Nicolet Bankshares Inc.
Annual Report 2022

Plain-text annual report

The 3 Circles image on the cover hangs in our Grand Chute branch, located in a region of Wisconsin known as the Paper Valley. This region is where many paper mills started and where some still operate. The economy flourished in this area because of the paper industry. As a nod to this region, we made the 3 Circles from virgin pulp—one of the main natural resources for making paper. The pulp is set dimensionally on a photo of the Fox River, the location of many of the first paper mills. The 3 Circles represents a visual image of Nicolet’s purpose—to serve our customers, employees, and shareholders in a manner that creates shared success. Thank you to our customers CoLab and Kris Maz, for their inspiration, design, and production. S h a r e h o l d e rs ' L e t t e r Dear Shareholders, ratios, and statistics banks can be measured by, we believe these three areas encompass the core of what Before we dive into the annual letter, we want to level set expectations of our responsibilities to our we want to achieve each year-a growth-oriented, highly profitable community bank with a strong balance readers. Each year we strive to provide meaningful insight into the numbers that appear in the annual sheet that can withstand all economic environments. report. As a bank, we are awash with numbers, but the WHY behind them is important to us as founders and shareholders. Therefore, we choose to start this letter by taking you back 22 years to our first annual Growth: The period spanning 2021 and 2022 was a period of rapid growth in size and profitability. letter to set the foundation for what is to come. Assets nearly doubled from $4.6 billion at the end of 2020 to $8.8 billion at year-end 2022. Net Income In our first annual report letter, we said we founded the bank because there was an extraordinary increased 57% from $60.1 million in 2020 to $94.3 million in 2022. Organic loan growth grew by 14% opportunity for a highly focused community bank. This entrepreneurial insight became our belief that was last year-something we haven’t seen in more than a decade. In 2022, Wealth Management increased net later validated in our initial meetings with prospective customers and shareholders. The directive we heard new assets by $624 million, and assets under management grew by 8%, which is impressive considering and felt focused more on building a great community bank that emphasized relationships and serving the the overall underperformance in the stock market. In our Retail Banking area, we increased new deposit 3 community over simply a return on investment. We still see that opportunity today, and our actions relationships by more than 7% in 2022. continue to deliver on that initial directive. In this letter, we will concentrate on three basic topics. First, we will review the financial highlights Quality: Despite the media’s constant reminder of an impending recession, or how many economists from 2022. We will next summarize the purpose and the strategic significance of our investment in believe the Fed’s recent actions are surely going to cause our economy to decline, our credit quality continues dramatic growth. We will then close with some comments on the extraordinarily turbulent economic to remain strong. Nonperforming loans to total assets were 0.46% at the end of 2022 versus 0.73% twelve environment as it has evolved from the early stimulus period brought by the pandemic into the recent months prior. This ratio directly reflects our culture of strong bankers having real conversations with period of historically aggressive rapid rate increases as the Fed struggles to throttle inflation. high-quality customers. Our customers remain resilient in the face of higher input costs, employee shortages, 2022 FINANCIAL RESULTS We have always assessed our financial performance based on financial results centered around three main categories: growth, quality (or “soundness”), and earnings. While there are myriad financial metrics, and ongoing supply chain issues. While 2023 may bring some relief in these areas, we understand what keeps our customers up at night and commit to working with them through turbulent times. Earnings: As we have said in the past, the most meaningful measure of profitability is our growth in We approximately doubled the size of Nicolet from 2012 through 2014, primarily by purchasing banks Earnings Per Share (EPS). Since the number of outstanding shares can and has increased, it is best to considered the “lead local” community banks in their geography. Generally, the leadership and employees assess the earnings attributable to an individual share. From 2020 to 2022, EPS increased 15% from aligned with our vision of mattering to the communities we serve. During this time, we were able to continue $5.70 to $6.56. There are many moving parts within these numbers, including all the “noise” that comes to sustain organic market share growth and generate strong earnings and capital. From 2016 to 2017, with the one-time merger related costs of acquisitions (severance, contract termination fees, advisory fees, we also doubled the size of the bank largely through a merger of equals. The acquired growth in this and all those merger accounting adjustments we are required to record). At the announcement of each period was primarily about gaining scale and efficiency through general economies of scale. Through this acquisition, we announce the approximate EPS “accretion” we expect, or how much higher our EPS may 2016 acquisition, we became a true public company that traded on a national stock exchange and began to be with the deal than without it. Just like forecasting the weather, it is difficult to see what the future may see value being created in a premium stock price. The doubling and redoubling of the asset size in 2012 hold, but our financial models tend to get us close. We are confident those EPS targets are being achieved to 2017 also brought us additional valuable and sticky core deposits. These acquired deposits strengthened but are only partially visible in the reported financial statements given what has transpired in the market our balance sheet as core deposits outgrew even our strong loan growth. over the last year. STRATEGIC GROWTH Embedded in the math behind the acquisitions was the belief that we would find good people in each of these banks—people who were aligned with our purpose to serve and matter to our customers, communities, and each other, with the results of that service being the return we provide to shareholders. This foundational Nicolet has been a very high-growth company since our inception. While acquisitions have been the purpose resonated with many of the people who were at the banks we acquired, and they have become focus of our growth during the last 10 years, we have always executed very well on organic growth. This important to the continued success of Nicolet. organic growth is achieved by earning the business of new customers and supporting the growth of existing The point of this history is to assure our newer shareholders that we have had a clear purpose for each customers. Our early years of 2000 to 2008 were all about building a base of quality business as we grew of our acquisitions. The past two years is now the third period in which we have doubled the size of from $0 to just under $700 million in assets. The quality of this customer base has always served us well Nicolet in the past decade. There are always surprises, but we have consistently achieved what we and was especially important during the Great Recession of 2008 to 2012. We emerged from the financial intended in each acquisition. While our strategy and math have always worked, what keeps us pointing crisis very well-positioned to take advantage of opportunities we knew would be coming. Still, we always true north is the unwavering commitment to matter to the people we serve, the places we live, and the focused on growing by providing superior service to existing and new customers in our local markets. people with whom we work. Acquisitions always create stress and disruption. Jobs are eliminated, core systems are integrated, and the signs change on the first day. Employees, communities, and customers CURRENT ECONOMIC ENVIRONMENT are paying attention to our actions rather than our words. We are clear and quick about the changes we We want to end this letter with a look at the current economic environment to understand the banking make and are consistently transparent about why and how this change is happening. Most of these sector and Nicolet’s place in it. When we talk with analysts about Nicolet, a common theme is this: the acquisitions are in smaller cities, where people know each other. We don’t promise comfort and security but analysts want to see what we’ve built once the dust settles. In short, with all the acquisitions and moving offer opportunity and growth. Some people need time to sort out if they can and want to opt into the parts around the financial data, what does Nicolet look like when things are “normal”? It’s a great question, culture and strategy. We always need good people, but Nicolet is not always an easy place to work. but it’s clear that the banking sector is experiencing anything but normal right now. Those who trust the culture and put into action a servant mindset find an extraordinary level of satisfaction The scale of federal stimulus during the pandemic has aptly been compared to that of World War II. and joy in working with people to make a difference. Customers can tell when people are proud and happy In the second quarter of 2020, our balance sheet grew by more than 20%. On June 30, 2020, cash represented to work together on their behalf. In nearly every market we have entered through acquisition, a two-year nearly 20% of our total assets. Nearly all our region’s employers functioned as essential businesses through look-back has typically shown market share growth. the pandemic. Three of the key pillars of our regional economy-paper and wood fiber production, Our acquisition of Charter Bankshares, Inc. (Charter Bank) was a perfect example of that fair deal. food production, and recreation (along with businesses supporting these pillars)-thrived during these times. We closed on the acquisition of this privately held, well-run, commercially oriented bank in August 2022. Our customer base stayed quite profitable and simply left their cash in accounts. Labor supply was tight in It commands the lead local position in the vibrant city of Eau Claire in northwestern Wisconsin and our regions even before the pandemic due to a very high labor force participation. There simply were not brought us into the far southwest suburbs of the Twin Cities. The economics of this transaction were based more people to draw into the workplace. Combine this with generous unemployment benefits and global on the strength of our currency, the focused performance of the bank, cost takeouts, and the strategic supply chain disruptions, and you get an imbalance between consumer demand and the productive capacity relevance of the Eau Claire market. of our commercial customers. While labor costs, shipping costs, and supply chain disruptions drove up Over our long careers in this region, we have learned much about how and how not to acquire banks. production costs, companies that could produce and deliver products enjoyed sufficient pricing power Successful acquisitions require great clarity of purpose, negotiating a fair deal, clear and consistent to more than cover costs. As our customer base moved through 2022, production bottlenecks eased, communication, and rapid execution. Successful cultural integration requires both urgency and a deep and consumer demand slackened. Inventory turnover has slowed, and labor cost increases have as well. understanding of people, but it doesn’t happen in six months. We acquire not just to get bigger but Consequently, the pricing power that suppliers enjoyed has also lessened. to get better. The Federal Reserve has belatedly awakened to the reality of inflation even as the inflation outlook little consumer lending (especially higher-risk lending). Our regional real estate exposure does not follow seems to improve. That the Fed and other policy experts insisted that inflation was not a serious concern national trends. Our investment real estate exposure is small and focuses on customers with real equity and until 2022 is inexplicable. Instead of looking at complicated charts and data, they might have simply cash flow. A prolonged recession certainly could affect credit quality. We simply don’t see this evident in considered what inevitably happens when so much money is generously infused into the system. our customers, and we are confident in the resilience we and they have demonstrated over the last 22 years The resulting rapid inflation was predictable to even a first-year economics student. Consensus forecasts should conditions deteriorate. In the early months of the year, we spent time with other banks and bank call for inflation to subside and the Fed to lighten up in late 2023. Unfortunately, the consensus of experts investors. There is real concern about interest margins dampening bank profitability, and there is evidence seems to be increasingly unreliable. of that in our experience. Sudden and pronounced policy changes affect the banking industry and our bank. For much of the While we are subject to the same economic conditions as our competitors, we by no means use this as past two years, through mid-2022, we carried all the surplus cash of our customers with little ability to a way to excuse any performance. We will continue to control what we can control and own every decision reinvest those funds. In the last several months, we increased deposit rates as the Fed raised rates. As we that we make. We are very confident about our future. This confidence rests on the quality of our people, enter 2023, we and the rest of the banking industry are experiencing significant margin compression as our customers, and the core ideas that guide our daily actions. We know the people and the places we serve. customers deploy funds into higher interest-bearing accounts and investments. While the rates we receive We know that we matter to our customers, we matter to our communities, and we matter to each other. on loans have also increased, the interest income we receive from loans takes time to increase, as more than 70% of our loans are fixed rate, meaning they reprice when they mature. Throughout 2022, investment markets have disfavored bank stocks. The S&P Regional Bank index was down more than 17% last year. The market sentiment reflects concern about recessionary credit conditions in our customer base to date. Nearly all our customers are coming off several very strong years. They are seeing margin pressure, and so are we. Customers have low leverage, relatively strong profits, liquidity, and real equity. Nationally, there are signs of some stress in consumer lending (credit cards) and certain real estate sectors (i.e., office buildings). This is not evident in our customer base because we do problems for banks. We and our most respected peer banks have seen no indication of deteriorating credit Robert B. Atwell Michael E. Daniels Dear Shareholders, ratios, and statistics banks can be measured by, we believe these three areas encompass the core of what Before we dive into the annual letter, we want to level set expectations of our responsibilities to our we want to achieve each year-a growth-oriented, highly profitable community bank with a strong balance readers. Each year we strive to provide meaningful insight into the numbers that appear in the annual sheet that can withstand all economic environments. report. As a bank, we are awash with numbers, but the WHY behind them is important to us as founders and shareholders. Therefore, we choose to start this letter by taking you back 22 years to our first annual Growth: The period spanning 2021 and 2022 was a period of rapid growth in size and profitability. letter to set the foundation for what is to come. Assets nearly doubled from $4.6 billion at the end of 2020 to $8.8 billion at year-end 2022. Net Income In our first annual report letter, we said we founded the bank because there was an extraordinary increased 57% from $60.1 million in 2020 to $94.3 million in 2022. Organic loan growth grew by 14% opportunity for a highly focused community bank. This entrepreneurial insight became our belief that was last year-something we haven’t seen in more than a decade. In 2022, Wealth Management increased net later validated in our initial meetings with prospective customers and shareholders. The directive we heard new assets by $624 million, and assets under management grew by 8%, which is impressive considering and felt focused more on building a great community bank that emphasized relationships and serving the the overall underperformance in the stock market. In our Retail Banking area, we increased new deposit community over simply a return on investment. We still see that opportunity today, and our actions relationships by more than 7% in 2022. continue to deliver on that initial directive. In this letter, we will concentrate on three basic topics. First, we will review the financial highlights Quality: Despite the media’s constant reminder of an impending recession, or how many economists from 2022. We will next summarize the purpose and the strategic significance of our investment in believe the Fed’s recent actions are surely going to cause our economy to decline, our credit quality continues dramatic growth. We will then close with some comments on the extraordinarily turbulent economic to remain strong. Nonperforming loans to total assets were 0.46% at the end of 2022 versus 0.73% twelve environment as it has evolved from the early stimulus period brought by the pandemic into the recent months prior. This ratio directly reflects our culture of strong bankers having real conversations with period of historically aggressive rapid rate increases as the Fed struggles to throttle inflation. high-quality customers. Our customers remain resilient in the face of higher input costs, employee shortages, and ongoing supply chain issues. While 2023 may bring some relief in these areas, we understand what keeps our customers up at night and commit to working with them through turbulent times. 2022 FINANCIAL RESULTS We have always assessed our financial performance based on financial results centered around three main categories: growth, quality (or “soundness”), and earnings. While there are myriad financial metrics, Earnings: As we have said in the past, the most meaningful measure of profitability is our growth in We approximately doubled the size of Nicolet from 2012 through 2014, primarily by purchasing banks Earnings Per Share (EPS). Since the number of outstanding shares can and has increased, it is best to considered the “lead local” community banks in their geography. Generally, the leadership and employees assess the earnings attributable to an individual share. From 2020 to 2022, EPS increased 15% from aligned with our vision of mattering to the communities we serve. During this time, we were able to continue $5.70 to $6.56. There are many moving parts within these numbers, including all the “noise” that comes to sustain organic market share growth and generate strong earnings and capital. From 2016 to 2017, with the one-time merger related costs of acquisitions (severance, contract termination fees, advisory fees, we also doubled the size of the bank largely through a merger of equals. The acquired growth in this and all those merger accounting adjustments we are required to record). At the announcement of each period was primarily about gaining scale and efficiency through general economies of scale. Through this acquisition, we announce the approximate EPS “accretion” we expect, or how much higher our EPS may 2016 acquisition, we became a true public company that traded on a national stock exchange and began to be with the deal than without it. Just like forecasting the weather, it is difficult to see what the future may see value being created in a premium stock price. The doubling and redoubling of the asset size in 2012 hold, but our financial models tend to get us close. We are confident those EPS targets are being achieved to 2017 also brought us additional valuable and sticky core deposits. These acquired deposits strengthened but are only partially visible in the reported financial statements given what has transpired in the market our balance sheet as core deposits outgrew even our strong loan growth. 5 over the last year. STRATEGIC GROWTH Embedded in the math behind the acquisitions was the belief that we would find good people in each of these banks—people who were aligned with our purpose to serve and matter to our customers, communities, and each other, with the results of that service being the return we provide to shareholders. This foundational Nicolet has been a very high-growth company since our inception. While acquisitions have been the purpose resonated with many of the people who were at the banks we acquired, and they have become focus of our growth during the last 10 years, we have always executed very well on organic growth. This important to the continued success of Nicolet. organic growth is achieved by earning the business of new customers and supporting the growth of existing The point of this history is to assure our newer shareholders that we have had a clear purpose for each customers. Our early years of 2000 to 2008 were all about building a base of quality business as we grew of our acquisitions. The past two years is now the third period in which we have doubled the size of from $0 to just under $700 million in assets. The quality of this customer base has always served us well Nicolet in the past decade. There are always surprises, but we have consistently achieved what we and was especially important during the Great Recession of 2008 to 2012. We emerged from the financial intended in each acquisition. While our strategy and math have always worked, what keeps us pointing crisis very well-positioned to take advantage of opportunities we knew would be coming. Still, we always true north is the unwavering commitment to matter to the people we serve, the places we live, and the focused on growing by providing superior service to existing and new customers in our local markets. people with whom we work. Acquisitions always create stress and disruption. Jobs are eliminated, core systems are integrated, and the signs change on the first day. Employees, communities, and customers CURRENT ECONOMIC ENVIRONMENT are paying attention to our actions rather than our words. We are clear and quick about the changes we We want to end this letter with a look at the current economic environment to understand the banking make and are consistently transparent about why and how this change is happening. Most of these sector and Nicolet’s place in it. When we talk with analysts about Nicolet, a common theme is this: the acquisitions are in smaller cities, where people know each other. We don’t promise comfort and security but analysts want to see what we’ve built once the dust settles. In short, with all the acquisitions and moving offer opportunity and growth. Some people need time to sort out if they can and want to opt into the parts around the financial data, what does Nicolet look like when things are “normal”? It’s a great question, culture and strategy. We always need good people, but Nicolet is not always an easy place to work. but it’s clear that the banking sector is experiencing anything but normal right now. Those who trust the culture and put into action a servant mindset find an extraordinary level of satisfaction The scale of federal stimulus during the pandemic has aptly been compared to that of World War II. and joy in working with people to make a difference. Customers can tell when people are proud and happy In the second quarter of 2020, our balance sheet grew by more than 20%. On June 30, 2020, cash represented to work together on their behalf. In nearly every market we have entered through acquisition, a two-year nearly 20% of our total assets. Nearly all our region’s employers functioned as essential businesses through look-back has typically shown market share growth. the pandemic. Three of the key pillars of our regional economy-paper and wood fiber production, Our acquisition of Charter Bankshares, Inc. (Charter Bank) was a perfect example of that fair deal. food production, and recreation (along with businesses supporting these pillars)-thrived during these times. We closed on the acquisition of this privately held, well-run, commercially oriented bank in August 2022. Our customer base stayed quite profitable and simply left their cash in accounts. Labor supply was tight in It commands the lead local position in the vibrant city of Eau Claire in northwestern Wisconsin and our regions even before the pandemic due to a very high labor force participation. There simply were not brought us into the far southwest suburbs of the Twin Cities. The economics of this transaction were based more people to draw into the workplace. Combine this with generous unemployment benefits and global on the strength of our currency, the focused performance of the bank, cost takeouts, and the strategic supply chain disruptions, and you get an imbalance between consumer demand and the productive capacity relevance of the Eau Claire market. of our commercial customers. While labor costs, shipping costs, and supply chain disruptions drove up Over our long careers in this region, we have learned much about how and how not to acquire banks. production costs, companies that could produce and deliver products enjoyed sufficient pricing power Successful acquisitions require great clarity of purpose, negotiating a fair deal, clear and consistent to more than cover costs. As our customer base moved through 2022, production bottlenecks eased, communication, and rapid execution. Successful cultural integration requires both urgency and a deep and consumer demand slackened. Inventory turnover has slowed, and labor cost increases have as well. understanding of people, but it doesn’t happen in six months. We acquire not just to get bigger but Consequently, the pricing power that suppliers enjoyed has also lessened. to get better. The Federal Reserve has belatedly awakened to the reality of inflation even as the inflation outlook little consumer lending (especially higher-risk lending). Our regional real estate exposure does not follow seems to improve. That the Fed and other policy experts insisted that inflation was not a serious concern national trends. Our investment real estate exposure is small and focuses on customers with real equity and until 2022 is inexplicable. Instead of looking at complicated charts and data, they might have simply cash flow. A prolonged recession certainly could affect credit quality. We simply don’t see this evident in considered what inevitably happens when so much money is generously infused into the system. our customers, and we are confident in the resilience we and they have demonstrated over the last 22 years The resulting rapid inflation was predictable to even a first-year economics student. Consensus forecasts should conditions deteriorate. In the early months of the year, we spent time with other banks and bank call for inflation to subside and the Fed to lighten up in late 2023. Unfortunately, the consensus of experts investors. There is real concern about interest margins dampening bank profitability, and there is evidence seems to be increasingly unreliable. of that in our experience. Sudden and pronounced policy changes affect the banking industry and our bank. For much of the While we are subject to the same economic conditions as our competitors, we by no means use this as past two years, through mid-2022, we carried all the surplus cash of our customers with little ability to a way to excuse any performance. We will continue to control what we can control and own every decision reinvest those funds. In the last several months, we increased deposit rates as the Fed raised rates. As we that we make. We are very confident about our future. This confidence rests on the quality of our people, enter 2023, we and the rest of the banking industry are experiencing significant margin compression as our customers, and the core ideas that guide our daily actions. We know the people and the places we serve. customers deploy funds into higher interest-bearing accounts and investments. While the rates we receive We know that we matter to our customers, we matter to our communities, and we matter to each other. on loans have also increased, the interest income we receive from loans takes time to increase, as more than 70% of our loans are fixed rate, meaning they reprice when they mature. Throughout 2022, investment markets have disfavored bank stocks. The S&P Regional Bank index was down more than 17% last year. The market sentiment reflects concern about recessionary credit conditions in our customer base to date. Nearly all our customers are coming off several very strong years. They are seeing margin pressure, and so are we. Customers have low leverage, relatively strong profits, liquidity, and real equity. Nationally, there are signs of some stress in consumer lending (credit cards) and certain real estate sectors (i.e., office buildings). This is not evident in our customer base because we do problems for banks. We and our most respected peer banks have seen no indication of deteriorating credit Robert B. Atwell Michael E. Daniels Dear Shareholders, ratios, and statistics banks can be measured by, we believe these three areas encompass the core of what Before we dive into the annual letter, we want to level set expectations of our responsibilities to our we want to achieve each year-a growth-oriented, highly profitable community bank with a strong balance readers. Each year we strive to provide meaningful insight into the numbers that appear in the annual sheet that can withstand all economic environments. report. As a bank, we are awash with numbers, but the WHY behind them is important to us as founders and shareholders. Therefore, we choose to start this letter by taking you back 22 years to our first annual Growth: The period spanning 2021 and 2022 was a period of rapid growth in size and profitability. letter to set the foundation for what is to come. Assets nearly doubled from $4.6 billion at the end of 2020 to $8.8 billion at year-end 2022. Net Income In our first annual report letter, we said we founded the bank because there was an extraordinary increased 57% from $60.1 million in 2020 to $94.3 million in 2022. Organic loan growth grew by 14% opportunity for a highly focused community bank. This entrepreneurial insight became our belief that was last year-something we haven’t seen in more than a decade. In 2022, Wealth Management increased net later validated in our initial meetings with prospective customers and shareholders. The directive we heard new assets by $624 million, and assets under management grew by 8%, which is impressive considering and felt focused more on building a great community bank that emphasized relationships and serving the the overall underperformance in the stock market. In our Retail Banking area, we increased new deposit community over simply a return on investment. We still see that opportunity today, and our actions relationships by more than 7% in 2022. continue to deliver on that initial directive. In this letter, we will concentrate on three basic topics. First, we will review the financial highlights Quality: Despite the media’s constant reminder of an impending recession, or how many economists from 2022. We will next summarize the purpose and the strategic significance of our investment in believe the Fed’s recent actions are surely going to cause our economy to decline, our credit quality continues dramatic growth. We will then close with some comments on the extraordinarily turbulent economic to remain strong. Nonperforming loans to total assets were 0.46% at the end of 2022 versus 0.73% twelve environment as it has evolved from the early stimulus period brought by the pandemic into the recent months prior. This ratio directly reflects our culture of strong bankers having real conversations with period of historically aggressive rapid rate increases as the Fed struggles to throttle inflation. high-quality customers. Our customers remain resilient in the face of higher input costs, employee shortages, and ongoing supply chain issues. While 2023 may bring some relief in these areas, we understand what keeps our customers up at night and commit to working with them through turbulent times. 2022 FINANCIAL RESULTS We have always assessed our financial performance based on financial results centered around three main categories: growth, quality (or “soundness”), and earnings. While there are myriad financial metrics, Earnings: As we have said in the past, the most meaningful measure of profitability is our growth in We approximately doubled the size of Nicolet from 2012 through 2014, primarily by purchasing banks Earnings Per Share (EPS). Since the number of outstanding shares can and has increased, it is best to considered the “lead local” community banks in their geography. Generally, the leadership and employees assess the earnings attributable to an individual share. From 2020 to 2022, EPS increased 15% from aligned with our vision of mattering to the communities we serve. During this time, we were able to continue $5.70 to $6.56. There are many moving parts within these numbers, including all the “noise” that comes to sustain organic market share growth and generate strong earnings and capital. From 2016 to 2017, with the one-time merger related costs of acquisitions (severance, contract termination fees, advisory fees, we also doubled the size of the bank largely through a merger of equals. The acquired growth in this and all those merger accounting adjustments we are required to record). At the announcement of each period was primarily about gaining scale and efficiency through general economies of scale. Through this acquisition, we announce the approximate EPS “accretion” we expect, or how much higher our EPS may 2016 acquisition, we became a true public company that traded on a national stock exchange and began to be with the deal than without it. Just like forecasting the weather, it is difficult to see what the future may see value being created in a premium stock price. The doubling and redoubling of the asset size in 2012 hold, but our financial models tend to get us close. We are confident those EPS targets are being achieved to 2017 also brought us additional valuable and sticky core deposits. These acquired deposits strengthened but are only partially visible in the reported financial statements given what has transpired in the market our balance sheet as core deposits outgrew even our strong loan growth. over the last year. STRATEGIC GROWTH Embedded in the math behind the acquisitions was the belief that we would find good people in each of these banks—people who were aligned with our purpose to serve and matter to our customers, communities, and each other, with the results of that service being the return we provide to shareholders. This foundational Nicolet has been a very high-growth company since our inception. While acquisitions have been the purpose resonated with many of the people who were at the banks we acquired, and they have become focus of our growth during the last 10 years, we have always executed very well on organic growth. This important to the continued success of Nicolet. organic growth is achieved by earning the business of new customers and supporting the growth of existing The point of this history is to assure our newer shareholders that we have had a clear purpose for each customers. Our early years of 2000 to 2008 were all about building a base of quality business as we grew of our acquisitions. The past two years is now the third period in which we have doubled the size of from $0 to just under $700 million in assets. The quality of this customer base has always served us well Nicolet in the past decade. There are always surprises, but we have consistently achieved what we and was especially important during the Great Recession of 2008 to 2012. We emerged from the financial intended in each acquisition. While our strategy and math have always worked, what keeps us pointing crisis very well-positioned to take advantage of opportunities we knew would be coming. Still, we always true north is the unwavering commitment to matter to the people we serve, the places we live, and the focused on growing by providing superior service to existing and new customers in our local markets. people with whom we work. Acquisitions always create stress and disruption. Jobs are eliminated, core systems are integrated, and the signs change on the first day. Employees, communities, and customers CURRENT ECONOMIC ENVIRONMENT are paying attention to our actions rather than our words. We are clear and quick about the changes we We want to end this letter with a look at the current economic environment to understand the banking make and are consistently transparent about why and how this change is happening. Most of these sector and Nicolet’s place in it. When we talk with analysts about Nicolet, a common theme is this: the acquisitions are in smaller cities, where people know each other. We don’t promise comfort and security but analysts want to see what we’ve built once the dust settles. In short, with all the acquisitions and moving offer opportunity and growth. Some people need time to sort out if they can and want to opt into the parts around the financial data, what does Nicolet look like when things are “normal”? It’s a great question, culture and strategy. We always need good people, but Nicolet is not always an easy place to work. but it’s clear that the banking sector is experiencing anything but normal right now. Those who trust the culture and put into action a servant mindset find an extraordinary level of satisfaction The scale of federal stimulus during the pandemic has aptly been compared to that of World War II. and joy in working with people to make a difference. Customers can tell when people are proud and happy In the second quarter of 2020, our balance sheet grew by more than 20%. On June 30, 2020, cash represented to work together on their behalf. In nearly every market we have entered through acquisition, a two-year nearly 20% of our total assets. Nearly all our region’s employers functioned as essential businesses through look-back has typically shown market share growth. the pandemic. Three of the key pillars of our regional economy-paper and wood fiber production, 7 Our acquisition of Charter Bankshares, Inc. (Charter Bank) was a perfect example of that fair deal. food production, and recreation (along with businesses supporting these pillars)-thrived during these times. We closed on the acquisition of this privately held, well-run, commercially oriented bank in August 2022. Our customer base stayed quite profitable and simply left their cash in accounts. Labor supply was tight in It commands the lead local position in the vibrant city of Eau Claire in northwestern Wisconsin and our regions even before the pandemic due to a very high labor force participation. There simply were not brought us into the far southwest suburbs of the Twin Cities. The economics of this transaction were based more people to draw into the workplace. Combine this with generous unemployment benefits and global on the strength of our currency, the focused performance of the bank, cost takeouts, and the strategic supply chain disruptions, and you get an imbalance between consumer demand and the productive capacity relevance of the Eau Claire market. of our commercial customers. While labor costs, shipping costs, and supply chain disruptions drove up Over our long careers in this region, we have learned much about how and how not to acquire banks. production costs, companies that could produce and deliver products enjoyed sufficient pricing power Successful acquisitions require great clarity of purpose, negotiating a fair deal, clear and consistent to more than cover costs. As our customer base moved through 2022, production bottlenecks eased, communication, and rapid execution. Successful cultural integration requires both urgency and a deep and consumer demand slackened. Inventory turnover has slowed, and labor cost increases have as well. understanding of people, but it doesn’t happen in six months. We acquire not just to get bigger but Consequently, the pricing power that suppliers enjoyed has also lessened. to get better. The Federal Reserve has belatedly awakened to the reality of inflation even as the inflation outlook little consumer lending (especially higher-risk lending). Our regional real estate exposure does not follow seems to improve. That the Fed and other policy experts insisted that inflation was not a serious concern national trends. Our investment real estate exposure is small and focuses on customers with real equity and until 2022 is inexplicable. Instead of looking at complicated charts and data, they might have simply cash flow. A prolonged recession certainly could affect credit quality. We simply don’t see this evident in considered what inevitably happens when so much money is generously infused into the system. our customers, and we are confident in the resilience we and they have demonstrated over the last 22 years The resulting rapid inflation was predictable to even a first-year economics student. Consensus forecasts should conditions deteriorate. In the early months of the year, we spent time with other banks and bank call for inflation to subside and the Fed to lighten up in late 2023. Unfortunately, the consensus of experts investors. There is real concern about interest margins dampening bank profitability, and there is evidence seems to be increasingly unreliable. of that in our experience. Sudden and pronounced policy changes affect the banking industry and our bank. For much of the While we are subject to the same economic conditions as our competitors, we by no means use this as past two years, through mid-2022, we carried all the surplus cash of our customers with little ability to a way to excuse any performance. We will continue to control what we can control and own every decision reinvest those funds. In the last several months, we increased deposit rates as the Fed raised rates. As we that we make. We are very confident about our future. This confidence rests on the quality of our people, enter 2023, we and the rest of the banking industry are experiencing significant margin compression as our customers, and the core ideas that guide our daily actions. We know the people and the places we serve. customers deploy funds into higher interest-bearing accounts and investments. While the rates we receive We know that we matter to our customers, we matter to our communities, and we matter to each other. on loans have also increased, the interest income we receive from loans takes time to increase, as more than 70% of our loans are fixed rate, meaning they reprice when they mature. Throughout 2022, investment markets have disfavored bank stocks. The S&P Regional Bank index was down more than 17% last year. The market sentiment reflects concern about recessionary credit conditions in our customer base to date. Nearly all our customers are coming off several very strong years. They are seeing margin pressure, and so are we. Customers have low leverage, relatively strong profits, liquidity, and real equity. Nationally, there are signs of some stress in consumer lending (credit cards) and certain real estate sectors (i.e., office buildings). This is not evident in our customer base because we do problems for banks. We and our most respected peer banks have seen no indication of deteriorating credit Robert B. Atwell Michael E. Daniels Dear Shareholders, ratios, and statistics banks can be measured by, we believe these three areas encompass the core of what Before we dive into the annual letter, we want to level set expectations of our responsibilities to our we want to achieve each year-a growth-oriented, highly profitable community bank with a strong balance readers. Each year we strive to provide meaningful insight into the numbers that appear in the annual sheet that can withstand all economic environments. report. As a bank, we are awash with numbers, but the WHY behind them is important to us as founders and shareholders. Therefore, we choose to start this letter by taking you back 22 years to our first annual Growth: The period spanning 2021 and 2022 was a period of rapid growth in size and profitability. letter to set the foundation for what is to come. Assets nearly doubled from $4.6 billion at the end of 2020 to $8.8 billion at year-end 2022. Net Income In our first annual report letter, we said we founded the bank because there was an extraordinary increased 57% from $60.1 million in 2020 to $94.3 million in 2022. Organic loan growth grew by 14% opportunity for a highly focused community bank. This entrepreneurial insight became our belief that was last year-something we haven’t seen in more than a decade. In 2022, Wealth Management increased net later validated in our initial meetings with prospective customers and shareholders. The directive we heard new assets by $624 million, and assets under management grew by 8%, which is impressive considering and felt focused more on building a great community bank that emphasized relationships and serving the the overall underperformance in the stock market. In our Retail Banking area, we increased new deposit community over simply a return on investment. We still see that opportunity today, and our actions relationships by more than 7% in 2022. continue to deliver on that initial directive. In this letter, we will concentrate on three basic topics. First, we will review the financial highlights Quality: Despite the media’s constant reminder of an impending recession, or how many economists from 2022. We will next summarize the purpose and the strategic significance of our investment in believe the Fed’s recent actions are surely going to cause our economy to decline, our credit quality continues dramatic growth. We will then close with some comments on the extraordinarily turbulent economic to remain strong. Nonperforming loans to total assets were 0.46% at the end of 2022 versus 0.73% twelve environment as it has evolved from the early stimulus period brought by the pandemic into the recent months prior. This ratio directly reflects our culture of strong bankers having real conversations with period of historically aggressive rapid rate increases as the Fed struggles to throttle inflation. high-quality customers. Our customers remain resilient in the face of higher input costs, employee shortages, and ongoing supply chain issues. While 2023 may bring some relief in these areas, we understand what keeps our customers up at night and commit to working with them through turbulent times. 2022 FINANCIAL RESULTS We have always assessed our financial performance based on financial results centered around three main categories: growth, quality (or “soundness”), and earnings. While there are myriad financial metrics, Earnings: As we have said in the past, the most meaningful measure of profitability is our growth in We approximately doubled the size of Nicolet from 2012 through 2014, primarily by purchasing banks Earnings Per Share (EPS). Since the number of outstanding shares can and has increased, it is best to considered the “lead local” community banks in their geography. Generally, the leadership and employees assess the earnings attributable to an individual share. From 2020 to 2022, EPS increased 15% from aligned with our vision of mattering to the communities we serve. During this time, we were able to continue $5.70 to $6.56. There are many moving parts within these numbers, including all the “noise” that comes to sustain organic market share growth and generate strong earnings and capital. From 2016 to 2017, with the one-time merger related costs of acquisitions (severance, contract termination fees, advisory fees, we also doubled the size of the bank largely through a merger of equals. The acquired growth in this and all those merger accounting adjustments we are required to record). At the announcement of each period was primarily about gaining scale and efficiency through general economies of scale. Through this acquisition, we announce the approximate EPS “accretion” we expect, or how much higher our EPS may 2016 acquisition, we became a true public company that traded on a national stock exchange and began to be with the deal than without it. Just like forecasting the weather, it is difficult to see what the future may see value being created in a premium stock price. The doubling and redoubling of the asset size in 2012 hold, but our financial models tend to get us close. We are confident those EPS targets are being achieved to 2017 also brought us additional valuable and sticky core deposits. These acquired deposits strengthened but are only partially visible in the reported financial statements given what has transpired in the market our balance sheet as core deposits outgrew even our strong loan growth. over the last year. STRATEGIC GROWTH Embedded in the math behind the acquisitions was the belief that we would find good people in each of these banks—people who were aligned with our purpose to serve and matter to our customers, communities, and each other, with the results of that service being the return we provide to shareholders. This foundational Nicolet has been a very high-growth company since our inception. While acquisitions have been the purpose resonated with many of the people who were at the banks we acquired, and they have become focus of our growth during the last 10 years, we have always executed very well on organic growth. This important to the continued success of Nicolet. organic growth is achieved by earning the business of new customers and supporting the growth of existing The point of this history is to assure our newer shareholders that we have had a clear purpose for each customers. Our early years of 2000 to 2008 were all about building a base of quality business as we grew of our acquisitions. The past two years is now the third period in which we have doubled the size of from $0 to just under $700 million in assets. The quality of this customer base has always served us well Nicolet in the past decade. There are always surprises, but we have consistently achieved what we and was especially important during the Great Recession of 2008 to 2012. We emerged from the financial intended in each acquisition. While our strategy and math have always worked, what keeps us pointing crisis very well-positioned to take advantage of opportunities we knew would be coming. Still, we always true north is the unwavering commitment to matter to the people we serve, the places we live, and the focused on growing by providing superior service to existing and new customers in our local markets. people with whom we work. Acquisitions always create stress and disruption. Jobs are eliminated, core systems are integrated, and the signs change on the first day. Employees, communities, and customers CURRENT ECONOMIC ENVIRONMENT are paying attention to our actions rather than our words. We are clear and quick about the changes we We want to end this letter with a look at the current economic environment to understand the banking make and are consistently transparent about why and how this change is happening. Most of these sector and Nicolet’s place in it. When we talk with analysts about Nicolet, a common theme is this: the acquisitions are in smaller cities, where people know each other. We don’t promise comfort and security but analysts want to see what we’ve built once the dust settles. In short, with all the acquisitions and moving offer opportunity and growth. Some people need time to sort out if they can and want to opt into the parts around the financial data, what does Nicolet look like when things are “normal”? It’s a great question, culture and strategy. We always need good people, but Nicolet is not always an easy place to work. but it’s clear that the banking sector is experiencing anything but normal right now. Those who trust the culture and put into action a servant mindset find an extraordinary level of satisfaction The scale of federal stimulus during the pandemic has aptly been compared to that of World War II. and joy in working with people to make a difference. Customers can tell when people are proud and happy In the second quarter of 2020, our balance sheet grew by more than 20%. On June 30, 2020, cash represented to work together on their behalf. In nearly every market we have entered through acquisition, a two-year nearly 20% of our total assets. Nearly all our region’s employers functioned as essential businesses through look-back has typically shown market share growth. the pandemic. Three of the key pillars of our regional economy-paper and wood fiber production, Our acquisition of Charter Bankshares, Inc. (Charter Bank) was a perfect example of that fair deal. food production, and recreation (along with businesses supporting these pillars)-thrived during these times. We closed on the acquisition of this privately held, well-run, commercially oriented bank in August 2022. Our customer base stayed quite profitable and simply left their cash in accounts. Labor supply was tight in It commands the lead local position in the vibrant city of Eau Claire in northwestern Wisconsin and our regions even before the pandemic due to a very high labor force participation. There simply were not brought us into the far southwest suburbs of the Twin Cities. The economics of this transaction were based more people to draw into the workplace. Combine this with generous unemployment benefits and global on the strength of our currency, the focused performance of the bank, cost takeouts, and the strategic supply chain disruptions, and you get an imbalance between consumer demand and the productive capacity relevance of the Eau Claire market. of our commercial customers. While labor costs, shipping costs, and supply chain disruptions drove up Over our long careers in this region, we have learned much about how and how not to acquire banks. production costs, companies that could produce and deliver products enjoyed sufficient pricing power Successful acquisitions require great clarity of purpose, negotiating a fair deal, clear and consistent to more than cover costs. As our customer base moved through 2022, production bottlenecks eased, communication, and rapid execution. Successful cultural integration requires both urgency and a deep and consumer demand slackened. Inventory turnover has slowed, and labor cost increases have as well. understanding of people, but it doesn’t happen in six months. We acquire not just to get bigger but Consequently, the pricing power that suppliers enjoyed has also lessened. to get better. The Federal Reserve has belatedly awakened to the reality of inflation even as the inflation outlook little consumer lending (especially higher-risk lending). Our regional real estate exposure does not follow seems to improve. That the Fed and other policy experts insisted that inflation was not a serious concern national trends. Our investment real estate exposure is small and focuses on customers with real equity and until 2022 is inexplicable. Instead of looking at complicated charts and data, they might have simply cash flow. A prolonged recession certainly could affect credit quality. We simply don’t see this evident in considered what inevitably happens when so much money is generously infused into the system. our customers, and we are confident in the resilience we and they have demonstrated over the last 22 years The resulting rapid inflation was predictable to even a first-year economics student. Consensus forecasts should conditions deteriorate. In the early months of the year, we spent time with other banks and bank call for inflation to subside and the Fed to lighten up in late 2023. Unfortunately, the consensus of experts investors. There is real concern about interest margins dampening bank profitability, and there is evidence seems to be increasingly unreliable. of that in our experience. Sudden and pronounced policy changes affect the banking industry and our bank. For much of the While we are subject to the same economic conditions as our competitors, we by no means use this as past two years, through mid-2022, we carried all the surplus cash of our customers with little ability to a way to excuse any performance. We will continue to control what we can control and own every decision reinvest those funds. In the last several months, we increased deposit rates as the Fed raised rates. As we that we make. We are very confident about our future. This confidence rests on the quality of our people, 9 enter 2023, we and the rest of the banking industry are experiencing significant margin compression as our customers, and the core ideas that guide our daily actions. We know the people and the places we serve. customers deploy funds into higher interest-bearing accounts and investments. While the rates we receive We know that we matter to our customers, we matter to our communities, and we matter to each other. on loans have also increased, the interest income we receive from loans takes time to increase, as more than 70% of our loans are fixed rate, meaning they reprice when they mature. Throughout 2022, investment markets have disfavored bank stocks. The S&P Regional Bank index was down more than 17% last year. The market sentiment reflects concern about recessionary credit problems for banks. We and our most respected peer banks have seen no indication of deteriorating credit Robert B. Atwell Michael E. Daniels conditions in our customer base to date. Nearly all our customers are coming off several very strong years. They are seeing margin pressure, and so are we. Customers have low leverage, relatively strong profits, liquidity, and real equity. Nationally, there are signs of some stress in consumer lending (credit cards) and certain real estate sectors (i.e., office buildings). This is not evident in our customer base because we do 11 Mike and Bob B o a r d o f D i r e c t o r s Ni 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 Marcia M. Anderson Major General (Retired) U. S. Army Robert Atwell Executive Chairman, Nicolet Bankshares, Inc. Héctor Colón President & CEO, Lutheran Social Services of Wisconsin & Upper Michigan, Inc. Michael Daniels President and Chief Executive Officer, Nicolet Bankshares, Inc. Lynn Davis, Ph.D. Founding Partner at Nutrition Professionals, Inc., Quality Roasting, Inc. and Breeze Dairy Group, LLC John Dykema President and Owner, Campbell Wrapper Corp and Circle Packaging Machinery, Inc. Chris Ghidorzi President of Property Development, Ghidorzi Companies Andrew Hetzel, Jr. CEO, FyterTech Nonwovens LLC Brenda Johnson Former Chairman Charter Bankshares, Inc. Ann Lawson Retired CFO, Nicolet Bankshares, Inc. 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 Pierce Smith Board of Directors of Menasha Corporation Paul Tobias Former Chairman and Chief Executive Officer of Mackinac Financial Corporation and Former Executive Chairman of mBank Robert Weyers Owner, Commercial Horizons, Inc. Robert Atwell Executive Chairman Michael Daniels President and Chief Executive Officer H. Phillip Moore, Jr. Chief Financial Officer Eric Witczak Executive Vice President and Secretary Ni c o l e t Na 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 13 Robert Atwell Executive Chairman Michael Daniels President and Chief Executive Officer Brad Hutjens Executive Vice President, Chief Credit Officer, Compliance and Risk Manager Patrick Madson Senior Vice President, Wealth Management H. Phillip Moore, Jr. Chief Financial Officer Eric Witczak Executive Vice President, Chief Operating Officer F i n a n c i a l s Nicolet Bankshares, Inc. (In thousands, except per share data) Years Ended December 31, Condensed Consolidated Statements of Income 2022 2021 % Change Net interest income Provision for credit losses Noninterest income Noninterest expense Income before income tax expense Income tax expense Net income $239,961 $157,955 11,500 57,920 14,900 67,364 160,644 129,297 125,737 31,477 81,122 20,470 $94,260 $60,652 52% -23% -14% 24% 55% 54% 55% Diluted earnings per common share $6.56 $5.44 21% Return on average assets Return on average tangible common equity* Efficiency ratio 1.20% 17.96% 54.15% 1.15% 0.05% 14.74% 3.22% 58.20% -4.05% Return on Tangible Common Equity* Loan Growth ($ in billions) Adjusted Return on Average Tangible Common Equity* Return on Average Tangible Common Equity 22.5% 20.0% 17.5% 15.0% 12.5% 10.0% 7.5% 5.0% 2.5% 0.0% Organic Loans Acquired & PPP Loans $7.0 $6.0 $5.0 $4.0 $3.0 $2.0 $1.0 $0.0 F i n a n c i a l s Nicolet Bankshares, Inc. (In thousands, except per share data) At December 31, Condensed Consolidated Balance Sheets Cash and cash equivalents Securities Loans, net Goodwill and other intangibles All other assets Total assets Deposits Wholesale funding Other liabilities Common equity 2022 2021 % Change $154,723 $595,292 -74% 1,596,746 1,573,464 6,118,670 4,572,164 402,438 339,492 1% 34% 19% 491,392 614,625 -20% $8,763,969 $7,695,037 14% $7,178,921 $6,465,916 542,342 216,915 70,177 120,315 972,529 891,891 11% 150% -42% 9% 14% 15 Total liabilities and stockholders' equity $8,763,969 $7,695,037 Asset Quality Net Charge-Offs / Average Loans Nonperforming Assets / Total Assets Book Value Per Share Tangible Book Value per Share* Book Value per share $70.00 $60.00 $50.00 $40.00 $30.00 $20.00 $10.00 $0.00 1.00% 0.90% 0.80% 0.70% 0.60% 0.50% 0.40% 0.30% 0.20% 0.10% 0.00% * Return on average tangible common equity and tangible book value are non-GAAP measures that exclude goodwill and other intangibles. Adjusted return on average tangible common equity removes certain one-time merger-related expenses and asset gains/losses. 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 2019 2020 2021 2022 2022 PERFORMANCE METRICS COMPARED TO YEAR END 2021 ASSETS NET INCOME (GAAP) ADJUSTED NET INCOME (NON-GAAP)** $8,763,969 $7,695,037 $94,260 $60,652 $99,161 $73,263 SHARES OUTSTANDING EARNINGS PER DILUTED COMMON SHARE ADJUSTED EARNINGS PER DILUTED COMMON SHARE (NON-GAAP)** 14,691 14,095 $6.56 $5.44 $6.90 $6.57 ** Adjusted net income and Adjusted diluted earnings per common share are non-GAAP calculations that remove certain one-time merger-related expenses and asset gains/losses. Last year in our annual report letter, we talked about jumping headfirst into the agriculture banking business. This year, we decided to take a deeper dive into this area. We are fortunate to have Lynn Davis, a recognized expert in this field, as a board member. Lynn was kind enough to author the following for all of us. 17 Nicolet Bank has now completed a full year of serving the former customers of County Bancorp, Inc., after closing that acquisition in December 2021. Many of those customer relationships are agricultural. Agricultural banking is a relatively new endeavor for Nicolet Bank. I came over to the Nicolet Board of Directors after serving as a director of County Bancorp for eight years. County Bancorp was the largest agricultural banking institution in Wisconsin, and my early observations are that Nicolet Bank has successfully transitioned the former agricultural banking team and agricultural customers at County Bancorp into the Nicolet Bank culture with an impressive retention rate of both. Working as a consultant to dairy farmers for nearly forty years and having been part of an ownership group of large dairy farms in Wisconsin for twenty years has given me a front row seat to observe and participate in the rebuilding of a “tired” dairy production infrastructure that was, and is, in dire need of an with nearly 100 cheese manufacturers in the state, creating a competitive milk marketing environment upgrade. The ownership structure of our Wisconsin dairy farms hasn’t changed, with family corporations that is advantageous to dairy producers. Additionally, Wisconsin has an abundant fresh water supply, a being the predominant component. The big changes have been in the professionalism of ownership and relatively cool climate that cows prefer, and adequate rainfall to produce forages that are the primary management, the detail of animal care and comfort, the responsible stewardship of the land base needed to sources of feed stock for dairy cows. Additionally, the dairy industry is the number one GDP source in support dairy production, implementation of risk management strategies for volatile commodity inputs and Wisconsin, so regardless of the political environment, its importance is recognized and supported. outputs, and the sheer size of modern dairy operations and their capital requirements. Carbon management The successful track record set by County Bancorp for more than twenty years demonstrated opportunity is also a piece that the dairy production industry can impact with investment in animal waste management with minimal risk in the agricultural sector. The business model of sending bankers with agricultural and cropping practices that mitigate carbon release into the environment. expertise to the farm gate to establish working and advisory roles with ownership was a novel approach If one looks more closely at the modernization of the dairy production infrastructure in Wisconsin, created by County Bancorp that Nicolet Bank has now embraced, but with far greater financial and human one gets a solid sense as to why dairy producers are motivated to modernize. First and foremost, dairy resources. This provides the ability to finance dairy operations of any size and to provide crop insurance producers are incentivized to have larger, modern dairy facilities to take advantage of the economies of and risk management services to its customers. Nicolet Bank is now the leader of the agricultural banking scale and to provide cow friendly environments that facilitate high yield of high-quality milk, healthy sector in Wisconsin. I’m pleased to report that the financial support of the dairy production industry in animals, and an improved work environment for animal caretakers. From a business perspective, it also Wisconsin is in good hands with Nicolet Bank. makes sense considering national per capita dairy product consumption has grown by 16% since 1975, when the USDA first started tracking this. In 2021, per capita consumption of all dairy products set an all-time record, led by cheese, butter, and yogurt. Wisconsin is the leading producer of cheese in the US,  Nicolet Bank has now completed a full year of serving the former customers of County Bancorp, Inc., after closing that acquisition in December 2021. Many of those customer relationships are agricultural. Agricultural banking is a relatively new endeavor for Nicolet Bank. I came over to the Nicolet Board of Directors after serving as a director of County Bancorp for eight years. County Bancorp was the largest agricultural banking institution in Wisconsin, and my early observations are that Nicolet Bank has successfully transitioned the former agricultural banking team and agricultural customers at County Bancorp into the Nicolet Bank culture with an impressive retention rate of both. Working as a consultant to dairy farmers for nearly forty years and having been part of an ownership group of large dairy farms in Wisconsin for twenty years has given me a front row seat to observe and participate in the rebuilding of a “tired” dairy production infrastructure that was, and is, in dire need of an with nearly 100 cheese manufacturers in the state, creating a competitive milk marketing environment upgrade. The ownership structure of our Wisconsin dairy farms hasn’t changed, with family corporations that is advantageous to dairy producers. Additionally, Wisconsin has an abundant fresh water supply, a being the predominant component. The big changes have been in the professionalism of ownership and relatively cool climate that cows prefer, and adequate rainfall to produce forages that are the primary management, the detail of animal care and comfort, the responsible stewardship of the land base needed to sources of feed stock for dairy cows. Additionally, the dairy industry is the number one GDP source in support dairy production, implementation of risk management strategies for volatile commodity inputs and Wisconsin, so regardless of the political environment, its importance is recognized and supported. outputs, and the sheer size of modern dairy operations and their capital requirements. Carbon management The successful track record set by County Bancorp for more than twenty years demonstrated opportunity is also a piece that the dairy production industry can impact with investment in animal waste management with minimal risk in the agricultural sector. The business model of sending bankers with agricultural and cropping practices that mitigate carbon release into the environment. expertise to the farm gate to establish working and advisory roles with ownership was a novel approach 19 If one looks more closely at the modernization of the dairy production infrastructure in Wisconsin, created by County Bancorp that Nicolet Bank has now embraced, but with far greater financial and human one gets a solid sense as to why dairy producers are motivated to modernize. First and foremost, dairy resources. This provides the ability to finance dairy operations of any size and to provide crop insurance producers are incentivized to have larger, modern dairy facilities to take advantage of the economies of and risk management services to its customers. Nicolet Bank is now the leader of the agricultural banking scale and to provide cow friendly environments that facilitate high yield of high-quality milk, healthy sector in Wisconsin. I’m pleased to report that the financial support of the dairy production industry in animals, and an improved work environment for animal caretakers. From a business perspective, it also Wisconsin is in good hands with Nicolet Bank. makes sense considering national per capita dairy product consumption has grown by 16% since 1975, when the USDA first started tracking this. In 2021, per capita consumption of all dairy products set an all-time record, led by cheese, butter, and yogurt. Wisconsin is the leading producer of cheese in the US, S h a r e h o l d e r I n f o ANNUAL MEETING Shareholders’ Meeting – Monday, May 15, 2023 (5:00 p.m.) Meyer Theatre 117 South Washington Street / Green Bay, WI 54301 INDEPENDENT AUDITOR FORVIS, LLP (Formerly BKD, LLP) 910 E. St. Louis Street / Suite 200 / Springf ield, MO 65801 TRANSFER AGENT Computershare C/O Shareholder Services P.O. Box 43006 / Providence, RI 02940-3006, United States OVERNIGHT DELIVERY Computershare C/O Shareholder Services 150 Royall Street / Suite 101 / Canton, MA 02021, United States Shareholder website: www.computershare.com/investor Shareholder online inquiries: https://www-us.computershare.com/investor/Contact Toll free in the US/Canada: 888.294.8217 / Outside the US: 781.575.3120 Fax: 312.604.2312 21 

Continue reading text version or see original annual report in PDF format above