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