FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934.
For the transition period from ............ to ............
Commission file number: 0-18542
MID-WISCONSIN FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 06-1169935
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
132 West State Street
Medford, Wisconsin 54451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (715) 748-4364
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.10 Par Value Common Stock
(Title of Class)
Indicate by check whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of March 3, 1998 the aggregate market value of the common shares held by
non-affiliates was approximately $45,665,986.
The number of common shares outstanding at March 3, 1998 was 1,864,122
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated March 27, 1998 (to the extent specified herein): Part III
<PAGE>
FORM 10-K
MID-WISCONSIN FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
PART I
ITEM
1. Business .......................................................... 3
2. Properties ........................................................ 9
3. Legal Proceeding .................................................. 9
4. Submission of matters to a vote of security holders ............... 9
PART II
5. Market for registrant's common equity and related stockholder
matters .......................................................... 10
6. Selected Financial Data .......................................... 12
7. Management's discussion and analysis of financial condition
and results of operations ........................................ 13
7A. Quantitative and Qualitative Disclosures About Market Risk ....... 29
8. Financial statements and supplementary data ...................... 30
9. Changes in and disagreements with accountants on
accounting and financial disclosure .............................. 60
PART III
10. Directors and executive officers of the registrant ............... 61
11. Executive compensation ........................................... 61
12. Security ownership of certain beneficial owners and
management ....................................................... 61
13. Certain relationships and related transactions ................... 61
PART IV
14. Exhibits, financial statements schedules, and reports on
Form 8-K ......................................................... 62
<PAGE>
PART I
ITEM 1. BUSINESS
General
The Mid-Wisconsin Financial Services, Inc. ("The Company") is a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "BHCA"). The Company's subsidiary operates under the name "Mid-
Wisconsin Bank" (the "Bank") and has its principal office in Medford,
Wisconsin. Except as may otherwise be noted, this annual report on Form 10-K
describes the business of the Company and the Bank as in effect on December 31,
1997.
Acquisitions
The Company has a policy of continuously exploring opportunities for the
acquisition of additional bank subsidiaries so that, at any given time, it may
be engaged in some tentative preliminary discussions for such purpose with
officers, directors or principal shareholders of other holding companies or
banks. There are no plans, understandings, or arrangements, written or oral,
regarding other acquisitions as of the date hereof. See "The Bank" concerning
the purchase of certain branch assets in 1997.
Business of the Bank
The day-to-day management of the Bank rests with its officers and board
of directors. The Bank is engaged in general commercial and retail banking
services, including trust services. The Bank serves individuals, businesses
and governmental units and offers all forms of commercial and consumer lending,
including lines of credit, term loans, real estate financing and mortgage
lending. In addition, the Bank provides a full range of personal banking
services, including checking accounts, savings and time accounts, installment
and other personal loans, as well as mortgage loans. New services are
frequently added to the Bank's retail banking departments. The Bank and each
of its branches, other than the Ogema and Fairchild branches, have drive-in
banking facilities.
Investment and brokerage services are offered to the Bank's customers
through its Investment Sales Centers.
The Company furnishes management services to the Bank to supplement its
internal management and expand the banking services offered. Services provided
include advice and counsel concerning areas of banking policy, employee benefit
programs, and personnel development services.
Trust services are marketed to customers of the Bank through its Trust
Department located in the Medford office.
<PAGE>
The Bank
The Bank was incorporated on September 1, 1890, as a state bank under the
laws of Wisconsin. The Bank's principal office is located at 132 West State
Street, Medford, Wisconsin, 54451. The Bank's principal office and branches in
Medford, Ogema and Rib Lake, Wisconsin, provide various commercial and consumer
banking services for customers located principally in Taylor County and
portions of Price, Lincoln, Clark and Marathon Counties, Wisconsin, within a
range of 15 to 45 miles from its principal office.
The Bank's principal branch offices are located at 101 South First
Street, Colby, Wisconsin, 54421; and at 500 West Street, Neillsville, Wisconsin
54456. These branches provide commercial and consumer banking services for
customers located principally in the communities of Colby, Abbotsford and
Unity, all of the townships of Hull and Brighton, portions of the townships of
Holton, Johnson, Frankfort, Green Grove, Beaver, Eau Pleine, Mayville and
Hoard, and the Neillsville market area.
The Bank constructed a full service facility in Phillips, Wisconsin which
opened as a branch office on August 1, 1997. This branch provides commercial
and consumer banking services for customers located principally in Price
County, Wisconsin.
On September 22, 1997, the Bank completed the purchase of the assets and
deposits of branch offices located in Rhinelander and Lake Tomahawk from M&I
Marshall & Ilsley Corp. of Milwaukee, Wisconsin. The assets consisted of real
estate, personal property and loans. These branch offices provide commercial
and consumer banking services for customers located principally in Oneida
County, Wisconsin.
As of December 31, 1997, the Bank had total assets of $263,675,561;
deposits of $211,149,458; and shareholders' equity of $27,867,157. Loans
outstanding as of December 31, 1997 were $185,015,272. No material portion of
the Bank's loans are concentrated within a single industry or customer.
Bank Market Area and Competition
The Bank has active competition for the services it offers in the market
area in which it presently operates. It competes in its market area for
commercial and individual deposits and loans with in excess of thirty other
commercial banks and savings and loan associations, as well as with national
non-bank financial institutions. Such competition encompasses efforts to
obtain new deposits, efforts to attract assets for trust management, types of
services offered, loan rates, and interest rates paid on time deposits, as well
as other aspects of banking. The Bank maintains correspondent banking
relationships with larger financial institutions located in Madison, Milwaukee,
and Eau Claire, Wisconsin; Minneapolis, Minnesota; and Chicago, Illinois. In
addition, the Bank encounters substantial competition from other financial
institutions engaged in the business of making loans or accepting savings
deposits, such as savings and loan associations, small loan companies, credit
unions, certain governmental agencies, and insurance companies.
The Bank is the second largest bank and financial institution within its
principal geographic market area.
<PAGE>
Employees
All officers of the Company except the Chairman, Vice Chairman, and the
Vice President are full-time employees of the Bank. As of December 31, 1997,
the total employees of the Company and its subsidiaries was approximately 112
on a full-time basis and 39 on a part-time basis. Officers and certain
supervisors are salaried, and all other full and part-time employees are paid
on an hourly basis. Employee relations are considered to be good and none of
the employees are covered by a collective bargaining agreement.
Executive Officers
The executive officers of the the Company as of March 1, 1998, their
ages, offices and principal occupation during the last five years are set forth
below.
James R. Peterson, 61
Chairman of the Board of the Company (since 1993) and Vice President,
James Peterson Sons, Inc.
James F. Melvin, 48
Vice Chairman of the Board of the Company and President of the Melvin
Companies.
Ronald D. Isaacson, 61
Vice President of the Company (since October 1996) previously Chairman of
the Board (1991 to 1993) and President and CEO (1993 to 1996) of the
Company; also Chairman of the Board of the Bank.
Gene C. Knoll, 44
President of the Company (since October 1996) and President, Chief
Executive Officer and a director of the Bank; previously, Vice President
of the Company (1994 to 1996), President and CEO of the Company Bank of
Colby (1988 to 1994).
Ruth M. Zuleger, 59
Secretary and Treasurer of the Company; also Senior Vice President
and Cashier of the Bank.
Lucille T. Brandner, 59
Controller of the Company; also Senior Vice President of the Bank.
All executive officers are elected annually by the board of directors at
its annual meeting and hold office until the next annual meeting of the board
of directors, or until their respective successors are elected and qualified.
Regulation and Supervision
The Company and the Bank are subject to regulation under both federal and
state law. The information given below consists of summaries of certain, but
not all statutory provisions which regulate the Company's business. These
summaries are qualified in their entirety by reference to the statutory
provisions.
<PAGE>
The Company is directly regulated by the Board of Governors of the
Federal Reserve System (the "Board") pursuant to the BHCA and must file reports
on a periodic basis. Among other limitations imposed by the BHCA, the Company
must obtain prior approval from the Board before acquiring direct or indirect
ownership or control of more than 5% of any bank or bank holding company. The
BHCA also regulates the entry by the Company into a business other than
banking.
The deposits of the Bank are insured under the provisions of the Federal
Deposit Insurance Act, and the Bank is, therefore, subject to regulation and
examination by the Federal Deposit Insurance Corporation ("FDIC"). As a
Wisconsin chartered bank, the Bank and the Company are also subject to periodic
examination and the regulations of the Wisconsin Commissioner of Banking.
State and federal banking authorities regulate the Bank's capital
adequacy, loans and loan policies (including the extension of credit to
affiliates), payment of dividends, establishment of branch offices, mergers and
other acquisitions, management personnel, interlocking directors and other
aspects of the operation of the Bank. The Bank is subject to civil fines,
penalties or imposition of regulatory control for noncompliance with applicable
banking regulations and policies. Other financial institutions with which the
Bank competes, such as national banking associations, savings and loan
associations or credit unions, are subject to regulations which are generally
similar, but may be more or less restrictive in certain areas or permit
activities or practices unavailable to the Bank.
Banking laws and regulations have undergone periodic revisions which
often have a direct effect on the Bank's operations and its competitive
environment. For example, under the Deposit Insurance Funds Act of 1996, the
FDIC has lowered the rates on assessments paid to the Saving Association
Insurance Fund ("SAIF") while simultaneously widening the spread between the
lowest and highest rates to improve the effectiveness of the FDIC's risk-based
premium system. The FDIC also established a process, similar to that which was
applied to the Bank Insurance Fund ("BIF"), for adjusting the rate schedules
for both the SAIF and the BIF within a limited range to maintain each of the
fund balances at the target designated reserve ratio.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the
"Riegle-Neal Act") significantly expanded interstate banking opportunities in
Wisconsin. Under a Wisconsin law enacted in 1995 in response to the Riegle-
Neal Act, subject to certain exceptions for banks which have not been in
existence and in continuous operations for at least five years, bank holding
companies may acquire control of an existing or de novo bank in Wisconsin upon
application and approval by the Division of Banking Wisconsin Department of
Financial Institutions. Under the Riegle-Neal Act, banks are permitted to
operate interstate branches. The effect of the new Wisconsin banking
provisions has been and will likely continue to be an increase in the level of
banking competition for the Bank by broadening the impact of interstate banking
within Wisconsin.
The activities and operations of the Company and the Bank are subject to
a number of other federal and state laws and regulations, including, among
others, state usury and consumer credit laws, the Truth-In-Lending Act and
Regulation Z, Truth in Savings Act and Regulation DD, the Equal Credit
Opportunity Act and Regulation B, the Fair Credit Reporting Act, the Community
Reinvestment Act, anti-redlining legislation and the antitrust laws.
<PAGE>
Monetary Policy
The earnings and growth of the Bank, and therefore the Company, are
affected by the monetary and fiscal policies of the federal government and
governmental agencies. The Board has broad power to expand and contract the
supply of money and credit and to regulate the rates which its member banks can
pay on time and savings deposits. These broad powers are used to influence
inflation and the growth of the economy and directly affect the growth of bank
loans, investments and deposits, and may also affect the interest rates charged
by banks on loans paid by banks in respect of deposits. Governmental and Board
monetary policies have had a significant effect on the operating results of
commercial banks in the past and are expected to do so in the future.
Management of the Company is not able to anticipate the future impact of such
policies and practices on the growth or profitability of the Company.
Changes in Federal Regulatory Scheme
From time to time various formal or informal proposals, including new
legislation, relating to, among other things, additional changes with respect
to deposit insurance, permitted bank activities and restructuring of the
federal regulatory scheme have been made and may be made in the future. Recent
proposals or regulations concern expanded securities activities for banks and
accelerated approval procedures for acquisitions by bank holding companies.
Depending on the scope and timing of future regulatory changes, it is possible
that there may be a significant impact in the future on the competitive
circumstances which will affect the Company. At this time, the Company is
unable to predict whether any such changes will be adopted or the effect of any
such changes on its future business or operations.
Cautionary Statement Regarding Forward Looking Information
Certain statements contained in each of the Company's annual reports to
shareholders, Forms 10-K, 8-K and 10-Q, proxy statements, prospectuses, and any
other written or oral statement made by or on behalf of the Company subsequent
to filing of this Form 10-K may include one or more "forward-looking
statements' within the meaning of Sections 27A of the Securities Act of 1933
and 21E of the Securities Exchange Act of 1934 as enacted in the Private
Securities Litigation Reform Act of 1995 (the "Reform Act"). In addition,
certain statements in future filings by the Company with the Securities and
Exchange Commission, in press releases, and in oral and written statements made
by or with the approval of the Company which are not statements of historical
fact will constitute forward-looking statements within the meaning of the Act.
<PAGE>
Examples of forward-looking statements include, but are not limited to:
(i) projections of revenues, income or loss, earnings or loss per share, the
payment or non-payment of dividends, capital structure and other financial
items; (ii) statements of plans and objectives of the Company or its
management or Board of Directors, including those relating to products or
services; (iii) statements of future economic performance; and (iv)
statements of assumptions underlying such statements. Words such as
"believes", "anticipates", "expects", "intends", "targeted", and similar
expressions are intended to identify forward-looking statements but are not the
exclusive means of identifying such statements. In making forward-looking
statements within the meaning of the Reform Act, the Company undertakes no
obligation to publicly update or revise any such statement.
Forward-looking statements of the Company are based on information
available to the Company as of the date of such statements, and reflect the
Company's expectations as of such date, but are subject to risks and
uncertainties that may cause actual results to vary materially. In addition to
specific factors which may be described in connection with any of the Company's
forward-looking statements, factors which could cause actual results to differ
materially from those discussed in the forward-looking statements include, but
are not limited to the following: (i) the strength of the U.S. economy in
general and the strength of the local economies in which operations are
conducted; (ii) the effects of and changes in trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors
of the Federal Reserve System; (iii) inflation, interest rate, market and
monetary fluctuations; (iv) the timely development of and acceptance of new
products and services and perceived overall value of these products and
services by users; (v) changes in consumer spending, borrowing and saving
habits; (vi) technological changes; (vii) acquisitions; (viii) the ability
to increase market share and control expenses; (ix) the effect of changes in
laws and regulations (including laws and regulations concerning taxes, banking,
securities and insurance) with which the Company and its subsidiaries must
comply,; (x) the effect of changes in accounting policies and practices, as
may be adopted by the regulatory agencies as well as the Financial Accounting
Standards Board; (xi) the costs and effects of litigation and of unexpected or
adverse outcomes in such litigation; and (xii) the success of the Company at
managing the risks involved in the foregoing.
<PAGE>
ITEM 2. PROPERTIES
Mid-Wisconsin
The Company's operations are carried out at the Bank's main office
facility at 132 West State Street, Medford, Wisconsin. The Company does not
maintain any separate offices.
All of the offices and facilities of the Company and the Bank are
adequate and suitable for their purposes.
Mid-Wisconsin Bank
The Bank's main office is located at the property owned by it at 132 West
State Street, Medford, Wisconsin, in the main business district. The office
comprises approximately 15,000 square feet of usable space and is owned by the
Bank.
In addition to its main office, the Bank also owns eleven branch
facilities. All of the branches are free-standing buildings that provide
adequate customer parking and, with two exceptions, all have drive-in
facilities. The Phillips branch location was constructed by the Bank in 1997
and the other branches acquired in 1997, at Rhinelander and Lake Tomahawk,
Wisconsin, were previously operated as branches of the seller.
The Company considers its properties to be adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings before any
court, administrative agency or other tribunal. Further, the Company is not
aware of any litigation which is threatened against it in any court,
administrative agency or other tribunal.
The Bank is engaged in legal actions and proceedings, both as plaintiffs
and defendants, from time to time in the ordinary course of its business. In
some instances, such actions and proceedings involve substantial claims for
compensatory or punitive damages or involve claims for an unspecified amount of
damages. There are, however, presently no proceedings pending or contemplated
which, in the opinion of the Company's management, would have a material
adverse effect on the operations, liquidity or consolidated financial condition
of the Bank or the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth
quarter of 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
Market Information
There is no active established public trading market in the Company
common stock, although two regional broker-dealers act as a market makers for
the Company common stock and bid and ask quotations are published periodically
in The Milwaukee Journal Sentinel. Transactions in the Company common stock
are limited and sporadic.
Holders
As of March 15, 1998, there were approximately 790 holders of record of
the Company's $.10 per share par value common stock.
Dividend Policy
The Company's Bylaws provide that, subject to the provisions of
applicable law, the Board of Directors may declare dividends from unreserved
and unrestricted earned surplus, at such times and in such amounts as the board
shall deem advisable.
The Company's ability to pay dividends depends upon its receipt of
dividends from the Bank. The Bank's ability to pay dividends, in turn, is
regulated by banking laws and regulations. The declaration of dividends by the
Company is discretionary and will depend upon operating results and financial
condition, regulatory limitations, tax considerations and other factors. The
Company has paid regular dividends since its inception in 1986.
Market Prices and Dividends
Price ranges of over-the-counter quotations and dividends declared per
share on the Company common stock for the periods indicated are:
<TABLE>
<CAPTION>
1997 1996
Prices:
Quarter High Low Dividends(1) High Low Dividends(2)
<S> <C> <C> <C> <C> <C> <C>
1st $25.50 $24.00 .15 $21.50 $21.00 .13
2nd 25.50 25.00 .15 22.63 21.50 .13
3rd 27.00 25.50 .15 23.00 22.63 .13
4th 27.25 27.00 .30 24.00 23.00 .28
<FN>
(1) The $.30 per share dividend declared in the fourth quarter of 1997
includes a special dividend of $.15 per share.
(2) The $.28 per share dividend declared in the fourth quarter of 1996
includes a special dividend of $.15 per share.
</TABLE>
Quotations represent bid and ask prices from market makers in the common
stock and are published periodically in The Milwaukee Journal Sentinel. Market
makers in the company's common stock are Robert W. Baird & Co, Incorporated and
Everen Clearing Corp. The quotations reflect prices, without retail mark-up,
mark-down or commissions, and may not necessarily represent actual
transactions. There is no active established trading market.
<PAGE>
Sales of Unregistered Securities
During the three-fiscal year period ended December 31, 1997, the Company
sold common stock in connection with the exercise by employees of options
granted under the 1991 Stock Option Plan. These shares were not registered
under the Securities Act of 1933, but were offered in reliance on the
exemptions afforded under sections 4(2) and 3 (a) (11) thereof as all optionees
were officers of the Bank and all are residents of the State of Wisconsin. All
proceeds from the sale of such shares were used or general corporate purposes.
Sales of shares during each fiscal year were as follows:
<TABLE>
<CAPTION>
Aggregate
Aggregate Consideration
Year Ended Shares Sold Received
<S> <C> <C>
1997 7,981 $101,060.25
1996 8,079 $ 75,057.50
1995 7,430 $ 63,054.76
</TABLE>
<PAGE>
<TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<CAPTION>
Years Ended December 31
1997 1996 1995 1994 1993
FINANCIAL HIGHLIGHTS: (Dollars in thousands, except per share amounts)
<S>
Earnings and Dividends: <C> <C> <C> <C> <C>
Net interest revenue $10,800 $10,757 $10,182 $9,865 $9,557
Provision for credit losses 140 400 100 303 326
Other non-interest income 2,258 1,873 1,397 1,739 1,543
Other non-interest expense 9,411 8,954 8,598 8,623 8,483
Net income 3,507 3,276 2,881 2,678 2,291
Per common share: (1)
Basic and diluted earnings 1.88 1.76 1.55 1.44 1.24
Dividends declared 0.75 0.67 0.47 0.41 0.46
Book value at year end 14.95 13.79 12.79 10.91 10.52
Average common shares (000's) 1,868 1,865 1,861 1,857 1,848
Dividend payout ratio 39.89% 38.07% 30.32% 28.47% 37.10%
Shareholders of record at year end 790 750 710 720 710
Balance Sheet Summary:
At year end:
Loans net of unearned income $185,015 $174,842 $172,678 $165,422 $160,657
Assets 263,675 251,501 244,606 237,739 229,548
Deposits 211,149 202,412 192,144 186,151 190,172
Shareholders equity 27,867 25,725 23,750 20,180 19,382
Average balances:
Loans net of unearned income 178,968 171,381 166,958 159,265 146,717
Assets 254,352 244,772 236,659 234,186 224,146
Deposits 198,935 192,220 188,586 190,697 190,579
Shareholders equity 26,633 24,544 21,920 20,086 18,566
Performance Ratios:
Return on average assets 1.38% 1.34% 1.22% 1.14% 1.02%
Return on average common equity 13.17% 13.35% 13.14% 13.33% 12.34%
Equity to assets 9.62% 9.97% 9.41% 8.14% 8.05%
Total risk-based capital 14.94% 15.66% 13.92% 12.38% 11.88%
Net loan charge-offs as a percentage
of average loans 0.10% 0.12% 0.07% 0.13% 0.10%
Nonperforming assets as a percentage
of loans and other real estate 0.70% 0.58% 0.67% 0.96% 0.59%
Net interest margin 4.56% 4.78% 4.67% 4.61% 4.77%
Efficiency ratio 56.49% 56.12% 60.26% 61.21% 65.23%
Fee revenue as a percentage of
average assets 0.44% 0.43% 0.44% 0.53% 0.51%
Stock Price Information:
High $27.25 $24.00 $21.00 $17.50 $14.50
Low 24.00 21.00 15.00 14.50 11.00
Market Price at year end (2) 27.25 24.00 19.50 16.00 14.00
<FN>
(1) All per share amounts (income and dividends) have been restated to reflect
the stock split in the form of a 100 percent stock dividend issued May 8, 1995.
(2) Market value at year end represents the average of bid and asked prices.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis reviews significant
factors with respect to the Company's financial condition and results of
operation at and for the three-year period ended December 31, 1997. This
discussion should be read in conjunction with the consolidated financial
statements, notes, tables, and the selected financial data presented elsewhere
in this report. All earnings and dividends per share have been restated to
reflect the stock split in May 1995.
The Company is not aware of any current recommendations by any regulatory
authority which, if they were implemented, would have a material effect on
liquidity, capital resources, or operations.
Management's discussion and analysis contains forward-looking statements
that are provided to assist in the understanding of anticipated future
financial performance. However, such performance involves risks and
uncertainties which may cause actual results to differ materially from those in
such statements. For a discussion of certain factors that may cause such
forward-looking statements to differ materially from actual results see Item 1,
Cautionary Statement Regarding Forward-Looking Information, in the Company's
Annual Report on Form 10-K for the year ended December 31, 1997.
RESULTS OF OPERATIONS
The Company's consolidated net income for 1997 increased 7.05% to
$3,507,454 from $3,276,441 in 1996. This compares with an increase of 13.73%
for 1996 over 1995 income of $2,880,861. Factors contributing to the 1997
earnings increase include increases in service fees, fiduciary income, and
income recognized on the sale of mortgage servicing rights. The Company
continues to provide funds for loans in its market area. The Company promotes
a sales culture, along with quality service, in order to attract new customers
and build stronger relationships with existing customers.
Operations consolidation and standardization continued throughout 1997,
eliminating duplication of procedures in all areas of the company. In 1997,
the Bank assigned several reengineering committees the task of designing
completely new methods and procedures in the areas of loan and deposit
origination, trust operations, and item processing to increase efficiency and
productivity throughout those areas.
The Company has committed resources to evaluate, fix, and test programs,
databases, and applications in connection with the Year 2000. The Bank's
information systems department is contacting all hardware and software vendors
requesting written confirmation that the products are Year 2000 compliant. In
addition, the department will survey business clients regarding their status
with the Year 2000 issue. The next process is to perform live tests of major
systems during 1998 and verify them as Year 2000 compliant. The impact of
addressing the Year 2000 issue does not appear to be a material event. All
costs incurred which have been expensed and future costs to be incurred are not
expected to materially impact the Company's results of operations and capital
resources.
<PAGE>
Return on average common stockholders' equity amounted to 13.17% in 1997,
13.35% in 1996, and 13.14% in 1995.
Return on average assets for 1997 amounted to 1.38%, compared to 1.34%
for 1996 and 1.22% for 1995.
Net income per share amounted to $1.88 in 1997, compared to $1.76 in 1996
and $1.55 in 1995. Cash dividends declared in 1997 were $ .75, compared to $
.67 per share in 1996 and $ .47 in 1995. The per share ratio of dividends to
shareholders to net income was 40.11% in 1997, compared to 38.07% in 1996 and
30.32% in 1995.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive
Income," in June 1997. SFAS No. 130 requires all items recognized under
accounting standards as components of comprehensive income to be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The adoption of SFAS No. 130 will not have an impact on
the Company's financial condition or results of operations once implemented.
The FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information," in June 1997. SFAS No. 131 requires the
Company report financial and descriptive information about its reportable
operating segments. Operating segments are components of an enterprise about
which separate financial information is available that is evaluated regularly
by the chief operating decision maker in deciding how to allocate resources and
in assessing performance. Generally, financial information is required to be
reported on the basis that it is used internally for evaluating segment
performance and deciding how to allocate resources to segments. The adoption
of SFAS No. 1231 will not have an impact on the Company's financial condition
or results of operations once implemented.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. Management actively
monitors and manages its interest-rate risk exposure. The measurement of then
market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance sheet transactions are aggregated,
and the resulting net positions are identified. Disclosures about the fair
value of financial instruments which reflect changes in market prices and
rates, can be found in footnotes 17 and 18 on the Notes to The Financial
Statements.
The Company's primary objective in managing interest-rate risk is to
minimize the adverse impact of changes in interest rates on the Company's net
interest income and capital, while adjusting the Company's asset-liability
structure to obtain the maximum yield-cost spread on that structure. The
Company relies primarily on its asset-liability structure to control interest-
rate risk. However, a sudden and substantial increase in interest rates may
adversely impact the Company's earnings, to the extent that the interest rates
borne by assets and liabilities do not change at the same speed, to the same
extent, or on the same basis. The Company does not engage in trading
activities.
<PAGE>
NET INTEREST INCOME
The following table shows how net interest income is impacted by the
change in volume and interest rates. 1997 and 1996 data shows a favorable
spread due to increased volume. 1997 shows a decrease and 1996 shows an
increase due to rate changes. Growth in net interest income is expected to be
moderate.
<TABLE>
Interest Income & Expense Volume & Rate Change
(in thousands of dollars)
<CAPTION>
1997 compared to 1996 1996 compared to 1995
increase (decrease) increase (decrease)
due to (1) due to (1)
Volume Rate Net Volume Rate Net
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans (2) $720 $(83) $637 $420 $206 $626
Taxable investment securities (171) (73) (244) 124 (14) 110
Non-taxable invest (2) 168 (10) 158 33 (41) (8)
Other interest income 40 2 42 33 (3) 30
Total 757 (164) 593 610 148 758
Interest paid on:
Savings deposits $40 $214 $254 $169 $61 $230
Time deposits 268 81 349 (206) 150 (56)
Short Term Borrowing (42) 18 (24) 267 (281) (14)
Long Term Borrowing 103 28 131 2 9 11
Total 368 342 710 232 (61) 171
Net Interest earnings $389 $(506) $(117) $378 $209 $587
<FN>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) The amount of interest income on non-taxable loans and investment
securities has been adjusted to its fully taxable equivalent using a 34% tax
rate.
</TABLE>
The following table demonstrates how the changing interest rate
environment affected the net yield on earning assets (on a fully tax equivalent
basis) for the three-year period ending December 31, 1997.
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
December 31, 1997 December 31, 1996 December 31, 1995
Yield Change Yield Change Yield Change
<S> <C> <C> <C> <C> <C> <C>
Yield on earning assets 8.74% -0.05% 8.79% 0.05% 8.74% 0.41%
Effective rate on all liabilities as a
% of earning assets 4.18% 0.17% 4.01% -0.06% 4.07% 0.51%
Net yield on earning assets 4.56% -0.22% 4.78% 0.11% 4.67% -0.10%
</TABLE>
The 1997 figures as a percent of average earning assets reflect a
decrease in interest income and an increase in interest expense. The changes
are due to increased pressure on rates in the bank's market area. The Company
will focus on maintaining a stable net interest margin during 1998.
<PAGE>
Average earning assets increased 3.52% to $237,289 in 1997 from $229,218
in 1996. Included in this increase was a 4.43% increase in average loans and
leases to $178,968 in 1997, up from $171,380 in 1996, a 5.27% decrease in
average taxable investments to $48,000 in 1997, from $50,672 in 1996, and a
41.83% increase in average tax exempt investments to $8,147 in 1997, up from
$5,744 in 1996.
The following table sets forth average consolidated balance sheet data
and average rate data on a tax equivalent basis for the periods indicated.
MID-WISCONSIN FINANCIAL SERVICES
Average Consolidated Balance Sheet
<TABLE>
<CAPTION>
Average 1997 Yield Average 1996 Yield Average 1995 Yield
(Dollars in thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans $178,968 $16,996 9.50% $171,380 $16,359 9.55% $166,958 $15,733 9.42%
Taxable Investments 48,000 3,059 6.37% 50,672 3,303 6.52% 48,772 3,193 6.55%
Non-taxable investments 8,147 571 7.01% 5,744 413 7.19% 5,418 421 7.77%
Other Interest Income 2,174 117 5.38% 1,422 75 5.27% 785 45 5.73%
Total $237,289 20,743 8.74% $229,218 20,150 8.79% $221,933 19,392 8.74%
Non-interest earning assets:
Cash & cash equivalents 10,114 9,625 8,880
Premises & Equip-Net 4,501 3,994 4,208
Other assets 4,483 3,839 3,556
Allow.for credit losses (2,035) (1,904) (1,918)
Total $254,352 $244,772 $236,659
Liabilities & Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand $17,412 $341 1.96% $18,768 $410 2.18% $20,642 $523 2.53%
Savings deposits 52,199 1,989 3.81% 49,550 1,666 3.36% 42,069 1,323 3.14%
Time deposits 107,003 6,248 5.84% 102,398 5,899 5.76% 105,768 5,955 5.63%
Short-term borrowings 19,109 976 5.11% 19,928 1,000 5.02% 18,244 1,014 5.56%
Long-term borrowings 6,030 354 5.87% 4,243 223 5.26% 4,194 212 5.05%
Total $201,753 $9,908 4.91% $194,887 $9,198 4.72% $190,917 $9,027 4.73%
Non-interest bearing liabilities
Demand deposits 22,321 21,504 20,107
Other liabilities 3,645 3,837 3,715
Stockholders' equity 26,633 24,544 21,920
Total $254,352 $244,772 $236,659
<FN>
(1) For the purposes of these computations, non-accruing loans are included in
the daily average loan amounts outstanding.
(2) The amount of interest income on non-taxable investment securities and
loans has been adjusted to its fully taxable equivalent using a 34% tax rate.
(3) Loan fees are included in total interest income as follows: 1997-$409,928;
1996-$389,714; 1995-$396,999.
</TABLE>
The preceding table shows a 1997 decrease of .22% on net yield on interest
earning assets. The average rate on loans and leases decreased .05% in 1997 to
9.50%, from 9.55% in 1996. Deposits in all categories increased with the
acquisition of the deposits of the Rhinelander and Lake Tomahawk branch
offfices. Total deposits at December 31, 1997 showed an increase of
$8,737,351, increasing to $211,149,458 from $202,412,107 at December 31, 1996.
Average deposits for 1997 increased $6,715,295 to $198,935,187 from
$192,219,892 in 1996. Average short term borrowing decreased $819,558,
decreasing from $19,928,309 in 1996 to $19,108,751 in 1997. The average rate
on all interest bearing liabilities increased .19% to 4.91 in 1997 from 4.72%
in 1996. This is due in part to higher deposit rates paid in the new market
areas and the marketing decision to establish regional pricing to maintain and
increase market share.
<PAGE>
Loan growth is expected to increase during 1998 due to the marketing
efforts of both commercial and consumer loans in the new market areas.
Increased secondary market mortgage loan volume will provide additional loan
origination income.
Income of $235,027 on municipal loans is included in interest and fees on
loans in 1997; $250,086 in 1996; and $246,574 in 1995.
Income on taxable securities in 1997 includes $24,455 interest on taxable
municipal securities, compared to $0 in 1996 and $29,575 in 1995.
The following table sets forth the mix of average interest-earning assets
and average interest-bearing liabilities.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Loans 75.42% 74.77% 75.24%
Taxable investments 20.23% 22.11% 21.98%
Non-taxable 3.43% 2.51% 2.44%
Other 0.92% 0.62% 0.35%
100.00% 100.00% 100.00%
Interest bearing demand 8.63% 9.63% 10.81%
Savings deposits 25.87% 25.42% 22.04%
Time deposits 53.04% 52.54% 55.40%
Short Term Borrowing 9.47% 10.22% 9.57%
Long Term Borrowing 2.99% 2.18% 2.20%
100.00% 99.99% 100.02%
</TABLE>
Interest bearing assets show an increase in loans for 1997. This
reflects management's philosophy of investing funds for local growth. Included
in loans and leases are municipal loans of $3,918,480 at December 31, 1997;
$4,483,090 at December 31, 1996; and $4,300,549 at December 31, 1995.
<PAGE>
NON-INTEREST INCOME
The following table shows the major components of non-interest income.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Service Fees $632 $594 $616
Trust Service Fees 448 383 348
Net Realized Gain on sale of securities
available for sale 15
Gain on pension settlement/curtailment 258 368
Investment product commissions 247 213 145
Other Operating Income 658 475 370
Total $2,258 $2,033 $1,479
</TABLE>
Fiduciary fees increased to $448,174 in 1997, compared to $382,524 in
1996 and $347,815 in 1995. This increase reflects the continual growth of
assets managed by the Bank's Trust Department. The market value of assets
under management increased to $111,077,268 at December 31, 1997, from
$84,821,244 at December 31, 1996, and $75,220,716 at December 31, 1995.
Service fee income on deposit accounts increased $37,222 in 1997, to
$631,553. Service fee income on deposit accounts decreased $21,771 in 1996 to
$594,331 from $616,102 in 1995.
Other operating income in 1997 includes a gain of $212,881 on the sale of
mortgage servicing rights on secondary market loans.
NON-INTEREST EXPENSE
The following table shows the major components of non-interest expense.
<TABLE>
<CAPTION>
(Dollars in Thousands) 1997 1996 1995
<S> <C> <C> <C>
Salaries $3,043 $3,001 $2,890
Pensions and other employee
benefits 1,172 1,080 1,095
Occupancy expenses (net) 1,318 1,297 1,327
FDIC Expense 25 2 219
Other operating expense 1,998 1,794 1,533
Total $7,556 $7,174 $7,064
</TABLE>
Salaries increased $41,673 or 1.39% during 1997 over 1996. Salaries,
pensions and other benefits increased with the addition of employees at the new
branch offices.
Occupancy expense and other operating expenses increased with the
addition of the new branch facilities. FDIC expense increased, reflecting
increases in the assessments of the Federal Deposit Insurance Corporation.
Included in noninterest expense categories are charges related to the
Bank's activities to prepare its systems for the Year 2000. Such activities
and related charges incurred in connection with the Year 2000 project are
expected to continue through the next two years. During the current year, these
costs were not material and represent a reallocation of internal resources.
<PAGE>
PROVISION FOR CREDIT LOSSES
Management determines the adequacy of the allowance for credit losses
based on past loan experience, current economic conditions, composition of the
loan portfolio, and the potential for future loss. Accordingly, the amount
charged to expense is based on management's evaluation of the loan portfolio.
It is the Company's policy that when available information confirms that
specific loans and leases, or portions thereof, including impaired loans, are
uncollectible, these amounts are promptly charged off against the allowance.
The provision for credit losses was $140,000 in 1997; compared to $400,000 in
1996 and $100,000 in 1995. The allowance for credit losses as a percentage of
gross loans outstanding was 1.09% at December 31, 1997; 1.16% at December 31,
1996; and 1.06% at December 31, 1995. Charge-offs as a percentage of average
loans outstanding were .10 % in 1997; .12% in 1996; and .07% in 1995. Charge-
offs have not been concentrated in any industry or business segment as
reflected in the schedule below.
Management feels the allowance for credit losses is adequate as of
December 31, 1997.
<PAGE>
The allowance for credit losses shown in the following table represents a
general allowance available to absorb future losses within the entire
portfolio.
<TABLE>
<CAPTION>
(Dollars in Thousands) Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Allowance for credit losses at beginning
of period $2,031 $1,836 $1,859 $1,770 $1,590
Loans Charged off:
Commercial, financial and 111 190 123 199 120
agricultural
Real Estate 45 17 32 16 84
Installment and other consumer loans
to individuals 89 105 35 70 65
Total charge offs 245 312 190 285 269
Recoveries on loans previously charged
off:
Commercial, financial and
agricultural 27 80 36 41 66
Real estate 0 2 1 1 21
Installment and other consumer
loans to indivuduals 37 25 30 29 36
Total recoveries 64 107 67 71 123
Net loans charged-off 181 205 123 214 146
Additions charged to operations 140 400 100 303 326
Allowance for credit losses at end of
period $1,990 $2,031 $1,836 $1,859 $1,770
Ratio of allowance for credit losses
to total loans at end of period 1.08% 1.16% 1.07% 1.12% 1.10%
Ratio of net charge-offs during the
period to average loans outstanding 0.10% 0.12% 0.07% 0.13% 0.10%
</TABLE>
The adequacy of the reserve for credit losses is assessed based upon
credit quality and other pertinent loan portfolio information. The reserve for
credit losses continues to provide strong non-performing loan coverage, at 155%
at December 31, 1997. This compares to non-performing loan coverage of 168% at
December 31, 1996, and 159% at December 31, 1995.
<PAGE>
The following table presents an allocation of the year-end allowance for
credit losses for each of the past five years based on management's estimates
of loss exposure by category of loans. Commercial loans secured by real estate
are included in this table under the category of real estate and the allowance
for credit losses is allocated sufficiently to cover any expectations of loss.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
as a % as a % as a % as a % as a %
of Total of Total of Total of Total of Total
(Dollars in Thousands) Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial, and
agricultural $763 32.64% $814 32.03% $644 33.54% $619 30.91% $588 32.24%
Real Estate 842 60.20% 850 60.92% 958 59.53% 959 62.24% 852 58.53%
Installment and other consumer
loans to individuals 191 6.79% 162 6.57% 181 6.80% 178 6.85% 218 9.23%
Impaired Loans 194 0.38% 132 0.48% 51 0.13%
Unallocated (0) n/a 73 n/a 2 n/a 103 n/a 112 n/a
Total $1,990 100.00% $2,031 100.00% $1,836 100.00% $1,859 100.00% $1,770 100.00%
</TABLE>
INCOME TAXES
The effective tax rate was 34.59% in 1997, 35.20% in 1996, and 34.74% in 1995.
LIQUIDITY AND INTEREST SENSITIVITY
The Company's Asset Liability Management process provides a unified
approach to management of liquidity, capital and interest rate risk, and to
providing adequate funds to support the borrowing requirements and deposit flow
of its customers. Management views liquidity as the ability to raise cash at a
reasonable cost or with a minimum of loss and as a measure of balance sheet
flexibility to react to marketplace, regulatory, and competitive changes. The
primary sources of the Company's liquidity are marketable assets maturing
within one year. At December 31, 1997, the carrying value of debt securities
maturing within one year amounted to $7,895,617; or 14.55% of the total
investment securities portfolio. At December 31, 1996, the carrying value of
debt securities maturing within one year amounted to $8,167,273 or 14.29% of
the total investment securities portfolio. The Company attempts, when possible,
to match relative maturities of assets and liabilities, while maintaining the
desired net interest margin. Management believes liquidity is adequate.
<PAGE>
The following tables show the approximate consolidated rate sensitivity gap
position as of December 31, 1997 and December 31, 1996.
<TABLE>
<CAPTION>
INTEREST RATE RISK EXPOSURE
December 31, 1997
90 day 91-180 days 181-365 days 1-5 Years Beyond 5 Years Total
<S> <C> <C> <C> <C> <C> <C>
Loans $43,116 $24,496 $46,346 $60,433 $10,624 $185,015
Securities 3,693 549 3,491 32,327 14,196 54,256
Fed Funds & Other 4,637 4,637
$51,446 $25,045 $49,837 $92,760 $24,820 $243,908
Cumulative Rate Sensitive Assets $51,446 $76,491 $126,328 $219,088 $243,908
<100 CDs & Other Time Dep 17,648 18,347 23,200 30,368 89,563
Money Market Plus Accounts 6,527 4,351 4,351 6,526 21,755
Money Market Savings Accounts 3,887 2,591 2,591 3,887 12,955
Regular Savings 2,052 3,078 3,078 12,313 20,521
Now & Super Now Accounts 5,310 3,540 3,540 5,310 17,701
100 & Over 4,466 2,711 6,715 9,137 23,029
FF Purch, Repo, & Other Borrowed Funds 16,079 3,600 1,800 21,479
$55,969 $21,058 $47,076 $54,866 $28,035 $207,003
Cumulative Rate Sensitive Liabilities $55,969 $77,027 $124,102 $178,968 $207,003
Rate Sensitivity Gap $(4,523) $3,987 $2,761 $37,894 $(3,215)
Cumulative Rate Sensitivity $(4,523) $(536) $2,226 $40,120 $36,905
Gap
Cumulative gap ratio 91.92% 99.30% 101.79% 122.42% 117.83%
</TABLE>
<TABLE>
<CAPTION>
INTEREST RATE RISK EXPOSURE
December 31, 1996
90 day 91-180 days 181-365 days 1-5 Years Beyond 5 Years Total
<S> <C> <C> <C> <C> <C> <C>
Loans $39,113 $19,543 $36,633 $70,729 $8,944 $174,962
Securities 5,822 4,783 6,748 31,217 8,595 57,165
Fed Funds & Other 10 10
$44,945 $24,326 $43,381 $101,946 $17,539 $232,137
Cumulative Rate Sensitive Assets $44,945 $69,271 $112,652 $214,598 $232,137
<100 CDs & Other Time Dep 17,659 15,066 22,623 31,638 86,986
Money Market Plus Accounts 5,225 3,484 3,484 5,225 17,418
Money Market Savings Accounts 6,314 4,209 4,209 6,314 21,047
Regular Savings 1,868 2,802 2,802 11,209 18,681
Now & Super Now Accounts 5,415 3,610 3,610 5,415 18,051
100 & Over 3,690 2,412 5,745 5,299 17,146
FF Purch, Repo, & Other Borrowed Funds 12,871 1,800 1,000 4,400 20,071
$53,043 $19,278 $43,473 $55,442 $28,163 $199,400
Cumulative Rate Sensitive Liabilities $53,043 $72,321 $115,794 $171,237 $199,400
Rate Sensitivity Gap $(8,098) $5,048 $(92) $46,504 $(10,624)
Cumulative Rate Sensitivity $(8,098) $(3,050) $(3,142) $43,361 $32,737
Gap
Cumulative gap ratio 84.73% 95.78% 97.29% 125.32% 116.42%
</TABLE>
<PAGE>
Management's overall strategy is to coordinate the volume of rate sensitive
assets and liabilities to minimize the impact of interest rate movement on the
net interest margin. From time to time, the Bank develops special term
deposit products that will attract present and potential customers. The
figures reflect a slightly negative position in the 90 day and 180 day
categories; the cumulative one-year position is positive at 101.79%. A
significant portion of consumer deposits do not re-price or mature on a
contractual basis. These deposit balances and rates are considered to be core
deposits since these balances are generally not susceptible to significant
interest rate changes. The Company's Asset/Liability Committee distributes
these deposits over a number of periods to reflect those portions of such
accounts that are expected to re-price fully with market rates over the
simulation period. The assumptions are based on historical experience with the
bank's individual markets and customers and include projections for how
management expects to continue to price in response to marketplace and market
changes. However, markets and consumer behavior do change, and adjustments are
necessary as customer preferences, competitive market conditions, liquidity,
loan growth rates, and mix change. Management considers that an acceptable
range for the rate sensitivity ratio is 70-130%.
At December 31, 1997, the Company had $17,978,330 in variable rate loans
that re-price on a quarterly basis or more frequently. These loans have floors
and ceilings which prevent significant short-term interest fluctuations.
INVESTMENT PORTFOLIO
The following table shows the relative maturities of the investment
portfolio as of December 31, 1997. Weighted average yields on tax-exempt
securities have been calculated on a tax equivalent basis using a tax rate of
34%.
<TABLE>
<CAPTION>
After After
One But Five but
December 31, 1997 Within Weighted Within Weighted Within Weighted After Weighted
(dollars in thousands) One Year Yields Five Years Yields Ten Years Yields Ten Years Yields
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treas & other U.S.
Gov't agencies & corp $6,130 4.54% $26,077 6.90% $8,319 7.10% $214 8.03%
State & political sub-
divisions (domestic) 322 5.49% 5,495 4.93% 4,175 5.47% 364 4.47%
Other bonds, notes, and
debentures 1,444 6.14% 528 7.08% 0 0.00% 0 0.00%
Debt Securities $7,896 4.87% $32,100 6.56% $12,494 6.56% $578 5.79%
Equity Securities 1,188 6.37%
Total Securities $9,084 5.07% $32,100 6.56% $12,494 6.56% $578 5.79%
</TABLE>
There are no securities in the investment portfolio that are in
excess of ten percent of stockholders' equity.
On January 1, 1994, the Company adopted Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" (SFAS 115), which specifies the accounting for investments in
securities that have readily determinable fair values. During 1995, the bank
reclassified all securities as available-for-sale.
<PAGE>
At December 31, 1997, the net unrealized gain on securities available for
sale, recorded as a separate component of stockholders' equity, was $348,257,
net of deferred income taxes of $182,818.
Securities with an approximate carrying value of $32,889,744 and
$37,993,443, at December 31, 1997 and 1996 respectively, were pledged primarily
to secure public deposits and for other purposes required by law.
The following table sets forth the distribution of investment securities
and their percentage to total investment securities as of the dates indicated.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996 December 31, 1995
(dollars in thousands) Amount % of total Amount % of total Amount % of total
<S> <C> <C> <C> <C> <C> <C>
U.S. Treas & other U.S. Gov't
Agencies & Corp. $41,023 75.61% $46,934 82.10% $37,859 68.48%
State & Political subdivisions
(domestic) (1) 10,356 19.09% 6,893 12.06% 4,900 8.86%
Other securities and
investments 2,877 5.30% 3,338 5.84% 12,522 22.65%
Total $54,256 100.00% $57,165 100.00% $55,281 100.00%
<FN>
(1) Weighted average yields on tax-exempt securities have been calculated on a
tax equivalent basis using a tax rate of 34%.
</TABLE>
During 1997, the interest rates beyond one year declined, ending the year
.10% to .75% lower than 1996 yearend. The market value of the fixed income
portion on the investment portfolio as a percentage of book value increased due
to this decline in rates. The Bank's investment subsidiary, Mid-Wisconsin
Investment Corp., was formed in June 1994, and currently holds approximately
$30,413,416 in securities at book value. Income tax expense for 1997 was
approximately $126,600 lower as a result of holding these securities at the
subsidiary.
The book value and market value of investment securities are equal and are
summarized as follows:
<TABLE>
<CAPTION>
BOOK VALUE and MARKET VALUE
(dollars in thousands) Dec. 31, 1997 Dec. 31, 1996
<S> <C> <C>
U.S. Treasury securities and obligations
of other U.S. Govt agencies & corp $41,023,840 $46,933,671
Obligations to states & political
subdivisions 10,355,358 6,893,312
Other securities 2,876,994 3,337,740
Totals $54,256,192 $57,164,723
</TABLE>
<PAGE>
LOAN PORTFOLIO
The following table sets forth the approximate maturities of the loan
portfolio, excluding consumer, other loans, and non-accrual loans; and the
sensitivity of loans to interest changes as of December 31, 1997.
<TABLE>
<CAPTION>
Maturity
(dollars in thousands) One Year Over one Year Over
or Less to Five Years Five Years
<S> <C> <C> <C>
Commercial, financial and
commercial real estate $24,654 $37,342 $13,779
Agricultural 21,064 10,386 3,048
Real estate mortgage 20,137 19,892 21,992
Total $65,855 $67,620 $38,819
</TABLE>
<TABLE>
<CAPTION>
Interest Sensitivity
Amount of Loans Due After One Year With: Fixed Variable
(dollars in thousands) Rate Rate
<S> <C> <C>
Commercial and financial $35,375 $15,746
Agricultural 8,701 4,733
Real Estate 18,400 23,484
Total $62,476 $43,963
</TABLE>
Loan growth for the year ended December 31, 1997 was 5.82%; increasing
from $174,841,989 at December 31, 1996 to $185,015,272 at December 31, 1997.
The composition of loans outstanding and their percentage to total loans as of
the dates indicated are as follows:
<TABLE>
<CAPTION>
Dec. 31 % of Dec. 31 % of Dec. 31 % of
(dollars in Thousands) 1997 total 1996 total 1995 total
<S> <C> <C> <C> <C> <C> <C>
Commercial and financial 26,943 14.56% 26,923 15.40% 28,075 16.38%
Construction Loans 1,700 0.92% 891 0.51% 1,272 0.74%
Agricultural 34,952 18.89% 30,869 17.66% 27,963 16.32%
Real estate 108,360 58.57% 104,002 59.48% 101,473 59.21%
Installment 12,642 6.83% 11,499 6.58% 11,819 6.90%
Lease financing 418 0.22% 658 0.37% 762 0.45%
Total loans $185,015 100.00% $174,842 100.00% $171,364 100.00%
</TABLE>
<TABLE>
<CAPTION>
Dec. 31 % of Dec. 31 % of
(dollars in Thousands) 1994 total 1993 total
<S> <C> <C> <C> <C>
Commercial and financial $24,361 14.73% $24,829 15.45%
Construction Loans 519 0.31% 2,444 1.52%
Agricultural 25,500 15.42% 26,052 16.22%
Real Estate 102,958 62.24% 91.581 57.01%
Installment 11,336 6.85% 14,834 9.23%
Lease financing 748 0.45% 917 0.57%
Total loans $165,422 100.00% $160,657 100.00%
</TABLE>
The composition of loans in the loan portfolio shows increases in real
estate and agricultural loans. The Company expects growth will be modest in
the real estate category during 1998 as increased efforts are made to sell
these loans in the secondary market.
<PAGE>
The Company's process for monitoring loan quality includes monthly
analysis of delinquencies, non-performing assets and potential problem loans.
The Company's policy is to place loans on a non-accrual status when they become
contractually past due 90 days or more as to interest or principal payments.
All interest accrued (including applicable impaired loans) but not collected
for loans that are placed on non-accrual or charged off is reversed to interest
income. The interest on these loans is accounted for on the cash basis until
qualifying for return to accrual. Loans are returned to accrual status when
all the principal and interest amounts contractually due have been collected
and there is reasonable assurance that repayment will continue within a
reasonable time frame.
A loan is impaired when, based on current information, it is probable
that the Company will not be able to collect all amounts due in accordance
with the contractual terms of the loan agreement. Impairment is based on
discounted cash flows of expected future payments using the loan's initial
effective interest rate or the fair value of the collateral if the loan is
collateral dependent.
The Company maintained generally high loan quality during 1997. The
following table sets forth the amount of risk-element loans and other real
estate owned as of the dates indicated.
<TABLE>
<CAPTION>
Risk-element loans Dec. 31 % of total Dec. 31 % of total Dec. 31 % of total
(dollars in thousands) 1997 loans 1996 loans 1995 loans
<S> <C> <C> <C> <C> <C> <C>
Non-accrual, past due,
and restructured loans $1,238 0.67% $1,072 0.61% $1,152 0.67%
Potential problem loans 161 0.09% 448 0.26% 72 0.04%
Foreign outstandings
0.00% 0 0.00% 0 0.00%
Total risk-element
loans $1,399 0.76% $1,520 0.87% $1,224 0.71%
</TABLE>
<TABLE>
<CAPTION>
Risk-element loans Dec. 31 % of total Dec. 31 % of total
(dollars in thousands) 1994 loans 1993 loans
<S> <C> <C> <C> <C>
Non-accrual, past due,
and restructured loans $ 1,558 0.94% $ 948 0.41%
Potential problem loans 0 0.00% 0 0.00%
Foreign outstandings
0 0.00% 0 0.00%
Total risk-element
loans $ 1,558 0.94% $ 948 0.41%
</TABLE>
Included above are $539,513 of impaired loans (.029%) in non-accrual
status at December 31, 1997. In addition, there are impaired loans of $161,406
(.008%) which management has considered in the allowance for credit losses.
The average balance of impaired loans during 1997 was $743,113.
Total risk-element assets (loans and other real estate) increased during
1997. As a percentage of total outstanding loans, the non-performing assets
decreased .11% to .76% in 1997. The percentage of risk-element assets had
increased .16% in 1996 and decreased .21% in 1995. There are no foreign
loans outstanding and no concentrations of credit requiring disclosure.
On January 1, 1996, the Company adopted Statements of Financial
Accounting Standards Nos. 114 and 118 (SFAS114), "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures." The adoption of SFAS 114 did not result
in additional provision for losses since the Company evaluates the overall
adequacy of the allowance for credit losses on an ongoing basis. SFAS 114 does
not apply to groups of smaller balance homogeneous loans that are collectively
evaluated for impairment. Loans collectively evaluated for impairment include
certain smaller balance commercial and agricultural loans, consumer loans,
residential real estate loans, and credit card loans.
Interest payments on impaired loans are typically applied to principal
unless collectability of the principal amount is fully assured, in which case
interest is recognized on the cash basis.
<PAGE>
DEPOSITS
The following table sets forth average daily deposits and the percentage
of total deposits for the periods indicated.
<TABLE>
<CAPTION>
Dec. 31, % of Dec. 31, % of Dec. 31, % of
(dollars in thousands) 1997 Total 1996 Total 1995 Total
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $22,321 11.22% $21,504 11.19% $20,107 10.66%
Interest-bearing demand 17,412 8.75% 18,768 9.76% 20,642 10.95%
Savings deposits 52,199 26.24% 49,550 25.78% 42,069 22.31%
Time deposits 107,003 53.79% 102,398 53.27% 105,768 56.08%
Total $198,935 100.00% $192,220 100.00% $188,586 100.00%
</TABLE>
During 1997, deposits increased 4.32%, or $8,737,351 to $211,149,458 at
December 31, 1997 from $202,412,107 at December 31, 1996. Management is
projecting deposit growth during 1998 with its entry into new market areas and
the development of several new commercial and consumer deposit products.
The maturity distribution of time certificates of deposit of $100,000 or
more at December 31, 1997 and December 31, 1996 is (in thousands):
<TABLE>
<CAPTION>
(dollars in thousands) Dec. 31, 1997 Dec. 31, 1996
<S> <C> <C>
3 months or less $4,466 $3,689
Over 3 months through 6 months 2,711 2,413
Over 6 months through 12 months 6,715 5,744
Over 12 months 9,137 5,300
Total $23,029 $17,146
</TABLE>
<PAGE>
CAPITAL ADEQUACY
During 1997, the Company's stockholders' equity increased by $2,142,526
to $27,867,157; after adjusting for a change of $172,252 in net unrealized
losses. This increase was substantially from retention of current year
earnings.
The Company is subject to risk-based capital guidelines of the Board and
the Bank is subject to equivalent capital guidelines of the FDIC.
A summary of Capital Ratios follows:
<TABLE>
CAPITAL RATIOS
(000's except percents)
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Total Assets $263,714 $251,521 $244,606
Capital 27,867 25,725 23,750
Capital Ratio 10.57% 10.23% 9.71%
Total Assets $263,714 $251,521 $244,606
Less Goodwill (2,767) (727) (814)
Tangible Assets $260,947 $250,794 $243,792
Stockholders Equity $27,867 $25,725 $23,750
Less Goodwill (2,767) (727) (814)
Tangible Capital $25,100 $24,998 $22,936
Tangible Capital Ratio 9.62% 9.97% 9.41%
Risk-based Assets $178,985 $171,526 $174,979
Tangible Equity 25,100 24,998 22,936
Plus Security Valuation (348) (176) (306)
Less Equity Valuation (106)
Tier 1 Capital $24,752 $24,822 $22,524
Plus Allowance for Credit Losses 1,990 2,031 1,836
Total Risk-based Capital $26,742 $26,853 $24,360
Tier 1 Capital Ratio 13.83% 14.47% 12.87%
Total Risk-based Capital Ratio 14.94% 15.66% 13.92%
</TABLE>
As of December 31, 1997, the Bank could have paid approximately
$7,921,000 of additional dividends to the company without prior regulatory
approval. The payment of dividends is subject to the statutes governing state-
chartered banks. Management feels the capital structure of the Company is
adequate.
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required by this Item 7A is set forth in Item 6,
"Selected Financial Data" and under subcaptions "Results of Operations",
"Market Risk", "Net Interest Income", "Provision for Credit Losses", "Liquidity
and Interest Sensitivity", "Investment Portfolio", and "Deposits" under Item 7,
Management's Discussion and Analysis of Financial Conditions.
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
Medford, Wisconsin
CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Mid-Wisconsin Financial Services, Inc.
Medford, Wisconsin
We have audited the accompanying consolidated balance sheets of MID-WISCONSIN
FINANCIAL SERVICES, INC. and Subsidiary as of December 31, 1997 and 1996, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the three years in the period ended December 31,
1997. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of MID-WISCONSIN
FINANCIAL SERVICES, INC. and Subsidiary at December 31, 1997 and 1996, and the
consolidated results of operations and cash flows for each of the three years
in the period ended December 31, 1997 in conformity with generally accepted
accounting principles.
_______________________________________
Wipfli Ullrich Bertelson LLP
January 9, 1998
Wausau, Wisconsin
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
CONSOLIDATED BALANCE SHEETS
December 31, 1997 and 1996
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
Cash and due from banks $ 9,521,270 $ 13,734,886
Interest-bearing deposits in other financial institutions 21,260 10,233
Federal funds sold 4,616,000
Investment securities available for sale - At fair value 54,256,192 57,164,723
Loans held for sale 1,169,350 120,000
Loans receivable, net of allowance for credit losses of
$1,990,090 in 1997 and $2,030,878 in 1996 183,025,182 172,811,111
Accrued interest receivable 1,620,973 1,598,385
Premises and equipment 5,505,984 3,906,661
Goodwill and purchased intangibles 2,787,410 727,481
Other assets 1,151,940 1,427,804
TOTAL ASSETS $263,675,561 $251,501,284
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $ 25,625,169 $ 23,083,585
Interest-bearing deposits 185,524,289 179,328,522
Total deposits 211,149,458 202,412,107
Short-term borrowings 16,078,523 14,671,264
Long-term borrowings 5,400,000 5,400,000
Accrued expenses and other liabilities 3,180,423 3,293,282
Total liabilities 235,808,404 225,776,653
Stockholders' equity:
Common stock - Par value $.10 per share:
Authorized - 6,000,000 shares in 1997 and 1996
Issued and outstanding - 1,864,122 shares in 1997 186,412
- 1,865,369 shares in 1996 186,537
Additional paid-in capital 12,653,703 12,647,615
Retained earnings 14,678,785 12,714,474
Unrealized gain on securities available for sale, net of tax 348,257 176,005
Total stockholders' equity 27,867,157 25,724,631
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $263,675,561 $251,501,284
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 16,821,018 $ 16,270,597 $ 15,637,886
Interest and dividends on investment securities:
Taxable 3,152,401 3,303,183 3,213,173
Tax-exempt 422,524 306,252 312,372
Other interest and dividend income 117,257 74,593 44,884
Total interest income 20,513,200 19,954,625 19,208,315
Interest expense:
Deposits 8,382,923 7,974,336 7,800,759
Short-term borrowings 976,247 999,989 1,014,048
Long-term borrowings 353,725 223,290 211,902
Total interest expense 9,712,895 9,197,615 9,026,709
Net interest income 10,800,305 10,757,010 10,181,606
Provision for credit losses 140,000 400,000 100,000
Net interest income after provision for credit losses 10,660,305 10,357,010 10,081,606
Noninterest income:
Service fees 631,553 594,330 616,102
Trust service fees 448,174 382,524 347,815
Net realized gain on sale of securities available for sale 14,632
Gain on pension settlement/curtailment 258,294 367,815
Investment product commissions 247,183 212,871 144,851
Gain on sale of mortgage servicing rights 212,881
Other operating income 445,414 475,519 370,035
Total noninterest income 2,258,131 2,033,059 1,478,803
Noninterest expenses:
Salaries and employee benefits 4,215,070 4,080,862 3,984,877
Occupancy 1,317,967 1,297,160 1,326,876
FDIC deposit insurance premiums 24,827 2,000 218,763
Net realized loss on sale of securities available for sale 159,812 82,199
Other operating 1,997,957 1,793,680 1,533,174
Total noninterest expenses 7,555,821 7,333,514 7,145,889
Income before income taxes 5,362,615 5,056,555 4,414,520
Provision for income taxes 1,855,161 1,780,114 1,533,659
Net income $ 3,507,454 $ 3,276,441 $ 2,880,861
Basic and diluted earnings per share $ 1.88 $ 1.76 $ 1.55
Cash dividends declared per share $ .75 $ .67 $ .47
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997, 1996, and 1995
<CAPTION>
Unrealized
Gain (Loss)
on
Additional Securities
Common Stock Paid-In Retained Available
Shares Amount Capital Earnings for Sale
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1995 $ 924,930 $ 92,493 $ 12,603,547 $ 8,675,525 $ (1,191,367)
Par value of stock transferred
in connection with two-
for-one stock split 924,930 92,493 (92,493)
Proceeds from stock options 7,430 743 62,312
Net income 2,880,861
Cash dividends declared $.47
per share (871,316)
Unrealized gain on securities
available for sale - Net of tax 1,497,160
Balance, December 31, 1995 1,857,290 185,729 12,573,366 10,685,070 305,793
Proceeds from stock options 8,079 808 74,249
Net income 3,276,441
Cash dividends declared $.67
per share (1,247,037)
Unrealized loss on securities
available for sale - Net of tax (129,788)
Balance, December 31, 1996 1,865,369 186,537 12,647,615 12,714,474 176,005
Proceeds from stock options 7,981 798 100,262
Repurchase of common stock
returned to unissued (9,228) (923) (94,174) (143,907)
Net income 3,507,454
Cash dividends declared $.75
per share (1,399,236)
Unrealized gain on securities
available for sale - Net of tax 172,252
Balance, December 31, 1997 $1,864,122 $ 186,412 $ 12,653,703 $ 14,678,785 $ 348,257
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $ 3,507,454 $ 3,276,441 $ 2,880,861
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net amortization 841,970 777,953 749,717
Provision for credit losses 140,000 400,000 100,000
Provision (benefit) for deferred income taxes 80,614 31,913 (52,609)
Proceeds from sales of loans held for sale 3,819,044 6,080,225 2,855,444
Originations of loans held for sale (4,868,394) (4,886,425) (4,169,244)
(Gain) loss on sale of investment securities (14,632) 159,812 82,199
Gain on curtailment of pension plan (367,815)
Gain on settlement of pension plan (258,294)
Gain on sale of mortgage servicing rights (212,881)
Loss on equipment disposals 1,717 441 30,320
Loss on sale of other real estate 29,432 1,777
Changes in operating assets and liabilities:
Other assets (59,352) (2,864) (420,579)
Other liabilities 152,367 342,578 130,178
Net cash provided by operating activities 3,159,045 5,812,259 2,188,064
Cash flows from investing activities:
Available for sale securities:
Proceeds from sales 1,549,804 6,555,302 7,837,562
Proceeds from maturities 14,664,102 19,775,437 8,728,667
Payment for purchases (13,004,472) (28,636,385) (13,274,834)
Net increase in loans (10,394,025) (3,817,517) (5,869,632)
Net (increase) decrease in interest-bearing
deposits in other institutions (11,027) 10,013 72,708
Net increase in federal funds sold (4,616,000)
Capital expenditures (2,259,265) (436,079) (436,847)
Proceeds from sale of equipment 50 2,950 8,250
Proceeds from sale of other real estate 309,179 5,000 23,222
Premium paid to purchase deposits (2,218,437)
Net cash used in investing activities (15,980,091) (6,541,279) (2,910,904)
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
And Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996, and 1995
(Continued)
1997 1996 1995
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in noninterest-bearing deposits $ 2,541,584 $ 438,316 $ 557,675
Net increase in interest-bearing deposits 6,195,767 9,829,385 5,435,354
Proceeds from exercise of stock options 101,060 75,057 63,055
Payment for repurchase of common stock (239,004)
Net increase (decrease) in short-term borrowings 1,407,259 (6,715,359) (2,485,809)
Proceeds from issuance of long-term borrowings 1,000,000 3,000,000
Principal payments on long-term borrowings (1,000,000) (1,600,000) (335,000)
Dividends paid (1,399,236) (1,247,037) (1,074,801)
Net cash provided by financing activities 8,607,430 3,780,362 2,160,474
Net increase (decrease) in cash and due from banks (4,213,616) 3,051,342 1,437,634
Cash and due from banks at beginning 13,734,886 10,683,544 9,245,910
Cash and due from banks at end $ 9,521,270 $ 13,734,886 $ 10,683,544
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 9,722,432 $ 9,234,573 $ 8,767,822
Income taxes 1,805,025 1,712,851 1,695,025
Supplemental schedule of noncash investing
and financing activities:
Loans transferred to other real estate 253,198 135,000 5,000
Loans charged off 244,874 311,538 189,884
Loans made in connection with the disposition
of other real estate 241,752
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Mid-Wisconsin
Financial Services, Inc. and its subsidiary, Mid-Wisconsin Bank. All
significant intercompany balances and transactions have been eliminated. The
accounting and reporting policies of the Company conform to generally accepted
accounting principles and to general practice within the banking industry.
The Company operates as a full service financial institution with a primary
marketing area including, but not limited to, Clark, Taylor, Price, and Oneida
Counties. It provides a variety of core banking products in addition to trust
services and investment product sales.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period.
Actual results could differ from those estimates.
Cash and Due From Banks
For purposes of reporting cash flows, cash and due from banks include cash on
hand and noninterest-bearing deposits in correspondent banks.
Investment Securities
Investment securities are assigned an appropriate classification at the time of
purchase in accordance with management's intent. Securities held to maturity
represent those securities for which the Company has the positive intent and
ability to hold to maturity. Accordingly, these securities are carried at cost
adjusted for amortization of premium and accretion of discount calculated using
the effective yield method. Unrealized gains and losses on securities held to
maturity are not recognized in the financial statements. The Company has no
held to maturity securities.
Trading securities include those securities bought and held principally for the
purpose of selling them in the near future. The Company has no trading
securities.
Securities not classified as either securities held to maturity or trading
securities are considered available for sale and reported at fair value
determined from estimates of brokers or other sources. Unrealized gains and
losses are excluded from earnings but are reported as a separate component of
stockholders' equity, net of income tax effects.
Any gains and losses on sales of securities are recognized at the time of sale
using the specific identification method.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Interest and Fees on Loans
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest deemed uncollectible is reversed and charged against current
income.
Loan origination fees and certain direct loan origination costs are deferred
and amortized to income over the contractual lives of the underlying loans.
Allowance for Credit Losses
The allowance for credit losses is maintained at a level believed adequate by
management to absorb potential losses in the loan portfolio. Management's
determination of the adequacy of the allowance is based upon reviews of
individual credits, recent loss experience, current economic conditions,
composition of the loan portfolio, and other relevant factors. Provisions for
credit losses and recoveries on loans previously charged off are added to the
allowance.
Loans Held for Sale
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower cost or estimated market value in the aggregate. Net
unrealized losses are recognized through a valuation allowance by charges to
income.
Premises and Equipment
Premises and equipment are stated at cost, net of accumulated depreciation.
Maintenance and repair costs are charged to expense as incurred. Gains or
losses on disposition of premises and equipment are reflected in income.
Depreciation is computed on both accelerated and straight-line methods and is
based on the estimated useful lives of the assets varying from 10 to 50 years
on buildings and 3 to 20 years on equipment.
Foreclosed Real Estate
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less cost to sell. Revenue and expenses from operations
and changes in the valuation allowance are included in loss on foreclosed real
estate.
Intangibles
The excess of cost over the net assets acquired (goodwill) is being amortized
using the straight-line method over a 15-year period from the date of
acquisition.
Purchased deposit base intangible is amortized using the systematic method over
an eight-year period.
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Retirement Plans
The Company had a noncontributory defined benefit pension plan which covered
substantially all full-time employees. This plan was terminated effective
January 1, 1997 and replaced with a money purchase defined contribution pension
plan covering substantially the same employees. The Company also maintains a
defined contribution 401(k) profit-sharing plan which covers substantially all
full-time employees.
Income Taxes
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based upon the differences between
the financial statement and tax bases of assets and liabilities, as measured by
the enacted tax rates which will be in effect when these differences are
expected to reverse. Deferred tax expense is the result of changes in the
deferred tax asset and liability.
Earnings Per Share
Earnings per common share are based upon the weighted average number of common
shares outstanding which includes the common stock equivalents applicable to
shares issuable under the stock options granted. The weighted average number
of shares outstanding were 1,867,610 in 1997, 1,864,840 in 1996, and 1,861,328
in 1995. The weighted average number of shares has been adjusted to reflect
the stock split in the form of a 100 percent stock dividend issued May 8, 1995.
All per share amounts have been restated to reflect the stock dividend.
Reclassifications
Certain prior year balances have been reclassified to conform to current year
presentation.
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1997, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 125, "Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities." In part, this SFAS
changed the method of accounting for serviced loans and superseded SFAS No.
122, "Accounting for Mortgage Servicing Rights," which was adopted by the
Company during 1996. The adoption had an insignificant effect on the financial
statements during the year of adoption.
Effective January 1, 1997, the Company adopted SFAS No. 128, "Earnings Per
Share." There is no impact on net income as a result of the adoption of SFAS
No. 128. This statement requires the reporting of both basic and diluted
earnings per share.
Effective January 1, 1996, the Company adopted SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets to be Disposed of." There was no impact on
net income as a result of the adoption of SFAS No. 121. The Company had no
long-lived assets considered to be impaired at the time of adopting the
standard.
<PAGE>
NOTE 2 - CHANGE IN ACCOUNTING PRINCIPLE (CONTINUED)
Effective January 1, 1996, the Company adopted SFAS No. 123, "Accounting for
Stock-Based Compensation." Under this SFAS, the Company is required to
disclose in the notes to the financial statements the difference between the
"fair value method" and the "intrinsic value method" as prescribed by the
Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued
to Employees." The Company continues to account for stock-based compensation
in accordance with APB Opinion No. 25, with differences from the "fair value
method" disclosed. The adoption had no effect on the financial statements.
Effective January 1, 1995, the Company adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosures."
There was no impact on net income as a result of the adoption of SFAS No. 114.
NOTE 3 - PURCHASE OF BRANCHES
In September 1997, the Company completed the purchase of two branches of a
commercial bank located in Lake Tomahawk and Rhinelander. The acquisition of
these branches, now operating as branches of the Company's subsidiary, was
accounted for as a purchase. Consequently, the related accounts and results of
operations are included in the Company's consolidated financial statements from
the date of acquisition. The assets purchased and liabilities assumed
consisted of the following:
<TABLE>
<S> <C>
Loans and accrued interest $ 872,223
Real estate and equipment 891,000
Cash on hand 144,140
Deposits and accrued interest (20,083,476)
Deposit base intangible 2,218,437
</TABLE>
The deposit base intangible is being amortized on a systematic basis over an
eight-year period. Deposit base intangible amortization expense totaled
$72,075 during 1997.
NOTE 4 - RESTRICTIONS ON CASH AND DUE FROM BANKS
Cash and due from banks in the amount of $913,000 is restricted at December 31,
1997 to meet the reserve requirements of the Federal Reserve System.
<PAGE>
NOTE 5 - INVESTMENT SECURITIES
The fair value, amortized cost, and gross unrealized gains and losses for the
Company's securities available for sale follow:
<TABLE>
<CAPTION>
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gains Losses Cost
<S> <C> <C> <C> <C>
December 31, 1997
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 15,756,976 $ 113,622 $ 16,924 $ 15,660,278
Obligations of states and
political subdivisions 10,355,359 251,408 2,247 10,106,198
Corporate securities 1,689,391 10,934 1,678,457
Mortgage-backed securities 25,266,862 224,097 52,072 25,094,837
Equity securities 1,187,604 1,187,604
Totals $ 54,256,192 $ 600,061 $ 71,243 $ 53,727,374
December 31, 1996
U.S. Treasury securities and obligations
of U.S. government corporations and
agencies $ 23,095,170 $ 116,542 $102,043 $ 23,080,671
Obligations of states and
political subdivisions 6,893,312 168,603 22,117 6,746,826
Corporate securities 1,620,370 30,043 1,590,327
Mortgage-backed securities 23,838,501 213,548 152,502 23,777,455
Equity securities 1,717,370 1,717,370
Totals $ 57,164,723 $ 528,736 $276,662 $ 56,912,649
</TABLE>
As a member of the Federal Home Loan Bank (FHLB) system, the banking subsidiary
is required to hold stock in the FHLB based on asset size. This stock is
recorded at cost which is equal to par value. Equity securities include
$984,000 of FHLB stock at December 31, 1997 and 1996. Transfer of the stock is
substantially restricted.
<PAGE>
NOTE 5 - INVESTMENT SECURITIES (CONTINUED)
The book values and fair values of debt securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Fair Book
Values Values
Debt Securities Available for Sale
<S> <C> <C>
Due in one year or less $ 4,590,893 $ 4,579,784
Due after one year through five years 14,884,552 14,729,589
Due after five years through ten years 7,751,992 7,568,004
Due after ten years 574,289 567,556
Mortgage-backed securities 25,266,862 25,094,837
Total debt securities available for sale $53,068,588 $52,539,770
</TABLE>
Following is a summary of the proceeds from sales of investment securities as
well as gross gains and losses for the years ended December 31:
<TABLE>
Securities Available for Sale
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Proceeds from sales of investments $ 1,549,804 $ 6,555,302 $ 7,837,562
Debt securities - Gross realized gains $ 14,632 $ 1,553 $ 130,591
Debt securities - Gross realized losses (4,827)
Equity securities - Net realized losses (161,365) (207,963)
Total investment securities gains (losses) $ 14,632 $ (159,812) $ (82,199)
</TABLE>
Securities with an approximate carrying value of $32,890,000 and $37,993,000 at
December 31, 1997 and 1996, respectively, were pledged to secure public
deposits, short-term borrowings, and for other purposes required by law.
NOTE 6 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commercial $ 27,004,397 $ 26,961,550
Agricultural 34,962,725 30,883,661
Real estate:
Construction 1,700,017 890,558
Commercial 47,080,271 48,870,981
Residential 61,310,410 55,160,969
Installment 12,642,454 11,499,559
Lease financing 417,926 658,593
Subtotals 185,118,200 174,925,871
Net deferred loan fees (102,928) (83,882)
Allowance for credit losses (1,990,090) (2,030,878)
Net loans $183,025,182 $172,811,111
</TABLE>
The Company, in the ordinary course of business, grants loans to the Company's
executive officers and directors, including their families and firms in which
they are principal owners. The Bank has a policy of making loans (limited to
$50,000 per individual) available to employees and executive officers at
interest rates slightly below those prevailing for comparable transactions with
other customers. In the opinion of management, such loans do not involve more
than the normal risk of collectibility or present other unfavorable features.
Activity in related party loans during 1997 is summarized below:
<TABLE>
<S> <C>
Loans outstanding, January 1 $ 1,891,208
New loans 1,327,931
Repayments (522,619)
Loans outstanding, December 31 $ 2,696,520
</TABLE>
The allowance for credit losses includes specific allowances related to loans
which have been judged to be impaired and which fall within the scope of SFAS
No. 114. A loan is impaired when, based on current information, it is probable
that the Company will not collect all amounts due in accordance with the
contractual terms of the loan agreement. These specific allowances are based
on discounted cash flows of expected future payments using the loan's initial
effective interest rate or the fair value of the collateral if the loan is
collateral dependent.
<PAGE>
NOTE 6 - LOANS (CONTINUED)
An analysis of impaired loans follows:
<TABLE>
<CAPTION>
At December 31, 1997 1996
<S> <C> <C> <C>
Nonaccrual $ 539,513 $ 394,552
Accruing income 161,406 448,179
Total impaired loans 700,919 842,731
Less - Allowance for credit losses 194,464 132,124
Net investment in impaired loans $ 506,455 $ 710,607
Years Ended December 31, 1997 1996 1995
Average recorded investment, net of
allowance for credit losses $ 743,114 $ 779,924 $ 183,000
Interest income recognized $ 69,362 $ 86,776 $ 657
</TABLE>
The Company continues to maintain a general allowance for credit losses for
loans outside of the scope of SFAS No. 114. The allowance for credit losses is
maintained at a level which management believes is adequate for possible credit
losses. Management periodically evaluates the adequacy of the allowance using
the Company's past credit loss experience, known and inherent risks in the
portfolio, composition of the portfolio, current economic conditions, and other
relevant factors. This evaluation is inherently subjective since it requires
material estimates that may be susceptible to significant change.
An analysis of the allowance for credit losses for the three years ended
December 31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance, January 1 $ 2,030,878 $ 1,835,951 $ 1,858,783
Provision charged to operating expense 140,000 400,000 100,000
Recoveries on loans 64,086 106,465 67,051
Loans charged off (244,874) (311,538) (189,883)
Balance, December 31 $ 1,990,090 $ 2,030,878 $ 1,835,951
</TABLE>
NOTE 7 - LOAN SERVICING
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The unpaid principal balances of mortgage loans
serviced for others was $0, and $12,821,873 at December 31, 1997 and 1996,
respectively. During 1997, the Company sold its entire serviced mortgage loan
portfolio and recorded a gain on the sale of these servicing rights of
$212,881.
<PAGE>
NOTE 8 - PREMISES AND EQUIPMENT
Premises and equipment consists of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Land and improvements $ 875,994 $ 441,406
Buildings 5,051,379 3,800,283
Furniture and equipment 3,731,861 3,671,854
Total cost 9,659,234 7,913,543
Accumulated depreciation 4,153,250 (4,006,882)
Net book value $ 5,505,984 $ 3,906,661
</TABLE>
Depreciation and amortization charged to operating expense totaled $687,968 in
1997 and $680,295 in 1996, and $672,338 in 1995.
NOTE 9 - INTEREST-BEARING DEPOSITS
Aggregate annual maturities of certificate and IRA accounts at December 31,
1997 are as follows:
<TABLE>
<S> <C>
1998 $ 71,331,634
1999 26,214,824
2000 12,268,350
2001 2,648,028
2002 74,881
Total $112,537,717
Deposits from Company directors, executive officers, and related firms in which
they are principal owners totaled $3,809,192 and $3,701,280 at December 31,
1997 and 1996, respectively.
Interest-bearing deposits include $23,028,560 and $17,145,518 of certificates
of deposit in denominations of $100,000 or more at December 31, 1997 and 1996,
respectively.
NOTE 10 - SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1997 and 1996 totaled $16,078,523 and
$14,671,264, respectively, and consisted of securities sold under repurchase
agreements.
As a member of the Federal Home Loan Bank (FHLB) System, the Company has
available a line of credit totaling $19,680,000 at December 31, 1997. At
December 31, 1997, the Company's available and unused portion of this line of
credit totaled $14,280,000.
<PAGE>
NOTE 10 - SHORT-TERM BORROWINGS (CONTINUED)
The following information relates to federal funds purchased, securities sold
under repurchase agreements, and FHLB open line of credit, for the years ended
December 31:
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Weighted average rate at December 31 4.95% 4.89%
For the year:
Highest month-end balance $ 28,166,356 $ 25,280,224 $ 23,254,010
Daily average balance 19,121,688 19,976,901 18,281,849
Weighted average rate 5.11% 5.01% 5.55%
</TABLE>
At December 31, 1997, the Company maintained repurchase agreements with Clark
County and the Medford School District in the amounts of $4,500,000 and
$3,650,000, respectively. The repurchase agreements are payable on demand.
NOTE 11 - LONG-TERM BORROWINGS
Long-term borrowings at December 31, consist of the following:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 6.55%, due July 26, 1998 $ 1,000,000 $ 1,000,000
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 4.98%, due September 3, 1998 1,600,000 1,600,000
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 6.19%, due September 18, 1998 1,000,000
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 6.23%, due November 1, 1999 1,000,000 1,000,000
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 5.46%, due September 3, 2000 800,000 800,000
Note payable to the Federal Home Loan Bank, monthly interest
payments only at 5.81%, due November 3, 1997 1,000,000
Totals $ 5,400,000 $ 5,400,000
</TABLE>
The FHLB advances are secured by a blanket lien consisting principally of one-
to-four family real estate loans totaling $9,000,000 at December 31, 1997 and
1996.
<PAGE>
NOTE 12 - INCOME TAXES
The components of the income tax provision are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current income tax provision:
Federal $ 1,507,354 $ 1,471,075 $ 1,317,757
State 267,193 277,126 268,511
Total current 1,774,547 1,748,201 1,586,268
Deferred income tax expense (benefit):
Federal 63,632 25,190 (30,836)
State 16,982 6,723 (21,773)
Total deferred 80,614 31,913 (52,609)
Total provision for income taxes $ 1,855,161 $ 1,780,114 $ 1,533,659
</TABLE>
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $ 1,823,289 34.0% $ 1,719,229 34.0% $ 1,500,937 34.0%
Increase (decrease) in
taxes resulting from:
Tax-exempt interest (190,215) (3.5%) (160,572) (3.2%) (163,102) (3.7%)
State income tax 187,556 3.4% 187,340 3.7% 162,847 3.7%
Other 34,531 .7% 34,117 .7% 32,977 .7%
Provision for income taxes $ 1,855,161 34.6% $ 1,780,114 35.2% $ 1,533,659 34.7%
</TABLE>
<PAGE>
NOTE 12 - INCOME TAXES (CONTINUED)
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The major components of the net deferred taxes are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Deferred tax assets:
Allowance for credit losses $ 423,089 $ 439,078
Deferred compensation 268,374 370,265
State net operating loss 78,678 89,240
Other deferred expenses 21,153 25,464
791,294 924,047
Less - Valuation allowance (78,678) (89,240)
Total deferred tax assets 712,616 834,807
Deferred tax liabilities:
Premises and equipment 182,973 225,780
Direct lease financing 78,331 77,101
Unrealized gain on securities
available for sale 182,818 77,725
Total deferred tax liabilities 444,122 380,606
Net deferred tax assets $ 268,494 $ 454,201
</TABLE>
The Company, and its subsidiary, pay state income taxes on individual,
unconsolidated net earnings. At December 31, 1997, tax net operating losses at
the parent company level of approximately $996,000 existed to offset future
state taxable income. These net operating losses will begin to expire in 2007.
The valuation allowance has been recognized to adjust deferred tax assets to
the amount of tax net operating losses expected to be realized. If realized,
the tax benefit for this item will reduce current tax expense for that period.
NOTE 13 - RETIREMENT PLANS
The Company sponsored a defined benefit pension plan which covered
substantially all employees. The benefits were based on years of service and
the employee's highest consecutive five-year average earnings. Contributions
were intended to provide not only benefits attributed for service to date but
also for those expected to be earned in the future. The Company's funding
policy was to annually contribute the maximum amount deductible for federal
income tax purposes. Contributions made during 1996 and 1995 totaled $159,027
and $200,548, respectively. There was no contribution made during 1997.
<PAGE>
NOTE 13 - RETIREMENT PLANS (CONTINUED)
Effective January 1, 1997, the Company terminated its defined benefit pension
plan and replaced it with a noncontributory defined contribution money purchase
pension plan covering substantially the same employees. Monthly benefits
currently paid to retirees will not be affected by the plan's termination.
Benefits under the money purchase plan will be contributed by the Company on an
annual basis, calculated as a percentage of annual salary and wages beginning
January 1, 1997. The Company received regulatory approval to distribute
participants' vested defined benefit pension plan balances into the new money
purchase pension plan.
Under the provisions of Statement of Financial Accounting Standards (SFAS) No.
88, "Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits," termination of the plan
constitutes a curtailment, which resulted in the recognition of a gain to the
Company as of December 31, 1996, determined as follows:
<TABLE>
<CAPTION>
Effect of
Before Curtailment After
Curtailment (Gain) Loss Curtailment
<S> <C> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 2,356,078 $ 20,732 $ 2,376,810
Nonvested benefit obligation 20,732 (20,732)
Accumulated benefit obligation 2,376,810 2,376,810
Effect of projected future compensation levels 1,112,595 (1,112,595)
Projected benefit obligation 3,489,405 (1,112,595) 2,376,810
Plan assets at fair value (2,135,771) (2,135,771)
Projected benefit obligation in excess of plan assets 1,353,634 (1,112,595) 241,039
Unrecognized net loss (934,876) 894,967 (39,909)
Unrecognized prior service cost 150,187 (150,187)
Unrecognized initial net asset 39,909 39,909
Accrued pension cost recognized in the consolidated
balance sheets $ 608,854 $ (367,815) $ 241,039
</TABLE>
On June 30, 1997, the Company settled the defined benefit pension plan
obligation by transferring existing plan assets of $1,840,121 to the money
purchase pension plan in settlement of all benefit obligations. Plan assets of
$35,477 in excess of benefit obligations were allocated to plan participants.
Under the provisions of SFAS No. 88, this transaction constitutes a settlement,
which resulted in the recognition of a gain to the Company as of June 30, 1997,
determined as follows:
<TABLE>
<S> <C>
Excess of plan assets over vested benefits distributed and
expenses associated with termination of the plan $ 35,477
Accrued pension cost at settlement date 222,817
Gain on pension settlement $258,294
<PAGE>
NOTE 13 - RETIREMENT PLANS (CONTINUED)
The following table sets forth the plan's funded status and the amounts
reflected in the accompanying consolidated balance sheets at December 31, 1996:
</TABLE>
<TABLE>
<S> <C>
Actuarial present value of benefit obligations:
Vested benefit obligation $ 2,376,810
Nonvested benefit obligation
Accumulated benefit obligation 2,376,810
Effect of projected future compensation levels
Projected benefit obligation 2,376,810
Plan assets at fair value (2,135,771)
Projected benefit obligation in excess of plan assets 241,039
Unrecognized net loss (39,909)
Unrecognized prior service cost
Unrecognized initial net asset 39,909
Accrued pension cost recognized in the consolidated
balance sheets at December 31 $ 241,039
</TABLE>
Net pension cost for 1997, 1996, and 1995 included the following components:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost - Benefits earned during the period $ $ 96,743 $ 106,837
Interest cost on projected benefit obligation 59,549 164,023 182,025
Actual return on plan assets (72,070) (218,324) (301,671)
Net amortization and deferral (5,701) 83,638 203,524
Net periodic pension cost (income) $ (18,222) $126,080 $ 190,715
</TABLE>
The following assumptions were used in determining the 1996 and 1995 projected
benefit obligation:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Discount rate 5.50% 7.00%
Rate of increase in future compensation levels 0.00% 3.50%
Expected long-term rate of return on assets 7.00% 7.00%
</TABLE>
Contributions to the Company's 401(k) profit-sharing plan are based on
achieving desired Company profitability and the Board of Directors'
authorization. Beginning in 1997, the Company matched 100 percent of employee
contributions to the plan up to 5 percent of pay deferred in addition to the
discretionary profit-sharing contribution. For the years ended December 31,
1997, 1996, and 1995, the amount of the plan expense was $274,858, $394,036,
and $358,294, respectively.
<PAGE>
NOTE 13 - RETIREMENT PLANS (CONTINUED)
During 1997, the Company established a noncontributory defined contribution
money purchase pension plan. Company contributions to this plan, as determined
by the Board of Directors, totaled $141,919 during 1997.
NOTE 14 - STOCK OPTIONS
Under the terms of existing stock option plans, shares of unissued common stock
are reserved for options to officers and key employees of the Company at prices
not less than the fair market value of the shares at the date of the grant.
Options expire no later than approximately five years from the date of the
grant.
At December 31, 1997, options outstanding are as follows:
<TABLE>
<CAPTION>
Number of Shares Option Price
Outstanding Exercisable* Per Share
<S> <C> <C>
3,358 3,358 14.00
2,958 2,958 16.00
2,846 2,846 19.50
2,790 2,790 24.00
11,952 11,952
<FN>
*Options can be exercised only between the fourth and fifth anniversaries of
the date of grant.
<CAPTION>
For the years ended December 31, 1995, 1996 and 1997, options exercised were as
follows:
</TABLE>
<TABLE>
<CAPTION>
Year Price at Which
Exercised Shares Exercised
<S> <C> <C>
1995 7,430 8.37
1996 8,079 9.29
1997 7,981 12.66
</TABLE>
As of December 31, 1997, 64,558 shares of common stock remain reserved for
future grants under option plans approved by the shareholders. The options
outstanding reflect the stock split effected in the form of a 100 percent stock
dividend issued May 8, 1995.
The Company applies Accounting Principles Board (APB) Opinion No. 25 and
related interpretations in accounting for its plans. Accordingly, no
compensation cost has been recognized for its stock option plans. Had
compensation cost for the Company's stock option plans been determined based on
the fair value at the grant dates for awards under those plans consistent with
the method of Statement of Financial Accounting Standards (SFAS) No. 123,
"Accounting for Stock-Based Compensation," the Company's net income and
earnings per share would have been reduced to the pro forma amounts indicated
below:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net income $ 3,498,424 $ 3,271,628
Diluted earnings per share $ 1.87 $ 1.75
</TABLE>
<PAGE>
NOTE 15 - CAPITAL REQUIREMENTS
The Company and subsidiary bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the bank must meet specific capital guidelines that involve quantitative
measures of the bank's assets, liabilities, and certain off-balance sheet items
as calculated under regulatory accounting practices. The bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the table
below) of total and Tier I capital (as defined in the regulations) to risk-
weighted assets (as defined), and of Tier I capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that the
bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997 and 1996, the most recent notification from the Federal
Deposit Insurance Corporation categorized the bank as well capitalized under
the regulatory framework for prompt corrective action. To be categorized as
well capitalized the bank must maintain minimum total risk-based, Tier I risk-
based, and Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the institution's category.
The Company and subsidiary bank's actual capital amounts and ratios are also
presented in the table.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets):
Consolidated $ 26,742,000 14.9% $ 14,324,000 8.0% N/A
Subsidiary bank $ 22,757,000 12.7% $ 14,324,000 8.0% $ 17,904,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $ 24,752,000 13.8% $ 7,162,000 4.0% N/A
Subsidiary bank $ 20,767,000 11.6% $ 7,162,000 4.0% $ 10,743,000 6.0%
Tier I capital (to average
assets):
Consolidated $ 24,752,000 9.5% $ 10,438,000 4.0% N/A
Subsidiary bank $ 20,767,000 8.0% $ 10,438,000 4.0% $ 13,047,000 5.0%
</TABLE>
<PAGE>
NOTE 15 - CAPITAL REQUIREMENTS (CONTINUED)
<TABLE>
To Be Well
<CAPTION>
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk
weighted assets):
Consolidated $ 26,852,000 15.8% $ 13,610,000 8.0% N/A
Subsidiary bank $ 22,491,000 13.1% $ 13,610,000 8.0% $ 17,012,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $ 24,821,000 14.6% $ 6,805,000 4.0% N/A
Subsidiary bank $ 20,460,000 11.9% $ 6,805,000 4.0% $ 10,207,000 6.0%
Tier I capital (to average
assets):
Consolidated $ 24,821,000 10.0% $ 9,923,000 4.0% N/A
Subsidiary bank $ 20,460,000 8.2% $ 9,923,000 4.0% $ 12,403,000 5.0%
</TABLE>
NOTE 16 - RESTRICTIONS ON RETAINED EARNINGS
The banking subsidiary is restricted by banking regulations from making
dividend distributions above prescribed amounts and limited in making loans and
advances to the Company. At December 31, 1997, the retained earnings of the
subsidiary available for distribution as dividends without regulatory approval
was approximately $7,921,000.
<PAGE>
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
Financial Instruments
The Financial Accounting Standards Board has issued three statements concerning
financial instruments. SFAS No. 105 requires that certain information be
disclosed about financial instruments with off-balance sheet risk and financial
instruments with concentrations of credit risk. SFAS No. 107 requires such
entities to disclose the fair value of financial instruments. SFAS No. 119
requires certain disclosures for derivative financial instruments. The Company
does not presently have nor has it had any derivative type instruments
requiring disclosure.
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Credit Risk
The Company is a party to financial instruments with off-balance sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheets.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance sheet instruments. These
commitments at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Commitments to extend credit:
Fixed rate $ 11,134,093 $ 7,818,893
Adjustable rate 7,884,178 7,725,800
Standby and irrevocable letters of credit:
Fixed rate 1,484,147 1,834,712
Adjustable rate 127,486
Credit card commitments 4,144,150 3,757,219
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's credit worthiness on a case by case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the party. Collateral held varies but may
include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for collateralization on all standby letters of credit in
the same manner and terms as exist on loans of similar risk.
Credit card commitments are commitments on credit cards issued by the Company
and serviced by Elan Financial Services. These commitments are unsecured.
<PAGE>
NOTE 17 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK (CONTINUED)
Contingencies
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
Concentration of Credit Risk
The Company grants residential, commercial, agricultural and consumer loans
predominantly in central Wisconsin. There were no significant concentrations
of credit to any one debtor or industry group. It is felt that the diversity
of the local economy will prevent significant losses in the event of an
economic downturn.
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair
Value of Financial Instruments" requires that the Company disclose estimated
fair values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below for the Company's financial instruments:
Cash and Short-Term Investments: The carrying amounts reported in the
balance sheets for cash and due from banks, interest-bearing deposits in other
financial institutions, and federal funds sold approximate the fair value of
these assets.
Investment Securities: Fair values are based on quoted market prices,
where available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans: Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
residential mortgage, and other consumer. The fair value of loans is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the Company's
repayment schedules for each loan classification. In addition, for impaired
loans, marketability and appraisal values for collateral were considered in the
fair value determination. The carrying amount of accrued interest approximates
its fair value.
Deposit Liabilities: The fair value of deposits with no stated maturity,
such as noninterest-bearing demand deposits, savings, NOW accounts and money
market accounts, is equal to the amount payable on demand at the reporting
date. The fair value of certificates of deposit is based on the discounted
value of contractual cash flows. The discount rate reflects the credit quality
and operating expense factors of the Company.
Short-Term Borrowings: The carrying amount reported in the consolidated
balance sheets for short-term borrowings approximates the liabilities fair
value.
Long-Term Borrowings: The fair values of the Company's long-term
borrowings (other than deposits) are estimated using discounted cash flow
analyses, based on the Company's current incremental borrowing rates for
similar types of borrowing arrangements.
<PAGE>
NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-Balance Sheet Instruments: The fair value of commitments would be
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the current interest
rates, and the present credit worthiness of the counter parties. Since this
amount is immaterial, no amounts for fair value are presented.
The following table presents information for financial instruments:
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
<S> <C> <C> <C> <C>
Financial assets:
Cash and short-term investments $ 14,158,530 $ 14,158,530 $ 13,745,119 $ 13,745,119
Investment securities 54,256,192 54,256,192 57,164,723 57,164,723
Net loans 184,194,532 184,526,082 172,931,111 172,707,916
Financial liabilities:
Deposits 211,149,458 211,273,707 202,412,107 202,744,292
Short-term borrowings 16,078,523 16,078,523 14,671,264 14,671,264
Long-term borrowings 5,400,000 5,367,963 5,400,000 5,332,141
</TABLE>
Limitations: Fair value estimates are made at a specific point in time,
based on relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include premises and equipment,
other assets and other liabilities. In addition, the tax ramifications related
to the realization of the unrealized gains or losses can have a significant
effect on fair value estimates and have not been considered in the estimates.
<PAGE>
NOTE 19 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
<TABLE>
BALANCE SHEETS
December 31, 1997 and 1996
<CAPTION>
ASSETS
1997 1996
<S> <C> <C>
Cash and due from banks $ 4,038,731 $ 4,233,106
Investment in subsidiary 23,882,439 21,363,648
Premises and equipment - Net 32,652 138,386
Other assets 70,687 80,814
Total assets $28,024,509 $25,815,954
LIABILITIES AND STOCKHOLDERS' EQUITY
Total liabilities $ 157,352 $ 91,323
Total stockholders' equity 27,867,157 25,724,631
Total liabilities and stockholders' equity $ 28,024,509 $ 25,815,954
</TABLE>
<PAGE>
NOTE 19 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
<TABLE>
STATEMENTS OF INCOME
Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Income:
Dividends from subsidiary $ 1,100,000 $ 2,800,000 $ 2,600,000
Interest 194,589 145,271 63,228
Management and service fees 180,000 182,250 165,000
Other 1,269 5,116 72,032
Total income 1,475,858 3,132,637 2,900,260
Expenses:
Salaries and benefits 48,115 55,142 81,583
Interest 14,802
Other 235,410 286,251 295,804
Total expenses 283,525 341,393 392,189
Income before income taxes and equity in
undistributed net income of subsidiaries 1,192,333 2,791,244 2,508,071
Provision for income tax expense (benefit) 31,418 (2,952) (31,231)
Net income before equity in undistributed
net income of subsidiaries 1,160,915 2,794,196 2,539,302
Equity in undistributed net income of subsidiaries 2,346,539 482,245 341,559
Net income $ 3,507,454 $ 3,276,441 $ 2,880,861
</TABLE>
<PAGE>
NOTE 19 - CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
<TABLE>
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $ 3,507,454 $ 3,276,441 $ 2,880,861
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation, amortization and accretion 132,194 169,077 176,382
Net loss on disposal of fixed assets 4,935
Equity in undistributed net income of subsidiaries (2,346,539) (482,245) (341,559)
Changes in operating assets and liabilities:
Other assets (2,117) 55,042 376,683
Liabilities 66,029 1,034 (587,371)
Net cash provided by operating activities 1,357,021 3,019,349 2,509,931
Cash flows from investing activities:
Capital expenditures (14,216) (32,550) (178,134)
Proceeds from sale of fixed assets 4,937
Net cash used in investing activities (14,216) (32,550) (173,197)
Cash flows from financing activities:
Proceeds from exercise of stock options 101,060 75,057 63,055
Payments for repurchase of common stock (239,004)
Repayment of long-term debt (335,000)
Dividends paid (1,399,236) (1,247,037) (1,074,801)
Net cash used in financing activities (1,537,180) (1,171,980) (1,346,746)
Net increase (decrease) in cash and due from banks (194,375) 1,814,819 989,988
Cash and due from banks at beginning 4,233,106 2,418,287 1,428,299
Cash and due from banks at end $ 4,038,731 $ 4,233,106 $ 2,418,287
Supplemental cash flow information:
Cash paid during the year for:
Interest $ $ $ 16,103
Income taxes 1,540,025 1,475,025 1,430,025
</TABLE>
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors is incorporated in this Form 10-K by
this reference to the table on pages 3 and 4 of registrant's 1998 Proxy
Statement dated March 27, 1998 (the "1998 Proxy Statement") under the caption
"Elections of Directors". Information relating to executive officers is found
in Part I, page 5 of this Form 10-K. No information required under Rule 405 of
Regulation S-K is contained herein or incorporated by reference from the 1998
Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive and director compensation is
incorporated in this Form 10-K by this reference to the registrant's 1998 Proxy
Statement under (1) the caption "Executive Officer Compensation," pages 7
through the material immediately preceding the subcaption "Committees' Report
on Executive Compensation Policies" on page 9, (2) the material under the
subcaption "Personnel Committee Interlocks and Insider Participation", page 11,
and (3) the material under the subcaption "Director Compensation", pages 4 and
5.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners
is incorporated in this Form 10-K by this reference to the registrant's 1998
Proxy Statement under the caption "Beneficial Ownership of Common Stock," pages
5 and 6.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
incorporated in this Form 10-K by this reference to the registrant's 1998
Proxy Statement under the caption "Certain Relationships and Related
Transactions," page 13.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
Description Page
The Company Financial Services, Inc.
Consolidated Financial Statements
Accountants' Report 31
Consolidated Balance Sheets 32
Consolidated Statements of Income 33
Consolidated Statements of Changes in Stockholders' Equity 34
Consolidated Statements of Cash Flows 35
Notes to Consolidated Financial Statements 37
(b) Reports on Form 8-K
None
(c) Exhibits Required by Item 601 of Regulation S-K:
Incorporated
Exhibit No. and Description Exhibit <dagger>
(3) Articles of Incorporation and Bylaws
(a) Articles of Incorporation, as amended 3 (a) (1)
(b) Bylaws, as amended September 20, 1995
(4) Instruments defining the rights of security
holders, including indentures
(a) Articles of Incorporation and
Bylaws (See (3)(a) and (b))
<PAGE>
Exhibit No. and Description Incorporated
Exhibit
(10) Material contracts:
**(a) 1997 Mid-Wisconsin Bank
Senior Officer Incentive Bonus Plan
**(b) Mid-Wisconsin Financial Services, Inc.
1991 Employee Stock Option Plan 10 (b) (1)
**(c) Mid-Wisconsin Financial Services, Inc.
Directors' Deferred Compensation Plan 10 (a) (2)
**(d) Executive Officer Employment and Severance
Agreements
**(e) Executive Officer Bonus Plan
**(f) Mid-Wisconsin Bank
Senior Officer Incentive Bonus Plan
(21) Subsidiaries of the registrant 21 (1)
(27) Financial Data Schedule
**Denotes Executive Compensation Plans and Arrangements
<dagger>Where exhibit has been previously filed and is incorporated
herein by reference, exhibit numbers set forth herein correspond to the exhibit
numbers where such exhibit can be found in the following reports of the
registrant (Commission File No. 0-18542) filed with the Securities and Exchange
Commission:
(1) Form 10-K for the year ended December 31, 1995, as filed with the
Commission on March 26, 1996, Commission File No. 0-18542.
(2) Form 10-K for the year ended December 31, 1992, as filed with the
Commission on March 30, 1993, Commission File No. 0-18542.
(3) Form 10-Q for the quarterly period ended March 31, 1996, as filed
with the Commission on May 14, 1996, Commission File No. 0-18542.
The exhibits listed above are available upon request in writing to Ruth
M. Zuleger, Secretary, Mid-Wisconsin Financial Services, Inc., 132 West State
Street, Medford, Wisconsin 54451.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1994, the registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 13, 1998.
MID-WISCONSIN FINANCIAL SERVICES, INC.
James R. Peterson
James R. Peterson, Chairman of the Board
Ruth M. Zuleger
Ruth M. Zuleger, Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
March 13, 1998, and in the capacities indicated.
Ronald D. Isaacson Gene C. Knoll
Ronald D. Isaacson, Vice President Gene C. Knoll, President and Chief
and a Director Executive Officer
(Principal Executive Officer and a Director)
Jack E. Wild Norman A. Hatlestad
Jack E. Wild, Director Norman A. Hatlestad, Director
James N. Dougherty Roger B. Olson
James N. Dougherty, Director Roger B. Olson, Director
James F. Melvin Fred J. Schroeder
James F. Melvin, Director Fred J. Schroeder, Director
Kurt D. Mertens John P. Selz
Kurt D. Mertens, Director John P. Selz, Director
Lucille T. Brandner
Lucille T. Brandner, Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX<dagger>
to
FORM 10-K
of
MID-WISCONSIN FINANCIAL SERVICES, INC.
for the period ended December 31, 1997
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. <section>232.102(d))
Exhibit 10 - Material Contracts*
(a) 1997 Mid-Wisconsin Bank Senior Officer Incentive Bonus Plan
(d) Executive Officer Employment and Severance Agreements
(e) Executive Officer Bonus Plan
(f) Mid-Wisconsin Bank Senior Officer Incentive Bonus Plan
*Exhibit represents executive compensation plan or arrangement.
Exhibit 27 - Financial Data Schedule
<dagger>Exhibits required by Item 601 of Regulation S-K which have been
previously filed and are incorporated by reference are set forth in Part IV,
Item 14 of the Form 10-K to which this Exhibit Index relates.
<PAGE>
Exhibit 10(a)
1997 MID-WISCONSIN BANK
SENIOR OFFICER INCENTIVE BONUS PLAN
In recognition of the critical role senior bank officers play in setting
internal operating policies and procedures and in managing the bank operations
for maximum profit, the board of directors has established an incentive bonus
plan to reward senior officers for superior performance. The following rules
and guidelines will apply:
1. Net income will be the net income of the bank for the calendar year
ending December 31, adjusted by a pro rata share of the net income or loss of
the holding company.
2. Equity will be considered the average capital, surplus and undivided
profits for the calendar year.
3. The officers eligible for the senior officer incentive bonus will be
officer levels 1, 2, 3, and 4.
4. The schedule and basis for paying out the bonus will be set by the
holding company board of directors based upon recommendations by the Personnel
Committee.
5. Bonus will be paid only on base salary.
6. Participants, other than those who incurred a termination of employment
during the year due to death, retirement, or disability are eligible for
current year bonus only if they are employed on the last day of the year.
7. Bonus will be paid one-half in cash and one-half in deferred compensation
to be paid in four equal installments over the next four years.
<PAGE>
8. Employees leaving employment for reasons other than retirement or
disability will not be eligible for the current year bonus.
9. Employees leaving employment for reasons other than retirement or disability
will not be eligible for the any deferred bonus amounts if they have less than
five years of employment.
10. Retirement date for purposes of this plan is sixty (60) years of age.
11. Employees leaving employment for reasons other than retirement or
disability and have at least five years of employment will be paid a portion of
deferred bonus according to this schedule:
<TABLE>
<CAPTION>
Years of Employment Percent of Deferred bonus to be Paid
<S> <C>
5 - 9.9 20%
10 - 14.9 40%
15 - 19.9 60%
20 - 24.9 80%
25 100%
</TABLE>
12. Length of employment is calculated from the employee's start date.
13. Eligible employees must have one full year's employment to be eligible
for the bonus unless otherwise approved by the holding company board.
<PAGE>
EXHIBIT 10 (d)
EMPLOYMENT AGREEMENT
This Employment Agreement made this 31st day of December, 1995, by and
between Ronald Isaacson ("Employee") and Mid-Wisconsin Financial Services, Inc.
("Employer").
W I T N E S S E T H
WHEREAS, Employee has been employed by Employer as Chairman of the Board
of Directors of Mid-Wisconsin Bank; and
WHEREAS, Employee has indicated that he intends to voluntarily retire
effective December 31, 1996; and
WHEREAS, in order to effectuate a smooth transition of the duties of
Chairman of the Board to Employee's successor in that position, Employer
desires to retain the services of Employee and to receive the benefit of
Employee's knowledge, experience, reputation, and contacts. Employer is
willing to offer Employee continued employment under the terms and conditions
set forth below.
NOW, THEREFORE, it is agreed between the parties as follows:
1. Employment: Subject to the terms and conditions hereinafter set forth,
effective January 1, 1996, Employer hereby agrees to employ Employee in the
position of Chairman of the Board of Directors of Mid-Wisconsin Bank, a part-
time position requiring 25% of full-time employment, and Employee hereby
accepts such employment. The percentage of full-time employment can be changed
by mutual consent of both parties.
2. Term: Except in the case of earlier termination as hereinafter specifically
provided, this Agreement shall be effective as of January 1, 1996, and continue
until December 31, 1996 ("employment term"). This Agreement shall be
automatically renewed for additional one year periods unless either party
serves written notice on the other party not less than thirty (30) days prior
to the expiration date, or any subsequent expiration thereafter, specifying a
desire to modify or terminate this Agreement.
3. Duties: Throughout the employment term, Employee shall devote a minimum of
520 hours per year (less any vacation and sick leave) to the affairs of the
Employer. Duties are to include, but are not limited to, strategic planning
with Executive Management, meeting leadership and direction, will serve as a
reporting mechanism to the Board from Executive Management, holding company
duties including mergers and acquisitions and stockholder relations. Employee
shall at all times during employment hereunder conduct himself in a manner
consistent with his position with Employer and shall not knowingly perform any
act contrary to the best interest of Employer.
4. Salary: Employer shall pay Employee for all services rendered hereunder a
salary of Twenty-nine Thousand Five Hundred and No/100ths Dollars ($29,500.00)
per year. Such salary is to be paid in accordance with the usual manner of
payment for employees of Employer.
<PAGE>
5. Bonus. Employee will be eligible for a senior officer bonus under the
current Employer plan. At the time of actual retirement, Employee shall be
paid for any accrued but unpaid bonuses.
6. Stock Options. Employee will be eligible for stock options under the
current Employer plan. At the time of actual retirement, Employee shall be
eligible to exercise all accrued but unexercised stock options.
7. Fringe Benefits: Employee will be entitled to participate in such medical,
accident, health, retirement, and other fringe benefit plans, in accordance
with their terms, as shall be made available by Employer generally to employees
and Employer shall pay such premiums arising with respect to Employee's
coverage as it pays generally for employees of the same class prorated based
upon the percentage of Employee's employment as compared to full-time.
8. Expenses: Employer will reimburse Employee for all reasonable and necessary
expenses incurred by him in carrying out his duties under this Agreement
consistent with the policies of Employer.
9. Termination: Either Employer or Employee can terminate employment at any
time during the term of this Agreement, with or without cause, upon providing
not less than thirty (30) days written notice to the other party specifying the
effective date of termination.
10. Arbitration: In the event any difference of opinion or dispute between
Employee and Employer with respect to the construction or interpretation of
this Agreement or the alleged breach thereof, which cannot be settled amicably
by agreement of the parties, such dispute shall be submitted to and determined
by arbitration in accordance with the provisions of the arbitration agreement,
which is attached hereto and incorporated herein by reference as Exhibit "A."
11. Voluntary Early Retirement: In the event Employee elects to voluntarily
retire during the employment term or at the end of the employment term,
Employer agrees to pay Employee a severance benefit of one (1) week of
severance pay for each full year of service as of the date of retirement,
subject to the terms and conditions hereinafter set forth in this paragraph.
The severance pay shall be calculated by averaging the highest five (5) years
of employment compensation less any profit sharing paid during that period. In
consideration for the severance pay and as a condition of receiving such pay,
Employee understands that he will be required to execute a severance agreement
and release, a copy of which is attached hereto and incorporated herein by
reference as Exhibit "B," before any severance benefits will be paid.
12. Death Benefit: In the event Employee dies during the term of this
Agreement or during any period after the expiration of this Agreement in which
Employee is receiving severance pay pursuant to paragraph 11, Employer will pay
to such beneficiary as Employee shall designate by instrument in writing, filed
with Employer during Employee's lifetime, or to Employee's estate if no
beneficiary has been so designated, a death benefit to be computed and paid in
a lump sum as follows:
Commencing with the month following the month in which Employee's death occurs,
Employer shall pay to Employee's designated beneficiary, or Employee's estate,
as the case may be, one (1) week of death benefits for each year of service at
the date of death. The death benefit shall be calculated by averaging the
highest five (5) years of employment compensation paid to Employee less any
profit sharing. If employee dies during a period after the expiration date of
this Agreement in which Employee is receiving severance pay, the death benefit
shall be reduced by an amount equal to the severance pay paid up to the date of
death.
<PAGE>
13. Assignment: This agreement is personal to Employee and Employer and
neither party may assign or delegate any of their rights or obligations
hereunder without first obtaining the written consent of the other party.
14. Amendments and Waivers: No amendments or additions to the Agreement shall
be binding unless in writing and signed by both parties. The waiver of either
party of a breach or violation of any part of this Agreement shall not operate
or be construed to be a waiver of any subsequent breaches thereof.
15. Severability: If any provision of this Agreement is deemed to be invalid
or unenforceable, it shall be severed from the remainder of this Agreement and
shall not cause the invalidity or unenforceability of the remainder of this
Agreement. If such provision shall be deemed invalid or unenforceable because
of its scope or breadth, such provisions shall be deemed valid or enforceable
to the extent of the scope and breadth permitted by law.
16. Applicable Law: This Agreement and all rights and obligations of Employer
and Employee with respect to it, shall be construed in accordance with, and
governed by, the laws of the State of Wisconsin.
17. Entire Agreement: This agreement constitutes the entire agreement between
the parties and contains all the agreements between them with respect to the
subject matter hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with respect to the
subject matter hereof. The terms and conditions of this Agreement may be
amended at any time by mutual agreement of the parties, provided that before
any amendment shall be valid or effective, it shall have been reduced to
writing and signed by the parties hereto.
The parties have executed, in duplicate, the above employment agreement on the
date and year first above-written.
Ronald Isaacson
MID-WISCONSIN FINANCIAL SERVICES, INC.
By: ___________________________________
James Peterson, Chairman of the Board
<PAGE>
EXHIBIT A
ARBITRATION AGREEMENT
1. Scope of Arbitration
The parties agree to submit to arbitration, in accordance with these
provisions, any and all disputes arising from or related to the termination of
the employment relationship between the parties including but not limited to,
claims under the Age Discrimination in Employment Act, the Americans with
Disabilities Act, the Civil Rights Acts of 1964 and 1991, the Wisconsin Fair
Employment Act, or any other claims of discrimination under state or federal
law; breach of contract, wrongful discharge, common law tort violations, or
violations of state or federal statutory rights. The parties further agree
that the arbitration process agreed upon herein shall be the exclusive means
for resolving all disputes made subject to arbitration herein.
2. Governing Law
Notwithstanding any other choice of law provisions in the Agreement, the
interpretation and enforcement of the arbitration provisions of this Agreement
shall be governed exclusively by the Federal Arbitration Act, (FAA), 9 U.S.C.
<section><section> 1 et seq., provided that they are enforceable under the FAA,
and shall otherwise be governed by the law of the State of Wisconsin.
3. Time Limits on Submitting Disputes
The parties agree and understand that one of the objectives of this
arbitration agreement is to resolve disputes expeditiously as well as fairly,
and this it is the obligation of both parties, to those ends, to raise any
disputes subject to arbitration hereunder in an expeditious manner.
Accordingly, the parties agree to waive all statutes of limitations that might
otherwise be applicable and agree further that, as to any dispute that can be
brought hereunder, a demand for arbitration must be postmarked or delivered in
person to the other party no later than thirty (30) days after the employment
relationship is terminated. In the absence of a timely submitted written
demand for arbitration, an arbitrator has no authority to resolve the disputes
or render an award and no arbitrator has authority hereunder to determine the
timeliness of an arbitration demand.
4. American Arbitration Association Rules Apply as Modified Herein
Any arbitration hereunder shall be conducted under the Model Employment
Procedures of the American Arbitration Association (AAA), as modified herein.
5. Invoking Arbitration
Either party may invoke the arbitration procedures described herein, by
submitting to the other, in person or by mail, a written demand for
arbitration, containing a statement of the matter to be arbitrated sufficient
to establish the timeliness of the demand. The parties shall then have
fourteen days within which they may identify a mutually agreeable arbitrator.
After the fourteen-day period has expired, the parties shall prepare and submit
to the American Arbitration Association a joint submission, with each party to
contribute half of the appropriate administrative fee. In their submission to
the AAA, the parties shall either designate a mutually acceptable arbitrator or
request a panel of arbitrators from the AAA according to the procedure
described in Section 6 below.
<PAGE>
6. Arbitrator Selection
In the event the parties cannot agree upon an arbitrator within fourteen
days after the demand for arbitration is received, their joint submission to
the AAA shall request a panel of nine arbitrators who are practicing attorneys
with professional experience in the field of labor and/or employment law, and
the parties shall attempt to select an arbitrator from that panel according to
AAA procedures. In the event that the parties are unsuccessful, they shall
request a second panel of nine comparably qualified arbitrators and repeat the
selection process. If the parties remain unable to select an arbitrator, then
they shall request from AAA a third panel of three comparably qualified
arbitrators, from which the AAA shall reject the least preferred candidate of
each party, and select the candidate with the highest ranking of the parties.
In the event of the death or disability of an arbitrator, the parties shall
select a new arbitrator as provided above. The substitute arbitrator shall
have the power to determine the extent to which he or she shall act on the
record already made in arbitration.
7. Prehearing Procedures
In order to achieve the objectives of a just, fair, and expeditious
resolution of the dispute, the arbitrator shall promptly conduct, upon
accepting assignment as arbitrator, a preliminary hearing, at which each party
shall be entitled to submit a brief statement of their respective positions,
and at which the arbitrator shall establish a timetable for prehearing
activities and the conduct of the hearing, and may address initial requests
from the parties for prehearing disclosure of information. At the preliminary
hearing and/or thereafter, the arbitrator shall have the discretion and
authority to order, upon request or otherwise, the prehearing disclosure of
information to the parties, including, without limitation, production of
requested documents, exchange of witness lists and summaries of the testimony
of proposed witnesses, and examination by deposition of potential witnesses.
Pursuant to these same objectives, the arbitrator shall have the authority,
upon request or otherwise, to conference with the parties or their designated
representatives concerning any matter, and to set or modify timetables for all
aspects of the arbitration proceeding.
8. Stenographic Record
There shall be a stenographic record of the arbitration hearing, unless
the parties agree to record the proceedings by other reliable means. The costs
of recording the proceedings shall be borne equally by both parties.
9. Location
Unless otherwise agreed by the parties, arbitration hearings shall take
place in Wausau, Wisconsin, at a place designated by the AAA.
10. Posthearing Briefs
After the close of the arbitration hearing, and on any issue concerning
prehearing procedures, the arbitrator shall allow the parties to submit written
briefs.
<PAGE>
11. Confidentiality
All arbitration proceedings hereunder shall be confidential. Neither
party shall disclose any information about the evidence adduced by the other in
the arbitration proceeding or about documents produced by the other in
connection with the proceeding, except in the course of a judicial, regulatory,
or arbitration proceeding, or as may be requested by governmental authority.
Before mailing any disclosure permitted by the preceding sentence, the party
shall give the other party reasonable written notice of the intended disclosure
and an opportunity to protect its interests. Expert witnesses and stenographic
reporters shall sign appropriate nondisclosure agreements.
12. Costs
Each party shall be responsible for its costs incurred in any arbitration,
and the arbitrator shall not have authority to include all or any portion of
said costs in an award, regardless of which party prevails. The costs and fees
of the arbitrator and of the AAA shall be borne equally by the parties.
13. Remedies
The arbitrator shall have authority to award any remedy or relief that a
court of the State of Wisconsin could grant in conformity to applicable law.
14. Law Governing the Arbitrator's Award
In rendering an award, the arbitrator shall determine the rights and
obligations of the parties according to federal law and the substantive law of
the State of Wisconsin (excluding conflicts of laws principles), and the
arbitrator's decision shall be governed by state and federal substantive law,
including state and federal discrimination laws, as though the matter were
before a court of law.
15. Written Awards and Enforcement
Any arbitration award shall be accompanied by a written statement
containing a summary of the issues in controversy, a description of the award,
and an explanation of the reasons for the award. The parties agree that a
competent court shall enter judgment upon the award of the arbitrator, provided
it is in conformity with the terms of this Agreement.
16. Disclaimer of Employment Rights
It is understood and agreed by the parties that their agreements herein
concerning arbitration do not contain, and cannot be relied upon by the
employee to contain, any promises or representations concerning the duration of
the employment relationship, or the circumstances under or procedures by which
the employment relationship may be terminated.
<PAGE>
EXHIBIT B
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release (hereinafter "Agreement"), is
entered into between Mid-Wisconsin Financial Services, Inc., (hereinafter
"Company") and Ronald Isaacson (hereinafter "Employee").
This Agreement shall not in any way be regarded as an admission by the
Company that it has acted wrongfully toward Employee. Also, this Agreement
shall not be regarded as an admission by the Company that Employee has any
rights against the Company. Indeed, the Company specifically denies any
liability to, or wrongful act against Employee.
Employee understands and agrees that his employment with the Company will
terminate as of January 1, 1998
Employee represents that he has not filed any complaints, charges, or
lawsuits against the Company with any governmental agency or any court.
However, Employee shall have the right to file a lawsuit for the sole purpose
of enforcing Employee's rights under this Agreement.
In consideration for the terms and considerations set forth in this
Agreement, the Company agrees to pay to Employee thirty (30) weeks of severance
pay at the gross sum of $60,356.10. $30,178.05 will be paid on or about
January 9, 1997 and $30,178.05 will be paid after January 1, 1998, as a
severance benefit, over and above what is required by law and company policies.
Employee understands the Company will deduct from this gross sum federal and
state withholding taxes and other deductions the company is required by law to
make from wage payments to employees.
In consideration for the severance payment, the Employee agrees to
release the Company, and each of its past and present directors, managers,
officers, shareholders, agents, employees, subsidiaries, divisions, affiliates,
successors, and assigns from all claims or demands the Employee may have based
upon the Employee's employment with the Company or the termination of that
employment. This includes a release of any rights or claims Employee may have
under the Age Discrimination Employment Act, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the
Wisconsin Fair Employment Act, or any other federal, state or local laws or
regulations which prohibit employment discrimination. This also includes a
release by the Employee of any claims for wrongful discharge or any other
claims under any state, local or common law relating in any way to the
employment relationship. This release covers both claims that the Employee
knows about or those she may not know about.
This release does not include, however, a right or claim which might
arise after the date this Agreement is signed. In addition, this release does
not include a release of Employee's right to vested pension benefits under the
company's pension plan. However, none of the payments made to the Employee
under the terms of this Agreement are considered qualified earnings for the
purpose of the pension plan.
<PAGE>
The Employee promises never to file a charge or lawsuit asserting any
claims that are released herein. If the Employee breaks this promise, the
Employee agrees to pay for all costs incurred by the company, including
reasonable attorneys' fees, in defending against the Employee's claim.
Federal law provides that the Employee may have 21 days from the receipt
of this Agreement, to review and consider this Agreement before signing it.
The Employee understands that he may use as much of this 21-day period as he
wishes prior to signing. Federal law further provides that Employee may revoke
this Agreement within 7 days of the Employee signing it. Revocation must be
made by delivering a written notice of revocation to Mid-Wisconsin Financial
Services, Inc. For this revocation to be effective, written notice must be
received by January 9, 1997 no later than the close of business on the 7th day
after Employee signs this Agreement. If Employee revokes this Agreement, it
shall not be effective or enforceable and Employee will not receive the
severance pay.
Federal law also requires the Company to advise the Employee to consult
with an attorney before signing this Agreement. Employee understands that
whether or not to do so is the Employee's decision.
This is the entire Agreement between the Employee and the Company. The
Company has made no promises to the Employee other than those in this
Agreement.
THE EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THIS AGREEMENT, UNDERSTANDS IT
AND IS VOLUNTARILY ENTERING INTO IT.
THIS AGREEMENT HAS BEEN AGREED TO AND BEEN SIGNED VOLUNTARILY AND
KNOWINGLY.
Signed: Ronald Isaacson
Dated: January 2, 1997
<PAGE>
EXHIBIT 10 (d)
EMPLOYMENT AGREEMENT
This Employment Agreement made this 14th day of January, 1998, by and
between Lucille Brandner ("Employee") and Mid-Wisconsin Bank ("Employer").
W I T N E S S E T H
WHEREAS, Employee has been employed by Employer as Senior Vice President-
Controller; and
WHEREAS, Employee has indicated that she wants to voluntarily retire
effective March 31, 1999; and
WHEREAS, in order to effectuate a smooth transition in re-staffing the
Controller position;
NOW, THEREFORE, it is agreed between Employer and Employee as follows:
1. Employment: Subject to the terms and conditions hereinafter set forth,
effective January 15, 1998, Employer agrees to continue to employ the Employee
in the position of Controller and Employee hereby accepts such employment.
2. Term: Except in the case of earlier termination as hereinafter
specifically provided, this Agreement shall be effective as of January 15,
1998, and continue until March 31, 1999 ("employment term").
3. Duties: Throughout the employment term, Employee shall devote her full-time
effort to the business and affairs of Employer, except during reasonable
vacation periods and periods of illness or incapacity, performing such duties
as may be reasonably assigned, diligently and faithfully to the best of her
abilities. Employee shall at all times during employment hereunder conduct
herself in a manner consistent with her position with Employer and shall not
knowingly perform any act contrary to the best interest of Employer. Employee
shall carry out all responsibilities delegated to the position of Controller
and/or as delineated in a job description approved by Employer for the
position.
4. Salary: Employer shall pay Employee for all services rendered hereunder a
salary of $5,000.00 per month. Such salary is to be paid in accordance with
the usual manner of payment for employees of Employer.
5. Bonus. Employee will be eligible for the company-wide bonus and a senior
officer bonus under the current Employer plans.
6. Stock Options. Employee will be eligible for stock options under the
current Employer plan. At the time of actual retirement, Employee shall be
eligible to exercise all accrued but unexercised stock options.
<PAGE>
7. Vacation: In 1998 you will be eligible for 20 vacation days and two
personal days. In 1999 you will be eligible for five vacation days and one
personal day (based on working 1/4 of a full year-January 1 through March 31).
8. Fringe Benefits: Employee will be entitled to participate in such medical,
accident, health, retirement, and other fringe benefit plans, in accordance
with their terms, as shall be made available by Employer generally to employees
and Employer shall pay such premiums arising with respect to Employee's
coverage as it pays generally for employees of the same class.
9. Expenses: Employer will reimburse Employee for all reasonable and necessary
expenses incurred by her in carrying out her duties under this Agreement
consistent with the policies of Employer.
10. Termination:
a. Employer may terminate Employee's employment prior to the end of the
employment term for good cause only upon compliance with the requirements of
this Agreement. Good cause for termination by Employer shall consist of:
* The diversion by Employee of business from Employer for Employee's personal
gain or benefit;
* Failure to satisfactorily perform the duties and responsibilities assigned to
Employee during the term of this Agreement;
* Failure of Employee to follow specific directives of Employer;
* Conviction of Employee of any crime of moral turpitude, dishonesty, breach of
trust, theft, embezzlement, misapplication of funds, unauthorized issuance of
obligations, or false entries;
* Willful or persistent violation of Employer policies;
* Employee's physical or mental disability, if such disability either results
in Employee receiving permanent disability payments pursuant to any Employer
provided disability insurance policy or disability benefits available to
Employee under state or federal law or which prevents Employee from the normal
performance of duties for a continuous period of at least six (6) months.
b. Upon the occurrence of any event constituting good cause for which Employer
elects to terminate Employee's employment prior to the end of the employment
term, Employer shall provide written notice to Employee, at least thirty (30)
days prior to the effective date of said termination, which notice shall state
the good cause for termination. In the event of termination of Employee's
employment, in accordance with the conditions of this subparagraph, the
employment term shall end.
c. Employer may terminate Employee's employment prior to the end of the
employment term for any reason other than good cause as defined herein, upon
providing not less than thirty (30) days prior written notice to Employee
specifying the effective date of termination. If Employer terminates
Employee's employment other than for a good cause as defined herein, the term
of employment shall end on the effective date of termination, but Employer
shall provide a severance benefit to Employee and as liquidated damages for
breach by Employer of its otherwise applicable obligations hereunder, through
and including the employment term, a monthly cash payment equal to the amount
which would, except for termination, have been paid to Employee as salary to
the end of the employment term.
<PAGE.
d. Employee may terminate her employment at any time upon providing a minimum
of four (4) months advanced notice in writing to Employer stating the effective
date of termination. In any event, all obligations of Employer to Employee
under this agreement and all obligations of Employee to Employer shall cease
and the employment term shall end on the effective date of termination.
11. Arbitration: In the event any difference of opinion or dispute between
Employee and Employer with respect to the construction or interpretation of
this Agreement or the alleged breach thereof, which cannot be settled amicably
by agreement of the parties, such dispute shall be submitted to and determined
by arbitration in accordance with the provisions of the arbitration agreement,
which is attached hereto and incorporated herein by reference as Exhibit "A."
12. Voluntary Early Retirement: In the event Employee elects to voluntarily
retire during the employment term or at the end of the employment term,
Employer agrees to pay Employee a severance benefit of one (1) week of
severance pay for each full year of service as of the date of retirement,
subject to the terms and conditions hereinafter set forth in this paragraph.
The severance pay shall be calculated by averaging the highest five (5) years
of employment compensation divided by 52 to determine the weekly payment. In
consideration for the severance pay and as a condition of receiving such pay,
Employee understands that she will be required to execute a severance agreement
and release, a copy of which is attached hereto and incorporated herein by
reference as Exhibit "B," before any severance benefits will be paid.
13. Death Benefit: In the event Employee dies during the term of this
Agreement or during any period after the expiration of this Agreement in which
Employee is receiving severance pay pursuant to paragraph 13, Employer will pay
to such beneficiary as Employee shall designate by instrument in writing, filed
with Employer during Employee's lifetime, or to Employee's estate if no
beneficiary has been so designated, a death benefit will be computed and paid
in a lump sum as follows:
Commencing with the month following the month in which Employee's death occurs,
Employer shall pay to Employee's designated beneficiary, or Employee's estate,
as the case may be, one (1) week of death benefits for each year of service at
the date of death. The death benefit shall be calculated by averaging the
highest five (5) years of employment compensation paid to Employee. If
employee dies during a period after the expiration date of this Agreement in
which Employee is receiving severance pay, the death benefit shall be reduced
by an amount equal to the severance pay paid up to the date of death.
<PAGE>
14. Assignment: This agreement is personal to Employee and Employer and
neither party may assign or delegate their rights or obligations hereunder
without first obtaining the written consent of the other party.
15. Amendments and Waivers: No amendments or additions to the Agreement shall
be binding unless in writing and signed by both parties. The waiver of either
party of a breach or violation of any part of this Agreement shall not operate
or be construed to be a waiver of any subsequent breaches thereof.
16. Severability: If any provision of this Agreement is deemed to be invalid
or unenforceable, it shall be severed from the remainder of this Agreement and
shall not cause the invalidity or unenforceability of the remainder of this
Agreement. If such provision shall be deemed invalid or unenforceable because
of the scope or breadth, such provisions shall be deemed valid or enforceable
to the extent of the scope and breadth permitted by law.
17. Applicable Law: This Agreement and all rights and obligations of Employer
and Employee with respect to it, shall be construed in accordance with, and
governed by, the laws of the State of Wisconsin.
18. Entire Agreement: This agreement constitutes the entire agreement between
the parties and contains all the agreements between them with respect to the
subject matter hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with respect to the
subject matter hereof. The terms and conditions of this Agreement may be
amended at any time by mutual agreement of the parties, provided that before
any amendment shall be valid or effective, it shall have been reduced to
writing and signed by the parties hereto.
The parties have executed, in duplicate, that above employment agreement on the
date and year first above-written.
Lucille Brandner
MID-WISCONSIN BANK
By:
Gene C. Knoll
<PAGE>
EXHIBIT B
SEVERANCE AGREEMENT AND RELEASE
This Severance Agreement and Release (hereinafter "Agreement"), is
entered into between Mid-Wisconsin Bank (hereinafter "Company") and Lucille
Brandner (hereinafter "Employee").
This Agreement shall not in any way be regarded as an admission by the
Company that it has acted wrongfully toward Employee. Also, this Agreement
shall not be regarded as an admission by the Company that Employee has any
rights against the Company. Indeed, the Company specifically denies any
liability to, or wrongful act against Employee.
Employee understands and agrees that her employment with the Company
will terminate as of , 19 .
Employee represents that she has not filed any complaints, charges, or
lawsuits against the Company with any governmental agency or any court.
However, Employee shall have the right to file a lawsuit for the sole purpose
of enforcing Employee's rights under this Agreement.
In consideration for the terms and considerations set forth in this
Agreement, the Company agrees to pay to Employee weeks of severance pay
at the gross sum of $ per as a severance benefit, over and above what
is required by law and company policies. Employee understands the Company will
deduct from this gross sum federal and state withholding taxes and other
deductions the company is required by law to make from wage payments to
employees.
In consideration for the severance payment, the Employee agrees to
release the Company, and each of its past and present directors, managers,
officers, shareholders, agents, employees, subsidiaries, divisions, affiliates,
successors, and assigns from all claims or demands the Employee may have based
upon the Employee's employment with the Company or the termination of that
employment. This includes a release of any rights or claims Employee may have
under the Age Discrimination Employment Act, Title VII of the Civil Rights Act
of 1964, the Civil Rights Act of 1991, the Americans with Disabilities Act, the
Wisconsin Fair Employment Act, or any other federal, state or local laws or
regulations which prohibit employment discrimination. This also includes a
release by the Employee of any claims for wrongful discharge or any other
claims under any state, local or common law relating in any way to the
employment relationship. This release covers both claims that the Employee
knows about or those she may not know about.
This release does not include, however, a right or claim which might
arise after the date this Agreement is signed. In addition, this release does
not include a release of Employee's right to vested pension benefits under the
company's pension plan. However, none of the payments made to the Employee
under the terms of this Agreement are considered qualified earnings for the
purpose of the pension plan.
<PAGE>
The Employee promises never to file a charge or lawsuit asserting any claims
that are released herein. If the Employee breaks this promise, the Employee
agrees to pay for all costs incurred by the company, including reasonable
attorneys' fees, in defending against the Employee's claim.
Federal law provides that the Employee may have 21 days from the receipt
of this Agreement, to review and consider this Agreement before signing it.
The Employee understands that he may use as much of this 21-day period as he
wishes prior to signing. Federal law further provides that Employee may revoke
this Agreement within 7 days of the Employee signing it. Revocation must be
made by delivering a written notice of revocation to. For this revocation to
be effective, written notice must be received by no later than the close of
business on the 7th day after Employee signs this Agreement. If Employee
revokes this Agreement, it shall not be effective or enforceable and Employee
will not receive the severance pay.
Federal law also requires the Company to advise the Employee to consult
with an attorney before signing this Agreement. Employee understands that
whether or not to do so is the Employee's decision.
This is the entire Agreement between the Employee and the Company. The
Company has made no promises to the Employee other than those in this
Agreement.
THE EMPLOYEE ACKNOWLEDGES THAT SHE HAS READ THIS AGREEMENT, UNDERSTANDS
IT AND IS VOLUNTARILY ENTERING INTO IT.
THIS AGREEMENT HAS BEEN AGREED TO AND BEEN SIGNED VOLUNTARILY AND
KNOWINGLY.
Signed: Lucille Brandner
Dated:
<PAGE>
EXHIBIT 10 (d)
EMPLOYMENT AGREEMENT
This Employment Agreement made this 31st day of December, 1995, by and
between Ruth Zuleger ("Employee") and Mid-Wisconsin Financial Services, Inc.
("Employer").
W I T N E S S E T H
WHEREAS, Employee has been employed by Employer as Senior Vice President-
Human Resources; and
WHEREAS, Employer is restructuring its Human Resources Department during
the last quarter of 1995 and early 1996; and
WHEREAS, Employer has decided to staff the restructured Human Resources
Department with a Director of Human Resources and an assistant so as to provide
expertise beyond that currently available from existing staff; and
WHEREAS, Employee has indicated that she may want to voluntarily retire
effective May 31, 1998; and
WHEREAS, in order to effectuate a smooth transition in the restructuring
of the Human Resources Department;
NOW, THEREFORE, it is agreed between Employer and Employee as follows:
1. Employment: Subject to the terms and conditions hereinafter set forth,
effective January 1, 1996, Employer agrees to continue to employ the Employee
in the position of Assistant to the Director of Human Resources and Employee
hereby accepts such employment.
2. Term: Except in the case of earlier termination as hereinafter specifically
provided, this Agreement shall be effective as of January 1, 1996, and continue
until May 31, 1998 ("employment term").
3. Duties: Throughout the employment term, Employee shall devote her full-time
effort to the business and affairs of Employer, except during reasonable
vacation periods and periods of illness or incapacity, performing such duties
as may be reasonably assigned, diligently and faithfully to the best of her
abilities. Employee shall at all times during employment hereunder conduct
herself in a manner consistent with her position with Employer and shall not
knowingly perform any act contrary to the best interest of Employer. Employee
shall carry out all responsibilities delegated to the position of Assistant to
the Director of Human Resources and/or as delineated in a job description
approved by Employer for the position.
4. Salary: Employer shall pay Employee for all services rendered hereunder a
salary of Four Thousand Seven Hundred Seventeen and 92/100ths Dollars
($4,717.92) per month. Such salary is to be paid in accordance with the usual
manner of payment for employees of Employer.
<PAGE>
5. Bonus. Employee will be eligible for a senior officer bonus under the
current Employer plan.
6. Stock Options. Employee will be eligible for stock options under the
current Employer plan. At the time of actual retirement, Employee shall be
eligible to exercise all accrued but unexercised stock options.
7. Title. Employee will retain the title of Senior Vice President.
8. Fringe Benefits: Employee will be entitled to participate in such medical,
accident, health, retirement, and other fringe benefit plans, in accordance
with their terms, as shall be made available by Employer generally to employees
and Employer shall pay such premiums arising with respect to Employee's
coverage as it pays generally for employees of the same class.
9. Expenses: Employer will reimburse Employee for all reasonable and necessary
expenses incurred by her in carrying out her duties under this Agreement
consistent with the policies of Employer.
10. Termination:
a. Employer may terminate Employee's employment prior to the end of the
employment term for good cause only upon compliance with the requirements of
this Agreement. Good cause for termination by Employer shall consist of:
* The diversion by Employee of business from Employer for Employee's personal
gain or benefit;
* Failure to satisfactorily perform the duties and responsibilities assigned to
Employee during the term of this Agreement;
* Failure of Employee to follow specific directives of Employer;
* Conviction of Employee of any crime of moral turpitude, dishonesty, breach of
trust, theft, embezzlement, misapplication of funds, unauthorized issuance of
obligations, or false entries;
* Willful or persistent violation of Employer policies;
* Employee's physical or mental disability, if such disability either results
in Employee receiving permanent disability payments pursuant to any Employer
provided disability insurance policy or disability benefits available to
Employee under state or federal law or which prevents Employee from the normal
performance of duties for a continuous period of at least six (6) months.
b. Upon the occurrence of any event constituting good cause for which Employer
elects to terminate Employee's employment prior to the end of the employment
term, Employer shall provide written notice to Employee, at least thirty (30)
days prior to the effective date of said termination, which notice shall state
the good cause for termination. In the event of termination of Employee's
employment, in accordance with the conditions of this subparagraph, the
employment term shall end.
<PAGE>
c. Employer may terminate Employee's employment prior to the end of the
employment term for any reason other than good cause as defined herein, upon
providing not less than thirty (30) days prior written notice to Employee
specifying the effective date of termination. If Employer terminates
Employee's employment other than for a good cause as defined herein, the term
of employment shall end on the effective date of termination, but Employer
shall provide a severance benefit to Employee and as liquidated damages for
breach by Employer of its otherwise applicable obligations hereunder, through
and including the employment term, a monthly cash payment equal to the amount
which would, except for termination, have been paid to Employee as salary to
the end of the employment term.
d. Employee may terminate her employment at any time upon providing a minimum
of four (4) months advanced notice in writing to Employer stating the effective
date of termination. In any event, all obligations of Employer to Employee
under this agreement and all obligations of Employee to Employer shall cease
and the employment term shall end on the effective date of termination.
11. Arbitration: In the event any difference of opinion or dispute between
Employee and Employer with respect to the construction or interpretation of
this Agreement or the alleged breach thereof, which cannot be settled amicably
by agreement of the parties, such dispute shall be submitted to and determined
by arbitration in accordance with the provisions of the arbitration agreement,
which is attached hereto and incorporated herein by reference as Exhibit "A."
12. Voluntary Early Retirement: In the event Employee elects to voluntarily
retire during the employment term or at the end of the employment term,
Employer agrees to pay Employee a severance benefit of one (1) week of
severance pay for each full year of service as of the date of retirement,
subject to the terms and conditions hereinafter set forth in this paragraph.
The severance pay shall be calculated by averaging the highest five (5) years
of employment compensation less any profit sharing paid during that period. In
consideration for the severance pay and as a condition of receiving such pay,
Employee understands that she will be required to execute a severance agreement
and release, a copy of which is attached hereto and incorporated herein by
reference as Exhibit "B," before any severance benefits will be paid.
13. Death Benefit: In the event Employee dies during the term of this
Agreement or during any period after the expiration of this Agreement in which
Employee is receiving severance pay pursuant to paragraph 11, Employer will pay
to such beneficiary as Employee shall designate by instrument in writing, filed
with Employer during Employee's lifetime, or to Employee's estate if no
beneficiary has been so designated, a death benefit will be computed and paid
in a lump sum as follows:
Commencing with the month following the month in which Employee's death occurs,
Employer shall pay to Employee's designated beneficiary, or Employee's estate,
as the case may be, one (1) week of death benefits for each year of service at
the date of death. The death benefit shall be calculated by averaging the
highest five (5) years of employment compensation paid to Employee less any
profit sharing. If employee dies during a period after the expiration date of
this Agreement in which Employee is receiving severance pay, the death benefit
shall be reduced by an amount equal to the severance pay paid up to the date of
death.
<PAGE>
14. Assignment: This agreement is personal to Employee and Employer and
neither party may assign or delegate their rights or obligations hereunder
without first obtaining the written consent of the other party.
15. Amendments and Waivers: No amendments or additions to the Agreement shall
be binding unless in writing and signed by both parties. The waiver of either
party of a breach or violation of any part of this Agreement shall not operate
or be construed to be a waiver of any subsequent breaches thereof.
16. Severability: If any provision of this Agreement is deemed to be invalid
or unenforceable, it shall be severed from the remainder of this Agreement and
shall not cause the invalidity or unenforceability of the remainder of this
Agreement. If such provision shall be deemed invalid or unenforceable because
of its scope or breadth, such provisions shall be deemed valid or enforceable
to the extent of the scope and breadth permitted by law.
17. Applicable Law: This Agreement and all rights and obligations of Employer
and Employee with respect to it, shall be construed in accordance with, and
governed by, the laws of the State of Wisconsin.
18. Entire Agreement: This agreement constitutes the entire agreement between
the parties and contains all the agreements between them with respect to the
subject matter hereof. It also supersedes any and all other agreements or
contracts, either oral or written, between the parties with respect to the
subject matter hereof. The terms and conditions of this Agreement may be
amended at any time by mutual agreement of the parties, provided that before
any amendment shall be valid or effective, it shall have been reduced to
writing and signed by the parties hereto.
The parties have executed, in duplicate, that above employment agreement on the
date and year first above-written.
Ruth Zuleger
MID-WISCONSIN FINANCIALSERVICES, INC.
By:
William A. Weiland
<PAGE>
Exhibit 10(e)
Mid-Wisconsin Bank
Executive Officer Bonus Plan
The President and Executive Vice President of the Bank are eligible for
incentive compensation based on the performance of the Bank in comparison to
specific criteria, at least 75% of which are specifically measurable. The
criteria include basic bank growth, and operational matters such as net
interest margin, net loan losses, non-interest income, technology and human
resource implementation, personnel costs, and trust department and investment
sales performance.
Specific criteria are reviewed and established each year. Incentive
bonuses are determined by application of the following rating and computation
system:
1. Total bonus available: maximum bonus of 12% of base salary
2. Criteria:
Points
10 specific items 0 - does not meet goals
1 - meets goals
2 - exceeds goals
3 - substantially exceeds
10 X 3 = 30 = total potential points
20 = on average, exceeds goals
10 = on average, meets goals
3. Must have 10 points to qualify for bonus
BONUS PAYMENT SCHEDULE
1. Must have 10 points to qualify. Example: Meets goals on average.
2. Bonus starts at 6% - 1/2 of potential.
Schedule
Points % Bonus
20 Maximum 12.0
19 11.5
18 11.0
17 10.5
16 10.0
15 9.5
14 9.0
13 8.5
12 8.0
11 7.0
10 6.0
<PAGE>
Exhibit 10(f)
MID-WISCONSIN BANK
SENIOR OFFICER INCENTIVE BONUS PLAN
In recognition of the critical role senior bank officers play in setting
internal operating policies and procedures and in managing the bank operations
for maximum profit, the board of directors has established an incentive bonus
plan to reward senior officers for superior performance. The following rules
and guidelines will apply:
1. Bonuses will be determined based on the performance of the Bank in four
areas:
Key Performance Indicators
GROWTH:
Deposits:
Non-interest Bearing (m)
Interest Bearing (m) CORE
PROFIT:
Net Interest Margin (%)
Fee Income (m)
QUALITY:
Customer Satisfaction Index
Charge Offs, Net (m)
PRODUCTIVITY:
Efficiency Ratio
2. For each fiscal year, the Board of Directors will establish and adopt
specific criteria by which bonuses shall be determined, including:
(a) The relative weight to be given to each area;
(b) The baseline measurement of performance for each area;
(c) Positive or negative factors relating to the "achievement over" or
"achievement under" each baseline;
(d) The maximum percentage of salary payable for each participant as a bonus
upon achievement of designated levels.
3. Employees in designated management positions will be eligible to
participate.
4. The schedule and basis for paying out the bonus will be set by the
holding company board of directors based upon recommendations by the Personnel
Committee.
<PAGE>
5. Bonus will be paid only on base salary.
6. Participants, other than those who incurred a termination of employment
during the year due to death, retirement, or disability are eligible for
current year bonus only if they are employed on the last day of the year.
7. Bonus will be paid one-half in cash and one-half in deferred compensation
to be paid in four equal installments over the next four years.
8. Employees leaving employment for reasons other than retirement or disability
will not be eligible for the current year bonus.
9. Employees leaving employment for reasons other than retirement or disability
will not be eligible for the any deferred bonus amounts if they have less
than five years of employment.
10. Retirement date for purposes of this plan is sixty (60) years of age.
11. Employees leaving employment for reasons other than retirement or
disability and have at least five years of employment will be paid a portion of
deferred bonus according to this schedule:
Years of Employment Percent of Deferred bonus to be Paid
5 - 9.9 20%
10 - 14.9 40%
15 - 19.9 60%
20 - 24.9 80%
25 100%
12. Length of employment is calculated from the employee's start date.
13. Eligible employees must have one full year's employment to be eligible
for the bonus unless otherwise approved by the holding company board.
<PAGE>
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0
0
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