Nicolet Bankshares Inc.
Annual Report 2017

Plain-text annual report

S H A R E D S U C C E S S S H A R E D S U C C E S S The concept of shared success is a big part of the foundation of Nicolet Bankshares, Inc. Our value to the community and to each other is balancing the success between customers, shareholders, and employees. The shared success we intentionally create and grow with our 3 Circles is real. It is seen in our results for 2017 and felt in the communities that we serve. We believe, as the banking industry consolidates and gets more competitive, that the interconnectedness between our 3 Circles is the one thing that very few companies can replicate. There is beauty in its simplicity. There is challenge in its execution. The shared success of our 3 Circles is the reason we have been able to weather storms and forge bold strategies in the past. It is the reason we are optimistic about our future. It is, by definition, what a great community bank should be. This photo was taken in the building that was the home of Algoma Hardwoods. The previous owner, Wendell Ellsworth, was a founding director of Nicolet. The company was one of our early customers. Wendell and the employees who worked here were a part of the early shared success of Nicolet. 3 D E A R S H A R E H O L D E R S 2017 was a great year no matter how you slice it. Net income was $33.1 million for 2017, 80% higher than 2016. Earnings per diluted common share were $3.33, 40% higher than last year. Return on average assets was 1.25%, compared to 0.95% for 2016. Nicolet reached $2.9 billion in assets, $2.1 billion in loans (33% higher than 2017 2012 Increase Approximate Multiple Year-end assets ($millions) $2,932 $745 $2,187 Year-end common equity ($millions) $364 $53 $311 Year-end outstanding shares (thousands) 9,818 3,425 6,393 4 times 7 times 3 times Net income ($millions) $33 $3 $30 Over tenfold Earnings per diluted common share $3.33 $0.53 $2.80 Return on average assets 1.25% 0.45% 0.80% Year-end closing stock price $54.74 $16.50 $38.24 6 times 3 times 3 times 2 times year-end 2016, with 11% organic and the remainder from acquisition), and $2.5 KBW Bank Index 230 100 billion in deposits (25% higher than year-end 2016, with 6% organic). Effective execution and integration of our recent acquisitions, as well as organic growth, revenue growth, and effective cost management have all been meaningful contributors to this exceptional performance. Asset quality remained strong. These results are directly attributable to our focus on customer service, employee attitude, and long-term values — our 3 Circles. The main goal of this letter is to help you understand where we have been, particularly in the last five years, so that you can develop a feel for the trajectory we are on. We have aggressive expectations that we are managing toward, and we understand how we intend to achieve them. We invite you also to study what we are saying about today, our outlook, and draw your own conclusions about the future of your ownership in Nicolet. Prior to writing this letter, we reviewed past annual reports, to track what we wrote about and how it since turned out. We have had a remarkable record of delivering on what we said. While we are surrounded by numbers and love numbers, we live on our core values and mission—the knowledge that we exist to serve our customers and the communities they live in. We do this with efficiency, discipline, and heart. Our purpose remains constant, our strategies and tactics revolve around living our values in the current circumstances, and this consistency produces results. This is a very opportune time to look back at how our Bank has changed in the last five years. Some people like to look at math while others prefer interpretative prose. The following table summarizes the math. Our Bank has really emerged as a high performance company with a strong share price. The industry recovered nicely during this five-year period. While the timing of our aggressive growth was good, we didn’t just ride the industry tide. The KBW bank index doubled over the five-year period, while the growth in our share price more than tripled. Why did it work so well? We create shared success. Every Nicolet employee is constantly exposed to the 3 Circles shown on the front cover. The different circles acknowledge that the interests of shareholders, customers, and employees can be divergent. The overlapped space in the center depicts our relentless drive to grow the space of shared success. We approach customer relationships and mergers with the same mindset. We are looking to create a fair win, and we are looking for people who understand what fair means. That is why we do the fair deal that can be done rather than the perfect deal that doesn’t happen. Negotiation for us is not a competitive sport. It is the process by which we seek to create shared success. 5 We were willing to act during a period when action felt risky. We nearly We are effective at growth and it pays. Finding ways to work more effectively and quadrupled our asset size (organically and through acquisitions), projecting our brand efficiently is a low-risk way to improve customer experience, shareholder return, and value proposition into new communities and deeper into existing markets. and employee motivation and satisfaction. Finally, we will invest for sustainability— This broader scope and depth strengthened our earning power. Net income increased this includes product and delivery enhancements, pricing, technology, succession more than tenfold, which in turn dramatically improved our return on average sequencing, and additional investment in our people. At the end of 2017, a discretionary assets (ROA) to 1.25% in 2017. $0.5 million profit sharing contribution was made to non-leadership, eligible participants of the 401k plan, rewarding the job well done. An employee stock purchase plan was We were disciplined about capital. Growth requires capital but growth for the sake developed in 2017 and taken to shareholders in 2018 to provide a deeper ownership of growth is often destructive of shareholder value. We have grown in a capital opportunity within Nicolet. Equity ownership meaningfully aligns shareholder efficient manner. All our acquisitions were accretive to earnings per share. Our stock interests with company strategy. In 2017, 0.9 million options with 5-year vesting price (the primary consideration used) was relatively strong at the time of each were granted to nearly 40 selected leaders, underscoring both their opportunity and merger, often leading to fewer shares being issued. Our common equity grew nearly responsibility to deliver results on a sustainable basis. The use of episodic option grants seven times over the five-year period, while outstanding shares increased by less on the front end of performance periods is consistent with option grants authorized than three times. This was largely due to just-in-time capital—that is, shareholders in the past and with Nicolet’s entrepreneurial culture. Some call this dilution. We view of acquired banks accepting our stock for theirs. This may have been a leap of faith it as the engine for future value. on their part, but we have consistently produced a solid return to them and our legacy shareholders. Investing in communities who are now literally invested in our What else influences our future plans? stock is a win-win because it keeps those new communities, shareholders, and Yesterday’s recipe cannot simply be repeated tomorrow because the industry context customers aligned with the continued success of Nicolet. Our board, employees, and has changed dramatically. The industry is really at an inflection point. Acquisition prior board members continue to have a substantial ownership in Nicolet. This keeps prices have increased (fortunately our share price has risen faster). Competition for us mindful of how profitability, share management, and short- and long-term quality loans is fierce. Interest rates are rising, perhaps more quickly on deposits decisions impact our share price. We have very high expectations for our future than on loans. After a long and tepid economic recovery, we are finally seeing wages value, which keeps us disciplined about issuing new shares. and salaries rise. The following themes formed the framework for our strategy In 2012 the road map seemed crystal clear—gain scale and profits by buying other 1. General economic outlook. The fusion of politics and economics seems to institutions that had strong core funding but struggled with other issues (such as grow consistently more complete. We need to run and grow our businesses in loan quality, succession, or compliance). We followed that road map to the destination the knowledge that national and global currents have a stronger and more you see today. We gained efficiency, increased profits by tackling loan problems of immediate impact than in earlier decades. With the November 2016 election and the acquired institutions, and lowered our funding cost on a more stable, granular the December 2017 passage of tax reform, the long, slow recovery from the 2008 articulated above: deposit base along the way. So what’s next? systemic shock has given way to more rapid growth. The corporate tax rate cut will stimulate investment and growth, but rising concerns about deficits and inflation have sound foundation. The potential for major political instability Having finished the 2012 plan, we are now setting a new one. Our course for nationally and internationally is also a legitimate concern in the publics’ mind. the future includes maturing into a consistent high performer. This includes a What we see in the moment is strong performance by our commercial customers continued willingness to act with an urgent desire to get things done. Over the next and more aggressive attitude toward investment in plant and equipment as well five years we will prioritize organic growth across our markets and all revenue lines, as strong acquisition activity. With very tight labor markets and a 100% especially wealth management, as well as prioritize targeted acquisition opportunities. deductibility of equipment purchases, the case for automation is compelling. The rise in labor costs cuts both ways. It increases business cost but supports 4. Technology. Mobile banking and online banking are ways technology is already the kind of broad base prosperity that healthy communities depend on. While we improving efficiency and access for our customers and for the Bank. The advantages ride this wave of prosperity, it is important for bankers and their customers to technology offers also bring risk. Cyber risk is particularly acute for banks for remember how quickly underlying weaknesses can turn markets. Recession is the simple reason that we have both valuable information and actual money. too polite a word to describe the systemic shocks of the 2007 to 2011 period. There are also non-bank technology companies seeking to either partner with There are clear systemic weaknesses below the surface of current prosperity. We or bypass traditional banking space. Not all tech that glitters is gold, but we don’t live as killjoys, but we remember well how important it was for us to must stay on the lookout for ways to improve the customer experience. prepare for and work through the last economic setback. We plan on being there for our customers for the next round of problems. We are experiencing strong loan The core of our shareholder base consists of people who live in the communities we growth through real relationships and the strong regional brand we have earned serve. Our original shareholders invested $10 per share in 2000 when we started. for being “aggressively prudent” in support of our customers and community. For many of these shareholders, we are their major investment and their best investment. These investors are typically great customers and great brand advocates. When we 2. Banking Industry Landscape. Nicolet is one of the rare institutions that was raised the capital to start, we quickly learned that people who asked about our exit able to turn the financial crisis into a profitable growth opportunity. The deep strategy didn’t invest. We came right out and told people we don’t have an exit loan quality crisis has passed and along with it the opportunity to make money strategy. We were explicit that we weren’t starting the business to sell it; we were fixing loan problems. We don’t look forward to the next recession, but we have starting it because we thought it was needed and important. Today we are one of demonstrated the ability to harvest counter-cyclical opportunity. Banks continue Wisconsin’s larger public companies, and we have sufficient liquidity that people to consolidate at a rapid pace due to the need for great efficiency and often can readily exit if they wish. When people ask about our exit strategy now, our due to the lack of management depth and succession. Acquisitions often model answer really hasn’t changed. We understand that performance is required for 20% to 50% cost savings for a reason. Size also gives banks the ability to sustainability. We think our Company is as necessary as it was when founded in maintain investments in technology and in talent development. Loan charge offs 2000 and far more impactful. We continue to make the kind of long-term decisions are down industry-wide, but many small banks are struggling to generate the and investments that built our Company. Having a long-term perspective and the profitability necessary to warrant continued independence. We expect continued discipline to maintain it provides real advantages in tactical execution. The right opportunity for growth through acquisition. The underlying trend is not abating, ideas do not grow old, but people do. We actually have a relatively young senior but more turbulent times provide urgency. team, but long term planning requires real investment of money, time and heart in the people needed to carry on the mission. The kind of market talent we need cannot 3. Tax Reform. Tax reform is stimulating investment by our customers. Lower simply be bought off the shelf. Through our initial years our attraction of veteran corporate tax rates also reduce the amount of tax our Company will pay. This has talent carried us far. Today we are raising leaders within our culture. We built our created some confusion about income statement benchmarks. In the past an ROA Company using option equity to incentivize our people. We needed entrepreneurial of 1% had been the benchmark for a solid bank, and 1.25% for the high-performing leadership thinking as owners. This has worked tremendously well, and we continue bank. Before tax reform, we established the long-term goal of becoming a to use ownership to keep people focused on our vision for the future. consistent high-performing bank; post-tax reform the ROA benchmark will rise. Given that the basic premise of tax reform was to stimulate wages and investment, As always, we appreciate your banking with us and your trust in us with your it is unknown how much of the tax savings will go directly to the shareholder. investment. In our constant effort to improve both, we also invite you to share your Regardless of where the new ROA settles, we are starting this goal from a very ideas and thoughts at any time. strong core base, and hold ourselves to get to the top performing tier. But we also know and appreciate that the last 10 to 15 basis points of ROA will be the hardest to harness, especially while continuing to invest in our long term future. Sincerely, Robert B. Atwell Michael E. Daniels 2017 was a great year no matter how you slice it. Net income was $33.1 million for 2017, 80% higher than 2016. Earnings per diluted common share were $3.33, 40% higher than last year. Return on average assets was 1.25%, compared to 0.95% for 2016. Nicolet reached $2.9 billion in assets, $2.1 billion in loans (33% higher than year-end 2016, with 11% organic and the remainder from acquisition), and $2.5 billion in deposits (25% higher than year-end 2016, with 6% organic). Effective execution and integration of our recent acquisitions, as well as organic growth, revenue growth, and effective cost management have all been meaningful contributors to this exceptional performance. Asset quality remained strong. These results are directly attributable to our focus on customer service, employee attitude, and long-term values — our 3 Circles. The main goal of this letter is to help you understand where we have been, particularly in the last five years, so that you can develop a feel for the trajectory we are on. We have aggressive expectations that we are managing toward, and we understand how we intend to achieve them. We invite you also to study what we are saying about today, our outlook, and draw your own conclusions about the future of your ownership in Nicolet. Prior to writing this letter, we reviewed past annual reports, to track what we wrote about and how it since turned out. We have had a remarkable record of delivering on what we said. While we are surrounded by numbers and love numbers, we live on our core values and mission—the knowledge that we exist to serve our customers and the communities they live in. We do this with efficiency, discipline, and heart. Our purpose remains constant, our strategies and tactics revolve around living our values in the current circumstances, and this consistency produces results. This is a very opportune time to look back at how our Bank has changed in the last five years. Some people like to look at math while others prefer interpretative prose. The following table summarizes the math. Our Bank has really emerged as a high performance company with a strong share price. The industry recovered nicely during this five-year period. While the timing of our aggressive growth was good, we didn’t just ride the industry tide. The KBW bank index doubled over the five-year period, while the growth in our share price more than tripled. Why did it work so well? We create shared success. Every Nicolet employee is constantly exposed to the 3 Circles shown on the front cover. The different circles acknowledge that the interests of shareholders, customers, and employees can be divergent. The overlapped space in the center depicts our relentless drive to grow the space of shared success. We approach customer relationships and mergers with the same mindset. We are looking to create a fair win, and we are looking for people who understand what fair means. That is why we do the fair deal that can be done rather than the perfect deal that doesn’t happen. Negotiation for us is not a competitive sport. It is the process by which we seek to create shared success. We were willing to act during a period when action felt risky. We nearly We are effective at growth and it pays. Finding ways to work more effectively and quadrupled our asset size (organically and through acquisitions), projecting our brand efficiently is a low-risk way to improve customer experience, shareholder return, and value proposition into new communities and deeper into existing markets. and employee motivation and satisfaction. Finally, we will invest for sustainability— This broader scope and depth strengthened our earning power. Net income increased this includes product and delivery enhancements, pricing, technology, succession more than tenfold, which in turn dramatically improved our return on average sequencing, and additional investment in our people. At the end of 2017, a discretionary assets (ROA) to 1.25% in 2017. $0.5 million profit sharing contribution was made to non-leadership, eligible participants of the 401k plan, rewarding the job well done. An employee stock purchase plan was We were disciplined about capital. Growth requires capital but growth for the sake developed in 2017 and taken to shareholders in 2018 to provide a deeper ownership of growth is often destructive of shareholder value. We have grown in a capital opportunity within Nicolet. Equity ownership meaningfully aligns shareholder efficient manner. All our acquisitions were accretive to earnings per share. Our stock interests with company strategy. In 2017, 0.9 million options with 5-year vesting price (the primary consideration used) was relatively strong at the time of each were granted to nearly 40 selected leaders, underscoring both their opportunity and merger, often leading to fewer shares being issued. Our common equity grew nearly responsibility to deliver results on a sustainable basis. The use of episodic option grants seven times over the five-year period, while outstanding shares increased by less on the front end of performance periods is consistent with option grants authorized than three times. This was largely due to just-in-time capital—that is, shareholders in the past and with Nicolet’s entrepreneurial culture. Some call this dilution. We view of acquired banks accepting our stock for theirs. This may have been a leap of faith it as the engine for future value. on their part, but we have consistently produced a solid return to them and our legacy shareholders. Investing in communities who are now literally invested in our What else influences our future plans? stock is a win-win because it keeps those new communities, shareholders, and Yesterday’s recipe cannot simply be repeated tomorrow because the industry context customers aligned with the continued success of Nicolet. Our board, employees, and has changed dramatically. The industry is really at an inflection point. Acquisition prior board members continue to have a substantial ownership in Nicolet. This keeps prices have increased (fortunately our share price has risen faster). Competition for us mindful of how profitability, share management, and short- and long-term quality loans is fierce. Interest rates are rising, perhaps more quickly on deposits decisions impact our share price. We have very high expectations for our future than on loans. After a long and tepid economic recovery, we are finally seeing wages value, which keeps us disciplined about issuing new shares. and salaries rise. The following themes formed the framework for our strategy In 2012 the road map seemed crystal clear—gain scale and profits by buying other 1. General economic outlook. The fusion of politics and economics seems to institutions that had strong core funding but struggled with other issues (such as grow consistently more complete. We need to run and grow our businesses in loan quality, succession, or compliance). We followed that road map to the destination the knowledge that national and global currents have a stronger and more you see today. We gained efficiency, increased profits by tackling loan problems of immediate impact than in earlier decades. With the November 2016 election and the acquired institutions, and lowered our funding cost on a more stable, granular the December 2017 passage of tax reform, the long, slow recovery from the 2008 articulated above: deposit base along the way. So what’s next? systemic shock has given way to more rapid growth. The corporate tax rate cut will stimulate investment and growth, but rising concerns about deficits and inflation have sound foundation. The potential for major political instability Having finished the 2012 plan, we are now setting a new one. Our course for nationally and internationally is also a legitimate concern in the publics’ mind. the future includes maturing into a consistent high performer. This includes a What we see in the moment is strong performance by our commercial customers continued willingness to act with an urgent desire to get things done. Over the next and more aggressive attitude toward investment in plant and equipment as well five years we will prioritize organic growth across our markets and all revenue lines, as strong acquisition activity. With very tight labor markets and a 100% especially wealth management, as well as prioritize targeted acquisition opportunities. deductibility of equipment purchases, the case for automation is compelling. 7 The rise in labor costs cuts both ways. It increases business cost but supports 4. Technology. Mobile banking and online banking are ways technology is already the kind of broad base prosperity that healthy communities depend on. While we improving efficiency and access for our customers and for the Bank. The advantages ride this wave of prosperity, it is important for bankers and their customers to technology offers also bring risk. Cyber risk is particularly acute for banks for remember how quickly underlying weaknesses can turn markets. Recession is the simple reason that we have both valuable information and actual money. too polite a word to describe the systemic shocks of the 2007 to 2011 period. There are also non-bank technology companies seeking to either partner with There are clear systemic weaknesses below the surface of current prosperity. We or bypass traditional banking space. Not all tech that glitters is gold, but we don’t live as killjoys, but we remember well how important it was for us to must stay on the lookout for ways to improve the customer experience. prepare for and work through the last economic setback. We plan on being there for our customers for the next round of problems. We are experiencing strong loan The core of our shareholder base consists of people who live in the communities we growth through real relationships and the strong regional brand we have earned serve. Our original shareholders invested $10 per share in 2000 when we started. for being “aggressively prudent” in support of our customers and community. For many of these shareholders, we are their major investment and their best investment. These investors are typically great customers and great brand advocates. When we 2. Banking Industry Landscape. Nicolet is one of the rare institutions that was raised the capital to start, we quickly learned that people who asked about our exit able to turn the financial crisis into a profitable growth opportunity. The deep strategy didn’t invest. We came right out and told people we don’t have an exit loan quality crisis has passed and along with it the opportunity to make money strategy. We were explicit that we weren’t starting the business to sell it; we were fixing loan problems. We don’t look forward to the next recession, but we have starting it because we thought it was needed and important. Today we are one of demonstrated the ability to harvest counter-cyclical opportunity. Banks continue Wisconsin’s larger public companies, and we have sufficient liquidity that people to consolidate at a rapid pace due to the need for great efficiency and often can readily exit if they wish. When people ask about our exit strategy now, our due to the lack of management depth and succession. Acquisitions often model answer really hasn’t changed. We understand that performance is required for 20% to 50% cost savings for a reason. Size also gives banks the ability to sustainability. We think our Company is as necessary as it was when founded in maintain investments in technology and in talent development. Loan charge offs 2000 and far more impactful. We continue to make the kind of long-term decisions are down industry-wide, but many small banks are struggling to generate the and investments that built our Company. Having a long-term perspective and the profitability necessary to warrant continued independence. We expect continued discipline to maintain it provides real advantages in tactical execution. The right opportunity for growth through acquisition. The underlying trend is not abating, ideas do not grow old, but people do. We actually have a relatively young senior but more turbulent times provide urgency. team, but long term planning requires real investment of money, time and heart in the people needed to carry on the mission. The kind of market talent we need cannot 3. Tax Reform. Tax reform is stimulating investment by our customers. Lower simply be bought off the shelf. Through our initial years our attraction of veteran corporate tax rates also reduce the amount of tax our Company will pay. This has talent carried us far. Today we are raising leaders within our culture. We built our created some confusion about income statement benchmarks. In the past an ROA Company using option equity to incentivize our people. We needed entrepreneurial of 1% had been the benchmark for a solid bank, and 1.25% for the high-performing leadership thinking as owners. This has worked tremendously well, and we continue bank. Before tax reform, we established the long-term goal of becoming a to use ownership to keep people focused on our vision for the future. consistent high-performing bank; post-tax reform the ROA benchmark will rise. Given that the basic premise of tax reform was to stimulate wages and investment, As always, we appreciate your banking with us and your trust in us with your it is unknown how much of the tax savings will go directly to the shareholder. investment. In our constant effort to improve both, we also invite you to share your Regardless of where the new ROA settles, we are starting this goal from a very ideas and thoughts at any time. strong core base, and hold ourselves to get to the top performing tier. But we also know and appreciate that the last 10 to 15 basis points of ROA will be the hardest to harness, especially while continuing to invest in our long term future. Sincerely, Robert B. Atwell Michael E. Daniels 2017 was a great year no matter how you slice it. Net income was $33.1 million for 2017, 80% higher than 2016. Earnings per diluted common share were $3.33, 40% higher than last year. Return on average assets was 1.25%, compared to 0.95% for 2016. Nicolet reached $2.9 billion in assets, $2.1 billion in loans (33% higher than year-end 2016, with 11% organic and the remainder from acquisition), and $2.5 billion in deposits (25% higher than year-end 2016, with 6% organic). Effective execution and integration of our recent acquisitions, as well as organic growth, revenue growth, and effective cost management have all been meaningful contributors to this exceptional performance. Asset quality remained strong. These results are directly attributable to our focus on customer service, employee attitude, and long-term values — our 3 Circles. The main goal of this letter is to help you understand where we have been, particularly in the last five years, so that you can develop a feel for the trajectory we are on. We have aggressive expectations that we are managing toward, and we understand how we intend to achieve them. We invite you also to study what we are saying about today, our outlook, and draw your own conclusions about the future of your ownership in Nicolet. Prior to writing this letter, we reviewed past annual reports, to track what we wrote about and how it since turned out. We have had a remarkable record of delivering on what we said. While we are surrounded by numbers and love numbers, we live on our core values and mission—the knowledge that we exist to serve our customers and the communities they live in. We do this with efficiency, discipline, and heart. Our purpose remains constant, our strategies and tactics revolve around living our values in the current circumstances, and this consistency produces results. This is a very opportune time to look back at how our Bank has changed in the last five years. Some people like to look at math while others prefer interpretative prose. The following table summarizes the math. Our Bank has really emerged as a high performance company with a strong share price. The industry recovered nicely during this five-year period. While the timing of our aggressive growth was good, we didn’t just ride the industry tide. The KBW bank index doubled over the five-year period, while the growth in our share price more than tripled. Why did it work so well? We create shared success. Every Nicolet employee is constantly exposed to the 3 Circles shown on the front cover. The different circles acknowledge that the interests of shareholders, customers, and employees can be divergent. The overlapped space in the center depicts our relentless drive to grow the space of shared success. We approach customer relationships and mergers with the same mindset. We are looking to create a fair win, and we are looking for people who understand what fair means. That is why we do the fair deal that can be done rather than the perfect deal that doesn’t happen. Negotiation for us is not a competitive sport. It is the process by which we seek to create shared success. We were willing to act during a period when action felt risky. We nearly We are effective at growth and it pays. Finding ways to work more effectively and quadrupled our asset size (organically and through acquisitions), projecting our brand efficiently is a low-risk way to improve customer experience, shareholder return, and value proposition into new communities and deeper into existing markets. and employee motivation and satisfaction. Finally, we will invest for sustainability— This broader scope and depth strengthened our earning power. Net income increased this includes product and delivery enhancements, pricing, technology, succession more than tenfold, which in turn dramatically improved our return on average sequencing, and additional investment in our people. At the end of 2017, a discretionary assets (ROA) to 1.25% in 2017. $0.5 million profit sharing contribution was made to non-leadership, eligible participants of the 401k plan, rewarding the job well done. An employee stock purchase plan was We were disciplined about capital. Growth requires capital but growth for the sake developed in 2017 and taken to shareholders in 2018 to provide a deeper ownership of growth is often destructive of shareholder value. We have grown in a capital opportunity within Nicolet. Equity ownership meaningfully aligns shareholder efficient manner. All our acquisitions were accretive to earnings per share. Our stock interests with company strategy. In 2017, 0.9 million options with 5-year vesting price (the primary consideration used) was relatively strong at the time of each were granted to nearly 40 selected leaders, underscoring both their opportunity and merger, often leading to fewer shares being issued. Our common equity grew nearly responsibility to deliver results on a sustainable basis. The use of episodic option grants seven times over the five-year period, while outstanding shares increased by less on the front end of performance periods is consistent with option grants authorized than three times. This was largely due to just-in-time capital—that is, shareholders in the past and with Nicolet’s entrepreneurial culture. Some call this dilution. We view of acquired banks accepting our stock for theirs. This may have been a leap of faith it as the engine for future value. on their part, but we have consistently produced a solid return to them and our legacy shareholders. Investing in communities who are now literally invested in our What else influences our future plans? stock is a win-win because it keeps those new communities, shareholders, and Yesterday’s recipe cannot simply be repeated tomorrow because the industry context customers aligned with the continued success of Nicolet. Our board, employees, and has changed dramatically. The industry is really at an inflection point. Acquisition prior board members continue to have a substantial ownership in Nicolet. This keeps prices have increased (fortunately our share price has risen faster). Competition for us mindful of how profitability, share management, and short- and long-term quality loans is fierce. Interest rates are rising, perhaps more quickly on deposits decisions impact our share price. We have very high expectations for our future than on loans. After a long and tepid economic recovery, we are finally seeing wages value, which keeps us disciplined about issuing new shares. and salaries rise. The following themes formed the framework for our strategy In 2012 the road map seemed crystal clear—gain scale and profits by buying other 1. General economic outlook. The fusion of politics and economics seems to institutions that had strong core funding but struggled with other issues (such as grow consistently more complete. We need to run and grow our businesses in loan quality, succession, or compliance). We followed that road map to the destination the knowledge that national and global currents have a stronger and more you see today. We gained efficiency, increased profits by tackling loan problems of immediate impact than in earlier decades. With the November 2016 election and the acquired institutions, and lowered our funding cost on a more stable, granular the December 2017 passage of tax reform, the long, slow recovery from the 2008 articulated above: deposit base along the way. So what’s next? systemic shock has given way to more rapid growth. The corporate tax rate cut will stimulate investment and growth, but rising concerns about deficits and inflation have sound foundation. The potential for major political instability Having finished the 2012 plan, we are now setting a new one. Our course for nationally and internationally is also a legitimate concern in the publics’ mind. the future includes maturing into a consistent high performer. This includes a What we see in the moment is strong performance by our commercial customers continued willingness to act with an urgent desire to get things done. Over the next and more aggressive attitude toward investment in plant and equipment as well five years we will prioritize organic growth across our markets and all revenue lines, as strong acquisition activity. With very tight labor markets and a 100% especially wealth management, as well as prioritize targeted acquisition opportunities. deductibility of equipment purchases, the case for automation is compelling. The rise in labor costs cuts both ways. It increases business cost but supports 4. Technology. Mobile banking and online banking are ways technology is already the kind of broad base prosperity that healthy communities depend on. While we improving efficiency and access for our customers and for the Bank. The advantages ride this wave of prosperity, it is important for bankers and their customers to technology offers also bring risk. Cyber risk is particularly acute for banks for remember how quickly underlying weaknesses can turn markets. Recession is the simple reason that we have both valuable information and actual money. too polite a word to describe the systemic shocks of the 2007 to 2011 period. There are also non-bank technology companies seeking to either partner with There are clear systemic weaknesses below the surface of current prosperity. We or bypass traditional banking space. Not all tech that glitters is gold, but we don’t live as killjoys, but we remember well how important it was for us to must stay on the lookout for ways to improve the customer experience. prepare for and work through the last economic setback. We plan on being there for our customers for the next round of problems. We are experiencing strong loan The core of our shareholder base consists of people who live in the communities we growth through real relationships and the strong regional brand we have earned serve. Our original shareholders invested $10 per share in 2000 when we started. for being “aggressively prudent” in support of our customers and community. For many of these shareholders, we are their major investment and their best investment. These investors are typically great customers and great brand advocates. When we 2. Banking Industry Landscape. Nicolet is one of the rare institutions that was raised the capital to start, we quickly learned that people who asked about our exit able to turn the financial crisis into a profitable growth opportunity. The deep strategy didn’t invest. We came right out and told people we don’t have an exit loan quality crisis has passed and along with it the opportunity to make money strategy. We were explicit that we weren’t starting the business to sell it; we were fixing loan problems. We don’t look forward to the next recession, but we have starting it because we thought it was needed and important. Today we are one of demonstrated the ability to harvest counter-cyclical opportunity. Banks continue Wisconsin’s larger public companies, and we have sufficient liquidity that people to consolidate at a rapid pace due to the need for great efficiency and often can readily exit if they wish. When people ask about our exit strategy now, our due to the lack of management depth and succession. Acquisitions often model answer really hasn’t changed. We understand that performance is required for 20% to 50% cost savings for a reason. Size also gives banks the ability to sustainability. We think our Company is as necessary as it was when founded in maintain investments in technology and in talent development. Loan charge offs 2000 and far more impactful. We continue to make the kind of long-term decisions are down industry-wide, but many small banks are struggling to generate the and investments that built our Company. Having a long-term perspective and the profitability necessary to warrant continued independence. We expect continued discipline to maintain it provides real advantages in tactical execution. The right opportunity for growth through acquisition. The underlying trend is not abating, ideas do not grow old, but people do. We actually have a relatively young senior but more turbulent times provide urgency. team, but long term planning requires real investment of money, time and heart in the people needed to carry on the mission. The kind of market talent we need cannot 3. Tax Reform. Tax reform is stimulating investment by our customers. Lower simply be bought off the shelf. Through our initial years our attraction of veteran corporate tax rates also reduce the amount of tax our Company will pay. This has talent carried us far. Today we are raising leaders within our culture. We built our created some confusion about income statement benchmarks. In the past an ROA Company using option equity to incentivize our people. We needed entrepreneurial of 1% had been the benchmark for a solid bank, and 1.25% for the high-performing leadership thinking as owners. This has worked tremendously well, and we continue bank. Before tax reform, we established the long-term goal of becoming a to use ownership to keep people focused on our vision for the future. consistent high-performing bank; post-tax reform the ROA benchmark will rise. Given that the basic premise of tax reform was to stimulate wages and investment, As always, we appreciate your banking with us and your trust in us with your it is unknown how much of the tax savings will go directly to the shareholder. investment. In our constant effort to improve both, we also invite you to share your Regardless of where the new ROA settles, we are starting this goal from a very ideas and thoughts at any time. strong core base, and hold ourselves to get to the top performing tier. But we also know and appreciate that the last 10 to 15 basis points of ROA will be the hardest to harness, especially while continuing to invest in our long term future. Sincerely, Robert B. Atwell Michael E. Daniels 9 B O A R D O F D I R E C T O R S N I C O L E T B A N K S H A R E S , I N C . O F F I C E R S 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 Robert Atwell Chairman, President and Chief Executive Officer Michael Daniels Executive Vice President and Secretary Ann K. Lawson Chief Financial Officer John Dykema President and Owner, Campbell Wrapper Corp and Circle Packaging Machinery, Inc. Terrence Fulwiler Retired CEO, WS Packaging Group Chris Ghidorzi Vice President, Ghidorzi Companies N I CO L E T N AT I O N A L B A N K E X E C U T I V E O F F I C E R S Michael Gilson Retired Executive Vice President, Nicolet National Bank Thomas Herlache Retired Chairman, President and Chief Executive Officer, Baylake Corp. Louis J. “Rick” Jeanquart Chairman of the Board, Just In Time Corporation Donald Long, Jr. Former Owner and CEO, Century Drill and Tool Co., Inc. Dustin McClone Executive Vice President McClone Insurance Group Susan Merkatoris Certified Public Accountant, Owner and Managing Member, Larboard Enterprises, LLC Robert Atwell Chairman Michael Daniels President and Chief Executive Officer Brad Hutjens Executive Vice President Chief Credit Officer, Chief Compliance and Risk Manager Ann Lawson Chief Financial Officer Patrick Madson Senior Vice President Wealth Management Michael Steppe Senior Vice President Chief Investment Officer Michael Vogel Senior Vice President Commercial Banking Manager Eric Witczak Executive Vice President Randy Rose Retired President and CEO, Schwabe North America Oliver “Pierce” Smith Director of Real Estate & Acquisitions, Menasha Packaging Company Robert Weyers Owner, Commercial Horizons, Inc. 11 F I N A N C I A L S ACCO U N TA N T ’ S L E T T E R Nicolet Bankshares, Inc. (In thousands, except per share data) At and for the Years Ended December 31, 2016 % Change Condensed Consolidated Statements of Income Interest income $ 109,253 $ 75,467 2017 45% Interest expense Net interest income Provision for loan losses Noninterest income Noninterest expense Income before income tax expense Income tax expense Net income Net income attributable to noncontrolling interest 10,511 98,742 2,325 34,639 81,356 49,700 16,267 33,433 283 7,334 68,133 1,800 26,674 64,942 28,065 9,371 18,694 232 Net income attributable to Nicolet Bankshares, Inc. 33,150 18,462 43% 45% 29% 30% 25% 77% 74% 79% 22% 80% Preferred stock dividends – 633 -100% Net income available to common shareholders $ 33,150 $ 17,829 86% Basic earnings per common share Diluted earnings per common share $ 3.51 $ 2.49 $ 3.33 $ 2.37 Basic weighted average common shares Diluted weighted average common shares Outstanding common shares 9,440 9,958 9,818 7,158 7,514 8,553 Condensed Consolidated Balance Sheets Cash and cash equivalents Securities available for sale Loans Allowance for loan losses Goodwill and other intangibles All other assets Total assets Deposits Other liabilities Nicolet Bankshares, Inc. common equity $ 154,933 $ 129,103 405,153 365,287 2,087,925 1,568,907 (12,653) (11,820) 128,406 168,669 87,938 161,464 $ 2,932,433 $ 2,300,879 $2,471,064 $ 1,969,986 96,490 54,528 364,178 275,947 Noncontrolling interest 418 Total liabilities, noncontrolling interest and stockholders' equity $ 2,932,433 $ 2,300,879 701 41% 41% 32% 33% 15% 20% 11% 33% 7% 46% 4% 27% 25% 77% 32% 68% 27% REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of Nicolet Bankshares, Inc. 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, 2017 and 2016, 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, 2017 (not presented herein); and in our report, dated March 7, 2018, 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 7, 2018 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 13 GROWING SHARED SUCCESS CUSTOMERS EMPLOYEES SHAREHOLDERS 18,400 Loan Accounts in 2017 vs. 3,000 in 2012 560 Employees in 2017 vs. 160 in 2012 1.25% ROA in 2017 vs. 0.45% in 2012 119,200 Deposit Accounts in 2017 vs. 21,400 in 2012 $735,000 Donation Expense in 2017 vs. $300,000 in 2012 57,000 Mobile & Internet Users in 2017 vs. 7,000 in 2012 $230,000 additional community giving through Nicolet Foundation in 2017 vs. $46,000 in 2012 $33 million earnings and $3.33 EPS in 2017 vs. $3 million and $0.53 in 2012 2,250 shareholders in 2017 vs. 260 in 2012 15 S H A R E H O L D E R I N F O R M AT I O N Annual Meeting Shareholders’ Meeting – Tuesday, May 8, 2018 (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 C/O Shareholder Services P.O. Box 505002 / Louisville, KY 40233-5002 Overnight Delivery Computershare C/O Shareholder Services 462 South 4th Street / Suite 1600 / Louisville, KY 40202 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 

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