Annual Report

a year in the life
ofnicolet
a community
bank
bankshares, inc.
2012 annual report
MISSION STATEMENT
WE ARE A RELATIONSHIP-FOCUSED
ORGANIZATION DELIVERING
EXCEPTIONAL SERVICE THROUGHOUT
OUR COMMUNITY, RESULTING IN
SUSTAINED VALUE CREATION FOR
CUSTOMERS AND SHAREHOLDERS.
LETTER TO OUR SHAREHOLDERS
Dear Shareholders,
As a backdrop to our review of 2012, the most important point we need to communicate is that we
firmly believe in the mission of community banking. We meet local needs with local resources. This
approach of creating shared success locally may sound fluffy, but I can assure you there is nothing soft
about it to the companies and people who needed a strong bank during the midst of the crisis. Like the
best community banks, we know that customer success drives shareholder success.
Banking is a very straightforward business. We exist to serve customers. It is the responsibility of
management to do this in a manner that results in shareholder value. This cultural foundation kept
us out of subprime lending and helped us avoid the worst consequences of the commercial real estate
bubble. To avoid the bubble pressure, we had to ask ourselves whether a given product really fit our and
our customers’ objectives. Easy money and clever schemes don’t help customers or communities. Sound
long-term banking decisions do. This is what we offer our customers and our shareholders.
We didn’t invent this. We learned this and believe in doing it, regardless of economic conditions.
There are many challenges in the general economy and among banks. We have a solid track record of
service and profitable growth. We are approaching the future with optimism and with renewed confidence
in our mission. We know that we exist to serve you and that our presence makes a real difference to
our communities.
We are pleased to report that 2012 was a year of important progress. It was the first year since 2007
in which we exceeded every goal we established. Earnings rose to over $3 million, primarily as a result of
loan growth, secondary market mortgage income and expense discipline. Problem loan levels have fallen
back to 2007 levels. Retail core deposit growth has been so strong that we have essentially completed our
10-year journey to make Nicolet an organically funded community bank. And in November 2012, we
announced a definitive agreement to acquire Mid-Wisconsin Financial Services, Inc. (“Mid-Wisconsin”).
2012 annual report — page 3
This acquisition, which closed on April 26, 2013, makes us the largest community owned bank, in terms
of assets, in the northern half of Wisconsin. There is a lot of talk about stress testing in banking. The last
5 years have been a live ammunition stress test beyond anything the experts predicted. However, as
shareholders we can be pleased with how we have weathered the storm.
We believe that, although the “shock and awe” phase of the general economic crisis is over, the
fundamental restructuring of economic policy triggered by the crisis is just beginning. In particular,
the financial services and health care sectors are the subject of massive new legislative initiatives.
Consequently, the community banking environment remains clouded and complex. We believe this
chaos creates great opportunity for seasoned companies like Nicolet. No matter the complexity, the three
drivers of long term shareholder value are quality, earnings and growth. These three components tend to
go in and out of fashion, but, over the long term, shareholder success demands performance in all three
areas. With the banking industry emerging from the intense crisis period, this is an excellent time to
review how we have approached these three value drivers and what this means for our future.
1.
Quality– Quality is the foundation of any successful banking strategy. Quality is easy to measure
after the fact but does not lend itself to accurate measurement at the point of origination. That is
why our discussions on quality start with people.
The foundation of quality is to do business with quality people and to be very clear about what
we do that makes a material difference to them. We then need to deliver on our promises and
treat people very well. Treating good customers really well is the most undervalued strategy in
banking. When you do it, the word spreads in a community. If we have a secret sauce, it is that
we know and deliver this as our core strategy—through real people and real conversations. We
have grown this bank in mature markets by attracting great employees and customers who were
being treated like yesterday’s news.
As we look back on our experience with quality, there is a lot to be proud of. We have stayed
profitable through the worst banking crisis in two generations. There are community banks with
better loss ratios in loans, but none in Wisconsin have combined our track record of growth with
strong asset quality. If there is any positive in the last five years, it was the opportunity to learn
how to continue to improve asset quality. There is nothing like a real loan loss to make one
think. As we review our charge offs, we draw a couple of conclusions. The vast majority of our
charge offs were simply situations in which we departed from our fundamental approach to the
lending business of banking: do business with quality people. If a loss occurs, we would prefer it came
from initially following our core strategy. With maturity, we have become better at sorting out
those customers who really value a relationship with a bank that is committed to serving them for
the long haul from those customers who don’t. Strong customers are much better off with a bank
that knows them, remembers them and watches out for their interests. Our customers are worth
this effort, and we are worth their respect and loyalty.
This approach to quality was very apparent in our 2012 results. Net charge offs were one-third
of last year’s level, falling to $3.1 million from $9.3 million in 2011. At year end 2012, our
nonperforming assets were down to $7.2 million, representing less than 1% of total assets. We are
entering 2013 with a great stress test behind us.
2.
Growth– We have always been a strong growth story. We started the bank on a white sheet of
paper in 2000, and by 2007, we stood at $562 million in assets with 6 locations. In our initial
growth stage, we were strong in commercial loan generation. We used a lot of wholesale funding
back then. In 2003, we shifted our focus, realizing that a stronger retail deposit foundation was
necessary for a long term banking strategy. We made good progress, but still drew roughly a third
of our funding from non-core sources as the banking crisis broke on the nation in 2008. Like all
banks, our hands were full assuring the safety of our customers’ deposits and managing loan
problems. Yet even during the worst banking crisis in two generations, we saw opportunity.
2012 annual report — page 5
We continued to lend, growing loans at a time when market share leaders were shrinking theirs.
We also remained committed to acquiring core deposits, which resulted in our 2010 purchase
of four Green Bay area branches, including approximately $100 million in deposits. In mid-2011,
we launched our Real Rewards checking account product, which has added nearly 2,000 new core
retail banking relationships and represented over $50 million of our core deposit base at year end
2012. In late 2011, we ramped up our investment in the Appleton market with the addition of
seasoned commercial leadership and a second location. In Appleton, we are on the front end of a
long term strategy to stake out the leading community bank position.
We have been evaluating acquisition opportunities since early 2011. In November 2012, we
announced our pending merger with Mid-Wisconsin, which closed on April 26, 2013. Prior to
the merger, Mid-Wisconsin operated 11 locations in central Wisconsin. We anticipate that this
acquisition will help us gain critical scale, enter attractive new markets and further solidify our
core deposit base. While Mid-Wisconsin has struggled in recent years, there is a sound base of
quality relationships and people, which we will continue to serve.
The results of our growth strategies are also evident as we enter 2013. Between year ends 2011 and
2012, loans grew 17% to $553 million and deposits grew 12% to $616 million, with core deposit
growth eliminating the need for wholesale funding. Our acquisition strategy bore fruit with the
recent merger with Mid-Wisconsin, and we plan to continue to evaluate acquisition opportunities
consistent with our goal of creating long-term shareholder value.
3.
Earnings– Earnings are a critical source of capital and indicator of success. We are serious about
making money, but we see it as the result of good strategy and not as our goal. To deliver on
longer-term strategies, we have made decisions that pressure short-term earnings. The best example
of this is executing on our core deposit growth strategy to minimize reliance on wholesale funding
over our 12-year history. In this current low interest rate environment, we have invested in new
locations, people, advertising and product design and pricing to grow core deposits, with initial
investments exceeding early results and returns. That said, we believe it is actually the perfect
countercyclical time to build out the long term stable customer base we previously lacked as a
high growth commercial banking start-up. We are literally trading current earnings for long term
value. Similarly, preparing Nicolet in advance for the merger with and integration of a bank
approximately 60% of our existing size required a considerable investment in the kind of people
who can do this effectively and efficiently. Legal and consulting costs associated with this type of
expansion were evident in our fourth quarter 2012 results and will continue to be higher than
normal in 2013. The sacrifice of current earnings necessary to establish a platform for profitable
growth is a conscious investment in our future. We view this as a wise long term investment.
We have always been a strong growth story. We are emerging from the greatest banking crisis since
the Great Depression with rising strength. We have been severely tested and seasoned through the last
5 years. The nation and our industry are in a period of profound change. While there are plenty of
reasons to be cautious about the future, we are working on the type of growth that will make Nicolet
stronger, more profitable and durable. Because of this difficult environment, we have great opportunities
for the type of growth that really matters to our customers, employees and shareholders. We are grateful
for your support and very excited about what the future holds.
Sincerely,
Robert B. Atwell
Chairman, President
and Chief Executive Officer
Legal disclaimers on back cover
2012 annual report — page 7
Michael E. Daniels
Executive Vice President
and Secretary
BOARD OF DIRECTORS AND OFFICERS
DIRECTORS
Robert Atwell
Chris Ghidorzi
Susan L. Merkatoris
Chairman, President
and Chief Executive Officer
Nicolet Bankshares, Inc.
Director
Ghidorzi Companies
Certified Public Accountant
Therese Pandl
Dr. Kim Gowey
Michael Daniels
President
and Chief Operating Officer
Nicolet National Bank
John Dykema
President and CEO
Campbell Wrapper Corp.
and Circle Packaging
Machinery, Inc.
Owner
Cosmetic & Implant Dentistry
of Wisconsin
President and CEO
HSHS Division Eastern Wisconsin
St. Mary’s Hospital Center and
St. Vincent Hospital
Andrew Hetzel, Jr.
Randy Rose
President and CEO
National Packaging
Services Corp. and
Blue Ridge Tissue Corp.
Retired President and CEO
Schwabe North America
Robert Weyers
Donald Long, Jr.
Gary Fairchild
President, Owner
Fairchild Equipment, Inc.
Former Owner and CEO
Century Drill & Tool
Co., Inc.
Michael Felhofer
Ben Meeuwsen
Owner
Candleworks of
Door County, Inc.
President, Owner
Fourinox, Inc.
Owner
Commercial Horizons, Inc.
ADVISORY DIRECTORS
Wendell Ellsworth
Philip Hendrickson
Ronald Miller
Manager
WEE Enterprises, LLC
AHI Properties, LLC
Retired Chairman, CEO
and President
KI Krueger International
Retired Owner
Four Corporation
Deanna Favre
Wade Micoley
CEO
Favre 4 HOPE Foundation
Owner
Micoley and Co.
Sandra Renard
James Halron
Co-Owner
Halron Lubricants, Inc.
2012 annual report — page 9
Retired President, Owner
Renco Machine Co., Inc.
NICOLET BANKSHARES, INC. OFFICERS
Robert Atwell
Chairman, President
and Chief Executive Officer
Michael Daniels
Executive Vice President
and Secretary
Ann K. Lawson
Chief Financial Officer
NICOLET NATIONAL BANK OFFICERS
Nicole Allen
Branch Manager
Barbara Callahan
Branch Manager
Robert Atwell
Chairman
and Chief Executive Officer
Michael Daniels
President
and Chief Operating Officer
Ranee Bahn
Director Of Trust Operations
Douglas Daul
Vice President, Cash Management
Dana Bald
Branch Manager
Eric DeJardine
Commercial Banker
Jo Beno
Vice President, Private Banker
Charles Dolsky
Retirement Plan Services Manager
Elizabeth Berdichevsky
Vice President,
Investment Operations Manager
JoAnn Draeger
Vice President, Private Banker
Jon Biskner
Vice President,
Information Technology Manager
Wayne Bouchonville
Senior Vice President,
Commercial Banker
William Bradley
Vice President, Commercial Banker
Susan Brugger
Ag Banker
Timothy Buttke
Vice President, Commercial / Ag Banker
Jerry Bybee
Vice President, Commercial Banker
Lynn Caelwaerts
Executive Administrative Assistant
OFFICERS
Lynn Dufrane
Senior Vice President,
Northern Market Executive
Anthony Evans
Vice President, Special Assets
Angela Faber
Branch Manager
Jean Franzen
Vice President, Branch Manager
Jeff Gahnz
Vice President,
Marketing/Public Relations
Brian Haddock
Commercial Banker
Kristi Hansen
Vice President,
Operations & IT Manager
Brad Hutjens
Senior Vice President,
Chief Credit Officer
Nancy Johnshoy
Vice President, Portfolio Manager
Scott King
Senior Vice President,
Community Relations
Andrea Koch
Assistant Vice President,
Private Banker
Amanda Krueger
Branch Manager
Jennifer Kujawa
Commercial / Ag Banker
Marc Lambrecht
Controller
Karen Lampereur
Vice President, Branch Manager
Renee Leinfelder
Branch Manager
Ann Lawson
Chief Financial Officer
Amy Laxton
Branch Manager
Kate Lombardi
Vice President, Human Resources
David Maguire
Vice President,
Trust Investment Officer
CONT.
Dana Malcore
Assistant Vice President,
Retail Banker
Kathryn Maronek
Lead Operations Officer
Karin Mc Lean
Retail Banker
Mark McGee
Assistant Vice President,
Mortgage Lender
Matt Meidl
Assistant Vice President,
Commercial Banker
Gerald Mortell III
Senior Vice President,
Private Banker
Robert Myers
Special Assets Collection Specialist
Rhonda Norrbom
Vice President, Commercial Banker
Paul Pagel
Branch Manager
Brian Paschen
Vice President, Commercial Banker
Charles Paulson
Assistant Vice President,
Commercial Banker
Anita Resch
Vice President, Trust Officer
Daniel Reynolds Jr.
Vice President,
Retirement Plan Services Officer
and Brokerage Manager
Mary Sarver
Vice President,
Trust Investment Officer
Stephen Schahczenski
Branch Manager
Tim Schinkten
Branch Manager
Corey Sherf
Financial Consultant
Eric Siudzinski
Vice President, Commercial Banker
Jason Smerchek
Trust Officer
Larry Snedden
Vice President Commercial Banker
Peter Warmenhoven
Vice President,
Credit Administration Manager
Leo Waters III
Special Assets Collection Specialist
Michael Waters
Senior Vice President,
Fox Cities Market Manager
Jacob Weinand
Commercial Banker
Gary Stanton
Vice President, Commercial Banker
Eric Witczak
Executive Vice President,
Retail / Private Banking Manager
Joan Steliga
Financial Consultant,
Trust Investment Officer
Fredrick Wotruba
Financial Consultant
Michael Steppe
Chief Investment Officer
Darlene York
Vice President,
Trust Investment Officer
Wesley Stripling
Vice President, Commercial Banker
Scot Thompson
Senior Vice President, Central Wisconsin
Commercial / Ag Manager
Connie Tilot
Assistant Vice President,
Retail Banker
Kristi Toner
Director of Employee Relations
Eric Trousil
Vice President,
Trust Investment Officer
Kirk Uslabar
Vice President, Compliance Manager
Michael Van Ermen
Vice President, Retail Banker
Michael Vogel
Senior Vice President,
Commercial Banking Manager
2012 annual report — page 11
Karen Young
Vice President,
Internal Audit Manager
Thomas Zellner
Senior Vice President, Central Wisconsin
Retail / Private Banking Manager
Timothy Zeske
Vice President, Branch Manager
HEART
SOUL
When we speak of the heart
of Nicolet Bank, it always
centers around people. We
create shared success with
customers, shareholders,
employees, and communities.
Real People.
Real Conversations.
Real Impact.
“Treating good customers
really well is the most
undervalued strategy
in banking.”
“We exist to serve
our customers.”
Our soul is WHY WE DO WHAT
WE DO. Banking is a very
straightforward business.
We choose to keep it
that way.
Long-term.
Transparent.
Optimistic.
BRANCHES
EAGLE RIVER
MINOCQUA
PHILLIPS
RHINELANDER
RIB LAKE
MEDFORD PLAZA
MEDFORD DOWNTOWN
ABBOTSFORD
COLBY
CRIVITZ
MENOMINEE
MARINETTE
RIB MOUNTAIN
FAIRCHILD
NEILLSVILLE
GREEN BAY
(area map lower left)
APPLETON-KENSINGTON
HOWARD
GREEN BAY
ASHWAUBENON
DE PERE
BELLEVUE
WEST DE PERE
2012 annual report — page 19
APPLETON
ACCOUNTANT’S LETTER
Report of Independent Certified Public Accounting Firm
To the Stockholders and Board of Directors
Nicolet Bankshares, Inc.
Green Bay, Wisconsin
We have audited, in accordance with standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Nicolet Bankshares, Inc. and subsidiaries
as of December 31, 2012 and 2011, and the related consolidated statements of income,
comprehensive income, changes in stockholders’ equity and cash flows for each of the years
in three-year period ended December 31, 2012 (not presented herein); and in our report dated
February 22, 2013, we expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying condensed financial statements
is fairly stated, in all material respects, in relation to the financial statements from which it has
been derived.
Atlanta, Georgia
February 22, 2013
CERTIFIED PUBLIC ACCOUNTANTS
2012 annual report — page 21
CONSOLIDATED BALANCE SHEETS
Nicolet Bankshares, Inc. and Subsidiaries (December 31, 2012 and 2011)
Assets
Cash and due from banks
Interest-earning deposits
Federal funds sold
Cash and cash equivalents
2012
$
26,987,805
54,515,865
499,466
82,003,136
2011
$
13,741,792
77,391,757
995,500
92,129,049
Certificates of deposit in other banks
-
248,000
Securities available for sale
55,900,568
56,759,395
Other investments
5,220,550
5,211,150
Loans held for sale
7,323,000
11,373,260
Loans
552,600,840472,488,814
Allowance for loan losses
(7,119,964)
(5,899,488)
Loans, net
545,480,876
466,589,326
Premises and equipment, net
19,602,395
19,256,425
Bank owned life insurance
18,696,899
14,236,662
Accrued interest receivable and other assets
11,027,317
12,445,458
Total assets
$ 745,254,741
$ 678,248,725
Liabilities and Stockholders’ Equity
Liabilities:
Demand
$108,233,581$78,154,193
Money market and NOW accounts
322,506,757
270,738,311
Savings
46,907,40821,780,998
Time
138,444,853180,862,028
Total deposits
616,092,599
551,535,530
Short-term borrowings
4,034,776
Notes payable
35,155,482
Junior subordinated debentures
6,185,568
Accrued interest payable and other liabilities
6,407,887
Total liabilities
667,876,312
Stockholders’ Equity:
Preferred equity
24,400,000
Common stock
34,254
Additional paid-in capital
36,243,049
Retained earnings
14,972,855
Accumulated other comprehensive income
1,682,928
Total Nicolet Bankshares Inc. stockholders’ equity
77,333,086
Noncontrolling interest 45,343
Total stockholders’ equity and noncontrolling interest
77,378,429
Total liabilities, noncontrolling interest and stockholders’ equity
$ 745,254,741
Preferred shares authorized (no par value)
10,000,000
Preferred shares issued
24,400
Common shares authorized (par value $0.01 per share)
30,000,000
Common shares outstanding
3,425,413
Common shares issued
3,479,888
2012 annual report — page 23
4,131,892
35,373,896
6,185,568
4,808,600
602,035,486
24,400,000
34,804
36,740,711
13,156,974
1,690,021
76,022,510
190,729
76,213,239
$ 678,248,725
10,000,000
24,400
30,000,000
3,480,355
3,480,355
CONSOLIDATED STATEMENTS OF INCOME
Nicolet Bankshares, Inc. and Subsidiaries (Years ended December 31, 2012, 2011 and 2010)
2012
2011
Interest income:
Loans, including loan fees
$ 27,145,244
$ 28,033,620
Investment securities:
Taxable
624,687
725,187
Non-taxable
792,412
905,521
Federal funds sold
2,602
2,492
Other interest income
230,020
163,355
Total interest income
28,794,965
29,830,175
Interest expense:
Money market and NOW accounts
1,704,304
1,546,429
Savings and time deposits
2,998,693
4,963,800
Short term borrowings
4,203
9,009
Junior subordinated debentures
503,093
501,718
Notes payable
1,319,260
1,362,045
6,529,553
8,383,001
Total interest expense
Net interest income
22,265,412
21,447,174
4,325,000
6,600,000
Provision for loan losses
Net interest income after provision for loan losses
17,940,412
14,847,174
Other income:
Service charges on deposit accounts
1,159,074
1,180,214
Trust services fee income
2,974,658
2,898,673
3,090,125
1,766,778
Mortgage income
Brokerage fee income
323,097
334,209
448,294
(55,055)
Gain (loss) on sale, disposal and writedown of assets, net
Bank owned life insurance
710,236
572,216
Rent income
1,003,397
954,888
342,750
329,518
Investment advisory fees
Other
692,536
462,360
10,744,167
8,443,801
Total other income
Other expenses:
Salaries and employee benefits
13,145,560
11,333,831
4,415,144
4,408,651
Occupancy, equipment and office
Business development and marketing
1,649,150
1,362,572
1,688,657
1,360,463
Data processing
FDIC assessments
566,283
629,845
Core deposit intangible amortization
638,581
740,621
Other
1,959,261
1,606,744
24,062,636
21,442,727
Total other expenses
Income before income tax expense
4,621,943
1,848,248
Income tax expense
1,529,448
318,431
Net income
3,092,495
1,529,817
Less: Net income attributable to noncontrolling interest
56,614
39,532
Net income attributable to Nicolet Bankshares, Inc.
3,035,881
1,490,285
Less: Preferred stock dividends and discount accretion
1,220,000
1,461,332
Net income available to common shareholders
$ 1,815,881 $
28,953 Basic earnings per common share
$
0.53
$
0.01
$
0.53
$
0.01
Diluted earnings per common share
Weighted average common shares outstanding:
Basic 3,440,101
3,468,658
Diluted 3,441,692
3,487,760
2012 annual report — page 25
2010
$ 29,384,906
874,823
944,200
9,937
205,919
31,419,785
1,465,504
7,888,960
24,193
501,858
1,410,080
11,290,595
20,129,190
8,500,000
11,629,190
1,087,321
2,811,173
2,618,909
290,582
(58,668)
573,940
969,809
307,608
367,263
8,967,937
10,165,339
3,747,946
1,242,421
1,292,704
926,943
329,165
1,611,429
19,315,947
$
1,281,180
136,326
1,144,854
34,505
1,110,349
985,160
125,189
$
$
0.04
0.04
3,452,358
3,481,042
SHAREHOLDER INFORMATION
ANNUAL MEETING
Shareholders’ Meeting–Tuesday, June 18, 2013. 5:00 p.m.
Meyer Theatre
117 South Washington Street / Green Bay, Wisconsin 54301
INDEPENDENT AUDITOR
Porter Keadle Moore, LLC
235 Peachtree Street, NE / Suite 1800 / Atlanta, Georgia 30303
TRANSFER AGENT
Computershare
P.O. Box 43070 / Providence, RI 02940-3070
OVERNIGHT DELIVERY
Computershare Trust Company, N.A.
250 Royal Street / Canton, MA 02021
Stock symbol: NCBS
2012 annual report — page 27
111 N. Washington Street / P.O. Box 23900 / Green Bay, WI 54305-3900 / 920-430-1400 / 1-800-369-0226
www.nicoletbank.com
Forward-looking Statements
This report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are typically identified by words such as “believe,”
“expect”, “anticipate”, “intend”, “target”, “estimate”, “continue”, “positions”, “prospects”, “potential” “would”, “should”, “could” “will” or “may”. These forward-looking statements are subject to numerous
assumptions, risks and uncertainties, which change over time and these statements, may not be realized. 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.
In addition to factors previously disclosed in Nicolet’s Registration Statement on Form S-4 filed with the Securities and Exchange Commission and those identified elsewhere in this document, the following factors,
among others, could cause actual results to differ materially from forward-looking statements or historical performance: difficulties, delays and unanticipated costs in integrating the merging organizations’
businesses or realizing expected cost savings and other benefits; business disruptions as a result of the integration of the merging organizations, including possible loss of customers; diversion of management time
to address transaction related issues; changes in asset quality and credit risk as a result of the merger and otherwise; changes in customer borrowing, repayment, investment and deposit behaviors and practices;
changes in interest rates, capital markets, and local economic and national economic conditions; the timing and success of new business initiatives; competitive conditions; and regulatory conditions.