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, 1999
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) 748-8300
(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, 1999, there were 1,823,101 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, 1999 and December 31, 1998 3
Consolidated Statements of Income
Three Months Ended September 30, 1999 and 1998
And Nine Months Ended September 30, 1999 and 1998 4
Consolidated Statement of Changes in Stockholders'
Equity Nine Months Ended September 30, 1999 5
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of Operations 8-18
PART II. OTHER INFORMATION
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 Sheet
<CAPTION>
September 30, 1999 December 31, 1998
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $14,437,934 $14,025,302
Interest-bearing deposits in other financial institutions 20,791 43,453
Federal funds sold 0 9,223,000
Investment securities available for sale -At fair value 63,892,416 56,916,589
Loans held for sale 0 951,650
Loans receivable, net of allowance for credit losses of
$2,264,542 in 1999 and $2,159,145 in 1998 206,549,708 187,793,197
Accrued interest receivable 1,987,736 1,838,541
Premises and equipment 6,877,300 6,440,692
Goodwill and purchased intangibles 2,237,310 2,479,705
Other assets 1,358,889 766,691
TOTAL ASSETS $297,362,084 $280,478,820
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $31,383,791 $31,540,360
Interest-bearing deposits 192,510,600 190,781,300
Total Deposits 223,894,391 222,321,660
Short-term borrowings 27,017,836 19,688,031
Current Portion of Long term borrowings 1,000,000 0
Long term borrowings 14,000,000 5,800,000
Accrued expenses and other liabilities 3,149,868 3,099,045
Total Liabilities 269,062,095 250,908,736
Stockholders' equity:
Common stock-Par value $.10 per share:
Authorized - 6,000,000 shares in 1999 & 1998
Issued & outstanding - 1,823,101 shares in 1999 182,310
- 1,860,893 shares in 1998 186,089
Additional paid-In capital 11,734,027 12,648,174
Retained earnings 16,824,098 16,276,389
Accumulated other comprehensive income, net of tax (440,446) 459,432
Total Stockholders' Equity 28,299,989 29,570,084
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $297,362,084 $280,478,820
<FN>
The accompanying notes to consolidated financial statements are an integral part of these
statements.
</TABLE>
<PAGE>
Item 1. Financial Statements Continued:
<TABLE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three months ended Nine Months Ended
Sept. 30, 1999 Sept. 30, 1998 Sept. 30, 1999 Sept. 30, 1998
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $4,412,537 $4,441,228 $12,720,580 $13,018,886
Interest on investment securities:
Taxable 752,566 737,604 2,237,899 2,269,545
Tax-exempt 175,723 135,074 497,619 399,872
Other interest and dividend income 2,351 64,914 115,454 140,330
Total interest income 5,343,177 5,378,820 15,571,552 15,828,633
Interest expense
Deposits 2,008,736 2,243,087 6,021,092 6,640,621
Short-term borrowings 274,025 241,600 773,299 672,442
Long-term borrowings 189,413 105,035 325,011 290,694
Total interest expense 2,472,174 2,589,722 7,119,402 7,603,757
Net Interest income 2,871,003 2,789,098 8,452,150 8,224,876
Provision for credit losses 0 150,000 120,000 360,000
Net interest income after provision
for credit losses 2,871,003 2,639,098 8,332,150 7,864,876
Noninterest income:
Service fees 178,236 186,775 520,727 525,415
Trust Service fees 141,530 112,808 420,120 349,868
Investment product commissions 42,528 55,873 186,844 208,784
Other operating income 116,739 164,576 466,650 470,887
Total noninterest income 479,033 520,032 1,594,341 1,554,954
Noninterest expenses:
Salaries and employee benefits 1,135,909 1,048,414 3,419,338 3,225,614
Occupancy 427,174 345,520 1,264,788 1,034,147
Data Processing & Information Systems 22,136 16,407 94,947 83,077
Goodwill & Core Deposit Intang Amortization 80,798 76,927 242,395 230,779
Net realized loss on sale of securities available for sale 0 1,250 - 1,250
Other operating 512,521 471,159 1,478,815 1,348,590
Total noninterest expenses 2,178,538 1,959,677 6,500,283 5,923,457
Income before income taxes 1,171,498 1,199,453 3,426,208 3,496,373
Provision for income taxes 299,769 387,834 975,841 1,134,888
Net income $871,729 $811,619 $2,450,367 $2,361,485
Basic and diluted earnings per share $0.48 $0.44 $1.34 $1.27
Cash dividends declared per share $0.20 $0.17 $0.97 $0.47
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
Item 1. Financial Statements Continued:
<TABLE>
Mid-Wisconsin Financial Services, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
<CAPTION>
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Amount Capital Earnings Income (Loss) Totals
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1998 $186,089 $12,648,174 $16,276,389 $459,432 $29,570,084
Comprehensive Income:
Net Income 2,450,367 2,450,367
Unrealized gain on securities
available for sale, net of tax (899,879) (899,879)
Total comprehensive income 1,550,488
Proceeds from stock options 192 39,895 40,087
Repurchase of common stock (3,971) (954,042) (134,507) (1,092,520)
Cash dividends declared $.97
per share (1,768,151) (1,768,151)
Balance September 30, 1999 $182,310 $11,734,027 $16,824,098 ($440,446) $28,299,989
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE.
<PAGE>
Item 1. Financial Statements Continued:
</TABLE>
<TABLE>
Mid-Wisconsin Financial Services, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
1999 1998
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $2,450,367 $2,361,485
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 931,060 708,075
Provision for credit losses 120,000 360,000
Proceeds from sales of loans held for sale 5,784,852 5,746,926
Gain on sale of loans held for sale (74,367) (105,206)
Originations of loans held for sale (4,758,835) (5,686,990)
Loss on sale of investment securities - 1,250
Loss on equipment disposals 12,956 12,489
(Gain) on sale of other real estate (4,154) (1,559)
Changes in operating assets and liabilities:
Other assets (113,859) (510,870)
Other liabilities 50,823 143,402
Net cash provided by operating activities 4,398,843 3,029,002
Cash flows from investing activities:
Available for sale securities:
Proceeds from sales - 998,750
Proceeds from maturities 21,042,647 16,638,297
Payment for purchases (29,490,386) (19,101,704)
Net increase in loans (19,101,364) (8,128,013)
Net (increase) decrease in interest-bearing deposits
in other institutions 22,662 (12,910)
Net decrease in Fed Funds Sold 9,223,000 1,992,000
Capital expenditures (1,088,817) (567,880)
Proceeds from sale of other real estate 124,093 227,827
Net cash used in investing activities (19,268,164) (7,953,633)
Cash flows from financing activities:
Net decrease in noninterest-bearing deposits (156,569) (310,177)
Net increase in interest-bearing deposits 1,729,300 295,447
Proceeds from exercise of stock options 40,087 35,583
Payment for repurchase of common stock (1,092,520) (221,493)
Net increase in short-term borrowing 7,329,805 7,114,164
Proceeds from issuance of long-term borrowings 9,200,000 4,000,000
Principal payments on long-term borrowings 0 (3,600,000)
Dividends paid (1,768,151) (874,202)
Net cash provided by financing activities 15,281,953 6,439,322
Net increase (decrease) in cash and cash equivalents 412,632 1,514,691
Cash and cash equivalents at beginning 14,025,302 9,521,270
Cash and cash equivalents at end $14,437,934 $11,035,961
Supplemental cash flow information: 1999 1998
Cash paid during the year for:
Interest $7,259,952 $7,652,133
Income taxes $1,211,591 $1,200,000
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to other real estate $223,027 $267,153
Loans charged off $71,856 $290,032
Loans made in connection with the disposition of other
real estate $25,372 $-
<FN>
The accompanying notes to consolidated financial statements are an integral part of these statements.
</TABLE>
<PAGE>
MID-WISCONSIN FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
(Unaudited)
NOTE 1 - GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Mid-Wisconsin
Financial Services, Inc.'s ("Company") financial position, results of its
operations and cash flows for the periods presented, and all such adjustments
are of a normal recurring nature. The consolidated financial statements
include the accounts of all subsidiaries. All material intercompany
transactions and balances are eliminated. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
These interim consolidated financial statements have been prepared according to
the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally presented in
accordance with generally accepted accounting principles have been omitted or
abbreviated. The information contained in the consolidated financial
statements and footnotes in the Company's 1998 annual report on Form 10-K,
should be referred to in connection with the reading of these unaudited interim
financial statements.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are susceptible to significant change include the determination
of the allowance for credit losses and the valuations of investments.
NOTE 2 - INVESTMENT SECURITIES
All investments are available for sale. The amortized cost and fair value of
investment securities for the periods indicated are summarized as follows:
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
Amortized Cost Fair Value Amortized Cost Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of other U.S. Govt agencies & corp $12,947,633 $12,663,950 $11,117,705 $11,206,493
Mortgage Backed Securities 33,073,164 32,757,892 29,264,412 29,534,297
Oblig. to states & political subdivisions 15,615,937 15,497,344 13,664,274 14,006,742
Corporate Securities 575,000 576,050 575,000 584,350
Equity Securities 2,397,180 2,397,180 1,584,707 1,584,707
Totals $64,608,914 $63,892,416 $56,206,098 $56,916,589
</TABLE>
<PAGE>
NOTE 3 - EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding which includes the common stock equivalents applicable to shares
issuable under the stock options granted.
<TABLE>
<CAPTION>
Three Months Ended September 30,
1999 1998
<S> <C> <C>
Net income available to common
stockholders $871,729 $811,619
Weighted average shares outstanding 1,827,007 1,862,642
Basic earnings per share $0.48 $0.44
</TABLE>
NOTE 4 - COMPREHENSIVE INCOME
The Financial Accounting Standards Board (FASB) has issued SFAS No. 130,
"Reporting Comprehensive Income", which is effective for fiscal years beginning
after December 15, 1997. This statement establishes standards for reporting
and display of comprehensive income and its components (revenues, expenses,
gains and losses) in a full set of general-purpose financial statements. This
statement requires that all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed with the same prominence as other
financial statements. The Company adopted SFAS No. 130 on January 1, 1998, and
all annual required disclosures have been included beginning with the Company's
1998 Form 10-K Annual Report.
The Company's comprehensive income for September 30, 1999 and 1998 is as
follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Nine Months Ended September 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Net Income $871,729 $811,619 $2,450,367 $2,361,485
Unrealized gain(loss) on securities
available for sale, net of tax (195,767) 158,160 (899,878) 166,231
$675,962 $969,779 $1,550,489 $2,527,716
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to assist in the
understanding and evaluation of the Company's financial condition and results
of operations. It is intended to complement the unaudited financial
statements, footnotes, and supplemental financial data appearing elsewhere in
this Form 10-Q and should be read in conjunction therewith.
<PAGE>
Forward-looking statements have been made in this document that are subject to
risks and uncertainties. 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 Part I of the Company's Form 10-K for the year ended
December 31, 1998 and, from time to time, in the Company's other filings with
the Securities and Exchange Commission.
BALANCE SHEET
At September 30, 1999, total assets were $297,362,084, an increase of
$24,576,084, or 9.0%, over September 30, 1998, while assets grew $16,883,264
over December 31, 1998. Gross loans were $208,814,250 at September 30, 1999,
growing $18,390,626 over third quarter 1998 and $18,861,908 over fourth
quarter 1998. Loan growth has come primarily from commercial and real estate
loans.
<TABLE>
Period End Loan Composition
<CAPTION>
September 30 % of Dec. 31 % of
1999 total 1998 total
<S> <C> <C> <C> <C>
Commercial and financial $41,480,097 19.86% $32,585,187 17.07%
Construction Loans 3,486,337 1.67% 3,454,784 1.81%
Agricultural 39,035,398 18.69% 36,102,365 18.91%
Real estate 113,556,057 54.38% 107,482,454 56.30%
Installment 10,925,685 5.24% 10,962,459 5.74%
Lease financing 330,676 0.16% 316,743 0.17%
Total loans (including loans held for sale) $208,814,250 100.00% $190,903,992 100.00%
</TABLE>
The loan portfolio is the Company's primary asset subject to credit risk. The
Company's process for monitoring credit risks includes weekly analysis of loan
quality, 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. The decision of management to place loans in this category does
not necessarily mean that the Company expects losses to occur but that
management recognizes that a higher degree of risk is associated with these
loans.
<PAGE>
The aggregate amount of non-performing assets was approximately $2,366,185 and
$2,148,136 at September 30, 1999, and 1998, 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, $59,493 of interest income would have been recorded for the three
months ended September 30, 1999. Interest income actually collected and
recorded was $37,767.
<TABLE>
Allowance for Credit Losses and Nonperforming Assets
<CAPTION>
Nine Months Ended
September 30, 1999 September 30, 1998
<S> <C> <C>
Allowance for credit losses at
beginning of period $2,159,145 $1,990,090
Provision Charged to Operating Expense 120,000 360,000
Recoveries on Loans 57,254 71,157
Loans Charged off (71,856) (288,718)
Allowance for losses at end of period $2,264,542 $2,132,529
NONPERFORMING ASSETS
Nonaccrual loans $1,952,518 $1,881,965
Accruing loans past due
90 days or more 23,037 $20,732
Restructured loans 390,630 $245,439
Total non-performing
loans $2,366,185 $2,148,136
Other real estate owned $158,725 $90,473
</TABLE>
Management is not aware of any additional loans that represent material credits
or of any information that causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet the Company's need for cash. The Company manages its liquidity to
provide adequate funds to support borrowing needs 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 September 30, 1999, the carrying value of debt securities
maturing within one year amounted to $3,064,740 or 5.0% of the total debt
securities portfolio. The Company also holds $2,397,180 in marketable equity
securities. The Company attempts, when possible, to match relative maturities
of assets and liabilities, while maintaining the desired net interest margin.
Marketable assets maturing within one year will continue to be the primary
source of liquidity along with stable earnings, and strong capital position.
<PAGE>
In response to slow deposit growth to meet loan demand the Company has acquired
more non-core funds. The primary funding sources utilized are Federal Home
Bank advances, federal funds purchased, repurchase agreements from a base of
individuals, businesses, and public entities, and brokered CDs.
CAPITAL RESOURCES
Stockholders' equity at September 30, 1999 decreased to $28,299,989 compared to
$29,334,761 at September 30, 1998. The change in equity between the two
periods was primarily composed of the payment of dividends, and the repurchase
of common stock. In January 1999, the Company repurchased 39,304 shares of
common stock at $27.50 per share. Stockholders' equity included unrealized
gains (losses), net of tax, on securities available for sale of ($440,446) at
September 30, 1999 compared to $514,488 for the comparable prior year period.
Tangible equity to assets at June 30, 1999 was 8.83%, with the Tier 1 leverage
ratio at 12.13%.
Cash dividends of $0.20 per share were paid in the third quarter of 1999,
representing a payout ratio of 41.83% for the quarter.
The adequacy of the Company's capital is regularly reviewed to ensure
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. As September 30, 1999, the Company's
tier 1 risk-based capital ratio, total risk-based capital, and tier 1 leverage
ratio were well in excess of regulatory minimums.
RESULTS OF OPERATIONS
Net income for the quarter ended September 30, 1999 totaled $871,729, or $.48
for basic and diluted earnings per share. Comparatively, net income for the
quarter ended September 30, 1998 was $811,619, or $.44 for basic and diluted
earnings per share. Operating results for the third quarter 1999 generated an
annualized return on average assets of 1.20% and an annualized return on
average equity of 12.46%, compared to 1.18% and 11.32% for the comparable
period in 1998. The net interest margin for third quarter 1999 was 4.48 %
compared to 4.54% for the comparable quarter in 1998.
<PAGE>
<TABLE>
Summary Results of Operations
<CAPTION>
(Dollars in thousands, 1999 1998
except per share amounts) Third Second First Fourth Third
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest revenue $2,871 $2,864 $2,717 $2,813 $2,789
Provision for credit losses 60 60 60 150
Other noninterest income 479 546 569 532 520
Other noninterest expense 2,179 2,159 2,162 1,978 1,960
Net income 872 831 748 887 812
Per common share
Basic and diluted earnings 0.48 0.45 0.40 0.48 0.44
Dividends declared 0.20 0.60 0.17 0.34 0.17
Book Value 15.52 15.35 15.83 15.89 15.79
Average common shares (000's) 1,827 1,827 1,860 1,861 1,863
Dividend payout ratio 41.83% 131.64% 41.42% 71.36% 38.92%
Balance Sheet Summary:
At quarter end:
Loans net of unearned income 208,815 198,149 186,509 189,952 190,424
Assets 297,362 281,821 277,645 280,479 272,786
Deposits 222,470 217,400 217,777 222,322 211,135
Shareholders equity 28,300 27,989 28,827 29,570 29,335
Average balances:
Loans net of unearned income 204,237 194,757 188,401 193,201 193,313
Assets 290,405 280,373 279,234 278,588 275,710
Deposits 224,470 218,610 221,844 217,738 216,107
Shareholders equity 27,989 28,443 28,814 29,323 28,690
Performance Ratios:
Return on average assets 1.20% 1.19% 1.07% 1.27% 1.18%
Return on average common equity 12.46% 11.69% 10.38% 12.10% 11.32%
Tangible Equity to assets 8.92% 9.38% 9.53% 9.72% 9.57%
Total risk-based capital 13.16% 13.67% 14.37% 15.11% 15.05%
Net loan charge-offs as a percentage
of average loans 0.01% 0.01% 0.02% 0.02% 0.09%
Nonperforming assets as a percentage
of loans and other real estate 0.93% 0.94% 0.59% 0.75% 0.99%
Net interest margin 4.48% 4.57% 4.52% 4.49% 4.54%
Efficiency ratio(1) 62.81% 60.24% 63.53% 57.10% 57.49%
Fee revenue as a percentage of
average assets 0.16% 0.19% 0.20% 0.18% 0.17%
Stock Price Information:
High $27.375 $27.375 $27.375 $27.50 $30.00
Low 27.375 27.375 25.50 23.00 27.50
Market value at quarter end (2) 27.375 27.375 27.375 26.00 30.00
<FN>
(1) Net interest margin was tax adjusted for the periods presented.
(2) Market value at quarter end represents the average of bid and asked prices.
The quotations reflect prices, without retail mark-up, markdown or commissions,
and may not necessarily represent actual transactions.
</RABLE>
<PAGE>
NET INTEREST INCOME
Net interest income is the most significant component of earnings. Net interest
income for the three months ended September 30, 1999 was $2,871,003.
Comparatively, net interest income for the third quarter 1998 was $2,789,098.
Fully taxable equivalent net interest income for the third quarter 1999
increased $101,612 to $2,990,195 over third quarter 1998. Average earning
assets grew $12.6 million from the second quarter 1998. The net interest
margin for the third quarter was 4.48% or 6 basis points less than the 4.54%
margin in the third quarter 1998.
</TABLE>
<TABLE>
Net Interest Income Analysis
<CAPTION>
Three months ended Three months ended
September 30, 1999 September 30, 1998
Average Interest Average Average Interest Average
Balance Income/expense Yield/Rate Balance Income/expense Yield/Rate
<S> <C> <C> <C> <C> <C> <C>
Assets
Interest earning assets:
Loans 199,768,489 $4,356,239 8.72% 188,755,589 $4,382,182 9.29%
Tax Exempt Loans 4,468,773 85,291 7.63% 4,557,219 89,455 7.85%
Taxable Investments 46,322,446 725,855 6.27% 44,006,870 707,736 6.43%
Municipal Investments-Txbl 375,000 6,609 7.05% 375,000 6,609 7.05%
Municipal Investments-TxEx 15,036,030 266,220 7.08% 10,869,204 204,637 7.53%
Equity Securities 1,354,022 20,102 5.94% 1,570,491 23,259 5.92%
Other Interest Income 187,734 2,052 4.37% 4,745,167 64,427 5.43%
Total $267,512,494 5,462,369 8.17% $254,879,540 5,478,305 8.60%
Non-interest earning assets:
Cash & cash equivalents 13,062,871 11,415,502
Premises & Equip-Net 6,710,550 5,426,604
Other assets 5,388,974 6,186,572
Less:Allow.for credit loss (2,269,911) (2,198,188)
Total $290,404,978 $275,710,030
Liabilities & Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand $56,979,685 $404,529 2.84% $55,501,644 $472,482 3.41%
Savings deposits 20,955,715 99,830 1.91% 20,617,877 117,280 2.28%
Time deposits 113,266,060 1,504,377 5.31% 113,372,956 1,653,325 5.83%
Short-term borrowings 25,924,895 274,025 4.23% 19,837,306 241,600 4.87%
Long-term borrowings 10,489,130 189,413 7.22% 7,369,565 105,035 5.70%
Total $227,615,485 $2,472,174 4.34% $216,699,34 $2,589,722 4.78%
Non-interest bearing liabilities
Demand deposits 31,268,158 26,614,821
Other liabilities 3,532,376 3,706,260
Stockholders' equity 27,988,959 28,689,601
Total $290,404,978 $275,710,030
Interest rate spread 3.83% 3.82%
Net interest income
and net interest margin $2,990,195 4.48% $2,888,583 4.54%
</TABLE>
<PAGE>
PROVISION FOR CREDIT LOSSES
Management determines the adequacy of the provision 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 $0 for the three months ended September 30,
1999, and $150,000 for the three months ended September 30, 1998. The
allowance for credit losses as a percentage of gross loans outstanding was
$2,264,542 or 1.10% of total loans on September 30, 1999, compared to
$2,159,145 or 1.14% of total loans on December 31, 1998. Net charge-offs as a
percentage of average loans outstanding were .01% and .09% during the three
months ended September 30, 1999 and 1998, respectively.
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, 95.7% at September 30, 1999 and 99.8% at December 31, 1998. 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.
NON-INTEREST INCOME
Non-interest income decreased 7.88% to $479,033 during the three months ended
September 30, 1999, from the comparable third quarter of 1998. There were no
gains or losses on securities during the three months ended September 30, 1999.
Trust service fees continue to increase with the growth in trust business
volume and assets managed by the Company's Trust Department. Fiduciary fees
increased $28,722 or 25.46% compared to the same quarter last year.
<TABLE>
Noninterest Income
<CAPTION>
3rd Quarter 3rd Quarter
1999 1998 Change Change
<S> <C> <C> <C> <C>
Service Fees $178,236 $186,775 (8,539) -4.57%
Trust Service Fees 141,530 112,808 28,722 25.46%
Investment product commissions 42,528 55,873 (13,345) -23.88%
Other operating income 116,739 164,576 (47,837) -29.07%
Total noninterest income $479,033 $520,032 (40,999) -7.88%
</TABLE>
<PAGE>
NON-INTEREST EXPENSE
Non-interest expenses increased 11.24% to $2,178,538 for the three months ended
September 30, 1999, from $1,958,427 for the three months ended September 30,
1998. All categories of noninterest expense increased, with the exception of
FDIC assessment, when compared to 1998.
Occupancy increased $81,654 or 23.63% over third quarter 1998, due to increase
in maintenance costs, and depreciation of furniture, and equipment. Other
operating increased $41,558 over third quarter 1998 primarily due to the
addition of the call center and related telephone expenses. The remaining
increase in other operating is due to various volume-related costs.
<TABLE>
Noninterest Expense
<CAPTION>
3rd Quarter 3rd Quarter
1999 1998 Change Change
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,135,909 $1,048,414 $87,495 8.35%
Occupancy 427,174 345,520 81,654 23.63%
Data Processing & Information Systems 22,136 16,407 5,729 34.92%
Goodwill & Core Deposit Intang Amortization 80,798 76,927 3,871 5.03%
FDIC Assessment 6,255 6,451 (196) -3.04%
Other operating 506,266 464,708 41,558 8.94%
Total noninterest expense $2,178,538 $1,958,427 $220,111 11.24%
Net realized loss on securities available
for sale - 1,250 (1,250) -100.000%
</TABLE>
YEAR 2000 ISSUES
READINESS
The Company's assessment of the possible consequences of Year 2000 issues on
the Company's consolidated financial condition, liquidity, and results of
operations is continuing in accordance with the Company's Year 2000 Project
Plan (the "Year 2000 Plan"). 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 term "Year 2000 readiness", or terms of similar
import, mean that the particular software or equipment referred to has been
modified or replaced and the Company believes that such modified or replaced
equipment or processes will operate as designed after 1999 without Year 2000
problems.
The Company's Technology Committee is monitoring Year 2000 issues and
implementing the Year 2000 Plan. The initial assessment and inventory of all
software, hardware, interfaces, and other date sensitive systems was completed
in September 1997. Compliance audits conducted by the FDIC in December 1997
and by an independent third party in July 1998 indicated Year 2000 readiness.
A phase II Year 2000 audit was performed in February 1999 by the FDIC also
indicated Year 2000 readiness.
<PAGE>
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. The Company has been informed by all such vendors that the
software used by the Company is Year 2000 ready. The Company will continue to
monitor vendor certifications and take other steps as deemed appropriate to
address Year 2000 issues.
The Company has also reviewed its non-information technology systems. Non-
information technology systems include equipment in use in the business areas,
which are not defined as computer hardware or peripheral devices. The Company
has contacted vendors of non-information systems to determine Year 2000
compliance of these systems. The Company believes these non-information
systems to be Year 2000 ready.
Inquiries have been made of the Company's key correspondent banks requesting
information on the status of their Year 2000 compliance. Surveys and letters
have been mailed to commercial customers 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 have
been or 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.
COSTS
Replacement of hardware and software that was identified as non-Year 2000
compliant began in early 1998. The cost of such equipment is capitalized over
its useful life. All other costs associated with Year 2000 issues are being
expensed as incurred. Internal costs for Year 2000 readiness are not being
tracked, but principally relate to payroll costs of Company personnel. 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 consolidated financial condition, liquidity, or results
of operations. 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 ready. While the
Company believes that such efforts will result in Year 2000 readiness 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 ready, the Company could suffer a
material adverse affect. Similarly, while the Company faces potential
disruptions in its operations from Year 2000 problems as a result of the
failure of the power grid, telecommunications, or other utilities, it is not
aware that any material disruption in these infrastructures is reasonably
likely to occur.
<PAGE>
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 or reducing the nonloan portion of its
customers' banking business. Approximately 54% 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 20% and 19% respectively, of the loans outstanding, but
also represent a diverse customer base. The Bank has increased its credit loss
reserve for potential Year 2000 risk.
To the extent the Company incurs losses arising from the interruption of its
business or claims by its customers or vendors as a result of Year 2000
problems, it may have insurance coverage. The scope and amount of such
insurance reimbursement for such losses will depend upon the nature of any
claims which may arise.
CONTINGENCY PLANS
The Company has prepared a business impact analysis to identify mission
critical issues and developed a business resumption contingency plan for
continued operations in the event of failure of one of its major systems. This
business resumption contingency plan is similar, and in some cases, identical,
to those in place for the Company's overall business recovery plan that would
be used in the event of any type of disaster.
An overall Y2K contingency plan was submitted to the FDIC in June 1999. It
covers all aspects of bank operations. The different areas that were addressed
are as follows:
A) Emergency Preparedness Plan
B) Technology Disaster Recovery Plan
C) Administration Y2K Plan
D) Bank Investments Y2K Cont. Plan
E) Bookkeeping/Deposits Y2K Cont. Plan
F) Branch Y2K Checklists
G) Cash Y2K Contingency Plan
H) Human Resources Y2K Cont. Plan
I) Loan Department Y2K Cont. Plan
J) Marketing Y2K Contingency Plan
K) Telecommunications Cont. Plan
L) Teller Operations Y2K Cont. Plan
M) Trust/Investment Y2K Cont. Plan
ACCOUNTING DEVELOPMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 133, " Accounting for Derivative Instruments and
Hedging Activities" (FASB133). 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.
<PAGE>
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 resulting designation. Adoption of the
standard is required for the Company'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.
<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 (b) (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, 1998, as filed with the
Commission on March 29, 1999.
(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 12, 1999 GENE C. KNOLL
Gene C. Knoll, President
(Principal Executive Officer)
Date November 12, 1999 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, 1999
Pursuant to Section 102(d), Regulation S-T
(17 C.F.R. <section>232.102(d))
Exhibit 27. Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Sep-30-1999
<CASH> 14,438
<INT-BEARING-DEPOSITS> 192,511
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 63,892
<INVESTMENTS-CARRYING> 63,892
<INVESTMENTS-MARKET> 63,892
<LOANS> 206,550
<ALLOWANCE> (2,265)
<TOTAL-ASSETS> 297,362
<DEPOSITS> 223,894
<SHORT-TERM> 27,018
<LIABILITIES-OTHER> 3,150
<LONG-TERM> 15,000
0
0
<COMMON> 182
<OTHER-SE> 28,118
<TOTAL-LIABILITIES-AND-EQUITY> 297,362
<INTEREST-LOAN> 4,412
<INTEREST-INVEST> 929
<INTEREST-OTHER> 2
<INTEREST-TOTAL> 5,343
<INTEREST-DEPOSIT> 2,009
<INTEREST-EXPENSE> 2,472
<INTEREST-INCOME-NET> 2,871
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,179
<INCOME-PRETAX> 1,171
<INCOME-PRE-EXTRAORDINARY> 1,171
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 872
<EPS-BASIC> 0.48
<EPS-DILUTED> 0.48
<YIELD-ACTUAL> 7.99
<LOANS-NON> 1,953
<LOANS-PAST> 23
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 424
<ALLOWANCE-OPEN> 2,159
<CHARGE-OFFS> 21
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 2,265
<ALLOWANCE-DOMESTIC> 2,265
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
