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 March 31, 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 April 28, 1998
Common Stock 54,871
(no par value)
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report On Form 10-Q
For The Quarter Ended March 31, 1998
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income and Comprehensive 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 11
Signatures 12
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
1998 1997
(UNAUDITED)
Assets ------------- -------------
Cash and due from banks $5,160,918 $7,019,405
Federal funds sold 5,891,000 7,112,000
Investment securities
Available-for-sale, at fair value 14,424,098 14,686,550
Held-to-maturity, at cost 17,492,342 17,139,353
Total Investment Securities $31,916,440 $31,825,903
Loans
Commercial 56,287,392 53,902,888
Real estate 128,702,059 128,376,524
Installment 16,537,471 16,623,280
Other 757,243 656,280
Total Loans $202,284,165 $199,558,972
Allowance for credit losses (2,907,906) (2,825,921)
Net Loans $199,376,259 $196,733,051
Premises and equipment, net 3,216,710 3,277,168
Accrued interest receivable 1,412,225 1,388,253
Other assets 4,293,712 4,318,200
TOTAL ASSETS $251,267,264 $251,673,980
============= =============
Liabilities
Deposits
Non-interest bearing $16,635,937 $19,494,350
Interest bearing 171,876,989 169,634,759
Total Deposits $188,512,926 $189,129,109
Other borrowed funds $32,258,167 $32,772,251
Accrued interest payable 1,376,797 1,419,470
Other liabilities 988,200 614,076
Total Liabilities $223,136,090 $223,934,906
------------- -------------
Stockholders' Equity
Common stock, no par value
authorized 320,000 shares; 54,873
and 54,875 outstanding respectively $10,336,295 $10,336,295
Paid in capital 37,384 37,384
Treasury stock (237,524) (236,058)
Retained earnings 17,990,997 17,653,233
Accumulated other comprehensive income
Unrealized gains (losses) on securities 4,022 (51,780)
----------- ------------
Total Stockholders' Equity $28,131,174 $27,739,074
------------ -------------
TOTAL LIABILITIES AND EQUITY $251,267,264 $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
March 31, March 31,
1998 1997
Interest Income ----------- -----------
Loans including fees $4,348,412 $3,812,905
Interest and dividends on
investment securities
Taxable 249,502 198,606
Exempt from federal tax 304,836 320,660
Federal funds sold 98,115 3,855
----------- -----------
Total Interest Income $5,000,865 $4,336,026
Interest Expense ----------- -----------
Deposits $2,125,753 $1,588,562
Short-term borrowings 326,871 413,917
Long-term borrowings 179,762 148,311
----------- -----------
Total Interest Expense $2,632,386 $2,150,790
----------- -----------
Net interest income $2,368,479 $2,185,236
Provision for Credit Losses 82,500 87,000
----------- -----------
Net interest income after provision $2,285,979 $2,098,236
Noninterest Income
Service fees and commissions $179,432 $142,801
Other 45,989 38,031
----------- -----------
Total Noninterest Income $225,421 $180,832
----------- -----------
Noninterest Expense
Salaries and employee benefits $1,020,414 $878,114
Occupancy expenses 160,508 147,065
Data processing expenses 88,465 68,012
Amortization of intangibles 52,876 4,839
Other operating expenses 255,603 242,914
----------- -----------
Total Noninterest Expense $1,577,866 $1,340,944
----------- -----------
Income before income taxes $933,534 $938,124
Income tax expense 252,814 254,222
----------- -----------
NET INCOME $680,720 $683,902
----------- -----------
Other Comprehensive Income, Before Tax
Unrealized gains (losses) on securities
arising during period $84,580 ($49,893)
----------- -----------
Income tax expense (benefit) related to
items of other comprehensive income 28,778 (19,173)
----------- -----------
Other Comprehensive Income $55,802 ($30,720)
----------- -----------
COMPREHENSIVE INCOME, NET OF TAX $736,522 $653,182
=========== ============
Per Share
Net income $12.41 $12.44
Dividends declared $6.25 $5.75
Weighted average shares outstanding 54,873 54,968
The accompanying notes are an integral part of these financial statements.
Page 4
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Quarter Ended
March 31, March 31,
1998 1997
Cash flows from operating activities: ------------ ------------
Net Income $680,720 $683,902
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $85,166 $77,666
Provision for credit losses 82,500 87,000
Amortization of intangibles 52,876 4,839
Amortization of bond premium 9,887 14,454
Accretion of bond discount (156,039) (145,737)
Increase in interest receivable (23,972) (137,042)
Decrease in interest payable (42,673) (65,674)
Other, net 303,264 319,715
------------ ------------
Net cash provided by operating activities $991,729 $839,123
------------ ------------
Cash flows from investing activities:
Maturities of held-to-maturity securities $22,784 $20,765
Maturities of available-for-sale securities 939,511 445,417
Purchases of held-to-maturity securities (239,475) 0
Purchases of available-for-sale securities (582,626) (1,309,859)
Federal funds sold, net 1,221,000 937,000
Net increase in loans made to customers (2,725,708) (945,795)
Capital expenditures (24,707) (108,093)
------------ ------------
Net cash used by investing activities ($1,389,221) ($960,565)
------------ ------------
Cash flows from financing activities:
Net decrease in deposits ($616,183) ($4,043,312)
Purchases of treasury stock (1,466) (3,559)
Dividends paid (329,262) (302,390)
Debt proceeds 4,645,960 10,836,238
Debt repayment (5,160,044) (11,500,204)
Federal funds purchased, net 0 4,261,000
------------ ------------
Net cash used by financing activities ($1,460,995) ($752,227)
------------ ------------
Net decrease in cash and cash equivalents (1,858,487) (873,669)
Cash and cash equivalents, beginning 7,019,405 6,063,954
------------ ------------
CASH & CASH EQUIVALENTS, ENDING $5,160,918 $5,190,285
============ ============
Supplemental schedule of noncash investing
and financing activities:
Loans transferred to other real estate $0 $0
============ ============
The accompanying notes are an integral part of these financial statements.
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:
March 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ---------------------- -----------
U.S. Government agencies $2,183 $0 $7 $2,176
Mortgage-backed securities 10,319 34 20 10,333
Equity securities 1,915 0 0 1,915
----------- ---------------------- -----------
Total $14,417 $34 $27 $14,424
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:
March 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ---------------------- -----------
State and local governments $17,492 $1,655 $2 $19,145
----------- ---------------------- -----------
Total $17,492 $1,655 $2 $19,145
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 March 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 $2,607 $2,600 $658 $683
Due from one to five years 7,147 7,148 6,750 7,564
Due from five to ten years 2,748 2,761 6,821 7,298
Due after ten years 0 0 3,263 3,600
Equity securities 1,915 1,915 0 0
----------- ----------- ------------------
Total $14,417 $14,424 $17,492 $19,145
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 Three For the Year
Months Ended Ended
March 31, March 31, December 31,
1998 1997 1997
----------- ----------- -----------
Balance, beginning of period $2,825,921 $2,506,728 $2,506,728
Provision charged to operations 82,500 87,000 351,000
Recoveries 10,842 9,262 28,775
Charge-offs (11,357) (17,626) (60,582)
----------- ----------- -----------
Balance, end of period $2,907,906 $2,585,364 $2,825,921
=========== =========== ===========
Page 7
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Highlights
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1998 1997 1997 1997 1997
(In thousands) --------- ------------------ ------------------
Operating Results
Interest income $5,001 $4,990 $4,735 $4,402 $4,336
Interest expense 2,632 2,627 2,508 2,257 2,151
Net interest income 2,369 2,363 2,227 2,145 2,185
Provision for credit losses 83 90 87 87 87
Noninterest income 225 203 200 235 181
Noninterest expense 1,578 1,513 1,625 1,439 1,341
Net income 681 689 546 632 684
Per Share Data
Net income per share $12.41 $12.56 $9.95 $11.49 $12.44
(In thousands)
Financial Condition (1)
Loans $202,284 $199,559 $194,462 $183,940 $176,152
Allowance for credit losses 2,908 2,826 2,730 2,652 2,585
Investment securities 31,916 31,826 31,983 29,956 29,545
Assets 251,267 251,674 243,967 225,004 213,889
Deposits 188,513 189,129 181,228 157,460 146,373
Other borrowed funds 32,258 32,772 33,387 36,864 35,248
Stockholders' equity 28,131 27,739 27,070 26,930 26,247
Financial Ratios
Return on average equity 9.70% 9.98% 8.04% 9.47% 10.42%
Return on average assets 1.09% 1.12% 0.93% 1.16% 1.29%
Interest rate spread 3.21% 3.23% 3.17% 3.27% 3.46%
Average equity to average
assets 11.19% 11.20% 11.53% 12.29% 12.34%
Allowance for credit losses
to total loans (1) 1.44% 1.42% 1.40% 1.44% 1.47%<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 March 31, 1998, was $680,720, or $12.41 per
share, a decrease of $2,182 or .5%, compared to $683,902, or $12.44 per share,
for the corresponding period in 1997. This decrease was primarily the result
of higher noninterest expense which more than offset increases in net interest
income and noninterest income.
Net interest income for the quarter ended March 31, 1998, was $2,368,479, an
increase of $183,243 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 678 (13) 665
Interest expense 393 89 482
--- ----- ---
Net interest income 285 (102) 183
This increase in net interest income is primarily attributable to higher volume
which offset a decrease in interest rate spread. Average earning assets during
the first quarter of 1998 increased by $34.35 million and average
interest-bearing liabilities increased by $32.4 million compared to the first
quarter of 1997. The Company's average interest rate spread was 3.21% during
the first quarter of 1998 compared to 3.46% during the quarter ended March 31,
1997. The yield on earning assets decreased by ten basis points while the cost
of funds increased by fifteen basis points.
In the first quarter of 1998 the Company's provision for credit losses was
$82,500 compared to $87,000 for the first quarter of 1997. Net charge-offs
were $515 in the first quarter of 1998 compared to net charge-offs of $8,364
during the first quarter of 1997.
Noninterest income for the three months ended March 31, 1998, was $225,421, an
increase of $44,589 over the corresponding period in 1997. This increase is
primarily the result of an increase of $41,120 in commissions from the sales of
annuities, mutual funds, and property insurance.
Noninterest expense increased by $236,922 or 18% during the three months ended
March 31, 1998, over the corresponding period in 1997. Salaries and benefits
expense increased $142,300 or 16% over the corresponding period in 1997. This
increase is primarily attributed to the hiring of ten full-time equivalent
staff members and regular salary increases. Amortization of intangibles
expense increased by $48,037 as a result of the write-down of intangible assets
related to the acquisition of the branch bank. Data processing expense
increased by $20,453. Approximately $15,000 of this increase is attributable
to purchases of software used primarily to automate the loan origination
process. Occupancy expenses increased by $13,443 primarily as a result of the
additional branch location.
Return on average assets in the first quarter of 1998 was 1.09%, compared to
1.29% for the corresponding period in 1997. Return on average equity in the
first quarter of 1998 was 9.7%, compared to 10.4% 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 decreased by $406,716 between December 31, 1997, and March 31,
1998. Federal funds sold and cash and due from banks decreased by $3,079,487
during the quarter ended March 31, 1998. Net loans increased by $2,643,208
during the first quarter.
The allowance for credit losses increased by $81,985 during the quarter ended
March 31, 1998. The allowance equals 1.44% of total loans at March 31, 1998,
compared to 1.42% at December 31, 1997. Nonaccrual loans totaled $4,912,693 at
March 31, 1998, an increase of $244,986 over December 31, 1997. The Company's
ratio of loans more than 30 days past due (including nonaccrual loans) to
total loans was 3.4% at March 31, 1998, compared to 3.3% at December 31, 1997.
Demand deposits decreased $2,858,413 or 14.7% during the first quarter of 1998.
Interest bearing deposits increased by $2,242,230 or 1.3% between December 31,
1997, and March 31, 1998. Total deposits decreased $616,183 or .3% during the
three month period ended March 31, 1998. Management attributes the decrease in
demand deposits to a normal seasonal fluctuation.
Stockholders' equity increased by $392,100 to $28,131,174 as of March 31, 1998.
As of March 31, 1998, the Company's leverage ratio was 10.1%, the risk-based
core capital ratio was 14.6% and the risk-based total capital ratio was 15.9%.
The Company and the Bank continue to maintain capital levels well above the
regulatory minimum levels.
On March 16, 1998, the Company's board of directors declared a semiannual $6.25
per share dividend payable on July 1, 1998, to all shareholders of record on
June 9, 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 $1.9 million during the first quarter of 1998. Loan repayments as well as
net cash provided by operating activities amounting to $991,729 and a reduction
of federal funds sold of $1,221,000 were the major sources of funds during the
first quater of 1998. The net increase in loans of $2,725,708, the net
decrease in deposits of $616,183, the net decrease in other borrowed funds of
$514,084 and the dividend paid of $329,262 were the major uses of cash during
the first three 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 $21 million as of March 31, 1998. Management
believes the Company's liquidity position as of March 31, 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: April 28, 1998 /s/ Darrell R. Lemmens
Darrell R. Lemmens,
Principal Executive Officer,
Chairman of the Board,
and President
Date: April 28, 1998 /s/ Dennis J. Heim
Dennis J. Heim,
Vice President and Treasurer,
Principal Financial and
Accounting Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 5,160,918
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 5,891,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,424,098
<INVESTMENTS-CARRYING> 17,492,342
<INVESTMENTS-MARKET> 19,145,000
<LOANS> 202,284,165
<ALLOWANCE> 2,907,906
<TOTAL-ASSETS> 251,267,264
<DEPOSITS> 188,512,926
<SHORT-TERM> 32,258,167
<LIABILITIES-OTHER> 2,364,997
<LONG-TERM> 0
0
0
<COMMON> 10,336,295
<OTHER-SE> 17,794,879
<TOTAL-LIABILITIES-AND-EQUITY> 251,267,264
<INTEREST-LOAN> 4,348,412
<INTEREST-INVEST> 652,453
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 5,000,865
<INTEREST-DEPOSIT> 2,125,753
<INTEREST-EXPENSE> 2,632,386
<INTEREST-INCOME-NET> 2,368,479
<LOAN-LOSSES> 82,500
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,577,866
<INCOME-PRETAX> 933,534
<INCOME-PRE-EXTRAORDINARY> 933,534
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 680,720
<EPS-PRIMARY> 12.41
<EPS-DILUTED> 12.41
<YIELD-ACTUAL> 3.95
<LOANS-NON> 4,912,693
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 2,825,921
<CHARGE-OFFS> 11,357
<RECOVERIES> 10,842
<ALLOWANCE-CLOSE> 2,907,906
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