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 September 30, 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 September 30, 1998 there were 1,858,287 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
September 30, 1998 and December 31, 1997 3
Consolidated Statements of Income
Three Months Ended September 30, 1998 and September 30, 1997 4
and Nine Months Ended September 30, 1998 and September 30, 1997
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and September 30, 1997 5
Notes to Consolidated Financial Statements 6-11
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 12-17
PART II. OTHER INFORMATION
Item 5. Other Information 18
Item 6. Exhibits and Reports of Form 8-K 19
Signatures 20
Exhibit Index 21
<PAGE>
PART I FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<CAPTION>
SEPTEMBER 30, 1998 DECEMBER 31, 1997
ASSETS
<S> <C> <C>
CASH AND DUE FROM BANKS $10,037,211 $9,521,270
INTEREST-BEARING DEPOSITS IN OTHER FINANCIAL INSTITUTIONS 34,170 21,260
FEDERAL FUNDS SOLD 2,624,000 4,616,000
INVESTMENT SECURITIES AVAILABLE FOR SALE -AT FAIR VALUE 57,021,281 54,256,192
LOANS HELD FOR SALE 3,450,243 1,169,350
LOANS RECEIVABLE, NET OF ALLOWANCE FOR CREDIT LOSSES OF 190,423,624 185,015,272
$2,132,529 IN 1998 AND $1,990,090 IN 1997 (2,132,529) (1,990,090)
NET LOANS 188,291,095 183,025,182
ACCRUED INTEREST RECEIVABLE 1,955,918 1,620,973
PREMISES AND EQUIPMENT 5,494,661 5,505,984
GOODWILL AND PURCHASED INTANGIBLES 2,556,631 2,787,410
OTHER ASSETS 1,320,790 1,151,940
TOTAL ASSETS $272,786,000 $263,675,561
LIABILITIES AND STOCKHOLDERS' EQUITY
NONINTEREST-BEARING DEPOSITS $25,314,992 $25,625,169
INTEREST-BEARING DEPOSITS 185,819,736 185,524,289
TOTAL DEPOSITS 211,134,728 211,149,458
SHORT-TERM BORROWINGS 23,192,687 16,078,523
LONG TERM BORROWINGS 5,800,000 5,400,000
ACCRUED EXPENSES AND OTHER LIABILITIES 3,323,824 3,180,423
TOTAL LIABILITIES 243,451,239 235,808,404
STOCKHOLDERS' EQUITY:
COMMON STOCK-PAR VALUE $.10 PER SHARE:
AUTHORIZED - 6,000,000 SHARES IN 1998 & 1997
ISSUED & OUTSTANDING - 1,858,287 SHARES IN 1998 185,829
- 1,864,122 SHARES IN 1997 186,412
ADDITIONAL PAID-IN CAPITAL 12,611,950 12,653,703
RETAINED EARNINGS 16,022,494 14,678,785
UNREALIZED GAIN ON SECURITIES AVAILABLE FOR SALE, NET OF TAX 514,488 348,257
TOTAL STOCKHOLDERS' EQUITY 29,334,761 27,867,157
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $272,786,000 $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 NINE MONTHS ENDED
SEPTEMBER 30, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1998 SEPTEMBER 30, 1997
<S> <C> <C> <C> <C>
INTEREST INCOME
INTEREST AND FEES ON LOANS $4,441,228 $4,336,627 $13,018,886 $12,446,199
INTEREST ON INVESTMENT SECURITIES:
TAXABLE 737,604 784,526 2,269,545 2,408,195
TAX-EXEMPT 135,074 110,107 399,872 305,649
OTHER INTEREST INCOME 64,914 1,328 140,330 57,471
TOTAL INTEREST INCOME 5,378,820 5,232,588 15,828,633 15,217,514
INTEREST EXPENSE
DEPOSITS 2,243,087 2,082,511 6,640,621 6,190,278
U.S. REPURCHASE AGREEMENTS 241,600 286,615 672,442 751,645
LONG-TERM BORROWINGS 105,035 94,852 290,694 268,395
TOTAL INTEREST EXPENSE 2,589,722 2,463,978 7,603,757 7,210,318
NET INTEREST INCOME 2,789,098 2,768,610 8,224,876 8,007,196
PROVISION FOR CREDIT LOSSES 150,000 30,000 360,000 90,000
NET INTEREST INCOME AFTER PROVISION
FOR CREDIT LOSSES 2,639,098 2,738,610 7,864,876 7,917,196
OTHER INCOME:
SERVICE FEES 186,775 159,475 525,415 460,380
TRUST SERVICE FEES 112,808 105,446 349,868 333,400
NET REALIZED GAIN ON SALE OF SECURITIES AFS - - - 14,369
INVESTMENT PRODUCT COMMISSIONS 55,873 61,338 208,784 177,862
OTHER FEE INCOME 119,634 106,465 359,676 283,993
OTHER OPERATING INCOME 44,942 16,450 111,211 293,210
TOTAL OTHER INCOME 520,032 449,174 1,554,954 1,563,214
OPERATING EXPENSES:
SALARIES 806,607 771,495 2,415,279 2,209,136
EMPLOYEE BENEFITS 241,807 264,163 810,335 802,812
OCCUPANCY 345,520 312,967 1,034,147 960,305
FDIC DEPOSIT INSURANCE PREMIUMS 6,452 6,212 19,389 18,519
NET REALIZED LOSS ON SALE OF SECURITIES AFS 1,250 183 1,250 183
OTHER OPERATING 558,041 430,118 1,643,057 1,365,863
TOTAL OPERATING EXPENSES 1,959,677 1,785,138 5,923,457 5,356,818
INCOME BEFORE INCOME TAXES 1,199,453 1,402,646 3,496,373 4,123,592
PROVISION FOR INCOME TAXES 387,834 486,263 1,134,888 1,435,169
NET INCOME $811,619 $916,383 $2,361,485 $2,688,423
BASIC AND DILUTED EARNINGS PER SHARE $0.44 $0.49 $1.27 $1.44
CASH DIVIDENDS DECLARED PER SHARE $0.17 $0.15 $0.47 $0.45
<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
NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<CAPTION>
1998 1997
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME $2,361,485 $1,772,040
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
PROVISION FOR DEPRECIATION AND NET AMORTIZATION 708,075 374,793
PROVISION FOR CREDIT LOSSES 360,000 60,000
PROCEEDS FROM SALES OF LOANS HELD FOR SALE 5,641,720 2,088,525
ORIGINATIONS OF LOANS HELD FOR SALE (5,686,990) (2,308,525)
(GAIN) LOSS ON SALE OF INVESTMENT SECURITIES 1,250 (14,186)
(GAIN) LOSS ON EQUIPMENT DISPOSALS 12,489
(GAIN) LOSS ON SALE OF OTHER REAL ESTATE (1,559) 24,092
CHANGES IN OPERATING ASSETS AND LIABILITIES:
OTHER ASSETS (510,870) (181,076)
OTHER LIABILITIES 143,402 (136,188)
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,029,002 1,679,475
CASH FLOWS FROM INVESTING ACTIVITIES:
AVAILABLE FOR SALE SECURITIES:
PROCEEDS FROM SALES 998,750 534,836
PROCEEDS FROM MATURITIES: 15,639,547 5,979,345
PAYMENT FOR PURCHASES (19,101,704) (6,687,229)
NET (INCREASE) DECREASE IN LOANS (8,128,013) (5,176,316)
NET (INCREASE) DECREASE IN INTEREST-BEARING DEPOSITS
IN OTHER INSTITUTIONS (12,910) (5,004)
NET (INCREASE) DECREASE IN FED FUNDS SOLD 1,992,000 (340,000)
CAPITAL EXPENDITURES (567,880) (613,370)
PROCEEDS FROM SALE OF OTHER REAL ESTATE 227,827 250,384
NET CASH USED IN INVESTING ACTIVITIES (8,952,383) (6,057,354)
CASH FLOWS FROM FINANCING ACTIVITIES:
NET DECREASE IN NONINTEREST-BEARING DEPOSITS (310,177) (590,136)
NET INCREASE IN INTEREST-BEARING DEPOSITS 295,447 (2,475,652)
PROCEEDS FROM EXERCISE OF STOCK OPTIONS 35,583 25,086
PAYMENT FOR REPURCHASE OF COMMON STOCK (221,493) (47,150)
NET INCREASE (DECREASE) IN SHORT-TERM BORROWING 7,114,164 5,181,095
PROCEEDS FROM ISSUANCE OF LONG-TERM BORROWINGS 4,000,000 1,000,000
PRINCIPAL PAYMENTS ON LONG-TERM BORROWING (3,600,000)
DIVIDENDS PAID (874,202) (559,888)
NET CASH PROVIDED BY FINANCING ACTIVITIES 6,439,322 2,533,355
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 515,941 (1,844,524)
CASH AND CASH EQUIVALENTS AT BEGINNING 9,521,270 13,734,886
CASH AND CASH EQUIVALENTS AT END $10,037,211 $11,890,362
SUPPLEMENTAL CASH FLOW INFORMATION: 1998 1997
CASH PAID DURING THE YEAR FOR:
INTEREST $7,652,133 $4,619,453
INCOME TAXES $1,200,000 $905,025
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
LOANS TRANSFERRED TO OTHER REAL ESTATE $267,153 $100,000
LOANS CHARGED OFF $290,032 $113,424
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 September 30, 1998, and the
consolidated statements of income for the three month periods ended September
30, 1998 and 1997, and the nine month periods ended September 30, 1998 and
1997, and the consolidated statements of cash flows for the nine month periods
ended September 30, 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.
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
September 30, 1998 December 31, 1997
<S> <C> <C>
U.S. Treasury securities and obligations
of other U.S. Govt agencies & corp $13,730,091 $15,756,976
Mortgage Backed Securities 30,039,523 25,266,862
Oblig. to states & political subdivisions 11,466,489 10,355,359
Corporate Securities 780,400 1,689,391
Equity Securities 1,004,778 1,187,604
Totals $57,021,281 $54,256,192
</TABLE>
Included in the totals of Investment Securities at September 30, 1998,
are unrealized gains of $794,756 on debt securities classified as available
for sale. The net of tax unrealized holding gain of $514,488 on securities
classified as available-for-sale is reflected in stockholders' equity.
Securities with an approximate carrying value of $31,845,978 and
$32,889,744 at September 30, 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 2.92% for the nine months ended September 30,
1998; increasing from $185,015,272 at December 31, 1997, to $190,423,624 at
September 30, 1998.
The composition of loans at September 30, 1998, and December 31, 1997,
follows:
<TABLE>
<CAPTION>
September 30 % of December 31 % of
(Dollars in Thousands) 1998 total 1997 total
<S> <C> <C> <C> <C>
Commercial and financial $32,143 16.88% $26,943 14.56%
Construction Loans 2,825 1.48% 1,700 0.92%
Agricultural 36,305 19.07% 34,952 18.89%
Real estate 107,094 56.24% 108,360 58.57%
Installment 11,717 6.15% 12,642 6.83%
Lease financing 340 0.18% 418 0.23%
Total loans $190,424 100.00% $185,015 100.00%
</TABLE>
The composition of loans in the loan portfolio shows an increase in
commercial and financial and real estate loans at September 30, 1998. The bank
continues 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 Sept. 30 % 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 $2,149 1.13% $1,238 0.67%
Potential problem loans 0 0.00% 161 0.09%
Foreign outstandings 0.00% 0.00%
Total risk-element loans $2,149 1.13% $1,399 0.76%
</TABLE>
Included above is $572,028 of impaired loans (.300%) in non-accrual
status at September 30, 1998. The average balance of impaired loans during the
first nine months of 1998 was $645,927. The impaired loans with an aggregate
outstanding balance of $572,028 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 September 30, 1998. As a percentage of total
outstanding loans, the non-performing assets increased .37% to 1.13% at
September 30, 1998, from .76% at December 31, 1997.
The aggregate amount of non-performing assets was approximately
$2,149,000 and $1,399,000 at September 30, 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, $87,828 of interest income would have been
recorded for the three months ended September 30, 1998. Interest income
actually collected and recorded was $49,853.
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.
In June 1997, Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (FASB 130), was issued and establishes
standards for reporting and displaying comprehensive income and its components.
FASB 130 requires comprehensive income and its components, as recognized under
the accounting standards, to be displayed in a financial statement with the
same prominence as other financial statements. The disclosure requirements of
FASB 130 have been included in the corporation's consolidated statements of
shareholders' equity.
<PAGE>
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (FASB 131), also issued in
June 1997, establishes new standards for reporting information about operating
segments in annual and interim financial statements. The standard also
requires descriptive information about the way the operating segments are
determined, the products and services provided by the segments and the nature
of differences between reportable segment measurements and those used for the
consolidated enterprise. This standard is effective for years beginning after
December 15, 1997. Adoption in interim financial statements is not required
until the year after initial adoption, however comparative prior period
information is required. FASB 131 will be adopted, as required, beginning with
year-end 1998. The disclosure requirements will have no impact on the
corporation's financial position or results of operations.
In March 1998, the Accounting Standards Executive Committee of the
American Institute of Certified Public Accountants issued Statement of Position
98-1, "Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use" (SOP 98-1), which provides guidance as to when it is or is not
appropriate to capitalize the cost of software developed or obtained for
internal use. The corporation elected early adoption of SOP 98-1. The effect
of the adoption was not material.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" (FASB 133). FASB 133 establishes new
accounting and reporting requirements for derivative instruments, including
certain derivative instruments embedded in other contracts and hedging
activities. The standard requires all derivatives to be measured at fair value
and recognized as either assets or liabilities in the statement of condition.
Under certain conditions, a derivative may be specifically designated as a
hedge. Accounting for the changes in the fair value of a derivative depends on
the intended use of the derivative and the resulting designation. Adoption of
the standard is required for the corporation's December 31, 2000 financial
statements with early adoption allowed as of the beginning of any quarter after
June 30, 1998. Management is in the process of assessing the impact and period
of adoption of the standard. Adoption is not expected to result in a material
financial impact.
An analysis of the allowance for credit losses for the period ended
September 30, 1998, and December 31, 1997 follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
Sept. 30, 1998 Dec. 31, 1997
<S> <C> <C>
Allowance for credit losses at
beginning of period $1,990 $2,031
Provision Charged to Operating Expense 360 140
Recoveries on Loans 71 64
Loans Charged off (288) (245)
Allowance for losses at end of period $2,133 $1,990
</TABLE>
<PAGE>
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 1,862,835 for the three months ended
September 30, 1998, and 1,871,039 for the three months ended September 30,
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) Third Second First Fourth Third
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest revenue $2,789 $2,748 $2,687 $2,793 $2,767
Provision for credit losses 150 120 90 50 30
Other operating revenue 520 530 505 695 449
Other operating expense 1,960 1,966 1,998 2,199 1,785
Net income 812 806 744 819 916
Per common share
Net income 0.44 0.43 0.40 0.44 0.49
Dividends declared 0.17 0.15 0.15 0.30 0.15
Stockholders' equity 15.79 15.44 15.17 14.95 14.79
Average common shares (000's) 1,863 1,863 1,863 1,868 1,871
Dividend payout ratio 38.92% 34.58% 37.58% 68.28%
Balance Sheet Summary:
At quarter end:
Loans net of unearned income 190,424 191,130 183,330 183,025 $183,159
Assets 272,786 272,749 267,064 263,676 259,224
Deposits 211,135 215,450 212,091 185,524 203,753
Shareholders equity 29,335 28,681 28,180 27,867 27,508
Average balances:
Loans net of unearned income 193,313 188,710 184,701 185,095 181,390
Assets 275,470 269,261 264,376 263,747 254,216
Deposits 216,107 213,037 186,277 183,229 195,609
Shareholders equity 28,690 28,274 27,927 27,521 26,993
Performance Ratios:
Return on average assets 1.18% 1.20% 1.13% 1.24% 1.44%
Return on average common equity 11.32% 11.40% 10.66% 11.90% 13.57%
Equity to assets 9.58% 9.60% 9.62% 9.47% 10.30%
Total risk-based capital 15.05% 15.08% 15.15% 14.94% 14.72%
Net loan charge-offs as a percentage
of average loans 0.14% 0.01% 0.02% 0.05% 0.02%
Nonperforming assets as a percentage
of loans and other real estate 1.11% 1.00% 0.96% 0.76% 0.70%
Net interest margin 4.48% 4.53% 4.50% 4.56% 4.76%
Efficiency ratio 61.44% 61.29% 63.00% 62.44% 55.04%
Fee revenue as a percentage of
average assets 0.17% 0.19% 0.17% 0.18% 0.11%
Stock Price Information:
High $30.00 $28.00 $27.50 $27.25 $27.00
Low 27.50 27.50 27.25 27.00 25.50
Market value at quarter end (1) 30.00 28.00 27.50 27.25 27.00
<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*
Deposits decreased $14,730 during the nine-month period ended September
30, 1998. Non-interest bearing deposits decreased $310,177 and interest-
bearing deposits increased $295,447. The company's market area continues to be
highly rate competitive.
Loans increased $5,408,352 during the nine-month period ended September
30, 1998.
Investments increased $2,765,089 during the nine month period ended
September 30, 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 September 30,
1998, the carrying value of debt securities maturing within one year amounted
to $5,801,719 or 10.36% of the total debt securities portfolio. Mid-Wisconsin
also holds $1,004.778 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 September 30, 1998, shareholders' equity increased $1,467,604 to
$29,334,761 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 $514,488 at September 30, 1998, and $348,257
at December 31, 1997.
The primary capital to asset ratio was 9.91% as of September 30, 1998,
compared to 9.62% at December 31, 1997. The company's risk-based capital ratio
for Tier 1 (core) amounted to 13.92% and total risk-based capital amounted to
15.05%. This compares to Tier 1 (core) capital of 13.83% and total risk-based
capital of 14.94% at December 31, 1997.
*Matters discussed in this report with respect to the company's
expectations or possible or assumed future results of operations are forward
looking statements that involve risks and uncertainties. See "Cautionary
Statement" under Part II, Item 5, Other Information.
<PAGE>
The following table presents comprehensive income for the consolidated
entities for the three months and nine months ended September 30, 1998 and 1997.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997
<S> <C> <C> <C> <C>
Net Income $811,619 $916,383 $2,361,485 $2,688,423
Change in unrealized gains on
securities available-for-sale, net of tax
and reclassification adjustment 158,160 137,145 166,231 116,969
Comprehensive Income $969,779 $1,053,528 $2,527,716 $2,805,392
</TABLE>
Comprehensive income for the second quarters of 1998 and 1997 was
$780,125 and $1,129,741 respectively.
RESULTS OF OPERATIONS
The company's consolidated net income for the three months ended
September 30, 1998, decreased $104,764 or 11.43% to $811,619 from $916,383 for
the three months ended September 30, 1997. Net interest income increased
$20,488 during the three months ended September 30, 1998, over the three
months ended September 30, 1997.
Return on average common stockholders' equity amounted to 12.44% for the
three months ended September 30, 1998; compared to 14.41% for the three months
ended September 30, 1997.
Return on average assets for the three months ended September 30, 1998,
amounted to 1.19%; compared to 1.45% for the three months ended September 30,
1997.
Net earnings per share amounted to $ .44 per share for the three months
ended September 30, 1998, compared to $ .49 for the three months ended
September 30, 1997. Cash dividends paid were $ .17 per share in September 1998
and $ .15 per share in September 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 $150,000 for the three months ended
September 30, 1998, and $30,000 for the three months ended September 30, 1997.
The allowance for credit losses as a percentage of gross loans outstanding was
$2,132,529 or 1.12% of total loans on September 30, 1998, compared to
$1,990,090 or 1.08% of total loans on December 31, 1997. Net charge-offs as a
percentage of average loans outstanding were .14% during the three months ended
September 30, 1998 and .02% during the three months ended September 30, 1997.
<PAGE>
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 99.3% at September 30, 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 September 30, 1998, to be 4.48%; compared to 4.76% for the three
months ended September 30, 1997. The average rate on earning assets and
interest bearing liabilities decreased slightly during the three months ended
September 30, 1998 compared to the three months ended September 30, 1997. The
company continues efforts to increase net interest margin through the strategic
pricing of loans and deposits.
NON-INTEREST INCOME
Non-interest income increased 15.78% to $520,032 during the three months
ended September 30, 1998, from $449,174 during the three months ended September
30, 1997. Losses on securities available for sale during the three months
ended September 30, 1998 were $1,250. There were no gains or losses on
securities during the three months ended September 30, 1997. Fee income on
deposit accounts increased $27,300 to $186,775 during the three months ended
September 30, 1998, from $159,475 during the three months ended September 30,
1997. Other fee income and fiduciary fees increased $20,531 to $232,442
during the three months ended September 30, 1998 from $211,911 during the three
months ended September 30, 1997. Other operating income increased $28,492
during the three months ended September 30, 1998 over the three months ended
September 30, 1997.
NON-INTEREST EXPENSE
Non-interest expenses increased 9.78% to $1,959,677 for the three months
ended September 30, 1998, from $1,785,138 for the three months ended September
30, 1997. There are no expenses included in other expenses that exceed 1% of
total interest and other income for either 1998 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>
YEAR 2000 ISSUES
READINESS
The Company's assessment of the possible consequences of Year 2000 issues
on the Company's business, results of operations, or financial condition is not
complete, but is continuing in accordance with the Company's Year 2000 Project
Plan (the "Year 2000 Plan"). The Year 2000 Plan is based on FFIEC Interagency
Statement on "Year 2000 Project Management Awareness" (FIL-50-97) dated May 9,
1997, and the FFIEC Interagency Guidance report on "Year 2000 Risk" (FIL-29-98)
dated March 18, 1998. The Company's implementation of its Year 2000 Plan has
also relied upon additional FFIEC guidance in the form of "Year 2000 Testing
Guidance" (FIL-38-98) dated April 10, 1998, and "Year 2000 Contingency Planning
Guidance" (FIL-51-98) dated May 13, 1998. For this purpose, "Year 2000 issues"
or "Year 2000 problems", or words of similar import, refer to the potential for
failure of computer applications as a result of the failure of a program to
properly recognize the year 2000.
The Company's Year 2000 Plan has been split into five phases: awareness,
assessment, renovation, validation, and implementation. Under the direction of
the Company's Director of Information Technology, the Company's Technology
Committee is monitoring Year 2000 issues and implementing the Year 2000 Plan.
The Technology Committee meets at least bi-monthly to review the status of Year
2000 issues as they relate to the Company and the Technology Committee reports
to the Board of Directors at each of its meetings with respect to each phase of
the Year 2000 Plan and the Company's progress against established goals.
The initial assessment and inventory of all software, hardware,
interfaces, and other date sensitive systems was completed in September 1997.
The FDIC conducted year 2000 compliance audits in December 1997 and by an
independent third party in July 1998.
The Company does not build or customize any software programs and must
rely on its vendors to test programs and ensure Year 2000 compliance. All
vendors deemed "mission critical" by the Company have been contacted regarding
the Year 2000 compliance and have been informed that any programs not in
compliance by December 1998 will be replaced. Such vendors have submitted
letters stating that their software is or will be compliant within the
specified time frames. The Company will continue to monitor vendor
certifications and take other steps, as deemed appropriate to address Year 2000
issues, including requesting vendor contract addenda regarding Year 2000
readiness, obtaining test scripts to test systems or test results from an
identical user, obtaining third party audit of vendor systems, and obtaining
analysis of vendor contingency plans.
Inquiries have been made of the Company's key correspondent banks
requesting information on the status of their Year 2000 compliance.
Correspondent banks have submitted letters and information on an ongoing basis
regarding the steps being taken regarding Year 2000 readiness.
<PAGE>
Surveys and letters were mailed to commercial customers in May 1998 to
inform them of the Company's status in regard to Year 2000 issues and to
determine the Year 2000 status of these customers. Commercial customers with
loans exceeding a threshold level and any other customers deemed likely to have
Year 2000 related problems are in the process of being contacted individually
to determine what effect, if any, Year 2000 problems may have on their
indebtedness to the Company. The Company has implemented an ongoing customer
education program regarding Year 2000 issues and posts Year 2000 information on
its web site at http://www.midwisc.com/year2000. The Company is continuing to
monitor the possible effect of Year 2000 issues on its customers.
The Company has also reviewed its non-information technology systems, and
believes them to be Year 2000 compliant.
COSTS
Replacement of hardware and software which was identified as non-Year
2000 compliant began in early 1998. New hardware and software is certified by
the manufacturer or vendor as Year 2000 compliant and the cost of such
equipment is capitalized over its useful life. All other costs associated with
Year 2000 issues are being expensed as incurred and have come from the
information technology budget or other related department budgets and have not
caused a reduction in net income. The estimated total cost of evaluation and
compliance with Year 2000 issues is not expected to be material.
RISKS
The Company does not believe that Year 2000 issues will have a material
adverse effect on the Company's results of operations, liquidity, or financial
condition. However, the risks to the Company associated with Year 2000 issues
are many. The banking system in the United States is highly regulated and
interdependent. The Company depends upon the Federal Reserve System and other
financial institutions to process a wide variety of financial transactions for
itself and its customers and as a source of credit. To a large extent, the
Company is dependent upon the activities of the various federal bank regulatory
agencies and their efforts to make certain that the U.S. banking and payments
system, as a whole, is Year 2000 compliant. While the Company believes that
such efforts will result in compliance by the banking system as a whole, it can
offer no assurance of that fact. If the banking system as a whole or
correspondent banks with which the company has material relationships are not
Year 2000 compliant, the Company could suffer a material adverse affect.
The Company also faces the risk that Year 2000 problems encountered by
its customers may result in significant losses to the Company as a result of
the inability to repay loans or as a result of reducing the nonloan portion of
its customers' banking business. Approximately 56% of the Company's loan
portfolio is concentrated in real estate loans, but these loans represent a
diverse customer base. Similarly, the Company's commercial and agricultural
loans represent approximately 17% and 19% respectively, of the loans
outstanding, but also represent a diverse customer base.
<PAGE>
The insurance industry as a whole, and the Company's insurer in
particular, have indicated that they will not provide coverages for losses
related to Year 2000 issues. Therefore, if such limitation is successfully
imposed by insurance companies, insurance coverage for any claims of business
interruption on the part of the Company or its customers or vendors, or claims
by or against the Company for failure to perform various contracts or business
agreements as a result of Year 2000 related problems may not be available.
However, while disruptions to the nationwide banking system are possible and
one or more individual customers or groups of customers may encounter
significant Year 2000 related problems, the Company does not believe these will
materially affect the Company.
CONTIGENCY PLANS
The Company has prepared a business impact analysis to identify critical
issues and contingency plans for continued operations in the event of failure
of one the its major systems. These contingency plans and recovery are
similar, and in some cases, identical, to those in place for the Company's
overall business recovery plans that are or would be used in the event of any
type of disaster.
<PAGE>
ITEM 5. Other Information
CAUTIONARY STATEMENT
This report contains certain of management's expectations and other
forward-looking information regarding the company. While the company believes
that these forward-looking statements are based on reasonable assumptions, all
such statements involve risk and uncertainties that could cause actual results
to differ materially from these contemplated in this report. The assumptions,
risks and uncertainties relating to the forward-looking statements in this
report include those described under the caption "Cautionary Statements
Regarding Forward Looking Information" in the company's Form 10-K for the year
ended December 31, 1997 and, from time to time, in the company's other filings
with the Securities and Exchange Commission.
<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 November 11, 1998 GENE C. KNOLL
Gene C. Knoll, President
(Principal Executive Officer)
Date November 11, 1998 RHONDA R. KELLEY
Rhonda R. Kelley, Controller
(Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
to
FORM 10-Q
of
MID-WISCONSIN FINANCIAL SERVICES, INC.
for the period ended September 30, 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> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 10,037
<INT-BEARING-DEPOSITS> 185,820
<FED-FUNDS-SOLD> 2,624
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 57,021
<INVESTMENTS-CARRYING> 57,021
<INVESTMENTS-MARKET> 57,021
<LOANS> 190,424
<ALLOWANCE> (2,133)
<TOTAL-ASSETS> 272,786
<DEPOSITS> 211,135
<SHORT-TERM> 23,193
<LIABILITIES-OTHER> 3,324
<LONG-TERM> 5,800
0
0
<COMMON> 186
<OTHER-SE> 29,149
<TOTAL-LIABILITIES-AND-EQUITY> 272,786
<INTEREST-LOAN> 4,441
<INTEREST-INVEST> 873
<INTEREST-OTHER> 65
<INTEREST-TOTAL> 5,379
<INTEREST-DEPOSIT> 2,243
<INTEREST-EXPENSE> 2,590
<INTEREST-INCOME-NET> 2,789
<LOAN-LOSSES> 150
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 1,958
<INCOME-PRETAX> 1,199
<INCOME-PRE-EXTRAORDINARY> 1,199
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 812
<EPS-PRIMARY> 0.44
<EPS-DILUTED> 0.44
<YIELD-ACTUAL> 8.44
<LOANS-NON> 1,882
<LOANS-PAST> 21
<LOANS-TROUBLED> 246
<LOANS-PROBLEM> 572
<ALLOWANCE-OPEN> 1,990
<CHARGE-OFFS> 288
<RECOVERIES> 71
<ALLOWANCE-CLOSE> 2,133
<ALLOWANCE-DOMESTIC> 2,133
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
