who is sent a dissenters’ notice described in s. 180.1322, must demand payment in writing and certify whether he or she acquired beneficial ownership of the shares before the date specified in the dissenters’ notice under s. 180.1322 (2) (c). A shareholder or beneficial shareholder with certificated shares must also deposit his or her certificates in accordance with the terms of the notice.

(2) A shareholder or beneficial shareholder with certificated shares who demands payment and deposits his or her share certificates under sub. (1) retains all other rights of a shareholder or beneficial shareholder until these rights are canceled or modified by the effectuation of the corporate action.

(3) A shareholder or beneficial shareholder with certificated or uncertificated shares who does not demand payment by the date set in the dissenters’ notice, or a shareholder or beneficial shareholder with certificated shares who does not deposit his or her share certificates where required and by the date set in the dissenters’ notice, is not entitled to payment for his or her shares under ss. 180.1301 to 180.1331.

History: 1989 a. 303.

180.1324

Restrictions on uncertificated shares.

(1) The issuer corporation may restrict the transfer of uncertificated shares from the date that the demand for payment for those shares is received until the corporate action is effectuated or the restrictions released under s. 180.1326.

(2) The shareholder or beneficial shareholder who asserts dissenters’ rights as to uncertificated shares retains all of the rights of a shareholder or beneficial shareholder, other than those restricted under sub. (1), until these rights are canceled or modified by the effectuation of the corporate action.

History: 1989 a. 303.

180.1325

Payment.

(1) Except as provided in s. 180.1327, as soon as the corporate action is effectuated or upon receipt of a payment demand, whichever is later, the corporation shall pay each shareholder or beneficial shareholder who has complied with s. 180.1323 the amount that the corporation estimates to be the fair value of his or her shares, plus accrued interest.

(2) The payment shall be accompanied by all of the following:

(a) The corporation’s latest available financial statements, audited and including footnote disclosure if available, but including not less than a balance sheet as of the end of a fiscal year ending not more than 16 months before the date of payment, an income statement for that year, a statement of changes in shareholders’ equity for that year and the latest available interim financial statements, if any.

(b) A statement of the corporation’s estimate of the fair value of the shares.

(d) A statement of the dissenter’s right to demand payment under s. 180.1328 if the dissenter is dissatisfied with the payment.

(e) A copy of ss. 180.1301 to 180.1331.

History: 1989 a. 303.

180.1326

Failure to take action.

(1) If an issuer corporation does not effectuate the corporate action within 60 days after the date set under s. 180.1322 for demanding payment, the issuer corporation shall return the deposited certificates and release the transfer restrictions imposed on uncertificated shares.

(2) If after returning deposited certificates and releasing transfer restrictions, the issuer corporation effectuates the corporate action, the corporation shall deliver a new dissenters’ notice under s. 180.1322 and repeat the payment demand procedure.

History: 1989 a. 303.

180.1327

After-acquired shares.

(1) A corporation may elect to withhold payment required by s. 180.1325 from a dissenter unless the dissenter was the beneficial owner of the shares before the date specified in the dissenters’ notice under s. 180.1322 (2) (c) as the date of the first announcement to news media or to shareholders of the terms of the proposed corporate action.

(2) To the extent that the corporation elects to withhold payment under sub. (1) after effectuating the corporate action, it shall estimate the fair value of the shares, plus accrued interest, and shall pay this amount to each dissenter who agrees to accept it in full satisfaction of his or her demand. The corporation shall send with its offer a statement of its estimate of the fair value of the shares, an explanation of how the interest was calculated, and a statement of the dissenter’s right to demand payment under s. 180.1328 if the dissenter is dissatisfied with the offer.

History: 1989 a. 303.

180.1328 Procedure if dissenter dissatisfied with payment or offer.

(1) A dissenter may, in the manner provided in sub. (2), notify the corporation of the dissenter’s estimate of the fair value of his or her shares and amount of interest due, and demand payment of his or her estimate, less any payment received under s. 180.1325, or reject the offer under s. 180.1327 and demand payment of the fair value of his or her shares and interest due, if any of the following applies:

(a) The dissenter believes that the amount paid under s. 180.1325 or offered under s. 180.1327 is less than the fair value of his or her shares or that the interest due is incorrectly calculated.

(b) The corporation fails to make payment under s. 180.1325 within 60 days after the date set under s. 180.1322 for demanding payment.

(c) The issuer corporation, having failed to effectuate the corporate action, does not return the deposited certificates or release the transfer restrictions imposed on uncertificated shares within 60 days after the date set under s. 180.1322 for demanding payment.

(2) A dissenter waives his or her right to demand payment under this section unless the dissenter notifies the corporation of his or her demand under sub. (1) in writing within 30 days after the corporation made or offered payment for his or her shares. The notice shall comply with s. 180.0141.

History: 1989 a. 303.

When payment is made by check, the payment date under sub. (2) is the date the payee receives the check. Kohler Co. v. Sogen International Fund, Inc. 2000 WI App 60, 233 Wis. 2d 592, 608 N.W.2d 746, 99-0960.

180.1330

Court action.

(1) If a demand for payment under s. 180.1328 remains unsettled, the corporation shall bring a special proceeding within 60 days after receiving the payment demand under s. 180.1328 and petition the court to determine the fair value of the shares and accrued interest. If the corporation does not bring the special proceeding within the 60-day period, it shall pay each dissenter whose demand remains unsettled the amount demanded.

(2) The corporation shall bring the special proceeding in the circuit court for the county where its principal office or, if none in this state, its registered office is located. If the corporation is a foreign corporation without a registered office in this state, it shall bring the special proceeding in the county in this state in which was located the registered office of the issuer corporation that merged with or whose shares were acquired by the foreign corporation.

(3) The corporation shall make all dissenters, whether or not residents of this state, whose demands remain unsettled parties to the special proceeding. Each party to the special proceeding shall be served with a copy of the petition as provided in s. 801.14.

(4) The jurisdiction of the court in which the special proceeding is brought under sub. (2) is plenary and exclusive. The court may appoint one or more persons as appraisers to receive evidence and recommend decision on the question of fair value. An appraiser has the power described in the order appointing him or her or in any amendment to the order. The dissenters are entitled to the same discovery rights as parties in other civil proceedings.

(5) Each dissenter made a party to the special proceeding is entitled to judgment for any of the following:

(a) The amount, if any, by which the court finds the fair value of his or her shares, plus interest, exceeds the amount paid by the corporation.

(b) The fair value, plus accrued interest, of his or her shares acquired on or after the date specified in the dissenter’s notice under s. 180.1322 (2) (c), for which the corporation elected to withhold payment under s. 180.1327.

History: 1989 a. 303.

Because this section does not provide for different procedures, all procedural mechanisms under chs. 801 to 847 are available in an action under this section. Kohler Co. v. Sogen International Fund, Inc. 2000 WI App 60, 233 Wis. 2d 592, 608 N.W.2d 746, 99-0960.

Subs. (2) and (4) establish a rule of venue applicable within Wisconsin’s judicial system and do not attempt to block corporations from using federal diversity jurisdiction. Albert Trostel & Son v. Edward Notz, 679 F.3d 627 (2012).

180.1331

Court costs and counsel fees.

(1)

(a) Notwithstanding ss. 814.01 to 814.04, the court in a special proceeding brought under s. 180.1330 shall determine all costs of the proceeding, including the reasonable compensation and expenses of appraisers appointed by the court and shall assess the costs against the corporation, except as provided in par. (b).

(b) Notwithstanding ss. 814.01 and 814.04, the court may assess costs against all or some of the dissenters, in amounts that the court finds to be equitable, to the extent that the court finds the dissenters acted arbitrarily, vexatiously or not in good faith in demanding payment under s. 180.1328.

(2) The parties shall bear their own expenses of the proceeding, except that, notwithstanding ss. 814.01 to 814.04, the court may also assess the fees and expenses of counsel and experts for the respective parties, in amounts that the court finds to be equitable, as follows:

(a) Against the corporation and in favor of any dissenter if the court finds that the corporation did not substantially comply with ss. 180.1320 to 180.1328.

(b) Against the corporation or against a dissenter, in favor of any other party, if the court finds that the party against whom the fees and expenses are assessed acted arbitrarily, vexatiously or not in good faith with respect to the rights provided by this chapter.

(3) Notwithstanding ss. 814.01 to 814.04, if the court finds that the services of counsel and experts for any dissenter were of substantial benefit to other dissenters similarly situated, the court may award to these counsel and experts reasonable fees to be paid out of the amounts awarded the dissenters who were benefited.

History: 1989 a. 303.

APPENDIX C

FAIRNESS OPINION OF
RAYMOND JAMES & ASSOCIATES, INC.

November 28, 2012

Board of Directors
Mid-Wisconsin Financial Services, Inc.
132 West State Street
Medford, Wisconsin 54451

Members of the Board:

You have requested our opinion as to the fairness, from a financial point of view, to the shareholders of the outstanding common stock, par value $0.10 (the “Common Stock”) of Mid-Wisconsin Financial Services, Inc. (the “Company”) of the consideration to be received by such holders in connection with the proposed merger (the “Merger”) of the Company into Nicolet Bankshares, Inc. (“Nicolet”) pursuant to the Agreement and Plan of Merger between the Company and Nicolet, dated as of November 28, 2012 (the “Agreement”). Under and subject to the terms of the Agreement, the consideration to be offered by Nicolet in exchange for all the outstanding Common Stock is 0.3727 shares of Nicolet common stock, or the cash equivalent at Nicolet’s election (the “Consideration”). For purposes of our opinion, we have, with your consent, assumed the value of the Consideration to be paid by Nicolet to be $6.15 per share.

In connection with our review of the proposed Merger and the preparation of our opinion herein, we have, among other things:

reviewed the financial terms and conditions as stated in the Agreement;

reviewed the audited financial statements of the Company as of and for the years ended December 31, 2010 and December 31, 2011, and the unaudited financial statements for the quarter ending September 30, 2012;

reviewed the Company’s Annual Report filed on Form 10-K for the years ended December 31, 2010 and December 31, 2011 and Quarterly Reports filed on Form 10-Q for the quarters ended March 31, June 30, and September 30, 2012;

reviewed other Company financial and operating information requested from and/or provided by the Company;

reviewed certain other publicly available information on the Company;

reviewed financial projections of the Company provided to us by the Company’s management;

reviewed financial information for comparable companies with similar information for comparable companies with publicly traded securities;

Board of Directors
Mid-Wisconsin Financial Services, Inc.
November 28, 2012
Page 2

reviewed the financial terms of recent business combinations involving companies deemed to be similar; and

discussed with members of the senior management of the Company certain information relating to the aforementioned and any other matters which we have deemed relevant to our inquiry.

With your consent, we have assumed and relied upon the accuracy and completeness of all information supplied or otherwise made available to us by the Company, Nicolet or any other party, and we have undertaken no duty or responsibility to verify independently any of such information. We have not made or obtained an independent appraisal of the assets or liabilities (contingent or otherwise) of the Company. With respect to financial forecasts and other information and data provided to or otherwise reviewed by or discussed with us, we have, with your consent, assumed that such forecasts and other information and data have been reasonably prepared in good faith on bases reflecting the best currently available estimates and judgments of management, and we have relied upon each party to advise us promptly if any information previously provided became inaccurate or was required to be updated during the period of our review.We have assumed that the final form of the Agreement will be substantially similar to the draft reviewed by us, and that the Merger will be consummated in accordance with the terms of the Agreement without waiver of any conditions thereof.

Our opinion is based upon market, economic, financial and other circumstances and conditions existing and disclosed to us as of November 27, 2012 and any material change in such circumstances and conditions would require a reevaluation of this opinion, which we are under no obligation to undertake.

We express no opinion as to the underlying business decision to effect the Merger, the structure or tax consequences of the Agreement or the availability or advisability of any alternatives to the Merger. We did not structure the Merger or negotiate the final terms of the Merger. This letter does not express any opinion as to the likely trading range of Nicolet stock following the Merger, which may vary depending on numerous factors that generally impact the price of securities or on the financial condition of Nicolet at that time. Our opinion is limited to the fairness, from a financial point of view, of the Merger to the shareholders of the Company. We express no opinion with respect to any other reasons, legal, business, or otherwise, that may support the decision of the Board of Directors to approve or consummate the Merger. In formulating our opinion, we have considered only what we understand to be the consideration to be received by the shareholders of the Company as is described above, and we have not considered, and this opinion does not address, any other payments that may be made in connection to Company employees or other shareholders in connection with the Transaction.

In conducting our investigation and analyses and in arriving at our opinion expressed herein, we have taken into account such accepted financial and investment banking procedures and considerations as we have deemed relevant, including the review of (i) historical and projected revenues, operating earnings, net income and capitalization of the Company and certain other publicly held companies in businesses we believe to be comparable to the Company; (ii) the current and projected financial position and results of operations of the Company; (iii) the historical market prices and trading activity of the Common Stock of the Company; (iv) financial and operating information concerning selected business combinations which we deemed comparable in whole or in part; and (v) the general condition of the securities markets. The delivery of this opinion was approved by our fairness opinion committee.

Board of Directors
Mid-Wisconsin Financial Services, Inc.
November 28, 2012
Page 3

In arriving at this opinion, Raymond James did not attribute any particular weight to any analysis or factor considered by it, but rather made qualitative judgments as to the significance and relevance of each analysis and factor. Accordingly, Raymond James believes that its analyses must be considered as a whole and that selecting portions of its analyses, without considering all analyses, would create an incomplete view of the process underlying this opinion.

Raymond James & Associates, Inc. (“Raymond James”) is actively engaged in the investment banking business and regularly undertakes the valuation of investment securities in connection with public offerings, private placements, business combinations and similar transactions. Raymond James has been engaged to render financial advisory services to the Company in connection with the proposed Merger and will receive a fee for such services, which fee is contingent upon consummation of the Merger. Raymond James will also receive a fee upon the delivery of this opinion. In addition, the Company has agreed to indemnify us against certain liabilities arising out of our engagement.

In the ordinary course of our business, Raymond James may trade in the securities of the Company or Nicolet for our own account or for the accounts of our customers and, accordingly, may at any time hold a long or short position in such securities.

It is understood that this letter is for the information of the Board of Directors of the Company in evaluating the proposed Merger and does not constitute a recommendation to any shareholder of the Company regarding how said shareholder should vote on the proposed Merger. Furthermore, this letter should not be construed as creating any fiduciary duty on the part of Raymond James to any such party. This opinion is not to be quoted or referred to, in whole or in part, without our prior written consent, which will not be unreasonably withheld.

Based upon and subject to the foregoing, it is our opinion that, as of November 28, 2012 the Consideration to be received by the shareholders of the Company pursuant to the Agreement is fair, from a financial point of view, to the holders of the Company’s outstanding Common Stock.

Very truly yours,

RAYMOND JAMES & ASSOCIATES, INC.

APPENDIX D

FAIRNESS OPINION OF
SANDLER O’NEILL + PARTNERS, L.P.

November 28, 2012

Board of Directors
Nicolet Bankshares, Inc.
111 North Washington Street
Green Bay, WI 54301

Ladies and Gentlemen:

Nicolet Bankshares, Inc. (“Nicolet”) and Mid-Wisconsin Financial Services, Inc. (“Mid-Wisconsin”) have entered into a Plan of Merger and Merger Agreement, dated as of November 28, 2012 (the “Agreement”), pursuant to which Mid-Wisconsin will merge with and into Nicolet (the “Merger”). Under the terms of the Agreement, upon consummation of the Merger, each share of Mid-Wisconsin common stock issued and outstanding immediately prior to the Merger (the “Mid-Wisconsin Common Stock”), other than certain shares specified in the Agreement, will be converted into the right to receive 0.3727 (the “Exchange Ratio”) of a share of Nicolet common stock (the “Merger Consideration”). The terms of the Merger are more fully described in the Agreement. Capitalized terms used herein without definition shall have the meanings given to such terms in the Agreement. You have requested our opinion as to the fairness, from a financial point of view, of the Merger Consideration to Nicolet.

Sandler O’Neill & Partners, L.P., as part of its investment banking business, is regularly engaged in the valuation of financial institutions and their securities in connection with mergers and acquisitions and other corporate transactions. In connection with this opinion, we have reviewed, among other things: (i) the Agreement; (ii) certain publicly available financial statements and other historical financial information of Nicolet that we deemed relevant; (iii) certain publicly available financial statements and other historical financial information of Mid-Wisconsin that we deemed relevant; (iv) internal financial projections for Nicolet for the years ending December 31, 2012 through December 31, 2014 as provided by and discussed with senior management of Nicolet; (v) internal financial projections for Mid-Wisconsin for the years ending December 31, 2012 through 2016 as provided by senior management of Mid-Wisconsin; (vi) the pro forma financial impact of the Merger on Nicolet based on assumptions relating to transaction expenses, purchase accounting adjustments, cost savings and other synergies as determined by the senior management of Nicolet; (vii) a comparison of certain financial information for Nicolet and Mid-Wisconsin with similar institutions for which publicly available information is available; (viii) the financial terms of certain recent business combinations in the commercial banking industry, to the extent publicly available; (ix) the current market environment generally and the banking environment in particular; and (x) such other information, financial studies, analyses and investigations and financial, economic and market criteria as we considered relevant. We also discussed with certain members of senior management of Nicolet the business, financial condition, results of operations and prospects of Nicolet.

In performing our review, we have relied upon the accuracy and completeness of all of the financial and other information that was available to us from public sources, that was provided to us by Nicolet and Mid-Wisconsin or their respective representatives or that was otherwise reviewed by us and have assumed such accuracy and completeness for purposes of rendering this opinion. We have further relied on the

assurances of the respective managements of Nicolet and Mid-Wisconsin that they are not aware of any facts or circumstances that would make any of such information inaccurate or misleading. We have not been asked to and have not undertaken an independent verification of any of such information and we do not assume any responsibility or liability for the accuracy or completeness thereof. We did not make an independent evaluation or appraisal of the specific assets, the collateral securing assets or the liabilities (contingent or otherwise) of Nicolet and Mid-Wisconsin or any of their respective subsidiaries. We render no opinion or evaluation on the collectability of any assets or the future performance of any loans of Nicolet and Mid-Wisconsin. We did not make an independent evaluation of the adequacy of the allowance for loan losses of Nicolet and Mid-Wisconsin, or the combined entity after the Merger and we have not reviewed any individual credit files relating to Nicolet and Mid-Wisconsin. We have assumed, with your consent, that the respective allowances for loan losses for both Nicolet and Mid-Wisconsin are adequate to cover such losses and will be adequate on a pro forma basis for the combined entity.

In preparing its analyses, Sandler O’Neill used internal financial projections for Nicolet and Mid-Wisconsin as provided by the respective senior managements of Nicolet and Mid-Wisconsin. Sandler O’Neill also received and used in its analyses certain projections of transaction costs, purchase accounting adjustments, expected cost savings and other synergies which were prepared by and/or reviewed with the senior management of Nicolet. With respect to those projections, estimates and judgments, the management of Nicolet confirmed to us that those projections, estimates and judgments reflected the best currently available estimates and judgments of management of the future financial performance of Nicolet and Mid-Wisconsin, respectively, and we assumed that such performance would be achieved. We express no opinion as to such estimates or the assumptions on which they are based. We have also assumed that there has been no material change in Nicolet’ and Mid-Wisconsin’s assets, financial condition, results of operations, business or prospects since the date of the most recent financial statements made available to us. We have assumed in all respects material to our analysis that Nicolet and Mid-Wisconsin will remain as going concerns for all periods relevant to our analyses, that all of the representations and warranties contained in the Agreement and all related agreements are true and correct, that each party to the Agreement will perform all of the covenants required to be performed by such party under the Agreement, that the conditions precedent in the Agreement are not waived and that the Merger will qualify as a tax-free reorganization for federal income tax purposes. Finally, with your consent, we have relied upon the advice Nicolet has received from its legal, accounting and tax advisors as to all legal, accounting and tax matters relating to the Merger and the other transactions contemplated by the Agreement.

Our opinion is necessarily based on financial, economic, market and other conditions as in effect on, and the information made available to us as of, the date hereof. Events occurring after the date hereof could materially affect this opinion. We have not undertaken to update, revise, reaffirm or withdraw this opinion or otherwise comment upon events occurring after the date hereof. We have acted as Nicolet’ financial advisor in connection with the Merger and will receive a fee for our services, a substantial portion of which is contingent upon consummation of the Merger. Nicolet has also agreed to indemnify us against certain liabilities arising out of our engagement. In the ordinary course of our business as a broker-dealer, we may purchase securities from and sell securities to Nicolet and Mid-Wisconsin and their affiliates.

-3-

Our opinion is directed to the Board of Directors of Nicolet in connection with its consideration of the Merger and does not constitute a recommendation to any shareholder of either Nicolet or Mid-Wisconsin as to how any such shareholder should vote at any meeting of shareholders called to consider and vote upon the Merger. Our opinion is directed only to the fairness, from a financial point of view, of the Merger Consideration to Nicolet and does not address the underlying business decision of Nicolet to engage in the Merger, the relative merits of the Merger as compared to any other alternative business strategies that might exist for Nicolet or the effect of any other transaction in which Nicolet might engage. This opinion shall not be reproduced or used for any other purposes, without Sandler O’Neill’s prior written consent. This opinion has been approved by Sandler O’Neill’s fairness opinion committee. We do not express any opinion as to the fairness of the amount or nature of the compensation to be received in the Merger by any officer, director, or employees, or class of such persons, relative to the compensation to be received in the Merger by any other shareholder.

Based upon and subject to the foregoing, it is our opinion that, as of the date hereof, the Merger Consideration is fair to Nicolet from a financial point of view.

				Very truly yours,

-4-

APPENDIX E

ANNUAL REPORT OF MID-WISCONSIN FINANCIAL SERVICES, INC.
FOR THE YEAR ENDED DECEMBER 31, 2011
ON FORM 10-K

(WITHOUT EXHIBITS)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

[X]

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2011

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: 0-18542

MID-WISCONSIN FINANCIAL SERVICES, INC.

(Exact name of registrant as specified in its charter)

WISCONSIN (State or other jurisdiction of incorporation or organization)				06-1169935 (I.R.S. Employer Identification No.)

132 West State Street Medford, Wisconsin 54451 (Address of principal executive offices) (Zip code) Registrant’s telephone number, including area code: (715) 748-8300

Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act:

$0.10 Par Value Common Stock (Title of Class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No [X]

Indicate by check 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 [X] No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

o (Do not check if a smaller reporting company)

Smaller reporting company

[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No [X]

As of June 30, 2011 (the last business day of the registrant’s most recently completed second fiscal quarter) the aggregate market value of the voting and non-voting equity held by non-affiliates of the registrant was approximately $12,253,000 based upon a price per share of $8.00.

As of March 1, 2012, there were 1,657,119 shares of $0.10 par value common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Document
Proxy Statement for Annual Meeting of
Shareholders on April 24, 2012

Part of Form 10-K Into Which
Portions of Documents Are Incorporated
Part III

MID-WISCONSIN FINANCIAL SERVICES, INC.

2011 FORM 10-K

TABLE OF CONTENTS

PART I

Page

ITEM 1.

Business

ITEM 1A.

Risk Factors

ITEM 1B.

Unresolved Staff Comments

ITEM 2.

Properties

ITEM 3.

Legal Proceedings

ITEM 4.

Mine Safety Disclosures

PART II

ITEM 5.

Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

ITEM 6.

Selected Financial Data

ITEM 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

ITEM 7A.

Quantitative and Qualitative Disclosures About Market Risk

ITEM 8.

Financial Statements and Supplementary Data

ITEM 9.

Changes In and Disagreements With Accountants on Accounting and Financial Disclosure

ITEM 9A

Controls and Procedures

ITEM 9B.

Other Information

PART III

ITEM 10.

Directors, Executive Officers and Corporate Governance

ITEM 11.

Executive Compensation

ITEM 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

ITEM 13.

Certain Relationships and Related Transactions, and Director Independence

ITEM 14.

Principal Accountant Fees and Services

PART IV

ITEM 15.

Exhibits and Financial Statement Schedules

Special Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Item 7, contains forward-looking statements as defined in The Private Securities Litigation Reform Act of 1995, that involve risks, uncertainties, and assumptions. Forward-looking statements are based on current management expectations and are not guarantees of future performance, nor should they be relied upon as representing management’s view as of any subsequent date. If the risks or uncertainties ever materialize or the assumptions prove incorrect, our results may differ materially from those presented, either expressed or implied, in this filing. All statements other than statements of historical fact are statements that could be deemed forward-looking statements. Forward-looking statements may be identified by, among other things, expressions of beliefs or expectations that certain events may occur or are anticipated, and projections or statements of expectations. Such forward-looking statements include, without limitation, statements regarding expected financial and operating activities and results that are preceded by, followed by, or that include words such as “will,” “expect,” “anticipate,” “estimate,” “plan,” “believe,” “should,” “intend,” or similar expressions. Such statements are subject to important factors that could cause our actual results to differ materially from those anticipated by the forward-looking statements. These factors, many of which are beyond our control, include the following:

•

operating, legal and regulatory risks, including the effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act and regulations promulgated thereunder;

•

economic, political and competitive forces affecting our banking and wealth management businesses;

•

changes in monetary policy and general economic conditions, which may impact our net interest income;

•

the risk that our analyses of these risks and forces could be incorrect and/or that the strategies developed to address them could be unsuccessful;

•

other factors discussed under Item 1A, “Risk Factors” and elsewhere herein, and from time to time in our other filings with the Securities and Exchange Commission after the date of this report.

These factors should be considered in evaluating the forward-looking statements, and you should not place undue reliance on such statements. We specifically disclaim any obligation to update factors or to publicly announce the results of revisions to any of the forward-looking statements or comments included herein to reflect future events or developments.

PART I

ITEM 1. BUSINESS

General

Our subsidiary operates under the name Mid-Wisconsin Bank (the “Bank”) and has its principal office in Medford, Wisconsin. We are a Wisconsin corporation organized in 1986 and, as the sole shareholder of the Bank, are a bank holding company registered with, and subject to, regulation by the Board of Governors of the Federal Reserve System under the Bank Holding Company Act of 1956, as amended (the “BHCA”). This Annual Report on Form 10-K describes our business and that of the Bank in effect on December 31, 2011, and any reference to the “Company” refers to Mid-Wisconsin Financial Services, Inc. or the consolidated operations of Mid-Wisconsin Financial Services, Inc. and the Bank, as the context requires.

The Bank

The Bank was incorporated on September 1, 1890, as a state bank under the laws of Wisconsin. The Bank operates thirteen retail banking locations throughout North Central Wisconsin serving markets in Clark, Eau Claire, Lincoln, Marathon, Oneida, Price, Taylor and Vilas counties.

The day-to-day management of the Bank rests with its officers with oversight provided by the board of directors. The Bank is engaged in general commercial and retail banking services, including wealth management services. The Bank serves individuals, businesses and governmental units and offers most forms of commercial and consumer lending, including lines of credit, term loans, real estate financing, mortgage lending and agricultural lending. In addition, the Bank provides a full range of personal banking services, including checking accounts, savings and time products, installment and other personal loans, as well as mortgage loans. To expand services to its customers on a 24-hour basis, the Bank offers ATM services, merchant capture, cash management, express phone, online and mobile banking. New services are frequently added.

The Wealth Management area consists of two delivery methods of providing financial products and services to assist customers in building, investing, or protecting their wealth. Through its state granted trust powers, Wealth Management provides fiduciary, administrative, and investment management services to personal trusts, estates, individuals, businesses, non-profits, and foundations for an asset based fee. Through a third-party broker/dealer, LPL Financial, Member FINRA/SIPC, a registered broker/dealer, Wealth Management makes available a variety of retail investment and insurance products including equities, bonds, fixed and variable annuities, mutual funds, life insurance, long-term care insurance and brokered certificates of deposits, which are commission-based transactions.

All of our products and services are directly or indirectly related to the business of community banking and all activity is reported as one segment of operations. All revenue, profit and loss, and total assets are reported in one segment and represent our entire operations.

Employees

As of December 31, 2011, we employed 150 full-time equivalent employees. None of our employees are represented by unions. We consider the relationship with our employees to be good.

Competition

The Bank competes for loans, deposits and financial services in all of its principal markets. Much of this competition comes from companies which are larger and have greater resources. The Bank competes directly with other banks, savings associations, credit unions, finance companies, mutual funds, life insurance companies, and other financial and non-financial companies.

SUPERVISION AND REGULATION

General.

Financial institutions, their holding companies and their affiliates are extensively regulated under federal and state law. As a result, the growth and earnings performance of the Company may be affected not only by management decisions and general economic conditions, but also by requirements of federal and state statutes and by the regulations and policies of various bank regulatory authorities, including the Wisconsin Department of Financial Institutions (the “WDFI”), the Board of Governors of the Federal Reserve System (the “Federal Reserve”), the Federal Deposit Insurance Corporation (the “FDIC”) and the newly-created Bureau of Consumer Financial Protection (the “Bureau”). Furthermore, taxation laws administered by the Internal Revenue Service and state taxing authorities, accounting rules developed by the Financial Accounting Standards Board (the “FASB”) and securities laws administered by the Securities and Exchange Commission (the “SEC”) and state securities authorities have an impact on the business of the Company. The effect of these statutes, regulations, regulatory policies and accounting rules are significant to the operations and results of the Company and Bank, and the nature and extent of future legislative, regulatory or other changes affecting financial institutions are impossible to predict with any certainty.

Federal and state banking laws impose a comprehensive system of supervision, regulation and enforcement on the operations of financial institutions, their holding companies and affiliates that is intended primarily for the protection of the FDIC-insured deposits and depositors of banks, rather than shareholders. These federal and state laws, and the regulations of the bank regulatory authorities issued under them, affect, among other things, the scope of business, the kinds and amounts of investments banks may make, reserve requirements, capital levels relative to operations, the nature and amount of collateral for loans, the establishment of branches, the ability to merge, consolidate and acquire, dealings with insiders and affiliates and the payment of dividends. In addition, turmoil in the credit markets in recent years prompted the enactment of unprecedented legislation that allowed the U.S. Department of the Treasury (“Treasury”) to make equity capital available to qualifying financial institutions to help restore confidence and stability in the U.S. financial markets, which imposes additional requirements on institutions in which Treasury invests.

In addition, the Company and Bank are subject to regular examination by their respective regulatory authorities, which results in examination reports and ratings (that are not publicly available) that can impact the conduct and growth of business. These examinations consider not only compliance with applicable laws and regulations, but also capital levels, asset quality and risk, management ability and performance, earnings, liquidity, and various other factors. The regulatory agencies generally have broad discretion to impose restrictions and limitations on the operations of a regulated entity where the agencies determine, among other things, that such operations are unsafe or unsound, fail to comply with applicable law or are otherwise inconsistent with laws and regulations or with the supervisory policies of these agencies.

The following is a summary of the material elements of the supervisory and regulatory framework applicable to the Company and the Bank. It does not describe all of the statutes, regulations and regulatory policies that apply, nor does it restate all of the requirements of those that are described. The descriptions are qualified in their entirety by reference to the particular statutory or regulatory provision.

Financial Regulatory Reform.

On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) into law. The Dodd-Frank Act represents a sweeping reform of the supervisory and regulatory framework applicable to financial institutions and capital markets in the United States, certain aspects of which are described below in more detail. The Dodd-Frank Act creates new federal governmental entities responsible for overseeing different aspects of the U.S. financial services industry, including identifying emerging systemic risks. It also shifts certain authorities and responsibilities among federal financial institution regulators, including the supervision of holding company affiliates and the regulation of consumer financial services and products. In particular, and among other things, the Dodd-Frank Act: creates a Bureau of Consumer Financial Protection authorized to regulate providers of consumer credit, savings, payment and other consumer financial products and services; narrows the scope of federal preemption of state consumer laws enjoyed by national banks and federal savings associations and expands the authority of state

attorneys general to bring actions to enforce federal consumer protection legislation; imposes more stringent capital requirements on bank holding companies and subjects certain activities, including interstate mergers and acquisitions, to heightened capital conditions; significantly expands underwriting requirements applicable to loans secured by 1–4 family residential real property; restricts the interchange fees payable on debit card transactions for issuers with $10 billion in assets or greater; requires the originator of a securitized loan, or the sponsor of a securitization, to retain at least 5% of the credit risk of securitized exposures unless the underlying exposures are qualified residential mortgages or meet certain underwriting standards to be determined by regulation; creates a Financial Stability Oversight Council as part of a regulatory structure for identifying emerging systemic risks and improving interagency cooperation; provides for enhanced regulation of advisers to private funds and of the derivatives markets; enhances oversight of credit rating agencies; and prohibits banking agency requirements tied to credit ratings.

Numerous provisions of the Dodd-Frank Act are required to be implemented through rulemaking by the appropriate federal regulatory agencies. Some of the required regulations have been issued and some have been released for public comment, but many have yet to be released in any form. Furthermore, while the reforms primarily target systemically important financial service providers, their influence is expected to filter down in varying degrees to smaller institutions over time. Management of the Company and Bank will continue to evaluate the effect of the changes; however, in many respects, the ultimate impact of the Dodd-Frank Act will not be fully known for years, and no current assurance may be given that the Dodd-Frank Act, or any other new legislative changes, will not have a negative impact on the results of operations and financial condition of the Company and the Bank.

The Increasing Importance of Capital.

While capital has historically been one of the key measures of the financial health of both holding companies and depository institutions, its role is becoming fundamentally more important in the wake of the financial crisis. Not only will capital requirements increase, but the type of instruments that constitute capital will also change, and, as a result of the Dodd-Frank Act, after a phase-in period, bank holding companies will have to hold capital under rules as stringent as those for insured depository institutions. Moreover, the actions of the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors, to reassess the nature and uses of capital in connection with an initiative called “Basel III,” discussed below, will have a significant impact on the capital requirements applicable to U.S. bank holding companies and depository institutions.

Required Capital Levels.

The Dodd-Frank Act mandates the Federal Reserve to establish minimum capital levels for bank holding companies on a consolidated basis that are as stringent as those required for insured depository institutions. The components of Tier 1 capital will be restricted to capital instruments that are currently considered to be Tier 1 capital for insured depository institutions. As a result, the proceeds of trust preferred securities will be excluded from Tier 1 capital unless such securities were issued prior to May 19, 2010 by bank holding companies with less than $15 billion of assets. As the Company has assets of less than $15 billion, it will be able to maintain its trust preferred proceeds as capital but it will have to comply with new capital mandates in other respects, and it will not be able to raise Tier 1 capital in the future through the issuance of trust preferred securities.

Under current federal regulations, the Bank is subject to, and, after a phase-in period, the Company will be subject to, the following minimum capital standards: (i) a leverage requirement consisting of a minimum ratio of Tier 1 capital to total assets of 3% for the most highly-rated banks with a minimum requirement of at least 4% for all others; and (ii) a risk-based capital requirement consisting of a minimum ratio of total capital to total risk-weighted assets of 8% and a minimum ratio of Tier 1 capital to total risk-weighted assets of 4%. For this purpose, Tier 1 capital consists primarily of common stock, noncumulative perpetual preferred stock and related surplus less intangible assets (other than certain loan servicing rights and purchased credit card relationships). Total capital consists primarily of Tier 1 capital plus Tier 2 capital, which includes other nonpermanent capital items such as certain other debt and equity instruments that do not qualify as Tier 1 capital and a portion of the Bank’s allowance for loan and lease losses.

The capital requirements described above are minimum requirements. Federal law and regulations provide various incentives for banking organizations to maintain regulatory capital at levels in excess of minimum regulatory requirements. For example, a banking organization that is “well-capitalized” may qualify for exemptions from prior notice or application requirements otherwise applicable to certain types of activities may qualify for expedited processing of other required notices or applications and may accept brokered deposits. Additionally, one of the criteria that determines a bank holding company’s eligibility to operate as a financial holding company (see “— Acquisitions, Activities and Changes in Control” below) is a requirement that all of its depository institution subsidiaries be “well-capitalized.” Under the Dodd-Frank Act, that requirement is extended such that, as of July 21, 2011, bank holding companies, as well as their depository institution subsidiaries, had to be well-capitalized in order to operate as financial holding companies. Under the capital regulations of the Federal Reserve, in order to be “well-capitalized” a banking organization must maintain a ratio of total capital to total risk-weighted assets of 10% or greater, a ratio of Tier 1 capital to total risk-weighted assets of 6% or greater and a ratio of Tier 1 capital to total assets of 5% or greater.

Higher capital levels may also be required if warranted by the particular circumstances or risk profiles of individual banking organizations. For example, the Federal Reserve’s capital guidelines contemplate that additional capital may be required to take adequate account of, among other things, interest rate risk, or the risks posed by concentrations of credit, nontraditional activities or securities trading activities. Further, any banking organization experiencing or anticipating significant growth would be expected to maintain capital ratios, including tangible capital positions (i.e., Tier 1 capital less all intangible assets), well above the minimum levels. See “— The Bank — Regulatory Proceedings Against the Bank” for a discussion regarding the heightened capital requirements which the Bank has agreed to maintain.

It is important to note that certain provisions of the Dodd-Frank Act and Basel III, discussed below, will ultimately establish strengthened capital standards for banks and bank holding companies, will require more capital to be held in the form of common stock and will disallow certain funds from being included in a Tier 1 capital determination. Once fully implemented, these provisions may represent regulatory capital requirements which are meaningfully more stringent than those outlined above.

Prompt Corrective Action.

A banking organization’s capital plays an important role in connection with regulatory enforcement as well. Federal law provides the federal banking regulators with broad power to take prompt corrective action to resolve the problems of undercapitalized institutions. The extent of the regulators’ powers depends on whether the institution in question is “adequately capitalized,” “undercapitalized,” “significantly undercapitalized” or “critically undercapitalized,” in each case as defined by regulation. Depending upon the capital category to which an institution is assigned, the regulators’ corrective powers include: (i) requiring the institution to submit a capital restoration plan; (ii) limiting the institution’s asset growth and restricting its activities; (iii) requiring the institution to issue additional capital stock (including additional voting stock) or to be acquired; (iv) restricting transactions between the institution and its affiliates; (v) restricting the interest rate the institution may pay on deposits; (vi) ordering a new election of directors of the institution; (vii) requiring that senior executive officers or directors be dismissed; (viii) prohibiting the institution from accepting deposits from correspondent banks; (ix) requiring the institution to divest certain subsidiaries; (x) prohibiting the payment of principal or interest on subordinated debt; and (xi) ultimately, appointing a receiver for the institution.

As of December 31, 2011, the Bank exceeded its minimum regulatory capital requirements under Federal Reserve capital adequacy guidelines, as well as the heightened capital requirements that it has agreed to maintain with the FDIC and WDFI (as described under “— The Bank — Regulatory Proceedings Against the Bank”). As of December 31, 2011, the Company had regulatory capital in excess of the Federal Reserve’s requirements and met the Dodd-Frank Act capital requirements.

Basel III.

The current risk-based capital guidelines that apply to the Bank and will apply to the Company are based upon the 1988 capital accord of the international Basel Committee on Banking Supervision, a committee of central banks and bank supervisors, as implemented by the U.S. federal banking agencies on an interagency basis. In 2008, the banking agencies collaboratively began to phase-in capital standards based on a second capital accord, referred to as “Basel II,” for large or “core” international banks (generally defined for U.S. purposes as having total assets of $250 billion or more or consolidated foreign exposures of $10 billion or more). Basel II emphasized internal assessment of credit, market and operational risk, as well as supervisory assessment and market discipline in determining minimum capital requirements.

On September 12, 2010, the Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, announced agreement to a strengthened set of capital requirements for banking organizations in the United States and around the world, known as Basel III. The agreement is currently supported by the U.S. federal banking agencies. As agreed to, Basel III is intended to be fully-phased in on a global basis on January 1, 2019. Basel III requires, among other things: (i) a new required ratio of minimum common equity equal to 7% of total assets (4.5% plus a capital conservation buffer of 2.5%); (ii) an increase in the minimum required amount of Tier 1 capital from the current level of 4% of total assets to 6% of total assets; (iii) an increase in the minimum required amount of total capital, from the current level of 8% to 10.5% (including 2.5% attributable to the capital conservation buffer). The purpose of the conservation buffer (to be phased in from January 2016 until January 1, 2019) is to ensure that banks maintain a buffer of capital that can be used to absorb losses during periods of financial and economic stress. There will also be a required countercyclical buffer to achieve the broader goal of protecting the banking sector from periods of excess aggregate credit growth.

Pursuant to Basel III, certain deductions and prudential filters, including minority interests in financial institutions, mortgage servicing rights and deferred tax assets from timing differences, would be deducted in increasing percentages beginning January 1, 2014, and would be fully deducted from common equity by January 1, 2018. Certain instruments that no longer qualify as Tier 1 capital, such as trust preferred securities, also would be subject to phase-out over a 10-year period beginning January 1, 2013.

The Basel III agreement calls for national jurisdictions to implement the new requirements beginning January 1, 2013. At that time, the U.S. federal banking agencies, including the Federal Reserve, will be expected to have implemented appropriate changes to incorporate the Basel III concepts into U.S. capital adequacy standards.

The Company

General.

The Company, as the sole shareholder of the Bank, is a bank holding company. As a bank holding company, the Company is registered with, and is subject to regulation by, the Federal Reserve under the Bank Holding Company Act of 1956, as amended (the “BHCA”). In accordance with Federal Reserve policy, and as now codified by the Dodd-Frank Act, the Company is legally obligated to act as a source of financial strength to the Bank and to commit resources to support the Bank in circumstances where the Company might not otherwise do so. Under the BHCA, the Company is subject to periodic examination by the Federal Reserve. The Company is required to file with the Federal Reserve periodic reports of the Company’s operations and such additional information regarding the Company and its subsidiaries as the Federal Reserve may require.

Regulatory Proceedings Against the Company.

On May 10, 2011, the Company entered into a formal written agreement (the “Company Agreement”) with the Federal Reserve to help ensure the financial soundness of the Company and the Bank. Pursuant to the Company Agreement, the Company has agreed to take certain actions and operate in compliance with the Company Agreement’s provisions during its terms. Specifically, under the terms of the Company Agreement, the Company is required to: (i) ensure the Bank complies with the Agreement; (ii) refrain from (x) declaring or paying any dividend on its capital stock, (y) taking any dividend from the Bank, or (z) making any

distributions on its subordinated debentures or the trust preferred securities related thereto issued by its nonbank subsidiary, each without the written consent of the Federal Reserve; (iii) refrain from incurring, increasing or guaranteeing any debt without the written consent of the Federal Reserve; (iv) refrain from purchasing or redeeming any shares of its capital stock without the written consent of the Federal Reserve; and (v) develop certain plans and projections with respect to its capital levels and cash flows, all as described in more detail in the Company Agreement.

While the Company’s board of directors and management team have assigned great importance to complying with the terms of the Company Agreement, and believe they have taken or commenced the steps necessary to resolve any and all matters presented therein, the Fed could take further enforcement actions if it is not satisfied with the actions taken by the Company. A copy of the Company Agreement was filed as a part of the Company’s Quarterly Report on Form 10-Q filed on May 13, 2011 with the SEC.

Acquisitions, Activities and Change in Control.

The primary purpose of a bank holding company is to control and manage banks. The BHCA generally requires the prior approval of the Federal Reserve for any merger involving a bank holding company or any acquisition by a bank holding company of another bank or bank holding company. Subject to certain conditions (including deposit concentration limits established by the BHCA and the Dodd-Frank Act), the Federal Reserve may allow a bank holding company to acquire banks located in any state of the United States. In approving interstate acquisitions, the Federal Reserve is required to give effect to applicable state law limitations on the aggregate amount of deposits that may be held by the acquiring bank holding company and its insured depository institution affiliates in the state in which the target bank is located (provided that those limits do not discriminate against out-of-state depository institutions or their holding companies) and state laws that require that the target bank have been in existence for a minimum period of time (not to exceed five years) before being acquired by an out-of-state bank holding company. Furthermore, in accordance with the Dodd-Frank Act, as of July 21, 2011, bank holding companies must be well-capitalized in order to effect interstate mergers or acquisitions. For a discussion of the capital requirements, see “— The Increasing Importance of Capital” above.

The BHCA generally prohibits the Company from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company that is not a bank and from engaging in any business other than that of banking, managing and controlling banks or furnishing services to banks and their subsidiaries. This general prohibition is subject to a number of exceptions. The principal exception allows bank holding companies to engage in, and to own shares of companies engaged in, certain businesses found by the Federal Reserve prior to November 11, 1999 to be “so closely related to banking ... as to be a proper incident thereto.” This authority would permit the Company to engage in a variety of banking-related businesses, including the ownership and operation of a savings association, or any entity engaged in consumer finance, equipment leasing, the operation of a computer service bureau (including software development), and mortgage banking and brokerage. The BHCA generally does not place territorial restrictions on the domestic activities of nonbank subsidiaries of bank holding companies.

Additionally, bank holding companies that meet certain eligibility requirements prescribed by the BHCA and elect to operate as financial holding companies may engage in, or own shares in companies engaged in, a wider range of nonbanking activities, including securities and insurance underwriting and sales, merchant banking and any other activity that the Federal Reserve, in consultation with the Secretary of the Treasury, determines by regulation or order is financial in nature or incidental to any such financial activity or that the Federal Reserve determines by order to be complementary to any such financial activity and does not pose a substantial risk to the safety or soundness of depository institutions or the financial system generally. As of the date of this filing, the Company has not applied for approval to operate as a financial holding company.

Federal law also prohibits any person or company from acquiring “control” of an FDIC-insured depository institution or its holding company without prior notice to the appropriate federal bank regulator. “Control” is conclusively presumed to exist upon the acquisition of 25% or more of the outstanding voting securities of a bank or bank holding company, but may arise under certain circumstances between 10% and 24.99% ownership.

Capital Requirements.

Bank holding companies are required to maintain minimum levels of capital in accordance with Federal Reserve capital adequacy guidelines, as affected by the Dodd-Frank Act and Basel III. For a discussion of capital requirements, see “— The Increasing Importance of Capital” above.

Emergency Economic Stabilization Act of 2008.

Events in the U.S. and global financial markets over the past several years, including deterioration of the worldwide credit markets, created significant challenges for financial institutions throughout the country. In response to this crisis affecting the U.S. banking system and financial markets, on October 3, 2008, the U.S. Congress passed, and the President signed into law, the Emergency Economic Stabilization Act of 2008 (the “EESA”). The EESA authorized the Secretary of the Treasury to implement various temporary emergency programs designed to strengthen the capital positions of financial institutions and stimulate the availability of credit within the U.S. financial system. Financial institutions participating in certain of the programs established under the EESA are required to adopt Treasury’s standards for executive compensation and corporate governance.

The TARP Capital Purchase Program.

On October 14, 2008, Treasury announced that it would provide Tier 1 capital (in the form of perpetual preferred stock) to eligible financial institutions. This program, known as the TARP Capital Purchase Program (the “CPP”), allocated $250 billion from the $700 billion authorized by the EESA to Treasury for the purchase of senior preferred shares from qualifying financial institutions (the “CPP Preferred Stock”). Under the program, eligible institutions were able to sell equity interests to the Treasury in amounts equal to between 1% and 3% of the institution’s risk-weighted assets. The CPP Preferred Stock is nonvoting and pays dividends at the rate of 5% per annum for the first five years and thereafter at a rate of 9% per annum. In conjunction with the purchase of the CPP Preferred Stock, the Treasury received warrants to purchase common stock with an aggregate market price equal to 15% of the investment from participating institutions with an established trading market, and warrants to purchase shares of an additional series of CPP Preferred Stock with a liquidation preference equal to 5% of the aggregate investment from participating institutions without an established trading market. Participating financial institutions were required to adopt Treasury’s standards for executive compensation and corporate governance for the period during which Treasury holds equity issued under the CPP. These requirements are discussed in more detail in the Executive Officer Compensation section in the Company’s proxy statement, which is incorporated by reference in this Form 10-K.

Pursuant to the CPP, on February 20, 2009, the Company entered into a Letter Agreement with Treasury, pursuant to which the Company issued (i) 10,000 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred Stock”), and (ii) a warrant to purchase 500 shares of the Company’s Fixed Rate Cumulative Perpetual Preferred Stock, Series B (the “Series B Preferred Stock” and together with the Series A Preferred Stock, the “TARP Preferred Stock”), which were immediately exercised, for an aggregate purchase price of $10,000,000 in cash. Although the Company is a public company, an established trading market for its stock does not exist, and therefore it was required to issue Treasury a warrant for additional CPP Preferred Stock rather than common stock. The Company’s federal regulators, the Treasury and the Treasury’s Office of the Inspector General maintain significant oversight over the Company as a participating institution, to evaluate how it is using the capital provided and to ensure that it strengthens its efforts to help its borrowers avoid foreclosure, which is one of the core aspects of the EESA.

Dividend Payments.

The Company’s ability to pay dividends to its shareholders may be affected by both general corporate law considerations and policies of the Federal Reserve applicable to bank holding companies. As a Wisconsin corporation, the Company is subject to the limitations of the Wisconsin Business Corporation Law, which prohibit the Company from paying dividends if such payment would (i) render the Company unable to pay its debts as they become due in the usual course of business, or (ii) result in the Company’s assets being less than the sum of its total liabilities plus the amount needed to satisfy the preferential rights upon dissolution of

any shareholders with preferential rights superior to those shareholders receiving the dividend. Consistent with the “source of strength” policy for subsidiary banks, the Federal Reserve has stated that, as a matter of prudent banking, a bank holding company generally should not maintain a rate of cash dividends unless its net income available to common shareholders over the past year has been sufficient to fully fund the dividends and the prospective rate of earnings retention appears to be consistent with the corporation’s capital needs, asset quality and overall financial condition. The Federal Reserve also possesses enforcement powers over bank holding companies and their nonbank subsidiaries to prevent or remedy actions that represent unsafe or unsound practices or violations of applicable statutes and regulations. Among these powers is the ability to proscribe the payment of dividends by banks and bank holding companies. As described under “— Regulatory Proceedings Against the Company,” on May 10, 2011 the Company entered into the Company Agreement with the Federal Reserve, pursuant to which the Company agreed to refrain from declaring or paying any dividend on its capital stock and making any distributions on its subordinated debentures or the trust preferred securities related thereto without the written consent of the Federal Reserve.

Furthermore, the Company’s ability to pay dividends on its common stock is restricted by the terms of certain of its other securities. For example, under the terms of certain of the Company’s junior subordinated debentures, it may not pay dividends on its capital stock unless all accrued and unpaid interest payments on the subordinated debentures have been fully paid. Additionally, the terms of the TARP Preferred Stock provide that no dividends on any common or preferred stock that ranks equal to or junior to the TARP Preferred Stock may be paid unless and until all accrued and unpaid dividends for all past dividend periods on the TARP Preferred Stock have been fully paid. On May 12, 2012, in consultation with the Federal Reserve, the Company elected to begin deferring the interest payments due on its junior subordinated debentures, as well as the dividend payments due on the TARP Preferred Stock, and therefore may not pay common stock dividends until such time as these deferred payments have been made in full.

Federal Securities Regulation.

The Company’s common stock is registered with the SEC under the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Consequently, the Company is subject to the information, proxy solicitation, insider trading and other restrictions and requirements of the SEC under the Exchange Act.

Corporate Governance.

The Dodd-Frank Act addresses many investor protection, corporate governance and executive compensation matters that will affect most U.S. publicly traded companies. The Dodd-Frank Act will increase shareholder influence over boards of directors by requiring companies to give shareholders a nonbinding vote on executive compensation and so-called “golden parachute” payments, and authorizing the SEC to promulgate rules that would allow shareholders to nominate and solicit voters for their own candidates using a company’s proxy materials. The legislation also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives, regardless of whether the company is publicly traded.

The Bank

General.

The Bank is a Wisconsin-chartered bank, the deposit accounts of which are insured by the FDIC’s Deposit Insurance Fund (“DIF”) to the maximum extent provided under federal law and FDIC regulations. As a Wisconsin-chartered, FDIC-insured, nonmember bank, the Bank is presently subject to the examination, supervision, reporting and enforcement requirements of the WDFI, the chartering authority for Wisconsin banks, and the FDIC, designated by federal law as the primary federal regulator of insured state banks that, like the Bank, are not members of the Federal Reserve System.

Regulatory Proceedings Against the Bank.

On November 9, 2010, the Bank entered into a formal written agreement (the “Agreement”) with the FDIC and WDFI. Pursuant to the Agreement, the Bank agreed to take certain actions and operate in compliance with the Agreement’s provisions during its terms. The Agreement is based on the results of an annual examination of the Bank by the FDIC and WDFI and addresses certain matters that, in the view of the FDIC and WDFI, may impact the Bank’s overall safety and soundness. Specifically, under the terms of the Agreement, the Bank is required to, among other things: (i) maintain ratios of Tier 1 capital to each of total assets and total risk-weighted assets of at least 8.5% and 12%, respectively; (ii) refrain from declaring or paying any dividend without the written consent of the FDIC and WDFI; (iii) refrain from increasing its total assets by more than 5% during any three-month period without first submitting a growth plan to the FDIC and WDFI; (iv) develop and maintain a number of plans, policies and procedures, including, but not limited to, a management plan, a liquidity plan, and a strategic plan; and (v) take certain actions related to its loan portfolio and budgeting process, such as reducing the level of certain classified assets, reviewing (and, if necessary, adjusting) its allowance for loan losses, refraining from extending additional loans to certain classified borrowers, and revising certain of its budgets.

The Bank’s board of directors and management team have assigned great importance to complying with the terms of the Agreement, and believe they have taken or commenced the steps necessary to resolve any and all matters presented therein. Further, as of December 31, 2011, the Bank’s ratio of Tier 1 capital to each of total assets and total risk-weighted assets was 8.7% and 14.2%, respectively, exceeding the ratios required under the Agreement. Additionally, in accordance with the Agreement, the Bank has refrained from declaring dividends, taken measures to monitor and limit its growth, and provided various periodic progress reports to the FDIC and WDFI.

While management and the board of directors believes they have taken or commenced the necessary measures to resolve any and all remaining matters presented in the Agreement, the FDIC and WDFI could take further enforcement actions, including requiring the sale or liquidation of the Bank, if they are not satisfied with the corrective actions that are taken by the Bank. In such case, there can be no assurance that the proceeds of any such sale or liquidation would result in a full return of capital to investors. A copy of the Agreement was filed as a part of the Company’s Quarterly Report on Form 10-Q filed on November 12, 2010 with the SEC.

Deposit Insurance.

As an FDIC-insured institution, the Bank is required to pay deposit insurance premium assessments to the FDIC. The FDIC has adopted a risk-based assessment system whereby FDIC-insured depository institutions pay insurance premiums at rates based on their risk classification. An institution’s risk classification is assigned based on its capital levels and the level of supervisory concern the institution poses to the regulators.

On November 12, 2009, the FDIC adopted a final rule that required insured depository institutions to prepay on December 30, 2009, their estimated quarterly risk-based assessments for the fourth quarter of 2009 and for all of 2010, 2011, and 2012. As such, on December 31, 2009, the Bank prepaid the FDIC its assessments based on its actual September 30, 2009 assessment base, adjusted quarterly by an estimated 5% annual growth rate through the end of 2012. The FDIC also used the institution’s total base assessment rate in effect on September 30, 2009, increasing it by an annualized 3 basis points beginning in 2011. The FDIC began to offset prepaid assessments on March 30, 2010, representing payment of the regular quarterly risk-based deposit insurance assessment for the fourth quarter of 2009. Any prepaid assessment not exhausted after collection of the amount due on June 30, 2013, will be returned to the institution.

Amendments to the Federal Deposit Insurance Act also revise the assessment base against which an insured depository institution’s deposit insurance premiums paid to the DIF will be calculated. Under the amendments, the assessment base will no longer be the institution’s deposit base, but rather its average consolidated total assets less its average tangible equity. This may shift the burden of deposit insurance premiums toward those large depository institutions that rely on funding sources other than U.S. deposits. Additionally, the Dodd-Frank Act makes changes to the minimum designated reserve ratio of the DIF,

increasing the minimum from 1.15% to 1.35% of the estimated amount of total insured deposits, and eliminating the requirement that the FDIC pay dividends to depository institutions when the reserve ratio exceeds certain thresholds. The FDIC is given until September 3, 2020 to meet the 1.35 reserve ratio target. Several of these provisions could increase the Bank’s FDIC deposit insurance premiums.

The Dodd-Frank Act permanently increases the maximum amount of deposit insurance for banks, savings institutions and credit unions to $250,000 per insured depositor, retroactive to January 1, 2009. Furthermore, the legislation provides that non-interest bearing transaction accounts have unlimited deposit insurance coverage through December 31, 2012. This temporary unlimited deposit insurance coverage replaces the Transaction Account Guarantee Program (“TAGP”) that expired on December 31, 2010. It covers all depository institution non-interest-bearing transaction accounts, but not low interest-bearing accounts. Unlike TAGP, there is no special assessment associated with the temporary unlimited insurance coverage, nor may institutions opt-out of the unlimited coverage.

FICO Assessments.

The Financing Corporation (“FICO”) is a mixed-ownership governmental corporation chartered by the former Federal Home Loan Bank Board pursuant to the Competitive Equality Banking Act of 1987 to function as a financing vehicle for the recapitalization of the former Federal Savings and Loan Insurance Corporation. FICO issued 30-year noncallable bonds of approximately $8.1 billion that mature in 2017 through 2019. FICO’s authority to issue bonds ended on December 12, 1991. Since 1996, federal legislation has required that all FDIC-insured depository institutions pay assessments to cover interest payments on FICO’s outstanding obligations. These FICO assessments are in addition to amounts assessed by the FDIC for deposit insurance. During the year ended December 31, 2011, the FICO assessment rate was approximately 0.01% of deposits. A rate reduction to .00680% began with the fourth quarter of 2011 to reflect the change from an assessment base computed on deposits to an assessment base computed on assets as required by the Dodd-Frank Act.

Supervisory Assessments.

All Wisconsin banks are required to pay supervisory assessments to the WDFI to fund the operations of the WDFI. The amount of the assessment is calculated on the basis of total assets. During the year ended December 31, 2011, the Bank paid supervisory assessments to the WDFI totaling $20,088.

Capital Requirements.

Banks are generally required to maintain capital levels in excess of other businesses. For a discussion of the Bank’s capital requirements, see “— The Increasing Importance of Capital,” as well as “— Regulatory Proceedings Against the Bank.”

Dividend Payments.

The primary source of funds for the Company is dividends from the Bank. Under Wisconsin state law, the board of directors of a bank may declare and pay a dividend from its undivided profits in an amount they consider expedient. The board of directors shall provide for the payment of all expenses, losses, required reserves, taxes, and interest accrued or due from the bank before the declaration of dividends from undivided profits. If dividends declared and paid in either of the two immediately preceding years exceeded net income for either of those two years respectively, the bank may not declare or pay any dividend in the current year that exceeds year-to-date net income except with the written consent of the WDFI.

The payment of dividends by any financial institution is affected by the requirement to maintain adequate capital pursuant to applicable capital adequacy guidelines and regulations, and a financial institution generally is prohibited from paying any dividends if, following payment thereof, the institution would be undercapitalized. As described above, the Bank exceeded its minimum capital requirements under applicable guidelines as of December 31, 2011. However, as described in “— Regulatory Proceedings Against the Bank,” the Bank has agreed to refrain from declaring or paying any dividend without the consent of the FDIC and WDFI. Furthermore the Federal Reserve may prohibit the payment of any dividends by the Bank if the Federal Reserve determines such payment would constitute an unsafe or unsound practice.

Insider Transactions.

The Bank is subject to certain restrictions imposed by federal law on “covered transactions” between the Bank and its “affiliates.” The Company is an affiliate of the Bank for purposes of these restrictions, and covered transactions subject to the restrictions include extensions of credit to the Company, investments in the stock or other securities of the Company and the acceptance of the stock or other securities of the Company as collateral for loans made by the Bank. The Dodd-Frank Act enhances the requirements for certain transactions with affiliates as of July 21, 2011, including an expansion of the definition of “covered transactions” and an increase in the amount of time for which collateral requirements regarding covered transactions must be maintained.

Certain limitations and reporting requirements are also placed on extensions of credit by the Bank to its directors and officers, to directors and officers of the Company, to principal shareholders of the Company and to “related interests” of such directors, officers and principal shareholders. In addition, federal law and regulations may affect the terms upon which any person who is a director or officer of the Company or the Bank or a principal shareholder of the Company may obtain credit from banks with which the Bank maintains a correspondent relationship.

Safety and Soundness Standards.

The federal banking agencies have adopted guidelines that establish operational and managerial standards to promote the safety and soundness of federally insured depository institutions. The guidelines set forth standards for internal controls, information systems, internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees and benefits, asset quality and earnings.

In general, the safety and soundness guidelines prescribe the goals to be achieved in each area, and each institution is responsible for establishing its own procedures to achieve those goals. If an institution fails to comply with any of the standards set forth in the guidelines, the institution’s primary federal regulator may require the institution to submit a plan for achieving and maintaining compliance. If an institution fails to submit an acceptable compliance plan, or fails in any material respect to implement a compliance plan that has been accepted by its primary federal regulator, the regulator is required to issue an order directing the institution to cure the deficiency. Until the deficiency cited in the regulator’s order is cured, the regulator may restrict the institution’s rate of growth, require the institution to increase its capital, restrict the rates the institution pays on deposits or require the institution to take any action the regulator deems appropriate under the circumstances. Noncompliance with the standards established by the safety and soundness guidelines may also constitute grounds for other enforcement action by the federal banking regulators, including cease and desist orders and civil money penalty assessments.

As described in further detail above, the Bank is currently subject to the Agreement with the FDIC and WDFI, pursuant to which it has agreed to maintain certain heightened capital ratios, refrain from declaring or paying dividends without prior regulatory approval, observe certain limitations on its asset growth, develop and maintain certain policies and procedures, and take certain actions related to its loan portfolio and budgeting process. The Bank’s board of directors and management team have assigned great importance to complying with the terms of the Agreement, and believe they have taken or commenced the steps necessary to resolve any and all matters presented therein. See “— Regulatory Proceedings Against the Bank” for further detail on the Agreement.

Branching Authority.

Wisconsin banks, such as the Bank, have the authority under Wisconsin law to establish branches anywhere in the State of Wisconsin, subject to receipt of all required regulatory approvals.

Federal law permits state and national banks to merge with banks in other states subject to: (i) regulatory approval; (ii) federal and state deposit concentration limits; and (iii) state law limitations requiring the merging bank to have been in existence for a minimum period of time (not to exceed five years) prior to the merger. The establishment of new interstate branches or the acquisition of individual branches of a bank in another state (rather than the acquisition of an out-of-state bank in its entirety) has historically been permitted

only in those states the laws of which expressly authorize such expansion. However, the Dodd-Frank Act permits well-capitalized banks to establish branches across state lines without these impediments.

State Bank Investments and Activities.

The Bank is permitted to make investments and engage in activities directly or through subsidiaries as authorized by Wisconsin law. However, under federal law and FDIC regulations, FDIC-insured state banks are prohibited, subject to certain exceptions, from making or retaining equity investments of a type, or in an amount, that are not permissible for a national bank. Federal law and FDIC regulations also prohibit FDIC-insured state banks and their subsidiaries, subject to certain exceptions, from engaging as principal in any activity that is not permitted for a national bank unless the bank meets, and continues to meet, its minimum regulatory capital requirements and the FDIC determines the activity would not pose a significant risk to the deposit insurance fund of which the bank is a member. These restrictions have not had, and are not currently expected to have, a material impact on the operations of the Bank.

Transaction Account Reserves.

Federal Reserve regulations require depository institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking accounts). For 2012: the first $11.5 million of otherwise reservable balances are exempt from the reserve requirements; for transaction accounts aggregating more than $11.5 million to $71.0 million, the reserve requirement is 3% of total transaction accounts; and for net transaction accounts in excess of $71.0 million, a 10% reserve ratio will be assessed. These reserve requirements are subject to annual adjustment by the Federal Reserve. The Bank is in compliance with the foregoing requirements.

Consumer Financial Services.

There are numerous developments in federal and state laws regarding consumer financial products and services that impact the Bank’s business. Importantly, the current structure of federal consumer protection regulation applicable to all providers of consumer financial products and services changed significantly on July 21, 2011 when the new Bureau of Consumer Financial Protection commenced operations to supervise and enforce consumer protection laws. The Bureau has broad rule-making authority for a wide range of consumer protection laws that apply to all providers of consumer products and services, including the Bank, as well as the authority to prohibit “unfair, deceptive or abusive” acts and practices. The Bureau has examination and enforcement authority over providers with more than $10 billion in assets. Banks and savings institutions with $10 billion or less in assets, like the Bank, will continue to be examined by their applicable bank regulators. The Dodd-Frank Act also generally weakens the federal preemption available for national banks and federal savings associations, and gives state attorneys general the ability to enforce applicable federal consumer protection laws. It is unclear what changes will be promulgated by the Bureau and what effect, if any, such changes would have on the Bank.

The Dodd-Frank Act contains additional provisions that affect consumer mortgage lending. First, the new law significantly expands underwriting requirements applicable to loans secured by 1–4 residential real property and augments federal law combating predatory lending practices. In addition to numerous new disclosure requirements, the Dodd-Frank Act imposes new standards for mortgage loan originations on all lenders, including banks and savings associations, in an effort to strongly encourage lenders to verify a borrower’s ability to repay. Most significantly, the new standards limit the total points and fees that the Bank and/or a broker may charge on conforming and jumbo loans to 3% of the total loan amount. Also, the Dodd-Frank Act, in conjunction with the Federal Reserve’s final rule on loan originator compensation effective April 1, 2011, prohibits certain compensation payments to loan originators and prohibits steering consumers to loans not in their interest because it will result in greater compensation for a loan originator. These standards may result in a myriad of new system, pricing and compensation controls in order to ensure compliance and to decrease repurchase requests and foreclosure defenses. In addition, the Dodd-Frank Act generally requires lenders or securitizers to retain an economic interest in the credit risk relating to loans the lender sells and other asset-backed securities that the securitizer issues if the loans have not complied with the ability to repay

standards. The risk retention requirement generally will be 5%, but could be increased or decreased by regulation.

Foreclosure and Loan Modifications.

Federal and state laws further impact foreclosures and loan modifications, many of which laws have the effect of delaying or impeding the foreclosure process on real estate secured loans in default. Mortgages on commercial property can be modified, such as by reducing the principal amount of the loan or the interest rate, or by extending the term of the loan, through plans confirmed under Chapter 11 of the Bankruptcy Code. In recent years legislation has been introduced in Congress that would amend the Bankruptcy Code to permit the modification of mortgages secured by residences, although at this time the enactment of such legislation is not in prospect. The scope, duration and terms of potential future legislation with similar effect continue to be discussed.

State legal and/or legislative action may be on the horizon in light of the settlement reached in early February of 2012 by 49 state attorneys general and the federal government with the country’s five largest loan servicers: Ally/GMAC, Bank of America, Citi, JPMorgan Chase, and Wells Fargo. Every state except Oklahoma signed on to the settlement. The settlement will provide as much as $25 billion in relief to distressed borrowers in the states who signed on to the settlement; and direct payments to signing states and the federal government. The agreement settles state and federal investigations finding that the country’s five largest loan servicers routinely signed foreclosure related documents outside the presence of a notary public and without really knowing whether the facts they contained were correct and holds the banks accountable for their wrongdoing on robo-signing and mortgage servicing. The agreement settles only some aspects of the banks’ conduct related to the financial crisis (foreclosure practices, loan servicing, and origination of loans). State cases against the rating agencies and bid-rigging in the municipal bond market, for example, continue.

Available Information.

Under the Securities Exchange Act of 1934, the Company is required to file annual, quarterly and current reports, proxy and other information to the SEC. We make available, free of charge, on our website (www.midwisc.com) under the caption “Investor Relations,” our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports as soon as reasonably practicable after we electronically file or furnish such materials to the SEC. Materials that we file or furnish to the SEC may also be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. Also, the SEC maintains a website at www.sec.gov that contains reports, proxy and information statements, and other information that we file electronically with the SEC.

ITEM 1A. RISK FACTORS

An investment in our common stock is subject to risks inherent to our business. The material risks and uncertainties that management believes affect us are described below. Before making an investment decision, you should carefully consider the risks described below because they could materially and adversely affect our business, liquidity, financial condition, results of operation, and prospects. This report is qualified in its entirety by these risk factors. In addition to the risks and uncertainties described below, other risks and uncertainties not currently known to us or that we currently deem immaterial also may materially and adversely affect our business, financial condition and results of operations. See also, the cautionary statement in Item 1 regarding the use of forward-looking statements in this Annual Report on Form 10-K.

Our stock does not have a significant amount of trading activity.

There is no active public trading market for our stock. Therefore, low activity may increase the volatility of the price of our stock and result in a greater spread between the bid and ask prices as compared to more actively-traded stocks. Investors may not be able to resell shares at the price or time they desire. The lack of an active public trading market may also limit our ability to raise additional capital through the issuance of new stock.

Changes in future rules applicable to TARP recipients could adversely affect our business, results of operations and financial condition.

The rules and policies applicable to recipients of capital under the CPP have evolved since we first elected on February 20, 2009 to participate in the program, and their scope, timing and effect may continue to evolve in the future. Any redemption of the securities sold to the Treasury to avoid these restrictions would require prior Federal Reserve and Treasury approval. Based on guidelines issued by the Federal Reserve, institutions seeking to redeem CPP Preferred Stock must demonstrate an ability to access the long-term debt markets, successfully demonstrate access to public equity markets and meet a number of additional requirements and considerations before such institutions can redeem any securities sold to the Treasury.

Our agreements with the Treasury under the CPP, as well as provisions of our outstanding Debentures, impose restrictions and obligations on us that limit, among other things, our ability to pay dividends and repurchase our common or preferred stock.

In February 2009, we issued preferred stock to the Treasury under the CPP. In consultation with the Federal Reserve Bank of Minneapolis, on May 12, 2011, we exercised our right to suspend dividends on the outstanding TARP Preferred Stock. Dividend payments on the TARP Preferred Stock may be deferred without default, but the dividend is cumulative and therefore will continue to accrue and, if we fail to pay dividends for an aggregate of six quarters, whether or not consecutive, the holder will have the right to appoint representatives to the Company’s board of directors. The terms of the TARP Preferred Stock also prevent us from paying cash dividends on or repurchasing our common stock while dividends are in arrears. Therefore we will not be able to pay dividends on our common stock until we have fully paid all accrued and unpaid dividends on the TARP Preferred Stock.

We also exercised our right to defer payment of interest due under the terms of the Debentures on May 12, 2011, in consultation with the Federal Reserve Bank of Minneapolis. We are allowed to defer payments of interest for 20 quarterly periods without default or penalty, but such amounts will continue to accrue. Also during the deferral period, we generally may not pay cash dividends on or repurchase common stock or preferred stock, including the TARP Preferred Stock. On December 31, 2011, we had $485 accrued and unpaid dividends on the TARP Preferred Stock and $146 accrued and unpaid interest due on the Debentures.

Our growth or future losses may require us to raise additional capital in the future, but that capital may not be available when it is needed.

We are required by federal and state regulatory authorities to maintain adequate levels of capital to support our operations. We anticipate that our existing capital resources will satisfy our capital requirements for the foreseeable future. However, we may at some point need to raise additional capital to support growth or counteract the effects of future losses. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets at that time, which are outside our control, and on our financial performance. Accordingly, we cannot assure you of our ability to raise additional capital if needed on terms acceptable to us. If we cannot raise additional capital when needed, our ability to expand our operations through internal growth and acquisitions could be materially impaired.

We operate in a highly competitive industry and market areas.

We operate exclusively in North Central Wisconsin. Increased competition within our markets may result in reduced demand for loans and deposits, increased expenses, and difficulty in recruiting and retaining talented employees. Many competitors offer similar banking services in our market areas. Such competitors include national, regional, and other community banks, as well as other types of financial institutions, including savings and loan associations, trust companies, finance companies, brokerage firms, insurance companies, credit unions, and other financial intermediaries. The financial services industry could become even more competitive as a result of legislative, regulatory, and technological changes, and/or continued consolidation. Furthermore, many nonbank competitors are not subject to the same regulatory restrictions as

we are and may therefore provide customers with potentially attractive alternatives to traditional banking services.

Our ability to compete successfully depends on a number of factors, including, among other things:

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Our ability to develop, maintain, and build upon long-term customer relationships based on top quality service, and high ethical standards.

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Our ability to expand our market position.

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The scope, relevance, and pricing of products and services offered to meet customer needs and demands.

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The rate at which we introduce new products and services relative to our competitors.

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Industry and general economic trends.

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Failure to perform or other negative implications in any of these areas could significantly weaken our competitive position and adversely affect our consolidated financial condition and results of operations.

Our profitability depends significantly on the economic conditions of the markets in which we operate.

Our success depends on the general economic conditions of North Central Wisconsin where substantially all of our loans are originated. Local economic conditions have a significant impact on the demand for our products and services, the ability of our customers to repay loans, the value of the collateral securing loans, and the stability of our deposit funding sources. A significant decline in general local economic conditions, caused by inflation, recession, unemployment, changes in securities markets, changes in housing market prices, or other factors could impact local economic conditions and, in turn, have a material adverse effect on our consolidated financial condition and results of operations.

We continually encounter technological change.

The financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends on being able to effectively implement new technology and in being successful in marketing these products and services to our customers. Many of our larger competitors have substantially greater resources to invest in technological improvements. As a result, they may be able to offer additional or superior products to those we will be able to offer, which would put us at a competitive disadvantage. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

New lines of business or new products and services may subject us to additional risk.

From time to time, we may implement new lines of business or offer new products and services within existing lines of business. There are substantial risks and uncertainties associated with these efforts, particularly in instances where the markets are not fully developed. In developing and marketing new lines of business and/or new products and services, we may invest significant time and resources. Initial timetables for the introduction and development of new lines of business and/or new products or services may not be achieved and price and profitability targets may not prove feasible. External factors, such as compliance with regulations, competitive alternatives, and shifting market preferences, may also impact the successful implementation of a new line of business and/or a new product or service. Furthermore, any new line of business and/or new product or service could have a significant impact on the effectiveness of our system of internal controls. Failure to successfully manage these risks in the development and implementation of new lines of business and/or new products or services could substantially increase our operating costs, direct capital from other more profitable lines of business, or lead to a variety of unforeseen risks, each of which could have a material adverse effect on our business, results of operations and financial condition.

Negative publicity could damage our reputation

Reputation risk, or the risk to our earnings and capital from negative public opinion, is inherent in our business. Negative public opinion could adversely affect our ability to keep and attract customers, expose us to adverse legal and regulatory consequences or cause service providers to be reluctant to commit to long-term projects with us. Negative public opinion could result from our actual or alleged conduct in any number of activities, including lending practices, corporate governance, regulatory compliance, sharing or inadequate protection of customer information, from our actual or perceived financial condition, and from actions taken by government regulators and community organizations in response to such conduct or financial condition.

Credit risk cannot be eliminated.

There are risks in making any loan, including risks inherent in dealing with individual borrowers, risks of nonpayment, risks resulting from uncertainties as to the future value of collateral and cash flows available to service debt and risks resulting from economic and market conditions. We attempt to reduce our credit risk through loan application approval procedures, monitoring the concentration of loans within specific industries and geographic location, and periodic independent reviews of outstanding loans by our loan review and external parties. However, while such procedures should reduce our risks, they cannot be expected to completely eliminate our credit risks. If the overall economic climate in the United States, generally, and our market areas, specifically, worsens or fails to meaningfully improve, or even if it does, our borrowers may experience difficulties in repaying their loans, and the level of nonperforming loans, charge-offs and delinquencies could rise and require further increases in the provision for loan losses, which would cause our net income and return on equity to decrease.

Commercial loans make up a significant portion of our loan portfolio.

Commercial loans, defined as commercial business, commercial real estate, and real estate construction loans, comprised $193,923,000 and $201,378,000 or 58% and 60%, of our loan portfolio at December 31, 2011 and 2010, respectively. Our commercial loans are primarily made based on the identified cash flow of the borrower and secondarily on the underlying collateral provided by the borrower. Most often, this collateral is accounts receivable, inventory, or machinery. Credit support provided by the borrower for most of these loans and the probability of repayment is based on the liquidation of the pledged collateral and enforcement of a personal guarantee, if any exists. As a result, in the case of loans secured by accounts receivable, the availability of funds for the repayment of these loans may be substantially dependent on the ability of the borrower to collect amounts due from its customers. The collateral securing other loans may depreciate over time, may be difficult to appraise and may fluctuate in value based on the success of the business. Due to the larger average size of each commercial loan as compared with other loans such as residential loans, as well as collateral that is generally less readily-marketable, losses incurred on a small number of commercial loans could have a material adverse impact on our financial condition and results of operations.

Our agricultural loans involve a greater degree of risk than other loans, and the ability of the borrower to repay maybe affected by many factors outside of the borrower’s control.

At December 31, 2011 and 2010, agricultural real estate loans totaled $45,351,000 and $39,671,000, or 14% and 12%, of our total loan portfolio, respectively. Agricultural real estate lending involves a greater degree of risk and typically involves larger loans to single borrowers than lending on single-family residences. Payments on agricultural real estate loans are dependent on the profitable operation or management of the farm property securing the loan. The success of the farm may be affected by many factors outside the control of the farm borrower, including adverse weather conditions that prevent the planting of a crop or limit crop yields (such as hail, drought and floods), loss of livestock due to disease or other factors, declines in market prices for agricultural products (both domestically and internationally) and the impact of government regulations (including changes in price supports, subsidies and environmental regulations). In addition, many farms are dependent on a limited number of key individuals whose injury or death may significantly affect the successful operation of the farm. If the cash flow from a farming operation is diminished, the borrower’s ability to repay the loan may be impaired.

Our loan portfolio has a large concentration of real estate loans, which involve risks specific to real estate values.

Real estate lending (including commercial, construction, land and residential) is a large portion of our loan portfolio. These categories were $85,614,000 or approximately 26% of our total loan portfolio as of December 31, 2011, as compared to $$91,974,000, or approximately 26%, as of December 31, 2010. The market value of real estate can fluctuate significantly in a short period of time as a result of market conditions in the geographic area in which the real estate is located. Although a significant portion of such loans are secured by a secondary form of collateral, adverse developments affecting real estate values in one or more of our markets could increase the credit risk associated with our loan portfolio. Additionally, real estate lending typically involves higher loan principal amounts and the repayment of the loans generally is dependent, in large part, on sufficient income from the properties securing the loans to cover operating expenses and debt service. Economic events or governmental regulations outside of the control of the borrower or lender could negatively impact the future cash flow and market values of the affected properties.

If the loans that are collateralized by real estate become troubled during a time when market conditions are declining or have declined, then we may not be able to realize the amount of security that we anticipated at the time of originating the loan, which could cause us to increase our provision for loan losses and adversely affect our operating results and financial condition. In particular, if the declines in values that have occurred in the residential and commercial real estate markets worsen, particularly within our market area, the value of collateral securing our real estate loans could decline further. In light of the uncertainty that exists in the economy and credit markets nationally, there can be no guarantee that we will not experience additional deterioration resulting from the downturn in credit performance by our real estate loan customers.

Our allowance for loan losses (“ALLL”) may be insufficient to absorb losses in our loan portfolio.

We maintain an ALLL, which is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of potential credit losses that could be incurred within the existing loan portfolio. The ALLL, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The level of the ALLL reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss experience, current loan portfolio quality, present economic and regulatory conditions, and unidentified losses inherent in the existing loan portfolio. The determination of the appropriate level of the ALLL involves a high degree of subjectivity and requires us to make significant estimates of current credit risks using existing qualitative and quantitative information, all of which may undergo material changes. Changes in economic conditions affecting borrowers, new information regarding existing loans, identification of additional problem loans, and other factors, both within and outside of our control, may require an increase in the ALLL. In addition, bank regulatory agencies periodically review our ALLL and may require an increase in the provision for loan losses or the recognition of additional loan charge-offs based on judgments different than those of management. An increase in the provision for loan losses to bolster the ALLL results in a decrease in net income, and possibly risk-based capital, and may have a material adverse effect on our consolidated financial condition and results of operations.

We depend on the accuracy and completeness of information about customers and counterparties.

In deciding whether to extend credit or enter into other transactions, we may rely on information furnished by or on behalf of customers and counterparties, including financial statements, credit reports, appraisals, and other financial information. Reliance on inaccurate or misleading financial statements, credit reports, appraisals, or other financial information could cause us to enter into unfavorable transactions, which could have a material adverse effect on our consolidated financial condition and results of operations.

Liquidity is essential to our business.

Our liquidity could be impaired by an inability to access the capital markets or unforeseen outflows of cash. This situation may arise due to circumstances that we may be unable to control, such as a general market disruption or an operational problem that affects third parties or us. Our credit ratings are important to our liquidity. A reduction in our credit ratings could adversely affect our liquidity and competitive position,

increase our borrowing costs, limit our access to the capital markets or trigger unfavorable contractual obligations.

We rely on dividends from our subsidiaries for most of our revenue.

The Company is a separate and distinct legal entity from the Bank. Historically a substantial portion of its revenue has come from dividends from the Bank. These dividends are the principal source of funds to pay dividends on our common and preferred stock, and to pay interest and principal on our debentures. Various federal and/or state laws and regulations limit the amount of dividends that the Bank may pay to the Company. Moreover, the Bank has agreed to refrain from paying dividends to the Company without the prior approval of the FDIC and WDFI, which in light of the current financial condition of the Bank, may not be granted in the near future. In the event the Bank is unable to continue to pay dividends to the Company, the Company may not be able to service debt, pay obligations, or pay dividends on our common and preferred stock. The inability to receive dividends from the Bank could have a material adverse effect on our business, consolidated financial condition, and results of operations.

We are subject to interest rate risk.

Our earnings are dependent upon our net interest income, which is the spread between the interest rates earned on investments and loans and the interest rates paid on deposits and other interest-bearing liabilities. Interest rates are highly sensitive to many factors that are beyond our control, including general economic conditions and policies of various governmental and regulatory agencies and, in particular, the Federal Reserve. Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect: (i) our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities, and (iii) the average duration of our mortgage-backed securities portfolio and other interest-earning assets. If the interest rates paid on deposits and other liabilities increase at a faster rate than the interest rates received on loans and other investments, our net interest income, and therefore earnings, could be adversely affected. Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings.

The impact of interest rates on our mortgage banking activities can have a significant impact on revenues.

Changes in interest rates can impact mortgage banking income. A decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to accelerated payoffs. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a decline in payoffs.

Legislative and regulatory reforms applicable to the financial services industry may, if enacted or adopted, have a significant impact on our business, financial condition and results of operations.

On July 21, 2010, the Dodd-Frank Act was signed into law, which significantly changed the regulation of financial institutions and the financial services industry. The Dodd-Frank Act, together with the regulations to be developed there under, included provisions affecting large and small financial institutions alike, including several provisions that will affect how community banks, thrifts and small bank and thrift holding companies will be regulated in the future.

The Dodd-Frank Act, among other things, imposed new capital requirements on bank holding companies; changed the base for FDIC insurance assessments to a bank’s average consolidated total assets minus average tangible equity, rather than upon its deposit base, and permanently raised the current standard deposit insurance limit to $250,000; and expanded the FDIC’s authority to raise insurance premiums. The legislation also called for the FDIC to raise the ratio of reserves to deposits from 1.15% to 1.35% for deposit insurance purposes by September 30, 2020 and to “offset the effect” of increased assessments on insured depository institutions with assets of less than $10 billion. The Dodd-Frank Act also authorized the Federal Reserve to limit interchange fees payable on debit card transactions, established the Bureau of Consumer Financial

Protection as an independent entity within the Federal Reserve, which will have broad rulemaking, supervisory and enforcement authority over consumer financial products and services, including deposit products, residential mortgages, home-equity loans and credit cards, and contained provisions on mortgage-related matters, such as steering incentives, determinations as to a borrower’s ability to repay and prepayment penalties. The Dodd-Frank Act also included provisions that affect corporate governance and executive compensation at all publicly-traded companies and allowed financial institutions to pay interest on business checking accounts.

The Collins Amendment to the Dodd-Frank Act, among other things, eliminated certain trust preferred securities from Tier 1 capital, but certain trust preferred securities issued prior to May 19, 2010 by bank holding companies with total consolidated assets of $15 billion or less will continue to be includible in Tier 1 capital. This provision also required the federal banking agencies to establish minimum leverage and risk-based capital requirements that will apply to both insured banks and their holding companies.

These provisions, or any other aspects of current or proposed regulatory or legislative changes to laws applicable to the financial industry, if enacted or adopted, may impact the profitability of our business activities or change certain of our business practices, including the ability to offer new products, obtain financing, attract deposits, make loans, and achieve satisfactory interest spreads, and could expose us to additional costs, including increased compliance costs. These changes also may require us to invest significant management attention and resources to make any necessary changes to operations in order to comply, and could therefore also materially and adversely affect our business, financial condition and results of operations. Our management continues to stay abreast of developments with respect to the Dodd-Frank Act as its provisions are phased-in over time, and periodically reassesses its probable impact on our operations. However, the ultimate effect of the Dodd-Frank Act on the financial services industry in general, and us in particular, is uncertain at this time.

The U.S. Congress has also recently adopted additional consumer protection laws such as the Credit Card Accountability Responsibility and Disclosure Act of 2010, and the Federal Reserve has adopted numerous new regulations addressing banks’ credit card, overdraft and mortgage lending practices. Additional consumer protection legislation and regulatory activity is anticipated in the near future.

The Group of Governors and Heads of Supervision, the oversight body of the Basel Committee on Banking Supervision, adopted Basel III in September 2010, which is a strengthened set of capital requirements for banking organizations in the United States and around the world. Basel III is currently supported by the U.S. federal banking agencies. As agreed to, Basel III is intended to be fully-phased in on a global basis on January 1, 2019. However, the ultimate timing and scope of any U.S. implementation of Basel III remains uncertain. As agreed to, Basel III would require, among other things: (i) an increase in the minimum required common equity to 7% of total assets; (ii) an increase in the minimum required amount of Tier 1 capital from the current level of 4% of total assets to 8.5% of total assets; and (iii) an increase in the minimum required amount of total capital, from the current level of 8% to 10.5%. Each of these increased requirements includes 2.5% attributable to a capital conservation buffer to position banking organizations to absorb losses during periods of financial and economic stress. Basel III also calls for certain items that are currently included in regulatory capital to be deducted from common equity and Tier 1 capital. The Basel III agreement calls for national jurisdictions to implement the new requirements beginning January 1, 2013. At that time, the U.S. federal banking agencies will be expected to have implemented appropriate changes to incorporate the Basel III concepts into U.S. capital adequacy standards. Basel III changes, as implemented in the United States, will likely result in generally higher regulatory capital standards for all banking organizations.

Such proposals and legislation, if finally adopted, would change banking laws and our operating environment and that of our subsidiaries in substantial and unpredictable ways. We cannot determine whether such proposals and legislation will be adopted, or the ultimate effect that such proposals and legislation, if enacted, or regulations issued to implement the same, would have upon our business, financial condition or results of operations.

We may be a defendant in a variety of litigation and other actions, which may have a material adverse effect on our financial condition and results of operation.

We may be involved from time to time in a variety of litigation arising out of our business. Our insurance may not cover all claims that may be asserted against us, regardless of merit or eventual outcome. Such litigation may divert the focus of our management, and it is also possible that such litigation may harm our reputation. Should judgments or settlements in any litigation exceed our insurance coverage, they could have a material adverse effect on our financial condition and results of operation. In addition, we may not be able to obtain appropriate types or levels of insurance in the future, nor may we be able to obtain adequate replacement policies with acceptable terms, if at all.

Impairment of investment securities or deferred tax assets could require charges to earnings, which could result in a negative impact on our results of operations.

In assessing the impairment of investment securities, management considers the length of time and extent to which the fair value has been less than cost, the financial condition and near-term prospects of the issuers, and the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. If the Company experiences a pre-tax loss position in the future there is a likelihood that an additional valuation allowance may be necessary against its deferred tax asset. The impact of each of these impairment matters could have a material adverse effect on our business, results of operations, and financial condition.

We may not be able to attract and retain skilled people.

Our past performance and growth has been influenced strongly by our ability to attract and retain management experienced in banking and financial services and familiar with the communities in our market areas. Our ability to retain key employees of our bank subsidiary will continue to be important to the successful implementation of our strategy. The unexpected loss of services of any key employees, or the inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business, results of operations and financial condition.

Further, we are subject to extensive restrictions on our ability to pay bonuses and other incentive compensation during the period in which we have any outstanding securities held by the Treasury that were issued under the CPP. Many of the restrictions are not limited to our senior executives and could cover other employees whose contributions to revenue and performance can be significant. The limitations may adversely affect our ability to recruit and retain these key employees in addition to our senior executive officers, especially if we are competing for talent against institutions that are not subject to the same restrictions. The Dodd-Frank Act also directs the Federal Reserve to promulgate rules prohibiting excessive compensation paid to bank holding company executives. These rules, if adopted, may make it more difficult to attract and retain the people we need to operate our businesses and limit our ability to promote our objectives through our compensation and incentive programs.

We are subject to operational risk.

We are subject to operational risk which represents the risk of loss resulting from human error, inadequate or failed internal processes and systems, and external events. Operational risk also encompasses compliance (legal) risk, which is the risk of loss from violations of, or noncompliance with, laws, rules, regulations, prescribed practices, or ethical standards. Although we seek to mitigate operational risk through a system of internal controls, resulting losses from operational risk could take the form of explicit charges, increased operational costs, harm to our reputation, or forgone opportunities, any and all of which could have a material adverse effect on our financial condition and results of operations.

Our internal controls and procedures may fail or be circumvented.

Management regularly reviews and updates our internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurances that the objectives of the system are met. Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition, and results of operations.

We rely on other companies to provide key components of our business infrastructure.

Third party vendors provide key components of our business infrastructure such as internet connections, online banking and core applications. While we have selected these third party vendors carefully, we do not control their actions. Any problems caused by these third parties, including a failure to provide us with their services for any reason or poor performance, could adversely affect our ability to deliver products and services to our customers and otherwise to conduct our business. Replacing these third party vendors could also entail significant delay and expense.

System failure or breaches of our network security, including with respect to our internet banking activities, could subject us to increased operating costs as well as litigation and other liabilities.

The computer systems and network infrastructure we use in our operations and internet banking activities could be vulnerable to unforeseen problems. Our operations are dependent upon our ability to protect our computer equipment against damage from physical theft, fire, power loss, telecommunications failure or a similar catastrophic event, as well as from security breaches, denial of service attacks, viruses, worms and other disruptive problems caused by hackers. Computer break-ins, phishing and other disruptions could also jeopardize the security of information stored in and transmitted through our computer systems and network infrastructure, as well as that of our customers engaging in internet banking activities. In addition, advances in computer capabilities, new discoveries in the field of cryptography or other developments could result in a compromise or breach of the algorithms we and our third-party service providers use to encrypt and protect customer data. Although we have procedures in place to prevent or limit the effects of any of these potential problems and intend to continue to implement security technology and establish operational procedures to prevent such occurrences, there can be no assurance that these measures will be successful. Any interruption in, or breach in security of, our computer systems and network infrastructure, or that of our internet banking customers, could damage our reputation, result in a loss of customer business, subject us to additional regulatory scrutiny, or expose us to civil litigation and possible financial liability, any of which could have a material adverse effect on our financial condition and results of operations.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our headquarters are located at the Bank’s administrative office facility at 132 West State Street, Medford, Wisconsin. We own one building in Wausau and lease the premises back to the Bank. The Bank owns nine buildings and leases three. All buildings owned or leased by the Bank are in good condition and considered adequate for present and near-term requirements.

Branch	Address
Medford-Plaza	134 South 8^th Street, Medford, WI 54451	20,000
Medford-Corporate	132 West State Street, Medford, WI 54451	15,900
Rib Mountain	3845 Rib Mountain Drive, Wausau, WI 54401	13,000
Colby	101 South First Street, Colby, WI 54421	8,767
Neillsville	500 West Street, Neillsville, WI 54456	7,560
Minocqua*	8744 Highway 51 N, Suite 4, Minocqua, WI 54548	4,500
Rhinelander	2170 Lincoln Street, Rhinelander, WI 54501	4,285
Phillips	864 N Lake Avenue, Phillips, WI 54555	4,285
Eagle River*	325 West Pine Street, Eagle River, WI 54521	4,000
Abbotsford	119 North First Street, Abbotsford, WI 54405	2,986
Weston *	7403 Stone Ridge Drive, Weston, WI 54476	2,500
Rib Lake	717 McComb Avenue, Rib Lake, WI 54470	2,112
Fairchild	111 N Front Street, Fairchild, WI 54741	1,040

Branch leased from third party.

ITEM 3. LEGAL PROCEEDINGS

We engage in legal actions and proceedings, both as plaintiff and defendant, from time to time in the ordinary course of business. In some instances, such actions and proceedings involve substantial claims for compensatory or punitive damages or involve claims for an unspecified amount of damages. There are, however, presently no proceedings pending or contemplated which, in our opinion, would have a material adverse effect on our consolidated financial position, results of operations or liquidity.

As previously reported, in 2007 we commenced a legal action against the guarantor of a loan to a former car dealership (“Impaired Borrower”) and others seeking relief for damages. On September 30, 2010 a Marathon County jury found the Impaired Borrower liable for intentionally misrepresenting the financial condition of the dealership and for acts of conspiracy in enticing the Bank to extend credit to it. The jury awarded the Bank a $4,000,000 judgment for the losses it suffered as a result of this transaction. This judgment is subject to appeal and the ability to collect is unclear at this time. As a result of our continuing collection efforts to recover losses related to this transaction, the Bank received an insurance settlement in the amount of $500,000 in January 2011. We continue to pursue all avenues of recovery.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

ITEM 5. MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

There is no active established public trading market in our common stock, although two regional broker-dealers act as market makers for the stock. Bid and ask prices are quoted on the OTC Bulletin Board under the symbol “MWFS.OB”. Transactions in our common stock are limited and sporadic.

Market Prices and Dividends

The following table summarizes price ranges of over-the-counter quotations and cash dividends paid on our common stock for the periods indicated. Prices represent the bid prices reported on the OTC Bulletin Board. The prices do not reflect retail mark-up, mark-down or commissions, and may not necessarily represent actual transactions.

	2011 Prices and Dividends									2010 Prices and Dividends
Quarter	High		Low		Dividends		Quarter			High		Low		Dividends
1^st	$	8.05	$	7.90	$	0.00		1	st	$	9.10	$	6.00	$	0.00
2nd		8.70		7.77		0.00		2	nd		11.00		9.00		0.00
3rd		8.00		4.75		0.00		3	rd		9.50		7.85		0.00
4th		5.00		3.50		0.00		4	th		7.85		7.80		0.00

Holders

As of March 1, 2012, there were approximately 850 holders of record of our common stock. Some of our common stock is held in “street” or “nominee” name and the number of beneficial owners of such shares is not known nor included in the foregoing number.

Dividend Policy

Prior to 2009, dividends on our common stock were historically paid in cash on a quarterly basis in March, June, September, and December. In 2009, we declared a first quarter dividend payable to shareholders in March of that year. Subsequent to the payment of the 2009 first quarter dividend, we changed our dividend payment policy on our common stock to declare semi-annual dividends, payable in February and August; however, following an analysis of our operating results, capital position and the general economic climate, we elected to defer dividends beginning in August 2009 and do not anticipate paying dividends on our common stock for the foreseeable future.

Our ability to pay dividends depends in part upon the receipt of dividends from the Bank and these dividends are subject to limitation under banking laws and regulations. Our declaration of dividends to our shareholders is discretionary and will depend upon earnings, capital requirements, and the operating and financial condition of the Company. Prior to the third anniversary of the Treasury’s purchase of the Series A and B Preferred Stock, unless such stock has been redeemed, the consent of the Treasury will be required for us to increase our annual common stock dividend above $0.44 per common share. We are also prohibited from paying dividends on our common stock if we fail to make distributions or scheduled payments on the Debentures or TARP Preferred Stock. In consultation with the Federal Reserve Bank of Minneapolis, on May 12, 2011, the Company exercised its rights to suspend dividends on the outstanding TARP Preferred Stock and has also elected to defer interest on the Debentures. As of December 31, 2011, the Company had $485 accrued and unpaid dividends on the TARP Preferred Stock and $146 accrued and unpaid interest due of the Debentures. Consequently, we may not declare a dividend on our common stock until such accrued amounts have been paid and we are current on all distributions due holders of the Debentures and TARP Preferred Stock.

Stock Buy-Back

Under the CPP, prior to February 20, 2012, we were required to obtain the consent of the Treasury prior to redemption, purchase or acquisition any shares of our capital stock, other than (i) redemptions, purchases or other acquisitions of the TARP Preferred Stock, (ii) redemptions, purchases or other acquisitions of shares of our common stock in connection with the administration of any employee benefit plan in the ordinary course of business and consistent with past practice and (iii) certain other redemptions, repurchases or other acquisitions as permitted under the CPP. We did not repurchase any shares of our capital stock in 2011, nor do we expect to in the near future.

ITEM 6. SELECTED FINANCIAL DATA

Table 1: Earnings Summary and Selected Financial Data

Years Ended December 31,	2011			2010			2009			2008			2007
	(In thousands, except per share data)
Results of operations:
Interest income	$	22,039		$	25,062		$	26,932		$	29,732		$	32,144
Interest expense		6,485			8,762			10,500			13,297			16,564
Net interest income		15,554			16,300			16,432			16,435			15,580
Provision for loan losses		4,750			4,755			8,506			3,200			1,140
Net interest income after provision for loan losses		10,804			11,545			7,926			13,235			14,440
Noninterest income		4,287			5,550			4,421			4,026			4,057
Other-than-temporary impairment losses, net		0			412			301			0			0
Noninterest expense		17,187			15,805			16,450			16,010			17,334
Income (loss) before income taxes		(2,096	)		878			(4,404	)		1,251			1,163
Income tax (benefit) expense		1,861			135			(1,916	)		9			45
Net income (loss)		(3,957	)		743			(2,488	)		1,242			1,118
Preferred stock dividends, discount and premium		(644	)		(641	)		(545	)		0			0
Net income (loss) available to common equity	$	(4,601	)	$	102		$	(3,033	)	$	1,242		$	1,118
Earnings (loss) per common share:
Basic and diluted	$	(2.78	)	$	0.06		$	(1.84	)	$	0.76		$	0.68
Cash dividends per common share	$	0.00		$	0.00		$	0.11		$	0.55		$	0.66
Weighted average common shares outstanding:
Basic		1,654			1,650			1,645			1,643			1,640
Diluted		1,654			1,650			1,646			1,643			1,641

SELECTED FINANCIAL DATA
Year-End Balances:
Loans	$	329,863		$	339,170		$	358,616		$	364,381		$	357,988
Allowance for loan losses		9,816			9,471			7,957			4,542			4,174
Investment securities available-for-sale, at fair value		110,376			101,310			103,477			81,038			82,551
Total assets		488,176			509,082			505,460			496,459			480,359
Deposits		381,620			400,610			397,800			385,675			369,479
Long-term borrowings		40,061			42,561			42,561			49,429			46,429
Subordinated debentures		10,310			10,310			10,310			10,310			10,310
Stockholders’ equity		39,513			42,970			43,184			35,805			34,571
Book value per common share	$	17.65		$	19.85		$	20.10		$	21.78		$	21.06
Average Balances:
Loans	$	338,607		$	355,575		$	363,966		$	361,883		$	355,307
Investment securities available-for-sale, at fair value		129,742			123,103			110,515			90,776			86,972
Total assets		493,686			505,597			497,994			477,274			470,209
Deposits		384,210			394,872			380,633			364,710			360,101
Short-term borrowings		12,285			10,410			11,907			11,634			17,939
Long-term borrowings		41,273			42,561			47,296			51,874			42,462
Stockholders’ equity		42,973			43,976			44,122			35,317			34,348
Financial Ratios:
Return on average assets		(0.93%)			0.02	%		(0.61%)			0.26	%		0.24	%
Return on average common equity		(14.05%)			0.23	%		(6.87%)			3.52	%		3.25	%
Average equity to average assets		8.70	%		8.70	%		8.86	%		7.21	%		7.20	%
Net interest margin (1)		3.38	%		3.46	%		3.53	%		3.71	%		3.60	%
Total risk-based capital		15.57	%		15.46	%		14.49	%		13.33	%		13.32	%
Net charge-offs to average loans		1.30	%		0.91	%		1.40	%		0.78	%		1.45	%
Nonperforming loans to total loans		4.00	%		3.70	%		3.89	%		2.47	%		1.77	%
Efficiency ratio (1)		85.53	%		73.40	%		79.20	%		76.86	%		86.71	%
Noninterest income to average assets		0.87	%		1.10	%		0.89	%		0.84	%		0.86	%
Noninterest expenses to average assets		3.48	%		3.13	%		3.30	%		3.35	%		3.69	%
Dividend payout ratio		0.00	%		0.00	%		7.27	%		72.68	%		96.78	%
Stock Price Information: (2)
High	$	8.70		$	11.00		$	16.25		$	24.00		$	38.00
Low		3.50			6.00			7.00			12.25			19.75
Market price at year end		3.50			7.80			7.00			12.25			19.75

(1)

Fully taxable equivalent basis, assuming a federal tax rate of 34% and adjusted for the disallowance of interest expense

(2)

Bid Price

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

The following management’s discussion and analysis reviews significant factors with respect to our consolidated financial condition at December 31, 2011 and 2010, and results of operations for the three-year period ended December 31, 2011. This discussion should be read in conjunction with the consolidated financial statements, notes, tables, and selected financial data presented elsewhere in this report.

Our discussion and analysis contains forward-looking statements that are provided to assist in the understanding of anticipated future financial performance. However, such performance involves risks and uncertainties that may cause actual results to differ materially from those discussed in such forward-looking statements. A cautionary statement regarding forward-looking statements is set forth under the caption “Special Note Regarding Forward-Looking Statements” in Item 1 of this Annual Report on Form 10-K. This discussion and analysis should be considered in light of such cautionary statements and the risk factors disclosed elsewhere in this report.

Critical Accounting Policies

Our financial statements are prepared in conformity with accounting principles generally accepted in the United States of America and follow general practices within the industry in which we operate. This preparation requires management to make estimates, assumptions and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions and judgments are based on information available as of the date of the financial statements; accordingly, as this information changes, actual results could differ from the estimates, assumptions and judgments reflected in the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. We believe the following policies are important to the portrayal of our financial condition and require subjective or complex judgments and, therefore, are critical accounting policies.

Investment Securities: The fair value of our investment securities is important to the presentation of the consolidated financial statements since the investment securities are carried on the consolidated balance sheet at fair value. We utilize a third party vendor to assist in the determination of the fair value of our investment portfolio. Adjustments to the fair value of the investment portfolio impact our consolidated financial condition by increasing or decreasing assets and shareholders’ equity, and possibly earnings. Declines in the fair value of investment securities below their cost that are deemed to be other-than-temporarily impaired (“OTTI”) are reflected in earnings as realized losses and assigned a new cost basis. In estimating OTTI, we consider many factors which include: (i) the length of time and the extent to which fair value has been less than cost; (ii) the financial condition and near-term prospects of the issuer; and (iii) our intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. To determine OTTI, we utilize a discounted cash flow model to estimate the fair value of the security. The use of a discounted cash flow model involves judgment, particularly of interest rates, estimated default rates and prepayment speeds.

Allowance for Loan Losses: Management’s evaluation process used to determine the adequacy of the ALLL is subject to the use of estimates, assumptions, and judgments. The evaluation process combines several factors: (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 category; (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 and forecasted economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect potential credit losses. Because current economic conditions can change and future events are inherently difficult to predict, the anticipated amount of estimated loan losses, and therefore the adequacy of the ALLL, could change significantly. As an integral part of their examination process, various regulatory agencies also review the ALLL. Such agencies may require that certain loan balances be classified differently or charged-off when their credit evaluations differ from those of management, based on their judgments about information available to

them at the time of their examination. The Company believes the ALLL as recorded in the consolidated financial statements is adequate.

Other real estate owned (“OREO”): Real estate acquired through, or in lieu of, loan foreclosure is held for sale and is initially recorded at fair value at the date of foreclosure, establishing a new cost basis. The fair value is based on appraised or estimated values obtained, less estimated costs to sell, and adjusted based on highest and best use of the properties, or other changes. There are uncertainties as to the price we may ultimately receive on the sale of the properties, potential property valuation allowances due to declines in the fair values, and the carrying costs of properties for expenses such as utilities, real estate taxes, and other ongoing expenses that may affect future earnings.

Income taxes: The assessment of tax assets and liabilities involves the use of estimates, assumptions, interpretations, and judgment concerning certain accounting pronouncements and federal and state tax codes. There can be no assurance that future events, such as court decisions or positions of federal and state taxing authorities, will not differ from management’s current assessment, the impact of which could be significant to the consolidated results of operations and reported earnings. Quarterly assessments will be performed to determine if additional valuation allowances may be necessary against its deferred tax asset. At December 31, 2011 the Company believes the tax assets and liabilities are adequate and properly recorded in the consolidated financial statements.

All remaining information included in this Management’s Discussion and Analysis of Financial Condition and Results of Operations are shown in thousands of dollars, except per share data.

Credit Management Process Enhancements

Our Principal Executive Officer, Executive Vice President and Chief Credit Officer (“Executive Management”) have been focused on continued enhancements to the Company’s credit management process to address credit quality and the effects of the economy. To enhance credit risk management, the Company has taken several actions, including but not limited to: (i) the establishment of a credit administration function and hiring of an experienced Chief Credit Officer in November 2009; (ii) the expansion of its special assets and collection staff; (iii) the adoption of enhanced credit underwriting policies and procedures, including the requirement that exceptions to loan policies and procedures be approved by Executive Management; and (iv) loan officers prepare problem loan memos for all credits risk rated “special mention” and higher to identify risks and the remediation necessary to prevent continued credit quality declines in the loan portfolio. These changes have prompted a number of personnel changes among our lending staff and in some instances the reassignment of duties and responsibilities among remaining staff members.

Additionally, while the board of directors has always provided oversight of the credit process, it has increased its involvement over the past several years. Three independent directors and the President comprise the Bank’s Board Loan Committee (“BLC”). The BLC meets at least twice each month (and other times as necessary) to review loan proposals for (i) secured loans risk rated acceptable or better and over $1,200; (ii) unsecured loans risk rated acceptable or better over $500; (iii) secured loans risk rated special mention or greater over $750; and (iv) unsecured loans risk rated special mention or greater over $100. All actions or proposed actions for all loans risk rated substandard or doubtful, or which have been adversely classified by regulatory agencies, must be approved by the BLC. Any secured loan over $7,000 or unsecured loan over $5,000 and all loan participations must be approved by the full board of directors. The BLC annually reviews all loan relationships risk rated acceptable or better and over $1,200, all loan relationships risk rated special mention and over $750, and all loan relationships risk rated substandard or doubtful. Delinquent loans are reviewed with the BLC on a regular basis.

Since 2009, the board’s Audit Committee has engaged the services of an independent third party to perform periodic reviews to evaluate the credit quality, loan administration and approval processes with respect to the Bank’s loan portfolio. During 2011, the Audit Committee had the independent loan reviewer perform an in-depth review of “acceptable,” “special mention,” and “substandard” risk rated loans to confirm that the loan portfolio was appropriately risk rated. The review identified some loans that required the rating

to be adjusted up or down, but overall confirmed that our loan procedures have improved. Three independent loan reviews are scheduled to be performed in 2012 as well.

Results of Operations

Overview

The Company reported a net loss available to common shareholders of $4,601, or $2.78 per common share, for the year ended December 31, 2011, compared to net income available to common shareholders of $102, or $0.06 per common share, for the year ended December 31, 2010.

The Company’s financial results for 2011 were significantly impacted by the credit quality of the Bank’s loan portfolio, as there is a strong correlation between performance and the level of provision for loan losses, charge-offs and costs of adverse credit quality. As described further below, during the fourth quarter of 2011, a $2,911 valuation allowance was recognized in income tax expense to offset deferred tax assets. Weak loan demand, combined with historically low interest rates, has created intense competition for high quality credits while other investment alternatives offer little return resulting in a compressed net interest margin. We expect that the level of provision for loan losses, along with the costs of adverse credit quality will continue to put pressure on our earnings in 2012.

Key factors behind these results are discussed below:

•

Net interest income of $15,554 for the year ended December 31, 2011, decreased by 5% from 2010. On a fully tax-equivalent basis, the net interest margin at December 31, 2011 decreased to 3.38% from 3.46% in 2010. The decrease in net interest margin was primarily due to an elevated level of liquidity that was invested in lower-yielding assets, weak loan demand, high levels of nonaccrual loans, and the sale of higher yielding investment securities during the latter half of 2010. Average loans outstanding decreased by $16,968 to $338,607 and the average balance of investment securities increased $9,940 to $105,868 at December 31, 2011, compared to a year earlier. The average yield on earning assets was 4.76% at December 31, 2011 compared to 5.29% at December 31, 2010.

•

Loans of $329,863 at December 31, 2011, decreased $9,307 from December 31, 2010. Loan growth has been impacted by the current credit environment, lack of loan demand in our market area, loan payoffs, and charge-offs. Although competition among local and regional banks for creditworthy borrowers and core deposit customers remains high, we remain committed to supporting our markets through lending to creditworthy borrowers despite the increasing regulatory burdens placed on financial institutions and the continuing economic challenges.

•

Total deposits were $381,620 at December 31, 2011, down $18,990 from the year ended December 31, 2010, primarily due to the maturity of brokered certificates of deposit and deposits acquired under a listing service. The Company decided to not replace these funding sources due to excess liquidity and continued efforts to reduce reliance on non core deposits.

•

Net charge-offs were $4,405 for 2011, and $3,241 for 2010. The provision for loan losses was $4,750 for 2011, compared with $4,755 for 2010. The continued high level of provision was due primarily to the levels of loan charge-offs, levels of nonperforming loans, depressed collateral values, and internal assessments of currently performing loans with increased risk for future delinquencies. The Bank’s coverage ratio of the ALLL to total loans at December 31, 2011 was 2.98% compared to 2.79% at December 31, 2010.

•

Another major contributor to current year results was a $2,911 valuation allowance taken in the fourth quarter of 2011 that was recognized in income tax expense to offset deferred tax assets. The valuation allowance was taken to account for the possibility that some portion of the deferred tax asset will not be realized in the future. A deferred tax asset is the amount of tax deductions the Company has available to be utilized on future income tax returns. Upon the generation of future taxable income during the periods in which the tax deductions become deductible all or a portion of the established valuation allowance could be reversed. If the Company experiences a pre-tax loss position in the future

there is likelihood that an additional valuation allowance may be necessary. At December 31, 2011 the remaining balance of the deferred tax asset was $1,179.

•

Excluding a legal settlement of $500 and a $55 loss on the sale of investments in 2011 and the $1,054 gain on sale of investments recognized in 2010, noninterest income for 2011 was $3,842, down $654, or 15%, compared to 2010. Noninterest income continued to decline as a result of regulatory changes under the Dodd-Frank Act limiting certain service fees and decreased mortgage banking income from the sales of residential real estate loans into the secondary market. Mortgage banking income did increase in the third and fourth quarters of 2011 as compared to the first half of the year due to declines in interest rates; however, even with the uptick in refinancing, the activity was not as high as 2010 levels.

•

Noninterest expense for 2011 was $17,187, an increase of $1,382, or 9%, over 2010, due primarily to increased foreclosure/OREO expenses, collection expenses, FDIC costs, marketing and product expenses associated with a new suite of deposit products, and loan servicing costs.

•

In 2010, the Company recognized OTTI write-downs of $412 from two private placement trust preferred securities as the unrealized losses appeared to be related to expected credit losses that will not be recovered by the Company. No OTTI credit losses were recognized in earnings during 2011.

•

As of December 31, 2011, the Bank’s Tier One Capital Leverage ratio was 8.7% and Total Risk-Based capital ratio was 14.2%, compared to 9.0% and 13.9%, respectively, at December 31, 2010. The Company’s Tier One Capital Leverage ratio was 9.6% and Total Risk-Based capital ratio was 15.6%, compared to 10.0% and 15.5%, respectively, at December 31, 2010. All ratios are above the regulatory guidelines stipulated in the Bank’s and Company’s agreements with their primary regulators.

Net Interest Income

Our earnings are substantially dependent on net interest income which is the difference between interest earned on investments and loans and the interest paid on deposits and other interest-bearing liabilities. Net interest income is directly impacted by the sensitivity of the balance sheet to changes in interest rates and by the amount and composition of earning assets and interest-bearing liabilities, including characteristics such as the fixed or variable nature of the financial instruments, contractual maturities, and repricing frequencies.

Table 2 presents changes in the mix of average interest-earning assets and average interest-bearing liabilities for the three years ended December 31, 2011. The mix of the balance sheet has shifted from loans to taxable securities funded by a growing allocation of savings deposits as compared to time deposits thus lowering the Company’s taxable-equivalent net interest income.

Table 2: Mix of Average Interest Earning-Assets and Average Interest-Bearing Liabilities

	Years Ended December 31,
($ in thousands)	2011			2010			2009
Loans		72	%		74	%		77	%
Taxable securities		20	%		18	%		17	%
Tax-exempt securities		3	%		2	%		2	%
Other		5	%		6	%		4	%
Total interest-earning assets		100	%		100	%		100	%
Interest-bearing demand		9	%		9	%		7	%
Savings deposits		30	%		26	%		26	%
Time deposits		44	%		49	%		49	%
Short-term borrowings		3	%		3	%		3	%
Long-term borrowings		11	%		10	%		12	%
Subordinated debentures		3	%		3	%		3	%
Total interest-bearing liabilities		100	%		100	%		100	%

Table 3: Average Balance Sheet and Net Interest Income Analysis — Taxable-Equivalent Basis

	Years Ended December 31,
	2011								2010								2009
	Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate			Average Balance			Interest		Average Rate
	($ in thousands)
ASSETS
Earnings assets
Loans (1) (2) (3)	$	338,607		$	18,980		5.61	%	$	355,575		$	21,391		6.02	%	$	363,966		$	22,814		6.27	%
Investment securities:
Taxable		93,511			2,563		2.74	%		85,925			3,216		3.74	%		79,030			3,540		4.48	%
Tax-exempt (2)		12,357			597		4.83	%		10,003			544		5.43	%		11,795			725		6.15	%
Federal funds sold		12,296			16		0.13	%		17,182			26		0.15	%		12,164			14		0.12	%
Securities purchased under agreements to sell		8,065			108		1.34	%		3,833			65		1.70	%		0			0		0.00	%
Other interest-earning assets		3,512			39		1.11	%		6,160			64		1.04	%		7,526			135		1.79	%
Total earning assets	$	468,348		$	22,303		4.76	%	$	478,678		$	25,306		5.29	%	$	474,481		$	27,228		5.74	%
Cash and due from banks		7,857								7,789								7,618
Other assets		26,737								27,797								22,628
Allowance for loan losses		(9,256	)							(8,667	)							(6,733	)
Total assets	$	493,686							$	505,597							$	497,994
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Interest-bearing demand	$	35,785		$	164		0.46	%	$	35,100		$	205		0.59	%	$	29,639		$	187		0.63	%
Savings deposits		116,802			902		0.77	%		107,622			1,074		1.00	%		105,330			1,393		1.32	%
Time deposits		169,825			3,500		2.06	%		199,942			5,123		2.56	%		195,712			6,221		3.18	%
Short-term borrowings		12,285			123		1.00	%		10,410			95		0.91	%		11,907			124		1.04	%
Long-term borrowings		41,273			1,614		3.91	%		42,561			1,670		3.92	%		47,296			1,961		4.15	%
Subordinated debentures		10,310			183		1.77	%		10,310			595		5.77	%		10,310			614		5.98	%
Total interest-bearing liabilities	$	386,280		$	6,486		1.68	%	$	405,945		$	8,762		2.16	%	$	400,194		$	10,500		2.62	%
Noninterest-bearing demand deposits		61,798								52,208								49,952
Other liabilities		2,635								3,468								3,726
Stockholders’ equity		42,973								43,976								44,122
Total liabilities and stockholders’ equity	$	493,686							$	505,597							$	497,994
Net interest income and rate spread				$	15,817		3.08	%				$	16,544		3.13	%				$	16,728		3.12	%
Net interest margin							3.38	%							3.46	%							3.53	%

(1)

Nonaccrual loans 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 34% and adjusted for the disallowance of interest expense.

(3)

Interest income includes loan fees of $317 in 2011, $387 in 2010 and $489 in 2009.

Table 4: Volume/Rate Variance — Taxable-Equivalent Basis

	2011 vs. 2010									2010 vs. 2009
	Volume			Due to Rate (1)			Net			Volume			Due to Rate (1)			Net
Loans (2)	$	(1,021	)	$	(1,390	)	$	(2,411	)	$	(526	)	$	(897	)	$	(1,423	)
Taxable investments		284			(937	)		(653	)		309			(633	)		(324	)
Tax-exempt investments (2)		128			(75	)		53			(110	)		(71	)		(181	)
Federal funds sold		(7	)		(2	)		(10	)		6			6			12
Securities purchased under agreements to sell		72			(29	)		43			0			65			65
Other interest-earning assets		(28	)		2			(25	)		(25	)		(46	)		(71	)
Total earning assets	$	(572	)	$	(2,431	)	$	(3,003	)	$	(346	)	$	(1,576	)	$	(1,922	)
Interest-bearing demand	$	4		$	(45	)	$	(41	)	$	34		$	(16	)	$	18
Savings deposits		92			(264	)		(172	)		30			(349	)		(319	)
Time deposits		(771	)		(852	)		(1,623	)		135			(1,233	)		(1,098	)
Short-term borrowings		17			11			28			(16	)		(13	)		(29	)
Long-term borrowings		(50	)		(6	)		(56	)		(197	)		(94	)		(291	)
Subordinated debenture		0			(412	)		(412	)		0			(19	)		(19	)
Total interest-bearing liabilities	$	(708	)	$	(1,568	)	$	(2,276	)	$	(14	)	$	(1,724	)	$	(1,738	)
Net interest income	$	136		$	(863	)	$	(727	)	$	(332	)	$	148		$	(184	)

(1)

The change in interest due to both rate and volume has been allocated to rate.

(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 34% adjusted for the disallowance of interest expense.

Table 5: Yield on Earning Assets

	December 31, 2011						December 31, 2010						December 31, 2009
	Yield			Change			Yield			Change			Yield			Change
Yield on earning assets (1)		4.76	%		(0.53	)%		5.29	%		(0.45	)%		5.74	%		(0.91	)%
Effective rate on all liabilities as a percentage of earning assets		1.38	%		(0.45	)%		1.83	%		(0.38	)%		2.21	%		(0.73	)%
Net yield on earning assets		3.38	%		(0.08	)%		3.46	%		(0.07	)%		3.53	%		(0.18	)%

(1)

The yield on tax-exempt loans and tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 34% adjusted for the disallowance of interest expense.

Comparison of 2011 versus 2010

Taxable-equivalent net interest income was $15,817 for 2011, a decrease of 4% from 2010 primarily attributable to unfavorable rate variances as the impact of interest rates received on loans and other investments decreased more than the interest rates paid on deposits and other borrowings. Taxable-equivalent net interest income decreased $863 in 2011 compared to 2010 due to changes in rate.

The taxable-equivalent net interest margin was 3.38% for 2011, down from 3.46% for 2010. For 2011, the yield on earning assets of 4.76% was 53 basis points (“bps”) lower than the comparable period last year. Loan yields decreased 41 bps, to 5.61%, impacted by levels of nonaccrual loans, lower loan yields given the repricing of adjustable rate loans, soft loan demand, and competitive pricing pressures to retain and/or obtain creditworthy borrowers. The yield on investment securities decreased 94 bps to 2.98%, impacted by the Company’s excess liquidity position being invested in lower-yielding investment securities resulting from soft loan demand during 2011 and the sale of $33,184 of investment securities during the latter half of 2010.

The cost of interest-bearing liabilities of 1.68% for 2011 was 48 bps lower than 2010. The average cost of interest-bearing deposits was 1.42%, down 45 bps due to decreasing deposit offering rates, while the cost

of wholesale funding (comprised of short-term borrowings and long-term borrowings) decreased 9 bps to 3.24% for 2011. The Company’s outstanding $10,310 of Debentures had a fixed rate of 5.98% through December 15, 2010, after which they have had a floating rate equal to the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rate at December 31, 2011 was 1.98%.

Average earning assets of $468,348 for 2011 were $10,330 lower than the comparable period last year. Average investment securities grew $9,940 to $105,868, reflecting the Company’s increased liquidity position invested in lower-yielding assets. Average loans decreased $16,968 to $338,607 as a result of soft loan demand, pay-offs and charge-offs. Taxable-equivalent interest income in 2011 decreased $3,003 to $22,303 due to $572 unfavorable earning asset volume changes and $2,431 unfavorable rate variances.

Average interest-bearing liabilities of $386,280 for 2011 were down $19,665 compared to the related 2010 period. Average interest-bearing deposits decreased $20,252 while noninterest-bearing deposits increased $9,590. For 2011, interest expense decreased $2,276 of which $1,568 was due to favorable rate changes and $708 was due to favorable volume changes.

Comparison of 2010 versus 2009

Taxable equivalent net interest income for 2010 was $16,544, a decrease of $184, or 1%, from $16,728 in 2009. The decrease in taxable equivalent net interest income was a function of unfavorable volume variances (as balance sheet changes in both volume and mix decreased taxable equivalent net interest income by $332) and favorable interest rate changes (as the impact of changes in the interest rate environment and product pricing increased taxable equivalent interest income by $148). The change in mix and volume of earning assets decreased taxable equivalent interest income by $346, while the change in volume and composition of interest-bearing liabilities decreased interest expense $14. Rate changes on earning assets reduced interest income by $1,576, while changes in rates on interest-bearing liabilities lowered interest expense by $1,724, for a net favorable impact of $148.

The net interest margin for 2010 was 3.46%, compared to 3.53% in 2009. For 2010, the yield on earning assets of 5.29% was 45 bps lower than 2009. Loan yields decreased 25 bps, to 6.02%, impacted by the levels of nonaccrual loans, repricing of adjustable rate loans and competitive pricing pressures in a low interest rate environment. The yield on investment securities and other interest-earning assets decreased 81 bps, impacted by the Company’s excess liquidity position during most of 2010 and the sale of investment securities.

The cost of average interest-bearing liabilities of 2.16% in 2010 was 46 bps lower than 2009. The average cost of interest-bearing deposits in 2010 was 1.87%, 49 bps lower than 2009, reflecting the low interest rate environment. The cost of wholesale funding (comprised of short-term borrowings and long-term borrowings) decreased 19 bps to 3.33% for 2010. The Debentures had a fixed rate of 5.98% through December 15, 2010, after which they have a floating rate of the three-month Libor plus 1.43%, adjusted quarterly. The interest rate at December 31, 2010 was 1.73%.

Average earning assets of $478,678 in 2010 were $4,197 lower than 2009. Average federal funds sold and overnight repurchase agreements and investment securities grew $10,849 and $5,103, respectively, reflecting the Company’s increased liquidity position. Average loans decreased $8,391. Taxable equivalent interest income in 2010 decreased $1,922 due to earning asset rate and volume changes.

Average interest-bearing liabilities of $405,945 in 2010 were up $5,751 versus 2009, attributable to a higher level of interest-bearing deposits. Average interest-bearing deposits grew $11,983 and average noninterest-bearing deposits increased $2,256. Given the soft loan demand and growth in deposits, average wholesale funding decreased by $6,232. In 2010, interest expense decreased $1,724 due to rate changes, with a $1,598 decrease from interest-bearing deposits and a $126 decrease due to short-term and long-term borrowings and subordinated debentures.

Provision for Loan Losses

The provision for loan losses in 2011 was $4,750, compared to $4,755 and $8,506 for 2010 and 2009, respectively. The continued high level of provision was due primarily to the levels of loan charge-offs, levels of nonperforming loans, depressed collateral values, existing economic conditions, and internal assessments of

currently performing loans with increased risk for future delinquencies. Net charge-offs were $4,405 for 2011, compared to $3,241 for 2010 and $5,091 for 2009. The increase in net charge-offs from 2010 was primarily due to management’s decision, made in consultation with the Bank’s regulators, to charge-off certain impaired loans that were covered by specific reserve allocations identified in the ALLL in 2011. At December 31, 2011, the ALLL was $9,816, an increase of $345 over December 31, 2010 and an increase of $1,859 over December 31, 2009. The ratio of the ALLL to total loans was 2.98%, 2.79%, and 2.22% for the years ended December 31, 2011, 2010, and 2009, respectively. Nonperforming loans at December 31, 2011, were $13,200, compared to $12,543 at December 31, 2010, and $13,942 at December 31, 2009, representing 4.00%, 3.70%, and 3.89% of total loans, respectively.

The provision for loan losses is predominantly a function of the Company’s methodology and judgment as to qualitative and quantitative factors used to determine the adequacy of the ALLL. The adequacy of the ALLL is affected by changes in the size and character of the loan portfolio, changes in levels of impaired 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. We believe the level of provisioning and the level of our ALLL followed the direction of our policies and was adequate to cover anticipated and unexpected loan losses inherent in our loan portfolio as of December 31, 2011. However, we may need to increase our provisions in the future should the quality of the loan portfolio decline or other factors used to determine the allowance worsen. Please refer to the discussion under “Balance Sheet Analysis-Allowance for Loan Losses” and “Balance Sheet Analysis-Impaired Loans and Nonperforming Assets” for further information.

Noninterest Income

Table 6: Noninterest Income

	Years Ended December 31,							Change From Prior Year
($ in thousands)	2011			2010		2009		$ Change 2011			% Change 2011			$ Change 2010			% Change 2010
Service fees	$	953		$	1,174	$	1,239	$	(221	)		(19%)		$	(65	)		(5%)
Trust service fees		1,066			1,103		1,024		(37	)		(3%)			79			8.0	%
Investment product commissions		221			221		237		0			0	%		(16	)		(7%)
Mortgage banking		523			955		564		(432	)		(45%)			391			69	%
Gain (loss) on sale of investments		(55	)		1,054		449		(1,109	)		(105%)			605			135	%
Other		1,579			1,043		908		536			51	%		135			15	%
Total noninterest income	$	4,287		$	5,550	$	4,421	$	(1,263	)		(23%)		$	1,129			26	%

Comparison of 2011 versus 2010

Noninterest income was $4,287 for 2011, down $1,263, or 23%, from 2010. Excluding a legal settlement of $500 and a $55 loss on the sale of investments in 2011 and the $1,054 gain on sale of investments recognized in 2010, noninterest income for the year ended December 31, 2011 totaled $3,842 down $654, or 15%, compared to 2010.

Service fees on deposit accounts for 2011 were $953, down $221, or 19%, from 2010. The decline in service fees was due to a general decrease in the amount of NSF/overdraft fees collected due to regulatory changes under the Dodd-Frank Act and changes in customer behavior. For 2012, core fee-based revenues are expected to face challenges related to the same factors that have affected 2011 results.

The Wealth Management Services Group generates trust service fees and investment product commissions. Trust service fees were $1,066 in 2011, down $37 from 2010, primarily due to a decrease in the valuations of assets under management, on which fees are based. Investment product commissions remained unchanged at $221 for 2011 and 2010.

Mortgage banking income represents income received from the sale of residential real estate loans into the secondary market. During 2010, mortgage rates fell to historically low levels, prompting a wave of consumer refinancing activity generating $955 of mortgage banking income. Mortgage banking income did

increase in the third and fourth quarters of 2011 due to further declines in interest rates; however, even with the uptick in refinancing, the refinancing activity was not as high as 2010 levels.

The Company recognized a $55 loss on the sale of investments in 2011. The security sales were executed in an effort to increase the credit quality of the Company’s investment portfolio. Excluding the $500 legal settlement noted above, other operating income increased $36 to $1,079 in 2011 compared to $1,043 in 2010.

Comparison of 2010 versus 2009

Noninterest income was $5,550 for 2010, an increase of $1,129, or 26%, from 2009.

For 2010, mortgage banking income was $955, up $391 from 2009. In 2010, 407 mortgage loans were sold totaling $68,886 into the secondary market compared to 301 loans totaling $47,436 for 2009. Residential loan activity reached an all time high in 2010 due to the historically low interest rate environment.

Gain on sale of investments was $1,054 for 2010 compared to $449 in 2009. Proceeds from 2010 sales totaled $38,146 while proceeds from 2009 were $12,717. The sales of investments are considered a normal function of prudently managing the portfolio and taking advantage of gain positions when appropriate. Sales also occurred to remove those mortgage securities that were considered too small to hold, to remove those securities that will have a tendency to react most negatively as rates rise and lastly to reposition the portfolio for future rising interest rates.

Noninterest Expense

Table 7: Noninterest Expense

	Years Ended December 31,						Change From Prior Year
($ in thousands)	2011		2010		2009		$ Change 2011			% Change 2011			$ Change 2010			% Change 2010
Salaries and employee benefits	$	8,561	$	8,537	$	8,411	$	24			0	%	$	126			1	%
Occupancy		1,769		1,830		1,893		(61	)		(3%)			(63	)		(3%)
Data processing		667		651		648		16			2	%		3			0	%
Foreclosure/OREO expense		857		243		1,278		614			253	%		(1,035	)		(81%)
Legal and professional fees		891		677		882		214			32	%		(205	)		(23%)
FDIC expense		1,117		1,036		1,057		81			8	%		(21	)		(2%)
Other		3,325		2,831		2,281		494			17	%		550			24	%
Total noninterest expense	$	17,187	$	15,805	$	16,450	$	1,382			9	%	$	(645	)		(4%)

Comparison of 2011 versus 2010

Total noninterest expense was $17,187 for the full year of 2011, an increase of $1,382, or 9%, over 2010 due primarily to increased foreclosure/OREO expenses, collection expenses, FDIC costs, and marketing and product expenses associated with a new suite of deposit products. The Company expects the costs of adverse credit quality to continue to stress earnings in 2012.

Foreclosure/OREO expense consists of the costs associated with OREO properties such as real estate taxes, utilities, maintenance costs, valuation adjustments against the carrying costs, and gains or losses on the sale of OREO properties. Foreclosure/OREO expense was $857 for the full year 2011 and consisted of $1,098 of OREO carrying costs offset by a $241 gain on the sales of various OREO properties. Foreclosure/OREO expense also included $628 of valuation adjustments against the carrying cost of various foreclosed properties based on appraisals obtained during 2011, compared to $159 in 2010. The majority of the remaining increase in foreclosure/OREO expense was due to real estate taxes and maintenance costs.

Legal and professional fees of $891 increased $214, or 32%, primarily due to higher legal costs associated with loan collection activities in 2011. An increase in FDIC expense of $81 was primarily due to increased deposit insurance rates due to a change in our risk rating.

Other operating expenses were $3,325 for the full year 2011, an increase of $494 over 2010, primarily due to increased marketing costs and reward payments based on debit card usage associated with the introduction of a new deposit program. The new deposit program did enhance our brand awareness across our

markets and increased our balances in noninterest-bearing demand and savings deposits. In 2012 we anticipate that the amount of rewards we will be able to pay our customers under this deposit program will decrease as a result of certain limitations to which the Bank is subject pursuant to its Agreement with the FDIC and WDFI.

In 2012, the Company has renewed efforts to reduce noninterest expenses, including but not limited to staff reductions and no merit increases for 2012, delaying non-critical projects, workflow changes, renegotiating vendor contracts, decreasing marketing expenses and reducing the levels of other discretionary spending.

Comparison of 2010 versus 2009

Noninterest expense declined $645, or 4%, from 2009, primarily from a reduction of $1,035 in expenses related to foreclosure/OREO expense as we were actively working out more loans in 2009 than in 2010.

Generally we continued to control noninterest expenses through staff reductions during 2010 (full-time-equivalents at December 31, 2010 were 151 compared to 158 at December 31, 2009), renegotiated vendor contracts and reduced our level of discretionary spending.

Our primary noninterest expense is salaries and benefits. Overall, salaries were generally frozen for all employees in 2010 and related expenses declined $19; however, this was offset by increases of $145 in the Company’s insurance and medical plans, provided as an employee benefit, for a net increase of $126 in 2010.

Foreclosure/OREO expense for 2010 was $243, a reduction of $1,035 from 2009. Savings of $698 were realized due to lower valuation adjustments required for OREO properties and the carrying expenses thereof, as well as a general reduction in foreclosure expenses.

Other expenses of $2,831 increased $550 in 2010 primarily due to $118 increase in advertising, marketing and public relations expenses; $289 in higher loan servicing expenses and $100 due to the recalculation of directors’ deferred compensation fees.

Income Taxes

Income tax expense for 2011 was $1,861 compared to $135 for 2010. The basic principles for accounting for income taxes require that deferred income taxes 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. Primarily due to net operating loss carryovers in 2011, the Bank’s net deferred tax asset (prior to any valuation allowance) increased to $4,260. All available evidence, both positive and negative, was considered to determine whether any impairment of this asset should be recognized. Based on consideration of the available evidence including historical losses which must be treated as substantial negative evidence and the potential of future taxable income, a $3,081 valuation allowance was determined to be necessary at December 31, 2011 to adjust deferred tax assets to the amount of net operating losses that are expected to be realized. If realized, the tax benefit for this item will reduce current tax expense for that period. If future earnings projections are not met there is a likelihood that an additional valuation allowance may be necessary.

Both the Company and the Bank pay federal and state income taxes on their consolidated net earnings. At December 31, 2011 tax net operating losses at the Company of approximately $4,071 federal and $10,038 state existed to offset future taxable income.

BALANCE SHEET ANALYSIS

Loans

The Bank services a diverse customer base throughout North Central Wisconsin including the following industries: agriculture (primarily dairy), retail, manufacturing, service, resort properties, timber and businesses supporting the general building industry. We continue to concentrate our efforts in originating loans in our local markets and assisting our current loan customers. We are actively utilizing government loan programs such as those provided by the U.S. Small Business Administration, U.S. Department of Agriculture, and

USDA Farm Service Agency to help these customers weather current economic conditions and position their businesses for the future.

Total loans were $329,863 at December 31, 2011, a decrease of $9,307, or 3%, from December 31, 2010. During 2011, the Company focused primarily on improving asset quality and working out current credit issues rather than loan growth.

Table 8: Loan Composition

	2011					2010					2009					2008					2007
	Amount		% of Total			% of Amount		% of Total			Amount		% of Total			Amount		% of Total			Amount		% of Total
	($ in thousands)
Commercial business	$	41,347		12	%	$	39,093		12	%	$	35,673		10	%	$	39,047		11	%	$	39,892		11	%
Commercial real estate		123,868		37	%		132,079		39	%		138,891		39	%		127,209		34	%		114,028		32	%
Real estate construction		28,708		9	%		30,206		9	%		35,417		10	%		45,665		13	%		45,959		13	%
Agricultural		45,351		14	%		39,671		12	%		42,280		12	%		43,345		12	%		40,804		11	%
Real estate residential		85,614		26	%		91,974		26	%		99,116		27	%		100,311		28	%		107,239		30	%
Installment		4,975		2	%		6,147		2	%		7,239		2	%		8,804		2	%		10,066		3	%
Total loans	$	329,863		100	%	$	339,170		100	%	$	358,616		100	%	$	364,381		100	%	$	357,988		100	%
Owner occupied	$	70,412		57	%	$	83,115		63	%	$	88,002		63	%	$	54,749		43	%	$	57,027		50	%
Non-owner occupied		53,456		43	%		48,964		37	%		50,889		37	%		72,460		57	%		57,001		50	%
Commercial real estate	$	123,868		100	%	$	132,079		100	%	$	138,891		100	%	$	127,209		100	%	$	114,028		100	%
1–4 family construction	$	1,837		6	%	$	967		3	%	$	3,523		10	%	$	4,757		10	%	$	8,034		17	%
All other construction		26,871		94	%		29,239		97	%		31,894		90	%		40,908		90	%		37,925		83	%
Real estate construction	$	28,708		100	%	$	30,206		100	%	$	35,417		100	%	$	45,665		100	%	$	45,959		100	%

Commercial business loans, commercial real estate, real estate construction loans and agricultural loans comprise 72% of our loan portfolio at December 31, 2011. Such loans are considered to have more inherent risk of default than residential mortgage or installment loans. The commercial balance per borrower is typically larger than that for residential and mortgage loans, implying higher potential losses on an individual customer basis. Commercial loan growth throughout 2010 and 2011 has been negatively impacted by soft loan demand across all markets, the Company’s aggressive approach to recognizing risks associated with specific borrowers and the recognition of charge-offs on nonperforming loans in a timely manner.

Commercial business loans were $41,347 at December 31, 2011, up $2,254, or 6%, since year end 2010, and comprised 12% of total loans. The commercial business loan classification primarily consists of commercial loans to small businesses, multi-family residential income-producing businesses, and loans to municipalities. Loans of this type include a diverse range of industries. The credit risk related to commercial business 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.

The commercial real estate loan classification primarily includes commercial-based mortgage loans that are secured by nonfarm/nonresidential real estate properties. Commercial real estate loans totaled $123,868 at December 31, 2011, down $8,211, or 6%, from December 31, 2010, and comprised 37% of total loans, down from 39% at the end of 2010. The decrease in this segment was due to charge-offs, pay downs, and the bank decreasing its credit exposure by encouraging the refinancing of certain loan relationships with other financial institutions. Future lending in this segment will focus on loans that are secured by commercial income producing properties as opposed to speculative real estate development. Credit risk is managed by employing sound underwriting guidelines, lending primarily to borrowers in local markets, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.

Real estate construction loans declined $1,498, or 5%, to $28,708, representing 9% of the total loan portfolio at the end of 2011 and 2010. Loans in this classification provide financing for the acquisition or development of commercial income properties, multi-family residential development, and single-family consumer construction. The Company controls the credit risk on these types of loans by making loans in familiar markets, underwriting the loans to meet the requirements of institutional investors in the secondary

market, reviewing the merits of individual projects, controlling loan structure, and monitoring the progress of projects through the analysis of construction advances.

Agricultural loans totaled $45,351 at December 31, 2011, up $5,680, or 14%, compared to December 31, 2010, and represented 14% of the 2011 year end loan portfolio, up from 12% at year end 2010. The majority of the increase was from two new credit relationships. Loans in this classification include loans secured by farmland and financing for agricultural production. Credit risk is managed by employing sound underwriting guidelines, periodically evaluating the underlying collateral, and formally reviewing the borrower’s financial soundness and relationship on an ongoing basis.

Real estate residential loans totaled $85,614 at the end of 2011, down $6,360, or 7%, from the prior year end, but comprised 26% of total loans outstanding at year end 2011 and 2010. Residential mortgage loans include conventional first lien home mortgages and home equity loans. Home equity loans consist of home equity lines, and term loans, some of which are first lien positions. If the declines in market values that have occurred in the residential real estate markets worsen, particularly in our market area, the value of collateral securing our real estate loans could decline further, which could cause an increase in our provision for loan losses. In light of the uncertainty that exists in the economy and credit markets, there can be no guarantee that we will not experience additional deterioration resulting from a downturn in credit performance by our residential real estate loan customers. As part of its management of originating residential mortgage loans, nearly all of the Company’s long-term, fixed-rate residential real estate mortgage loans are sold in the secondary market without retaining the servicing rights. At December 31, 2011, $2,163 of residential mortgages were being held for resale to the secondary market, compared to $7,444 at December 31, 2010.

Installment loans totaled $4,975 at December 31, 2011, down $1,172, or 19%, compared to 2010, and represented 2% of the 2011 and 2010 year end loan portfolio. The decline in aggregate installment loan balances is largely a result of the fact that the Company experiences extensive competition from local credit unions offering low rates on installment loans and therefore has directed resources toward more profitable lending segments. Loans in this classification include short-term and other personal installment loans not secured by real estate. Credit risk is primarily controlled by reviewing the creditworthiness of the borrowers, monitoring payment histories, and taking appropriate collateral and guaranty positions.

The loan portfolio is widely diversified by types of borrowers, industry groups, and market areas. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2011, no significant industry concentrations existed in the Company’s portfolio in excess of 30% of total loans. The Bank has also developed guidelines to manage its exposure to various types of concentration risks.

The following table presents the maturity distribution of the loan portfolio at December 31, 2011:

Table 9: Loan Maturity Distribution

	Loan Maturity
	One Year or Less		Over One Year to Five Years		Over Five Years
	($ in thousands)
Commercial business	$	11,664	$	27,020	$	2,663
Commercial real estate		48,451		60,363		15,054
Real estate construction		10,726		12,956		5,026
Agricultural		17,240		20,177		7,934
Real estate residential		17,751		27,974		39,889
Installment		1,790		2,983		202
Total	$	107,622	$	151,473	$	70,768
Fixed rate	$	91,231	$	136,329	$	7,327
Variable rate		16,391		15,144		63,441
Total	$	107,622	$	151,473	$	70,768

Allowance for Loan Losses

The ALLL is established through a provision for loan losses charge to expense to appropriately provide for potential credit losses in the exiting loan portfolio. Loans are charged against the ALLL when management believes that the collection of principal is unlikely. The level of the ALLL represents management’s estimate of an amount of reserves that provides for estimated probable credit losses in the loan portfolio at the balance sheet date. To assess the ALLL, an allocation methodology is applied by the Company 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 and forecasted economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect potential credit losses. Our methodology reflects guidance by regulatory agencies to all financial institutions.

At December 31, 2011, the ALLL was $9,816, compared to $9,471 at December 31, 2010 and $7,957 at December 31, 2009. The ALLL as a percentage of total loans was 2.98%, 2.79%, and 2.22% at December 31, 2011, 2010 and 2009, respectively. The heightened level of the ALLL is appropriate while problem loans and charge-offs continue at elevated levels. The level of the provision for loan losses is directly correlated to the amount of net charge-offs, as it is the Company’s policy that the loan loss provisions, over time, exceed net charge-offs and provide coverage for potential credit losses in the existing loan portfolio.

Management allocates the ALLL by pools of risk within each loan portfolio segment. The allocation methodology consists of the following components. First a specific reserve, for the estimated collateral shortfall, is established for all impaired loans. Impaired loans include all troubled debt-restructurings (“restructured loans”), loans risk-weighted as “substandard” and “doubtful” with balances greater than $100 and loans risk-weighted “special mention” with balances greater than $250 determined to be impaired by the Company. During June 2011, to conservatively provide for unexpected changes within the impaired loans, the specific reserve in the ALLL is the greater of (i) the estimated collateral shortfall calculated in the impairment analysis, or (ii) an amount equal to 50% of the homogenous pool loss rate by loan segment and risk rating.

Second, management allocates ALLL with loss factors by loan segment, primarily based on risk ratings in the larger and more volatile loan segments and the migration of loan balances from the “special mention” risk rating to “substandard” and “doubtful” risk ratings. During the second quarter of 2011, management refined its process for determining historical loss rates by incorporating default and loss severity rates at a more granular level within each loan segment. The loss factors applied in the methodology are periodically re-evaluated and adjusted to reflect changes in historical loss levels for the rolling twelve months. Lastly, management allocates ALLL to the remaining loan portfolio using qualitative factors, including but not limited to: (i) delinquency rate of loans 30 days or more past-due; (ii) unemployment rates in the seven counties the Company serves; (iii) consumer disposable income; (iv) loan management; (v) loan segmentation by risk of collectability; and (vi) historical loss history for the rolling 36 months, adjusted quarterly.

The ALLL was 74%, 76% and 57% of nonperforming loans at December 31, 2011, 2010 and 2009, respectively. Gross charge-offs were $4,988 for 2011, $4,034 for 2010, and $5,283 for 2009, while recoveries for the corresponding periods were $583, $793 and $192, respectively. As a result, net charge-offs for 2011 were $4,405, or 1.30%, of average loans, compared to $3,241, or 0.91% of average loans, for 2010 and $5,091, or 1.40% of average loans, for 2009. The 2011 increase in net charge-offs of $1,164 was comprised of a $1,296 increase in commercial and real estate construction net charge-offs offset by a $132 decrease in agricultural, real estate residential and installment loans. The 2011 increase in commercial net charge-offs was mainly attributable to management’s decision, made in consultation with its banking regulators, to charge-off certain impaired loans that were covered by specific reserve allocations identified in the ALLL. Since 2007, aggregate net charge-offs have been $20,719, of which $15,598, or 75%, were from commercial loans. Issues impacting asset quality during this period included historically depressed economic factors, such as heightened unemployment, depressed commercial and residential real estate markets, volatile energy prices, and depressed consumer confidence. Declining collateral values have significantly contributed to our elevated levels of nonperforming loans, net charge-offs, and ALLL. The Company has been focused on implementing enhancements to the credit management process to address and enhance underwriting and risk-based pricing guidelines for commercial real estate and real estate construction lending, as well as on new home equity and residential mortgage loans, to reduce potential exposure within these portfolio segments. The level of the provision for loan losses is directly correlated to the amount of net charge-offs, as it is the Company’s policy that the loan loss provisions, over time, exceed net charge-offs and provide coverage for potential credit losses in the existing loan portfolio. Loans charged-off are subject to continuous review, and specific efforts are taken to achieve maximum recovery of principal, accrued interest, and related expenses.

The largest portion of the ALLL at year end 2011 was allocated to commercial real estate loans and was $3,685, representing 38% of the ALLL at year end 2011 compared to 46% at year end 2010. The decrease in the amount allocated to commercial real estate was attributable to the decrease in the percentage of nonaccrual loans represented by commercial real estate loans, 36% of total nonaccrual loans at year end 2011, compared to 49% at year end 2010 — and the decrease in the percentage of our total portfolio represented by commercial real estate to 37% of total loans at year end 2011, down from 39% at year end 2010. The ALLL allocated to commercial business loans was $1,004 at year end 2011, an increase of $468 from year end 2010, and represented 10% of the ALLL at year end 2011, compared to 6% at year end 2010. The increase in the commercial business allocation was due to a $680 increase in nonaccrual loans which represented 7% of nonaccrual loans at year end 2011 compared to less than 1% at year end 2010. At December 31, 2011, the ALLL allocated to real estate construction was $1,320, compared to $1,278 at December 31, 2010, representing 13% of the ALLL for 2011 and 2010. The allocation to real estate construction remained relatively unchanged as the level on nonaccrual loans in the category decreased $125 from 2010 but the category as a whole remained at 9% of total loans. The ALLL allocation to agricultural loans remained at 12% for 2011 and 2010. Agricultural loans as a percent of the total loan portfolio increased to 14% for 2011 up from 12% for 2010; however the credit quality of the agricultural loan portfolio improved during 2011 as the level of nonaccrual loans decreased to $134 at December 31, 2011 from $440 at year end 2010. The ALLL allocation to real estate residential increased to 26% at December 31, 2011, compared to 22% at December 31, 2010, given the increase in real estate residential as a percentage of nonaccrual loans and net charge-offs. The ALLL allocation to installment loans remained at 1% for year end 2011 and 2010. Management performs ongoing intensive analyses of its loan portfolios 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 ALLL.

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

Table 10: Loan Loss Experience

	Years Ended December 31,
	2011			2010			2009			2008			2007
	($ in thousands)
Allowance for loan losses:
Balance at beginning of year	$	9,471		$	7,957		$	4,542		$	4,174		$	8,184
Loans charged-off:
Commercial business		173			435			608			299			1,443
Commercial real estate		2,005			1,490			1,990			1,469			3,309
Real estate construction		1,295			537			1,556			186			6
Agricultural		203			206			38			25			1
Total commercial		3,676			2,668			4,192			1,979			4,759
Real estate residential		1,067			1,207			964			895			341
Installment		245			159			127			195			98
Total loans charged-off		4,988			4,034			5,283			3,069			5,198
Recoveries of loans previously charged-off:
Commercial business		37			167			4			122			1
Commercial real estate		135			275			151			16			11
Real estate construction		134			149			0			0			0
Agricultural		90			86			4			7			0
Total commercial		396			677			159			145			12
Real estate residential		101			83			13			53			10
Installment		86			33			20			39			26
Total recoveries		583			793			192			237			48
Total net charge-offs		4,405			3,241			5,091			2,832			5,150
Provision for loan losses		4,750			4,755			8,506			3,200			1,140
Balance at end of year	$	9,816		$	9,471		$	7,957		$	4,542		$	4,174
Ratios at end of year:
Allowance for loan losses to total loans		2.98	%		2.79	%		2.22	%		1.25	%		1.17	%
Allowance for loan losses to net charge-offs		2.2	x		2.9	x		1.6	x		1.6	x		0.8	x
Net charge-offs to average loans		1.30	%		0.91	%		1.40	%		0.78	%		1.45	%
Net loan charge-offs:
Commercial business	$	136		$	268		$	604		$	177		$	1,442
Commercial real estate		1,870			1,215			1,839			1,453			3,298
Real estate construction		1,161			388			1,556			186			6
Agricultural		113			120			34			18			1
Total commercial		3,280			1,991			4,033			1,834			4,747
Real estate residential		966			1,124			951			842			331
Installment		159			126			107			156			72
Total net charge-offs	$	4,405		$	3,241		$	5,091		$	2,832		$	5,150
Commercial Real Estate and Construction net charge-off detail:
Owner occupied	$	1,431		$	502		$	757		$	1,078		$	(11	)
Non-owner occupied		439			713			1,082			375			3,309
Commercial real estate	$	1,870		$	1,215		$	1,839		$	1,453		$	3,298
1–4 family construction	$	0		$	(18	)	$	33		$	186		$	0
All other construction		1,161			406			1,523			0			6
Real estate construction	$	1,161		$	388		$	1,556		$	186		$	6

The allocation of the ALLL for each of the past five years is based on our estimate of loss exposure by category of loans is shown in Table 11.

Table 11: Allocation of the Allowance for Loan Losses

	2011					2010					2009					2008					2007
	($ in thousands)
ALLL allocation:
Commercial business	$	1,004		12	%	$	536		12	%	$	497		10	%	$	295		11	%	$	301		11	%
Commercial real estate		3,685		37	%		4,320		39	%		3,954		39	%		1,836		34	%		1,899		32	%
Real estate construction		1,320		9	%		1,278		9	%		685		10	%		836		13	%		351		13	%
Agricultural		1,139		14	%		1,146		12	%		981		12	%		450		12	%		374		11	%
Total commercial		7,148		72	%		7,280		72	%		6,117		71	%		3,417		70	%		2,925		67	%
Real estate residential		2,530		26	%		2,060		26	%		1,753		27	%		1,010		28	%		1,056		30	%
Installment		138		2	%		131		2	%		87		2	%		115		2	%		193		3	%
Total allowance for loan losses	$	9,816		100	%	$	9,471		100	%	$	7,957		100	%	$	4,542		100	%	$	4,174		100	%
ALLL category as a percent of total ALLL:
Commercial business		10	%				6	%				6	%				7	%				7	%
Commercial real estate		38	%				46	%				50	%				40	%				46	%
Real estate construction		13	%				13	%				9	%				18	%				8	%
Agricultural		12	%				12	%				12	%				10	%				9	%
Total commercial		73	%				77	%				77	%				75	%				70	%
Real estate residential		26	%				22	%				22	%				22	%				25	%
Installment		1	%				1	%				1	%				3	%				5	%
Total allowance for loan losses		100.0	%				100.0	%				100.0	%				100.0	%				100.0	%

Impaired Loans and Nonperforming Assets

As part of its overall credit risk management process, management has been committed to an aggressive problem loan identification philosophy. This philosophy has been implemented through the ongoing monitoring and review of all pools of risk in the loan portfolio to ensure that problem loans are identified early and the risk of loss is minimized.

Nonaccrual loans were $11,194, $11,540 and $13,925 at December 31, 2011, 2010, and 2009, respectively, reflecting the continued impact of the economy on the Company’s customers. Total nonaccrual loans at December 31, 2011 were down $346 since year end 2010, with commercial nonaccrual loans down $1,345, while consumer-related nonaccrual loans were up $999 as this loan segment continues to exhibit signs of stress. The number of impaired consumer mortgage loans has increased significantly over the past twelve months and virtually all are in foreclosure and the legally-required redemption period. Between year end 2010 and 2009, total nonaccrual loans decreased $2,385, with commercial and consumer nonaccrual loans down $1,776 and $609, respectively. Management’s ALLL methodology at December 31, 2011, included an impairment analysis on specifically identified commercial and consumer loans defined by the Company as

impaired and incorporated the level of specific reserves for these credit relationships in determining the overall appropriate level of the ALLL.

Restructured loans involve the granting of some concession to the borrower as a result of their financial distress involving the modification of terms of the loan, such as changes in payment schedule or interest rate, which generally would not otherwise be considered, to increase the likelihood of long-term loan repayment. Restructured loans can involve loans remaining on nonaccrual, moving to nonaccrual, or continuing accrual status, depending on the individual facts and circumstances of the borrower. Generally, restructured loans remain on nonaccrual until the customer has attained a sustained period of repayment performance, generally nine months. At December 31, 2011, the Company had total restructured loans of $12,887 which consisted of $7,541 performing in accordance with the modified terms and $5,346 classified as nonaccrual, compared to total restructured loans of $1,265 at December 31, 2010, all of which were performing in accordance with the modified terms.

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 adequacy of the ALLL. 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 the Company 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 loans covering a diverse range of businesses and real estate property types. Potential problem loans totaled $23,124 at December 31, 2011 and $33,025 at December 31, 2010. Potential problem loans requires a heightened management review of the pace at which a credit may deteriorate, the duration of asset quality stress, and uncertainty around the magnitude and scope of economic stress that may be felt by the Company’s customers and on underlying real estate values.

OREO increased to $4,404 at December 31, 2011, compared to $4,230 at December 31, 2010 and $1,808 at December 31, 2009. The increase in OREO during 2010 was primarily attributable to a $1,744 loan participation, which represents 40% of the current OREO balance, in a hotel/water park that was recorded into OREO. Net gains on sales of OREO were $241 and $187 for 2011 and 2010, respectively, and a net loss of $91 was recorded for 2009. Write-downs on OREO were $628, $159, and $958 for 2011, 2010, and 2009, respectively. Management actively seeks to ensure properties held are monitored to minimize the Company’s risk of loss. Evaluations of the fair market value of the OREO properties are done quarterly and valuation adjustments, if necessary, are recorded in our consolidated financial statements.

Table 12: Nonperforming Assets

	2011			2010			2009			2008			2007
	($ in thousands)
Nonaccrual loans not considered impaired:
Commercial	$	1,937		$	808		$	751		$	36		$	32
Agricultural		30			369			371			521			0
Real estate residential		1,447			1,605			958			1,273			485
Installment		5			2			19			47			42
Total nonaccrual loans not considered impaired		3,419			2,784			2,099			1,877			559
Nonaccrual loans considered impaired:
Commercial		5,392			7,561			8,894			5,632			3,786
Agricultural		104			71			568			216			277
Real estate residential		2,279			1,124			2,363			808			1,140
Installment		0			0			0			416			499
Total nonaccrual loans considered impaired		7,775			8,756			11,825			7,072			5,702
Impaired loans still accruing interest		1,985			993			0			0			0
Accruing loans past due 90 days or more (credit cards)		21			10			18			36			64
Total nonperforming loans		13,200			12,543			13,942			8,985			6,325
OREO		4,404			4,230			1,808			2,556			2,352
Other repossessed assets		60			0			450			5			0
Investment security (Trust Preferred)		0			136			211			0			0
Total nonperforming assets	$	17,664		$	16,909		$	16,411		$	11,546		$	8,677
Restructured loans accruing
Commercial	$	5,908		$	278		$	151		$	569		$	700
Agricultural		201			0			0			0			0
Real estate residential		1,411			987			0			0			0
Installment		21			0			0			0			0
Total restructured loans accruing	$	7,541		$	1,265		$	151		$	569		$	700
RATIOS
Nonperforming loans to total loans		4.00	%		3.70	%		3.89	%		2.47	%		1.77	%
Nonperforming assets to total loans plus OREO		5.28	%		4.92	%		4.55	%		3.15	%		2.41	%
Nonperforming assets to total assets		3.62	%		3.32	%		3.25	%		2.33	%		1.81	%
Allowance for loan losses to nonperforming loans		74	%		76	%		57	%		51	%		66	%
Allowance for loan losses to total loans at end of year		2.98	%		2.79	%		2.22	%		1.25	%		1.17	%
Nonperforming assets by type:
Commercial business	$	858		$	54		$	40		$	160		$	547
Commercial real estate		5,937			6,653			8,858			3,183			3,155
Real estate construction		2,519			2,644			747			2,325			0
Agricultural		134			440			939			737			393
Total commercial		9,448			9,791			10,584			6,405			4,095
Real estate residential		3,726			2,740			3,321			2,081			1,625
Installment		26			12			37			499			605
Total nonperforming loans		13,200			12,543			13,942			8,985			6,325
Commercial real estate owned		4,116			3,683			1,523			1,827			1,660
Real estate residential owned		288			547			285			729			692
Total other real estate owned		4,404			4,230			1,808			2,556			2,352
Other repossessed assets		60			0			450			5			0
Investment security (Trust Preferred)		0			136			211			0			0
Total nonperforming assets	$	17,664		$	16,909		$	16,411		$	11,546		$	8,677
CRE and Construction nonperforming loan detail:
Owner occupied	$	2,877		$	5,210		$	5,798		$	2,255		$	2,479
Non-owner occupied		3,060			1,443			3,060			928			676
Commercial real estate	$	5,937		$	6,653		$	8,858		$	3,183		$	3,155
1–4 family construction	$	0		$	0		$	0		$	296		$	0
All other construction		2,519			2,644			747			2,029			0
Real estate construction	$	2,519		$	2,644		$	747		$	2,325		$	0

Table 13: Forgone Loan Interest

	Years Ended December 31,
	2011			2010			2009
	($ in thousands)
Interest income in accordance with original terms	$	452		$	819		$	819
Interest income recognized		(139	)		(197	)		(622	)
Reduction in interest income	$	313		$	622		$	197

Investment Securities Portfolio

The investment securities portfolio is intended to provide the Bank with adequate liquidity, flexible asset/liability management and a source of stable income. The portfolio is structured with minimal credit exposure to the Bank. All securities are classified as available-for-sale and are carried at market value. Unrealized gains and losses are excluded from earnings, but are reported as other comprehensive income in a separate component of shareholders’ equity, net of income tax. Premium amortization and discount accretion are recognized as adjustments to interest income using the interest method. Realized gains or losses on sales are based on the net proceeds and the adjusted carrying value amount of the securities sold using the specific identification method.

Table 14: Investment Securities Portfolio at Estimated Fair Value

	Years Ended December 31,
	2011		2010		2009
	($ in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,808	$	22,567	$	3,179
Mortgage-backed securities		67,653		56,916		81,766
Obligations of states and political subdivisions		22,932		20,715		17,184
Corporate debt securities		832		961		1,198
Total debt securities		110,225		101,159		103,327
Equity securities		151		151		150
Total securities available-for-sale	$	110,376	$	101,310	$	103,477

At December 31, 2011, the total carrying value of investment securities was $110,376, an increase of $9,066, or 9%, compared to December 31, 2010, and represented 23% and 20% of total assets at December 31, 2011 and 2010, respectively. Primarily due to soft loan demand in 2011, the Company’s excess liquidity was invested in securities resulting in the increase in investment securities experienced in 2011. As loan demand increases in the future, we anticipate that the monthly pay downs received from the investment securities portfolio will be used to fund loans.

At December 31, 2011, with the exception of securities of the U.S. Government, the securities portfolio did not contain securities of any single issuer that were payable from and secured by the same source of revenue or taxing authority where the aggregate carrying value of such securities exceeded 10% of shareholders’ equity.

The Company previously determined that OTTI existed in one non-agency mortgage-backed security and two corporate securities held, as the unrealized losses on these securities appeared to be related in part to expected credit losses that would not be recovered by the Company. During 2010, the Company recognized OTTI write-downs of $412 on the two corporate securities. In the first quarter 2011, the company sold these three OTTI securities, which resulted in net investment security losses of $55, to improve the credit quality of

the investment portfolio. As of December 31, 2011 the Company has determined that there are no remaining OTTI securities in the investment portfolio.

A summary of the investment portfolio is shown below:

Table 15: Investments

Investment Category		December 31, 2011					December 31, 2010
		Amount		%			Amount		%
		($ in thousands)
U.S. Treasury & Government Agencies Debt	AAA	$	18,808		100	%	$	22,567		100	%
	Total	$	18,808		100	%	$	22,567		100	%
U.S. Treasury & Government Agencies Debt as % of Portfolio					17	%				22	%
Mortgage-Backed Securities	AAA	$	67,588		100	%	$	56,205		99	%
	AA3		53		0	%		0		0	%
	A+		12		0	%		13		0	%
	Baa2		0		0	%		60		0	%
	BA1		0		0	%		308		0	%
	BA3		0		0	%		330		1	%
	Total	$	67,653		100	%	$	56,916		100	%
Mortgage-Backed Securities as % of Portfolio					61	%				57	%
Obligations of States and Political Subdivisions	Aa1	$	3,457		15	%	$	3,496		17	%
	Aa2		5,704		25	%		4,492		22	%
	AA3		3,363		15	%		2,665		13	%
	A1		990		4	%		905		4	%
	Baa1		0		0	%		339		2	%
	Baa2		337		1	%		0		0	%
	NR		9,081		40	%		8,818		42	%
	Total	$	22,932		100	%	$	20,715		100	%
Obligations of States and Political Subdivisions as % of Portfolio					21	%				20	%
Corporate Debt and Equity Securities	NR	$	983		100	%	$	1,112		100	%
	Total	$	983		100	%	$	1,112		100	%
Corporate Debt and Equity Securities as % of Portfolio					1	%				1	%
Total Market Value of Securities Available-For-Sale		$	110,376		100	%	$	101,310		100	%

Obligations of States and Political Subdivisions (“municipal securities”): At December 31, 2011 and 2010, municipal securities were $22,932 and $20,715, respectively, and represented 21% of total investment securities for 2011 and 20% for 2010 based on fair value. The majority of municipal securities held are general obligations or essential service bonds. Municipal bond insurance company downgrades have resulted in credit downgrades in certain municipal securities; however, it has been determined that due to the large number of small investments in these obligations the loss exposure on any particular obligation is mitigated. The municipal portfolio is evaluated periodically for credit risk by a third party. As of December 31, 2011, the total fair value of municipal securities reflected a net unrealized gain of $1,313.

Mortgage-Backed Securities: At December 31, 2011 and 2010, mortgage-related securities (which include predominantly mortgage-backed securities and collateralized mortgage obligations) were $67,653 and $56,916, respectively, and represented 61% and 57%, respectively, of total investment securities based on fair value. The fair value of mortgage-related securities is subject to inherent risks based upon the future performance of the underlying collateral (mortgage loans) for these securities. Future performance is impacted by prepayment risk and interest rate changes.

Corporate Debt and Equity Securities: At December 31, 2011 and 2010, corporate debt securities were $983 and $1,112, respectively, and represented 1% of total investment securities based on fair value. Corporate debt and equity securities include trust preferred debt securities, corporate bonds, and common equity securities.

Corporate debt and equity securities at December 31, 2011, consisted of two trust preferred securities of $800, and other securities of $183. Corporate debt securities at December 31, 2010, consisted of trust

preferred securities of $937, and other equity securities of $175. As of December 31, 2011, the interest payments on the two trust preferred securities were current.

The Company had $2,306 of Federal Home Loan Bank of Chicago (“FHLB”) stock at December 31, 2011 and 2010. While the FHLB announced in October 2007 that it was under a consensual cease and desist order with its regulator, which among other things, restricted the FHLB from paying dividends or redeeming stock without prior approval, the FHLB resumed payment of dividends during the first quarter of 2011. Recently, we have been notified by the FHLB that it will repurchase approximately $500,000 in excess capital stock held by its members on February 15, 2012. The Bank redeemed approximately $465 of its excess FHLB capital stock.

Accounting guidance indicates that an investor in FHLB capital stock should recognize impairment if it concludes that it is not probable that it will ultimately recover the par value of its shares. The decision of whether impairment exists is a matter of judgment that should reflect the investor’s view of the FHLB’s long-term performance, which includes factors such as: (i) its operating performance; (ii) the severity and duration of declines in the market value of its net assets related to its capital stock amount; (iii) its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance; (iv) the impact of legislation and regulatory changes on FHLB, and on the members of FHLB; and (v) its liquidity and funding position. After evaluating all of these considerations, the Company believes the cost of the investment will be recovered, and no impairment has been recorded on these securities during 2011, 2010, and 2009.

Table 16: Investment Securities Portfolio Maturity Distribution

	Within One Year					After One But Within Five Years					After Five but Within Ten Years					After Ten Years					Total
	Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield			Amount		Yield
	($ in thousands)
U.S. treasury securities and obligations of U.S. government corporations and agencies	$	0		0.00	%	$	14,710		1.91	%	$	4,098		2.10	%	$	0		0.00	%	$	18,808		1.95	%
Mortgage-backed securities		1		4.25	%		663		3.92	%		19,604		2.53	%		47,385		2.75	%		67,653		2.69	%
Obligations of states and political subdivisions		2,744		5.10	%		7,721		4.68	%		10,239		3.87	%		2,228		4.07	%		22,932		4.31	%
Corporate debt securities		0		0.00	%		25		4.99	%		0		0.00	%		958		3.08	%		983		3.13	%
Total securities available-for-sale	$	2,745		5.10	%	$	23,119		2.90	%	$	33,941		2.88	%	$	50,571		2.81	%	$	110,376		2.91	%

(1)

The yield on tax-exempt investment securities is computed on a tax-equivalent basis using a federal tax rate of 34% adjusted for the disallowance of interest expense.

Deposits

Deposits represent the Company’s largest source of funds. The Company competes with other bank and nonbank institutions for deposits, as well as with a growing number of non-deposit investment alternatives available to depositors, such as mutual funds, money market funds, annuities, and other brokerage investment products. Competition for deposits remains high. Challenges to deposit growth include price changes on deposit products given movements in the rate environment and other competitive pricing pressures, and customer preferences regarding higher-costing deposit products or non-deposit investment alternatives.

At December 31, 2011 total deposits were $381,620, down $18,990 from year end 2010. Consistent with the Company’s funding strategy, the Company continued to reduce noncore funding sources during 2011. The decrease in total deposits included an $18,857 decrease in brokered certificates of deposit and deposits acquired under a listing service. The Company decided to not replace these funding sources due to excess liquidity and continued efforts to reduce reliance on non core deposits. On February 1, 2011, the Company introduced a suite of new consumer deposit products that pay rewards based on customers’ debit card usage, which was a major contributor to the $10,344, or 17%, increase in non-interest bearing demand deposits and $5,998, or 5%, increase in savings deposits experienced in 2011.

Table 17: Deposits

	2011					2010					2009
	Amount		% of Total			Amount		% of Total			Amount		% of Total
	($ in thousands)
Noninterest-bearing demand deposits	$	70,790		19	%	$	60,446		15	%	$	55,218		14	%
Interest-bearing demand deposits		39,160		10	%		39,462		10	%		33,375		8	%
Savings deposits		120,513		32	%		114,515		29	%		104,822		26	%
Time deposits		136,140		35	%		159,201		39	%		165,204		42	%
Brokered certificates of deposit		15,017		4	%		26,986		7	%		39,181		10	%
Total	$	381,620		100	%	$	400,610		100	%	$	397,800		100	%

On average, deposits were $384,210 for 2011, down $10,662, or 3%, from the average for 2010. The mix of average deposits was also impacted by shift in customer preferences, predominantly toward the product design and pricing features of the new deposit suite of noninterest-bearing demand and savings deposits.

Table 18: Average Deposits

	2011					2010					2009
	Amount		% of Total			Amount		% of Total			Amount		% of Total
	($ in thousands)
Noninterest-bearing demand deposits	$	61,798		16	%	$	52,208		13	%	$	49,952		13	%
Interest-bearing demand deposits		35,785		9	%		35,100		9	%		29,639		8	%
Savings deposits		116,802		30	%		107,622		27	%		105,330		28	%
Time deposits		150,461		39	%		166,475		42	%		151,827		40	%
Brokered certificates of deposit		19,364		6	%		33,467		9	%		43,885		11	%
Total	$	384,210		100	%	$	394,872		100	%	$	380,633		100	%

A stipulation of the Bank’s Agreement with the FDIC and WDFI limits the rates of interest it may set on its deposit products. As a result, in 2012, the amount of rewards we will be able to pay our customers for debit card usage related to the new suite of deposit products introduced in 2011will be reduced to a level at or below certain national rate caps.

Table 19: Maturity Distribution of Certificates of Deposit of $100,000 or More

	Years Ended December 31,
	2011		2010
	($ in thousands)
3 months or less	$	13,693	$	19,900
Over 3 months through 6 months		3,734		6,196
Over 6 months through 12 months		13,730		11,736
Over 12 months		15,538		23,277
Total	$	46,695	$	61,109

Other Funding Sources

Other funding sources, which include short-term and long-term borrowings, were $64,026 and $62,383 at December 31, 2011 and 2010, respectively. Short-term borrowings consist of corporate repurchase agreements which totaled $13,655 at December 31, 2011 and $9,512 at December 31, 2010. Long-term borrowings at December 31, 2011, were $40,061, a decrease of $2,500 from December 31, 2010 attributable to the maturity of FHLB advances during the year that were not replaced. Also included in long-term borrowings are trust preferred securities. In 2005, Mid-Wisconsin Statutory Trust I (the “Trust”), a Delaware Business Trust subsidiary of the Company, issued $10,000 in trust preferred securities. The trust preferred securities were sold in a private placement to institutional investors. The Trust used the proceeds from the offering along with the Company’s common ownership investment to purchase $10,310 of the Company’s Debentures. The trust

preferred securities and the Debentures mature on December 15, 2035, and had a fixed rate of 5.98% until December 15, 2010. They now have a floating rate of the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rates were 1.98% and 1.73% at December 31, 2011 and 2010, respectively.

The following information relates to federal funds purchased, securities sold under repurchase agreements, and Federal Home Loan Bank open line of credit at December 31:

Table 20: Short-Term Borrowings

	Years Ended December 31,
	2011			2010			2009
	($ in thousands)
Balance end of year	$	13,655		$	9,512		$	7,983
Average balance outstanding during year	$	12,285		$	10,411		$	12,031
Maximum month-end balance outstanding	$	15,817		$	18,329		$	20,074
Weighted average rate on amounts outstanding during year		1.00	%		0.69	%		1.06	%
Weighted average rate on amounts outstanding at end of year		0.46	%		0.49	%		0.48	%

At December 31, 2011 the Bank and Company had additional sources of liquidity available through pre-approved overnight federal funds lines of credit with corresponding banks, the Federal Reserve discount window and other long term borrowing agreements totaling $29,699.

Off-Balance Sheet Obligations

As of December 31, 2011 and 2010, we had the following commitments, which do not appear on our balance sheet:

Table 21: Commitments

	2011		2010
	($ in thousands)
Commitments to extend credit:
Fixed rate	$	17,163	$	25,073
Adjustable rate		23,515		33,406
Standby and irrevocable letters of credit-fixed rate		3,737		3,921
Credit card commitments		3,541		3,776

Further discussion of these commitments is included in Note 19, “Commitments and Contingencies” of the Notes to Consolidated Financial Statements.

Contractual Obligations

We are party to various contractual obligations requiring the use of funds as part of our normal operations. The table below outlines principal amounts and timing of these obligations, excluding amounts due for interest, if applicable. Most of these obligations are routinely refinanced into similar replacement obligations. However, renewal of these obligations is dependent on our ability to offer competitive interest rates, liquidity needs, or availability of collateral for pledging purposes supporting the long-term advances.

Table 22: Contractual Obligations

	Payments due by period
	Total		< 1 year		1-3 years		3-5 years		> 5 years
	($ in thousands)
Subordinated debentures	$	10,310	$	0	$	0	$	0	$	10,310
Other long-term borrowings		10,000		0		5,000		5,000		0
FHLB borrowings		30,061		4,000		18,061		8,000		0
Total long-term borrowing obligations	$	50,371	$	4,000	$	23,061	$	13,000	$	10,310

Also, we have liabilities due to directors for services rendered with various payment terms depending on their anticipated retirement date or their election of payout terms following retirement. The total liability at December 31, 2011 for current and retired directors is $577, and is estimated to have a maturity in excess of five years.

Liquidity and Interest Rate Sensitivity

Funds are available from a number of basic banking activity sources, primarily from the core deposit base and from the repayment and maturity of loans and investment securities. Additionally, liquidity is available from the sale of investment securities and brokered deposits. Volatility or disruptions in the capital markets may impact the Company’s ability to access certain liquidity sources.

While dividends and service fees from the Bank and proceeds from the issuance of capital have historically been the primary funding sources for the Company, these sources may continue to be limited or costly (such as by regulation increasing the capital needs of the Bank, or by limited appetite for new sales of company stock). No dividends were received in cash from the Bank in 2011, 2010 or 2009. Also, as discussed in Part 1, Item 1 the Bank’s written Agreement with the FDIC and WDFI places restrictions on the payment of dividends from the Bank to the Company without prior approval with our regulators. On May 12, 2011 the Company also entered into a separate formal written agreement with the Federal Reserve Bank of Minneapolis. Pursuant to the written agreement at the holding company level, the Company needs the written consent of the Federal Reserve Bank of Minneapolis to pay dividends to its stockholders. We are also prohibited from paying dividends on our common stock if we fail to make distributions or required payments on the Company’s Debentures or on the TARP Preferred Stock. In consultation with the Federal Reserve, on May 12, 2011, the Company exercised its rights to suspend dividends on the outstanding TARP Preferred Stock and has also elected to defer interest on the Debentures. See Part 1, Item 1 for additional discussion.

Investment securities are an important tool to the Company’s liquidity objective. All investment securities are classified as available-for-sale and are reported at fair value on the consolidated balance sheet. Approximately $65,548 of the $110,376 investment securities portfolio on hand at December 31, 2011, were pledged to secure public deposits, short-term borrowings, and for other purposes as required by law. The majority of the remaining securities could be sold to enhance liquidity, if necessary.

The scheduled maturity of loans could also provide a source of additional liquidity. The Bank has $107,622, or 33%, of its total loans maturing within one year. Factors affecting liquidity relative to loans are loan renewals, origination volumes, prepayment rates, and maturity of the existing loan portfolio. The Bank’s liquidity position is influenced by changes in interest rates, economic conditions, and competition. Conversely, loan demand as a need for liquidity may cause us to acquire other sources of funding which could be more costly than deposits.

Deposits are another source of liquidity for the Bank. Deposit liquidity is affected by core deposit growth levels, certificates of deposit maturity structure, and retention and diversification of wholesale funding sources. Deposit outflows would require the Bank to access alternative funding sources which may not be as liquid and may be more costly.

Other funding sources for the Bank are in the form of short-term borrowings (corporate repurchase agreements, and federal funds purchased), and long-term borrowings. Long-term borrowings are used for asset/liability matching purposes and to access more favorable interest rates than deposits. The Bank’s liquidity resources were sufficient in 2011 to fund our loans and the growth in investments, and to meet other cash needs when necessary.

Interest Rate Sensitivity Gap Analysis

Table 23 represents a schedule of the Bank’s assets and liabilities maturing over various time intervals. The primary market risk faced by the Company is interest rate risk. The table reflects a cumulative positive interest sensitivity gap position, i.e. more rate sensitive assets maturing than rate sensitive liabilities. We extensively evaluate the cumulative gap position at the one and two-year time frames. At those time intervals the cumulative maturity gap was within our established guidelines of 60% to 120%.

Table 23: Interest Rate Sensitivity Gap Analysis

	December 31, 2011
	0-90 Days			91-180 Days			181-365 Days			1-5 Years			Beyond 5 years			Total
	($ in thousands)
Earning Assets:
Loans	$	37,166		$	37,000		$	62,033		$	163,421		$	30,243		$	329,863
Securities		8,780			6,466			8,618			57,848			28,664			110,376
Other earning assets		13,072			0			0			0			0			13,072
Total	$	59,018		$	43,466		$	70,651		$	221,269		$	58,907		$	453,311
Cumulative rate sensitive assets	$	59,018		$	102,484		$	173,135		$	394,404		$	453,311
Interest-bearing liabilities:
Interest-bearing deposits (1)	$	47,194		$	34,922		$	63,796		$	138,727		$	26,191		$	310,830
Borrowings		15,655			2,000			0			36,061			0			53,716
Subordinated debentures		0			0			0			0			10,310			10,310
Total	$	62,849		$	36,922		$	63,796		$	174,788		$	36,501		$	374,856
Cumulative interest sensitive liabilities	$	62,849		$	99,771		$	163,567		$	338,355		$	374,856
Interest sensitivity gap	$	(3,831	)	$	6,544		$	6,855		$	46,481		$	22,406
Cumulative interest sensitivity gap	$	(3,831	)	$	2,713		$	9,568		$	56,049		$	78,455
Cumulative ratio of rate sensitive assets to rate sensitive liabilities		93.9	%		102.7	%		105.8	%		116.6	%		120.9	%

(1)

The interest rate sensitivity assumptions for savings accounts, money market accounts, and interest-bearing demand deposits accounts are based on the Office of the Comptroller of the Currency tables regarding portfolio retention and interest rate repricing behavior. Based on these experiences, a portion of these balances are considered to be long-term and fairly stable and are, therefore, included in the “1-5 Years” and “Beyond 5 Years” categories.

In order to limit exposure to interest rate risk, we monitor the liquidity and gap analysis on a monthly basis and adjust pricing, term and product offerings when necessary to stay within our guidelines and maximize effectiveness of asset/liability management.

We also estimate the effect a sudden change in interest rates could have on expected net interest income through income simulation. The simulation is run using the prime rate as the base with the assumption of rates increasing 100, 200, 300 and 400 basis points or decreasing 100 or 200 basis points. All rates are increased or decreased parallel to the change in prime rate. The simulation assumes a static mix of assets and liabilities. As a result of the simulation, over a 12-month time period ending December 31, 2011, net interest income is estimated to increase 0.9% if rates increase 200 basis points. In a down 200 basis point rate environment assumption, net interest income is estimated to decrease 8.3% during the same period. These results are based solely on the modeled changes in the market rates and do not reflect the earnings sensitivity that may arise from other factors such as changes in the shape of the yield curve, changes in spreads between key market rates, or changes in consumer or business behavior. These results also do not include any

management action to mitigate potential income variances within the modeled process. We realize actual net interest income is largely impacted by the allocation of assets, liabilities and product mix. The simulation results are one indicator of interest rate risk. We also estimate the effect changes in the yield curve may have on net interest income through various non-parallel rate shifts. Several scenarios are run for extended projection time frames.

Management continually reviews its interest rate risk position through our Asset/Liability Committee process. This is also reported to the board of directors through the Board Investment Committee on a bi-monthly basis.

Capital

The Company 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. Management actively reviews capital strategies for the Company and the Bank 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 dividends available to shareholders. It is management’s intent to maintain an optimal capital and leverage mix for growth and for shareholder return.

Management believes that the Company and Bank had strong capital bases at the end of 2011. As of December 31, 2011 and 2010, the Tier One Risk-Based capital ratio, Total Risk-Based capital (Tier 1 and Tier 2) ratio, and Tier One Leverage ratio for the Company and Bank were in excess of regulatory minimum requirements, as well as the heightened requirements as set forth in the Bank’s Agreement with the FDIC and WDFI.

On November 9, 2010, the Bank entered into a formal Agreement with the FDIC and the WDFI. Under the terms of the agreement, the Bank is required to: (i) maintain ratios of Tier 1 capital to each of total assets and total risk-weighted assets of at least 8.5% and 12%, respectively; (ii) refrain from declaring or paying any dividend without the written consent of the FDIC and WDFI; and (iii) refrain from increasing its total assets by more than 5% during any three-month period without first submitting a growth plan to the FDIC and WDFI. Additionally, on May 10, 2011, the Company entered into a formal written agreement with the Federal Reserve Bank of Minneapolis. Pursuant to the Company Agreement, the Company needs the written consent of the Federal Reserve Bank of Minneapolis to pay dividends to our stockholders. We are also prohibited from paying dividends on our common stock if we fail to make distributions or required payments on the Debentures or on our TARP Preferred Stock.

On October 14, 2008, the Treasury announced details of the CPP whereby the Treasury made direct equity investments into qualifying financial institutions in the form of preferred stock, providing an immediate influx of Tier 1 capital into the banking system. Participants also adopted the Treasury’s standards for executive compensation and corporate governance for the period during which the Treasury holds equity issued under this program.

On February 20, 2009, under the CPP, the Company issued 10,000 shares TARP Preferred Stock to the Treasury. Total proceeds received were $10,000. The proceeds received were allocated between the Series A Preferred Stock and the Series B Preferred Stock based upon their relative fair values, which resulted in the recording of a discount on the Series A Preferred Stock and a premium on the Series B Preferred Stock. The discount and premium will be amortized over five years. The allocated carrying value of the Series A Preferred Stock and Series B Preferred Stock on the date of issuance (based on their relative fair values) was $9,442 and $558, respectively. Cumulative dividends on the Series A Preferred Stock accrue and are payable quarterly at a rate of 5% per annum for five years. The rate will increase to 9% per annum thereafter if the shares are not redeemed by the Company. The Series B Preferred Stock dividends accrue and are payable quarterly at 9%. All $10,000 of the CPP Preferred Stock qualify as Tier 1 Capital for regulatory purposes at the Company.

A summary of the Company’s and Bank’s regulatory capital ratios as of December 31, 2011 and 2010 are as follows:

Table 24: Capital

	For Capital Adequacy Purposes (1)
	Amount		Ratio			Amount		Ratio			Amount		Ratio
	($ in thousands)
December 31, 2011
Mid-Wisconsin Financial Services, Inc.
Tier 1 to average assets	$	46,729		9.6	%	$	19,396		4.0	%
Tier 1 risk-based capital ratio		46,729		14.3	%		13,071		4.0	%
Total risk-based capital ratios		50,884		15.6	%		26,142		8.0	%
Mid-Wisconsin Bank
Tier 1 to average assets	$	41,736		8.7	%	$	19,261		4.0	%	$	40,929		8.5	%
Tier 1 risk-based capital ratio		41,736		12.9	%		12,946		4.0	%		19,419		6.0	%
Total risk-based capital ratios		45,853		14.2	%		25,891		8.0	%		38,837		12.0	%

December 31, 2010
Mid-Wisconsin Financial Services, Inc.
Tier 1 to average assets	$	50,575		10.0	%	$	20,143		4.0	%
Tier 1 risk-based capital ratio		50,575		14.2	%		14,252		4.0	%
Total risk-based capital ratios		55,091		15.5	%		28,504		8.0	%
Mid-Wisconsin Bank
Tier 1 to average assets	$	44,787		9.0	%	$	20,024		4.0	%	$	42,552		8.5	%
Tier 1 risk-based capital ratio		44,787		12.7	%		14,140		4.0	%		21,210		6.0	%
Total risk-based capital ratios		49,268		13.9	%		28,280		8.0	%		42,420		12.0	%

(1)

The Bank has agreed with the FDIC and WDFI that, until its formal written agreement with such parties is no longer in effect, it will maintain minimum capital ratios at specified levels higher that those otherwise required by applicable regulations as follows: Tier 1 capital to total average assets — 8.5% and total capital to risk-weighted assets (total capital) — 12%.

(2)

Prompt corrective action provisions are not applicable at the bank holding company level.

The Company’s ability to pay dividends depends in part upon the receipt of dividends from the Bank and these dividends are subject to limitation under banking laws and regulations. Pursuant to the Agreement with the FDIC and WDFI, the Bank needs the written consent of the regulators to pay dividends to the Company. The Bank has not paid dividends to the Company since 2006. In consultation with the Federal Reserve Bank of Minneapolis, on May 12, 2011, the Company exercised its rights to suspend dividends on the outstanding TARP Preferred Stock and has also elected to defer interest on the Debentures. Under the terms of the Debentures, the Company is allowed to defer payments of interest for 20 quarterly periods without default or penalty, but such amounts will continue to accrue. Also during the deferral period, the Company generally may not pay cash dividends on or repurchase its common stock or preferred stock, including the TARP Preferred Stock. Dividend payments on the TARP Preferred Stock may be deferred without default, but the dividend is cumulative and therefore will continue to accrue and, if the Company fails to pay dividends for an aggregate of six quarters, whether or not consecutive, the holder will have the right to appoint representatives to the Company’s board of directors. The terms of the TARP Preferred Stock also prevent the Company from paying cash dividends on or repurchasing its common stock while dividends are in arrears. Therefore, the Company will not be able to pay dividends on its common stock until it has fully paid all accrued and unpaid dividends on the Debentures and the TARP Preferred Stock. On December 31, 2011, the Company had $485 accrued and unpaid dividends on the TARP Preferred Stock and $146 accrued and unpaid interest due on the Debentures.

Effects of Inflation

Selected Quarterly Financial Data

The following is selected financial data summarizing the results of operations for each quarter in the years ended December 31, 2011, 2010 and 2009:

Table 25: Selected Quarterly Financial Data

	2011 Quarter Ended
	December 31,			September 30,			June 30,			March 31,
	(In thousands, except per share data)
Interest income	$	5,507		$	5,368		$	5,519		$	5,645
Interest expense		1,467			1,594			1,663			1,761
Net interest income		4,040			3,774			3,856			3,884
Provision for loan losses		900			900			1,900			1,050
Income (loss) before income taxes		(589	)		(395	)		(1,249	)		137
Net (loss) available to common equity		(3,373	)		(346	)		(862	)		(20	)
Basic and diluted (loss) per common share	$	(2.04	)	$	(0.21	)	$	(0.52	)	$	(0.01	)

	2010 Quarter Ended
	December 31,		September 30,		June 30,		March 31,
	(In thousands, except per share data)
Interest income	$	6,018	$	6,196	$	6,391	$	6,457
Interest expense		2,004		2,175		2,255		2,328
Net interest income		4,014		4,021		4,136		4,129
Provision for loan losses		1,500		900		955		1,400
Income (loss) before income taxes		305		183		456		(66	)
Net income (loss) available to common equity		80		2		168		(148	)
Basic and diluted earnings (loss) per common share	$	0.05	$	0.00	$	0.10	$	(0.09	)

	2009 Quarter Ended
	December 31,			September 30,			June 30,			March 31,
	(In thousands, except per share data)
Interest income	$	6,623		$	6,665		$	6,822		$	6,822
Interest expense		2,456			2,554			2,701			2,789
Net interest income		4,167			4,111			4,121			4,033
Provision for loan losses		2,856			2,150			2,750			750
Income (loss) before income taxes		(1,475	)		(1,289	)		(2,017	)		377
Net income (loss) available to common equity		(1,155	)		(833	)		(1,252	)		207
Basic and diluted earnings (loss) per common share	$	(0.70	)	$	(0.51	)	$	(0.76	)	$	0.13

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The information required by this Item 7A is set forth in “Liquidity and Interest Rate Sensitivity” under Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, which such information is incorporated herein by reference.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
Mid-Wisconsin Financial Services, Inc.
Medford, Wisconsin

We have audited the accompanying consolidated balance sheets of Mid-Wisconsin Financial Services, Inc. and Subsidiary as of December 31, 2011 and 2010, and the related consolidated statements of income (loss), changes in stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2011. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included considerations of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Mid-Wisconsin Financial Services, Inc. and Subsidiary at December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States.

/s/ WIPFLI LLP
Wipfli LLP

March 19, 2012
Oak Brook, Illinois

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Consolidated Balance Sheets
December 31, 2011 and 2010
(In thousands, except share data)

	2011			2010
Assets
Cash and due from banks	$	18,278		$	9,502
Interest-bearing deposits in other financial institutions		10			8
Federal funds sold and securities purchased under agreements to sell		13,072			32,473
Investment securities available-for-sale, at fair value		110,376			101,310
Loans held for sale		2,163			7,444
Loans		329,863			339,170
Less: Allowance for loan losses		(9,816	)		(9,471	)
Loans, net		320,047			329,699
Accrued interest receivable		1,640			1,853
Premises and equipment, net		7,943			8,162
Other investments, at cost		2,616			2,616
Deferred tax asset		1,179			3,959
Other assets		10,852			12,056
Total assets	$	488,176		$	509,082
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits	$	70,790		$	60,446
Interest-bearing deposits		310,830			340,164
Total deposits		381,620			400,610
Short-term borrowings		13,655			9,512
Long-term borrowings		40,061			42,561
Subordinated debentures		10,310			10,310
Accrued interest payable		878			992
Accrued expenses and other liabilities		2,139			2,127
Total liabilities		448,663			466,112
Stockholders’ equity:
Series A preferred stock		9,745			9,634
Series B preferred stock		526			538
Common Stock		166			165
Additional paid-in capital		11,945			11,916
Retained earnings		15,526			20,127
Accumulated other comprehensive income		1,605			590
Total stockholders’ equity		39,513			42,970
Total liabilities and stockholders’ equity	$	488,176		$	509,082
Series A preferred stock authorized (no par value)		10,000			10,000
Series A preferred stock issued and outstanding		10,000			10,000
Series B preferred stock authorized (no par value)		500			500
Series B preferred stock issued and outstanding		500			500
Common stock authorized (par value $0.10 per share)		6,000,000			6,000,000
Common stock issued and outstanding		1,657,119			1,652,122

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Consolidated Statements of Income (Loss)
Years Ended December 31, 2011, 2010, and 2009
(In thousands, except per share data)

	2011			2010			2009
Interest Income
Loans, including fees	$	18,910		$	21,325		$	22,756
Securities:
Taxable		2,563			3,216			3,540
Tax-exempt		403			366			487
Other		163			155			149
Total interest income		22,039			25,062			26,932
Interest Expense
Deposits		4,566			6,402			7,801
Short-term borrowings		122			95			124
Long-term borrowings		1,614			1,670			1,961
Subordinated debentures		183			595			614
Total interest expense		6,485			8,762			10,500
Net interest income		15,554			16,300			16,432
Provision for loan losses		4,750			4,755			8,506
Net interest income after provision for loan losses		10,804			11,545			7,926
Noninterest Income
Service fees		953			1,174			1,239
Trust service fees		1,066			1,103			1,024
Investment product commissions		221			221			237
Mortgage banking		523			955			564
Gain (loss) on sale of investments		(55	)		1,054			449
Other		1,579			1,043			908
Total noninterest income		4,287			5,550			4,421
Other-than-temporary impairment losses, net
Total other-than-temporary impairment losses		0			(426	)		(374	)
Amount in other comprehensive income, before taxes		0			14			73
Total impairment		0			(412	)		(301	)
Noninterest Expense
Salaries and employee benefits		8,561			8,537			8,411
Occupancy		1,769			1,830			1,893
Data processing		667			651			648
Foreclosure/OREO expense		857			243			1,278
Legal and professional fees		891			677			882
FDIC expense		1,117			1,036			1,057
Other		3,325			2,831			2,281
Total noninterest expense		17,187			15,805			16,450
Income (loss) before income taxes		(2,096	)		878			(4,404	)
Income tax (benefit) expense		1,861			135			(1,916	)
Net income (loss)		(3,957	)		743			(2,488	)
Preferred stock dividends, discount and premium		(644	)		(641	)		(545	)
Net income (loss) available to common equity	$	(4,601	)	$	102		$	(3,033	)
Earnings (loss) per common share:
Basic and diluted	$	(2.78	)	$	0.06		$	(1.84	)

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Consolidated Statements of Changes in Stockholders’ Equity
Years Ended December 31, 2011, 2010, and 2009
(In thousands, except per share data)

	Preferred Stock					Common Stock
	Shares		Amount			Shares		Amount		Additional Paid-In Capital		Retained Earnings			Accumulated Other Comprehensive Income (Loss)			Totals
Balance, January 1, 2009		0		0			1,644		164		11,804		23,239			598			35,805
Comprehensive loss:
Net loss													(2,488	)					(2,488	)
Other comprehensive income																370			370
Reclassification adjustment for net realized gains on securities available-for-sale included in earnings, net of tax																88			88
Total comprehensive loss																			(2,030	)
Issuance of preferred stock Series A		10,000		9,442															9,442
Issuance of preferred stock Series B		500		558															558
Accretion of preferred stock discount				85									(85	)					0
Amortization of preferred stock premium				(9	)								9						0
Issuance of common stock:
Proceeds from stock purchase plans							4		1		34								35
Cash dividends:
Preferred stock													(401	)					(401	)
Common stock, $0.11 per share													(181	)					(181	)
Dividends — Preferred stock													(68	)					(68	)
Stock-based compensation											24								24
Balance, December 31, 2009		10,500	$	10,076			1,648	$	165	$	11,862	$	20,025		$	1,056		$	43,184
Comprehensive income:
Net income													743						743
Other comprehensive loss																(854	)		(854	)
Reclassification adjustment for net realized gains on securities available-for-sale included in earnings, net of tax																388			388
Total comprehensive income																			277
Accretion of preferred stock discount				107									(107	)					0
Amortization of preferred stock premium				(11	)								11						0
Issuance of common stock:
Proceeds from stock purchase plans							4		0		32								32
Dividends — Preferred stock													(545	)					(545	)
Stock-based compensation											22								22
Balance, December 31, 2010		10,500	$	10,172			1,652	$	165	$	11,916	$	20,127		$	590		$	42,970
Comprehensive loss:
Net loss													(3,957	)					(3,957	)
Other comprehensive income																982			982
Reclassification adjustment for net realized losses on securities available-for-sale included in earnings, net of tax																33			33
Total comprehensive loss																			(2,942	)
Accretion of preferred stock discount				111									(111	)					0
Amortization of preferred stock premium				(12	)								12						0
Issuance of common stock:
Proceeds from stock purchase plans							5		1		29								30
Dividends — Preferred stock													(545	)					(545	)
Balance, December 31, 2011		10,500	$	10,271			1,657	$	166	$	11,945	$	15,526		$	1,605		$	39,513

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010, and 2009
(In thousands, except per share data)

	2011			2010			2009
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income (loss)	$	(3,957	)	$	743		$	(2,488	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization		1,094			911			961
Provision for loan losses		4,750			4,755			8,506
Provision for valuation allowance OREO		628			159			958
Benefit for deferred income taxes		(868	)		(90	)		(1,578	)
(Gain) loss on sale of investment securities		55			(1,054	)		(449	)
Other-than-temporary impairment losses, net		0			412			301
(Gain) loss on premises and equipment disposals		(44	)		0			12
(Gain) loss on sale of foreclosed OREO		(241	)		(187	)		91
Stock-based compensation		0			22			24
Valuation allowance — deferred taxes		2,911			0			0
Changes in operating assets and liabilities:
Loans held for sale		5,281			(1,992	)		(4,968	)
Other assets		1,590			939			(3,906	)
Other liabilities		(510	)		(503	)		(376	)
Net cash provided by (used in) operating activities		10,689			4,115			(2,912	)
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits in other financial institutions		(2	)		5			8
Net (increase) decrease in federal funds sold		19,401			(23,409	)		13,236
Securities available for sale:
Proceeds from sales		641			38,146			12,717
Proceeds from maturities		33,184			32,614			25,238
Payment for purchases		(41,563	)		(68,747	)		(59,552	)
Net increase (decrease) in loans		2,346			12,220			(639	)
Capital expenditures		(685	)		(682	)		(280	)
Proceeds from sale of premises and equipment		223			0			9
Proceeds from sale of OREO		1,995			1,590			1,012
Net cash provided by (used in) investing activities		15,540			(8,263	)		(8,251	)

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Consolidated Statements of Cash Flows
Years Ended December 31, 2011, 2010, and 2009
(In thousands, except per share data)

	2011			2010			2009
Cash flows from financing activities:
Net increase (decrease) in deposits	$	(18,990	)	$	2,810		$	12,125
Net increase (decrease) in short-term borrowings		4,143			1,529			(3,328	)
Proceeds from issuance of long-term borrowings		0			22,061			6,500
Principal payments on long-term borrowings		(2,500	)		(22,061	)		(13,368	)
Proceeds from issuance of preferred stock and common stock warrants		0			0			10,000
Proceeds from stock benefit plans		30			32			35
Cash dividends paid preferred stock		(136	)		(545	)		(401	)
Cash dividends paid common stock		0			0			(181	)
Net cash provided by (used in) financing activities		(17,453	)		3,826			11,382
Net increase (decrease) in cash and due from banks		8,776			(322	)		219
Cash and due from banks at beginning of year		9,502			9,824			9,605
Cash and due from banks at end of year	$	18,278		$	9,502		$	9,824
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the year for:
Interest	$	6,599		$	9,057		$	10,931
Income taxes		250			0			(19	)
Noncash investing and financing activities:
Loans transferred to OREO	$	2,631		$	4,965		$	1,652
Loans charged-off		4,988			4,034			5,283
Dividends declared but not yet paid on preferred stock		477			68			68
Loans made in connection with the sale of OREO		75			981			339

The accompanying notes to the consolidated financial statements are an integral part of these statements.

Mid-Wisconsin Financial Services, Inc. and Subsidiary
Notes to Consolidated Financial Statements
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Note 1 — Summary of Significant Accounting Policies

Principal Business Activity

Mid-Wisconsin Financial Services, Inc. (the “Company”) operates as a full-service financial institution with a primary market area including, but not limited to, Clark, Eau Claire, Lincoln, Marathon, Oneida, Price, Taylor and Vilas Counties, Wisconsin. It provides a variety of traditional banking product sales, insurance services, and wealth management services. The Company is regulated by federal and state agencies and is subject to periodic examinations by those agencies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiary, Mid-Wisconsin Bank (the “Bank”), and the Bank’s wholly-owned subsidiary, Mid-Wisconsin Investment Corporation. All significant intercompany balances and transactions have been eliminated in consolidation. The accounting and reporting policies of the Company conform to generally accepted accounting principles and to general practices within the banking industry.

The Company also owns Mid-Wisconsin Statutory Trust 1 (the “Trust”), a wholly owned subsidiary that is a variable interest entity because the Company is not the primary beneficiary and, as a result, the Trust’s financial statements are not consolidated with the Company. The Trust is a qualifying special-purpose entity established for the sole purpose of issuing trust preferred securities. The proceeds from the issuance were used by the Trust to purchase subordinated debentures (the “Debentures”) of the Company, which is the sole asset of the Trust. Liabilities on the consolidated balance sheets include the subordinated debentures related to the Trust, as more fully described in Note 11.

Estimates

The preparation of the accompanying consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ significantly from those estimates. Estimates that are susceptible to significant change include the determination of the allowance for loan losses and the valuation of investment securities.

Cash Equivalents

For purposes of presentation in the consolidated statements of cash flows, cash and cash equivalents are defined as those amounts included in the balance sheet caption “Cash and due from banks.” Cash and due from banks include cash on hand and non-interest-bearing deposits at correspondent banks.

Investment Securities Available-for-Sale

Securities are classified as available-for-sale and are carried at fair value, with unrealized gains and losses, net of related deferred income taxes, included in stockholders’ equity as a separate component of other comprehensive income. Amortization of premiums and accretion of discounts are recognized in interest income using the interest method over the terms of the securities. Declines in fair value of securities that are deemed to be other-than-temporary are reflected in earnings as a realized loss, and a new cost basis is established. In estimating other-than-temporary impairment losses, management considers the length of time and the extent to which 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 retain its investment in the issuer for a period of time

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

sufficient to allow for any anticipated recovery in fair value. Gains and losses on the sale of securities are determined using the specific-identification method.

Loans Held for Sale

Loans held for sale consist of the current origination of certain fixed rate mortgage loans and are recorded at the lower of aggregate cost or fair value. A gain or loss is recognized at the time of the sale reflecting the present value of the difference between the contractual interest rate of the loans sold and the yield to the investor. All loans held for sale at December 31, 2011 and 2010 have a forward sale commitment from an investor. Mortgage servicing rights are not retained.

Loans

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff generally are reported at their outstanding unpaid principal balances adjusted for charge-offs, the allowance for loan losses, and any deferred fees or costs on originated loans. Interest on loans is accrued and credited to income based on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized as an adjustment of the related loan yield using the interest method.

Loans are considered past due if the required principal and interest payments have not been received as of the date such payments are due. Loans are generally placed on nonaccrual status when management has determined collection of such interest is doubtful or when a loan is contractually past due 90 days or more as to interest or principal payments. When loans are placed on nonaccrual status or charged-off, all current year unpaid accrued interest is reversed against interest income. The interest on these loans is subsequently accounted for on the cash basis until qualifying for return to accrual status. If collectability of the principal is in doubt, payments received are applied to loan principal. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.

A loan is accounted for as a troubled debt restructuring if the Company, for economic or legal reasons related to the borrower’s financial condition, grants a significant concession to the borrower that it would not otherwise consider. A troubled debt restructuring may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions. All restructured loans are considered impaired for reporting and measurement purposes. A loan that has been modified at a below market rate will return to performing status if it satisfies the nine-month performance requirement; however, it will remain classified as a restructured loan.

Allowance for Loan Losses

The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio, and is based on quarterly evaluations of the collectability and historical loss experience of loans. Loans are charged against the allowance for loan losses when management believes the collectability of the principal in unlikely. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is adequate to absorb probable losses in the loan portfolio.

The allocation methodology applied by the Company to assess the appropriateness of the allowance for loan losses focuses on evaluation of several factors, including but not limited to: (i) the establishment of specific reserve allocations on impaired credits when a high risk of loss is anticipated but not yet realized; (ii) management’s ongoing review and grading of the loan portfolio; (ii) consideration of historical loan loss and delinquency experience on each portfolio category; (iv) trends in past due and nonperforming loans;

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

(v) the risk characteristics of the various classifications of loans; (vi) changes in the size and character of the loan portfolio; (vii) concentrations of loans to specific borrowers or industries; (viii) existing and forecasted economic conditions; (ix) the fair value of underlying collateral; and (x) other qualitative and quantitative factors which could affect potential credit losses. The total allowance is available to absorb losses from any segment of the portfolio.

The allowance for loan losses includes specific allowances related to loans which have been judged to be impaired under current accounting standards. A loan is impaired when, based on current information, it is probable the Company will not collect all amounts due in accordance with the original contractual terms of the loan agreement, including both principal and interest. Management has determined that loans that have a nonaccrual status or have had their terms restructured in a trouble debt restructuring meet this definition. Large groups of homogeneous loans, such as mortgage and consumer loans, are primarily evaluated using historical loss rates. Specific allowances on impaired loans are based on an evaluation of the customers’ cash flow ability to repay the loan or the fair value of the collateral if the loan is collateral dependent.

Management believes that the level of the allowance for loan loss is appropriate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions.

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Company’s allowance for loan losses. Such agencies may require the Company to make additions to the allowance for loan losses and certain loan balances to be charged-off or downgraded into criticized 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.

Premises and Equipment

Premises and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed on a straight-line method and is based on the estimated useful lives of the assets. Maintenance and repair costs are charged to expense as incurred. Gains or losses on disposition of premises and equipment are reflected in income.

Other Real Estate Owned (“OREO”)

OREO consists of real estate properties acquired through a foreclosure proceeding or acceptance of a deed-in-lieu of foreclosure. OREO is recorded at the lower of the recorded investment in the loan at the time of acquisition or the fair value of the underlying property value, less estimated selling costs. Any write-down in the carrying value of a property at the time of acquisition is charged to the allowance for loan losses. Any subsequent write-downs to reflect current fair market value, as well as gains and losses on sale, and revenues and expenses incurred in maintaining such properties, are treated as period costs. OREO is included in the balance sheet caption “Other assets.”

Federal Home Loan Bank (“FHLB”) Stock

As a member of the FHLB system, the Company is required to hold stock in the FHLB based on the outstanding amount of FHLB borrowings. This stock is recorded at cost, which approximates fair value. The FHLB of Chicago is under regulatory requirements which require approval of dividend restrictions and stock redemptions. The stock is evaluated for impairment on an annual basis. However, the stock is viewed as a long-term investment; therefore, its value is determined based on the ultimate recovery of the par value rather than recognizing temporary declines in value. Transfer of the stock is substantially restricted. FHLB stock is included in the balance sheet caption “Other investments, at cost” and totals $2,306 at December 31, 2011 and 2010.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Income Taxes

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 taxes, which arise from temporary differences between the amounts reported in the financial statements and the tax basis of assets and liabilities are determined based on the difference between the financial statement and tax basis of assets and liabilities as measured by the current enacted tax rates which will be in effect when these differences are expected to reverse. Provision (credit) for deferred taxes is the result of changes in deferred tax assets and liabilities. A deferred tax valuation allowance is established if it is more likely than not that all or a portion of deferred tax assets will not be realized.

The Company may also recognize a liability for unrecognized tax benefits from uncertain 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 financial statements. Interest and penalties related to unrecognized tax benefits are classified as income taxes.

Off-Balance Sheet Financial Instruments

In the ordinary course of business, the Company has entered into off-balance sheet financial instruments consisting of commitments to extend credit, commitments under commercial letters of credit, and standby letters of credit. Such financial instruments are recorded in the financial statements when they become payable.

Rate Lock Commitments

The Company enters into commitments to originate mortgage loans whereby the interest rate on the loan is determined prior to funding (rate lock commitments). Rate lock commitments on mortgage loans that are intended to be sold are considered to be derivatives. The mortgage loans are sold to the secondary market shortly after the loan is closed. The fair value of the mortgage loan rate lock commitments is immaterial to the financial statements. The Company’s rate lock commitments were $13,655 and $8,542 at December 31, 2011 and 2010, respectively.

Segment Information

The Company, through a branch network of its banking subsidiary, provides a full range of consumer and commercial banking services to individuals, businesses, and farms in north central Wisconsin. These services include demand, time, and savings deposits; safe deposit services; credit cards; notary services; night depository; money orders; traveler’s checks; cashier’s checks; savings bonds; secured and unsecured consumer, commercial, and real estate loans; ATM processing; cash management; merchant capture; online banking; and trust and financial planning.

While the Company’s management monitors the revenue streams of various Company products and services, operations are managed and financial performance is evaluated on a companywide basis. Accordingly, all of the Company’s banking operations are considered by management to be aggregated in one reportable operating segment.

Advertising Costs

Advertising costs are generally expensed as incurred.

Comprehensive Income (Loss)

Comprehensive income (loss) consists of net income (loss) and other comprehensive income (loss). Other comprehensive income (loss) includes unrealized gains and losses on securities available-for-sale, net of tax, which are recognized as a separate component of equity, and accumulated other comprehensive income (loss).

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Earnings (loss) per Common Share

Earnings (loss) per common share is calculated by dividing net income (loss) available to common equity by the weighted average number of common shares outstanding.

Diluted earnings (loss) per common share includes the potential common stock shares issuable under stock option plans.

Stock-Based Compensation

The Company accounts for employee stock compensation plans using the fair value based method of accounting. Under this method, compensation cost is measured at the grant date based on the value of the award and is recognized over the service period, which is also the vesting period.

Reclassifications

Certain reclassifications have been made to prior year financial statements to conform to the 2011 classifications.

Subsequent Events

Management has reviewed the Company’s operations for potential disclosure of information or financial statement impacts related to events occurring after December 31, 2011, but prior to the release of these financial statements. Based on the results of this review, no subsequent event disclosures are required as of the release date.

Recent Accounting Pronouncements

In April 2011, the FASB issued clarifying guidance regarding which loan modifications constitute troubled debt restructurings. In evaluating whether a restructuring constitutes a troubled debt restructuring, the guidance maintains a creditor must separately conclude that the restructuring constitutes a concession and the debtor is experiencing financial difficulties. The accounting standard provides further guidance with respect to whether a creditor has granted a concession and whether a debtor is experiencing financial difficulties. The measurement guidance is effective for interim and annual periods beginning on or after June 15, 2011, while the disclosure guidance is effective for interim and annual periods beginning on or after June 15, 2011 with retrospective application to restructurings occurring on or after the beginning of the fiscal year. The Company adopted the accounting standard as of the beginning of the third quarter of 2011, as required, with no material impact on its results of operations, financial position, and liquidity.

In July 2010, the FASB issued guidance for improving disclosures about an entity’s allowance for loan losses and the credit quality of its loans. The guidance requires additional disclosure to facilitate financial statement users’ evaluation of the following: (1) the nature of credit risk inherent in the entity’s loan portfolio, (2) how that risk is analyzed and assessed in arriving at the allowance for loan losses, and (3) the changes and reasons for those changes in the allowance for loan losses. The increased disclosures as of the end of a reporting period are effective for periods ending on or after December 15, 2010. Increased disclosures about activity that occurs during a reporting period are effective for interim and annual reporting periods beginning on or after December 31, 2010. The Company adopted the accounting standard as of December 31, 2010, with no material impact on the consolidated financial statements of the Company.

In January 2010, the FASB issued an accounting standard providing additional guidance relating to fair value measurement disclosures. Specifically, companies are required to separately disclose significant transfers into and out of Level 1 and Level 2 measurements in the fair value hierarchy and the reasons for those transfers. Significance should generally be based on earnings and total assets or liabilities, or when changes are recognized in other comprehensive income, based on total equity. Companies may take different approaches in determining when to recognize such transfers, including using the actual date of the event or

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

change in circumstances causing the transfer, or using the beginning or ending of a reporting period. For Level 3 fair value measurements, the new guidance requires presentation of separate information about purchases, sales, issuances and settlements. The FASB also clarified existing fair value measurement disclosure requirements relating to the level of disaggregation, inputs, and valuation techniques. This accounting standard was effective at the beginning of 2010, except for the detailed Level 3 disclosures which were effective at the beginning of 2011. The Company adopted the accounting standard including the Level 3 disclosures with no material impact on the consolidated financial statements of the Company.

In April 2011, the FASB issued an accounting standard that modifies the criteria for determining when repurchase agreements would be accounted for as a secured borrowing rather than as a sale. Currently, an entity that maintains effective control over transferred financial assets must account for the transfer as a secured borrowing rather than as a sale. The provisions remove from the assessment of effective control the criterion requiring the transferor to have the ability to repurchase or redeem the financial assets on substantially the agreed terms, even in the event of default by the transferee. The FASB believes that contractual rights and obligations determine effective control and that there does not need to be a requirement to assess the ability to exercise those rights. The accounting standard does not change the other existing criteria used in the assessment of effective control and is effective prospectively for transactions, or modifications of existing transactions, that occur on or after January 1, 2012. As the Company accounts for all of its repurchase agreements as collateralized financing arrangements, the adoption of this accounting standard is not expected to have a material impact on the consolidated financial statements of the Company.

In May 2011, the FASB issued an accounting standard that provides a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and International Financial Reporting Standards (“IFRS”). The changes to U.S. GAAP as a result of the accounting standard are as follows: (1) the concepts of highest and best use and valuation premise are only relevant when measuring the fair value of nonfinancial assets (that is, it does not apply to financial assets or any liabilities); (2) U.S. GAAP currently prohibits application of a blockage factor in valuing financial instruments with quoted prices in active markets, while the new accounting standard extends that prohibition to all fair value measurements; (3) an exception is provided to the basic fair value measurement principles for an entity that holds a group of financial assets and financial liabilities with offsetting positions in market risks or counterparty credit risk that are managed on the basis of the entity’s net exposure to either of those risks, which such exception allows the entity, if certain criteria are met, to measure the fair value of the net asset or liability position in a manner consistent with how market participants would price the net risk position; (4) the fair value measurement of instruments classified within an entity’s shareholders’ equity have been aligned with the guidance for liabilities; and (5) disclosure requirements have been enhanced for recurring Level 3 fair value measurements to disclose quantitative information about unobservable inputs and assumptions used, to describe the valuation processes used by the entity, and to describe the sensitivity of fair value measurements to changes in unobservable inputs and interrelationships between those inputs. In addition, entities must report the level in the fair value hierarchy of items that are not measured at fair value in the statement of condition but whose fair value must be disclosed. The provisions of the accounting standard are effective for the Company’s interim reporting period beginning on or after December 15, 2011. The adoption of this accounting standard is not expected to have a material impact on the consolidated financial statements of the Company.

In June 2011, the FASB issued an accounting standard that allows an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. In both choices, an entity is required to present each component of net income along with total net income, each component of other comprehensive income along with a total for other comprehensive income, and a total amount for comprehensive income. The statement(s) are required to be presented with equal prominence as the other primary financial statements. The accounting pronouncement eliminates the option to present the components of other comprehensive income as part of the statement of changes in shareholders’

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

equity but does not change the items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income. The provisions of this accounting standard are effective for the Company’s interim reporting period beginning on or after December 15, 2011, with retrospective application required. The adoption of this accounting standard will have no material impact on the consolidated financial statements of the Company.

Note 2 — Earnings (Loss) per Common Share

Earnings (loss) per common share is calculated by dividing net income (loss) available to common equity by the weighted average number of common shares outstanding. Diluted earnings (loss) per share is calculated by dividing net income (loss) available to common equity by the weighted average number of shares adjusted for the dilutive effect of common stock awards. Presented below are the calculations for basic and diluted earnings (loss) per common share.

	For the Years Ended December 31,
	2011			2010			2009
Net income (loss)	$	(3,957	)	$	743		$	(2,488	)
Preferred stock dividends, discount and premium		(644	)		(641	)		(545	)
Net income (loss) available to common equity	$	(4,601	)	$	102		$	(3,033	)
Weighted average common shares outstanding		1,654			1,650			1,645
Effect of dilutive stock options		0			0			1
Diluted weighted average common shares outstanding		1,654			1,650			1,646
Basic and diluted earnings (loss) per common share	$	(2.78	)	$	0.06		$	(1.84	)

Note 3 — Cash and Due From Banks

Cash and due from banks in the amount of $257 and $298 was restricted at December 31, 2011 and 2010, respectively, to meet the reserve requirements of the Federal Reserve System.

In the normal course of business, the Bank maintains cash and due from bank balances with correspondent banks. Accounts at each institution are insured in full by the Federal Deposit Insurance Corporation (“FDIC”). Federal funds sold invested in other institutions are not insured.

Note 4 — Securities

The amortized cost and fair values of investment securities available-for-sale at December 31, 2011 and 2010 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2011
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,479	$	329	$	0	$	18,808
Mortgage-backed securities		66,622		1,110		79		67,653
Obligations of states and political subdivisions		21,619		1,316		3		22,932
Corporate debt securities		831		1		0		832
Total debt securities		107,551		2,756		82		110,225
Equity securities		151		0		0		151
Total securities available-for-sale	$	107,702	$	2,756	$	82	$	110,376

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
December 31, 2010
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	22,732	$	69	$	234	$	22,567
Mortgage-backed securities		56,292		908		284		56,916
Obligations of states and political subdivisions		20,239		661		185		20,715
Corporate debt securities		974		0		13		961
Total debt securities		100,237		1,638		716		101,159
Equity securities		151		0		0		151
Total securities available-for-sale	$	100,388	$	1,638	$	716	$	101,310

The following tables represents gross unrealized losses and the related fair value of investment securities available-for-sale, aggregated by investment category and length of time individual securities have been in a continuous unrealized loss position, at December 31, 2011 and 2010.

	Less Than 12 Months				12 Months or More				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
December 31, 2011
U.S. Treasury obligations and direct obligations of U.S. government agencies	$	0	$	0	$	0	$	0	$	0	$	0
Mortgage-backed securities		9,730		73		12		6		9,742		79
Obligations of states and political subdivisions		0		0		327		3		327		3
Total	$	9,730	$	73	$	339	$	9	$	10,069	$	82
December 31, 2010
U.S. Treasury obligations and direct obligations of U.S. government agencies	$	13,784	$	234	$	0	$	0	$	13,784	$	234
Mortgage-backed securities		26,715		277		72		7		26,787		284
Obligations of states and political subdivisions		5,719		185		0		0		5,719		185
Corporate debt securities		0		0		136		13		136		13
Total	$	46,218	$	696	$	208	$	20	$	46,426	$	716

The Company reviews the investment securities portfolio on a quarterly basis to monitor its exposure to other-than-temporary impairment (“OTTI”) that may result from adverse economic conditions. A determination as to whether a security’s decline in market value is OTTI takes into consideration numerous factors. Some factors the Company may consider in the OTTI analysis include: (1) the length of time and extent to which fair value has been less than cost; (2) the financial condition and near-term prospects of the issuer; and (3) our intent and ability to retain the investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value. Based on the Company’s evaluation, a third party vendor may review specific investment securities identified by management for OTTI. To determine OTTI, a discounted cash flow model is utilized to estimate the fair value of the security. The use of a discounted cash flow model involves judgment, particularly of interest rates, estimated default rates and prepayment speeds.

As of December 31, 2010, the Company determined that OTTI existed in one non-agency mortgage-backed security and two corporate securities since the unrealized losses on these securities appear to be related in part to expected credit losses that will not be recovered by the Company. In the first quarter 2011, the company sold these three OTTI securities, which resulted in net investment security losses of $55. As of December 31, 2011 the Company has determined that there are no remaining OTTI securities in the investment portfolio.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The following is a summary of the credit loss of OTTI recognized in earnings on investment securities.

	Non-Agency Mortgage- Backed Securities			Corporate Securities			Total
Balance of credit-related OTTI at December 31, 2009	$	12		$	289		$	301
Credit losses on securities for which OTTI was not previously recorded		0			201			201
Additional credit losses on securities for which OTTI was previously recognized		0			211			211
Balance of credit-related OTTI at December 31, 2010	$	12		$	701		$	713
Credit losses realized from sale/permanent write-off of securities		(12	)		(701	)		(713	)
Balance of credit-related OTTI at December 31, 2011	$	0		$	0		$	0

Based on the Company’s evaluation, management believes that any remaining unrealized losses at December 31, 2011, are primarily attributable to changes in interest rates and current market conditions, and not credit deterioration. At December 31, 2011, 12 debt securities had unrealized losses with aggregate depreciation of 0.82%. The Company currently has both the intent and ability to hold the securities that are in a continuous unrealized loss position for the time necessary to recover the amortized cost.

The amortized cost and fair value of investment debt securities available-for-sale at December 31, 2011, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

Fair values of securities are estimated based on financial models or prices paid for similar securities. It is possible interest rates could change considerably, resulting in a material change in estimated fair value.

	Amortized Cost		Fair Value
Due in one year or less	$	2,710	$	2,745
Due after one year but within five years		21,851		22,455
Due after five years but within ten years		13,445		14,337
Due after ten years or more		2,923		3,035
Mortgage-backed securities		66,622		67,653
Total debt securities available-for-sale	$	107,551	$	110,225

During 2011, proceeds from sales of investment securities available-for-sale were $641 which resulted in investment security losses of $59 and investment security gains of $4. Investment securities gains of $1,054 during 2010 were attributable to the sales of investment securities available-for-sale of $38,146.

Securities with a carrying value of $65,548 and $65,847 at December 31, 2011 and 2010, respectively, were pledged to secure public deposits, short-term borrowings, and for other purposes as required by law.

The FHLB of Chicago announced in October 2007 that it was under a consensual cease and desist order with its regulator, which among other things, restricts various future activities of the FHLB of Chicago. Such restrictions may limit or stop the FHLB of Chicago from paying dividends or redeeming stock without prior approval. Cash dividends have been paid quarterly in 2011. These were the first dividends paid by the FHLB of Chicago since the third quarter of 2007. Based on an evaluation of this investment the Company believes the cost of the investment will be recovered and no impairment has been recorded on these securities during 2011, 2010, or 2009.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Note 5 — Loans, Allowance for Loan Losses, and Credit Quality

Loans at December 31 are summarized as follows:

	2011		2010
Commercial business	$	41,347	$	39,093
Commercial real estate		123,868		132,079
Real estate construction		28,708		30,206
Agricultural		45,351		39,671
Real estate residential		85,614		91,974
Installment		4,975		6,147
Total loans	$	329,863	$	339,170

The Company serves the credit needs of its customers predominantly in central and northern Wisconsin. Significant loan concentrations are considered to exist for a financial institution when there are amounts loaned to multiple numbers of borrowers engaged in similar activities that would cause them to be similarly impacted by economic or other conditions. At December 31, 2011 no significant concentrations existed in the Company’s loan portfolio in excess of 30% of total loans.

The Bank, in the ordinary course of business, grants loans to its executive officers and directors, including affiliated companies in which they are principal owners. These loans were made on substantially the same terms, including rates and collateral, as those prevailing at the time for comparable transactions with other unrelated customers. In the opinion of management, such loans do not involve more than the normal risk of collectability or present other unfavorable features. These loans to related parties are summarized as follows:

	2011			2010
Balance at beginning of year	$	4,333		$	3,917
New loans		574			2,921
Repayments		(1,339	)		(2,497	)
Changes due to status of executive officers and directors		(3,194	)		(8	)
Balance at end of year	$	374		$	4,333

A summary of the changes in the allowance for loan losses by portfolio segment for the years indicated:

	Beginning Balance at 1/1/2011		Charge-offs			Recoveries		Provision		Ending Balance at 12/31/2011		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
December 31, 2011
Commercial business	$	536	$	(173	)	$	37	$	604	$	1,004	$	352	$	652
Commercial real estate		4,320		(2,005	)		135		1,235		3,685		1,758		1,927
Real estate construction		1,278		(1,295	)		134		1,203		1,320		460		860
Agricultural		1,146		(203	)		90		106		1,139		35		1,104
Real estate residential		2,060		(1,067	)		101		1,436		2,530		680		1,850
Installment		131		(245	)		86		166		138		15		123
Total	$	9,471	$	(4,988	)	$	583	$	4,750	$	9,816	$	3,300	$	6,516

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

	Beginning Balance at 1/1/2010		Charge-offs			Recoveries		Provision		Ending Balance at 12/31/2010		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
December 31, 2010
Commercial business	$	497	$	(435	)	$	167	$	307	$	536	$	0	$	536
Commercial real estate		3,954		(1,490	)		275		1,581		4,320		1,236		3,084
Real estate construction		685		(537	)		149		981		1,278		484		794
Agricultural		981		(206	)		86		285		1,146		8		1,138
Real estate residential		1,753		(1,207	)		83		1,431		2,060		213		1,847
Installment		87		(159	)		33		170		131		0		131
Total	$	7,957	$	(4,034	)	$	793	$	4,755	$	9,471	$	1,941	$	7,530

	Beginning Balance at 1/1/2009		Charge-offs			Recoveries		Provision		Ending Balance at 12/31/2009		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
December 31, 2009
Commercial business	$	295	$	(608	)	$	4	$	806	$	497	$	0	$	497
Commercial real estate		1,836		(1,990	)		151		3,957		3,954		1,726		2,228
Real estate construction		836		(1,556	)		0		1,405		685		57		628
Agricultural		450		(38	)		4		565		981		47		934
Real estate residential		1,010		(964	)		13		1,694		1,753		460		1,293
Installment		115		(127	)		20		79		87		0		87
Total	$	4,542	$	(5,283	)	$	192	$	8,506	$	7,957	$	2,290	$	5,667

The following table presents nonaccrual loans by portfolio segment for the periods indicated as follows:

	December 31, 2011		December 31, 2010
	Amount		Amount
Commercial business	$	734	$	54
Commercial real estate		4,076		5,670
Real estate construction		2,519		2,644
Agricultural		134		440
Real estate residential		3,726		2,730
Installment		5		2
Total nonaccrual loans	$	11,194	$	11,540

A summary of loans by credit quality indicator based on internally assigned credit grade is as follows:

December 31, 2011	Highest Quality		High Quality		Quality		Moderate Risk		Acceptable		Special Mention		Substandard		Doubtful		Loss	Total
Commercial business	$	188	$	4,268	$	5,153	$	8,688	$	10,898	$	8,333	$	3,068	$	751	$	$	41,347
Commercial real estate		0		1,521		15,061		35,596		36,947		14,811		13,828		6,104			123,868
Real estate construction		166		2,169		4,680		3,905		11,383		839		2,980		2,586			28,708
Agricultural		121		427		2,527		8,052		22,283		8,428		2,812		701			45,351
Real estate residential		466		6,273		19,181		20,856		22,300		6,678		5,911		3,949			85,614
Installment		6		430		1,258		2,205		759		273		39		5			4,975
Total	$	947	$	15,088	$	47,860	$	79,302	$	104,570	$	39,362	$	28,638	$	14,096	$	$	329,863

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

December 31, 2010	Highest Quality		High Quality		Quality		Moderate Risk		Acceptable		Special Mention		Substandard		Doubtful		Loss	Total
Commercial business	$	1,118	$	2,760	$	6,217	$	10,437	$	13,166	$	3,928	$	559	$	908	$	$	39,093
Commercial real estate		0		1,306		16,790		32,019		39,448		19,146		14,735		8,635			132,079
Real estate construction		172		1,673		6,685		7,062		7,171		1,883		2,723		2,837			30,206
Agricultural		0		868		3,341		7,607		18,748		4,338		4,176		593			39,671
Real estate residential		652		7,208		24,395		24,574		18,295		7,990		5,022		3,838			91,974
Installment		15		555		1,850		2,707		841		165		11		3			6,147
Total	$	1,957	$	14,370	$	59,278	$	84,406	$	97,669	$	37,450	$	27,226	$	16,814	$	$	339,170

Loans risk rated acceptable or better are credits performing in accordance with the original terms, have adequate sources of repayment and little identifiable collectability risk. Special mention credits have potential weaknesses that deserve management’s attention. If left unremediated, these potential weaknesses may result in deterioration of the repayment of the credit. Substandard loans typically have weaknesses in the paying capability of the obligor and/or guarantor or in collateral coverage. These loans have a well-defined weakness that jeopardizes the liquidation of the debt and are characterized by the possibility that the Bank will sustain some loss if the deficiencies are not corrected. Loans classified as doubtful have all the weaknesses of substandard loans with the added characteristic that the collection of all amounts due according to the original contractual terms is highly unlikely and the amount of the loss is reasonably estimable. Loans classified as loss are considered uncollectible.

The following table presents loans by past due status at December 31, 2011 and 2010:

	30–59 Days Past Due		60–89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
December 31, 2011
Commercial business	$	50	$	14	$	612	$	676	$	40,671	$	41,347	$	0
Commercial real estate		787		830		2,885		4,502		119,366		123,868		0
Real estate construction		114		157		2,519		2,790		25,918		28,708		0
Agricultural		88		120		241		449		44,902		45,351		201
Real estate residential		989		176		3,044		4,209		81,405		85,614		0
Installment		29		0		0		29		4,946		4,975		21
Total	$	2,057	$	1,297	$	9,301	$	12,655	$	317,208	$	329,863	$	222

	30–59 Days Past Due		60–89 Days Past Due		Greater Than 90 Days		Total Past Due		Current		Total Loans		Recorded Investment > 90 Days and Accruing
December 31, 2010
Commercial business	$	389	$	28	$	0	$	417	$	38,676	$	39,093	$	0
Commercial real estate		422		2,580		3,677		6,679		125,400		132,079		0
Real estate construction		0		1,143		2,644		3,787		26,419		30,206		0
Agricultural		177		357		250		784		38,887		39,671		0
Real estate residential		1,710		472		2,255		4,437		87,537		91,974		0
Installment		35		16		10		61		6,086		6,147		10
Total	$	2,733	$	4,596	$	8,836	$	16,165	$	323,005	$	339,170	$	10

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The following table presents impaired loans:

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2011
With no related allowance:
Commercial business	$	0	$	0	$	0	$	0	$	0
Commercial real estate		0		0		0		349		0
Real estate construction		0		0		0		96		0
Agricultural		0		0		0		8		0
Real estate residential		0		0		0		165		0
Installment		0		0		0		0		0
With a related allowance:
Commercial business	$	482	$	834	$	352	$	460	$	11
Commercial real estate		8,130		9,888		1,758		7,646		392
Real estate construction		2,103		2,563		460		2,080		51
Agricultural		270		305		35		233		4
Real estate residential		3,010		3,690		680		2,586		103
Installment		6		21		15		8		2
Total:
Commercial business	$	482	$	834	$	352	$	460	$	11
Commercial real estate		8,130		9,888		1,758		7,995		392
Real estate construction		2,103		2,563		460		2,176		51
Agricultural		270		305		35		241		4
Real estate residential		3,010		3,690		680		2,751		103
Installment		6		21		15		8		2
Total	$	14,001	$	17,301	$	3,300	$	13,631	$	563
December 31, 2010
With no related allowance:
Commercial business	$	0	$	0	$	0	$	0	$	0
Commercial real estate		243		243		0		413		0
Real estate construction		182		182		0		36		3
Agricultural		0		0		0		109		0
Real estate residential		335		335		0		268		3
Installment		0		0		0		0		0
With a related allowance:
Commercial business	$	0	$	0	$	0	$	0	$	0
Commercial real estate		4,715		5,951		1,236		6,805		120
Real estate construction		1,684		2,168		484		984		18
Agricultural		63		71		8		310		0
Real estate residential		586		799		213		1,319		21
Installment		0		0		0		0		0
Total:
Commercial business	$	0	$	0	$	0	$	0	$	0
Commercial real estate		4,958		6,194		1,236		7,218		120
Real estate construction		1,866		2,350		484		1,020		21
Agricultural		63		71		8		419		0
Real estate residential		921		1,134		213		1,587		24
Installment		0		0		0		0		0
Total	$	7,808	$	9,749	$	1,941	$	10,244	$	165

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The following table presents impaired loans: (continued)

	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income Recognized
December 31, 2009
With no related allowance:
Commercial business	$	0	$	0	$	0	$	73	$	0
Commercial real estate		793		793		0		728		25
Real estate construction		0		0		0		62		0
Agricultural		108		108		0		422		5
Real estate residential		193		193		0		563		6
Installment		0		0		0		102		0
With a related allowance:
Commercial business	$	0	$	0	$	0	$	117	$	0
Commercial real estate		6,030		7,756		1,726		5,204		152
Real estate construction		288		345		57		1,519		8
Agricultural		413		460		47		71		13
Real estate residential		1,710		2,170		460		1,385		33
Installment		0		0		0		0		0
Total:
Commercial business	$	0	$	0	$	0	$	190	$	0
Commercial real estate		6,823		8,549		1,726		5,932		177
Real estate construction		288		345		57		1,581		8
Agricultural		521		568		47		493		18
Real estate residential		1,903		2,363		460		1,948		39
Installment		0		0		0		102		0
Total	$	9,535	$	11,825	$	2,290	$	10,246	$	242

No additional funds are committed to be advance in connection with impaired loans.

When, for economic or legal reasons related to the borrowers financial difficulties, the Company grants a concession to the borrower that the Company would not otherwise consider, the modified loan is classified as a troubled debt restructuring. Loan modifications may involve the receipt of assets from the debtor in partial or full satisfaction of the loan, or a modification of terms such as a reduction of the stated interest rate, a reduction of accrued interest, an extension of the maturity date at a stated interest rate lower than the current market rate for a new loan with similar risk, or some combination of these concessions.

The following table provides the number of loans modified and classified as trouble debt restructurings by loan category during the year ended December 31, 2011.

		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
Commercial business	3	$	722	$	721
Commercial real estate	15		6,160		6,160
Real estate construction	4		2,839		2,809
Agricultural	4		249		249
Real estate residential	13		2,474		2,473
Installment	1		22		22
Total	40	$	12,466	$	12,434

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The following table summarizes trouble debt restructurings that defaulted during the year ended December 31, 2011, within twelve months of their modification dates.

		Recorded Investment
Commercial business	3	$	711
Commercial real estate	4		1,039
Real estate construction	2		1,338
Agricultural	1		40
Real estate residential	9		1,789
Installment	0		0
Total	19	$	4,917

Note 6 — Premises and Equipment

A summary of premises and equipment at December 31 was as follows:

	2011		2010
Land and improvements	$	2,004	$	2,052
Buildings		9,331		9,246
Furniture and equipment		7,634		7,489
Total cost		18,969		18,787
Less: accumulated depreciation		11,026		10,625
Premises and equipment, net	$	7,943	$	8,162

Depreciation and amortization of premises and equipment totaled $724 in 2011, $814 in 2010, and $930 in 2009.

The Bank leases certain of its facilities and equipment, certain of which provide for increased rentals based upon increases in cost of living adjustments and other operating costs. The approximate minimum annual rentals and commitments under these leases with remaining terms in excess of one year are as follows:

2012		125
2013		126
2014		129
2015		133
2016		94
Thereafter		334
Total	$	941

Total rental expense under operating leases was $146, $186, and $184 in 2011, 2010, and 2009, respectively.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Note 7 — OREO

A summary of OREO at December 31 was as follows:

	2011			2010
Balance at beginning of year	$	4,230		$	1,808
Transfer of loans at net realizable value to OREO		2,631			4,965
Sale proceeds		(1,995	)		(1,590	)
Loans made in sale of OREO		(75	)		(981	)
Net gain from sale of OREO		241			187
Provision for write-downs charged to operations		(628	)		(159	)
Balance at end of year	$	4,404		$	4,230

An analysis of the valuation allowance on OREO at December 31 was follows:

	2011			2010			2009
Balance at beginning of year	$	2,788		$	2,994		$	2,616
Provision for write-downs charged to operations		628			159			958
Amounts related to OREO disposed of		(3,006	)		(365	)		(580	)
Balance at end of year	$	410		$	2,788		$	2,994

Note 8 — Deposits

The distribution of deposits at December 31 was as follows:

	2011		2010
Noninterest-bearing demand deposits	$	70,790	$	60,446
Interest-bearing demand deposits		39,160		39,462
Money market deposits		91,247		89,546
Savings deposits		29,266		24,969
IRA retirement accounts		32,031		33,519
Brokered certificates of deposit		15,017		26,986
Certificates of deposit		104,109		125,682
Total deposits	$	381,620	$	400,610

IRA retirement accounts, brokered certificates of deposit and certificates of deposit, (“time deposits”), with individual balances of $100 or more were $46,695 and $61,109 at December 31, 2011 and 2010 respectively.

Aggregate annual maturities of all time deposits at December 31, 2011, are as follows:

Maturities During Year Ending December 31,
2012		109,488
2013		30,420
2014		7,047
2015		3,570
2016		294
Thereafter		338
Total	$	151,157

Deposits from the Company’s directors, executive officers, and affiliated companies in which they are principal owners totaled $2,744 and $3,112 at December 31, 2011 and 2010, respectively.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Note 9 — Short-Term Borrowings

Short-term borrowings consisted of $13,655 and $9,512 of securities sold under repurchase agreements at December 31, 2011 and 2010, respectively.

The Company pledges securities available-for-sale as collateral for repurchase agreements. The fair value of securities pledged for short-term borrowings totaled $19,481 and $14,032 at December 31, 2011 and 2010, respectively.

The following information relates to federal funds purchased, securities sold under repurchase agreements, and Federal Home Loan Bank open line of credit at December 31:

	2011			2010			2009
Weighted average rate at December 31,		0.46	%		0.49	%		0.48	%
For the year:
Highest month-end balance	$	15,817		$	18,329		$	20,074
Daily average balance	$	12,285		$	10,411		$	12,031
Weighted average rate		1.00	%		0.69	%		1.06	%

Note 10 — Long-Term Borrowings

Long-term borrowings at December 31 were as follows:

	2011		2010
FHLB advances	$	30,061	$	32,561
Other borrowed funds		10,000		10,000
Total long-term borrowings	$	40,061	$	42,561

FHLB advances at December 31 were as follows:

	2011		2010
1.84% to 4.22% fixed rate, interest payable monthly with principal due during 2011	$	0	$	2,500
2.17% to 5.12% fixed rate, interest payable monthly with principal due during 2012		4,000		4,000
3.90% fixed rate, interest payable monthly with principal due during 2013		2,000		2,000
1.79% to 3.03% fixed rate, interest payable monthly with principal due during 2014		16,061		16,061
3.16% to 3.48% fixed rate, interest payable monthly with principal due during 2015		8,000		8,000
Total	$	30,061	$	32,561

FHLB advances are secured by FHLB stock, qualifying mortgages of the Bank (such as residential mortgage, home equity, and commercial real estate) and by municipal bonds and mortgage-backed securities totaling approximately $58,311 and $67,519 at December 31, 2011 and 2010, respectively. At December 31, 2011, the Bank had $5,999 in available, but unused, FHLB advances.

In April 2010, FHLB advances of $22,061 were restructured. The present value of the cash flows before and after the restructuring were reviewed and it was determined the restructuring was closely related to the original contract within accounting guidance that allows the prepayment penalty to be incorporated into the new borrowing agreements.

Other borrowed funds include $10,000 of structured repurchase agreements at December 31, 2011 and 2010. The fixed rate structured repurchase agreements mature in 2014 and 2015, callable in 2013, and had

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

weighted-average interest rates of 4.24% at December 31, 2011 and 2010, respectively. Other borrowings are secured by investment securities totaling $11,582 and $13,390 at December 31, 2011 and 2010, respectively.

Note 11 — Subordinated Debentures

In 2005, The Trust issued $10,000 in trust preferred securities. The trust preferred securities were sold in a private placement to institutional investors. The Trust used the proceeds from the offering along with the Company’s common ownership investment to purchase $10,310 of the Company’s the Debentures. The Debentures are the sole asset of the Trust.

The trust preferred securities and the Debentures mature on December 15, 2035, and had a fixed rate of 5.98% until December 15, 2010, after which they have a floating rate of the three-month LIBOR plus 1.43%, adjusted quarterly. The interest rates were 1.98% and 1.73% at December 31, 2011 and 2010, respectively. The Debentures may be called at par in part or in full on or after December 15, 2010, or within 120 days of certain events. The trust preferred securities are mandatorily redeemable upon the maturity or early redemption of the Debentures.

The Company has fully and unconditionally guaranteed all of the obligations of the Trust. The guarantee covers the quarterly distributions and payments on liquidation or redemption of the trust preferred securities, but only to the extent of funds held by the Trust. The trust preferred securities qualify under the risk-based capital guidelines as Tier 1 capital for regulatory purposes.

In consultation with the Federal Reserve, on May 12, 2011, the Company exercised its rights to defer interest payments on the Debentures. Under the terms of the Debentures, the Company is allowed to defer payments of interest for 20 quarterly periods without default or penalty, but such amounts will continue to accrue. On December 31, 2011, the Company had $146 accrued and unpaid interest due on the Debentures.

Note 12 — Income Taxes

The current and deferred amounts of income tax expense (benefit) were as follows:

	2011			2010			2009
Current income tax expense (benefit):
Federal	$	(182	)	$	225		$	(338	)
State		0			0			0
Total current		(182	)		225			(338	)
Deferred income tax expense (benefit):
Federal		(682	)		(134	)		(1,223	)
State		(186	)		44			(355	)
Total deferred		(868	)		(90	)		(1,578	)
Change in valuation allowance		2,911			0			0
Total income tax expense (benefit)	$	1,861		$	135		$	(1,916	)

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

A summary of the sources of differences between income taxes at the federal statutory rate and the provision for income taxes for the years ended December 31 follows:

	2011						2010						2009
	Amount			Percent of Pretax Income			Amount			Percent of Pretax Income			Amount			Percent of Pretax Income
Tax (benefit) expense at statutory rate	$	(713	)		(34.0%)		$	299			34.0	%	$	(1,497	)		(35.0%)
Increase (decrease) in taxes resulting from:
Tax-exempt interest		(180	)		(8.6	)		(169	)		(19.2	)		(190	)		(4.3	)
Federal tax refund		0			0.0			0			0.0			0			0.0
State income taxes		(122	)		(5.8	)		40			4.5			(239	)		(5.4	)
Bank-owned life insurance		(53	)		(2.5	)		(53	)		(6.0	)		(36	)		(0.8	)
Change in valuation allowance		2,911			138.9			0			0.0			0			0.0
Other		18			0.8			18			2.1			46			1.0
Provision (benefit) for income taxes	$	1,861			88.8	%	$	135			15.4	%	$	(1,916	)		(43.5%)

Temporary differences between the amounts reported in the financial statements and the tax bases of assets and liabilities resulted in deferred taxes. Deferred tax assets and liabilities at December 31 were as follows:

	2011		2010
Deferred tax assets:
Allowance for loan losses	$	3,170	$	2,835
Valuation allowance for other real estate owned		222		1,098
Deferred compensation		399		361
State net operating losses		539		362
Federal net operating losses		1,384		62
Purchased deposit intangible		39		97
AMT credit carryover		45		204
Other		46		20
Total deferred tax assets		5,844		5,039
Deferred tax liabilities:
Premises and equipment		300		253
FHLB stock		215		215
Prepaid expense and other		0		105
Unrealized gain on securities available for sale		1,069		332
Total deferred tax liabilities		1,584		905
Less — Valuation allowance		3,081		175
Net deferred tax asset	$	1,179	$	3,959

Primarily due to net operating loss carryovers in 2011, the Company’s net deferred tax asset (prior to any valuation allowance) increased to $5,159. All available evidence, both positive and negative, was considered to determine whether any impairment of this asset should be recognized. Based on consideration of the available evidence including historical losses which must be treated as substantial negative evidence and the potential of future taxable income, a $3,081 valuation allowance has been recognized to adjust deferred tax assets to the amount of net operating losses that are expected to be realized. If realized, the tax benefit for this item will reduce current tax expense for that period.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

At December 31, 2011, federal tax returns remained open for Internal Revenue Service review for tax years after 2007, while state tax returns remain open for review by state taxing authorities for tax years after 2006. There were no federal or state income tax audits being conducted at December 31, 2011.

Note 13 — Self-Funded Insurance

Effective January 1, 2009, the Company moved to a fully insured HMO health insurance plan. Expenses under this plan were expensed as incurred and based upon actual claims paid, reinsurance premiums, administration fees, and unpaid claims at year-end. The Company purchased reinsurance to cover catastrophic individual claims over $30. Health care expense for 2009 was $738. During 2009, the Company recovered $140, which represented the remaining balance of the self-funded health insurance fund after all outstanding claims and expenses were paid.

Note 14 — Retirement Plans

The Company sponsors a defined contribution plan referred to as the Profit Sharing and 401(k) Plan covering substantially all full-time employees. The plan consists of a fixed contribution and a discretionary matching contribution by the Company. In 2011, 2010 and 2009, the Company made the fixed contribution of 1% of eligible employees’ annual pay and matched 100% of the first 2% of employees’ deferrals and 50% on the next 4% of employees’ deferrals to the plan up to a 4% matching contribution. Total expense associated with the plan was $281, $274, and $289 for the years ended December 31, 2011, 2010, and 2009, respectively. The Company has a nonqualified deferred directors’ fee compensation plan which permits directors to defer all or a portion of their compensation into a stock equivalent account or a cash account. The benefits are payable after a director’s resignation from the Board of the Company in a lump-sum or in installments over a period not in excess of five years. Included in other liabilities is the estimated present value of future payments of $577 and $697 at December 31, 2011 and 2010, respectively. The expense associated with the deferred stock account is impacted by the market price of the Company’s stock. Expense, including directors’ fees, associated with this plan was $46, $171, and $25 in 2011, 2010, and 2009, respectively.

Note 15 — Employee Stock Purchase, Stock Option, and Other Stock Purchase Plans

Employee Stock Purchase Plan

Under the Company’s Employee Stock Purchase Plan, the Company is authorized to issue up to 50,000 shares of common stock to its full-time employees, nearly all of whom are eligible to participate. Under the terms of the plan, employees can choose each year to have up to 5% of their annual gross earnings withheld to purchase the Company’s common stock. Stock is purchased quarterly by employees under the plan. The purchase price of the stock is 95% of the lower of its market value on the first payroll date of the quarterly offering period or the market price on the close of business on the day before the last quarterly payroll date. There were 4,997 shares purchased in 2011. Approximately 30% of eligible employees participated in the plan during 2011. The Employee Stock Purchase Plan was discontinued in 2012.

Stock Option Plan

Under the terms of an incentive stock option plan, 260,154 shares of unissued common stock are reserved for options to officers and key employees of the Company at prices not less than the fair market value of the shares at the date of the grant. All options granted after January 1, 2006 are nonqualified options and become exercisable over a four-year period following a one-year waiting period from the grant date. These options expire ten years after the grant date.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The fair value of stock options granted in 2009 was estimated on the date of grant using the Black-Scholes option pricing model. There were no stock options granted in 2011 and 2010. The following assumptions were made in estimating the fair value for options granted at December 31:

	2009
Dividend yield		1.89	%
Risk-free interest rate		3.00	%
Expected volatility		29.87	%
Weighted average expected life (years)		7
Weighted average per share fair value of options	$	2.71

Total compensation expense $22 and $24 was recognized during 2010 and 2009, respectively. There was no compensation expense recognized in 2011. As of December 31, 2011, there was $1 of total unrecognized compensation cost related to nonvested share-based compensation arrangements, which is expected to be recognized in 2012. Changes in estimated forfeitures will be recognized in the period of change and will also impact the amount of stock compensation expense to be recognized in future periods.

The following table summarizes information regarding the Company’s stock options outstanding at December 31, 2011:

	Outstanding Options						Exercisable Options
	Options Outstanding		Weighted Average Exercise Price		Remaining Life (Years)		Options Exercisable		Weighted Average Exercise Price
Range of Exercise Prices:
$9.25 to $36.00		37,406	$	26.47		5.5		31,969	$	27.98

The intrinsic value of all outstanding options and exercisable options as of December 31, 2011, was $0.

A summary of the Company’s stock option activity for 2011, 2010, and 2009, is presented below.

			Weighted Average Price
December 31, 2008	67,174		$	28.12
Options granted	6,000			9.25
Options forfeited	(10,571	)		26.81
December 31, 2009	62,603		$	26.54
Options granted	0			0.00
Options forfeited	(4,698	)		26.71
December 31, 2010	57,905		$	26.52
Options granted	0			0.00
Options forfeited	(20,499	)		26.47
December 31, 2011	37,406		$	26.55

A summary of nonvested shares as of December 31, 2011, and changes during the year is presented below.

			Weighted Average Fair Value
December 31, 2010	16,750		$	296
Options granted	0			0
Options vested	(1,313	)		(38	)
Options forfeited	(10,000	)		(178	)
December 31, 2011	5,437		$	80

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

The Company’s incentive stock option plan has expired and no new grants to officers and key employees will be made under that plan.

Note 16 — Stockholders’ Equity

The Company’s Articles of Incorporation, as amended, authorized the issuance of 10,000 shares of Series A Preferred Stock and 500 shares of Series B Preferred Stock. On February 20, 2009, under the United States Department of the Treasury (“Treasury”) Capital Purchase Plan (“CPP”) whereby the Treasury made direct equity investment into qualifying financial institutions in the form of preferred stock, the Company issued 10,000 shares of Series A Preferred Stock and a warrant to purchase 500 shares of Series B Preferred Stock (together with the Series A Preferred Stock, the “TARP Preferred Stock”), which was immediately exercised, to the Treasury. Total proceeds received were $10,000. The proceeds received were allocated between the Series A Preferred Stock and the Series B Preferred Stock based upon their relative fair values, which resulted in the recording of a discount on the Series A Preferred Stock and a premium on the Series B Preferred Stock. The discount and premium will be amortized over five years. The allocated carrying value of the Series A Preferred Stock and Series B Preferred Stock on the date of issuance (based on their relative fair values) was $9,442 and $558, respectively. Cumulative dividends on the Series A Preferred Stock will accrue and be payable quarterly at a rate of 5% per annum for five years. The rate will increase to 9% per annum thereafter if the shares are not redeemed by the Company. The Series B Preferred Stock dividends will accrue and be payable quarterly at 9%. All $10,000 of the TARP Preferred Stock qualifies as Tier 1 Capital for regulatory purposes at the Company.

For as long as the TARP Preferred Stock owned by the Treasury is outstanding, no dividends may be declared or paid on junior preferred shares, preferred shares ranking equal to the TARP Preferred Stock, or common shares, nor may the Company repurchase or redeem any such shares, unless all accrued and unpaid dividends for all past dividend periods on the TARP Preferred Stock are fully paid. The consent of the Treasury was required for any increase in the quarterly dividends of the Company’s common stock or for any share repurchases of junior preferred or common shares, until February 20, 2012. Participation in this program also subjects the Company to certain restrictions with respect to the compensation of certain executives.

The American Recovery and Reinvestment Act of 2009 (“ARRA”) requires the Treasury, subject to consultation with appropriate banking regulators, to permit participants in the CPP to repay any amounts previously received without regard to whether the recipient has replaced such funds from any other source or to any waiting period. All redemptions of the Trust Preferred Stock shall be at 100% of the issue price, plus any accrued and unpaid dividends. The Trust Preferred Stock is nonvoting, other than for class voting rights on any authorization or issuance of senior ranking shares, any amendment to its rights, or any merger, exchange or similar transaction which would adversely affect its rights.

The Company’s ability to pay dividends depends in part upon the receipt of dividends from the Bank and these dividends are subject to limitation under banking laws and regulations. Pursuant to an agreement (the “Agreement”) with the FDIC and Wisconsin Department of Financial Institutions (“WDFI”), the Bank needs the written consent of its regulators to pay dividends to the Company. The Bank has not paid dividends to the Company since 2006. Additionally, on May 10, 2011, the Company entered into a formal written agreement (the “Company Agreement”) with the Federal Reserve Bank of Minneapolis (the “Federal Reserve”). Pursuant to the written agreement at the holding company level, the Company needs the written consent of the Federal Reserve to pay dividends to our stockholders. We are also prohibited from paying dividends on our common stock if we fail to make distributions or required payments on the Debentures or on the TARP Preferred Stock. In consultation with the Federal Reserve, on May 12, 2011, the Company exercised its rights to suspend dividends on the outstanding TARP Preferred Stock and has also elected to defer interest on the Debentures. Under the terms of the Debentures, the Company is allowed to defer payments of interest for 20 quarterly periods without default or penalty, but such amounts will continue to accrue. Also during the deferral period, the Company generally may not pay cash dividends on or repurchase its common stock or preferred stock, including the TARP Preferred Stock. Dividend payments on the TARP Preferred Stock may be

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

deferred without default, but the dividend is cumulative and therefore will continue to accrue and, if the Company fails to pay dividends for an aggregate of six quarters, whether or not consecutive, the holder will have the right to appoint representatives to the Company’s board of directors. The terms of the TARP Preferred Stock also prevent the Company from paying cash dividends on or repurchasing its common stock while dividends are in arrears. Therefore, the Company will not be able to pay dividends on its common stock until it has fully paid all accrued and unpaid dividends on the Debentures and the TARP Preferred Stock. On December 31, 2011, the Company had $485 accrued and unpaid dividends on the TARP Preferred Stock and $146 accrued and unpaid interest due on the Debentures.

Note 17 — Regulatory Matters

Regulatory Capital Requirements

The Company and the Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. These requirements take into account risk attributable to balance sheet assets and off-balance sheet activities. Failure to meet minimum capital requirements can initiate certain mandatory and possible additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the Company’s consolidated financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Company must meet specific capital guidelines that involve quantitative measures of the Company’s assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

Quantitative measures established by regulation to ensure capital adequacy require the Company and the Bank to maintain minimum amounts and ratios (set forth in the table below) of total and tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined), and of tier 1 capital to average assets (as defined). Further, on November 9, 2010, the Bank entered into an agreement with the FDIC and WDFI to, among other things, maintain certain heightened regulatory capital ratios. Management believes, as of December 31, 2011 and 2010, that the Company and the Bank meet all capital adequacy requirements to which it is subject, and exceeded the minimum regulatory capital ratios that financial institutions must meet to be categorized as well capitalized under the regulatory framework for prompt corrective action.

Under the terms of the Agreement, the Bank is required to: (i) maintain ratios of Tier 1 capital to each of total assets and total risk-weighted assets of at least 8.5% and 12%, respectively; (ii) refrain from declaring or paying any dividend without the written consent of the FDIC and WDFI; and (iii) refrain from increasing its total assets by more than 5% during any three-month period without first submitting a growth plan to the FDIC and WDFI. Additionally, the Bank is required to develop and maintain a number of policies and procedures and to take certain actions related to its loan portfolio and budgeting process, all as described in more detail in the Agreement.

In addition to the Bank’s Agreement with its regulators, on May 10, 2011, the Company entered into the Company Agreement with its primary regulator, the Federal Reserve, to help ensure the financial soundness of the Company and the Bank. Pursuant to the Company Agreement, the Company has agreed to take certain actions and operate in compliance with the Company Agreement’s provisions during its terms. Specifically, under the terms of the Company Agreement, the Company is required to: (i) ensure the Bank complies with the Agreement; (ii) refrain from declaring or paying any dividend on its capital stock, taking any dividend from the Bank, or making any distributions on its subordinated debentures or the trust preferred securities related thereto issued by its nonbank subsidiary, each without the written consent of the Federal Reserve; (iii) refrain from incurring, increasing or guaranteeing any debt without the written consent of the Federal Reserve; (iv) refrain from purchasing or redeeming any shares of its capital stock without the written consent of the Federal Reserve; and (v) develop certain plans and projections with respect to its capital levels and cash flows, all as described in more detail in the Company Agreement.

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

	Actual					For Capital Adequacy Purposes (1)					To Be Well Capitalized Under Prompt Corrective Action Provisions (2)
	Amount		Ratio			Amount		Ratio			Amount		Ratio
December 31, 2011
Mid-Wisconsin Financial Services, Inc.
Tier 1 to average assets	$	46,729		9.6	%	$	19,396		4.0	%
Tier 1 risk-based capital ratio		46,729		14.3	%		13,071		4.0	%
Total risk-based capital ratios		50,884		15.6	%		26,142		8.0	%
Mid-Wisconsin Bank
Tier 1 to average assets	$	41,736		8.7	%	$	19,261		4.0	%	$	40,929		8.5	%
Tier 1 risk-based capital ratio		41,736		12.9	%		12,946		4.0	%		19,419		6.0	%
Total risk-based capital ratios		45,853		14.2	%		25,891		8.0	%		38,837		12.0	%

December 31, 2010
Mid-Wisconsin Financial Services, Inc.
Tier 1 to average assets	$	50,575		10.0	%	$	20,143		4.0	%
Tier 1 risk-based capital ratio		50,575		14.2	%		14,252		4.0	%
Total risk-based capital ratios		55,091		15.5	%		28,504		8.0	%
Mid-Wisconsin Bank
Tier 1 to average assets	$	44,787		9.0	%	$	20,024		4.0	%	$	42,552		8.5	%
Tier 1 risk-based capital ratio		44,787		12.7	%		14,140		4.0	%		21,210		6.0	%
Total risk-based capital ratios		49,268		13.9	%		28,280		8.0	%		42,420		12.0	%

The Company has a Dividend Reinvestment Plan which provides shareholders the opportunity to automatically reinvest their cash dividends in shares of the Company’s common stock. Common stock shares issued under the plan will be either newly issued shares or shares purchased for plan participants in the open market. In accordance with the plan, 150,000 shares of common stock are reserved at December 31, 2011.

Note 18 — Accumulated Other Comprehensive Income (Loss)

Comprehensive income (loss) is shown in the consolidated statements of changes in stockholders’ equity. The Company’s accumulated other comprehensive income (loss) is comprised of the unrealized gain or loss on securities available-for-sale, net of the tax effect and a reclassification adjustment for losses realized in income. A summary of activity in accumulated other comprehensive income (loss) follows.

	2011			2010			2009
Accumulated other comprehensive income at beginning	$	590		$	1,056		$	598
Activity:
Reclassification for (gains) losses on sale of investments included in income		55			(1,054	)		(449	)
Unrealized gain (loss) on securities available for sale		1,697			(58	)		872
Reclassification for impairment losses included in income		0			412			301
Tax effect		(737	)		234			(266	)
Other comprehensive income (loss)		1,015			(466	)		458
Accumulated other comprehensive income at end	$	1,605		$	590		$	1,056

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

Note 19 — Commitments and Contingencies

Credit Risk

The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. Those instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheets.

The Company uses the same credit policies and approval process in making commitments and conditional obligations as it does for on-balance sheet instruments. The Company’s exposure to credit loss in the event of nonperformance by the other party to these financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual amount of those instruments. The following is a summary of lending-related commitments at December 31:

	2011		2010
Commitments to extend credit:
Fixed rate	$	17,163	$	25,073
Adjustable rate		23,515		33,406
Standby and irrevocable letters of credit — Fixed rate		3,737		3,921
Credit card commitments		3,541		3,776

Standby and irrevocable letters of credit are conditional lending commitments used by the Company to guarantee the performance of a customer to a third party. Generally, all standby letters of credit issued have expiration dates within one year. The credit risk involved in issuing standby and irrevocable letters of credit is essentially the same as that involved in extending loan facilities to customers. The Company generally holds collateral supporting these commitments. Standby letters of credit are not reflected in the consolidated financial statements since recording the fair value of these guarantees would not have a significant impact on the consolidated financial statements.

Credit card commitments are commitments of credit issued by the Company and serviced by Elan Financial Services. These commitments are unsecured.

Contingent Liabilities

Note 20 — Fair Value Measurements

The FASB issued accounting guidance which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements. This guidance emphasized that fair value (i.e., the price that would be received in an orderly transaction that is not a forced liquidation or distressed sale at the measurement date), among other things, is based on exit price versus entry price, and is a market-based measurement, not an entity-specific measurement. When considering the assumption that market participants would use in pricing the asset or liability, the guidance establishes a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the

Notes to Consolidated Financial Statements (Continued)
December 31, 2011, 2010, and 2009 (In thousands, except per share data)

reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy). The fair value hierarchy prioritizes inputs used to measure fair value into three broad levels.

Some assets and liabilities, such as securities available-for-sale, are measured at fair values on a recurring basis under accounting principles generally accepted in the United States. Other assets and liabilities, such as loans held for sale, impaired loans and OREO, are measured at fair values on a nonrecurring basis.

In instances where the determination of the fair value measurements is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considerations specific to the asset or liability.

Following is a description of the valuation methodology used for the Company’s more significant instruments measured on a recurring and nonrecurring basis at fair value, as well as the classification of the asset or liability within the fair value hierarchy:

— Securities available-for-sale may be classified as Level 1, Level 2, or Level 3 measurements within the fair value hierarchy. Level 1 investment securities include equity securities traded on a national exchange. The fair value measurement of a Level 1 security is based on the quoted price of the security. The fair value measurement of a Level 2 security is obtained from an independent pricing service and is based on recent sales of similar securities and other observable market data. Examples of these investment securities include U.S. government and agency securities, obligations of states and political subdivisions, corporate debt securities, and mortgage related securities. In certain cases where there is limited activity or less transparency around inputs to the estimated fair value, securities are classified within Level 3 of the fair value hierarchy. The fair value measurement of a Level 3 security is based on a discounted cash flow model that incorporates assumptions market participants would use to measure the fair value of the security.

— Loans held for sale, which consist generally of current production of certain fixed-rate, first-lien residential mortgage loans, are carried at the lower of cost or estimated fair value. The estimated fair value is based on current secondary market prices for similar loans, which is considered a Level 2 nonrecurring fair value measurement.

The fair value of loans held for sale is based on observable current prices in the secondary market in which loans trade. All loans held for sale are categorized based on commitments received from secondary sources that the loans qualify for placement at the time of underwriting and at an agreed upon price. A gain or loss is recognized at the time of sale reflecting the present value of the difference between the contractual interest rate of the loan and the yield to investors.

— The Company considers a loan impaired when it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the note agreement, including principal and interest. Loans considered to be impaired are measured at fair value on a nonrecurring basis. The fair

			Recurring Fair Value Measurements Using
	Assets Measured at Fair Value		Quoted Price in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
December 31, 2011
Investment securities available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,808	$	0	$	18,808	$	0
Mortgage-backed securities		67,653		0		67,641		12
Obligations of states and political subdivisions		22,932		0		22,405		527
Corporate debt securities		832		0		7		825
Total debt securities	$	110,225	$	0	$	108,861	$	1,364
Equity securities		151		0		51		100
Total investment securities available-for-sale	$	110,376	$	0	$	108,912	$	1,464
December 31, 2010
Investment securities available for sale:
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	22,567	$	0	$	22,567	$	0
Mortgage-backed securities		56,916		0		56,205		711
Obligations of states and political subdivisions		20,715		0		20,188		527
Corporate debt securities		961		0		0		961
Total debt securities	$	101,159	$	0	$	98,960	$	2,199
Equity securities		151		0		51		100
Total investment securities available-for-sale	$	101,310	$	0	$	99,011	$	2,299

Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
	2011			2010
Balance at beginning of year	$	2,299		$	3,119
Total gains or losses (realized/unrealized)
Included in earnings		(55	)		(412	)
Included in other comprehensive income		7			273
Principal payments		(146	)		(693	)
Sales		(641	)		0
Transfers in and/or out of Level 3		0			12
Balance at end of year	$	1,464		$	2,299

			Nonrecurring Fair Value Measurements Using
	Assets Measured at Fair Value		Quoted Price in Active Markets for Identical Assets Level 1		Significant Other Observable Inputs Level 2		Significant Unobservable Inputs Level 3
December 31, 2011
Loans held for sale	$	2,163	$	0	$	2,163	$	0
Impaired loans	$	14,001	$	0	$	14,001	$	0
OREO	$	4,404	$	0	$	4,404	$	0
December 31, 2010
Loans held for sale	$	7,444	$	0	$	7,444	$	0
Impaired loans	$	7,808	$	0	$	7,361	$	447
OREO	$	4,230	$	0	$	4,230	$	0

Plan Category			Weighted-average exercise price of outstanding options, warrants and rights (b)			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by security holders	37,406	(1)	$	26.47	(1)		252,102	(2)
Equity compensation plans not approved by security holders	—			—		—

Description				Page

Mid-Wisconsin Financial Services, Inc. Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm					58
Consolidated Balance Sheets as of December 31, 2011 and 2010					59
Consolidated Statements of Income (Loss) for the years ended December 31, 2011, 2010, and 2009					60
Consolidated Statements of Changes in Shareholders’ Equity for the years ended December 31, 2011, 2010, and 2009					61
Consolidated Statements of Cash Flows for the years ended December 31, 2011, 2010, and 2009					62
Notes to Consolidated Financial Statements					64

				MID-WISCONSIN FINANCIAL SERVICES, INC.

				/s/ SCOT G. THOMPSON
				Scot G. Thompson, Principal Executive Officer

				/s/ WILLIAM A. WEILAND
				William A. Weiland, Secretary and Treasurer

/s/ KIM A. GOWEY				/s/ SCOT G. THOMPSON
Kim A. Gowey, Chairman of the Board, and a Director				Scot G. Thompson, Principal Executive Officer

/s/ CHRISTOPHER J. GHIDORZI				/s/ JAMES P. HAGER
Christopher J. Ghidorzi, Director				James P. Hager, Director

/s/ BRIAN B. HALLGREN				/s/ KURT D. MERTENS
Brian B. Hallgren, Director				Kurt D. Mertens, Director

/s/ SIDNEY C. SCZYGELSKI				/s/ RHONDA R. KELLEY
Sidney C. Sczygelski, Director				Rhonda R. Kelley Principal Accounting Officer and Controller (Principal Financial Officer)

WISCONSIN (State or other jurisdiction of incorporation or organization)				06-1169935 (IRS Employer Identification No.)

132 West State Street Medford, WI 54451 (Address of principal executive offices) (Zip Code) Registrant’s telephone number, including area code: 715-748-8300

	September 30, 2012 (Unaudited)			December 31, 2011 (Audited)
Assets
Cash and due from banks	$	11,896		$	18,278
Interest-bearing deposits in other financial institutions		21,042			10
Federal funds sold and securities purchased under agreements to sell		414			13,072
Investment securities available-for-sale, at fair value		110,335			110,376
Loans held for sale		2,287			2,163
Loans		307,589			329,863
Less: Allowance for loan losses		(10,529	)		(9,816	)
Loans, net		297,060			320,047
Accrued interest receivable		1,635			1,640
Premises and equipment, net		7,582			7,943
Other investments, at cost		1,613			2,616
Other real estate owned		4,472			4,404
Net deferred tax asset		0			1,179
Other assets		5,726			6,448
Total assets	$	464,062		$	488,176
Liabilities and Stockholders’ Equity
Noninterest-bearing deposits	$	71,071		$	70,790
Interest-bearing deposits		293,333			310,830
Total deposits		364,404			381,620
Short-term borrowings		13,167			13,655
Long-term borrowings		36,061			40,061
Subordinated debentures		10,310			10,310
Accrued interest payable		805			878
Accrued expenses and other liabilities		2,386			2,139
Total liabilities		427,133			448,663
Stockholders’ equity:
Series A preferred stock		9,832			9,745
Series B preferred stock		517			526
Common stock		166			166
Additional paid-in capital		11,945			11,945
Retained earnings		12,825			15,526
Accumulated other comprehensive income		1,644			1,605
Total stockholders’ equity		36,929			39,513
Total liabilities and stockholders’ equity	$	464,062		$	488,176
Series A preferred stock authorized (no par value)		10,000			10,000
Series A preferred stock issued and outstanding		10,000			10,000
Series B preferred stock authorized (no par value)		500			500
Series B preferred stock issued and outstanding		500			500
Common stock authorized (par value $0.10 per share)		6,000,000			6,000,000
Common stock issued and outstanding		1,657,119			1,657,119

	Three Months Ended September 30, 2012			Three Months Ended September 30, 2011			Nine Months Ended September 30, 2012			Nine Months Ended September 30, 2011
Interest Income
Loans, including fees	$	4,160		$	4,598		$	12,964		$	14,100
Securities:
Taxable		491			651			1,539			1,980
Tax-exempt		89			102			273			303
Other		23			17			60			149
Total interest income		4,763			5,368			14,836			16,532
Interest Expense
Deposits		636			1,104			2,324			3,573
Short-term borrowings		10			35			68			87
Long-term borrowings		372			410			1,129			1,223
Subordinated debentures		49			45			150			135
Total interest expense		1,067			1,594			3,671			5,018
Net interest income		3,696			3,774			11,165			11,514
Provision for loan losses		750			900			3,680			3,850
Net interest income after provision for loan losses		2,946			2,874			7,485			7,664
Noninterest Income
Service fees		235			226			633			731
Trust service fees		270			270			823			803
Investment product commissions		55			47			131			160
Mortgage banking		104			94			376			327
Loss on sale of investments		0			0			0			(55	)
Other		313			278			948			1,303
Total noninterest income		977			915			2,911			3,269
Noninterest Expense
Salaries and employee benefits		1,815			2,133			5,669			6,360
Occupancy		391			432			1,238			1,342
Data processing		161			167			477			501
Foreclosure/OREO expense		119			261			668			432
Legal and professional fees		227			219			668			610
FDIC expense		253			263			767			862
Other		573			709			1,971			2,333
Total noninterest expense		3,539			4,184			11,458			12,440
Income (loss) before income taxes		384			(395	)		(1,062	)		(1,507	)
Income tax (benefit) expense		3			(209	)		1,152			(761	)
Net income (loss)	$	381			($186	)		($2,214	)		($746	)
Preferred stock dividends, discount and premium		(163	)		(160	)		(487	)		(482	)
Net income (loss) available to common equity	$	218			($346	)		($2,701	)		($1,228	)
Income (loss) per common share:
Basic and diluted	$	0.13			($0.21	)		($1.63	)		($0.74	)
Cash dividends declared per common share	$	0.00		$	0.00		$	0.00		$	0.00

	Amortized Cost		Fair Value
	($ in thousands)
Due in one year or less	$	1,820	$	1,823
Due after one year but within five years		18,346		19,119
Due after five years but within ten years		13,358		14,183
Due after ten years or more		1,357		1,401
Mortgage-backed securities		72,565		73,658
Total debt securities available-for-sale	$	107,446	$	110,184

	September 30, 2012		December 31, 2011
($ in thousands)
Commercial business	$	38,149	$	41,347
Commercial real estate		120,153		123,868
Real estate construction		20,679		28,708
Agricultural		44,833		45,351
Real estate residential		79,474		85,614
Installment		4,301		4,975
Total loans	$	307,589	$	329,863

	Beginning Balance at 1/1/2011				Recoveries		Provision		Ending Balance at 9/30/2011		Ending balance: individually evaluated for impairment		Ending balance: collectively evaluated for impairment
September 30, 2011	($ in thousands)
Commercial business	$	536	($100	)	$	34	$	465	$	935	$	225	$	710
Commercial real estate		4,320	(1,856	)		132		772		3,368		911		2,457
Real estate construction		1,278	(1,149	)		14		1,166		1,309		147		1,162
Agricultural		1,146	(373	)		107		371		1,251		34		1,217
Real estate residential		2,060	(855	)		41		1,053		2,299		614		1,685
Installment		131	(73	)		39		23		120		10		110
Total	$	9,471	($4,406	)	$	367	$	3,850	$	9,282	$	1,941	$	7,341

	September 30, 2012		December 31, 2011
	($ in thousands)
Commercial business	$	1,168	$	734
Commercial real estate		6,777		4,076
Real estate construction		357		2,519
Agricultural		294		134
Real estate residential		4,557		3,726
Installment		4		5
Total nonaccrual loans	$	13,157	$	11,194

September 30, 2012	Highest Quality		High Quality		Quality		Moderate Risk		Acceptable		Special Mention		Substandard		Doubtful		Loss	Total
Commercial business	$	83	$	3,906	$	5,280	$	8,320	$	11,201	$	7,611	$	1,661	$	87	$	$	38,149
Commercial real estate		11		1,397		13,577		35,850		33,250		12,944		15,728		7,396			120,153
Real estate construction		159		1,352		3,857		2,947		7,195		1,524		3,288		357			20,679
Agricultural		85		366		3,358		6,050		26,030		4,745		3,906		293			44,833
Real estate residential		326		4,953		18,420		17,494		21,518		7,566		4,462		4,735			79,474
Installment		0		290		883		2,002		780		151		187		8			4,301
Total	$	664	$	12,264	$	45,375	$	72,663	$	99,974	$	34,541	$	29,232	$	12,876	$	$	307,589

	Three Months Ended September 30, 2012						Nine Months Ended September 30, 2012
	Number of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance		Number of Loans		Pre-Modification Recorded Balance		Post-Modification Recorded Balance
($ in thousands)
Commercial business		1	$	1,050	$	1,050		3	$	1,730	$	1,730
Commercial real estate		0		0		0		21		9,103		9,103
Real estate construction		0		0		0		8		2,633		2,633
Agricultural		0		0		0		5		621		621
Real estate residential		3		166		166		15		2,313		2,313
Installment		0		0		0		1		22		22
		4	$	1,216	$	1,216		53	$	16,422	$	16,422

	As of September 30, 2012		As of December 31, 2011
	($ in thousands)
FHLB advances	$	26,061	$	30,061
Other borrowed funds		10,000		10,000
Total long-term borrowings	$	36,061	$	40,061

Assets Measured at Fair Value Using Significant Unobservable Inputs (Level 3)
($ in thousands)
	Investment Securities Available-for-Sale
Balance at December 31, 2010	$	2,299
Unrealized holding losses arising during the period:
Included in earnings		(55	)
Included in other comprehensive income		7
Principal repayments		(146	)
Sales		(641	)
Transfers in to/out of Level 3		0
Balance at December 31, 2011		1,464

Unrealized holding losses arising during the period:
Included in earnings		0
Included in other comprehensive income		1
Principal repayments		(13	)
Sales		0
Transfers in to/out of Level 3		0
Balance at September 30, 2012	$	1,452

	Nine months ended September 30, 2012								Nine months ended September 30, 2011
	Average Balance			Interest Income/Expense		Average Yield/Rate			Average Balance			Interest Income/Expense		Average Yield/Rate
ASSETS
Earning Assets
Loans (1) (2) (3)	$	323,509		$	12,964		5.35	%	$	339,460		$	14,154		5.57	%
Investment securities:
Taxable		94,522			1,539		2.17	%		92,804			1,980		2.85	%
Tax-exempt (2)		11,814			273		3.09	%		12,278			448		4.88	%
Interest-bearing deposits in other financial institutions		13,520			26		0.26	%		9			0		0.00	%
Federal funds sold		1,732			2		0.15	%		11,491			11		0.13	%
Securities purchased under agreements to sell		0			0		0.00	%		10,783			108		1.34	%
Other interest-earning assets		2,948			32		1.45	%		3,515			29		1.10	%
Total earning assets	$	448,045		$	14,836		4.42	%	$	470,340		$	16,730		4.76	%
Cash and due from banks	$	12,793							$	7,781
Other assets		23,309								26,914
Allowance for loan losses		(10,297	)							(9,144	)
Total assets	$	473,850							$	495,891
LIABILITIES AND STOCKHOLDERS’ EQUITY
Interest-bearing liabilities
Interest-bearing demand	$	38,488		$	91		0.32	%	$	36,308		$	127		0.47	%
Savings deposits		123,199			502		0.54	%		115,935			671		0.77	%
Time deposits		141,584			1,731		1.63	%		174,326			2,775		2.13	%
Short-term borrowings		14,526			68		0.63	%		11,543			87		1.01	%
Long-term borrowings		37,316			1,129		4.04	%		41,682			1,223		3.92	%
Subordinated debentures		10,310			150		1.94	%		10,310			135		1.75	%
Total interest-bearing liabilities	$	365,423		$	3,671		1.34	%	$	390,104		$	5,018		1.72	%
Noninterest-bearing demand deposits		66,752								60,029
Other liabilities		3,089								2,706
Stockholders’ equity		38,586								43,052
Total liabilities and stockholders’ equity	$	473,850							$	495,891
Net interest income and rate spread				$	11,165		3.08	%				$	11,712		3.04	%
Net interest margin							3.33	%							3.33	%

	Volume
	($ in thousands)
Loans (2)		($665	)	($525	)	($1,190	)
Taxable investments		37		(478	)	(441	)
Tax-exempt investments (2)		(17	)	(158	)	(175	)
Interest-bearing deposits in other financial institutions		0		26		26
Federal funds sold		(9	)	0		(9	)
Securities purchased under agreements to sell		(108	)	0		(108	)
Other interest-earning assets		(5	)	8		3
Total earning assets		(767	)	(1,127	)	(1,894	)
Interest-bearing demand		8		(44	)	(36	)
Savings deposits		42		(211	)	(169	)
Time deposits		(522	)	(522	)	(1,044	)
Short-term borrowings		23		(42	)	(19	)
Long-term borrowings		(128	)	34		(94	)
Subordinated debenture		0		15		15
Total interest-bearing liabilities		(577	)	(770	)	(1,347	)
Net interest income		($190	)	($357	)	($547	)

	Due to
	Volume			Rate			Net
	($ in thousands)
Loans (1)(2)		($343	)		($111	)		($454	)
Taxable investments		8			(169	)		(161	)
Tax-exempt investments (2)		(11	)		(51	)		(62	)
Interest-bearing deposits in other financial institutions		0			12			12
Federal funds sold		(5	)		0			(5	)
Securities purchased under agreements to sell		(2	)		0			(2	)
Other interest-earning assets		(2	)		4			2
Total earning assets		(355	)		(315	)		(670	)
Interest-bearing demand		5			(27	)		(22	)
Savings deposits		8			(139	)		(131	)
Time deposits		(155	)		(160	)		(315	)
Short-term borrowings		3			(28	)		(25	)
Long-term borrowings		(41	)		3			(38	)
Subordinated debenture		0			4			4
Total interest-bearing liabilities		(180	)		(347	)		(527	)
Net interest income		($175	)	$	32			($143	)

($ in thousands)	September 30, 2012					June 30, 2012					March 31, 2012					December 31, 2011					September 30, 2011
ALL allocation:
Commercial business	$	946		12	%	$	1,056		13	%	$	834		14	%	$	1,004		12	%	$	935		12	%
Commercial real estate		5,146		39	%		5,184		39	%		3,984		38	%		3,685		37	%		3,368		37	%
Real estate construction		1,397		7	%		1,602		8	%		1,073		8	%		1,320		9	%		1,309		9	%
Agricultural		516		15	%		513		14	%		1,069		13	%		1,139		14	%		1,251		14	%
Total commercial		8,005		73	%		8,355		74	%		6,960		73	%		7,148		72	%		6,863		72	%
Real estate residential		2,417		26	%		2,477		25	%		3,009		26	%		2,530		26	%		2,299		26	%
Installment		107		1	%		111		1	%		99		1	%		138		2	%		120		2	%
Total allowance for loan losses	$	10,529		100	%	$	10,943		100	%	$	10,068		100	%	$	9,816		100	%	$	9,282		100	%
ALL category as a percent of total ALL:
Commercial business		9.0	%				9.7	%				8.3	%				10.2	%				10.1	%
Commercial real estate		48.8	%				47.4	%				39.6	%				37.6	%				36.2	%
Real estate construction		13.3	%				14.6	%				10.7	%				13.4	%				14.1	%
Agricultural		4.9	%				4.7	%				10.6	%				11.6	%				13.5	%
Total commercial		76.0	%				76.4	%				69.2	%				72.8	%				73.9	%
Real estate residential		23.0	%				22.6	%				29.8	%				25.8	%				24.8	%
Installment		1.0	%				1.0	%				1.0	%				1.4	%				1.3	%
Total allowance for loan losses		100.0	%				100.0	%				100.0	%				100.0	%				100.0	%

	Payments due by period
	Total		< 1year		1-3 years		3-5 years		> 5 years
	($ in thousands)
Subordinated debentures	$	10,310	$	0	$	0	$	0	$	10,310
Other long-term borrowings		10,000		0		10,000		0		0
FHLB borrowings		26,061		2,000		21,061		3,000		0
Total long-term borrowing obligations	$	46,371	$	2,000	$	31,061	$	3,000	$	10,310

Exhibit Number				Description
31.1				Certification of Principal Executive Officer pursuant to Rule 13a-14(a)/ Rule 15d-14(a)
31.2				Certification of Principal Accounting Officer (principal financial officer) pursuant to Rule 13a-14(a)/ Rule 15d-14(a)
32.1				Certification of Principal Executive Officer and Principal Accounting Officer (principal financial officer) pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002
101*				Interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets at September 30, 2012 and December 31, 2011; (ii) Consolidated Statements of Operations for the three months and nine months ended September 30, 2012 and September 30, 2011; (iii) Consolidated Statements of Comprehensive Income (Loss) for the three months and nine months ended September 30, 2012 and September 30, 2011; (iv) Consolidated Statements of Changes in Stockholders’ Equity for the nine months ended September 30, 2012 and September 30, 2011; (v) Consolidated Statements of Cash Flows for the nine months ended September 30, 2012 and September 30, 2011; and (vi) Notes to Consolidated Financial Statements.

				* As provided in Rule 406T of Regulation S-T, this information is furnished and not filed for purposes of Sections 11 and 12 of the Securities Act of 1933 and Section 18 of the Securities Exchange Act of 1934.

				MID-WISCONSIN FINANCIAL SERVICES, INC.

Date: November 6, 2012				/s/ SCOT G. THOMPSON
				Scot G. Thompson
				Principal Executive Officer

Date: November 6, 2012				/s/ RHONDA R. KELLEY
				Rhonda R. Kelley
				Principal Accounting Officer

				NICOLET BANKSHARES, INC.

				By:				/s/ Robert B. Atwell
								Robert B. Atwell, Chairman and Chief Executive Officer

								/s/ Robert B. Atwell
								Robert B. Atwell
								Chairman and Chief Executive Officer
								(Principal Executive Officer)

								/s/ Ann K. Lawson
								Ann K. Lawson
								Chief Financial Officer
								(Principal Financial and Accounting Officer)

								/s/ Michael E. Daniels
								Michael E. Daniels
								President and Chief Operating Officer, Director

								/s/ John N. Dykema
								John N. Dykema
								Director

								/s/ Gary L. Fairchild
								Gary L. Fairchild
								Director

								/s/ Michael F. Felhofer
								Michael F. Felhofer
								Director

								/s/ Andrew W. Hetzel, Jr.
								Andrew W. Hetzel, Jr.
								Director

								/s/ Donald J. Long, Jr.
								Donald J. Long, Jr.
								Director

								/s/ Benjamin P. Meeuwsen
								Benjamin P. Meeuwsen
								Director

								/s/ Susan L. Merkatoris
								Susan L. Merkatoris
								Director

								/s/ Therese B. Pandl
								Therese B. Pandl
								Director

								/s/ Randy J. Rose
								Randy J. Rose
								Director

								/s/ Robert J. Weyers
								Robert J. Weyers
								Director

Exhibit				Description of Exhibit
2.1				Agreement and Plan of Merger by and among Nicolet Bankshares, Inc. and Mid-Wisconsin Financial Services, Inc., dated November 28, 2012, as amended by Amendment No. 1 thereto dated January 17, 2013 (attached as Appendix A to the proxy statement-prospectus, which is part of this registration statement, and incorporated herein by reference).
3.1				Amended and Restated Articles of Incorporation of Nicolet Bankshares, Inc.
3.2				Bylaws of Nicolet Bankshares, Inc.
4.1				Form of Common Stock Certificate of Nicolet Bankshares, Inc.
4.2				Indenture dated July 21, 2004, between Nicolet Bankshares, Inc., as Issuer and U.S. Bank National Association, as Trustee, including the form of Junior Subordinated Debenture as Exhibit A thereto.
4.3				Guarantee Agreement, dated July 21, 2004, between Nicolet Bankshares, Inc., as Guarantor, and U.S. Bank National Association, as Guarantee Trustee
4.4				Indenture, dated October 14, 2005, between Mid-Wisconsin Financial Services, Inc., as Issuer, and Wilmington Trust Company, as Trustee, including the form of Junior Subordinated Debenture as Exhibit A thereto.
4.5				Guarantee Agreement, dated October 14, 2005, between Mid-Wisconsin Financial Services, Inc., as Guarantor, and Wilmington Trust Company, as Guarantee Trustee.
4.6				Form of Supplemental Indenture.*
5.1				Opinion of Godfrey Kahn, LLP regarding legality of securities being registered (including its consent).*
8.1				Opinion of Bryan Cave LLP regarding certain tax matters (including its consent).*
10.1†				Mid-Wisconsin Financial Services, Inc. 2011 Directors Deferred Compensation Plan, as amended and restated effective December 16, 2010.
10.2†				Mid-Wisconsin Financial Services, Inc. Director Retirement Benefit Policy, as amended July 25, 2007.
10.3†				Mid-Wisconsin Financial Services, Inc. 1999 Stock Option Plan, as amended April 22, 2008.
10.4†				Nicolet Bankshares, Inc. 2002 Stock Incentive Plan, as amended, and forms of award documents.
10.5†				Nicolet Bankshares, Inc. 2011 Long-term Incentive Plan and forms of award documents.
10.6†				Nicolet National Bank 2002 Deferred Compensation Plan, as amended.
10.7†				Nicolet National Bank 2009 Deferred Compensation Plan for Non-Employee Directors.
10.8†				Revised and Restated Employment Agreement dated as of April 17, 2012 between Nicolet National Bank and Michael E. Daniels.
10.9†				Revised and Restated Employment Agreement dated as of April 17, 2012 between Nicolet National Bank and Robert B. Atwell.
10.10				Lease, dated May 31, 2000, between Washington Square Green Bay, LLC and Green Bay Financial Corporation D/B/A/ Nicolet National Bank, as amended.
10.11				Small Business Lending Fund Securities Purchase Agreement, dated September 1, 2011, between Nicolet Bankshares, Inc. and the Secretary of the United States Treasury.
21.1				Subsidiaries of Nicolet Bankshares, Inc.
23.1				Consent of Godfrey & Kahn, LLP (included as part of Exhibit 5.1).*

Exhibit				Description of Exhibit
23.2				Consent of Bryan Cave LLP (included as part of Exhibit 8.1).*
23.3				Consent of Wipfli LLP.
23.4				Consent of Porter Keadle Moore, LLC.
99.1				Form of Proxy of Mid-Wisconsin.*
99.2				Form of Proxy of Nicolet.*
99.3				Rule 438 Consent of Dr. Kim Gowey.
99.4				Rule 438 Consent of Mr. Christopher Ghidorzi.
101				Interactive data files pursuant to Rule 405 of Regulation S-T

By Order of the Board of Directors

Kim A. Gowey

Chairman of the Board