Nicolet Bankshares Inc.
Annual Report 2019

Plain-text annual report

www.nic oletbank.com 111 N. Washington Street / P.O. Box 23900 / Green Bay, WI 54305 -3900 920-430-1400 / 1 -800-369-0226 2019 Annual Report 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 Nicolet’s most recent Form 10-K and subsequent SEC filings. We know our purpose at Nicolet is to SERVE. Our core values guide our actions. 3 Mike & Bob D E A R S H A R E H O L D E R S If it were all about the numbers, this annual letter to shareholders would be easy to write. Over the years, you have given us feedback that you appreciate our efforts to describe the meaning of the numbers. 2019’s outstanding financial results are the fruit of our deep commitment to the core ideas that have guided Nicolet since its inception in 2000. Whether in commercial banking, retail banking, mortgage lending, wealth management, or our success at buying and integrating community banks, we know our craft exceptionally well. In our 20 years of working at this mission together, we have learned from our successes and even more from our stumbles. At the heart of Nicolet lies a passionate commitment to the people and communities we serve. The result of that commitment is the shareholder return you have enjoyed. We are not trying to balance competing interests, rather, we are growing an integrated network of people who have learned to believe in each other and work cooperatively toward shared success. We have very aggressive financial performance expectations, but we never confuse the intended result for the purpose. We expect our people to be outstanding professionals. They have to understand what it means to invest themselves in their colleagues and their customers. The “why” drives the “how” and the “what.” THE NUMBERS Investors can clearly see how our stock price has out-performed the broad market and banking indices over the last year, the last five years, and the last 20 years. The fact that we now have a liquid currency that trades at a premium valuation to peers is of enormous strategic importance. This is also advantageous to our shareholders who wish to realize the value they hold. A premium share price is a major reason superior performance in earnings, quality, and growth. These core fundamentals are augmented by our proven ability to acquire and quickly integrate other community banks. Our three main banking business lines are commercial banking, retail banking, and wealth management. They are strong, profitable, and growing. Our acquisition business line has strengthened our deposit funding, added relevant scale, and made us a lot of money over the last 10 years. 2019 numbers are outstanding from any perspective. Net income of $54.6 million represents a 33% increase over 2018. EPS of $5.52 represents an increase of 34% over 2018. Our year-end share price soared over 50% over the prior year-end. Our asset quality continued its long-term position as among the best in the industry. Organic growth generally exceeds the growth in our region. We acquired Choice Bank in November, adding a further 12% to our then pre-merger assets. We have demonstrated rapid growth, consistent quality, and exceptional profitability. Historical results tell a powerful story, but investors don’t so much own the past as they buy or choose to hold a piece of the future. Here are some key points about past numbers that give insight into our future. 5 1. Earnings – In our planning, we sift out the major unusual events from past performance. In the second quarter of 2019, we realized a large gain on the sale of 80% of our interest in UFS, a regional core system processor. Together with some discretionary compensation measures, this sale netted a $5.4 million gain in earnings, representing $0.55 per share. Removing this net gain, 2019 EPS would still have been 21% stronger than 2018 EPS of $4.12. EPS is really the best measure of earnings applicable to each shareholder. EPS captures whether management is actually growing net income in a manner that enhances shareholder return, or just growing assets for the sake of growth. Industry benchmarks such as return on average assets (“ROA”) and return on average tangible common equity (“ROTCE”) are relevant and ours are why we can do so well with our strategy of buying other community banks. However, strong, but EPS is the most meaningful to you. our growth and size have changed the way our stock price moves and made it much more reflective of national and international market movements. The vast majority of our shareholders are long term holders who live within our community footprint. The momentary share price is largely established by the transient buyers and sellers who come and go from our ownership structure for reasons that may have little to do with the fundamentals of our business. We focus on the main areas that really drive the value of your investment. Our consistent premium price is driven by our 2. Quality – The most significant risk indicators for a bank shareholder are the nonperforming asset ratio and the net charge-off percentage. Our ratios have been consistently below peer average for many years, and remained so in 2019, at 0.42% and 0.02%, respectively. Under the current leadership, the bank underwent a significant stress test during 2008 through 2011, the toughest seen in our industry in over 90 years. During those years, Nicolet stayed profitable, grew loans and deposits, and emerged poised to complete six acquisitions through year-end 2019 and announce to them at a discount to intrinsic value. Most boards focus too much on “initial deal two more so far in 2020. Annual earnings matter and ours are exceptional, but the price” rather than the quality of the stock currency they are buying. We are increasingly drivers of long-term value are the quality of those earnings and the ability to stay focused on potential sellers who really grasp the importance of both. strong in tough times. 3. Growth – After a very rapid organic growth rate during our launching years, we have RISK MANAGEMENT settled into a very steady, quality growth rate that exceeds the economic growth of our region. We consistently take quality market share in a moderate growth state, Many customers and shareholders are uneasy about the many elements of risk. A strong and have also gained market share in those markets we entered through acquisition. bank understands and manages its own risk but is not paralyzed by fear. A great bank Our earnings today are benefitting greatly from the particularly strong focus we helps its customers understand, evaluate, and manage their risks. The risk we most have put on core deposit growth. We were investing in core deposit growth at a time immediately control is credit risk, which is the risk embedded in our lending activities. when there was no visible motivation to do so. Further, our strength and profitability Our leadership team weathered the systemic shock of a decade ago and emerged in mortgage banking and wealth management have given us revenue diversity and have stronger for the test. We dealt with our toughest problems quickly and effectively, broadened the customer experience. Most community banks struggle to make money while challenging and supporting our customers and adding new ones. We don’t want on these non-interest revenue sources because they lack scale or over-incentivize another recession, but the last one seasoned our bankers, strengthened our brand, production to the exclusion of margin. In both of these business lines, we have and launched our highly effective and profitable growth. engineered real value for our customers and real margin for our shareholders. 4. Acquisitions – Between 2013 and the end of 2019, we averaged nearly one acquisition the global supply chain. We are writing to you as the nation and the world wrestle per year. Each acquisition has exceeded our expectations and added to our share with our vulnerability to the coronavirus. Of course the main impact is on the value. Our stock has consistently traded at a premium to current earnings primarily people who contract the virus, but the secondary effects on the global and domestic because our actual earnings have consistently exceeded expectations. From a stock economies are rattling through financial markets. There are many reasons to think about recession, political turmoil and the fragility of analyst’s perspective, we trade at a modest premium based on current and expected earnings. From management’s perspective, we are always undervalued relative to our There are also industry dynamics that pose a particular risk to community banks. future, because it is management’s job to see the future better and bring it to reality. The largest banks continue to enjoy a substantial subsidy due to the nature of Thus far, management’s higher expectations of ourselves have been more accurate. regulatory policy. The largest banks such as Chase, Bank of America, and Wells Fargo They are supposed to be. Analysts identify us as one of the most potent acquirers in have also greatly improved their digital platforms and are visibly moving market the Upper Great Lakes region because of our premium stock price and historical share away from our sector. Non-bank players such as Apple, Amazon, and Google ability to close and quickly integrate our past deals. Management approaches each are also attempting to capture bank deposits and payment flows, while side-stepping deal knowing we are generally undervalued and that we will execute. The result is potential regulatory oversight. These challenges are very real. We continue to invest that the shareholders of banks who have sold to us for stock have made more in improving our customers’ digital experience and relentlessly search for ways we premium by holding the stock after the deal than the premium realized in the deal. can harness technology to drive internal efficiency. Nevertheless, our deals have been substantially accretive to EPS, have improved our scale, and have quietly strengthened our core deposit base. We have consistently A healthy development for our communities is the consistently tight job market. chosen the good deal that can be closed rather than the perfect deal that doesn’t Smart businesses are not trying to drive down labor costs. They are embracing the happen. As we mature our acquisition business line, we will continue to be selective challenge to help people work more effectively, add greater value to customers, toward those sellers who understand that our premium currency is actually available and earn more money. A great example of this is our on-line mortgage origination platform TAP (Technology and People). We are in the middle of a mortgage boom and funding strategy, broaden product offerings, integrate culture, and add market share we can hardly hire enough qualified people to meet the demand. We could offer less through execution on real relationships. We have followed Commerce and its leadership attractive mortgage pricing and manage volume down to our capacity. Instead, we are since they founded the bank in 2005, and we have talked many times in the intervening using TAP to improve the customer experience, drive the volume with internal years. They have done a very nice job establishing a quality franchise in great markets. efficiency, and further strengthen our leading market share in our core markets. It is refreshing to work with a team of people who know what it is like to build a Our leading competitors are not the banks or credit unions next door. Quicken Loans good bank from scratch. is a present and growing competitive threat. We don’t know how these economic, political, public health, industry, and environmental central Wisconsin. This is a conservative, well-run, $150 million bank that both risks will ultimately impact our customers. We do know that Nicolet faces these fills in existing geography and strengthens our presence in the Wausau market. challenges with strong capital, exceptionally strong earnings, best in class credit Combined with the recent hiring of three seasoned lenders in Wausau, which we risk management, and a great track record of finding opportunity under stress. announced in January 2020, the stage is set for us to grow further in the central part Being strong in all these areas is foundational to how we serve our customers while of the state. In March 2020, we announced the acquisition of Advantage Community Bank in We have publicly communicated our vision of a $6 billion, highly profitable, regional passionate about meeting customer needs, strengthening our communities, community banking powerhouse. We are well on our way toward achieving that in and helping those around them grow and win. This is how we will safeguard and the next year or two. We have recently announced two acquisitions expected to close grow your investment. For the remainder of 2020, we expect challenging market conditions, but we have never been more excited about the future. We know that talent development is the heart of our strategy. We have to have the depth and breadth of talent to capture the opportunities before us. This isn’t just about having smart, driven people. We need people who can enter into the heart of our mission. We must have people who are profitably expanding our footprint through organic growth and through acquiring other banks. WHAT’S NEXT? in the third quarter of 2020. Both acquisitions should be immediately accretive to EPS, and we expect to stand at nearly $4.5 billion by year-end 2020. We continue to talk with and evaluate other acquisition opportunities. In February 2020, we announced the acquisition of Commerce State Bank, a $700 million commercial bank headquartered in West Bend, Wisconsin. The heart of the Commerce franchise is in the smaller urban markets of West Bend, Cedarburg, and Sheboygan, which are both similar, and adjacent, to the markets we currently serve around Lake Winnebago and Lake Michigan. The locations also provide a foothold into the northern and western portions of the Milwaukee metro market. Over the years, we have frequently been asked about our interest in the Madison and Milwaukee metro markets. Our consistent answer remains that we want to be in places where we have a pathway to the lead local market position. Commerce gives us that pathway in three of the four most prosperous counties in Wisconsin. The immediate task is the same as in our prior acquisitions. We will add efficiency, strengthen the Robert B. Atwell Michael E. Daniels If it were all about the numbers, this annual letter to shareholders would be easy to write. Over the years, you have given us feedback that you appreciate our efforts to describe the meaning of the numbers. 2019’s outstanding financial results are the fruit of our deep commitment to the core ideas that have guided Nicolet since its inception in 2000. Whether in commercial banking, retail banking, mortgage lending, wealth management, or our success at buying and integrating community banks, we know our craft exceptionally well. In our 20 years of working at this mission together, we have learned from our successes and even more from our stumbles. At the heart of Nicolet lies a passionate commitment to the people and communities we serve. The result of that commitment is the shareholder return you have enjoyed. We are not trying to balance competing interests, rather, we are growing an integrated network of people who have learned to believe in each other and work cooperatively toward shared success. We have very aggressive financial performance expectations, but we never confuse the intended result for the purpose. We expect our people to be outstanding professionals. They have to understand what it means to invest themselves in their colleagues and their customers. The “why” drives the “how” and the “what.” THE NUMBERS Investors can clearly see how our stock price has out-performed the broad market and banking indices over the last year, the last five years, and the last 20 years. The fact that we now have a liquid currency that trades at a premium valuation to peers is of enormous strategic importance. This is also advantageous to our shareholders who wish to realize the value they hold. A premium share price is a major reason our growth and size have changed the way our stock price moves and made it much more reflective of national and international market movements. The vast majority of our shareholders are long term holders who live within our community footprint. The momentary share price is largely established by the transient buyers and sellers who come and go from our ownership structure for reasons that may have little to do with the fundamentals of our business. We focus on the main areas that really drive the value of your investment. Our consistent premium price is driven by our superior performance in earnings, quality, and growth. These core fundamentals are augmented by our proven ability to acquire and quickly integrate other community banks. Our three main banking business lines are commercial banking, retail banking, and wealth management. They are strong, profitable, and growing. Our acquisition business line has strengthened our deposit funding, added relevant scale, and made us a lot of money over the last 10 years. 2019 numbers are outstanding from any perspective. Net income of $54.6 million represents a 33% increase over 2018. EPS of $5.52 represents an increase of 34% over 2018. Our year-end share price soared over 50% over the prior year-end. Our asset quality continued its long-term position as among the best in the industry. Organic growth generally exceeds the growth in our region. We acquired Choice Bank in November, adding a further 12% to our then pre-merger assets. We have demonstrated rapid growth, consistent quality, and exceptional profitability. Historical results tell a powerful story, but investors don’t so much own the past as they buy or choose to hold a piece of the future. Here are some key points about past numbers that give insight into our future. 1. Earnings – In our planning, we sift out the major unusual events from past performance. In the second quarter of 2019, we realized a large gain on the sale of 80% of our interest in UFS, a regional core system processor. Together with some discretionary compensation measures, this sale netted a $5.4 million gain in earnings, representing $0.55 per share. Removing this net gain, 2019 EPS would still have been 21% stronger than 2018 EPS of $4.12. EPS is really the best measure of earnings applicable to each shareholder. EPS captures whether management is actually growing net income in a manner that enhances shareholder return, or just growing assets for the sake of growth. Industry benchmarks such as return on average assets (“ROA”) and return on average tangible common equity (“ROTCE”) are relevant and ours are 2. Quality – The most significant risk indicators for a bank shareholder are the nonperforming asset ratio and the net charge-off percentage. Our ratios have been consistently below peer average for many years, and remained so in 2019, at 0.42% and 0.02%, respectively. Under the current leadership, the bank underwent a significant stress test during 2008 through 2011, the toughest seen in our industry in over 90 years. During those years, Nicolet stayed profitable, grew loans and deposits, why we can do so well with our strategy of buying other community banks. However, strong, but EPS is the most meaningful to you. and emerged poised to complete six acquisitions through year-end 2019 and announce to them at a discount to intrinsic value. Most boards focus too much on “initial deal two more so far in 2020. Annual earnings matter and ours are exceptional, but the price” rather than the quality of the stock currency they are buying. We are increasingly drivers of long-term value are the quality of those earnings and the ability to stay focused on potential sellers who really grasp the importance of both. strong in tough times. 3. Growth – After a very rapid organic growth rate during our launching years, we have RISK MANAGEMENT settled into a very steady, quality growth rate that exceeds the economic growth of our region. We consistently take quality market share in a moderate growth state, Many customers and shareholders are uneasy about the many elements of risk. A strong and have also gained market share in those markets we entered through acquisition. bank understands and manages its own risk but is not paralyzed by fear. A great bank Our earnings today are benefitting greatly from the particularly strong focus we helps its customers understand, evaluate, and manage their risks. The risk we most have put on core deposit growth. We were investing in core deposit growth at a time immediately control is credit risk, which is the risk embedded in our lending activities. when there was no visible motivation to do so. Further, our strength and profitability Our leadership team weathered the systemic shock of a decade ago and emerged in mortgage banking and wealth management have given us revenue diversity and have stronger for the test. We dealt with our toughest problems quickly and effectively, broadened the customer experience. Most community banks struggle to make money while challenging and supporting our customers and adding new ones. We don’t want on these non-interest revenue sources because they lack scale or over-incentivize another recession, but the last one seasoned our bankers, strengthened our brand, production to the exclusion of margin. In both of these business lines, we have and launched our highly effective and profitable growth. engineered real value for our customers and real margin for our shareholders. There are many reasons to think about recession, political turmoil and the fragility of 7 4. Acquisitions – Between 2013 and the end of 2019, we averaged nearly one acquisition the global supply chain. We are writing to you as the nation and the world wrestle per year. Each acquisition has exceeded our expectations and added to our share with our vulnerability to the coronavirus. Of course the main impact is on the value. Our stock has consistently traded at a premium to current earnings primarily people who contract the virus, but the secondary effects on the global and domestic because our actual earnings have consistently exceeded expectations. From a stock economies are rattling through financial markets. analyst’s perspective, we trade at a modest premium based on current and expected earnings. From management’s perspective, we are always undervalued relative to our There are also industry dynamics that pose a particular risk to community banks. future, because it is management’s job to see the future better and bring it to reality. The largest banks continue to enjoy a substantial subsidy due to the nature of Thus far, management’s higher expectations of ourselves have been more accurate. regulatory policy. The largest banks such as Chase, Bank of America, and Wells Fargo They are supposed to be. Analysts identify us as one of the most potent acquirers in have also greatly improved their digital platforms and are visibly moving market the Upper Great Lakes region because of our premium stock price and historical share away from our sector. Non-bank players such as Apple, Amazon, and Google ability to close and quickly integrate our past deals. Management approaches each are also attempting to capture bank deposits and payment flows, while side-stepping deal knowing we are generally undervalued and that we will execute. The result is potential regulatory oversight. These challenges are very real. We continue to invest that the shareholders of banks who have sold to us for stock have made more in improving our customers’ digital experience and relentlessly search for ways we premium by holding the stock after the deal than the premium realized in the deal. can harness technology to drive internal efficiency. Nevertheless, our deals have been substantially accretive to EPS, have improved our scale, and have quietly strengthened our core deposit base. We have consistently A healthy development for our communities is the consistently tight job market. chosen the good deal that can be closed rather than the perfect deal that doesn’t Smart businesses are not trying to drive down labor costs. They are embracing the happen. As we mature our acquisition business line, we will continue to be selective challenge to help people work more effectively, add greater value to customers, toward those sellers who understand that our premium currency is actually available and earn more money. A great example of this is our on-line mortgage origination platform TAP (Technology and People). We are in the middle of a mortgage boom and funding strategy, broaden product offerings, integrate culture, and add market share we can hardly hire enough qualified people to meet the demand. We could offer less through execution on real relationships. We have followed Commerce and its leadership attractive mortgage pricing and manage volume down to our capacity. Instead, we are since they founded the bank in 2005, and we have talked many times in the intervening using TAP to improve the customer experience, drive the volume with internal years. They have done a very nice job establishing a quality franchise in great markets. efficiency, and further strengthen our leading market share in our core markets. It is refreshing to work with a team of people who know what it is like to build a Our leading competitors are not the banks or credit unions next door. Quicken Loans good bank from scratch. is a present and growing competitive threat. We don’t know how these economic, political, public health, industry, and environmental central Wisconsin. This is a conservative, well-run, $150 million bank that both risks will ultimately impact our customers. We do know that Nicolet faces these fills in existing geography and strengthens our presence in the Wausau market. challenges with strong capital, exceptionally strong earnings, best in class credit Combined with the recent hiring of three seasoned lenders in Wausau, which we risk management, and a great track record of finding opportunity under stress. announced in January 2020, the stage is set for us to grow further in the central part Being strong in all these areas is foundational to how we serve our customers while of the state. In March 2020, we announced the acquisition of Advantage Community Bank in We have publicly communicated our vision of a $6 billion, highly profitable, regional passionate about meeting customer needs, strengthening our communities, community banking powerhouse. We are well on our way toward achieving that in and helping those around them grow and win. This is how we will safeguard and the next year or two. We have recently announced two acquisitions expected to close grow your investment. For the remainder of 2020, we expect challenging market conditions, but we have never been more excited about the future. We know that talent development is the heart of our strategy. We have to have the depth and breadth of talent to capture the opportunities before us. This isn’t just about having smart, driven people. We need people who can enter into the heart of our mission. We must have people who are profitably expanding our footprint through organic growth and through acquiring other banks. WHAT’S NEXT? in the third quarter of 2020. Both acquisitions should be immediately accretive to EPS, and we expect to stand at nearly $4.5 billion by year-end 2020. We continue to talk with and evaluate other acquisition opportunities. In February 2020, we announced the acquisition of Commerce State Bank, a $700 million commercial bank headquartered in West Bend, Wisconsin. The heart of the Commerce franchise is in the smaller urban markets of West Bend, Cedarburg, and Sheboygan, which are both similar, and adjacent, to the markets we currently serve around Lake Winnebago and Lake Michigan. The locations also provide a foothold into the northern and western portions of the Milwaukee metro market. Over the years, we have frequently been asked about our interest in the Madison and Milwaukee metro markets. Our consistent answer remains that we want to be in places where we have a pathway to the lead local market position. Commerce gives us that pathway in three of the four most prosperous counties in Wisconsin. The immediate task is the same as in our prior acquisitions. We will add efficiency, strengthen the Robert B. Atwell Michael E. Daniels If it were all about the numbers, this annual letter to shareholders would be easy to write. Over the years, you have given us feedback that you appreciate our efforts to describe the meaning of the numbers. 2019’s outstanding financial results are the fruit of our deep commitment to the core ideas that have guided Nicolet since its inception in 2000. Whether in commercial banking, retail banking, mortgage lending, wealth management, or our success at buying and integrating community banks, we know our craft exceptionally well. In our 20 years of working at this mission together, we have learned from our successes and even more from our stumbles. At the heart of Nicolet lies a passionate commitment to the people and communities we serve. The result of that commitment is the shareholder return you have enjoyed. We are not trying to balance competing interests, rather, we are growing an integrated network of people who have learned to believe in each other and work cooperatively toward shared success. We have very aggressive financial performance expectations, but we never confuse the intended result for the purpose. We expect our people to be outstanding professionals. They have to understand what it means to invest themselves in their colleagues and their customers. The “why” drives the “how” and the “what.” THE NUMBERS Investors can clearly see how our stock price has out-performed the broad market and banking indices over the last year, the last five years, and the last 20 years. The fact that we now have a liquid currency that trades at a premium valuation to peers is of enormous strategic importance. This is also advantageous to our shareholders who wish to realize the value they hold. A premium share price is a major reason our growth and size have changed the way our stock price moves and made it much more reflective of national and international market movements. The vast majority of our shareholders are long term holders who live within our community footprint. The momentary share price is largely established by the transient buyers and sellers who come and go from our ownership structure for reasons that may have little to do with the fundamentals of our business. We focus on the main areas that really drive the value of your investment. Our consistent premium price is driven by our superior performance in earnings, quality, and growth. These core fundamentals are augmented by our proven ability to acquire and quickly integrate other community banks. Our three main banking business lines are commercial banking, retail banking, and wealth management. They are strong, profitable, and growing. Our acquisition business line has strengthened our deposit funding, added relevant scale, and made us a lot of money over the last 10 years. 2019 numbers are outstanding from any perspective. Net income of $54.6 million represents a 33% increase over 2018. EPS of $5.52 represents an increase of 34% over 2018. Our year-end share price soared over 50% over the prior year-end. Our asset quality continued its long-term position as among the best in the industry. Organic growth generally exceeds the growth in our region. We acquired Choice Bank in November, adding a further 12% to our then pre-merger assets. We have demonstrated rapid growth, consistent quality, and exceptional profitability. Historical results tell a powerful story, but investors don’t so much own the past as they buy or choose to hold a piece of the future. Here are some key points about past numbers that give insight into our future. 1. Earnings – In our planning, we sift out the major unusual events from past performance. In the second quarter of 2019, we realized a large gain on the sale of 80% of our interest in UFS, a regional core system processor. Together with some discretionary compensation measures, this sale netted a $5.4 million gain in earnings, representing $0.55 per share. Removing this net gain, 2019 EPS would still have been 21% stronger than 2018 EPS of $4.12. EPS is really the best measure of earnings applicable to each shareholder. EPS captures whether management is actually growing net income in a manner that enhances shareholder return, or just growing assets for the sake of growth. Industry benchmarks such as return on average assets (“ROA”) and return on average tangible common equity (“ROTCE”) are relevant and ours are 2. Quality – The most significant risk indicators for a bank shareholder are the nonperforming asset ratio and the net charge-off percentage. Our ratios have been consistently below peer average for many years, and remained so in 2019, at 0.42% and 0.02%, respectively. Under the current leadership, the bank underwent a significant stress test during 2008 through 2011, the toughest seen in our industry in over 90 years. During those years, Nicolet stayed profitable, grew loans and deposits, why we can do so well with our strategy of buying other community banks. However, strong, but EPS is the most meaningful to you. and emerged poised to complete six acquisitions through year-end 2019 and announce to them at a discount to intrinsic value. Most boards focus too much on “initial deal two more so far in 2020. Annual earnings matter and ours are exceptional, but the price” rather than the quality of the stock currency they are buying. We are increasingly drivers of long-term value are the quality of those earnings and the ability to stay focused on potential sellers who really grasp the importance of both. strong in tough times. 3. Growth – After a very rapid organic growth rate during our launching years, we have RISK MANAGEMENT settled into a very steady, quality growth rate that exceeds the economic growth of our region. We consistently take quality market share in a moderate growth state, Many customers and shareholders are uneasy about the many elements of risk. A strong and have also gained market share in those markets we entered through acquisition. bank understands and manages its own risk but is not paralyzed by fear. A great bank Our earnings today are benefitting greatly from the particularly strong focus we helps its customers understand, evaluate, and manage their risks. The risk we most have put on core deposit growth. We were investing in core deposit growth at a time immediately control is credit risk, which is the risk embedded in our lending activities. when there was no visible motivation to do so. Further, our strength and profitability Our leadership team weathered the systemic shock of a decade ago and emerged in mortgage banking and wealth management have given us revenue diversity and have stronger for the test. We dealt with our toughest problems quickly and effectively, broadened the customer experience. Most community banks struggle to make money while challenging and supporting our customers and adding new ones. We don’t want on these non-interest revenue sources because they lack scale or over-incentivize another recession, but the last one seasoned our bankers, strengthened our brand, production to the exclusion of margin. In both of these business lines, we have and launched our highly effective and profitable growth. engineered real value for our customers and real margin for our shareholders. 4. Acquisitions – Between 2013 and the end of 2019, we averaged nearly one acquisition the global supply chain. We are writing to you as the nation and the world wrestle per year. Each acquisition has exceeded our expectations and added to our share with our vulnerability to the coronavirus. Of course the main impact is on the value. Our stock has consistently traded at a premium to current earnings primarily people who contract the virus, but the secondary effects on the global and domestic because our actual earnings have consistently exceeded expectations. From a stock economies are rattling through financial markets. There are many reasons to think about recession, political turmoil and the fragility of analyst’s perspective, we trade at a modest premium based on current and expected earnings. From management’s perspective, we are always undervalued relative to our There are also industry dynamics that pose a particular risk to community banks. future, because it is management’s job to see the future better and bring it to reality. The largest banks continue to enjoy a substantial subsidy due to the nature of Thus far, management’s higher expectations of ourselves have been more accurate. regulatory policy. The largest banks such as Chase, Bank of America, and Wells Fargo They are supposed to be. Analysts identify us as one of the most potent acquirers in have also greatly improved their digital platforms and are visibly moving market the Upper Great Lakes region because of our premium stock price and historical share away from our sector. Non-bank players such as Apple, Amazon, and Google ability to close and quickly integrate our past deals. Management approaches each are also attempting to capture bank deposits and payment flows, while side-stepping deal knowing we are generally undervalued and that we will execute. The result is potential regulatory oversight. These challenges are very real. We continue to invest that the shareholders of banks who have sold to us for stock have made more in improving our customers’ digital experience and relentlessly search for ways we premium by holding the stock after the deal than the premium realized in the deal. can harness technology to drive internal efficiency. Nevertheless, our deals have been substantially accretive to EPS, have improved our scale, and have quietly strengthened our core deposit base. We have consistently A healthy development for our communities is the consistently tight job market. chosen the good deal that can be closed rather than the perfect deal that doesn’t Smart businesses are not trying to drive down labor costs. They are embracing the happen. As we mature our acquisition business line, we will continue to be selective challenge to help people work more effectively, add greater value to customers, toward those sellers who understand that our premium currency is actually available and earn more money. A great example of this is our on-line mortgage origination platform TAP (Technology and People). We are in the middle of a mortgage boom and funding strategy, broaden product offerings, integrate culture, and add market share we can hardly hire enough qualified people to meet the demand. We could offer less through execution on real relationships. We have followed Commerce and its leadership attractive mortgage pricing and manage volume down to our capacity. Instead, we are since they founded the bank in 2005, and we have talked many times in the intervening using TAP to improve the customer experience, drive the volume with internal years. They have done a very nice job establishing a quality franchise in great markets. efficiency, and further strengthen our leading market share in our core markets. It is refreshing to work with a team of people who know what it is like to build a Our leading competitors are not the banks or credit unions next door. Quicken Loans good bank from scratch. is a present and growing competitive threat. We don’t know how these economic, political, public health, industry, and environmental central Wisconsin. This is a conservative, well-run, $150 million bank that both risks will ultimately impact our customers. We do know that Nicolet faces these fills in existing geography and strengthens our presence in the Wausau market. challenges with strong capital, exceptionally strong earnings, best in class credit Combined with the recent hiring of three seasoned lenders in Wausau, which we risk management, and a great track record of finding opportunity under stress. announced in January 2020, the stage is set for us to grow further in the central part Being strong in all these areas is foundational to how we serve our customers while of the state. In March 2020, we announced the acquisition of Advantage Community Bank in profitably expanding our footprint through organic growth and through acquiring other banks. WHAT’S NEXT? For the remainder of 2020, we expect challenging market conditions, but we have never been more excited about the future. We know that talent development is the heart of our strategy. We have to have the depth and breadth of talent to capture the opportunities before us. This isn’t just about having smart, driven people. We need 9 people who can enter into the heart of our mission. We must have people who are We have publicly communicated our vision of a $6 billion, highly profitable, regional passionate about meeting customer needs, strengthening our communities, community banking powerhouse. We are well on our way toward achieving that in and helping those around them grow and win. This is how we will safeguard and the next year or two. We have recently announced two acquisitions expected to close grow your investment. in the third quarter of 2020. Both acquisitions should be immediately accretive to EPS, and we expect to stand at nearly $4.5 billion by year-end 2020. We continue to talk with and evaluate other acquisition opportunities. In February 2020, we announced the acquisition of Commerce State Bank, a $700 million commercial bank headquartered in West Bend, Wisconsin. The heart of the Commerce franchise is in the smaller urban markets of West Bend, Cedarburg, and Sheboygan, which are both similar, and adjacent, to the markets we currently serve around Lake Winnebago and Lake Michigan. The locations also provide a foothold into the northern and western portions of the Milwaukee metro market. Over the years, we have frequently been asked about our interest in the Madison and Milwaukee metro markets. Our consistent answer remains that we want to be in places where we have a pathway to the lead local market position. Commerce gives us that pathway in three of the four most prosperous counties in Wisconsin. The immediate task is the same as in our prior acquisitions. We will add efficiency, strengthen the Robert B. Atwell Michael E. Daniels 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 Rachel Campos-Duffy Media & Communications Consultant FOX News Contributor 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 C O L E T N A T 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 11 Andrew Hetzel, Jr. President and Chief Executive Officer, NPS Corporation Donald Long, Jr. Former Owner and CEO, Century Drill and Tool Co., Inc. Dustin McClone President and CEO, McClone Insurance Group Susan Merkatoris Certified Public Accountant, Owner and Managing Member, Larboard Enterprises, LLC Randy Rose Retired President and CEO, Schwabe North America Oliver “Pierce” Smith Director of Purchasing, Menasha Packaging Company Robert Weyers Owner, Commercial Horizons, Inc. Robert Atwell Chairman Patrick Madson Senior Vice President Wealth Management Michael Vogel Senior Vice President Commercial Banking Manager Eric Witczak Executive Vice President 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 F I N A N C I A L S A C C O U N T A 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, Condensed Consolidated Statements of Income 2019 2018 % Change Interest income 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 $138,588 $125,537 22,510 18,889 116,078 106,648 1,200 53,367 96,799 71,446 16,458 54,988 347 1,600 39,509 89,758 54,799 13,446 41,353 317 Net income attributable to Nicolet Bankshares, Inc. $54,641 $41,036 10% 19% 9% -25% 35% 8% 30% 22% 33% 9% 33% 34% 34% -1% -1% 12% 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 sheet of Nicolet Bankshares, Inc. and subsidiaries as of December 31, 2019, and the related consolidated statements of income, comprehensive income, changes in stockholders’ equity and cash flows for 13 the year then ended (not presented herein); and in our report, dated February 28, 2020, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying condensed 2019 financial statements is fairly stated, in all material respects, in relation to the consolidated $5.71 $5.52 9,562 9,900 10,588 $4.26 $4.12 9,640 9,956 9,495 $182,059 $249,526 -27% financial statements from which it has been derived. 449,302 400,144 2,573,751 2,166,181 (13,972) (13,153) 165,967 220,153 124,307 169,530 $3,577,260 $3,096,535 $2,954,453 $2,614,138 105,817 516,262 728 95,045 386,609 743 12% 19% 6% 34% 30% 16% 13% 11% 34% -2% 16% Atlanta, Georgia February 28, 2020 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 Total liabilities, noncontrolling interest and stockholders' equity $3,577,260 $3,096,535 Basic earnings per common share Diluted earnings per common share Basic weighted average common shares Diluted weighted average common shares Outstanding common shares 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 Noncontrolling interest 15 Over 11,000,000 debit card swipes 115,700 checks deposited through our mobile app 2,240 mortgages closes with over half coming through our new online application – TAP Lending 115 non-profit, 501(c)3 organizations helped through the Nicolet Foundation Named one of Independent Banker’s Most Innovative Banks Named one of the Best Places to Work by the Greater Green Bay Chamber’s young professionals group Over 310,000 shares repurchased Over 25,000 shares traded on the NASDAQ per day Exceptional asset quality – 0.02% net charge offs S H A R E H O L D E R I N F O R M A T I O N Annual Meeting Shareholders’ Meeting – Monday, May 11, 2020 (5:00 p.m.) Meyer Theatre 117 South Washington Street / Green Bay, WI 54301 Independent Auditor Wipfli LLP 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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