Nicolet Bankshares Inc.
Annual Report 2016

Plain-text annual report

2 0 1 6 A n n u a l R e p o r t 2 0 1 6 A n n u a l R e p o r t 111 N. Washington Street / P.O. Box 23900 / Green Bay, WI 54305 -3900 920-430-1400 / 1 -800-369-0226 ww w.n icoletban k.c om Forward-looking Statements 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. No matter how big we get, the core of Nicolet Bank will not change. Real people having Real conversations. Be Responsive to our customers’ needs. Build Personal relationships. Create Memorable experiences. Have an Entrepreneurial mindset to innovatively create solutions. No matter how big we get, the core of Nicolet Bank will not change. Real people having Real conversations. Be Responsive to our customers’ needs. Build Personal relationships. Create Memorable experiences. Have an Entrepreneurial mindset to innovatively create solutions. LETTER TO SHAREHOLDERS Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing 3 execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our LETTER TO SHAREHOLDERS Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing 3 execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, 5 the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, 5 the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our 7 the other. Last year’s shareholder letter was particularly written for the thousands of new Our strategy is shifting as we move into 2017. We plan to complete the acquisition of First shareholders who have joined us through the combinations with Mid-Wisconsin (April 2013) Menasha Bancshares/First National Bank-Fox Valley this April 2017. At that point we will have and Baylake (April 2016). Today, our shareholder base has grown too large to sit at every kitchen grown from $700 million to $2.8 billion in assets in four years (a 300% increase). This represented Dear Shareholders, This would be a great year for us to just write about the remarkable successes Nicolet has achieved over the last 16 years and especially in the last five years. It has been rewarding to see our plans come together and have that reflected in our share price. It was a very personal thing to sit at the kitchen table with hundreds of people in our community in 2000 and ask them to invest in our plans for a new bank. It is tremendously gratifying to show those people the rewards for trusting and hanging with us. From the beginning we have set high ideals and made big plans. Sometimes we nail it, sometimes we fall forward and sometimes we just put one foot in front of table, but we still want to address our owners in that same spirit. This year’s letter will be less about the past and more about how we see the industry today and our position in it. I also want to invite you to visit our website (https://www.nicoletbank.com/annual-report-videos/) to hear directly from key leaders in the company about their particular area. We finalized the agreement to merge with Baylake Bank in August of 2015. At that time, we told both boards of directors that we should have a $40 stock by the end of 2016. We were right on target until the election surprise of 2016 suddenly moved bank stocks up by 20%. This sector move reflected optimism for corporate tax reform, an interest rate environment that would favor the banking industry, and regulatory relief. As a more actively traded stock, we will need to get used to our share price fluctuating more over matters we have little control over. our drive for scale during a time of exceptional opportunity for value in mergers and acquisitions. In the meantime, we remain largely owned by the individuals who have chosen to invest in us We have achieved a sufficient size to operate within our markets with great efficiency and through our founding, our periods of rapid growth and through our more recent acquisitions. effectiveness, but we have not yet optimized the scale we have acquired. In 2011 we were These individuals are overwhelmingly people who live and work in the communities we serve. financially invested in and strategically committed to finding the acquisitions we had decided We want to remain responsible to creating value for all our shareholders by staying focused on we must have. We showed that we are good at finding accretive deals and integrating them the things that provide value to our customers in the communities that we too live in, understand effectively. The difference now is that, while we still want to acquire, we don’t have to. We see and support. acquisitions as additive rather than essential. There is a lot of low hanging fruit in optimizing execution within the footprint we now have. Management has established clear targets for acquisition of a wealth management business which brought us the talent we needed to propel earnings and share value over the coming five years. These are some of the execution areas we growth in this area, though it was overshadowed by the larger Baylake merger also in progress are focused on as we look forward: at that time. We have long had a quality fiduciary platform, but we lacked the right sales culture and staffing to move market share. We now have the pieces in place to drive growth. 1) Cultural Integration — We are a very mission, purpose and values-driven enterprise. We are We are entering 2017 with a monthly revenue run rate of about $1 million, which is a big part not just another community bank marking time in the twilight of our days. We understand of our income growth plans this year and into the future. We understand the community our core purpose is to serve customers more effectively within a place we understand and are banking sector is littered with broken dreams of community bank wealth strategies that committed to. We made a lot of rapid and, in some cases, tough decisions on staffing as we under-delivered. We look forward to catching people off guard with our growth and quality of acquired and drove efficiency. This has not always given us the time to help people new to our financial advisory service. organization understand who we are or how and why we do what we do. We need all of our people to feel the commitment to our mission deep in their bones. Hence, the cultural integration 3) Organic Growth — Wisconsin continues to be a healthy though slow growth economy. effort remains a key focus area. We have had seasons of extraordinary organic growth achieved by moving market share to Nicolet. These last years have seen greater opportunity in acquired size than in organic growth. With the growth, we are also looking for greater development of our future leadership team. We have never de-emphasized organic growth, but the reality is our best talent has been busy In these last four years we functioned as a very nimble, cohesive team of professionals running integrating acquired loans, lenders and the retail network. Running in the wide open fields of a good core franchise while quadrupling in size. We trusted each other to get done those things acquired growth has been fun and rewarding, but we have always been pretty good at market that pertained to our individual areas during this time. This is very different from focusing on share trench warfare. We have always positioned ourselves against the large banks and have personal and team development in order to sustain the mission beyond the current generation done well. With our growth in scale and lending capacity, our value proposition has never been of leadership. We haven’t grown from a blank sheet of paper to our market’s largest and most more compelling to the family-owned businesses and the spirited people who own them and impactful community bank by worrying a lot about succession—but it is time to be intentional work in them. The local dialect is our native tongue. We learned “cheesehead” on our about it. One of the problems in banking is that the industry has generally not invested in the mother’s knee. long-term training and development of the next generation of talent. Another problem is that we are reluctant to hire bankers who really haven’t worked in a healthy customer-centric The banking industry is currently basking in an atmosphere of unexpected euphoria. We are banking environment. We must be open to acquiring and coaching up seasoned talent, but we obviously big believers in community banking, but we are just not built to rest in a euphoric really prefer to, and need to, develop people we are sure understand our culture and mission. state. We do foresee some easing of the regulatory constraints shackling the industry, but we do 2) Wealth Management — Our 2016 combined trust and brokerage revenues totaled often pointless and counter-productive aspects of regulation, but the changes under consideration $9 million, up 65% over 2015. This growth in wealth management revenue was under the radar really do not address the fundamental causes of pressure on the community banking sector. of the professional investors who follow us. By April 1, 2016 we completed a very strategic The bad news is that we really do not anticipate a fundamental relaxing of the pressures driving not foresee a wholesale repeal of Dodd Frank. We are all for eliminating the irritating, the decline of community banking. The good news is that the recipe we have developed for 3) “Fintech” is a term used for companies that deliver technology solutions differently than prosperity in a declining sector of a stagnant industry still has legs. Our recipe includes remaining from what banks historically have. Technology delivery patterns continue to show volume moving ready to capitalize on continued consolidation needed in the number of community banks and out of branches and even out of the banking system. Few banks are prepared to either benefit from growing organically through the value proposition we can and do deliver to customers in the these changes or deliver a compelling value proposition to prosper alongside them. But embracing communities we serve. Let’s revisit this. 1) The community banking sector will likely not participate in regulatory relief to the degree technology offerings as meaningful delivery channels is important, especially where the financial transaction is straightforward and speed or convenience is desired by our customers. that larger banks will. Community banks are competing on tighter margins and with less This landscape has played out somewhat differently in our northern market. To the larger diversity in revenues. Couple these with the demographic pressure of the aging of management banks that are in our footprint, ours is a peripheral market with little potential for growth and and the almost complete absence of younger talent interested in the life of a community banker almost no possibility of moving the math that guides their actions. The result is a consistent and, as a result, we can expect consolidation to remain necessary in the community banking pattern of disinvestment by our larger competitors. None of them hold a press conference sector. Our legs have been tested in this race. We have been attentive to our capital strength, announcing they are not interested in the areas north of Milwaukee and Madison, but the salary our stock price and our relationship with our regulators. We are a proven consolidator. dollars, the investments and the attention go to other places. In effect they have been fine While we will be selective, there is value to be created for shareholders within this conceding market share as long as their cost reductions are greater than the margin lost. They sector opportunity. compete hard on the customers that fit their target screens but passively withdraw from the rest. I wouldn’t say they are wrong. They are just making decisions based on the metrics that 2) There are a number of forces and entities trying to commoditize the community bank, guide them. We feel the squeeze of the implied capital subsidy they enjoy, but we feel it less hence making banking all about pricing. This is largely how the biggest banks (the too-big-to-fail acutely than we would in the urban centers to the south of us. or TBTF banks) and credit unions compete—by spending much of the subsidies they enjoy, like lower implied capital requirements for TBTF banks and a nearly tax free environment for We are very devoted to our core geography. Our people are almost universally convinced that credit unions, into pricing. We are not here to complain about this, but it is part of our chal- this is the best place in the world to live and work. This geographic focus has served us very well. lenge and our opportunity. Real people are not only about price. They want someone to listen We understand what is going on in our industry and in our geography. With this understanding and provide alternatives and solutions. They want their banker to be there when times are and the courage to have real conversations with our current and potential customers, we are tough. We didn’t grow towards $2.8 billion in assets by providing price-only or cookie cutter best positioned to be the key financial intermediary for our communities. Our vision is to solutions. We deliver boots on the ground, face-to-face commitment to our neighbors and continue building out the northern powerhouse we envisioned Nicolet to be 16 years ago communities. We provide what is needed, not just what can be sold. Banking family owned when we started. businesses is our core strength. We do mortgage banking well and we deliver efficient wealth management solutions. We started this letter by talking about our meetings around the kitchen table with investors. We want to end this letter in that spirit. Just as it was personal to ask people to invest in our 7 new bank, it is just as personal to ask our shareholders to be our customers. Whether it be managing your wealth, helping you with a mortgage, home equity line, or credit card, or setting up a checking account, we remain committed to meeting local needs with local people. We know we can bring value to you. We ask for the opportunity to have a conversation with you. If you are already an owner and customer of the bank, we ask for your referral to neighbors, colleagues and friends. As always, we thank you for your trust in us. Sincerely, Robert B. Atwell Chairman, President and Chief Executive Officer Michael E. Daniels Executive Vice President and Secretary Robert Atwell Chairman, President and Chief Executive Officer, Nicolet Bankshares, Inc. Michael Daniels President and Chief Executive Officer, Nicolet National Bank Robert Agnew President Tipperary Partners, LLC John Dykema President and Owner, Campbell Wrapper Corp and Circle Packaging Machinery, Inc. DIRECTORS Terrence Fulwiler Retired CEO, WS Packaging Group Chris Ghidorzi Vice President, Ghidorzi Companies Thomas Herlache Retired Chairman, President and Chief Executive Officer Baylake Corp. Susan Merkatoris Certified Public Accountant, Owner and Managing Member, Larboard Enterprises, LLC William D. Murphy Chief Financial Officer, Motion Products, Inc. Randy Rose Retired President and CEO, Schwabe North America Louis J. “Rick” Jeanquart Chairman of the Board, Just In Time Corporation Elyse Mollner Stackhouse General Counsel, Corporate Secretary and Chief Compliance Officer, U.S. Venture, Inc. Donald Long, Jr. Former Owner and CEO, Century Drill and Tool Co., Inc. Robert Weyers Owner, Commercial Horizons, Inc. BOB MIKE 9 new bank, it is just as personal to ask our shareholders to be our customers. Whether it be managing your wealth, helping you with a mortgage, home equity line, or credit card, or setting up a checking account, we remain committed to meeting local needs with local people. We know we can bring value to you. We ask for the opportunity to have a conversation with you. If you are already an owner and customer of the bank, we ask for your referral to neighbors, colleagues and friends. As always, we thank you for your trust in us. Sincerely, Robert B. Atwell Chairman, President and Chief Executive Officer Michael E. Daniels Executive Vice President and Secretary Robert Atwell Chairman, President and Chief Executive Officer, Nicolet Bankshares, Inc. Michael Daniels President and Chief Executive Officer, Nicolet National Bank Robert Agnew President Tipperary Partners, LLC John Dykema President and Owner, Campbell Wrapper Corp and Circle Packaging Machinery, Inc. DIRECTORS Terrence Fulwiler Retired CEO, WS Packaging Group Chris Ghidorzi Vice President, Ghidorzi Companies Thomas Herlache Retired Chairman, President and Chief Executive Officer Baylake Corp. Susan Merkatoris Certified Public Accountant, Owner and Managing Member, Larboard Enterprises, LLC William D. Murphy Chief Financial Officer, Motion Products, Inc. Randy Rose Retired President and CEO, Schwabe North America Louis J. “Rick” Jeanquart Chairman of the Board, Just In Time Corporation Elyse Mollner Stackhouse General Counsel, Corporate Secretary and Chief Compliance Officer, U.S. Venture, Inc. Donald Long, Jr. Former Owner and CEO, Century Drill and Tool Co., Inc. Robert Weyers Owner, Commercial Horizons, Inc. BOB MIKE 9 NICOLET BANKSHARES, INC. OFFICERS ACCOUNTANT’S LETTER Robert Atwell Chairman, President and Chief Executive Officer Michael Daniels Executive Vice President and Secretary Ann K. Lawson Chief Financial Officer NICOLET NATIONAL BANK EXECUTIVE OFFICERS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Robert Atwell Chairman Michael Daniels President and Chief Executive Officer Patrick Madson Senior Vice President Wealth Management Michael Steppe Senior Vice President Chief Investment Officer Brad Hutjens Executive Vice President Chief Credit Officer, Chief Compliance and Risk Manager Michael Vogel Senior Vice President Commercial Banking Manager Ann Lawson Chief Financial Officer Eric Witczak Executive Vice President To the Stockholders and Board of Directors Nicolet Bankshares, Inc. Green Bay, Wisconsin We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nicolet Bankshares, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 (not presented herein); and in our report dated March 10, 2017, 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. Atlanta, Georgia March 10, 2017 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 11 NICOLET BANKSHARES, INC. OFFICERS ACCOUNTANT’S LETTER Robert Atwell Chairman, President and Chief Executive Officer Michael Daniels Executive Vice President and Secretary Ann K. Lawson Chief Financial Officer NICOLET NATIONAL BANK EXECUTIVE OFFICERS REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Robert Atwell Chairman Michael Daniels President and Chief Executive Officer Patrick Madson Senior Vice President Wealth Management Michael Steppe Senior Vice President Chief Investment Officer Brad Hutjens Executive Vice President Chief Credit Officer, Chief Compliance and Risk Manager Michael Vogel Senior Vice President Commercial Banking Manager Ann Lawson Chief Financial Officer Eric Witczak Executive Vice President To the Stockholders and Board of Directors Nicolet Bankshares, Inc. Green Bay, Wisconsin We have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Nicolet Bankshares, Inc. and subsidiaries as of December 31, 2016 and 2015, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2016 (not presented herein); and in our report dated March 10, 2017, 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. Atlanta, Georgia March 10, 2017 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 11 CONSOLIDATED BALANCE SHEETS NICOLET BANKSHARES, INC. A N D S U BS ID IA R I ES ( De ce mbe r 31 , 201 6 an d 20 15) (In thousands, except share and per share data) 2016 2015 2016 2015 Assets Cash and due from banks Interest-earning deposits Federal funds sold Cash and cash equivalents Certificates of deposit in other banks $ 68,056 $ 11,947 60,320 70,755 727 129,103 3,984 917 83,619 3,416 Securities available for sale (“AFS”) 365,287 172,596 Other investments Loans held for sale Loans 17,499 6,913 8,135 4,680 1,568,907 877,061 Allowance for loan losses (11,820) (10,307) Loans, net 1,557,087 866,754 Premises and equipment, net Bank owned life insurance (“BOLI”) Goodwill and other intangibles Accrued interest receivable and other assets 45,862 54,134 87,938 33,072 29,613 28,475 3,793 13,358 Total assets $ 2,300,879 $ 1,214,439 Liabilities and Stockholders’ Equity Liabilities: Demand Money market and NOW accounts Savings Time Total deposits Notes payable Junior subordinated debentures Subordinated notes Accrued interest payable and other liabilities Total liabilities Stockholders’ Equity: Preferred equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Nicolet Bankshares, Inc. stockholders’ equity Noncontrolling interest $ 482,300 $ 226,554 964,509 221,282 301,895 486,677 136,733 206,453 1,969,986 1,056,417 1,000 24,732 11,885 16,911 15,412 12,527 11,849 8,547 2,024,514 1,104,752 - 86 209,700 68,888 (2,727) 275,947 418 12,200 42 45,220 51,059 980 109,501 186 109,687 Total stockholders’ equity and noncontrolling interest 276,365 Total liabilities, noncontrolling interest and stockholders’ equity $ 2,300,879 $ 1,214,439 Preferred shares authorized (no par value) 10,000,000 10,000,000 Preferred shares issued and outstanding - 12,200 Common shares authorized (par value $0.01 per share) 30,000,000 30,000,000 Common shares outstanding Common shares issued 8,553,292 8,596,241 4,154,377 4,191,067 13 CONSOLIDATED BALANCE SHEETS NICOLET BANKSHARES, INC. A N D S U BS ID IA R I ES ( De ce mbe r 31 , 201 6 an d 20 15) (In thousands, except share and per share data) 2016 2015 2016 2015 Assets Cash and due from banks Interest-earning deposits Federal funds sold Cash and cash equivalents Certificates of deposit in other banks $ 68,056 $ 11,947 60,320 70,755 727 129,103 3,984 917 83,619 3,416 Securities available for sale (“AFS”) 365,287 172,596 Other investments Loans held for sale Loans 17,499 6,913 8,135 4,680 1,568,907 877,061 Allowance for loan losses (11,820) (10,307) Loans, net 1,557,087 866,754 Premises and equipment, net Bank owned life insurance (“BOLI”) Goodwill and other intangibles Accrued interest receivable and other assets 45,862 54,134 87,938 33,072 29,613 28,475 3,793 13,358 Total assets $ 2,300,879 $ 1,214,439 Liabilities and Stockholders’ Equity Liabilities: Demand Money market and NOW accounts Savings Time Total deposits Notes payable Junior subordinated debentures Subordinated notes Accrued interest payable and other liabilities Total liabilities Stockholders’ Equity: Preferred equity Common stock Additional paid-in capital Retained earnings Accumulated other comprehensive income (loss) Total Nicolet Bankshares, Inc. stockholders’ equity Noncontrolling interest $ 482,300 $ 226,554 964,509 221,282 301,895 486,677 136,733 206,453 1,969,986 1,056,417 1,000 24,732 11,885 16,911 15,412 12,527 11,849 8,547 2,024,514 1,104,752 - 86 209,700 68,888 (2,727) 275,947 418 12,200 42 45,220 51,059 980 109,501 186 109,687 Total stockholders’ equity and noncontrolling interest 276,365 Total liabilities, noncontrolling interest and stockholders’ equity $ 2,300,879 $ 1,214,439 Preferred shares authorized (no par value) 10,000,000 10,000,000 Preferred shares issued and outstanding - 12,200 Common shares authorized (par value $0.01 per share) 30,000,000 30,000,000 Common shares outstanding Common shares issued 8,553,292 8,596,241 4,154,377 4,191,067 13 CONSOLIDATED STATEMENTS OF INCOME NICOLET BANKSHARES, INC. AND SUBSIDIARIES (Years Ended December 31, 2016 and 2015) (In thousands, except share and per share data) 2016 2015 2016 2015 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 Notes payable Junior subordinated debentures Subordinated notes 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 Mortgage income, net Trust services fee income Brokerage fee income Bank owned life insurance Rent income Investment advisory fees Gain on sale or writedown of assets, net Other income Total noninterest income $ 69,425 $ 45,638 3,029 1,686 1,327 75,467 2,385 2,759 239 1,315 636 7,334 68,133 1,800 66,333 3,571 5,494 5,435 3,624 1,284 1,090 452 54 5,670 26,674 1,460 1,056 443 48,597 2,260 2,930 648 881 494 7,213 41,384 1,800 39,584 2,348 3,258 4,822 670 996 1,156 408 1,726 2,324 17,708 Noninterest expense: Personnel Occupancy, equipment and office Business development and marketing Data processing FDIC assessments Intangibles amortization Other expense Total noninterest expense Income before income tax expense Income tax expense Net income Less: Net income attributable to noncontrolling interest 34,030 10,276 3,488 6,370 911 3,458 6,409 64,942 28,065 9,371 18,694 232 Net income attributable to Nicolet Bankshares, Inc. 18,462 Less: Preferred stock dividends and discount accretion 633 22,523 6,928 2,244 3,565 615 1,027 2,746 39,648 17,644 6,089 11,555 127 11,428 212 Net income available to common shareholders $ 17,829 $ 11,216 Basic earnings per common share $ 2.49 $ 2.80 Diluted earnings per common share $ 2.37 $ 2.57 Weighted average common shares outstanding: Basic Diluted 7,158,367 4,003,988 7,513,971 4,362,213 15 CONSOLIDATED STATEMENTS OF INCOME NICOLET BANKSHARES, INC. AND SUBSIDIARIES (Years Ended December 31, 2016 and 2015) (In thousands, except share and per share data) 2016 2015 2016 2015 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 Notes payable Junior subordinated debentures Subordinated notes 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 Mortgage income, net Trust services fee income Brokerage fee income Bank owned life insurance Rent income Investment advisory fees Gain on sale or writedown of assets, net Other income Total noninterest income $ 69,425 $ 45,638 3,029 1,686 1,327 75,467 2,385 2,759 239 1,315 636 7,334 68,133 1,800 66,333 3,571 5,494 5,435 3,624 1,284 1,090 452 54 5,670 26,674 1,460 1,056 443 48,597 2,260 2,930 648 881 494 7,213 41,384 1,800 39,584 2,348 3,258 4,822 670 996 1,156 408 1,726 2,324 17,708 Noninterest expense: Personnel Occupancy, equipment and office Business development and marketing Data processing FDIC assessments Intangibles amortization Other expense Total noninterest expense Income before income tax expense Income tax expense Net income Less: Net income attributable to noncontrolling interest 34,030 10,276 3,488 6,370 911 3,458 6,409 64,942 28,065 9,371 18,694 232 Net income attributable to Nicolet Bankshares, Inc. 18,462 Less: Preferred stock dividends and discount accretion 633 22,523 6,928 2,244 3,565 615 1,027 2,746 39,648 17,644 6,089 11,555 127 11,428 212 Net income available to common shareholders $ 17,829 $ 11,216 Basic earnings per common share $ 2.49 $ 2.80 Diluted earnings per common share $ 2.37 $ 2.57 Weighted average common shares outstanding: Basic Diluted 7,158,367 4,003,988 7,513,971 4,362,213 15 SHAREHOLDER INFORMATION Annual Meeting Shareholders’ Meeting – Tuesday, May 9, 2017. (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: 800.962.4284 Outside the US: 781.575.3120 Fax: 312.604.2312 N I C O L E T B A N K O F F I C E L O C AT I O N S SHAREHOLDER INFORMATION Annual Meeting Shareholders’ Meeting – Tuesday, May 9, 2017. (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: 800.962.4284 Outside the US: 781.575.3120 Fax: 312.604.2312 N I C O L E T B A N K O F F I C E L O C AT I O N S 2 0 1 6 A n n u a l R e p o r t 2 0 1 6 A n n u a l R e p o r t 111 N. Washington Street / P.O. Box 23900 / Green Bay, WI 54305 -3900 920-430-1400 / 1 -800-369-0226 ww w.n icoletban k.c om Forward-looking Statements 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. 

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