111 N. Washington Street P.O. Box 23900 Green Bay, WI 54305-3900
920-430-1400 1-800-369-0226
Statements made in this Annual Report which are not purely historical are forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. This includes any statements regarding
management’s plans, objectives, or goals for future operations, products or services, and forecasts of its revenues, earnings, or other measures of performance. Such forward-looking statements may be identified by the
use of words such as “believe,” “expect,” “anticipate,” “intend,” “target,” “estimate,” “continue,” “positions,” “prospects,” “potential,” “plan,” “outlook,” “would”, “should,” “could,” “will,” “may,” or similar expressions.
Forward-looking statements speak only as of the date they are made and Nicolet Bankshares, Inc. (“Nicolet”) has no duty to update forward-looking statements. Forward-looking statements are based on current
management expectations and, by their nature, are subject to risks and uncertainties. Actual results may differ materially from those contained in the forward-looking statements. Factors which may cause actual results
to differ materially from those contained in such forward-looking statements include those identified in the Nicolet’s most recent Form 10-K and subsequent SEC filings.
Forward-looking Statements
VINTAGE
Why would a 14-year-old bank choose a word
like “Vintage” to describe itself ? Over the past year,
we not only expanded in asset size and geography,
but we also grew older. One of the banks that was acquired by
Nicolet National Bank was founded in 1890. So which are we:
a 14-year-old entrepreneurial growth story or a 124-year-old
legacy bank? This juxtaposition is part of a great story.
In our case, the word Vintage refers to our core values, in how we act every
day, in how we treat our customers. Though technology, regulation and public
sentiment have all changed the landscape that is community banking, our core
values remain timeless.
BE REAL. BE RESPONSIVE. BE PERSONAL. BE MEMORABLE. BE ENTREPRENEURIAL.
In a sense, Nicolet National Bank was founded to be a great balancing act.
To take the interests of customers, employees and shareholders and balance
them so that all will win. Is it easy? No. Is it the right way to do business? Yes.
Is it timeless? We think so.
Our core values guide the actions that create a successful balancing act.
It’s why we were founded 14 years ago. It’s the legacy that
we carry forward from the banks we acquired. It’s the “Why”
that makes our story great. It’s the Vintage aspect of who we
will always be. We welcome you to join us.
3
Dear Shareholders,
This is an easy year to write about numbers. Net income, asset quality and growth results are all
strong. While hanging tough through the initial years of the economic crisis, we mapped out a
growth strategy. We grew organically and made three acquisitions aimed at driving long term
value. 2014 is the year when the fruits of these efforts emerged in the stock price. During the
calendar year the stock price rose over 50%. This, to many shareholders, is the ultimate metric.
You can be certain that our stock price matters to the people who work here and to the board
that governs this institution. Our employees plus current and past board members are vested
like you, owning over 40% of outstanding shares. Before detailing the 2014 numbers, we want
to place them in the context of the strategies that really drive the math. We do not pursue
numbers that drive strategies; we pursue strategies that produce results. This letter addresses the
question that many of you ask – “what do these numbers really mean?”
When the numbers are good, it is especially important to remind you of a core idea that we have
consistently expressed. The numbers are not the reality of what we do; they are the results of
strategy and a way to assess if our strategy is working. That said, we love numbers. This business
is awash in numbers—but our focus is on people and strategy. We have found that customers
actually expect and value human contact, personal judgment and accountability—and reward us
with their business. We are a growth company in the shrinking corner of a mature industry,
and our growth comes from successfully attracting customers, bankers and owners who value our
way of thinking and acting. We are pragmatic idealists. We seek real understanding of our industry
and environment, not to follow the herd but to find sound ideas that have enduring merit—and then
we can make a difference to our customers in a manner that results in shareholder return.
People are definitely feeling more optimistic about their own financial affairs, as are we. Even so,
we are all well-advised to remember lessons learned from the crisis we came through. The pain
of the crisis has abated for most, but the crisis itself has not so much been solved as it has been
nationalized. You can see it on the Federal Reserve’s balance sheet and in the growth of the
national debt. You can see it in the desperate effort to stimulate growth by holding interest rates
at near-zero for over six years. You can hear it rustling through the 2,300 pages of Dodd Frank
which was passed on the false premise that it would stabilize the banking industry and end Too Big
to Fail. These macro-economic matters and industry trends are concerns that we cannot control.
However, we can diligently understand and map out strategies that are in the realm of our
control and influence.
All of our strategies are built around the straightforward idea that we must deliver a meaningful
difference to our customers and the communities we serve, and clearly communicate the value
we provide. Doing so has resulted in consistent growth and broader customer relationships over
our history even in the face of the crisis. And so, with momentum from a great 2014, we are
optimistic about our future.
We continue to evaluate our business in the three main areas we have discussed in prior letters:
growth, quality and earnings.
Growth – We are an outstanding growth story in a mature industry—literally from a white
sheet of paper in 2000 to a $1.2 billion community bank spanning the northern two thirds of
the state. We are the largest community bank in Wisconsin north of Fond du Lac. We continue
to see enormous opportunity for growth. We have accomplished this at a time when small banks
have seen their market share plunge.
We have done exceptionally well at organic growth. In the Green Bay area we have built a
formidable book of nearly $500 million of loans over our 14 years by out-executing our larger
competitors in winning business and personal relationships. We have built a wealth management
business with over $1 billion of total assets under management and over $5 million in annual
revenue. We are four years into building a market presence in Appleton, and have a $125 million
high-quality loan book in a market that is ripe for an alternative to the large banks that dominate
it. And we are a leading home mortgage originator, with over $400 million in secondary market
mortgage production in the past three years, a key part of the consumer’s banking relationship.
We get a lot of questions about whether we are emphasizing organic growth or acquisitions.
Our answer is “yes”. Wisconsin is considered a low growth market. We continue to take market
share in core deposits, C&I lending and wealth management. We have done organic growth
exceptionally well over our history. That said, we do see the coming years as a very fertile time
to create value through acquisitions. There are many institutions that are either struggling with
sustaining value creation in a pressured industry or that simply lack management depth and
succession. We are focused on sellers in relevant geography that are willing to really look at what
we have done for the Mid-Wisconsin shareholders who had the foresight to entrust us with their
legacy. Our Board has directed us to continue to prioritize growth through acquisition. We
believe we have plenty of access to any additional equity capital we may need for future growth;
however, being owners ourselves, we are pretty fussy about broadening our shareholder base at
the expense of current shareholders.
5
2014 was our first full year of operation with the two acquisitions we closed in 2013. The successful
Quality – A few short years ago it seemed that all investment analysts talked about was capital
integration of the 12 acquired branches is evident in our earnings and loan quality. Not everything
and asset quality. The analytics were really centered on whether the problem loans would wipe
we plan flows flawlessly, but the Mid-Wisconsin acquisition has worked exceptionally well.
out capital and sink the institution. Those years were very trying for us and for our customers.
Since this was largely an exchange of stock, it is very important to look back on the results for
We took some loan losses but we always made money. We worked through problems without
shareholders of both Nicolet (NCBS) and Mid-Wisconsin (MWFS). The chart below is of great
consuming our owners’ capital.
importance to our future acquisitions because it clearly shows the value of our stock to institutions
considering selling to us. MWFS was a small cap public company that accepted the stock of a
Banks are all feeling margin and competitive pressure that Fed policy is intended to create.
small cap private company. The Board and shareholders of MWFS heard plenty of suggestions
We have to remember the folly of the past, but it is expensive to sit out a bull market. What this
about waiting for a better time to sell and about seeking a more liquid buyer. In the two years
means in practice for a prudent banker is careful risk evaluation and extreme focus on our customer
since the announcement MWFS shareholders have enjoyed a 137% increase in share value and
relationships. We absorbed nearly $300 million of loans from troubled institutions in 2013.
greater liquidity for anyone who wanted to sell. The composition of our ownership base will change
At year end our non-performing asset ratio stood at 0.61% of total assets, the lowest level since 2007.
as opportunity demands, but we know that liquidity for shareholders is an important part of our
commitment to creating shareholder value.
The nature of merger and acquisition negotiations can give the appearance
of a struggle between winners and losers. The Mid-Wisconsin merger
is a great example of how both sides win.
We work hard to avoid originating problem loans. We know how to handle problems when they arise.
We have also learned how to evaluate and price problem loans at other institutions. We have learned
to make money by acquiring and profitably resolving problem loans. The investment community
is not very focused on asset quality at the moment, but we are. Long term investors and selling
institutions should look carefully at the quality track record of management. It is important to have
the fortitude to resist the pressure when federal policy so strongly incentivizes risk. We survived
and defended shareholder value and liquidity not just because we knew what to do in a crisis, but
because we also knew what not to do before the crisis. We are a lot smarter today than we were
in 2007. Our quality track record is strong; in light of our rapid growth, it is outstanding.
Earnings – So finally, back to it being an easy year to write about the numbers:
• $ 9.9 million net income, representing 0.84% return on average assets for 2014
• $ 2.25 diluted earnings per common share and 11.55% return on average common equity
for 2014
• 4% increase in loans and 2% increase in deposits between December 31, 2014 and 2013
• 14% increase in average loans and 24% increase in average deposits for 2014 over 2013
• 3.89% net interest margin
• 0.61% nonperforming assets to assets at year end
• $ 5.6 million used to repurchase 257,000 common shares during 2014
• $ 21.34 book value per common share, 12% higher than at December 31, 2013
• 51% increase in closing stock price between December 31, 2014 and 2013
We are very pleased with the results from 2014, and there remains upside in our earnings
potential as our longer-term strategies mature. Our $9.9 million net income represents, by far,
our strongest profit year and is a 50% improvement over 2013’s operating earnings (that is,
2013’s reported net income of $16.1 million, less the nonrecurring bargain purchase gains and
direct pre-tax merger expenses, which net after tax were $9.7 million of 2013’s net income).
When assessing our performance, we look at various metrics. Return on Average Assets (ROA)
Shrinking the denominator also increases the risk of financial failure since it removes
is the most common for bank profitability (i.e. the profitability of the asset base), while Return
“cushion” for tough times, but this risk is not measured or accounted for in the ratio.
on Average Common Equity (ROCE, i.e. the return earned on the investment made by common
Quality delivery on this ratio is maximization of net income and prudent management of equity.
shareholders) and Diluted Earnings Per Share (DEPS, i.e. the net earnings available to each
Our 2014 common share repurchases are an example of prudent management—returning
common shareholder’s share) are very relevant to you as an individual shareholder. These measures
capital to the shareholders that is simply not necessary for the support of current revenue
are of great importance for differing reasons, including their relevance to stock price, but excessive
streams. We have never paid a common stock dividend, which isn’t to say we never will. To date
focus on any one ratio can lead to actions which could actually harm shareholder return in the
we view dividends as a mandatory stock redemption. Our share repurchase program is a way to
long run for short term improvement.
return capital to the shareholders through voluntary redemption, and support liquidity. We are
proud of our track record of thinking like a shareholder and preserving shareholder value because
Our 2014 ROA was a healthy 0.84%. High performing banks generally earn around 1% ROA.
we are shareholders.
As we strive for continued improvement, we manage the relationship between current earnings
and long term investment. A prominent example occurred during the heart of the crisis in 2009
In conclusion, we have gone into some detail to address questions we hear from you. 2014 was
and 2010—we prioritized rapid resolution of our loan problems, but we also invested in people
a very good year for continued execution on growth and performance, further evidenced in a
we would need to take advantage of the extraordinary growth potential once the crisis abated.
favorable stock price trend. For 2015 we are focused on organic loan growth, comprehensive
We “spent” ROA in those years to generate the growth, earnings and share price increase you
balance sheet and capital management, revenue maximization in our markets, and on acquisition
have seen in the last two years. In our early years we seldom looked at ROA because we were
opportunities for strategic growth. If you have more questions, let us know. You will find we do
determined to build the base of business that is driving your return today; yet ignoring ROA
answer phone calls and emails.
can indicate a bank that is always promising good things in a future that never seems to arrive.
We are maturing earnings nicely, but willingly invest in the rich opportunities growth and
As always, we appreciate your investment in Nicolet.
acquisitions provide long term.
Our ROCE was 11.55% for 2014. If we can clear 10% ROCE every year with sound execution of
banking fundamentals, we will have no problem looking you in the eye at our annual shareholder
meetings. Banking is a mature industry which until 2008 was actually thought to have a low
risk profile. There have been more than 500 bank failures since 2008. Our industry is not
low risk. With increased risk, there are regulatory requirements to hold more capital. With more
capital, returns decline. Finance theory suggests too that in higher risk industries investors should
expect a higher ROE. This is why we see community banks accessing common equity through
Private Equity Funds, pricing their common stock at less than book value. While we agree our
industry is both mature and has risk, the answer to the last crisis is not to price new bank equity
at an unrealistic return. We think the answer is to operate the bank in a manner that drives the
risk profile down. In the meantime, we have been able take advantage of the environment by
acquiring and integrating institutions that simply can’t afford the high cost of capital from
alternative sources.
ROCE is an exceptionally useful tool, that is dangerous when mismanaged. One could
summarize the roots of the most recent crisis as a market-wide misapplication of this ratio.
There are two mathematical ways to increase ROCE—increase net income and reduce equity.
When you can’t impact the amount of earnings appreciably, you may look to reduce equity.
However, we can diligently understand and map out strategies that are in the realm of our
control and influence.
All of our strategies are built around the straightforward idea that we must deliver a meaningful
difference to our customers and the communities we serve, and clearly communicate the value
we provide. Doing so has resulted in consistent growth and broader customer relationships over
our history even in the face of the crisis. And so, with momentum from a great 2014, we are
optimistic about our future.
Dear Shareholders,
This is an easy year to write about numbers. Net income, asset quality and growth results are all
strong. While hanging tough through the initial years of the economic crisis, we mapped out a
We continue to evaluate our business in the three main areas we have discussed in prior letters:
growth strategy. We grew organically and made three acquisitions aimed at driving long term
growth, quality and earnings.
value. 2014 is the year when the fruits of these efforts emerged in the stock price. During the
calendar year the stock price rose over 50%. This, to many shareholders, is the ultimate metric.
Growth – We are an outstanding growth story in a mature industry—literally from a white
You can be certain that our stock price matters to the people who work here and to the board
sheet of paper in 2000 to a $1.2 billion community bank spanning the northern two thirds of
that governs this institution. Our employees plus current and past board members are vested
the state. We are the largest community bank in Wisconsin north of Fond du Lac. We continue
like you, owning over 40% of outstanding shares. Before detailing the 2014 numbers, we want
to see enormous opportunity for growth. We have accomplished this at a time when small banks
to place them in the context of the strategies that really drive the math. We do not pursue
have seen their market share plunge.
numbers that drive strategies; we pursue strategies that produce results. This letter addresses the
question that many of you ask – “what do these numbers really mean?”
We have done exceptionally well at organic growth. In the Green Bay area we have built a
formidable book of nearly $500 million of loans over our 14 years by out-executing our larger
When the numbers are good, it is especially important to remind you of a core idea that we have
competitors in winning business and personal relationships. We have built a wealth management
consistently expressed. The numbers are not the reality of what we do; they are the results of
business with over $1 billion of total assets under management and over $5 million in annual
strategy and a way to assess if our strategy is working. That said, we love numbers. This business
revenue. We are four years into building a market presence in Appleton, and have a $125 million
is awash in numbers—but our focus is on people and strategy. We have found that customers
high-quality loan book in a market that is ripe for an alternative to the large banks that dominate
actually expect and value human contact, personal judgment and accountability—and reward us
it. And we are a leading home mortgage originator, with over $400 million in secondary market
with their business. We are a growth company in the shrinking corner of a mature industry,
mortgage production in the past three years, a key part of the consumer’s banking relationship.
and our growth comes from successfully attracting customers, bankers and owners who value our
way of thinking and acting. We are pragmatic idealists. We seek real understanding of our industry
We get a lot of questions about whether we are emphasizing organic growth or acquisitions.
and environment, not to follow the herd but to find sound ideas that have enduring merit—and then
Our answer is “yes”. Wisconsin is considered a low growth market. We continue to take market
we can make a difference to our customers in a manner that results in shareholder return.
share in core deposits, C&I lending and wealth management. We have done organic growth
People are definitely feeling more optimistic about their own financial affairs, as are we. Even so,
to create value through acquisitions. There are many institutions that are either struggling with
we are all well-advised to remember lessons learned from the crisis we came through. The pain
sustaining value creation in a pressured industry or that simply lack management depth and
of the crisis has abated for most, but the crisis itself has not so much been solved as it has been
succession. We are focused on sellers in relevant geography that are willing to really look at what
nationalized. You can see it on the Federal Reserve’s balance sheet and in the growth of the
we have done for the Mid-Wisconsin shareholders who had the foresight to entrust us with their
national debt. You can see it in the desperate effort to stimulate growth by holding interest rates
legacy. Our Board has directed us to continue to prioritize growth through acquisition. We
at near-zero for over six years. You can hear it rustling through the 2,300 pages of Dodd Frank
believe we have plenty of access to any additional equity capital we may need for future growth;
which was passed on the false premise that it would stabilize the banking industry and end Too Big
however, being owners ourselves, we are pretty fussy about broadening our shareholder base at
to Fail. These macro-economic matters and industry trends are concerns that we cannot control.
the expense of current shareholders.
exceptionally well over our history. That said, we do see the coming years as a very fertile time
2014 was our first full year of operation with the two acquisitions we closed in 2013. The successful
integration of the 12 acquired branches is evident in our earnings and loan quality. Not everything
we plan flows flawlessly, but the Mid-Wisconsin acquisition has worked exceptionally well.
Since this was largely an exchange of stock, it is very important to look back on the results for
shareholders of both Nicolet (NCBS) and Mid-Wisconsin (MWFS). The chart below is of great
importance to our future acquisitions because it clearly shows the value of our stock to institutions
considering selling to us. MWFS was a small cap public company that accepted the stock of a
small cap private company. The Board and shareholders of MWFS heard plenty of suggestions
about waiting for a better time to sell and about seeking a more liquid buyer. In the two years
since the announcement MWFS shareholders have enjoyed a 137% increase in share value and
greater liquidity for anyone who wanted to sell. The composition of our ownership base will change
as opportunity demands, but we know that liquidity for shareholders is an important part of our
commitment to creating shareholder value.
The nature of merger and acquisition negotiations can give the appearance
of a struggle between winners and losers. The Mid-Wisconsin merger
is a great example of how both sides win.
Quality – A few short years ago it seemed that all investment analysts talked about was capital
and asset quality. The analytics were really centered on whether the problem loans would wipe
out capital and sink the institution. Those years were very trying for us and for our customers.
We took some loan losses but we always made money. We worked through problems without
consuming our owners’ capital.
Banks are all feeling margin and competitive pressure that Fed policy is intended to create.
We have to remember the folly of the past, but it is expensive to sit out a bull market. What this
means in practice for a prudent banker is careful risk evaluation and extreme focus on our customer
relationships. We absorbed nearly $300 million of loans from troubled institutions in 2013.
At year end our non-performing asset ratio stood at 0.61% of total assets, the lowest level since 2007.
We work hard to avoid originating problem loans. We know how to handle problems when they arise.
We have also learned how to evaluate and price problem loans at other institutions. We have learned
to make money by acquiring and profitably resolving problem loans. The investment community
is not very focused on asset quality at the moment, but we are. Long term investors and selling
institutions should look carefully at the quality track record of management. It is important to have
the fortitude to resist the pressure when federal policy so strongly incentivizes risk. We survived
and defended shareholder value and liquidity not just because we knew what to do in a crisis, but
because we also knew what not to do before the crisis. We are a lot smarter today than we were
in 2007. Our quality track record is strong; in light of our rapid growth, it is outstanding.
Earnings – So finally, back to it being an easy year to write about the numbers:
• $ 9.9 million net income, representing 0.84% return on average assets for 2014
• $ 2.25 diluted earnings per common share and 11.55% return on average common equity
for 2014
• 4% increase in loans and 2% increase in deposits between December 31, 2014 and 2013
• 14% increase in average loans and 24% increase in average deposits for 2014 over 2013
• 3.89% net interest margin
• 0.61% nonperforming assets to assets at year end
• $ 5.6 million used to repurchase 257,000 common shares during 2014
• $ 21.34 book value per common share, 12% higher than at December 31, 2013
• 51% increase in closing stock price between December 31, 2014 and 2013
We are very pleased with the results from 2014, and there remains upside in our earnings
potential as our longer-term strategies mature. Our $9.9 million net income represents, by far,
our strongest profit year and is a 50% improvement over 2013’s operating earnings (that is,
2013’s reported net income of $16.1 million, less the nonrecurring bargain purchase gains and
direct pre-tax merger expenses, which net after tax were $9.7 million of 2013’s net income).
7
When assessing our performance, we look at various metrics. Return on Average Assets (ROA)
Shrinking the denominator also increases the risk of financial failure since it removes
is the most common for bank profitability (i.e. the profitability of the asset base), while Return
“cushion” for tough times, but this risk is not measured or accounted for in the ratio.
on Average Common Equity (ROCE, i.e. the return earned on the investment made by common
Quality delivery on this ratio is maximization of net income and prudent management of equity.
shareholders) and Diluted Earnings Per Share (DEPS, i.e. the net earnings available to each
Our 2014 common share repurchases are an example of prudent management—returning
common shareholder’s share) are very relevant to you as an individual shareholder. These measures
capital to the shareholders that is simply not necessary for the support of current revenue
are of great importance for differing reasons, including their relevance to stock price, but excessive
streams. We have never paid a common stock dividend, which isn’t to say we never will. To date
focus on any one ratio can lead to actions which could actually harm shareholder return in the
we view dividends as a mandatory stock redemption. Our share repurchase program is a way to
long run for short term improvement.
return capital to the shareholders through voluntary redemption, and support liquidity. We are
proud of our track record of thinking like a shareholder and preserving shareholder value because
Our 2014 ROA was a healthy 0.84%. High performing banks generally earn around 1% ROA.
we are shareholders.
As we strive for continued improvement, we manage the relationship between current earnings
and long term investment. A prominent example occurred during the heart of the crisis in 2009
In conclusion, we have gone into some detail to address questions we hear from you. 2014 was
and 2010—we prioritized rapid resolution of our loan problems, but we also invested in people
a very good year for continued execution on growth and performance, further evidenced in a
we would need to take advantage of the extraordinary growth potential once the crisis abated.
favorable stock price trend. For 2015 we are focused on organic loan growth, comprehensive
We “spent” ROA in those years to generate the growth, earnings and share price increase you
balance sheet and capital management, revenue maximization in our markets, and on acquisition
have seen in the last two years. In our early years we seldom looked at ROA because we were
opportunities for strategic growth. If you have more questions, let us know. You will find we do
determined to build the base of business that is driving your return today; yet ignoring ROA
answer phone calls and emails.
can indicate a bank that is always promising good things in a future that never seems to arrive.
We are maturing earnings nicely, but willingly invest in the rich opportunities growth and
As always, we appreciate your investment in Nicolet.
acquisitions provide long term.
Our ROCE was 11.55% for 2014. If we can clear 10% ROCE every year with sound execution of
banking fundamentals, we will have no problem looking you in the eye at our annual shareholder
meetings. Banking is a mature industry which until 2008 was actually thought to have a low
risk profile. There have been more than 500 bank failures since 2008. Our industry is not
low risk. With increased risk, there are regulatory requirements to hold more capital. With more
capital, returns decline. Finance theory suggests too that in higher risk industries investors should
expect a higher ROE. This is why we see community banks accessing common equity through
Private Equity Funds, pricing their common stock at less than book value. While we agree our
industry is both mature and has risk, the answer to the last crisis is not to price new bank equity
at an unrealistic return. We think the answer is to operate the bank in a manner that drives the
risk profile down. In the meantime, we have been able take advantage of the environment by
acquiring and integrating institutions that simply can’t afford the high cost of capital from
alternative sources.
ROCE is an exceptionally useful tool, that is dangerous when mismanaged. One could
summarize the roots of the most recent crisis as a market-wide misapplication of this ratio.
There are two mathematical ways to increase ROCE—increase net income and reduce equity.
When you can’t impact the amount of earnings appreciably, you may look to reduce equity.
However, we can diligently understand and map out strategies that are in the realm of our
control and influence.
All of our strategies are built around the straightforward idea that we must deliver a meaningful
difference to our customers and the communities we serve, and clearly communicate the value
we provide. Doing so has resulted in consistent growth and broader customer relationships over
our history even in the face of the crisis. And so, with momentum from a great 2014, we are
optimistic about our future.
Dear Shareholders,
This is an easy year to write about numbers. Net income, asset quality and growth results are all
strong. While hanging tough through the initial years of the economic crisis, we mapped out a
We continue to evaluate our business in the three main areas we have discussed in prior letters:
growth strategy. We grew organically and made three acquisitions aimed at driving long term
growth, quality and earnings.
value. 2014 is the year when the fruits of these efforts emerged in the stock price. During the
calendar year the stock price rose over 50%. This, to many shareholders, is the ultimate metric.
Growth – We are an outstanding growth story in a mature industry—literally from a white
You can be certain that our stock price matters to the people who work here and to the board
sheet of paper in 2000 to a $1.2 billion community bank spanning the northern two thirds of
that governs this institution. Our employees plus current and past board members are vested
the state. We are the largest community bank in Wisconsin north of Fond du Lac. We continue
like you, owning over 40% of outstanding shares. Before detailing the 2014 numbers, we want
to see enormous opportunity for growth. We have accomplished this at a time when small banks
to place them in the context of the strategies that really drive the math. We do not pursue
have seen their market share plunge.
numbers that drive strategies; we pursue strategies that produce results. This letter addresses the
question that many of you ask – “what do these numbers really mean?”
We have done exceptionally well at organic growth. In the Green Bay area we have built a
formidable book of nearly $500 million of loans over our 14 years by out-executing our larger
When the numbers are good, it is especially important to remind you of a core idea that we have
competitors in winning business and personal relationships. We have built a wealth management
consistently expressed. The numbers are not the reality of what we do; they are the results of
business with over $1 billion of total assets under management and over $5 million in annual
strategy and a way to assess if our strategy is working. That said, we love numbers. This business
revenue. We are four years into building a market presence in Appleton, and have a $125 million
is awash in numbers—but our focus is on people and strategy. We have found that customers
high-quality loan book in a market that is ripe for an alternative to the large banks that dominate
actually expect and value human contact, personal judgment and accountability—and reward us
it. And we are a leading home mortgage originator, with over $400 million in secondary market
with their business. We are a growth company in the shrinking corner of a mature industry,
mortgage production in the past three years, a key part of the consumer’s banking relationship.
and our growth comes from successfully attracting customers, bankers and owners who value our
way of thinking and acting. We are pragmatic idealists. We seek real understanding of our industry
We get a lot of questions about whether we are emphasizing organic growth or acquisitions.
and environment, not to follow the herd but to find sound ideas that have enduring merit—and then
Our answer is “yes”. Wisconsin is considered a low growth market. We continue to take market
we can make a difference to our customers in a manner that results in shareholder return.
share in core deposits, C&I lending and wealth management. We have done organic growth
People are definitely feeling more optimistic about their own financial affairs, as are we. Even so,
to create value through acquisitions. There are many institutions that are either struggling with
we are all well-advised to remember lessons learned from the crisis we came through. The pain
sustaining value creation in a pressured industry or that simply lack management depth and
of the crisis has abated for most, but the crisis itself has not so much been solved as it has been
succession. We are focused on sellers in relevant geography that are willing to really look at what
nationalized. You can see it on the Federal Reserve’s balance sheet and in the growth of the
we have done for the Mid-Wisconsin shareholders who had the foresight to entrust us with their
national debt. You can see it in the desperate effort to stimulate growth by holding interest rates
legacy. Our Board has directed us to continue to prioritize growth through acquisition. We
at near-zero for over six years. You can hear it rustling through the 2,300 pages of Dodd Frank
believe we have plenty of access to any additional equity capital we may need for future growth;
which was passed on the false premise that it would stabilize the banking industry and end Too Big
however, being owners ourselves, we are pretty fussy about broadening our shareholder base at
to Fail. These macro-economic matters and industry trends are concerns that we cannot control.
the expense of current shareholders.
exceptionally well over our history. That said, we do see the coming years as a very fertile time
2014 was our first full year of operation with the two acquisitions we closed in 2013. The successful
Quality – A few short years ago it seemed that all investment analysts talked about was capital
integration of the 12 acquired branches is evident in our earnings and loan quality. Not everything
and asset quality. The analytics were really centered on whether the problem loans would wipe
we plan flows flawlessly, but the Mid-Wisconsin acquisition has worked exceptionally well.
out capital and sink the institution. Those years were very trying for us and for our customers.
Since this was largely an exchange of stock, it is very important to look back on the results for
We took some loan losses but we always made money. We worked through problems without
shareholders of both Nicolet (NCBS) and Mid-Wisconsin (MWFS). The chart below is of great
consuming our owners’ capital.
importance to our future acquisitions because it clearly shows the value of our stock to institutions
considering selling to us. MWFS was a small cap public company that accepted the stock of a
Banks are all feeling margin and competitive pressure that Fed policy is intended to create.
small cap private company. The Board and shareholders of MWFS heard plenty of suggestions
We have to remember the folly of the past, but it is expensive to sit out a bull market. What this
about waiting for a better time to sell and about seeking a more liquid buyer. In the two years
means in practice for a prudent banker is careful risk evaluation and extreme focus on our customer
since the announcement MWFS shareholders have enjoyed a 137% increase in share value and
relationships. We absorbed nearly $300 million of loans from troubled institutions in 2013.
greater liquidity for anyone who wanted to sell. The composition of our ownership base will change
At year end our non-performing asset ratio stood at 0.61% of total assets, the lowest level since 2007.
as opportunity demands, but we know that liquidity for shareholders is an important part of our
commitment to creating shareholder value.
The nature of merger and acquisition negotiations can give the appearance
of a struggle between winners and losers. The Mid-Wisconsin merger
is a great example of how both sides win.
We work hard to avoid originating problem loans. We know how to handle problems when they arise.
We have also learned how to evaluate and price problem loans at other institutions. We have learned
to make money by acquiring and profitably resolving problem loans. The investment community
is not very focused on asset quality at the moment, but we are. Long term investors and selling
institutions should look carefully at the quality track record of management. It is important to have
the fortitude to resist the pressure when federal policy so strongly incentivizes risk. We survived
and defended shareholder value and liquidity not just because we knew what to do in a crisis, but
because we also knew what not to do before the crisis. We are a lot smarter today than we were
in 2007. Our quality track record is strong; in light of our rapid growth, it is outstanding.
Earnings – So finally, back to it being an easy year to write about the numbers:
• $ 9.9 million net income, representing 0.84% return on average assets for 2014
• $ 2.25 diluted earnings per common share and 11.55% return on average common equity
for 2014
• 4% increase in loans and 2% increase in deposits between December 31, 2014 and 2013
• 14% increase in average loans and 24% increase in average deposits for 2014 over 2013
• 3.89% net interest margin
• 0.61% nonperforming assets to assets at year end
• $ 5.6 million used to repurchase 257,000 common shares during 2014
• $ 21.34 book value per common share, 12% higher than at December 31, 2013
• 51% increase in closing stock price between December 31, 2014 and 2013
We are very pleased with the results from 2014, and there remains upside in our earnings
potential as our longer-term strategies mature. Our $9.9 million net income represents, by far,
our strongest profit year and is a 50% improvement over 2013’s operating earnings (that is,
2013’s reported net income of $16.1 million, less the nonrecurring bargain purchase gains and
direct pre-tax merger expenses, which net after tax were $9.7 million of 2013’s net income).
When assessing our performance, we look at various metrics. Return on Average Assets (ROA)
is the most common for bank profitability (i.e. the profitability of the asset base), while Return
on Average Common Equity (ROCE, i.e. the return earned on the investment made by common
shareholders) and Diluted Earnings Per Share (DEPS, i.e. the net earnings available to each
common shareholder’s share) are very relevant to you as an individual shareholder. These measures
are of great importance for differing reasons, including their relevance to stock price, but excessive
focus on any one ratio can lead to actions which could actually harm shareholder return in the
long run for short term improvement.
Our 2014 ROA was a healthy 0.84%. High performing banks generally earn around 1% ROA.
As we strive for continued improvement, we manage the relationship between current earnings
and long term investment. A prominent example occurred during the heart of the crisis in 2009
and 2010—we prioritized rapid resolution of our loan problems, but we also invested in people
we would need to take advantage of the extraordinary growth potential once the crisis abated.
We “spent” ROA in those years to generate the growth, earnings and share price increase you
have seen in the last two years. In our early years we seldom looked at ROA because we were
determined to build the base of business that is driving your return today; yet ignoring ROA
can indicate a bank that is always promising good things in a future that never seems to arrive.
We are maturing earnings nicely, but willingly invest in the rich opportunities growth and
acquisitions provide long term.
Our ROCE was 11.55% for 2014. If we can clear 10% ROCE every year with sound execution of
banking fundamentals, we will have no problem looking you in the eye at our annual shareholder
meetings. Banking is a mature industry which until 2008 was actually thought to have a low
risk profile. There have been more than 500 bank failures since 2008. Our industry is not
low risk. With increased risk, there are regulatory requirements to hold more capital. With more
capital, returns decline. Finance theory suggests too that in higher risk industries investors should
expect a higher ROE. This is why we see community banks accessing common equity through
Private Equity Funds, pricing their common stock at less than book value. While we agree our
industry is both mature and has risk, the answer to the last crisis is not to price new bank equity
at an unrealistic return. We think the answer is to operate the bank in a manner that drives the
risk profile down. In the meantime, we have been able take advantage of the environment by
acquiring and integrating institutions that simply can’t afford the high cost of capital from
alternative sources.
ROCE is an exceptionally useful tool, that is dangerous when mismanaged. One could
summarize the roots of the most recent crisis as a market-wide misapplication of this ratio.
There are two mathematical ways to increase ROCE—increase net income and reduce equity.
When you can’t impact the amount of earnings appreciably, you may look to reduce equity.
Shrinking the denominator also increases the risk of financial failure since it removes
“cushion” for tough times, but this risk is not measured or accounted for in the ratio.
Quality delivery on this ratio is maximization of net income and prudent management of equity.
Our 2014 common share repurchases are an example of prudent management—returning
capital to the shareholders that is simply not necessary for the support of current revenue
streams. We have never paid a common stock dividend, which isn’t to say we never will. To date
we view dividends as a mandatory stock redemption. Our share repurchase program is a way to
return capital to the shareholders through voluntary redemption, and support liquidity. We are
proud of our track record of thinking like a shareholder and preserving shareholder value because
we are shareholders.
In conclusion, we have gone into some detail to address questions we hear from you. 2014 was
a very good year for continued execution on growth and performance, further evidenced in a
favorable stock price trend. For 2015 we are focused on organic loan growth, comprehensive
balance sheet and capital management, revenue maximization in our markets, and on acquisition
opportunities for strategic growth. If you have more questions, let us know. You will find we do
answer phone calls and emails.
As always, we appreciate your investment in Nicolet.
Sincerely,
Robert B. Atwell
Chairman, President
and Chief Executive Officer
Michael E. Daniels
Executive Vice President
and Secretary
9
Robert Atwell
Chairman, President
and Chief Executive Officer
Nicolet Bankshares, Inc.
Michael Felhofer
Owner
Candleworks of
Door County, Inc.
Susan Merkatoris
Certified Public Accountant
Owner and Managing Member
Larboard Enterprises, LLC
Michael Daniels
President
and Chief Operating Officer
Nicolet National Bank
John Dykema
President and Owner
Campbell Wrapper Corp
and Circle Packaging
Machinery, Inc.
Gary Fairchild
President and CEO
Fairchild Equipment, Inc.
Chris Ghidorzi
Director
Ghidorzi Companies
Therese Pandl
President and CEO
HSHS EW Division
Randy Rose
Retired President and CEO
Schwabe North America
Robert Weyers
Owner
Commercial Horizons, Inc.
Dr. Kim Gowey
Owner
Cosmetic and Implant
Dentistry of Wisconsin
Andrew Hetzel, Jr.
President and CEO
NPS Corporation
Donald Long, Jr.
Former Owner and CEO
Century Drill and Tool Co., Inc.
Robert Atwell
Chairman, President
and Chief Executive Officer
Michael Daniels
Executive Vice President
and Secretary
Ann K. Lawson
Chief Financial Officer
Robert Atwell
Chairman and CEO
Jon Biskner
Vice President
Information Technology
Michael Daniels
President and COO
Brad Hutjens
Senior Vice President
Chief Credit Officer
Mike Vogel
Senior Vice President
Commercial Banking
Ann Lawson
Chief Financial Officer
Kate Lombardi
Vice President
Human Resources
Michael Waters
Senior Vice President
Fox Cities Market Executive
Eric Witczak
Executive Vice President
Tom Zellner
Senior Vice President
Retail Banking – Central Region
Wendell Ellsworth
Manager
WEE Enterprises, LLC
AHI Properties, LLC
Philip Hendrickson
Retired Chairman, CEO
and President
KI Krueger International
Deanna Favre
CEO
Favre 4 HOPE Foundation
Ronald Miller
Retired Owner
Four Corporation
Jeff Gahnz
Vice President
Marketing and Public Relations
Michael Steppe
Chief Investment Officer
Kristi Hansen
Vice President
Operations
11
Nicolet National Bank
shows me they are real by
being honest and up front
with their conversations.
They don’ t blow smoke
just to get or keep my
business. They do what
they say they’ ll do and
deliver on their promises.
They back up their words
with actions, not just
hollow guarantees.
We have a very strong
relationship with them.
It’s real.
13
John West President, Fox Valley Metal Tech., Inc.
Be Real Through my years in business, it’s
become clear to me that the formula
for success is not a rigid set of
ingredients. Following our instincts,
we all tinker with the recipe. For our
company, the essential component
has been responsiveness. It extends
beyond being accommodating, it also
means being responsive to trends
and changing customer needs.
Our business principles have been
a template for what we look for in
business partners. We have been
doing business with Nicolet Bank
for over twelve years. It is clear by
their actions that Nicolet applies
the concept of responsiveness
globally and unconditionally.
15
Kris Maz Co-Owner, Launch Photography, Film, and Video Inc.
Be Responsive Nicolet National Bank has
a knack for hiring great
people. Everyone is pleasant,
personable and engaging.
It’s really nice. We defi-
nitely don’ t feel like “just
another number” or “just
another customer”.
From LaForce’ s perspective,
it feels like we’ re vested
together, and I guess in many
ways we are. It feels like
we are a team. That feeling
is very personal to us.
17
Ken Metzler CEO, LaForce Inc.
Be Personal As a mother of young children, “creating
memories” is like my Super Bowl.
Some days that means blowing bubbles
when I meant to have us run errands, an
extra book at bedtime, or the occasional
ice cream sundae that is bigger than
my kid’s heads.
What I didn’t expect was to find that
shared value within my bank. At Nicolet,
they deliver memorable service in a
personal way. It’s as simple as a quick
return call back to my tenth question that
day and as poignant as working together
to fight illiteracy for underprivileged
children in our community with the
Give a Kid a Book Campaign.
That moves me to view them less as a
bank and more as a partner. Is that as
memorable as a gigantic ice cream
sundae to a four year old? You bet.
19
Molly Crosby Mom, Community Volunteer
Be Memorable To be an entrepreneur takes
trust and stubbornness and
taking chances. Nicolet National
Bank shows me that every
day in how they treat me.
They are willing to take a
risk on a person.
What helped me succeed most
was stubbornness. I just kept
looking to find ways to
succeed and refused to quit.
Nicolet is like that.
Our business needs to invest
in equipment. There was a
trust factor there because they
knew me and my business.
Helping out in hard times
helped build that trust.
Nicolet looks out for me.
21
Dale Baumann President & CEO, WADAL Plastics, Inc
Be Entrepreneurial REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
Nicolet Bankshares, Inc.
Green Bay, Wisconsin
We have audited, in accordance with standards of the Public Company Accounting Oversight Board
(United States), the consolidated balance sheets of Nicolet Bankshares, Inc. and subsidiaries as of
December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive
income, changes in stockholders’ equity and cash flows for the years then ended (not presented herein);
and in our report dated March 9, 2015, we expressed an unqualified opinion on those consolidated
financial statements.
In our opinion, the information set forth in the accompanying condensed financial statements is
fairly stated, in all material respects, in relation to the consolidated financial statements from which it
has been derived.
IN 2014, THE NI COLET FOU NDATIO N HE L D TWO GO LF OUT ING S
TH AT BENEFIT TED UNI TY H OSPI C E , CP, IN C. AND A VERY S PE CIAL PL ACE .
THANK YOU TO OUR FR IEN DS FOR M AKI NG THIS POSSI BLE.
Atlanta, Georgia
March 9, 2015
C E R T I F I E D P U B L I C A C C O U N T A N T S
23
(In thousands, except share and per share data)
2014
2013
2014
2013
NI COL ET BA NKS HARE S, INC . AND S UBS IDI AR I ES (De ce mber 31 , 20 14 and 2013)
Assets
Cash and due from banks
$ 23,975
$ 26,556
Interest-earning deposits
Federal funds sold
43,169
119,364
1,564
1,058
Cash and cash equivalents
68,708
146,978
Certificates of deposit in other banks
10,385
1,960
Securities available for sale (“AFS”)
168,475
127,515
Other investments
Loans held for sale
Loans
8,065
7,272
7,982
1,486
883,341
847,358
Allowance for loan losses
(9,288)
(9,232)
Loans, net
874,053
838,126
Premises and equipment, net
Bank owned life insurance
Accrued interest receivable and other assets
31,924
27,479
18,924
29,845
23,796
21,115
Total assets
$ 1,215,285
$ 1,198,803
Liabilities and Stockholders’ Equity
Liabilities:
Demand
Money market and NOW accounts
Savings
Time
Total deposits
Short-term borrowings
Notes payable
Junior subordinated debentures
Accrued interest payable and other liabilities
Total liabilities
Stockholders’ Equity:
Preferred equity
Common stock
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total Nicolet Bankshares Inc. stockholders’ equity
Noncontrolling interest
Total stockholders’ equity and noncontrolling interest
$ 203,502
$ 171,321
494,945
120,258
241,198
492,499
97,601
273,413
1,059,903
1,034,834
-
21,175
12,328
10,812
7,116
32,422
12,128
7,424
1,104,218
1,093,924
24,400
41
45,693
39,843
1,031
111,008
59
111,067
24,400
42
49,616
30,138
666
104,862
17
104,879
Total liabilities, noncontrolling interest and stockholders’ equity $ 1,215,285
$ 1,198,803
Preferred shares authorized (no par value)
Preferred shares issued and outstanding
10,000,000
10,000,000
24,400
24,400
Common shares authorized (par value $0.01 per share)
30,000,000
30,000,000
Common shares outstanding
Common shares issued
4,058,208
4,124,439
4,241,044
4,303,407
25
(In thousands, except share and per share data)
2014
2013
Interest income:
Loans, including loan fees
Investment securities:
Taxable
Non-taxable
Other interest income
Total interest income
Interest expense:
Money market and NOW accounts
Savings and time deposits
Short-term borrowings
Junior subordinated debentures
Notes payable
Total interest expense
Net interest income
Provision for loan losses
Net interest income after provision for loan losses
Noninterest income:
Service charges on deposit accounts
Trust services fee income
Mortgage income
Brokerage fee income
Gain on sale or writedown of assets, net
Bank owned life insurance
Rent income
Investment advisory fees
Bargain purchase gain
Other income
Total noninterest income
$ 46,081
$ 41,000
1,606
793
469
48,949
2,275
3,067
8
875
842
7,067
41,882
2,700
39,182
2,128
4,569
1,926
631
539
933
1,239
440
-
1,780
14,185
1,107
745
344
43,196
2,065
2,328
25
730
1,144
6,292
36,904
6,200
30,704
1,793
4,028
2,336
477
1,669
825
1,036
348
11,915
1,309
25,736
NI COL ET BA NKS HARE S, I NC. AN D S UBS ID IA RIE S ( Yea rs E nd ed Dec embe r 3 1 , 20 1 4 an d 2013)
Noninterest expense:
Salaries and employee benefits
Occupancy, equipment and office
Business development and marketing
Data processing
FDIC assessments
Core deposit intangible amortization
Other expense
Total noninterest expense
2014
2013
21,472
19,615
7,086
2,267
3,178
715
1,209
2,782
6,407
2,348
2,477
700
1,111
3,773
38,709
36,431
Income before income tax expense
Income tax expense
Net income
Less: Net income attributable to noncontrolling interest
Net income attributable to Nicolet Bankshares, Inc.
Less: Preferred stock dividends and discount accretion
14,658
4,607
10,051
102
9,949
244
20,009
3,837
16,172
31
16,141
976
Net income available to common shareholders
$ 9,705
$ 15,165
Basic earnings per common share
Diluted earnings per common share
$ 2.33
$ 2.25
$ 3.81
$ 3.80
Weighted average common shares outstanding:
Basic
Diluted
4,165,254
4,311,347
3,976,845
3,988,119
27
Annual Meeting
Shareholders’ Meeting – Monday, May 11, 2015. (5:00 p.m.)
Meyer Theatre
117 South Washington Street • Green Bay, WI 54301
Independent Auditor
Porter Keadle Moore, LLC
235 Peachtree Street, NE • Suite 1800 • Atlanta, GA 30303
Transfer Agent
Computershare
P.O. Box 30170 • College Station, TX 77842-3170
Overnight Delivery
Computershare
211 Quality Circle, Suite 210
College Station, TX 77845
Shareholder website:
www.computershare.com/investor
Shareholder online inquiries:
https://www-us.computershare.com/investor/Contact
Toll free in the US + 1.800.962.4284
Outside the US + 781.575.3120
Fax + 312.604.2312
LEGACY