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 September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 0-21554
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 October 27, 1998
Common Stock 54,843
(no par value)
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report On Form 10-Q
For The Quarter Ended September 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 6. Exhibit 27 -- Financial Data Schedule N/A
Signatures 11
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1998 1997
(UNAUDITED)
Assets ------------- -------------
Cash and due from banks $6,971,198 $7,019,405
Federal funds sold 12,782,000 7,112,000
Investment securities
Available-for-sale, at fair value 16,581,165 14,686,550
Held-to-maturity, at cost 20,313,293 17,139,353
Total Investment Securities $36,894,458 $31,825,903
Loans
Commercial 59,404,188 53,902,888
Real estate 134,297,050 128,376,524
Installment 16,860,053 16,623,280
Other 734,604 656,280
Total Loans $211,295,895 $199,558,972
Allowance for credit losses (2,923,488) (2,825,921)
Net Loans $208,372,407 $196,733,051
Premises and equipment, net 3,278,045 3,277,168
Accrued interest receivable 1,527,296 1,388,253
Other assets 4,336,444 4,318,200
TOTAL ASSETS $274,161,848 $251,673,980
============= =============
Liabilities
Deposits
Non-interest bearing $27,403,331 $19,494,350
Interest bearing 176,743,069 169,634,759
Total Deposits $204,146,400 $189,129,109
Other borrowed funds $38,391,411 $32,772,251
Accrued interest payable 1,274,421 1,419,470
Other liabilities 610,404 614,076
Total Liabilities $244,422,636 $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 19,550,340 17,653,233
Accumulated other comprehensive income
Unrealized gains (losses) on securities 66,373 (51,780)
Total Stockholders' Equity $29,739,212 $27,739,074
------------- -------------
TOTAL LIABILITIES AND EQUITY $274,161,848 $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 Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Interest Income ---------- ---------- ----------- -----------
Loans including fees $4,656,928 $4,144,847 $13,584,863 $11,853,310
Interest and dividends on
investment securities
Taxable 187,740 197,179 639,510 579,716
Exempt from federal tax 351,921 325,017 974,862 967,551
Federal funds sold 145,886 68,417 360,687 72,663
---------- --------- ----------- -----------
Total Interest Income $5,342,475 $4,735,460 $15,559,922 $13,473,240
Interest Expense
Deposits $2,181,524 $1,975,113 $6,427,784 $5,219,390
Short-term borrowings 341,694 417,499 996,517 1,281,754
Long-term borrowings 217,442 115,612 608,994 414,420
---------- ---------- ----------- -----------
Total Interest Expense $2,740,660 $2,508,224 $8,033,295 $6,915,564
---------- ---------- ---------- -----------
Net interest income $2,601,815 $2,227,236 $7,526,627 $6,557,676
Provision for Credit Losses 82,500 87,000 247,500 261,000
---------- ---------- ---------- ----------
Net interest income after $2,519,315 $2,140,236 $7,279,127 $6,296,676
provision
Noninterest Income
Service fees and commissions $216,747 $164,558 $587,193 $503,476
Other 39,280 35,311 130,052 112,618
---------- --------- ---------- ----------
Total Noninterest Income $256,027 $199,869 $717,245 $616,094
---------- --------- ---------- ----------
Noninterest Expense
Salaries and employee benefits $1,058,377 $960,003 $3,103,285 $2,745,315
Occupancy expenses 160,655 148,530 481,922 437,806
Data processing expenses 73,978 83,792 242,139 225,623
Amortization of intangibles 52,834 37,177 157,356 46,657
Other operating expenses 331,431 395,051 893,477 949,034
---------- --------- ---------- ---------
Total Noninterest Expense $1,677,275 $1,624,553 $4,878,179 $4,404,435
---------- ---------- ---------- ----------
Income before income taxes $1,098,067 $715,552 $3,118,193 $2,508,335
Income tax expense 309,694 169,302 878,223 646,605
---------- --------- ---------- ----------
NET INCOME $788,373 $546,250 $2,239,970 $1,861,730
---------- --------- ---------- ----------
Per Share
Net income $14.37 $9.95 $40.83 $33.88
Dividends declared $0.00 $6.00 $6.25 $11.75
Weighted average shares 54,858 54,900 54,866 54,944
outstanding
The accompanying notes are an integral part of these financial statements.
Page 4
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities: ------------ ------------
Net Income $2,239,970 $1,861,730
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $256,497 $232,997
Provision for credit losses 247,500 261,000
Amortization of intangibles 157,356 46,657
Amortization of bond premium 32,843 44,081
Accretion of bond discount (469,268) (471,985)
Increase in interest receivable (139,043) (333,151)
(Decrease) increase in interest payable (145,049) 210,311
Other, net (net of acquisition of branch) 286,923 238,699
------------ ------------
Net cash provided by operating activities $2,467,729 $2,090,339
------------ ------------
Cash flows from investing activities:
Maturities of held-to-maturity securities $24,784 $295,756
Maturities of available-for-sale securities 3,986,648 1,548,780
Purchases of held-to-maturity securities (2,774,475) (180,000)
Purchases of available-for-sale securities (5,687,867) (4,588,516)
Net cash received from acquisition of branch bank 0 13,786,977
Federal funds sold, net (5,670,000) (5,180,000)
Net increase in loans made to customers (12,086,856) (16,975,654)
(net of acquisition of branch bank)
Capital expenditures (net of acquisition of branch) (257,374) (238,425)
------------ ------------
Net cash used by investing activities ($22,465,140) ($11,531,082)
------------- ------------
Cash flows from financing activities:
Net decrease in deposits (net of acquisition of $15,017,291 $11,732,581
branch)
Purchases of treasury stock (15,122) (65,291)
Dividends paid (672,125) (618,433)
Debt proceeds 12,646,356 14,233,102
Debt repayment (7,027,196) (18,564,237)
Securities sold under repurchase agreements 0 1,806,006
------------ ------------
Net cash provided by financing activities $19,949,204 $8,523,728
------------ ------------
Net decrease in cash and cash equivalents (48,207) (917,015)
Cash and cash equivalents, beginning 7,019,405 6,063,954
------------ ------------
CASH & CASH EQUIVALENTS, ENDING $6,971,198 $5,146,939
============ ============
Supplemental schedule of noncash investing
and financing activities:
Loans transferred to other real estate $200,000 $0
============ ============
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:
September 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- --------- -----------
U.S. Government agencies $5,000 $0 $0 $5,000
Mortgage-backed securities 9,457 104 0 9,561
Equity securities 2,020 0 0 2,020
----------- ----------- --------- -----------
Total $16,477 $104 $0 $16,581
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
----------- ----------- --------- -----------
Total $14,764 $35 $112 $14,687
The amortized cost and estimated fair value of securities held-to-maturity were
as follows:
September 30, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- --------- -----------
State and local governments $20,313 $1,825 $1 $22,137
----------- ----------- --------- -----------
Total $20,313 $1,825 $1 $22,137
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
----------- ----------- --------- -----------
Total $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 September 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 $19 $19 $1,390 $1,398
Due from one to five years 13,858 13,957 6,635 7,391
Due from five to ten years 580 585 6,940 7,505
Due after ten years 0 0 5,348 5,843
Equity securities 2,020 2,020 0 0
----------- ----------- ----------- -----------
Total $16,477 $16,581 $20,313 $22,137
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 Year
For the Nine Months Ended Ended
September 30, December 31,
1998 1997 1997
----------- ----------- ----------
Balance, beginning of period $2,825,921 $2,506,728 $2,506,728
Provision charged to operations 247,500 261,000 351,000
Recoveries 47,141 20,280 28,775
Charge-offs (197,074) (57,884) (60,582)
----------- ----------- ----------
Balance, end of period $2,923,488 $2,730,124 $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
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1998 1998 1998 1997 1997
(In thousands) --------- --------- -------- -------- --------
Operating Results
Interest income $5,342 $5,217 $5,001 $4,990 $4,735
Interest expense 2,740 2,661 2,632 2,627 2,508
Net interest income 2,602 2,556 2,369 2,363 2,227
Provision for credit losses 82 83 83 90 87
Noninterest income 256 236 225 203 200
Noninterest expense 1,677 1,623 1,578 1,513 1,625
Net income 788 771 681 689 546
Per Share Data
Net income per share $14.37 $14.05 $12.41 $12.56 $9.95
(In thousands)
Financial Condition (1)
Loans $211,296 $206,899 $202,284 $199,559 $194,462
Allowance for credit losses 2,923 3,000 2,908 2,826 2,730
Investment securities 36,894 31,821 31,916 31,826 31,983
Assets 274,162 262,434 251,267 251,674 243,967
Deposits 204,146 192,926 188,513 189,129 181,228
Other borrowed funds 38,391 38,532 32,258 32,772 33,387
Stockholders' equity 29,739 28,890 28,131 27,739 27,070
Financial Ratios
Return on average equity 10.71% 10.69% 9.70% 9.98% 8.04%
Return on average assets 1.20% 1.20% 1.09% 1.12% 0.93%
Interest rate spread 3.33% 3.41% 3.21% 3.23% 3.17%
Average equity to average assets 11.18% 11.27% 11.19% 11.20% 11.53%
Allowance for credit losses
to total loans (1) 1.38% 1.45% 1.44% 1.42% 1.40%
(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 September 30, 1998, was $788,373, or
$14.37 per share, an increase of $242,123 or 44%, compared to $546,250, or
$9.95 per share, for the corresponding period in 1997. This increase was
primarily the result of an increase in net interest income and higher
noninterest income which more than offset increases in noninterest expenses.
Third quarter 1997 results include substantially all of the costs incurred to
acquire the Reedsville Branch.
Net interest income for the quarter ended September 30, 1998, was
$2,601,815 an increase of $374,579 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 509 98 607
Interest expense 242 (10) 232
--- --- ---
Net interest income 267 108 375
This increase was primarily attributable to higher volume as average
earning assets during the third quarter of 1998 increased by $25.7 million and
average interest-bearing liabilities increased by $19.7 million compared to the
third quarter of 1997. An increase in the average interest rate spread also
contributed to the increase in net interest income. The Company's average
interest rate spread was 3.33% during the third quarter of 1998 compared to
3.17% during the quarter ended September 30, 1997. The yield on earning assets
increased by eleven basis points while the cost of funds decreased by five
basis points.
In the third quarter of 1998 the Company's provision for credit losses was
$82,500 compared to $87,000 for the third quarter of 1997. Net charge-offs
were $158,535 in the third quarter of 1998 compared to net charge-offs of
$9,075 during the third quarter of 1997. During the quarter ended September
30, 1998, the Bank charged-off loans totaling $157,127 to settle a pending
lawsuit. The loans were forgiven as part of a negotiated settlement reached
during a mediation conference.
Noninterest income for the three months ended September 30, 1998, was
$256,027, an increase of $56,158 over the corresponding period in 1997. This
increase is primarily the result of an increase of $53,001 in commissions from
the sales of annuities, mutual funds and property insurance and an increase of
$4,095 in appraisal fees.
Noninterest expense increased by $52,723 or 3% during the three months
ended September 30, 1998, over the corresponding period in 1997. Salaries and
benefits expense increased $98,374 or 10% over the corresponding period in
1997. This increase is primarily attributed to the hiring of additional staff
members and regular salary increases. Legal and professional fees decreased
$52,263. Third quarter 1997 legal and professional fees included the costs
incurred to acquire the Reedsville Branch. Amortization of intangibles expense
increased by $15,657 as a result of the write-down of intangible assets related
to the acquisition of the branch bank during the third quarter of 1997.
Return on average assets in the third quarter of 1998 was 1.20%, compared
to .93% for the corresponding period in 1997. Return on average equity in the
third quarter of 1998 was 10.7%, compared to 8.0% for the corresponding period
in the prior year.
Page 9
FINANCIAL CONDITION
Total assets increased by $22,487,868 between December 31, 1997, and
September 30, 1998. Federal funds sold increased by $5,670,000 and investment
securities increased by $5,068,555 during the nine months ended September 30,
1998. Loan demand continues to be strong as total loans increased by
$11,736,923 during the first nine months of 1998. In addition, the Bank sold
$10.2 million of residential real estate loans to the secondary mortgage market
during the first nine months.
The allowance for credit losses increased by $97,567 during the nine
months ended September 30, 1998. The allowance equals 1.38% of total loans at
September 30, 1998, compared to 1.42% at December 31, 1997. Nonaccrual loans
totaled $3,591,946 at September 30, 1998, a decrease of $1,075,761 over
December 31, 1997. The Company's ratio of loans more than 30 days past due
(including nonaccrual loans) to total loans was 2.4% at September 30, 1998,
compared to 3.3% at December 31, 1997.
Demand deposits increased $7,908,981 or 40.6% during the first nine months
of 1998. The increase in demand deposits is attributable to a new business
depositor with a balance of $8.5 million at September 30, 1998. Excluding the
funds of this depositor, demand deposits declined slightly due to a normal
seasonal fluctuation. Interest bearing deposits increased by $7,108,310 or
4.2% between December 31, 1997, and September 30, 1998.
Other borrowed funds increased by $5,619,160 or 17.2% during the first
nine months of 1998. The Bank borrowed long-term funds to accommodate the loan
growth.
Stockholders' equity increased by $2,000,138 to $29,739,212 as of
September 30, 1998. The Company and the Bank continue to maintain capital
levels well above the regulatory minimum levels. As of September 30, 1998, the
Company's leverage ratio was 10.6%, the risk-based core capital ratio was 14.5%
and the risk-based total capital ratio was 15.8%.
Historically, the Company's Board of Directors has held a meeting during
the third quarter of each calendar year and declared a semiannual dividend.
The Board of Directors did not meet during the third quarter of 1998. On
October 27, 1998, the Company's Board of Directors declared a semiannual $7.25
per share dividend payable on January 4, 1999, to all shareholders of record on
December 8, 1998.
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 decreased
by $48,207 during the first nine months of 1998. The federal funds sold
totaling $12.8 million and the available-for-sale investment portfolio
amounting to $16.6 million as of September 30, 1998, are readily convertible to
cash if needed.
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 $17.3 million as of September 30, 1998. The Company
has commitments to extend credit of $23.6 million as of September 30, 1998.
Management believes the Company's liquidity position as of September 30, 1998,
is adequate under current economic conditions.
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) Exhibit 27.0 Financial Data Schedule
Page 10
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: October 27, 1998 /s/ Darrell R. Lemmens
Darrell R. Lemmens,
Principal Executive Officer,
Chairman of the Board,
and President
Date: October 27, 1998 /s/ Dennis J. Heim
Dennis J. Heim,
Vice President and Treasurer,
Principal Financial and
Accounting Officer
Page 11
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<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 6,971,198
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 12,782,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,581,165
<INVESTMENTS-CARRYING> 20,313,293
<INVESTMENTS-MARKET> 22,137,000
<LOANS> 211,295,895
<ALLOWANCE> 2,923,488
<TOTAL-ASSETS> 274,161,848
<DEPOSITS> 204,146,400
<SHORT-TERM> 38,391,411
<LIABILITIES-OTHER> 1,884,825
<LONG-TERM> 0
0
0
<COMMON> 10,336,295
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<INTEREST-DEPOSIT> 6,427,784
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<EXPENSE-OTHER> 4,878,179
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<INCOME-PRE-EXTRAORDINARY> 3,118,193
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<NET-INCOME> 2,239,970
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