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 JUNE 30, 2000
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 (IRS Employer Identification No.)
of 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 June 30, 2000, there were 1,810,096 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
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
Three Months Ended June 30, 2000 and 1999
And Six Months Ended June 30, 2000 and 1999 4
Consolidated Statements of Changes in
Stockholders' Equity
Six Months Ended June 30, 2000 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 8-15
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of
Security Holders 16
Item 6. Exhibits and Reports of Form 8-K 17
Signatures 18
Exhibit Index 19
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
Mid-Wisconsin Financial Services, Inc.
And Subsidiary
Consolidated Balance Sheets
<CAPTION>
June 30, 2000 December 31, 1999
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $12,555,698 $16,400,484
Interest-bearing deposits in other financial institutions 18,639 16,628
Investment securities available for sale -at fair value 64,113,566 63,364,665
Loans held for sale 222,000 50,000
Loans receivable, net of allowance for credit losses of
$2,424,936 in 2000 and $2,285,675 in 1999 225,799,591 215,260,185
Accrued interest receivable 1,975,412 2,048,587
Premises and equipment 6,496,342 6,740,834
Goodwill and purchased intangibles 1,986,628 2,156,512
Other assets 1,741,014 1,645,693
TOTAL ASSETS $314,908,890 $307,683,588
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $28,513,325 $30,615,700
Interest-bearing deposits 203,117,522 199,554,383
Total Deposits 231,630,847 230,170,083
Short-term borrowings 34,761,478 25,919,665
Long term borrowings 17,000,000 20,000,000
Accrued expenses and other liabilities 3,345,016 3,095,203
Total Liabilities 286,737,341 279,184,951
Stockholders' equity:
common stock-par value $.10 per share:
Authorized - 6,000,000 shares in 2000 & 1999
Issued & outstanding - 1,810,096 shares in 2000 181,010
- 1,824,718 Shares In 1999 182,472
Additional paid-in capital 11,767,842 11,759,737
Retained earnings 17,069,537 17,356,953
Accumulated other comprehensive income, net of tax (846,840) (800,525)
Total Stockholders' Equity 28,171,549 28,498,637
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $314,908,890 $307,683,588
<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 Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Interest income
interest on investment securities:
Interest and fees on loans $5,008,071 $4,231,985 $9,722,329 $8,308,043
Taxable 801,176 755,651 1,604,366 1,485,333
Tax-exempt 204,504 160,880 396,734 321,896
Other interest and dividend income 4,773 19,444 30,646 113,103
Total interest income 6,018,524 5,167,960 11,754,075 10,228,375
Interest expense
Deposits 2,400,363 1,955,214 4,662,719 4,012,356
Short-term borrowings 480,709 293,578 803,684 499,274
Long-term borrowings 286,442 54,778 578,653 135,598
Total interest expense 3,167,514 2,303,570 6,045,056 4,647,228
Net interest income 2,851,010 2,864,390 5,709,019 5,581,147
Provision for credit losses 80,000 60,000 160,000 120,000
Net interest income after provision
for credit losses 2,771,010 2,804,390 5,549,019 5,461,147
Noninterest income:
Service fees 197,987 180,056 366,963 342,491
Trust service fees 165,507 143,469 331,374 278,590
Investment product commissions 57,329 84,338 146,184 144,316
Other operating income 133,893 138,524 255,710 349,911
Total noninterest income 554,716 546,387 1,100,231 1,115,308
Noninterest expenses:
Salaries and employee benefits 1,150,574 1,144,854 2,377,333 2,283,429
Occupancy 311,669 339,349 647,715 702,975
Data processing & information systems 115,719 113,294 227,909 204,216
Goodwill & core deposit intang amortization 84,941 80,799 169,883 161,597
Other operating 515,213 481,211 1,047,778 969,528
Total noninterest expenses 2,178,116 2,159,507 4,470,618 4,321,745
Income before income taxes 1,147,610 1,191,270 2,178,632 2,254,710
Provision for income taxes 326,435 360,312 608,764 676,072
Net income $821,175 $830,958 $1,569,868 $1,578,638
Basic and diluted earnings per share $0.45 $0.45 $0.87 $0.86
Cash dividends declared per share $0.60 $0.60 $0.80 $0.77
<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, 1999 $182,472 $11,759,737 $17,356,953 ($800,525) $28,498,637
Comprehensive income:
Net income 1,569,868 1,569,868
Unrealized gain on securities
available for sale, net of tax (46,315) (46,315)
Total comprehensive income 1,523,553
Proceeds from stock options 65 12,533 12,598
Repurchase of common stock (1,527) (4,428) (406,282) (412,237)
Cash dividends declared $.80
per share (1,451,002) (1,451,002)
Balance June 30, 2000 $181,010 $11,767,842 $17,069,537 ($846,840) $28,171,549
<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 Cash Flows
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
2000 1999
<S> <C> <C>
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $1,569,867 $1,578,638
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 593,803 621,766
Provision for credit losses 160,000 120,000
Proceeds from sales of loans held for sale 1,031,207 4,902,610
Gain on sale of loans held for sale (17,277) (68,335)
Originations of loans held for sale (1,185,930) (4,032,125)
(Gain) Loss on premises and equipment disposals (7,815) 12,235
Gain on sale of other real estate - (4,154)
Changes in operating assets and liabilities:
Other assets 12,604 96,292
Other liabilities 249,813 (161,079)
Net cash provided by operating activities 2,406,272 3,065,848
Cash flows from investing activities:
Available for sale securities:
Proceeds from maturities 6,214,852 16,090,833
Payment for purchases (7,029,607) (22,445,108)
Net (increase) decrease in loans (10,714,024) (8,436,631)
Net (increase) decrease in interest-bearing deposits
in other institutions (2,011) 23,247
Net decrease in federal funds sold - 9,223,000
Capital expenditures (180,545) (1,008,140)
Proceeds from sale of premises and equipment 7,815 -
Proceeds from sale of other real estate 525 19,942
Net cash used in investing activities (11,702,996) (6,532,857)
Cash flows from financing activities:
Net decrease in noninterest-bearing deposits (2,102,375) (1,669,238)
Net increase (decrease) in interest-bearing deposits 3,563,139 (3,252,372)
Proceeds from exercise of stock options 12,598 40,087
Payment for repurchase of common stock (412,236) (1,092,520)
Net increase (decrease) in short-term borrowing 8,841,813 5,005,832
Net increase (decrease) from issuance of long-term borrowings (3,000,000) 3,000,000
Dividends paid (1,451,002) (1,403,530)
Net cash provided by financing activities 5,451,937 628,259
Net increase (decrease) in cash and cash equivalents (3,844,786) (2,838,750)
Cash and cash equivalents at beginning 16,400,484 14,025,302
Cash and cash equivalents at end $12,555,698 $11,186,552
Supplemental cash flow information: 2000 1999
Cash paid during the year for:
Interest $5,996,430 $4,985,051
Income taxes $776,000 $792,591
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to other real estate $15,000 $223,027
Loans charged off $77,110 $51,467
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.
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 1999 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>
June 30, 2000 December 31, 1999
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 $13,197,015 $12,753,802 $12,947,539 $12,487,600
Mortgage Backed Securities 32,196,256 31,496,208 32,989,062 32,389,232
Oblig. to states & political subdivisions 17,606,693 17,390,231 16,276,194 16,046,592
Corporate Securities 575,000 575,000 575,000 574,400
Equity Securities 1,898,326 1,898,326 1,866,841 1,866,841
Totals $65,473,290 $64,113,567 $64,654,636 $63,364,665
</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>
Six Months Ended June 30,
2000 1999
<S> <C> <C>
Net income available to common
stockholders $1,569,868 $1,578,638
Weighted average shares outstanding 1,814,160 1,826,894
Basic earnings per share $0.87 $0.86
</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 June 30, 2000 and 1999 is as follows:
<TABLE>
<CAPTION>
Six Months Ended June 30,
2000 1999
<S> <C> <C>
Net Income $1,569,868 $1,578,638
Unrealized gain(loss) on securities
available for sale, net of tax (46,315) (704,111)
$1,523,553 $874,527
</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, 1999 and, from time to time, in the Company's other filings with
the Securities and Exchange Commission.
BALANCE SHEET
At June 30, 2000, total assets were $314,908,890, an increase of $33,088,364,
or 11.7%, over June 30, 1999, while assets grew $7,225,302 over December 31,
1999. Gross loans were $228,446,527 at June 30, 2000, growing $30,148,148 over
second quarter 1999 and $10,850,667 over fourth quarter 1999. Loan growth has
come primarily from commercial and real estate loans.
<TABLE>
Table 1: Period End Loan Composition
<CAPTION>
June 30 % of Dec. 31 % of
2000 total 1999 total
<S> <C> <C> <C> <C>
Commercial and financial $46,650,699 20.42% $43,360,501 19.93%
Construction Loans 3,909,480 1.71% 4,136,740 1.90%
Agricultural 40,490,497 17.72% 40,279,168 18.51%
Real estate 125,910,250 55.12% 118,640,913 54.52%
Installment 11,242,589 4.92% 10,931,389 5.03%
Lease financing 243,012 0.11% 247,149 0.11%
Total loans (including loans held for sale) $228,446,527 100.00% $217,595,860 100.00%
</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 loans decreased $395,774 to $1,533,688
at June 30, 2000 from $1,929,462 at June 30, 1999. The majority of the
decrease is due to a large commercial loan taken off nonaccrual status and
several non-performing real estate and agricultural loans paid-off. Non-
performing loans 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.
<TABLE>
Table 2: Allowance for Credit Losses and Nonperforming Assets
<CAPTION>
Six Months Ended
June 30, 2000 June 30, 1999
<S> <C> <C>
Allowance for credit losses at
beginning of period $2,285,675 $2,159,145
Provision Charged to Operating Expense 160,000 120,000
Recoveries on Loans 56,188 34,795
Loans Charged off (76,927) (50,849)
Allowance for losses at end of period $2,424,936 $2,263,091
NONPERFORMING ASSETS
Nonaccrual loans $1,234,242 $1,869,158
Accruing loans past due
90 days or more 18,626 47,405
Restructured loans 280,820 12,899
Total non-performing
Loans 1,533,688 1,929,462
Other real estate owned 84,813 262,880
Total nonperforming assets $1,618,501 $2,192,342
</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.
Deposit growth is the primary source of liquidity. Deposits as a percentage of
total funding sources were 82% for the first six months of 2000 and 87% for the
first six months of 1999. Wholesale funding represents the balance of the
Company's total funding needs.
The Company attempts, when possible, to match relative maturities of assets and
liabilities, while maintaining the desired net interest margin.
<PAGE>
In response to slow deposit growth, in comparison to loan demand, the Company
has acquired more non-core funds. The primary funding sources utilized are
Federal Home Loan Bank advances, federal funds purchased, repurchase agreements
from a base of individuals, businesses, and public entities, and brokered CDs.
CAPITAL RESOURCES
Stockholders' equity at June 30, 2000 increased to $28,171,549 compared to
$27,988,647 at June 30, 1999. The change in equity between the two periods was
primarily a result of the payment of dividends, and the 1999 common stock
tender offer. Stockholders' equity included unrealized gains (losses), net of
tax, on securities available for sale, net of their tax effect of ($846,840) at
June 30, 2000 compared to ($244,679) for the comparable prior year period.
Cash dividends of $0.60 per share were paid in the second quarter of 2000,
representing a payout ratio of 132.3% 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 of June 30, 2000 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.
<TABLE>
Table 3: Capital Ratios
<CAPTION>
Tier 1 Capital Total Capital
<S> <C> <C>
June 30, 2000 11.63% 12.67%
June 30, 1999 12.57% 13.67%
Regulatory minimum requirements
for well capitalized 4.00% 8.00%
</TABLE>
RESULTS OF OPERATIONS
Net income for the quarter ended June 30, 2000 totaled $821,175, or $.45 for
basic and diluted earnings per share. Comparatively, net income for the
quarter ended June 30, 1999 was $830,958, or $.45 for basic and diluted
earnings per share. Operating results for the second quarter 2000 generated an
annualized return on average assets of 1.05% and an annualized return on
average equity of 11.74%, compared to 1.19% and 11.69% for the comparable
period in 1999. The net interest margin for second quarter 2000 was 4.07 %
compared to 4.62% for the comparable quarter in 1999.
<PAGE>
<TABLE>
Table 4: Summary Results of Operations
<CAPTION>
(Dollars in thousands, 2000 1999
except per share amounts) Second First Fourth Third Second
<S> <C> <C> <C> <C> <C>
FINANCIAL HIGHLIGHTS:
Earnings and Dividends:
Net interest income $2,851 $2,858 $2,943 $2,871 $2,864
Provision for credit losses 80 80 60 0 60
Other noninterest income 555 546 512 479 547
Other noninterest expense 2,178 2,293 2,042 2,179 2,159
Net income 821 749 898 872 831
Per common share
Basic and diluted earnings 0.45 0.41 0.49 0.48 0.45
Dividends declared 0.60 0.20 0.20 0.20 0.60
Book Value 15.56 15.68 15.62 15.52 15.35
Average common shares (000's) 1,814 1,814 1,827 1,827 1,827
Dividend payout ratio 132.3% 48.7% 40.7% 41.8% 131.6%
Balance Sheet Summary:
At quarter end:
Loans net of unearned income 228,225 221,371 217,546 208,815 198,149
Assets 314,909 309,235 307,684 297,362 281,821
Deposits 231,631 232,137 230,170 223,894 217,400
Shareholders equity 28,172 28,368 28,499 28,300 27,989
Average balances:
Loans net of unearned income 225,681 218,564 214,263 204,237 194,757
Assets 313,327 307,118 302,851 290,405 280,373
Deposits 230,378 231,901 228,052 224,470 218,610
Shareholders equity 27,979 28,265 28,346 27,989 28,443
Performance Ratios:
Return on average assets 1.05% 0.98% 1.19% 1.20% 1.19%
Return on average common equity 11.74% 10.60% 12.67% 12.46% 11.69%
Tangible Equity to assets 8.34% 8.57% 8.70% 8.92% 9.38%
Total risk-based capital 12.67% 12.82% 12.93% 13.16% 13.67%
Net loan charge-offs as a percentage
of average loans 0.006% 0.004% 0.02% 0.01% 0.01%
Nonperforming assets as a percentage
of loans and other real estate 0.54% 0.29% 0.63% 0.93% 0.94%
Net interest margin 4.07% 4.17% 4.47% 4.48% 4.62%
Efficiency ratio(1) 61.62% 64.97% 57.08% 62.79% 61.22%
Fee revenue as a percentage of
average assets 0.17% 0.17% 0.23% 0.16% 0.19%
Stock Price Information:
High $27.00 $27.50 $27.50 $27.38 $27.38
Low 27.00 27.00 27.50 27.38 27.38
Market value at quarter end (2) 27.00 27.00 27.50 27.38 27.38
<FN>
(1) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a tax
rate of 34% for all periods presented.
(2) Market value at quarter end represents the bid price. The quotations reflect prices, without retail
mark-up, markdown or commissions, and may not necessarily represent actual transactions.
</TABLE>
<PAGE>
NET INTEREST INCOME
Net interest income is the most significant component of earnings. Net interest
income for the three months ended June 30, 2000 was $2,851,010. Comparatively,
net interest income for the second quarter 2000 was $2,864,390. Fully taxable
equivalent net interest income for the second quarter 2000 decreased $670 to
$2,979,616 from second quarter 1999. Average earning assets grew $34 million
from the second quarter 1999. The net interest margin for June 30, 2000 was
4.07% or 55 basis points less than the 4.62% margin in the second quarter 1999.
The net interest margin continues to decline due to the higher costs of
deposits needed to fund the balance sheet. Yields on earning assets increased
to 8.39% compared to 8.18% in 1999. However, the costs for interest bearing
deposits increased to 5.02% from 4.22%. The Company is trying to position more
assets to reprice with the market to maintain or increase the net interest
margin.
<TABLE>
Table 5: Net Interest Income Analysis
<CAPTION>
Three months ended Three months ended
June 30, 2000 June 30, 1999
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 (2) (3) $221,865,171 $4,961,622 8.95% $189,423,314 $4,166,298 8.80%
Tax Exempt Loans (1) 3,815,231 70,370 7.38% 5,333,754 99,516 7.46%
Taxable Investments 47,421,864 766,318 6.46% 46,133,746 726,486 6.30%
Municipal Investments-Txbl 375,000 6,610 7.05% 375,000 6,610 7.05%
Municipal Investments-TxEx (1) 17,222,601 309,824 7.20% 13,682,657 243,733 7.13%
Equity Securities 1,915,087 28,248 5.90% 1,837,453 22,555 4.91%
Other Interest Income 310,747 4,138 5.33% 1,630,640 18,658 4.58%
Total $292,925,701 $6,147,130 8.39% $258,416,564 $5,283,856 8.18%
Non-interest earning assets:
Cash & cash equivalents 12,271,192 11,625,138
Premises & Equip-Net 6,341,892 7,017,461
Other assets 4,197,289 5,543,278
Less:Allow.for ln loss (2,408,886) (2,229,396)
Total $313,327,188 $280,373,045
Liabilities & Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand $54,952,616 $494,289 3.60% $57,761,523 $394,677 2.73%
Savings deposits 19,716,275 98,309 1.99% 20,865,282 98,402 1.89%
Time deposits 126,544,825 1,807,765 5.71% 110,234,542 1,462,135 5.31%
Short-term borrowings 31,785,765 480,709 6.05% 23,341,380 293,578 5.03%
Long-term borrowings 19,406,593 286,442 5.90% 6,360,440 54,778 3.44%
Total $252,406,074 $3,167,514 5.02% $218,563,167 $2,303,570 4.22%
Non-interest bearing liabilities
Demand deposits 29,163,825 29,748,522
Other liabilities 3,778,723 3,618,634
Stockholders' equity 27,978,566 28,442,722
Total $313,327,188 $280,373,045
Interest rate spread (1) 3.37% 3.96%
Net interest income
and net interest margin (1) $2,979,616 4.07% $2,980,286 4.62%
<FN>
(1) The yield on tax-exempt loans and securities is computed on a tax- equivalent basis using a tax rate of 34% for all periods
presented.
(2) Nonaccrual loans have been included in the average balances.
(3) Interest income includes net loan fees.
</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
uncollectable, these amounts are promptly charged off against the allowance.
The provision for credit losses was $80,000 for the three months ended June 30,
2000, and $60,000 for the three months ended June 30, 1999. Net charge-offs as
a percentage of average loans outstanding were .0006% and .01% during the three
months ended June 30, 2000 and 1999, 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 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 increased 1.52% to $554,716 during the three months ended
June 30, 2000, from the comparable first quarter of 1999. There were no gains
or losses on securities during the three months ended June 30, 2000 and 1999.
Service fees on deposit accounts increased $17,931 for the three months ended
June 30, 2000 from the three months ended June 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 $22,038 or 15.36% compared to the same quarter last year. Investment
commissions decreased $27,009 or 32.02% compared to second quarter 1999.
Actually, the six month earnings for investment product commissions has changed
relatively little between 2000, $146,184 and 1999, $144,316.
<TABLE>
Table 6: Noninterest Income
<CAPTION>
2nd Quarter 2nd Quarter
2000 1999 Change Change
<S> <C> <C> <C> <C>
Service Fees $197,987 $180,056 $17,931 9.96%
Trust Service Fees 165,507 143,469 22,038 15.36%
Investment product commissions 57,329 84,338 (27,009) -32.02%
Other operating income 133,893 138,524 (4,631) -3.34%
Total noninterest income $554,716 $546,387 $8,329 1.52%
</TABLE>
<PAGE>
NON-INTEREST EXPENSE
Non-interest expenses increased .86% to $2,178,116 for the three months ended
June 30, 2000, from $2,159,507 for the three months ended June 30, 1999.
The FDIC assessment rate on deposits has doubled since the second quarter 1999
resulting in the increased expense in 2000. Equipment maintenance expense has
decreased over $20,000 in the second quarter 2000 over second quarter 1999.
<TABLE>
Table 7: Noninterest Expense
<CAPTION>
2nd Quarter 2nd Quarter
2000 1999 Change Change
<S> <C> <C> <C> <C>
Salaries and employee benefits $1,150,574 $1,144,854 $5,720 0.50%
Occupancy 311,669 339,349 (27,680) -8.16%
Data Processing & Information Systems 115,719 113,294 2,425 2.14%
Goodwill & Core Deposit Intang Amortization 84,941 80,799 4,142 5.13%
FDIC Assessment 11,868 6,498 5,370 82.64%
Other operating 503,345 474,713 28,632 6.03%
Total noninterest expense $2,178,116 $2,159,507 $18,609 0.86%
</TABLE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There was no material change in the information provided in response to Item 7A
of the Company's Form 10-K for the year ended December 31, 1999.
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders of the Company was held on April 25, 2000.
The matters voted upon, including the number of votes cast for, against, or
withhold, as well as the numbers of abstentions and broker non-votes, as to
each such matter were as follows:
<TABLE>
<CAPTION>
MATTER SHARES
Broker
Election of Directors For Against Withheld Abstain Non-Vote
<S> <C> <C> <C> <C> <C>
1 James P. Hager 1,284,117 N/A 70,877 N/A 0
2 Kathryn M. Hemmer 1,353,311 N/A 1,683 N/A 0
Gene C. Knoll 1,353,642 N/A 1,352 N/A 0
Kurt D. Mertens 1,354,234 N/A 760 N/A 0
Fred J. Schroeder 1,349,321 N/A 5,673 N/A 0
3 Approval of the 1999 Stock
Option Plan 1,096,062 134,595 N/A 42,316 0
4 Approval of the Employee
Stock Purchase Plan 1,129,430 123,603 N/A 16,484 0
5 Approval of appointment
of independent auditors 1,336,787 6,993 N/A 9,758 0
</TABLE>
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits required by Item 601 of Regulation S-K
The following exhibits are filed as part of this quarterly report on Form 10-Q.
4.1 Articles of Incorporation, as amended (incorporated by reference to
Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)
4.2 Bylaws, as amended September 20, 1995 (incorporated by reference to
Exhibit 3(b) to the Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1995)
10.1* Mid-Wisconsin Financial Services, Inc. 1991 Employee Stock Option Plan
(incorporated by reference to Exhibit 10(b) to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1995)
10.2* Mid-Wisconsin Financial Services, Inc. Directors Deferred Compensation
Plan as last amended January 12, 2000 (incorporated by reference to Exhibit
10(b) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999)
10.3* Executive Officer Employment and Severance Agreement (incorporated by
reference to Exhibit 10(d) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997)
10.4* Mid-Wisconsin Bank Senior Officer Incentive Bonus Plan (incorporated by
reference to Exhibit 10(f) to the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1997)
10.5* Director Retirement Benefit Policy (incorporated by reference to Exhibit
10(e) to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999)
10.6* 1999 TeamBank Bonus Plan (incorporated by reference to Exhibit 10(f) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended December
31, 1999)
10.7 Mid-Wisconsin Financial Services, Inc. Employee Stock Purchase Plan
10.8* Mid-Wisconsin Financial Services, Inc. 1999 Stock Option Plan
22.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995)
27.1 Financial Data Schedule
*Denotes Executive Compensation Plans and Arrangements
(b) Reports on Form 8-K.
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 August 11, 2000 GENE C. KNOLL
Gene C. Knoll, President
(Principal Executive Officer)
Date August 11, 2000 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 June 30, 2000
Pursuant to Section 102(d), Regulation S-T
(17 C.F.R. <section>232.102(d))
Exhibit 27 - Financial Data Schedule
