FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
{ } 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 of (IRS Employer Identification No.)
incorporation or organization)
132 West State Street, Medford, WI 54451
(Address of principal executive offices, including zip code)
(715) 748-4364
(Registrant's telephone number, including area code)
(Former name, former address & former fiscal year, if changed since last report)
Indicate by check mark 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 reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of March 31, 1998 there were 1,857,827 shares of $.10 par value common
stock outstanding.
<PAGE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997 3
Consolidated Statements of Income
Three Months Ended March 31, 1998 and March 31, 1997 4
Consolidated Statements of Cash Flows
Three months Ended March 31, 1998 and March 31, 1997 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 11-13
PART II. OTHER INFORMATION
Item 5. Other Information 14
Item 6. Exhibits and Reports of Form 8-K 15
Signatures 16
Exhibit Index 17
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
MARCH 31, 1998 DECEMBER 31, 1997
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $10,556,582 $9,521,270
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS 19,005 21,260
FEDERAL FUNDS SOLD 5,847,000 4,616,000
INVESTMENT SECURITIES AVAILABLE FOR SALE -AT FAIR VALUE 56,001,897 54,256,192
LOANS HELD FOR SALE 365,300 1,169,350
LOANS RECEIVABLE, NET OF ALLOWANCE FOR CREDIT LOSSES OF
$2,051,540 IN 1998 AND $1,990,090 IN 1997 183,330,327 183,025,182
ACCRUED INTEREST RECEIVABLE 2,001,455 1,620,973
PREMISES AND EQUIPMENT 5,404,323 5,505,984
GOODWILL AND PURCHASED INTANGIBLES 2,710,483 2,787,410
OTHER ASSETS 827,632 1,151,940
TOTAL ASSETS $267,064,004 $263,675,561
LIABILITIES AND STOCKHOLDERS' EQUITY
NONINTEREST-BEARING DEPOSITS $23,323,093 $25,625,169
INTEREST-BEARING DEPOSITS 188,767,666 185,524,289
TOTAL DEPOSITS 212,090,759 211,149,458
SHORT-TERM BORROWINGS 16,907,289 16,078,523
LONG TERM BORROWINGS 6,400,000 5,400,000
ACCRUED EXPENSES AND OTHER LIABILITIES 3,486,441 3,180,423
TOTAL LIABILITIES 238,884,489 235,808,404
STOCKHOLDERS' EQUITY:
COMMON STOCK-PAR VALUE $.10 PER SHARE:
AUTHORIZED - 6,000,000 SHARES IN 1998 & 1997
ISSUED & OUTSTANDING - 1,857,827 SHARES IN 1998 185,783
- 1,864,122 SHARES IN 1997 186,412
ADDITIONAL PAID-IN CAPITAL 12,605,396 12,653,703
RETAINED EARNINGS 15,006,261 14,678,785
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, NET OF TAX 382,075 348,257
TOTAL STOCKHOLDERS' EQUITY 28,179,515 27,867,157
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $267,064,004 $263,675,561
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
THREE MONTHS ENDED
MARCH 31, 1998 MARCH 31, 1997
<S> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS $4,224,997 $3,971,213
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 770,749 824,003
TAX-EXEMPT 128,915 93,243
OTHER INTEREST INCOME 36,465 35,292
TOTAL INTEREST INCOME 5,161,126 4,923,751
INTEREST EXPENSE
DEPOSITS 2,174,863 2,068,392
U.S. REPURCHASE AGREEMENTS 209,528 180,807
LONG-TERM BORROWINGS 89,454 79,722
TOTAL INTEREST EXPENSE 2,473,845 2,328,921
NET INTEREST INCOME 2,687,281 2,594,830
PROVISION FOR CREDIT LOSSES 90,000 30,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,597,281 2,564,830
OTHER INCOME:
SERVICE FEES 156,933 149,411
TRUST SERVICE FEES 112,059 109,454
NET REALIZED GAIN ON SALE OF SECURITIES AVAILABLE FOR SALE 0
INVESTMENT PRODUCT COMMISSIONS 83,735 51,351
OTHER FEE INCOME 105,604 87,410
OTHER OPERATING INCOME 46,365 29,068
TOTAL OTHER INCOME 504,696 426,694
OPERATING EXPENSES:
SALARIES 800,187 690,147
EMPLOYEE BENEFITS 291,029 272,008
OCCUPANCY 353,670 328,248
FDIC DEPOSIT INSURANCE PREMIUMS 6,387 5,729
NET REALIZED LOSS ON SALE OF SECURITIES AVAILABLE FOR SALE 0
OTHER OPERATING 546,938 426,401
TOTAL OPERATING EXPENSES 1,998,211 1,722,533
INCOME BEFORE INCOME TAXES 1,103,766 1,268,991
PROVISION FOR INCOME TAXES 359,772 440,323
NET INCOME $743,994 $828,668
BASIC AND DILUTED EARNINGS PER SHARE $0.40 $0.44
CASH DIVIDENDS DECLARED PER SHARE $0.15 $0.15
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $743,994 $828,668
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION AND NET AMORTIZATION 239,238 194,500
PROVISION FOR CREDIT LOSSES 90,000 30,000
PROCEEDS FROM SALES OF LOANS HELD FOR SALE 1,687,600 1,309,600
ORIGINATIONS OF LOANS HELD FOR SALE (365,300)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
OTHER ASSETS (70,896) (202,475)
OTHER LIABILITIES 306,017 115,792
NET CASH PROVIDED BY OPERATING ACTIVITIES 2,630,653 2,276,085
CASH FLOWS FROM INVESTING ACTIVITIES:
AVAILABLE FOR SALE SECURITIES:
PROCEEDS FROM SALES 4,524,902 1,100,744
PROCEEDS FROM MATURITIES:
PAYMENT FOR PURCHASES (6,211,584) (2,115,170)
NET DECREASE IN LOANS (911,747) 1,558,030
NET (INCREASE) DECREASE IN INTEREST-BEARING DEPOSITS - -
IN OTHER INSTITUTIONS 2,255 (16,994)
NET INCREASE IN FEDERAL FUNDS SOLD (1,231,000)
CAPITAL EXPENDITURES (72,780) (169,999)
PROCEEDS FROM SALE OF OTHER REAL ESTATE - 16,000
NET CASH USED IN INVESTING ACTIVITIES (3,899,955) 372,611
CASH FLOWS FROM FINANCING ACTIVITIES:
NET INCREASE IN NONINTEREST-BEARING DEPOSITS (2,302,076) (2,369,525)
NET INCREASE IN INTEREST-BEARING DEPOSITS 3,243,377 (3,598,744)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 13,440 25,086
PAYMENT FOR REPURCHASE OF COMMON STOCK (199,276) (47,150)
NET INCREASE (DECREASE) IN SHORT-TERM BORROWING 828,766 1,224,933
PROCEEDS FROM ISSUANCE OF LONG-TERM BORROWINGS 1,000,000 1,000,000
DIVIDENDS PAID (279,618) (280,083)
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,304,613 (4,045,483)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,035,312 (1,396,787)
CASH AND CASH EQUIVALENTS AT BEGINNING 9,521,270 13,734,886
CASH AND CASH EQUIVALENTS AT END $10,556,582 $12,338,099
SUPPLEMENTAL CASH FLOW INFORMATION: 1998 1997
CASH PAID DURING THE YEAR FOR:
INTEREST $2,467,220 $2,368,909
INCOME TAXES $30,025 $60,025
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
LOANS TRANSFERRED TO OTHER REAL ESTATE $ - $26,072
LOANS CHARGED OFF $40,811 $46,087
LOANS MADE IN CONNECTION WITH THE DISPOSITION OF OTHER REAL
ESTATE 0 0
<FN>
THE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARE AN INTEGRAL
PART OF THESE STATEMENTS.
</TABLE>
<PAGE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
and Subsidiary
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - GENERAL
The consolidated balance sheet as of March 31, 1998, and the consolidated
statements of income for the three month period ended March 31, 1998 and 1997,
and the consolidated statements of cash flows for the three month period ended
March 31, 1998 and 1997, have been prepared by the company without audit. In
the opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and changes in financial position for the unaudited interim period
have been made.
The Company is not aware of any known trends, events, or uncertainties
that will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources, or operations.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. These condensed consolidated
financial statements should be read in conjunction with the financial
statements and notes included in the Company's December 31, 1997, annual report
to the Shareholders. The results of operations for the interim period are not
necessarily indicative of the results to be expected for the entire year.
NOTE 2 - INVESTMENT SECURITIES
All investment securities are held as available for sale. The book value
and market value of investment securities are summarized as follows:
<TABLE>
BOOK VALUE and MARKET VALUE
<CAPTION>
March 31, 1998 December 31, 1997
<S> <C> <C>
U.S. Treasury securities and obligations
of other U.S. Govt agencies & corp $15,251,921 $15,756,976
Mortgage Backed Securities 26,702,324 25,266,862
Oblig. to states & political subdivisions 11,668,241 10,355,359
Corporate Securities 781,560 1,689,391
Equity Securities 1,597,851 1,187,604
Totals $56,001,897 $54,256,192
</TABLE>
Included in the totals of Investment Securities at March 31, 1998, are
unrealized gains of $645,863 on debt securities classified as available for
sale. The net of tax unrealized holding gain of $382,075 on securities
classified as available-for-sale is reflected in stockholders' equity.
Securities with an approximate carrying value of $29,117,258 and
$32,889,744 at March 31, 1998 and December 31, 1997, respectively, were pledged
primarily to secure public deposits and for other purposes required by law.
There are no securities of any one issuer that exceed ten percent of
stockholder's equity.
<PAGE>
Note 3 - LOANS
Loans outstanding increased .198% for the three months ended March 31,
1998; increasing from $185,015,272 at December 31, 1997, to $185,381,867 at
March 31, 1998.
The composition of loans at March 31, 1998, and December 31, 1997,
follows:
<TABLE>
March 31 % of Dec. 31 % of
(Dollars in Thousands) 1998 total 1997 total
<CAPTION>
<S> <C> <C> <C> <C>
Commercial and financial $29,929 16.14% $26,943 14.56%
Construction Loans 2,264 1.23% 1,700 0.92%
Agricultural 34,395 18.55% 34,952 18.89%
Real estate 106,226 57.30% 108,360 58.57%
Installment 12,176 6.57% 12,642 6.83%
Lease financing 392 0.21% 418 0.23%
Total loans $185,382 100.00% $185,015 100.00%
</TABLE>
The composition of loans in the loan portfolio shows an increase in
commercial and financial and a decrease in real estate at March 31, 1998. The
bank is making increased efforts to sell loans in the secondary market which
will provide funds for liquidity needs and continue to provide service to
customers in its market area.
Mid-Wisconsin's process for monitoring loan quality includes monthly
analysis of delinquencies, non-performing assets, and potential problem loans.
Loans are placed on a nonaccrual status when they become contractually past due
90 days or more as to interest or principal payments. All interest accrued but
not collected for loans (including applicable impaired loans) that are placed
on nonaccrual 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 status. 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 considered impaired when, based on current information, it is
probable that the bank will not 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. Smaller balance homogeneous loans that are collectively evaluated
for impairment include certain smaller balance commercial and agricultural
loans, residential real estate loans, and credit card loans.
<PAGE>
The company maintains generally high quality loans. The following table
shows the amount of non-performing assets and other real estate owned as of the
dates indicated.
<TABLE>
<CAPTION>
Risk-element loans Mar. 31 % of total Dec. 31 % of total
(dollars in thousands) 1998 loans 1997 loans
<S> <C> <C> <C> <C>
Non-accrual, past due,
and restructured loans $1,670 0.90% $1,238 0.67%
Potential problem loans 0 0.00% 161 0.09%
Foreign outstandings
0.00% 0.00%
Total risk-element
loans $1,670 0.90% $1,399 0.76%
</TABLE>
Included above are $555,989 of impaired loans (.300%) in non-accrual
status at March 31, 1998. In addition, there are impaired loans of $81,137
(.044%) which management has considered in the allowance for credit losses.
The average balance of impaired loans during the first three months of 1998 was
$683,837. The impaired loans with an aggregate outstanding balance of
$659,572 are based on fair value of the collateral of the loans as these loans
are collateral dependent.
Total non-performing assets (loans and other real estate) increased
during the three months ended March 31, 1998. As a percentage of total
outstanding loans, the non-performing assets increased .20% to .96% at March
31, 1998, from .76% at December 31, 1997.
The aggregate amount of non-performing assets was approximately
$1,774,000 and $1,399,000 at March 31, 1998, and December 31, 1997,
respectively. Non-performing assets are those which are either contractually
past due 90 days or more as to interest or principal payments, on a nonaccrual
status, or the terms of which have been renegotiated to provide a reduction or
deferral of interest or principal. If nonaccrual and renegotiated loans had
been current or not troubled, $59,466 of interest income would have been
recorded for the three months ended March 31, 1998. Interest income actually
collected and recorded was $13,284.
Management is not aware of any additional loans that represent material
credits or of any information which causes management to have serious doubts as
to the ability of such borrowers to comply with the loan repayment terms.
On January 1, 1997, Mid-Wisconsin adopted Statement of Financial
Accounting Standards No. 122 (SFAS122), "Accounting for Mortgage Servicing
Rights". The adoption of SFAS No. 122 did not have a significant impact on the
Company's financial condition or results of operations.
<PAGE>
An analysis of the allowance for credit losses for the period ended March
31, 1998, and December 31, 1997 follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
March 31, 1998 Dec. 31, 1997
<S> <C> <C>
Allowance for credit losses at
beginning of period $1,990 $2,031
Provision Charged to Operating Expense 90 140
Recoveries on Loans 12 64
Loans Charged off (41) (245)
Allowance for losses at end of period $2,051 $1,990
</TABLE>
NOTE 4 - 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
number of shares outstanding were 1,862,611 for the three months ended March
31, 1998, and 1,872,694 for the three months ended March 31, 1997.
<PAGE>
SELECTED FINANCIAL DATA
The following table presents consolidated financial data of Mid-Wisconsin
Financial Services, Inc. and subsidiary. This information and the following
discussion and analysis should be read in conjunction with other financial
information presented elsewhere in this report.
<TABLE>
SELECTED FINANCIAL DATA
<CAPTION>
(Dollars in thousands, 1998 1997
except per share amounts) First Fourth Third Second First
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest revenue $2,687 $2,793 $2,767 $2,644 $2,595
Provision for credit losses 90 50 30 30 30
Other operating revenue 505 695 449 687 427
Other operating expense 1,998 2,199 1,785 1,849 1,723
Net income 744 819 916 943 829
Per common share
Net income 0.40 0.44 0.49 0.50 0.44
Dividends declared 0.15 0.30 0.15 0.15 0.15
Stockholders' equity 15.17 14.95 14.79 14.42 13.96
Average common shares (000's) 1,863 1,868 1,871 1,873 1,873
Dividend payout ratio 37.58% 68.28%
Balance Sheet Summary:
At quarter end:
Loans net of unearned income 183,330 183,025 $183,159 $180,108 $172,037
Assets 267,064 263,676 259,224 255,649 248,172
Deposits 212,091 185,524 203,753 199,346 196,444
Shareholders equity 28,180 27,867 27,508 26,895 26,039
Average balances:
Loans net of unearned income 184,701 185,095 181,390 176,480 172,746
Assets 264,376 263,747 254,216 250,278 248,951
Deposits 186,277 183,229 195,609 192,570 199,176
Shareholders equity 27,927 27,521 26,993 26,133 25,862
Performance Ratios:
Return on average assets 1.13% 1.24% 1.44% 1.51% 1.34%
Return on average common equity 10.66% 11.90% 13.57% 14.43% 12.82%
Equity to assets 9.62% 9.47% 10.30% 10.28% 10.24%
Total risk-based capital 15.15% 14.94% 14.72% 16.14% 16.33%
Net loan charge-offs as a percentage
of average loans 0.02% 0.05% 0.02% 0.01% 0.02%
Nonperforming assets as a percentage
of loans and other real estate 0.96% 0.76% 0.70% 0.77% 1.11%
Net interest margin 4.50% 4.56% 4.76% 4.61% 4.46%
Efficiency ratio 63.00% 62.44% 55.04% 55.75% 56.29%
Fee revenue as a percentage of
average assets 0.17% 0.18% 0.11% 0.11% 0.11%
Stock Price Information:
High $27.50 $27.25 $27.00 $25.50 $25.50
Low 27.25 27.00 25.50 25.00 24.00
Market value at quarter end (1) 27.50 27.25 27.00 25.00 25.50
<FN>
(1) Market value at quarter end represents the average of bid and asked
prices.
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
Management is not aware of any known trends, events, or uncertainties
that will have or that are reasonably likely to have a material effect on the
Company's liquidity, capital resources, or operations.
Deposits increased $941,301 during the three month period ended March 31,
1998. Non-interest bearing deposits decreased $2,302,076 and interest bearing
deposits increased $3,243,377. The decrease in non-interest bearing deposits
follows normal trends for the first quarter of each year. The company's market
area continues to be highly rate competitive.
Loans increased $366,595 during the three month period ended March 31,
1998.
Investments increased $1,745,705 during the three month period ended
March 31, 1998. The increase in investments was used primarily to satisfy
pledging requirements for municipal deposits.
LIQUIDITY
Mid-Wisconsin manages its liquidity to provide adequate funds to support
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 Mid-Wisconsin's
liquidity are marketable assets maturing within one year. At March 31, 1998,
the carrying value of debt securities maturing within one year amounted to
$6,848,118 or 12.59% of the total debt securities portfolio. Mid-Wisconsin
also holds $1,597,851 in marketable equity securities. Mid-Wisconsin attempts,
when possible, to match relative maturities of assets and liabilities, while
maintaining the desired net interest margin.
CAPITAL RESOURCES
As of March 31, 1998, shareholders' equity increased $312,358 to
$28,179,515 from $27,867,157 at December 31, 1997. This net increase is due to
retention of current year earnings and adjustments for unrealized gains or
losses. Net unrealized gains were $382,075 at March 31, 1998, and $348,257 at
December 31, 1997.
The primary capital to asset ratio was 9.63% as of March 31, 1998,
compared to 9.62% at December 31, 1997. The company's risk-based capital ratio
for Tier 1 (core) amounted to 14.00% and total risk-based capital amounted to
15.15%. This compares to Tier 1 (core) capital of 13.83% and total risk-based
capital of 14.94% at December 31, 1997.
RESULTS OF OPERATIONS
The company's consolidated net income for the three months ended March
31, 1998, decreased $84,674 or 10.218% to $743,994 from $828,668 for the three
months ended March 31, 1997. Net interest income increased $92,451 during the
three months ended March 31, 1998, over the three months ended March 31, 1997.
<PAGE>
Return on average common stockholders' equity amounted to 11.82% for the
three months ended March 31, 1998; compared to 13.18% for the three months
ended March 31, 1997.
Return on average assets for the three months ended March 31, 1998,
amounted to 1.14%; compared to 1.34% for the three months ended March 31, 1997.
Net earnings per share amounted to $ .40 per share for the three months
ended March 31, 1998, compared to $ .44 for the three months ended March 31,
1997. Cash dividends paid were .15 per share in March 1998 and 1997.
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 $90,000 for the three months ended March
31, 1998, and $30,000 for the three months ended March 31, 1997. The allowance
for credit losses as a percentage of gross loans outstanding was $2,051,540 or
1.11% of total loans on March 31, 1998, compared to $2,030,991 or 1.18% of
total loans on March 31, 1997. Net charge-offs as a percentage of average
loans outstanding were .02% during the three months ended March 31, 1998 and
1997.
Non-performing loans are reviewed to determine exposure for potential
loss within each loan category. The adequacy of the allowance for credit
losses is assessed based on credit quality and other pertinent loan portfolio
information. The reserve for credit losses provided strong non-performing loan
coverage, decreasing to 115% at March 31, 1998 from 142% at December 31, 1997.
The adequacy of the reserve and the provision for credit losses is consistent
with the composition of the loan portfolio and recent credit quality history.
NET INTEREST INCOME
Net interest income is the most significant component in earnings. For
analysis purposes, interest earned on tax exempt assets is adjusted to a fully
taxable equivalent basis.
The net yield on interest earning assets shows the yield for the three
months ended March 31, 1998, to be 4.50%; compared to 4.46% for the three
months ended March 31, 1997. The average rate on earning assets increased
slightly and the average rate on interest bearing liabilities decreased. The
company continues efforts to increase net interest margin through the strategic
pricing of loans and deposits.
<PAGE>
NON-INTEREST INCOME
Non-interest income increased 18.28% to $504,696 during the three months
ended March 31, 1998, from $426,694 during the three months ended March 31,
1997. There were no security gains or losses during the three months ended
March 31, 1998 or 1997. Fee income on deposit accounts has increased $7,522 to
$156,933 during the three months ended March 31, 1998, from $149,411 during the
three months ended March 31, 1997. Investment product commissions increased
$32,384 to $83,735 during the three months ended March 31, 1998 from $51,351
during the three months ended March 31, 1997. Other fee income increased
$18,194 and other operating income increased $17,297 during the three months
ended March 31, 1998 over the three months ended March 31, 1997.
NON-INTEREST EXPENSE
Non-interest expenses increased 16.00% to $1,998,211 for the three months
ended March 31, 1998, from $1,722,533 for the three months ended March 31,
1997. There are no expenses included in other expenses that exceed 1% of total
interest and other income for either 1997 or 1997. The Company is expanding the
use of technology throughout its banks in order to provide increased customer
service and allow for more efficient consolidation of its operational areas.
Mid-Wisconsin has placed emphasis on increased productivity and standardization
of programs and procedures throughout all of its locations.
<PAGE>
PART II. Other Information
ITEM 5. Other Information
The company is preparing for the year 2000 issues that will have an
impact on computer hardware and software. A project plan will be in place by
mid-year 1998 that will address these issues with a timetable for completing
the necessary testing and replacement of non-compliant systems. Hardware and
software vendors have been contacted and letters identifying their testing and
compliance schedule are being kept on file. The company's banking software
provider has completed initial testing and complete results have been provided
on all applications. All costs associated with correcting year 2000 concerns
are being expensed as incurred. These costs are not expected to exceed $50,000
and are not expected to have an impact on the company's results of operations,
liquidity, and capital resources.
The company has surveyed the local business community to determine the
extent of year 2000 planning being done. Printed information and seminars are
being provided for customers regarding preparing a project plan and
implementation of the plan.
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed as part of this quarterly report on Form
10-Q.
Incorporated
EXHIBIT NO. AND DESCRIPTION
EXHIBIT <dagger>
(3) Articles of Incorporation and Bylaws
(a) Articles of Incorporation, as amended 3 (a) (2)
(b) Bylaws, as amended September 20, 1995 3 (b) (2)
(4) Instruments defining the rights of security
holders, including indentures
(a) Articles of Incorporation and
Bylaws (See (3)(a) and (b))
(10) Material contracts:
**(a) 1997 Mid-Wisconsin Bank
Senior Officer Incentive Bonus Plan 10 (a) (1)
**(b) Mid-Wisconsin Financial Services, Inc.
1991 Employee Stock Option Plan 10 (b) (2)
**(c) Mid-Wisconsin Financial Services, Inc.
Directors' Deferred Compensation Plan 10 (e) (3)
**(d) Executive Officer Employment and Severance
Agreement 10 (d) (1)
**(e) Executive Officer Bonus Plan 10 (e) (1)
**(f) Mid-Wisconsin Bank
Senior Officer Incentive Bonus Plan 10 (f) (1)
(22) Subsidiaries of the registrant 21 (2)
(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, 1997, as filed with the
Commission on March 23, 1998.
(2) Form 10-K for the year ended December 31, 1995, as filed with the
Commission on March 26, 1996.
(3) Form 10-K for the year ended December 31, 1992, as filed with the
Commission on March 30, 1993.
(b) No reports on Form 8-K have been filed during the quarter for which this
Form 10-Q is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MID-WISCONSIN FINANCIAL SERVICES, INC.
Date May 11, 1998 GENE C. KNOLL
Gene C. Knoll, President
(Principal Executive Officer)
Date May 11, 1998 LUCILLE BRANDNER
Lucille Brandner, Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
to
FORM 10-Q
of
MID-WISCONSIN FINANCIAL SERVICES, INC.
for the period ended March 31, 1998
Pursuant to Section 102(d), Regulation S-T
(17 C.F.R. <section>232.102(d))
Exhibit 27. Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 10,557
<INT-BEARING-DEPOSITS> 188,768
<FED-FUNDS-SOLD> 5,847
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 56,002
<INVESTMENTS-CARRYING> 56,002
<INVESTMENTS-MARKET> 56,002
<LOANS> 185,382
<ALLOWANCE> (2,051)
<TOTAL-ASSETS> 267,064
<DEPOSITS> 212,091
<SHORT-TERM> 16,907
<LIABILITIES-OTHER> 3,486
<LONG-TERM> 6,400
0
0
<COMMON> 186
<OTHER-SE> 24,993
<TOTAL-LIABILITIES-AND-EQUITY> 267,064
<INTEREST-LOAN> 4,225
<INTEREST-INVEST> 900
<INTEREST-OTHER> 36
<INTEREST-TOTAL> 5,161
<INTEREST-DEPOSIT> 2,175
<INTEREST-EXPENSE> 2,474
<INTEREST-INCOME-NET> 2,687
<LOAN-LOSSES> 90
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,998
<INCOME-PRETAX> 1,104
<INCOME-PRE-EXTRAORDINARY> 1,104
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 744
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 8.45
<LOANS-NON> 1,427
<LOANS-PAST> 29
<LOANS-TROUBLED> 214
<LOANS-PROBLEM> 660
<ALLOWANCE-OPEN> 1,990
<CHARGE-OFFS> 41
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 2,051
<ALLOWANCE-DOMESTIC> 90
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 74
</TABLE>
