UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 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 0-21554
DENMARK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1472124
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
103 East Main Street, Denmark, Wisconsin 54208-0130
(Address of principal executive offices)
(920) 863-2161
(Registrant's telephone number, including area code)
___________________________________________________________________________
(Former name, address and 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 [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class July 29, 1998
Common Stock 54,858
(no par value)
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report On Form 10-Q
For The Quarter Ended June 30, 1998
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibit 27 -- Financial Data Schedule N/A
Signatures 12
Page 2
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, December 31,
1998 1997
(UNAUDITED)
Assets ------------ ------------
Cash and due from banks $7,472,139 $7,019,405
Federal funds sold 10,256,000 7,112,000
Investment securities
Available-for-sale, at fair value 12,806,575 14,686,550
Held-to-maturity, at cost 19,014,829 17,139,353
Total Investment Securities $31,821,404 $31,825,903
Loans
Commercial 58,165,254 53,902,888
Real estate 130,947,387 128,376,524
Installment 16,901,807 16,623,280
Other 884,058 656,280
Total Loans $206,898,506 $199,558,972
Allowance for credit losses (2,999,524) (2,825,921)
Net Loans $203,898,982 $196,733,051
Premises and equipment, net 3,175,589 3,277,168
Accrued interest receivable 1,541,440 1,388,253
Other assets 4,268,392 4,318,200
TOTAL ASSETS $262,433,946 $251,673,980
============ ============
Liabilities
Deposits
Non-interest bearing $24,252,835 $19,494,350
Interest bearing 168,673,210 169,634,759
Total Deposits $192,926,045 $189,129,109
Other borrowed funds $38,532,102 $32,772,251
Accrued interest payable 1,203,866 1,419,470
Other liabilities 882,218 614,076
Total Liabilities $233,544,231 $223,934,906
------------ ------------
Stockholders' Equity
Common stock, no par value
authorized 320,000 shares; 54,858
and 54,875 outstanding respectively $10,336,295 $10,336,295
Paid in capital 37,384 37,384
Treasury stock (251,180) (236,058)
Retained earnings 18,761,968 17,653,233
Accumulated other comprehensive income
Unrealized gains (losses) on securities 5,248 (51,780)
Total Stockholders' Equity $28,889,715 $27,739,074
----------- -----------
TOTAL LIABILITIES AND EQUITY $262,433,946 $251,673,980
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Quarter Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
Interest Income ----------- ----------- ---------- -----------
Loans including fees $4,579,523 $3,895,558 $8,927,935 $7,708,463
Interest and dividends on
investment securities
Taxable 202,268 183,931 451,770 382,537
Exempt from federal tax 318,105 321,874 622,941 642,534
Federal funds sold 116,686 391 214,801 4,246
----------- ---------- ----------- -----------
Total Interest Income $5,216,582 $4,401,754 $10,217,447 $8,737,780
Interest Expense ----------- ----------- ----------- -----------
Deposits $2,120,507 $1,655,715 $4,246,260 $3,244,277
Short-term borrowings 327,952 450,338 654,823 864,255
Long-term borrowings 211,790 150,497 391,552 298,808
----------- ----------- ---------- -----------
Total Interest Expense $2,660,249 $2,256,550 $5,292,635 $4,407,340
----------- ----------- ---------- -----------
Net interest income $2,556,333 $2,145,204 $4,924,812 $4,330,440
Provision for Credit Losses 82,500 87,000 165,000 174,000
----------- ----------- ---------- -----------
Net interest income after
provision $2,473,833 $2,058,204 $4,759,812 $4,156,440
Noninterest Income
Service fees and commissions $191,013 $196,117 $370,446 $338,918
Other 44,783 39,276 90,772 77,307
----------- ----------- ---------- -----------
Total Noninterest Income $235,796 $235,393 $461,218 $416,225
----------- ----------- ---------- -----------
Noninterest Expense
Salaries and employee benefits $1,024,494 $907,198 $2,044,908 $1,785,312
Occupancy expenses 160,759 142,211 321,267 289,276
Data processing expenses 79,696 73,819 168,161 141,831
Amortization of intangibles 51,646 4,641 104,522 9,480
Other operating expenses 306,443 311,069 562,046 553,983
----------- ----------- ---------- -----------
Total Noninterest $1,623,038 $1,438,938 $3,200,904 $2,779,882
Expense
----------- ----------- ---------- -----------
Income before income taxes $1,086,591 $854,659 $2,020,126 $1,792,783
Income tax expense 315,715 223,081 568,529 477,303
----------- ----------- ---------- -----------
NET INCOME $770,876 $631,578 $1,451,597 $1,315,480
=========== =========== ========== ===========
Per Share
Net income $14.05 $11.49 $26.46 $23.93
Dividends declared $0.00 $0.00 $6.25 $5.75
Weighted average shares outstanding 54,867 54,964 54,870 54,966
The accompanying notes are an integral part of these financial statements.
Page 4
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended
June 30, June 30,
1998 1997
Cash flows from operating activities: ------------ ------------
Net Income $1,451,598 $1,315,480
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $170,331 $155,331
Provision for credit losses 165,000 174,000
Amortization of intangibles 104,522 9,480
Amortization of bond premium 21,916 29,788
Accretion of bond discount (307,397) (310,334)
Increase in interest receivable (153,187) (222,283)
(Decrease) increase in interest payable (215,604) 81,702
Other, net 170,093 84,106
------------ ------------
Net cash provided by operating activities $1,407,272 $1,317,270
------------ ------------
Cash flows from investing activities:
Maturities of held-to-maturity securities $24,784 $123,618
Maturities of available-for-sale securities 2,091,633 1,328,083
Purchases of held-to-maturity securities (1,629,475) 0
Purchases of available-for-sale securities (110,200) (2,473,059)
Federal funds sold, net (3,144,000) 797,000
Net increase in loans made to customers (7,330,931) (8,753,815)
Capital expenditures (68,753) (175,607)
------------ ------------
Net cash used by investing activities ($10,166,942) ($9,153,780)
------------ ------------
Cash flows from financing activities:
Net increase in deposits $3,796,937 $7,043,061
Purchases of treasury stock (15,122) (6,350)
Dividends paid (329,262) (302,390)
Debt proceeds 11,595,960 12,689,715
Debt repayment (5,836,109) (11,738,141)
Securities sold under repurchase agreements 0 2,000,000
------------ ------------
Net cash provided by financing activities $9,212,404 $9,685,895
------------ ------------
Net increase in cash and cash equivalents 452,734 1,849,385
Cash and cash equivalents, beginning 7,019,405 6,063,954
------------ ------------
CASH & CASH EQUIVALENTS, ENDING $7,472,139 $7,913,339
============ ============
The accompanying notes are an integral part of these financial statements.
Page 5
DENMARK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The consolidated financial statements included herein are unaudited. In the
opinion of management, these statements contain all adjustments necessary to
present fairly the financial position of Denmark Bancshares, Inc. (the
"Company"), the results of operations and cash flows for the periods presented.
All adjustments necessary for the fair presentation of the financial statements
are of a recurring nature. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report on Form 10-KSB.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available-for-sale
were as follows:
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ----------- -----------
U.S. Government agencies $1,596 $0 $15 $1,581
Mortgage-backed securities 9,865 37 12 9,890
Equity securities 1,336 0 0 1,336
----------- ----------- ---------- -----------
$12,797 $37 $27 $12,807
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
U.S. Government agencies $2,744 $0 $79 $2,665
Mortgage-backed securities 10,688 35 33 10,690
Equity securities 1,332 0 0 1,332
----------- ----------- ---------- -----------
$14,764 $35 $112 $14,687
The amortized cost and estimated fair value of securities held-to-maturity were
as follows:
June 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
State and local governments $19,015 $1,568 $7 $20,576
----------- ----------- ---------- -----------
December 31, 1997
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
State and local governments $17,139 $1,685 $0 $18,824
----------- ----------- ---------- -----------
Page 6
DENMARK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The amortized cost and estimated fair values of securities at June 30, 1998,
by maturity were as follows:
Available-for-Sale Held-to-Maturity
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- --------- --------- ---------
Due in 1 year or less $1,815 $1,800 $671 $688
Due from one to five years 9,453 9,479 7,232 8,013
Due from five to ten years 193 192 6,446 6,861
Due after ten years 0 0 4,666 5,014
Equity securities 1,336 1,336 0 0
---------- --------- ---------- -----------
Total $12,797 $12,807 $19,015 $20,576
Mortgage-backed securities are allocated according to their expected
prepayments rather than their contractual maturities.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for credit losses were as follows:
For the Six Months Ended For the Year Ended
June 30, June 30, December 31,
1998 1997 1997
----------- ----------- -----------------
Balance, beginning of period $2,825,921 $2,506,728 $2,506,728
Provision charged to operations 165,000 174,000 351,000
Recoveries 19,960 14,154 28,775
Charge-offs (11,357) (42,683) (60,582)
----------- ----------- -----------------
Balance, end of period $2,999,524 $2,652,199 $2,825,921
=========== =========== =================
NOTE 4 - PER SHARE COMPUTATIONS
per share computations are based on the weighted average number of
common shares outstanding during the reporting periods presented.
Per share information has been adjusted to reflect the 2-for-1 stock
split effective July 1, 1997.
Page 7
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Highlights
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
1998 1998 1997 1997 1997
(In thousands) --------- --------- --------- -------- --------
Operating Results
Interest income $5,217 $5,001 $4,990 $4,735 $4,402
Interest expense 2,661 2,632 2,627 2,508 2,257
Net interest income 2,556 2,369 2,363 2,227 2,145
Provision for credit losses 82 83 90 87 87
Noninterest income 236 225 203 200 235
Noninterest expense 1,623 1,578 1,513 1,625 1,439
Net income 771 681 689 546 632
Per Share Data
Net income per share $14.05 $12.41 $12.56 $9.95 $11.49
(In thousands)
Financial Condition (1)
Loans $206,899 $202,284 $199,559 $194,462 $183,940
Allowance for credit losses 3,000 2,908 2,826 2,730 2,652
Investment securities 31,821 31,916 31,826 31,983 29,956
Assets 262,434 251,267 251,674 243,967 225,004
Deposits 192,926 188,513 189,129 181,228 157,460
Other borrowed funds 38,532 32,258 32,772 33,387 36,864
Stockholders' equity 28,890 28,131 27,739 27,070 26,930
Financial Ratios
Return on average equity 10.69% 9.70% 9.98% 8.04% 9.47%
Return on average assets 1.20% 1.09% 1.12% 0.93% 1.16%
Interest rate spread 3.41% 3.21% 3.23% 3.17% 3.27%
Average equity to average assets 11.27% 11.19% 11.20% 11.53% 12.29%
Allowance for credit losses
to total loans (1) 1.45% 1.44% 1.42% 1.40% 1.44%<PAGE>
(1) As of the period ending.
Page 8
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net income for the quarter ended June 30, 1998, was $770,876, or $14.05 per
share, an increase of $139,298 or 22%, compared to $631,578, or $11.49 per
share, for the corresponding period in 1997. This increase was primarily the
result of an increase in net interest income which more than offset increases
in noninterest expenses.
Net interest income for the quarter ended June 30, 1998, was $2,556,333, an
increase of $411,129 over the corresponding period in the prior year. The
following table sets forth a summary of the changes in interest earned and
interest paid resulting from changes in volume and changes in rates:
Increase (Decrease)
Due to Change In
Average Average Total
(In thousands) Balance Rate Change
Interest income 655 160 815
Interest expense 385 19 404
--- ----- ---
Net interest income 270 141 411
This increase was primarily attributable to higher volume as average
earning assets during the second quarter of 1998 increased by $34.8 million and
average interest-bearing liabilities increased by $31.8 million compared to the
second quarter of 1997. The Company's average interest rate spread was 3.41%
during the second quarter of 1998 compared to 3.27% during the quarter ended
June 30, 1997. The yield on earning assets increased by fourteen basis points
while the cost of funds remained the same.
In the second quarter of 1998 the Company's provision for credit losses was
$82,500 compared to $87,000 for the second quarter of 1997. Net recoveries
were $9,118 in the second quarter of 1998 compared to net charge-offs
of $20,164 during the second quarter of 1997.
Noninterest expense increased by $184,100 or 13% during the three months
ended June 30, 1998, over the corresponding period in 1997. Salaries and
benefits expense increased $117,296 or 13% over the corresponding period in
1997. This increase is primarily attributed to the hiring eleven full-time
equivalent staff members and regular salary increases. Amortization of
intangibles expense increased by $47,005 as a result of the write-down of
intangible assets related to the acquisition of the branch bank. Occupancy
expenses increased by $18,548 primarily as a result of the additional branch
location.
Return on average assets in the second quarter of 1998 was 1.20%, compared
to 1.16% for the corresponding period in 1997. Return on average equity in the
second quarter of 1998 was 10.7%, compared to 9.5% for the corresponding period
in the prior year.
Page 9
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Total assets increased by $10,759,966 between December 31, 1997, and June
30, 1998. Federal funds sold increased by $3,144,000 during the six months
ended June 30, 1998. Loan demand continues to be strong as total loans
increased by $7,339,534 during the first six months of 1998. In addition, the
Bank sold $6.4 million of residential real estate loans to the secondary
mortgage market during the first six moinths.
The allowance for credit losses increased by $173,603 during the six month
period ended 30 1998. The allowance equals 1.45% of total loans at June 30
1998, compared to 1.42% at December 31, 1997. Nonaccrual loans totaled
$4,339,695 at June 30 1998, a decrease of $328,012 over December 31, 1997. The
Company's ratio of loans more than 30 days past due (including nonaccrual
loans) to total loans was 2.8% at June 30, 1998, compared to 3.3% at December
31, 1997.
Demand deposits increased $4,758,485 or 24.4% during the first six months of
1998. The increase in demand deposits is attributable to a new business
depositor with a balance of $6.3 million at June 30, 1998. This increase more
than offset the decrease in demand deposits due to a normal seasonal
fluctuation. Interest bearing deposits decreased by $961,549 or 1.0% between
December 31, 1997, and June 30, 1998. The decrease in interest bearing
deposits is primarily the result of a $3.4 million decrease in certificates of
deposit from a local school district. The funds were withdrawn as expected to
to fund construction of a new school. An additional $2.1 million of
certificates of deposit from the school are expected to be withdrawn during the
next four months.
Other borrowed funds increased by $5,759,851 or 17.6% during the first six
months of 1998. The Company borrowed long-term funds to offset the decrease in
certificates of deposit and to fund future loan growth.
Stockholders' equity increased by $1,150,641 to $28,889,715 as of June 30,
1998. As of June 30, 1998, the Company's leverage ratio was 10.2%, the
risk-based core capital ratio was 14.6% and the risk-based total capital ratio
was 15.8%. The Company and the Bank continue to maintain capital levels well
above the regulatory minimum levels.
Liquidity
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet the Company's needs for cash. Cash and cash equivalents increased
by $452,734 during the first six months of 1998. Loan repayments as well as
net cash provided by operating activities amounting to $1,407,272, the net
increase in deposits of $3,396,937 and the net increase of $5,759,851 in
borrowed funds, as shown in the Consolidated Statement of Cash Flows, were the
major sources of funds during the first six months of 1998. The net increase
in loans of $7,330,931 and the increase in federal funds sold of $3,144,000
were the major uses of cash during the first six months.
In addition to on-balance sheet sources of funds the Company also has
off-balance sheet sources available to meet liquidity needs. The Company has
unused lines of credit of $17 million as of June 30, 1998. The Company has
commitments to extend credit of $19.6 million as of June 30, 1998. Management
believes the Company's liquidity position as of June 30, 1998, is adequate
under current economic conditions.
Page 10
Part II -- Other Information
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Company held its Annual Meeting of Shareholders on April 28,
1998.
(b) Directors elected at the Annual Meeting were Terese M. DePrey, Mark
E. Looker and B.E. Mleziva, D.V.M. Directors whose term of office
continued after the meeting were Darrell R. Lemmens, James E.
Renier, C.J. Stodola, Norman F. Tauber and Thomas F. Wall.
(c) The matters voted upon and the results of the voting were as
follows:
(1) The shareholders elected the following nominees to the Board of
Directors to serve a three year term expiring in 2001:
Nominees For Withheld
Terese M. Deprey 47,214 10
Mark E. Looker 47,214 10
B.E. Mleziva, D.V.M. 47,214 10
(2) The ratification of the appointment of Williams, Young and
Associates, LLC as independent public accountants for the year
ending December 31, 1998.
For Against Abstain
47,102 20 102
Item 5. Other Information
The deadline for submission of shareholder proposals pursuant to Rule 14a-8
under the Securities Exchange Act of 1934, as amended, for inclusion in the
Company's proxy statement for its 1999 Annual Meeting of Shareholders is
November 30, 1998. Additionally, if the Company receives notice of a
shareholder proposal after February 14, 1999, the persons named in proxies
solicited by the Board of Directors of the Company for its 1999 Annual Meeting
of Shareholders may exercise discretionary voting power with respect to such
proposal.
Item 6. Exhibits
(a) Exhibit 27.0 Financial Data Schedule
Page 11
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.
DENMARK BANCSHARES, INC.
Date: July 29, 1998 /s/ Darrell R. Lemmens
Darrell R. Lemmens,
Principal Executive Officer,
Chairman of the Board,
and President
Date: July 29, 1998 /s/ Dennis J. Heim
Dennis J. Heim,
Vice President and Treasurer,
Principal Financial and
Accounting Officer
Page 12<PAGE>
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<ARTICLE> 9
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 7,472,139
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 10,256,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,806,575
<INVESTMENTS-CARRYING> 19,014,829
<INVESTMENTS-MARKET> 20,576,000
<LOANS> 206,898,506
<ALLOWANCE> 2,999,524
<TOTAL-ASSETS> 262,433,946
<DEPOSITS> 192,926,045
<SHORT-TERM> 38,532,102
<LIABILITIES-OTHER> 2,086,084
<LONG-TERM> 0
0
0
<COMMON> 10,336,295
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<INTEREST-TOTAL> 10,217,448
<INTEREST-DEPOSIT> 4,246,260
<INTEREST-EXPENSE> 5,292,635
<INTEREST-INCOME-NET> 4,924,813
<LOAN-LOSSES> 165,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,200,904
<INCOME-PRETAX> 2,020,127
<INCOME-PRE-EXTRAORDINARY> 2,020,127
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<NET-INCOME> 1,451,598
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