Denmark Bancshares, Inc.
1997 AnnualReport
TABLE OF CONTENTS
Graphic Presentation of Selected Financial Data ...........2
Selected Financial Data ...................................3
President's Letter ........................................4
Independent Auditors' Report ..............................4
Consolidated Financial Statements .........................5
Notes to Consolidated Financial Statements ................9
Management's Discussion and Analysis ......................22
Quarterly Financial Information ...........................36
Denmark Bancshares, Inc. ("Company"), headquartered in Denmark, Wisconsin, is
a diversified one-bank holding company. Denmark State Bank, the Company's
subsidiary bank, offers five full service banking offices located in the
Villages of Denmark, Maribel, Reedsville, and Whitelaw, and the Town of
Bellevue, serving primarily Brown, Kewaunee and Manitowoc Counties. The
Company also extends farm credit through its subsidiary Denmark Agricultural
Credit Corporation and sells a full line of insurance products through its
subsidiary McDonald-Zeamer Insurance Agency, Inc.
<PAGE> 1
GRAPHIC PRESENTATION OF SELECTED FINANCIAL DATA
(Tabular representation of graphs for electronic filing)
1993 1994 1995 1996 1997
-------- ------- -------- -------- --------
Net Income $2,115 $2,182 $2,083 $2,380 $2,551
Net Income Per Share 38.38 39.49 37.83 43.26 46.44
Dividends Per Share 7.75 8.75 9.75 10.75 11.75
Book Value Per Share 380.97 408.28 439.65 471.39 505.50
Average Total Loans 133,511 135,032 150,181 162,850 185,281
Average Total Assets 167,725 169,886 184,970 199,367 228,174
Average Total Deposits 131,185 130,501 135,644 144,254 162,838
Average Stockholders' Equity 20,089 21,846 23,271 25,064 26,935
Dollars in thousands except per share data.
SELECTED FINANCIAL DATA
Year Ended December 31,
-----------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- --------
INCOME STATEMENT DATA
Interest income $18,463 $16,073 $14,882 $12,828 $13,337
Interest expense 9,543 8,152 7,639 5,401 5,810
--------- --------- --------- --------- --------
Net interest income $8,920 $7,921 $7,243 $7,427 $7,527
Less: Provision for
possible loan losses 351 210 200 493 631
--------- --------- --------- --------- --------
Net income after provision
provision for
for possible
credit losses $8,569 $7,711 $7,043 $6,934 $6,896
--------- --------- --------- --------- --------
Plus: Noninterest income $819 $589 $568 $625 $594
Less: Noninterest expense 5,917 5,073 4,933 4,851 4,596
Net noninterest expense $(5,098) $(4,484) $(4,365) $(4,226) $(4,002)
--------- --------- --------- --------- --------
Income before income taxes $3,471 $3,227 $2,678 $2,708 $2,894
Income tax expense 920 847 595 526 779
--------- --------- --------- --------- --------
Net income $2,551 $2,380 $2,083 $2,182 $2,115
========= ========== ========= ========= ========
PER SHARE DATA (1)
Net income $46.44 $43.26 $37.83 $39.49 $38.38
Cash dividends declared 11.75 10.75 9.75 8.75 7.75
Book value (year end) 505.50 471.39 439.65 408.28 380.97
BALANCE SHEET DATA
Average balances:
Total loans $185,281 $162,850 $150,181 $135,032 $133,511
Allowance for possible
credit losses 2,669 2,414 2,204 1,972 1,533
Investment securities 30,345 26,328 25,128 25,567 23,474
Assets 228,174 199,367 184,970 169,886 167,725
Deposits 162,838 144,254 135,644 130,501 131,185
Other borrowed funds (2) 36,557 28,408 24,538 16,254 15,025
Stockholders' equity 26,935 25,064 23,271 21,846 20,089
FINANCIAL RATIOS
Return on average equity 9.47% 9.49% 8.95% 9.99% 10.53%
Return on average assets 1.12% 1.19% 1.13% 1.28% 1.26%
Net interest spread 3.28% 3.29% 3.24% 3.93% 4.10%
Average equity to
average assets 11.80% 12.57% 12.58% 12.86% 11.98%
Total capital to assets (3) 12.01% 13.14% 13.31% 13.61% 12.83%
Allowance for credit
losses to loans (year end) 1.42% 1.43% 1.49% 1.45% 1.27%
Allowance for credit losses
to nonaccrual loans
(year end) 60.54% 75.66% 198.36% 104.72% 92.39%
Dollars in thousands except per share data and financial ratios.
(1) Adjusted to reflect 2-for-1 stock split effective July 1, 1997.
(2) Includes federal funds purchased, securities sold under repurchase
agreements and notes payable.
(3) Consists of stockholders' equity plus allowance for possible credit
losses divided by total assets plus allowance for possible credit losses
at the end of the period.
<PAGE> 3
PRESIDENT'S LETTER
TO OUR SHAREHOLDERS AND FRIENDS:
We are pleased to present the 1997 Annual Report of Denmark Bancshares, Inc.
Your Bank enjoyed another successful year and once again attained strong growth
in deposits and assets, as well as stockholders' equity.
Our semi-annual dividend of $6.00 per share to shareholders of record December
9, 1997, payable January 2, 1998, represented a 4 1/4% increase over the last
semi-annual dividend and a 9% increase over the dividend paid in January 1997,
adjusted for the stock split.
On behalf of your independent and locally owned Bank, I would like to recognize
with gratitude the leadership of our directors, the support of our shareholders
and customers, and finally the loyalty, hard work and dedication of our
employees. As we go forward, we will strive to earn your continued confidence.
We ask that you continue to recommend our services to your friends, relatives
and business associates.
Sincerely,
(signature of Darrell R. Lemmens)
Darrell R. Lemmens
Chairman of the Board
INDEPENDENT AUDITORS' REPORT
TO THE BOARD OF DIRECTORS AND SHAREHOLDERS
DENMARK BANCSHARES, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated statements of financial condition
of Denmark Bancshares, Inc. and subsidiaries as of December 31, 1997, 1996 and
1995, and the related consolidated statements of income, changes in
stockholders' equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Denmark
Bancshares, Inc. and subsidiaries as of December 31, 1997, 1996 and 1995, and
the consolidated results of their operations and their consolidated cash flows
for the years then ended in conformity with generally accepted accounting
principles.
WILLIAMS, YOUNG & ASSOCIATES, LLC
(Signature of Williams, Young & Associates, LLC)
Madison, Wisconsin
February 19, 1998
<PAGE> 4
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
As of December 31,
ASSETS
Assets 1997 1996 1995
------------- ------------ ------------
Cash and due from banks $7,019,405 $6,063,954 $5,464,693
Federal funds sold 7,112,000 937,000 6,900,000
Investment Securities
Available-for-sale, at fair value 14,686,550 10,952,446 9,330,453
Held-to-maturity, at cost 17,139,353 17,667,237 16,319,946
------------- ------------ ------------
Total Investment Securities $31,825,903 $28,619,683 $25,650,399
Loans less allowance for credit
losses of $2,825,921, $2,506,728
and $2,319,101, respectively 196,733,051 172,707,710 153,752,933
Premises and equipment, net 3,277,168 2,960,537 3,038,274
Accrued interest receivable 1,388,253 1,153,231 1,121,017
Other assets 4,318,200 1,272,161 949,629
------------- ------------ ------------
TOTAL ASSETS $251,673,980 $213,714,276 $196,876,945
============= ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $19,494,350 $16,077,828 $15,077,825
Interest bearing 169,634,759 134,338,874 129,739,944
------------- ------------ ------------
Total Deposits $189,129,109 $150,416,702 $144,817,769
Short-term borrowings 26,095,553 29,230,750 23,363,195
Accrued interest payable 1,419,470 929,674 898,162
Other liabilities 614,076 542,426 544,737
Long-term borrowings 6,676,698 6,681,587 3,063,000
------------- ------------ ------------
Total Liabilities $223,934,906 $187,801,139 $172,686,863
------------- ------------ ------------
Stockholders' Equity
Common stock, no par value, authorized
320,000 shares; issued 54,875, 54,972
and 55,022 shares, excludes 465 shares
in treasury in 1997, 368 shares in
1996 and 318 shares in 1995 $10,100,237 $10,168,433 $10,196,720
Paid in capital 37,384 37,384 37,203
Retained earnings 17,653,233 15,747,969 13,959,598
Unrealized (loss) on securities
available-for-sale, net of
applicable deferred tax benefit (51,780) (40,649) (3,439)
------------- ------------ ------------
Total Stockholders' Equity $27,739,074 $25,913,137 $24,190,082
------------- ------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $251,673,980 $213,714,276 $196,876,945
============= ============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE> 5
CONSOLIDATED STATEMENTS OF INCOME
For the Years Ended December 31,
1997 1996 1995
----------- ------------ ----------
Interest Income
Loans including fees $16,208,761 $14,132,315 $12,964,516
Investment securities:
Taxable 795,005 572,214 485,189
Exempt from federal tax 1,274,558 1,224,226 1,297,257
Interest on federal funds sold 184,817 143,674 134,953
----------- ------------ ----------
$18,463,141 $16,072,429 $14,881,915
Interest Expense
Deposits $7,359,474 $6,747,187 $6,042,092
Federal funds purchased,
securities sold under repurchase
agreements and notes payable 2,183,286 1,680,520 1,596,667
----------- ------------ ----------
$9,542,760 $8,151,707 $7,638,759
----------- ------------ ----------
Net interest income $8,920,381 $7,920,722 $7,243,156
Provision for Credit Losses 351,000 210,000 200,000
----------- ------------ ----------
Net interest income after
provision for credit losses $8,569,381 $7,710,722 $7,043,156
----------- ------------ ----------
Other Income
Service fees and commissions $668,124 $511,794 $421,511
Investment security (losses) 0 (58,389) 0
Other 150,738 135,830 146,828
----------- ------------ ----------
$818,862 $589,235 $568,339
Other Expense
Salaries and employee benefits $3,663,764 $3,211,702 $2,979,821
Occupancy expenses 588,154 569,641 539,923
Data processing expenses 319,806 272,410 257,195
Other operating expenses 1,345,968 1,019,882 1,156,358
----------- ------------ ----------
$5,917,692 $5,073,635 $4,933,297
----------- ------------ ----------
Income before income taxes $3,470,551 $3,226,322 $2,678,198
Income tax expense 919,982 846,757 594,925
----------- ------------ ----------
NET INCOME $2,550,569 $2,379,565 $2,083,273
=========== ============ ==========
NET INCOME PER COMMON SHARE $46.44 $43.26 $37.83
=========== ============ ==========
The accompanying notes are an integral part of these financial statements.
<PAGE> 6
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1997, 1996 and 1995
<CAPTION>
Common Stock
------------- Unrealized
(Loss) on
Securities
Paid in Retained Available-
Shares Amount Capital Earnings for-Sale Total
--------- ------------- --------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 55,340 $10,336,295 $37,203 $12,412,971 $(192,552) $22,593,917
Net income 2,083,273 2,083,273
Cash dividends, $9.75 per share (536,646) (536,646)
Treasury stock acquisitions (338) (149,125) (149,125)
Treasury stock sales 20 9,550 9,550
Net change in unrealized (loss)
on securities available-for-sale,
net of applicable deferred income
tax liability of $86,224 189,113 189,113
------ ----------- ------- ---------- --------- ------------
Balance, December 31, 1995 55,022 $10,196,720 $37,203 $13,959,598 $(3,439) $24,190,082
Net income 2,379,565 2,379,565
Cash dividends, $10.75 per share (591,194) (591,194)
Treasury stock acquisitions (70) (38,216) (38,216)
Treasury stock sales 20 9,929 181 10,110
Net change in unrealized (loss)
on securities available-for-sale,
net of applicable deferred income
tax benefit of $31,104 (37,210) (37,210)
------ ----------- ------- ---------- --------- ------------
Balance, December 31, 1996 54,972 $10,168,433 $37,384 $15,747,969 $(40,649) $25,913,137
Net income 2,550,569 2,550,569
Cash dividends, $11.75 per share (645,305) (645,305)
Treasury stock acquisitions (97) (68,196) (68,196)
Net change in unrealized (loss)
on securities available-for-sale,
net of applicable deferred income
tax benefit of $3,113 (11,131) (11,131)
------ ----------- -------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1997 54,875 $10,100,237 $37,384 $17,653,233 $(51,780) $27,739,074
====== =========== ======== ============ ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 7
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31,
1997 1996 1995
----------- ----------- ------------
Cash Flows from Operating Activities:
Net income $2,550,569 $2,379,565 $2,083,273
Adjustments to reconcile net income
to net cash provided by operating activities:
Depreciation 321,966 292,417 278,610
Provision for credit losses 351,000 210,000 200,000
Amortization of intangibles 102,989 11,056 8,220
Loss on sale of other real estate 0 7,909 0
Loss on sales of investments 0 58,389 0
Amortization of bond premium 57,711 37,741 61,902
Accretion of bond discount (629,379) (561,948) (527,905)
Increase in interest receivable (235,022) (32,214) (206,703)
Increase in interest payable 489,796 31,512 215,395
Other, net (net of acquisition
of branch) (425,933) (112,036) (24,603)
------------ ------------ ------------
Net Cash Provided by Operating
Activities $2,583,697 $2,322,391 $2,088,189
------------ ------------ ------------
Cash Flows from Investing Activities:
Maturities of held-to-maturity
securities $1,222,807 $493,445 $2,288,687
Maturities and sales of
available-for-sale securities 2,511,201 3,649,278 1,348,963
Purchase of held-to-maturity
securities (180,000) (1,406,724) 0
Purchase of available-for-sale
securities (6,202,804) (5,307,779) (3,149,183)
Net cash received from acquisition
of branch bank 13,786,977 0 0
Purchase of an insurance agency 0 (220,000) 0
Federal funds sold, net (6,175,000) 5,963,000 (4,625,000)
Sale of other real estate 0 77,091 0
Net increase in loans made to
customers (net of acquisition of
branch) (22,066,629) (19,249,777) (12,882,960)
Capital expenditures (net of
acquisition of branch) (331,347) (214,680) (154,723)
------------ ------------ ------------
Net Cash (Used) by Investing
Activities $(17,434,795) $(16,216,146)$(17,174,216)
------------ ------------ ------------
Cash Flows from Financing Activities:
Net increase in deposits (net of
acquisition of branch) $19,633,264 $5,598,933 $7,817,392
Purchase of treasury stock (68,196) (38,216) (149,125)
Sale of treasury stock 0 10,110 9,550
Dividends paid (618,433) (563,953) (510,527)
Debt proceeds 24,745,411 38,764,142 22,630,938
Debt repayments (27,885,497) (29,278,000) (14,689,910)
------------ ------------ ------------
Net Cash Provided by Financing
Activities $15,806,549 $14,493,016 $15,108,318
------------ ------------ ------------
Net increase in cash and cash
equivalents $955,451 $599,261 $22,291
Cash and cash equivalents,
beginning 6,063,954 5,464,693 5,442,402
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING $7,019,405 $6,063,954 $5,464,693
============ ============ ============
Noncash Investing Activities:
Loans transferred to foreclosed
properties $0 $85,000 $38,938
============ ============ ============
Total increase (decrease) in
unrealized loss on securities
available-for-sale $14,244 $68,315 $(275,337)
============ ============ ============
The accompanying notes are an integral part of these financial statements.
<PAGE> 8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DENMARK BANCSHARES, INC.
DECEMBER 31, 1997, 1996 AND 1995
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Organization
Denmark Bancshares, Inc. is a bank holding company as defined in the Bank
Holding Company Act. As such, it exercises control over Denmark State Bank,
Denmark Ag Credit Corporation and McDonald-Zeamer Insurance Agency, Inc. A
majority of the Company's assets are held by Denmark State Bank.
Denmark State Bank, a wholly owned subsidiary of Denmark Bancshares, Inc.,
operates under a state bank charter, and provides full banking services to
its customers. Denmark Investments Inc. is a wholly owned subsidiary of
Denmark State Bank. The Company and its subsidiaries make agribusiness,
commercial and residential loans to customers throughout the state, but
primarily in eastern Wisconsin. The Company and its subsidiaries have a
diversified loan portfolio, however, a substantial portion of their debtors'
ability to honor their contract is dependent upon the agribusiness economic
sector. The main loan and deposit accounts are fully disclosed in Notes 4
and 6. The significant risks associated with financial institutions include
interest rate risk, credit risk, liquidity risk and concentration risk.
Basis of Consolidation
The consolidated financial statements include the accounts of Denmark
Bancshares, Inc. and its subsidiaries. All intercompany balances and
transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Significant estimates, such as the allowance for credit losses and accounting
for the impairment of loans, are discussed specifically in the following
sections of this footnote.
Investment Securities
Investment securities are designated as available-for-sale or
held-to-maturity when purchased and remain in that classification until they
are sold or mature. Debt and equity securities classified as
available-for-sale are stated at estimated fair value, with unrealized gains
and losses, net of any applicable deferred income taxes, reported as a
separate component of stockholders' equity. As a result of the adjustment
from amortized cost to fair value, stockholders' equity, net of applicable
deferred income taxes, decreased by $51,780, $40,649 and $3,439 as of
December 31, 1997, 1996 and 1995, respectively. Debt securities classified
as held-to-maturity are stated at cost adjusted for amortization of premiums
and accretion of discounts, which are recognized as adjustments to interest
income. Realized gains or losses on dispositions are recorded in other
operating income on the settlement date, based on the net proceeds and the
adjusted carrying amount of the securities sold using the specific
identification method.
Loans
Loans are reported at the principal amount outstanding, net of the allowance
for credit losses. Interest on loans is calculated by using the simple
interest method on the daily balance of the principal amount outstanding.
Loans on which the accrual of interest has been discontinued are designated
as nonaccrual loans. Accrual of interest on loans is discontinued either
when reasonable doubt exists as to the full, timely collection of interest
or principal or when a loan becomes contractually past due by ninety days or
more with respect to interest or principal. When a loan is placed on
nonaccrual, all interest previously accrued but not collected is reversed
against current period interest income. Income on such loans is then
recognized only to the extent that cash is received and where the future
collection of principal is probable. Interest accruals are resumed on such
loans only when they are brought fully current with respect to interest and
principal and when, in the judgment of management, the loans are estimated
to be fully collectible as to both principal and interest.
A loan is impaired when, based on current information and events, it is
probable that not all amounts due will be collected according to the
contractual terms of the loan agreement. Impaired loans are measured at the
estimated fair value of the collateral. If the estimated fair value of the
impaired loan is less than the recorded investment in the loan, an impairment
is recognized by creating a valuation allowance. Interest income is
recognized in the same manner described above for nonaccrual loans.
Allowance for Credit Losses
The allowance for credit losses is established through a provision for credit
losses charged to expense. Loans are charged against the allowance for
credit losses when management believes that the collectibility of the
principal is unlikely. The allowance is an amount that management believes
will be adequate to absorb losses inherent
<PAGE> 9
in existing loans, based on evaluations of the collectibility and prior loss
experience of loans. The evaluations take into consideration such factors as
changes in the nature and volume of the portfolio, overall portfolio quality,
loan concentrations, specific problem loans, leases and commitments, and
current and anticipated economic conditions that may affect the borrowers'
ability to pay.
Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and amounts due from banks. Cash flows from demand deposits, NOW
accounts, savings accounts, federal funds purchased and sold, cash receipts
and payments of loans and time deposits are reported net. For purposes of
cash flow reporting, income taxes paid were $1,051,592, $929,850 and
$672,714 and interest paid was $9,061,432, $8,130,209 and $7,435,059 for the
years ended December 31, 1997, 1996 and 1995, respectively.
Premises and Equipment
Premises and equipment owned are stated at cost less accumulated depreciation
which is computed principally on the straight-line method over the estimated
useful lives of the assets.
Income Taxes
Deferred income taxes are provided for timing differences between items
of income or expense reported in the consolidated financial statements and
those reported for income tax purposes in accordance with FAS 109.
Treasury Stock
Treasury stock is shown at cost, and consists of 465, 368 and 318 shares,
with a cost of $236,058, $167,861 and $139,575 as of December 31, 1997, 1996
and 1995, respectively.
Stock Split
In March 1997, the Board of Directors authorized a two-for-one common stock
split to be implemented by a stock dividend of one share for each share
outstanding to shareholders of record on June 17, 1997, payable on July 1,
1997. Accordingly, outstanding shares of common stock were increased from
27,482 to 54,964 shares. Since the common stock has no par value, there was
no increase in the common stock account. References in the consolidated
financial statements and notes with regard to per share and related data have
been retroactively adjusted to give effect to the transaction.
Earnings per Common Share
Earnings per common share are computed based on the weighted average number
of shares of common stock outstanding during each year.
NOTE 2 - COMPENSATING CASH BALANCES
As compensation for check clearing and other correspondent services,
compensating balances of $1,086,000 were required to be maintained by the
Company's subsidiaries with correspondent banks at December 31, 1997.
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available-for-sale
were as follows:
December 31, 1997
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- -------- ---------- -----------
U.S. Government
agencies $2,743,758 $0 $(79,504) $2,664,254
Mortgage-backed
securities 10,688,122 34,820 (32,803) 10,690,139
Other securities 1,332,157 0 0 1,332,157
----------- -------- ---------- -----------
$14,764,037 $34,820 $(112,307) $14,686,550
=========== ======== ========== ===========
December 31, 1996
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- -------- ---------- -----------
U.S. Government
agencies $2,121,158 $0 $(41,455) $2,079,703
Mortgage-backed
securities 7,441,853 7,553 (29,341) 7,420,065
Other securities 1,452,678 0 0 1,452,678
----------- -------- ---------- -----------
$11,015,689 $7,553 $(70,796) $10,952,446
=========== ======== ========== ===========
<PAGE> 10
December 31, 1995
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- -------- ---------- -----------
U.S. Government
agencies $2,070,744 $53,310 $0 $2,124,054
Mortgage-backed
securities 5,386,663 14,356 (40,439) 5,360,580
Other securities 1,867,974 0 (22,155) 1,845,819
----------- -------- ---------- -----------
$9,325,381 $67,666 $(62,594) $9,330,453
=========== ======== ========== ===========
The amortized cost and estimated fair value of securities held-to-maturity were
as follows:
December 31, 1997
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- -------- ---------- -----------
State and local
governments $17,139,353 $1,684,339 $0 $18,823,692
----------- --------- ---------- -----------
$17,139,353 $1,684,339 $0 $18,823,692
=========== ========= ========== ===========
December 31, 1996
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- ---------- ---------- -----------
State and local
governments $17,667,237 $1,597,100 $(22,822) $19,241,515
----------- ---------- ---------- -----------
$17,667,237 $1,597,100 $(22,822) $19,241,515
=========== ========== ========== ===========
December 31, 1995
-----------------------------------------------
Unrealized Unrealized Estimated
Amortized Gross Gross Fair
Cost Gains (Losses) Value
----------- -------- ---------- -----------
State and local
governments $16,319,946 $1,744,038 $(29,478) $18,034,506
----------- -------- ---------- -----------
$16,319,946 $1,744,038 $(29,478) $18,034,506
=========== ======== ========== ===========
The amortized cost and estimated fair values of securities at December 31,
1997, by maturity were as follows:
Securities Securities
Available-for-Sale Held-to-Maturity
---------------------------- --------------------
Estimated Estimated
Amortized Fair Amortized Fair
Amounts Maturing Cost Value Cost Value
- ----------------------- ---------- ----------- ----------- -----------
Within one year $3,378,571 $3,298,451 $371,112 $386,920
From one through five
years 7,198,878 7,182,165 6,108,744 6,827,137
From five through ten
years 2,579,008 2,597,270 6,816,514 7,394,355
After ten years 275,423 276,507 3,842,983 4,215,280
Other securities (no
stated maturity) 1,332,157 1,332,157 0 0
---------- ----------- ----------- -----------
$14,764,037 $14,686,550 $17,139,353 $18,823,692
========== =========== =========== ===========
Mortgage-backed securities are allocated according to their expected
prepayments rather than their contractual maturities.
<PAGE> 11
No securities were sold during 1997 or 1995. During 1996, available-for-sale
securities were sold for total proceeds of $1,868,929. The gross realized
gains and gross realized losses amounted to $259 and $58,648 in 1996.
In 1995, U.S. Government agencies and U.S. Government mortgage-backed
securities with an amortized cost of $3,143,704 were transferred from
held-to-maturity to available-for-sale. The transfers from held-to-maturity to
available-for-sale were made in accordance with the guidelines provided by the
Financial Accounting Standards Board for a one-time reclassification of
securities. The securities had an unrealized gain of $42,124.
There were no significant concentrations of investments (greater than 10
percent of stockholders' equity) in any individual security issuer, except for
mortgage-backed securities issued by U.S. Government agencies and corporations.
Investment securities with an amortized cost of $624,958 and estimated fair
value of $623,807, at December 31, 1997, were pledged to secure public
deposits and securities sold under repurchase agreements and for other purposes
required or permitted by law.
NOTE 4 - LOANS
Major categories of loans included in the loan portfolio are as follows:
December 31,
-----------------------------------------
1997 1996 1995
------------- ------------- -------------
Commercial:
Agricultural $27,251,588 $24,494,999 $21,680,676
Other 26,651,300 21,404,746 19,513,517
------------- ------------- -------------
$53,902,888 $45,899,745 $41,194,193
------------- ------------- -------------
Real estate:
Agricultural $18,227,821 $16,441,788 $15,062,096
Commercial 35,787,187 33,058,518 26,838,176
Residential 74,361,516 64,669,525 59,186,926
------------- ------------- -------------
$128,376,524 $114,169,831 $101,087,198
------------- ------------- -------------
Installment $16,623,280 $14,590,185 $13,301,405
------------- ------------- -------------
Unsecured loans $656,280 $554,677 $489,238
------------- ------------- -------------
Total loans receivable $199,558,972 $175,214,438 $156,072,034
Allowance for credit losses (2,825,921) (2,506,728) (2,319,101)
------------- ------------- -------------
NET LOANS RECEIVABLE $196,733,051 $172,707,710 $153,752,933
============= ============= =============
<PAGE> 12
Final loan maturities and rate sensitivity of the loan portfolio, excluding
unsecured loans, at December 31, 1997, are as follows:
Within One-five After
(In thousands) One Year Years Five Years Total
--------- ------- --------- --------
Commercial and installment $54,701 $15,295 $530 $70,526
Real estate 108,790 18,279 1,308 128,377
--------- ------- --------- --------
TOTAL $163,491 $33,574 $1,838 $198,903
========= ======= ========= ========
At December 31, 1997, loans with a maturity greater than one year with a
variable interest rate totaled $413,761.
Nonaccrual loans totaled $4,667,707, $3,313,363 and $1,169,136 at December 31,
1997, 1996 and 1995, respectively. The reduction in interest income associated
with nonaccrual loans is as follows:
Year Ended December 31,
----------------------------------
1997 1996 1995
--------- ----------- ------------
Income in accordance with
original loan terms $503,313 $302,466 $192,250
Income recognized (459,611) (197,091) (196,453)
--------- ----------- ------------
REDUCTION (INCREASE) IN
INTEREST INCOME $43,702 $105,375 $(4,203)
========= =========== ============
Information concerning the Company's investment in impaired loans is as
follows:
Year Ended December 31,
----------------------------------
1997 1996 1995
--------- ----------- ------------
Total investment in impaired
loans $3,425,149 $2,493,985 $821,561
Loans not requiring an allowance 2,717,153 1,535,628 456,254
Loans requiring a related
allowance 707,996 958,357 365,307
Related allowance (106,505) (129,217) (131,877)
Average investment in impaired
loans during the year 3,495,193 2,272,191 1,224,260
Interest income recognized on a
cash basis 299,628 137,762 118,891
Changes in the allowance for credit losses were as follows:
Year Ended December 31,
----------------------------------
1997 1996 1995
--------- ----------- ------------
Balance - beginning of year $2,506,728 $2,319,101 $2,079,007
Charge-offs (60,582) (56,199) (129,013)
Recoveries 28,775 33,826 169,107
Provision charged to operations 351,000 210,000 200,000
--------- ----------- ------------
BALANCE - END OF YEAR $2,825,921 $2,506,728 $2,319,101
========= =========== ============
<PAGE> 13
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
----------------------------------
1997 1996 1995
---------- ----------- ------------
Land $508,220 $479,755 $416,327
Buildings and improvements 3,188,505 2,845,622 2,839,486
Furniture and fixtures 2,273,820 2,111,525 1,991,155
---------- ----------- ------------
$5,970,545 $5,436,902 $5,246,968
Less: Accumulated depreciation (2,693,377) (2,476,365) (2,208,694)
---------- ----------- ------------
NET $3,277,168 $2,960,537 $3,038,274
========== =========== ============
NOTE 6 - INTEREST-BEARING DEPOSITS
Interest-bearing deposits consisted of the following:
December 31,
----------------------------------
1997 1996 1995
----------- ------------ -------------
NOW accounts $10,394,916 $9,590,972 $9,345,126
Savings accounts 17,035,713 16,179,148 16,908,964
Money market accounts 40,450,756 29,104,066 25,775,384
Certificates of deposit 81,309,850 62,376,451 60,672,654
Time deposit open accounts 20,443,524 17,088,237 17,037,816
----------- ------------ -------------
TOTAL $169,634,759 $134,338,874 $129,739,944
============ ============ =============
The following table shows the maturity distribution of certificates of deposit
and time deposit open accounts:
December 31,
---------------------------
(In thousands) 1997 1996 1995
--------- -------- --------
Within one year $76,050 $39,595 $56,903
One to two years 21,920 36,700 15,473
Two to three years 2,345 2,289 3,999
Three to four years 744 645 974
Over four years 694 236 361
--------- -------- --------
TOTAL $101,753 $79,465 $77,710
========= ======== ========
Certificates of deposit and time deposit open accounts issued in amounts of
$100,000 or more totaled $22,448,045, $13,493,887 and $12,327,501, at December
31, 1997, 1996 and 1995, respectively.
<PAGE> 14
NOTE 7 - INCOME TAXES
The provision for income taxes in the consolidated statement of income is as
follows:
(In thousands) 1997 1996 1995
---------- ------- -------
Current: Federal $865 $774 $541
State 206 189 127
---------- ------- -------
$1,071 $963 $668
---------- ------- -------
Deferred: Federal $(117) $(91) $(62)
State (34) (25) (11)
---------- ------- -------
$(151) $(116) $(73)
---------- ------- -------
TOTAL PROVISION FOR INCOME
TAXES $920 $847 $595
========== ======= =======
Applicable income taxes for financial reporting purposes differ from the amount
computed by applying the statutory federal income tax rate for the reasons
noted in the table below:
1997 1996 1995
------- ----- ------- ----- ------- ----
(In thousands) Amount % Amount % Amount %
------- ----- ------- ----- ------- ----
Tax at statutory federal
income tax rate $1,180 34% $1,097 34% $911 34%
Increase (decrease) in tax
resulting from:
Tax-exempt income (388) (11) (374) (12) (394) (15)
State income tax, net of
federal tax benefit 113 3 109 3 77 3
Other, net 15 1 15 1 1 0
------- ----- ------- ----- ------- ----
APPLICABLE INCOME TAXES $920 27% $847 26% $595 22%
======= ===== ======= ===== ======= =====
The net deferred tax asset in the accompanying statements of financial
condition include the following amounts of deferred tax assets and deferred tax
liabilities:
(In thousands) 1997 1996 1995
------- ------ -------
Deferred tax assets:
Allowance for credit losses $1,039 $896 $824
Unrealized losses on
available-for-sale securities 25 23 0
State tax net operating loss
carryforward 87 88 88
Interest receivable on
nonaccrual loans 79 61 18
Other 22 25 15
------- ------ -------
Gross deferred tax assets $1,252 $1,093 $945
Valuation allowance (87) (88) (88)
------- ------ -------
Total deferred tax assets $1,165 $1,005 $857
------- ------ -------
Accumulated depreciation on
fixed assets $134 $156 $162
State income taxes 65 54 44
Unrealized gains on
securities available-for-sale 0 0 8
Accretion 46 28 7
------- ------ -------
Total deferred tax liabilities $245 $238 $221
------- ------ -------
NET DEFERRED TAX ASSET $920 $767 $636
======= ====== =======
<PAGE> 15
NOTE 8 - SHORT-TERM BORROWINGS
December 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
Notes payable $22,791,248 $25,839,963 $23,309,938
U.S. Treasury demand notes 300,000 278,874 53,257
Current maturities of long-term
borrowings 3,004,305 3,111,913 0
------------ ------------ ------------
TOTAL SHORT-TERM BORROWINGS $26,095,553 $29,230,750 $23,363,195
============ ============ ============
As of December 31, 1997, the Company had $12,208,752 of unused lines of credit
with banks to be drawn upon as needed. Notes payable are secured by
agricultural loans and have a variable interest rate of 6.05% at December 31,
1997.
NOTE 9 - LONG-TERM BORROWINGS
December 31,
--------------------------------------
1997 1996 1995
------------ ------------ ------------
Note dated in 1997, with Federal
Home Loan Bank of Chicago, monthly
interest due at an annual rate of
5.96%, principal due and payable
December 30, 2002. $3,000,000 $0 $0
Note dated in 1996, with Federal
Home Loan Bank of Chicago, monthly
interest due at an annual rate of
5.94%, principal due and payable
March 18, 1998. 3,000,000 3,000,000 0
Note dated in 1996, with Federal
Home Loan Bank of Chicago, monthly
interest due at an annual rate of
6.02%, principal due and payable
December 27, 1999. 2,200,000 2,200,000 0
Note dated in 1996, with Federal
Home Loan Bank of Chicago, monthly
interest due at an annual rate of
6.51%, principal payments in the
amounts of $94,000, $79,000, $83,000
and $1,118,500 due and payable
December 27, 2003, 2007, 2010 and
2011, respectively. 1,374,500 1,374,500 0
Note dated in 1996, interest rate of
8%, principal payment in the amount
of $20,000 due January 2, 1997.
Remaining balance due in eleven
installments of $3,500 through 1997,
then monthly installments of $1,092
through 2011. 106,503 156,000 0
Note dated in 1995, with Federal
Home Loan Bank of Chicago, monthly
interest due at an annual rate of
6.04%, principal due and payable
July 20, 1997. 0 3,000,000 3,000,000
Note dated in 1992, with AgriBank, FCB,
quarterly interest due at an annual
rate of 6.30%, principal due and
payable September 22, 1997. 0 63,000 63,000
------------ ------------ ------------
$9,681,003 $9,793,500 $3,063,000
Less current maturities 3,004,305 3,111,913 0
------------ ------------ ------------
TOTAL LONG-TERM BORROWINGS $6,676,698 $6,681,587 $3,063,000
============ ============ ============
The notes payable to AgriBank, FCB and Federal Home Loan Bank of Chicago are
secured by agricultural loans and residential mortgages, respectively.
Long-term debt has aggregate maturities for the five years 1998 through 2002 as
follows: $3,004,305 in 1998, $2,204,662 in 1999, $5,049 in 2000, $5,468 in
2001 and $3,005,922 in 2002.
<PAGE> 16
NOTE 10 - EMPLOYEE BENEFIT PLANS
The Company has a 401(k) profit sharing plan and a money purchase pension plan.
The plans essentially cover all employees who have been employed over one-half
year, and are at least twenty and one-half years old. Provisions of the 401(k)
profit sharing plan provide for the following:
* Participating employees may annually contribute up to 10% of their
compensation.
* The Company will contribute 50% of each employee contribution up to a
maximum Company contribution of 2%. Employee contributions above 4% do
not receive any matching contribution.
* The Company may elect to make contributions out of profits. These profit
sharing contributions are allocated to the eligible participants based on
their salary as a percentage of total participating salaries. The
contribution percentage was 4% for 1997, 1996 and 1995.
In addition, the money purchase plan generally provides for employer
contributions of 4% of each participant's compensation.
The Company provides no post retirement benefits to employees except for the
401(k) profit sharing plan and the money purchase pension plan discussed above
which are currently funded. The Company expensed contributions of $275,509,
$244,433 and $237,373 for the years 1997, 1996 and 1995, respectively.
NOTE 11 - FINANCIAL INSTRUMENTS WITH OFF - BALANCE SHEET RISK
The Company and its subsidiaries are parties to financial instruments with
off-balance-sheet risk in the normal course of business to meet the financing
needs of its customers. These financial instruments include commitments to
extend credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit and interest rate risk in excess of the
amount recognized in the statement of financial position. The contract or
notional amounts of those instruments reflect the extent of involvement the
Company and its subsidiaries have in particular classes of financial
instruments.
The exposure of the Company and its subsidiaries to credit loss in the event
of nonperformance by the other party to the financial instrument for
commitments to extend credit and standby letters of credit is represented by
the contractual or notional amount of these instruments. The Company and its
subsidiaries use the same credit policies in making commitments and conditional
obligations as for on-balance sheet instruments. The Company and its
subsidiaries require collateral or other security to support financial
instruments with credit risk.
Contract or
(In thousands) Notional Amount Secured
December 31, 1997 Portion
-------------------- ----------
Financial instruments whose contract
amounts represent credit risk:
Commitments to extend credit $16,583 $12,163
Standby letters of credit and financial
guarantees written 914 914
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company and its
subsidiaries evaluate each customer's creditworthiness on a case-by-case basis.
Collateral held varies but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the bank to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support commercial business transactions. A majority
of the letters of credit expire within one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loans to customers. Collateral held varies but may include accounts
receivable, inventory, property, plant and equipment and income-producing
commercial properties and residential properties. All letters of credit are
fully collateralized.
Federal funds sold to correspondent banks are not insured.
<PAGE> 17
NOTE 12 - RELATED PARTY TRANSACTIONS
At December 31, 1997, 1996 and 1995 certain Company subsidiary executive
officers, directors and companies in which they have a ten percent or more
beneficial interest, were indebted to the Company and its subsidiaries in the
amounts shown below. All such loans were made in the ordinary course of
business and at rates and terms similar to those granted other borrowers.
Other changes reflects the sale of participated loans, the release of a
guarantee by an insider and the deletion of an insider.
December 31, 1997
---------------- -------------------------------
New Other Ending
(In thousands) 1995 1996 Loans Payments Changes Balance
-------- ------- ----- -------- -------- -------
Aggregate related
party loans $1,503 $1,415 $349 $(169) $(235) $1,360
======== ======= ====== ======= ======== =======
NOTE 13 - PARENT COMPANY ONLY INFORMATION
Following, in a condensed form, are parent company only statements of financial
condition, statements of income and cash flows of Denmark Bancshares, Inc. for
the years 1997, 1996 and 1995. The financial information contained in this
footnote is to be read in association with the preceding accompanying notes to
the consolidated financial statements.
DENMARK BANCSHARES, INC.
Statements of Financial Condition
December 31,
---------------------------
(In thousands) 1997 1996 1995
--------- --------- --------
Assets
Cash in banks $1,074 $438 $323
Investment
Banking subsidiary 19,524 18,909 17,445
Nonbanking subsidiaries 4,334 3,813 3,284
Real estate loans (less
allowance for credit
losses of $61, $61 and $61,
respectively) 1,103 1,262 1,576
Fixed assets (net of
depreciation of $633,
$523, and $415 ) 2,021 1,784 1,827
Other assets 50 37 39
--------- --------- --------
TOTAL ASSETS $28,106 $26,243 $24,494
========= ========= ========
Liabilities
Accrued expenses $38 $28 $28
Dividends payable 329 302 275
--------- --------- --------
Total Liabilities $367 $330 $303
--------- --------- --------
Stockholders' Equity
Common Stock $10,100 $10,169 $10,197
Paid in capital 37 37 37
Retained Earnings 17,654 15,748 13,960
Unrealized (loss) on securities
available-for-sale net of
applicable deferred income taxes (52) (41) (3)
--------- --------- --------
Total Stockholders' Equity $27,739 $25,913 $24,191
--------- --------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $28,106 $26,243 $24,494
========= ========= ========
<PAGE> 18
DENMARK BANCSHARES, INC.
Statements of Income
For the Years Ended
December 31,
------------------------
(In thousands) 1997 1996 1995
------- -------- -------
Income
Interest income from loans $96 $113 $175
Other interest income 18 14 18
Dividend income from banking
subsidiary 1,500 500 0
Rental income from banking
subsidiary 165 150 150
Rental income from nonbanking
subsidiary 6 6 6
------- -------- -------
Total Income $1,785 $783 $349
------- -------- -------
Expenses
Management fees to banking
subsidiary $120 $120 $120
Interest expense 0 0 51
Provision for credit losses 0 0 2
Depreciation 111 107 107
Other operating expenses 127 118 103
------- -------- -------
Total Expenses $358 $345 $383
------- -------- -------
Income (loss) before income
taxes and undistributed
income ofsubsidiaries $1,427 $438 $(34)
Income tax (benefit) expense (16) (12) 1
------- -------- -------
Income (Loss) Before
Undistributed Income of
Subsidiaries $1,443 $450 $(35)
Equity in Undistributed Income
of Subsidiaries
Banking subsidiary 627 1,501 1,764
Nonbank subsidiaries 481 429 354
------- -------- -------
NET INCOME $2,551 $2,380 $2,083
======= ======== =======
<PAGE> 19
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DENMARK BANCSHARES, INC.
Statements of Cash Flows
-----------------------------
For the Years Ended
December 31,
---------------------------
(In thousands) 1997 1996 1995
-------- -------- --------
Cash Flows from Operating Activities:
Net Income $2,551 $2,380 $2,083
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 111 107 107
Provision for credit losses 0 0 2
Equity (earnings) of banking
subsidiary (2,127) (2,001) (1,764)
Equity (earnings) of nonbanking
subsidiaries (481) (429) (354)
Dividend from banking subsidiary 1,500 500 0
Decrease (increase) in other assets (12) 0 3
(Decrease) increase in accrued
expenses 9 0 (15)
-------- -------- --------
Net Cash Provided by Operating
Activities $1,551 $557 $62
-------- -------- --------
Cash Flows from Investing Activities:
Investment in nonbanking subsidiary $(40) $(100) $0
Loan repayments by nonbanking
subsidiary 0 0 6
Capital expenditures (348) (64) (9)
Net decrease in real estate loans 160 314 1,596
-------- -------- --------
Net Cash Provided (Used) by
Investing Activities $(228) $150 $1,593
-------- -------- --------
Cash Flows from Financing Activities:
Debt repayment $0 $0 $(1,006)
Treasury stock proceeds 0 10 10
Treasury stock purchases (68) (38) (149)
Dividends paid (619) (564) (511)
-------- -------- --------
Net Cash Used by Financing
Activities $(687) $(592) $(1,656)
-------- -------- --------
Net Increase (Decrease) in Cash $636 $115 $(1)
Cash, beginning 438 323 324
-------- -------- --------
CASH, ENDING $1,074 $438 $323
======== ======== ========
Supplemental Disclosure:
Interest expense paid $0 $0 $51
======== ======== ========
Income taxes paid $12 $(11) $18
======== ======== ========
NOTE 14 - BRANCH ACQUISITION
On August 4, 1997, the Company purchased the assets and assumed the liabilities
of the Reedsville Branch of M&I Bank Northeast. M&I Bank Reedsville Branch was
engaged in full banking services. The results of operations of the Reedsville
Branch are included in the accompanying financial statements since the date of
acquisition. Through the acquisition of the Reedsville Branch the Company
purchased loans of $2,309,712, purchased premises and equipment of $307,250,
assumed deposits of $19,079,143 and other liabilities net of other assets of
$210,662, resulting in the Company receiving cash of $13,786,977. For the
assumption of the deposits a premium of $2,885,866 was paid. The premium is
being amortized using the straight line method over 15 years. The amortization
expense charged to operations for 1997 was $80,163.
M&I Bank did not maintain separate and complete branch accounting records for
the Reedsville Branch, therefore prior year results of operations have not been
disclosed.
<PAGE> 20
NOTE 15 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate
that value:
Cash and Short-Term Investments
For cash and short-term investments, the carrying amount is a reasonable
estimate of fair value.
Investment Securities
For securities held for investment purposes and marketable equity securities
held for investment purposes, fair values are based on quoted market prices or
dealer quotes. For other securities held as investments, fair value equals
quoted market price, if available. If a quoted market price is not available,
fair value is estimated using quoted market prices for similar securities.
Loans Receivable
The fair value of loans is estimated by discounting the future cash flows
using the current rates at which similar loans would be made to borrowers with
similar credit ratings and for the same remaining maturities.
Deposit Liabilities
The fair value of demand deposits, savings accounts and certain money market
deposits is the amount payable on demand at the reporting date. The fair
value of fixed-maturity certificates of deposit is estimated using the rates
currently offered for deposits of similar remaining maturities.
Borrowings
Rates currently available to the bank for debt with similar terms and
remaining maturities are used to estimate fair value of existing debt.
Commitments to Extend Credit, Standby Letters of Credit, and Financial
Guarantees Written
The fair value of commitments is estimated using the fees currently charged to
enter into similar agreements, taking into account the remaining terms of the
agreements and the present creditworthiness of the counterparties. For
fixed-rate loan commitments, fair value also considers the difference between
current levels of interest rates and the committed rates. The fair value of
guarantees and letters of credit is based on fees currently charged for
similar agreements or on the estimated cost to terminate them or otherwise
settle the obligations with the counterparties at the reporting date.
The estimated fair values of the Company's financial instruments are as
follows:
December 31, 1997
----------------------
Carrying Fair
(In thousands) Amount Value
----------- ----------
Financial Assets
Cash and short-term investments $14,131 $14,131
Investment securities 31,826 33,271
Loans 199,559 198,712
Less: Allowance for credit losses (2,826) -
----------- ----------
TOTAL $242,690 $246,114
=========== ==========
Financial Liabilities
Deposits $189,129 $189,972
Borrowings 32,772 33,192
----------- ----------
TOTAL $221,901 $223,164
=========== ==========
Unrecognized Financial Instruments
Commitments to extend credit $16,583 $16,583
Standby letters of credit and financial
guarantees written 914 914
----------- ----------
TOTAL $17,497 $17,497
=========== ==========
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS
Management's discussion and analysis of financial condition and results of
operations of Denmark Bancshares, Inc. and its subsidiaries ("Company"), is
intended as a review of significant factors affecting the Company's
consolidated results of operations during the three-year period ended December
31, 1997, and the Company's consolidated financial condition at the end of each
year during this period. This discussion should be read in conjunction with
the "CONSOLIDATED FINANCIAL STATEMENTS" including the accompanying notes, and
the "SELECTED FINANCIAL DATA" presented elsewhere in this report. The
Company's subsidiaries are the Denmark State Bank ("Bank"), Denmark
Agricultural Credit Corporation ("DACC") and the McDonald-Zeamer Insurance
Agency, Inc. ("McDonald").
RESULTS OF OPERATIONS
- ---------------------
The following table sets forth certain items of income and expense as well as
period-to-period percentage increases (decreases) for the Company on a
consolidated basis during the most recent three fiscal years:
Percent
Increase
(Decrease)
1997 1996 1995 1997/96 1996/95
------- ------- ------- ------- -------
(In thousands)
Interest income $18,463 $16,073 $14,882 14.9 % 8.0 %
Interest expense 9,543 8,152 7,639 17.1 6.7
Net interest income 8,920 7,921 7,243 12.6 9.4
Provision for
credit losses 351 210 200 67.1 5.0
Noninterest income 819 589 568 39.0 3.7
Noninterest expense 5,917 5,073 4,933 16.6 2.8
Net income 2,551 2,380 2,083 7.2 14.2
Earnings Performance
- --------------------
The Company recorded net income of $2,550,569 in 1997. This represents an
increase of $171,004, or 7.2% compared to 1996 earnings. The increase in net
income is primarily attributable to higher net interest income and noninterest
income which increased by $999,659 and $229,627 respectively. These items more
than offset an increase in the provision for credit losses, higher noninterest
expenses and higher income taxes which increased by $141,000, $844,057 and
$73,225 respectively. The increase in net interest income was primarily the
result of higher average earning assets. Average earning assets increased by
$27.2 million during 1997 compared to 1996. The increase in noninterest
expenses is primarily attributable to increases in salaries and employee
benefits expense and to higher operating expenses as a result of the
acquisition of the Reedsville Branch of M&I Bank Northeast. The Company
incurred approximately $108,000 of nonrecurring operating expenses related to
the acquisition of the Reedsville Branch. The nonrecurring expenses included
legal fees, data processing conversion fees, fees for printing customer checks
and other supply items and marketing materials. Net income for 1997 includes
five months of operations for the Reedsville Branch.
The increase in net income in 1997 followed an increase of $296,292, or 14.2%
in 1996 compared to 1995 earnings. The increase in net income was primarily
attributable to higher net interest income and noninterest income which
increased by $677,566 and $20,896 respectively. These items more than offset
higher noninterest expenses and income taxes which increased by $140,338 and
$251,832 respectively. The increase in net interest income was primarily the
result of higher average earning assets. Average earning assets increased by
$14.1 million during 1996 compared to 1995. Loan growth accounted for much of
this increase as average loans increased by $12.7 million or 8.4%. FDIC
insurance premiums declined by $154,328. This reduction helped contain the
increase to total noninterest expenses for 1996 to $140,338 or 2.8%.
On a per share basis, net income was $46.44 in 1997 compared with $43.26 in
1996 and $37.83 in 1995. Return on average assets for the Company was 1.12% in
1997 compared to 1.19% in 1996 and 1.13% in 1995. Return on average equity in
1997 was 9.47% compared to 9.49% and 8.95% in 1996 and 1995 respectively.
<PAGE> 22
Net Interest Income
- -------------------
Net interest income is the largest component of the Company's operating income.
Net interest income represents the difference between interest income on
earning assets, such as loans and securities, and the interest expense on
deposits and other borrowed funds. Net interest income is affected by
fluctuations in interest rates and by changes in the volume of earning assets
and interest bearing liabilities outstanding.
Net interest income increased 12.6%, or $999,659 from 1996 to 1997. The
increase is primarily attributable to higher average earning assets which
generated additional interest income of $2,239,742. Average earning assets
increased by $27.2 million or 14.2% during 1997 compared to 1996. Loan growth
accounted for much of this increase as average loans increased by $22.4 million
or 13.8%. The increase in interest income more than offset the increased
interest expense of $1,401,428 resulting from higher average interest-bearing
liabilities. Average interest-bearing liabilities increased by $25.0 million
or 15.6% during 1997.
Net interest income increased 9.4%, or $677,566 from 1995 to 1996. The
increase was primarily attributable to higher average earning assets which
generated additional interest income of $1,171,857. This more than offset the
increased interest expense of $661,491 resulting from higher average
interest-bearing liabilities. An increase in the Company's net interest income
spread from 3.24% in 1995 to 3.29% in 1996 also contributed to higher net
interest income. Net interest income spread is the difference between the
average yield earned on assets and the average rate incurred on liabilities.
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:
Year Ended December 31,
---------------------------------------------
1997 1996
---------------------------------------------
Increase Increase
(Decrease) Due to (Decrease) Due to
Change In Change In
---------------------------------------------
(In thousands) Average Average Total Average Average Total
Balance Rate Change Balance Rate Change
------- ----- ------ ------- ------ -------
Interest income:
Loans $1,946 $130 $2,076 $1,094 $74 $1,168
Taxable securities 183 40 223 105 (18) 87
Nontaxable securities 70 (20) 50 (41) (32) (73)
Federal funds sold 40 1 41 14 (5) 9
------- ----- ------ ------- ------ -------
Total interest income $2,239 $151 $2,390 $1,172 $19 $1,191
------- ----- ------ ------- ------ -------
Interest expense:
NOW accounts $3 $1 $4 $8 $(8) $0
Savings accounts (10) 1 (9) (29) (27) (56)
Money market accounts 272 41 313 235 (131) 104
Certificates and
other time deposits 654 (74) 580 195 186 381
Other borrowed funds 482 21 503 252 (168) 84
------- ----- ------ ------- ------ -------
Total interest expense $1,401 $(10) $1,391 $661 $(148) $513
------- ----- ------ ------- ------ -------
Net interest income $838 $161 $999 $511 $167 $678
======= ===== ====== ======= ====== =======
For purposes of the above table, changes which are not due solely to volume or
rate have been allocated to rate.
<PAGE> 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
The Company's consolidated average statements of financial condition, interest
earned and interest paid, and the average interest rates earned and paid for
each of the last three years are:
<CAPTION>
1997 1996 1995
------------------------- --------------------------- ----------------------------
(In thousands) Average Income Average Average Income Average Average Income Average
Daily and Yield or Daily and Yield or Daily and Yield or
Balance Expense Rate Balance Expense Rate Balance Expense Rate
------- -------- ------- -------- -------- ------- -------- --------- -------
ASSETS
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Taxable loans $184,964 $16,190 8.75% $162,563 $14,116 8.68% $150,036 $12,957 8.64%
Nontaxable loans 317 19 5.99% 287 17 5.92% 145 8 5.52%
------- -------- ----- -------- -------- ----- -------- ------- -----
Total Loans $185,281 $16,209 8.75% $162,850 $14,133 8.68% $150,181 $12,965 8.63%
------- ------- ----- -------- ------- ----- -------- ------- -----
Taxable securities $12,688 $795 6.27% $9,639 $572 5.93% $7,952 $485 6.10%
Nontaxable securities 17,731 1,274 7.19% 16,767 1,224 7.30% 17,306 1,297 7.49%
------- -------- ----- -------- -------- ----- ------- ------- -----
Total Securities $30,419 $2,069 6.80% $26,406 $1,796 6.80% $25,258 $1,782 7.06%
------- -------- ----- -------- -------- ----- ------- ------- -----
Federal funds sold $3,385 $185 5.47% $2,647 $144 5.44% $2,401 $135 5.62%
------- -------- ----- -------- -------- ----- ------- ------- -----
Total Earning Assets $219,085 $18,463 8.43% $191,903 $16,073 8.38% $177,840 $14,882 8.37%
------- -------- ----- -------- -------- ----- ------- ------- -----
Noninterest-earning assets:
Cash and due from banks $4,825 $4,677 $4,167
Allowance for credit losses (2,669) (2,414) (2,204)
Premises and equipment 3,116 3,030 3,107
Other assets 3,817 2,171 2,060
------- ------ -------
TOTAL ASSETS $228,174 $199,367 $184,970
======= ======== ========
LIABILITIES AND STOCKHOLDERS'
EQUITY
Interest-bearing liabilities:
NOW accounts $9,112 $184 2.02% $8,959 $180 2.01% $8,569 $180 2.10%
Savings accounts 16,521 419 2.54% 16,911 428 2.53% 17,977 483 2.69%
Money market accounts 33,352 1,564 4.69% 27,383 1,250 4.56% 22,719 1,146 5.04%
Time deposits 89,744 5,193 5.79% 78,608 4,613 5.87% 75,149 4,233 5.63%
Other borrowed funds 36,557 2,183 5.97% 28,408 1,681 5.92% 24,538 1,597 6.51%
------- -------- ----- ------- ------- ----- -------- ------- -----
Total Interest-Bearing
Liabilities $185,286 $9,543 5.15% $160,269 $8,152 5.09% $148,952 $7,639 5.13%
------- -------- ----- -------- -------- ----- ------- ------- -----
Noninterest-bearing
liabilities and
stockholders' equity:
Demand deposits $14,108 $12,393 $11,230
Other liabilities 1,845 1,641 1,517
Stockholders' equity 26,935 25,064 23,271
------- ------- -------
TOTAL LIABILITIES
AND STOCKHOLDERS'
EQUITY $228,174 $199,367 $184,970
======= ======= =======
Net interest income and
rate spread $8,920 3.28% $7,921 3.29% $7,243 3.24%
======= ===== ====== ===== ====== =====
<CAPTION>
For purposes of the above table, nonaccrual loans are included in the average
daily balance figure, but interest income associated with these loans is
recognized under the cash basis method of accounting. Securities are shown at
amortized cost.
</TABLE>
<PAGE> 24
Noninterest Income
- ------------------
Total noninterest income increased by $229,627 in 1997. The increase is
primarily the result of higher service fees and commissions which increased
$156,330 or 30.7% higher than 1996. Commissions on the sales of mutual funds
and insurance products increased by $150,348 primarily as a result of the
acquisition of an insurance agency by McDonald at year end 1996. Appraisal
fees, a component of other noninterest income, increased by $12,075 during
1997.
Total noninterest income increased by $20,896 in 1996. The increase was
primarily the result of higher service fees and commissions which more than
offset the loss on investment securities. Commissions on the sales of mutual
funds and insurance products increased by $55,487 primarily as a result of
hiring an additional investment representative in mid 1995. Overdraft fees
increased $49,231 as a result of a fee increase implemented during the first
quarter of 1996. Service charges on deposit accounts decreased by $14,416 as
the Bank offered a fee free checking account in order to attract additional
demand deposit accounts.
The following table sets forth certain items of noninterest income:
Percent
(In thousands) Increase (Decrease)
Noninterest income: 1997 1996 1995 1997/96 1996/95
------ ------ ------ -------- --------
Service fees and commissions $668 $511 $421 30.7% 21.4%
Investment security (losses)
gains 0 (58) 0 (100.0) 0.0
Other 151 136 147 11.0 (7.5)
------ ------ ------ -------- --------
Total noninterest income $819 $589 $568 39.0 % 3.7 %
====== ====== ====== ======== ========
Noninterest Expense
- -------------------
Salaries and employee benefits expense increased $452,062 or 14.1% in 1997.
The increase is attributable to the hiring of eight full-time equivalent staff
members and to regular salary increases. The expenses include five months of
salaries and benefits for the acquired branch staff and the addition of two
employees by McDonald as a result of their acquisition. Occupancy expenses
increased by $18,513 primarily as a result of the additional branch facility.
Data processing expenses increased by $47,396. Of this increase, $20,400
represents a one-time fee to convert the acquired customers' records into the
Company's computer system automatically. Printing and supplies expenses
increased $60,113 or 38.0% in 1997. Included in printing and supplies expenses
are approximately $25,000 of fees for printing the acquired customers' checks
and other supply items. Additional expenses were incurred to update supply
items such as letterhead paper, envelopes, brochures, etc., to reflect the
additional branch location. Legal and professional fees increased $95,912 in
1997. Approximately $63,000 of legal fees were incurred in connection with the
branch acquisition. Amortization of intangibles expense increased by $94,926
as a result of the write-down of intangible assets related to the acquisitions
of the branch bank and the insurance agency. The intangibles are being
amortized over fifteen years.
Total noninterest expense increased by $140,338, or 2.8% in 1996. Salaries and
employee benefits expense increased by $231,881, or 7.8%. The increase to
salaries and employee benefits was the result of additional staff and regular
salary increases. FDIC insurance costs decreased by $154,328 as a result of
lower premium rates assessed against banks.
The following table sets forth certain items of noninterest expense:
Percent
(In thousands) Increase (Decrease)
Noninterest expense: 1997 1996 1995 1997/96 1996/95
------ ------ ------ -------- --------
Salaries and employee
benefits $3,664 $3,212 $2,980 14.1 % 7.8 %
Occupancy expenses 588 570 540 3.2 5.6
Data processing expenses 320 272 257 17.6 5.8
Marketing expenses 214 193 158 10.9 22.2
Printing and supplies
expenses 218 158 153 38.0 3.3
Directors and committee fees 173 168 159 3.0 5.7
FDIC insurance assessment 18 2 156 800.0 (98.7)
Other operating expenses 722 498 530 45.0 (6.0)
------ ------ ------ -------- --------
Total noninterest expense $5,917 $5,073 $4,933 16.6 % 2.8 %
====== ====== ====== ======== ========
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL CONDITION
- -------------------
The following table sets forth certain assets and liabilities of the Company on
a consolidated basis as of the end of each of the three most recent fiscal
years and period-to-period percentage increases (decreases):
Percent
Increase
(Decrease)
(In thousands) 1997 1996 1995 1997/96 1996/95
--------- ------- ------- ------- --------
Federal funds sold $7,112 $937 $6,900 659.0 % (86.4)%
Investment securities 31,826 28,620 25,650 11.2 11.6
Loans 199,559 175,214 156,072 13.9 12.3
Allowance for credit losses (2,826) (2,507) (2,319) 12.7 8.1
Total assets 251,674 213,714 196,877 17.8 8.6
Deposits 189,129 150,417 144,818 25.7 3.9
Other borrowed funds 32,772 35,912 26,426 (8.7) 35.9
Stockholders' equity 27,739 25,913 24,190 7.0 7.1
Total assets at December 31, 1997, were $251.7 million. This represents an
increase of $38.0 million, or 17.8% over year end 1996. This followed an
increase of $16.8 million, or 8.6% at December 31, 1996, compared to year end
1995. Management attributes the growth during 1997 and 1996 to strong loan
demand and to the acquisition of the Reedsville Branch during 1997. Total
loans outstanding at December 31, 1997, were $199.6 million compared to $175.2
million and $156.1 million at year end 1996 and 1995, respectively. Total
loans grew $24.3 million or 13.9% during 1997. This followed an increase of
$19.1 million or 12.3% during 1996.
The acquisition of the Reedsville Branch provided the Company approximately
$13.8 million in cash, additional loans of approximately $2.3 million, and the
fixed assets of approximately $300,000 associated with the Branch, in
consideration of the assumption of approximately $19.1 million of deposits.
Other assets increased by $3.0 million primarily as a result of the intangible
assets associated with the acquisition of the Branch. The cash provided in the
transaction was used primarily to reduce other borrowed funds, purchase
investment securities and to increase liquidity by purchasing federal funds
sold (unsecured loans of immediately available funds to correspondent banks for
one business day).
Investments
- -----------
Investment balances in various categories at the end of each of the last three
years were as follows:
December 31,
----------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Amortized Fair Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value Cost Value
---------- ------ --------- ------- ---------- ------
U.S. Government
agencies $2,744 $2,664 $2,121 $2,080 $2,071 $2,124
Mortgage-backed
securities 10,688 10,690 7,442 7,420 5,386 5,360
State and municipal
securities 17,139 18,824 17,667 19,241 16,320 18,035
Other securities 1,332 1,332 1,453 1,453 1,868 1,846
---------- ------ --------- ------- --------- -------
TOTAL $31,903 $33,510 $28,683 $30,194 $25,645 $27,365
========== ====== ========= ======= ========= =======
Securities available-for-sale and securities held-to-maturity are combined in
the table presented above.
The investment securities portfolio is structured to provide the Company with
adequate liquidity by purchasing readily marketable securities. At December
31, 1997, investment securities totaled $31.8 million, an increase of $3.2
million, or 11.2% over December 31, 1996. This followed an increase at year
end 1996, of $3.0 million, or 11.6% over December 31, 1995. The carrying value
at December 31, 1997, includes $77,487 of net unrealized losses on available-
for-sale securities compared to $63,243 of net unrealized losses at year
end 1996. The net unrealized gains of the held-to-maturity securities amounted
to $1,684,339 as of December 31, 1997, compared to $1,574,278 at year end 1996.
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following table shows the maturities of investment securities at
December 31, 1997, and the weighted average yields of such securities:
<TABLE>
<CAPTION>
U.S. Government
Agencies and
Mortgage-backed State and Municipal
Securities Securities Equity Securities Total Securities
---------------- ------------------- ----------------- ----------------
Amortized Amortized Amortized Amortized
(In thousands) Cost Yield Cost Yield Cost Yield Cost Yield
--------- ------ ------------ ------ ----------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Due in one year or less $3,379 5.81% $371 9.20% $1,332 5.77% $5,082 6.00%
Due from one to five years 7,199 6.27% 6,109 8.97% - - 13,308 7.51%
Due from six to ten years 2,579 7.13% 6,816 6.45% - - 9,395 6.64%
Due after ten years 275 7.57% 3,843 5.85% - - 4,118 5.97%
------ ------ ------- ----- ------ ----- ------- -----
TOTAL $13,432 6.34% $17,139 7.27% $1,332 5.77% $31,903 6.79%
======= ===== ======= ===== ====== ===== ======= =====
</TABLE>
Yields on tax exempt securities have not been computed on a tax equivalent
basis. Mortgage-backed securities are allocated according to their expected
prepayments rather than their contractual maturities. Stocks and other
securities having no stated maturity have been included in "Due in one year or
less" in the table above. The average maturity of the portfolio was 5.8 years
as of December 31, 1997, compared to 7.3 years and 6.7 years at year end 1996
and 1995 respectively. Securities available-for-sale and securities
held-to-maturity are combined in the table presented above.
The following table shows the average balance and tax equivalent yield for each
of the last three years:
Year Ended December 31,
--------------------------------------------------
1997 1996 1995
-------------- -------------- ---------------
Average Average Average
Balance Yield Balance Yield Balance Yield
------- ------ -------- ----- -------- ------
Taxable securities $12,688 6.27% $9,639 5.93% $7,952 6.10%
Nontaxable securities 17,731 10.89% 16,767 11.06% 17,306 11.36%
------- ------ -------- ----- -------- -----
TOTAL $30,419 8.96% $26,406 9.19% $25,258 9.70%
The weighted average tax equivalent yield declined during 1997. The yield on
taxable securities increased by thirty-four basis points while the yielding on
nontaxable securities fell as higher yielding securities that matured or were
called were replaced with lower yielding securities of substantially the same
quality.
There were no significant concentrations of investments (greater than 10
percent of stockholders' equity) in any individual security issuer, except for
mortgage-backed securities issued by U.S. Government agencies and corporations.
Loans
- -----
The following table sets forth major types of loans and the percentage of total
loans for each type at the end of each of the last three years:
December 31,
------------------------------------------------------
1997 1996 1995
---------------- ------------------- -----------------
(Amounts in thousands) Amount % Amount % Amount %
-------- ----- -------- ----- -------- -----
Real estate $128,377 64.3% $114,170 65.2% $101,087 64.8%
Commercial 53,903 27.0% 45,900 26.2% 41,194 26.4%
Installment 16,623 8.3% 14,590 8.3% 13,302 8.5%
Other 656 0.4% 554 0.3% 489 0.3%
-------- ----- -------- ----- -------- -----
TOTAL $199,559 100.0% $175,214 100.0% $156,072 100.0%
======== ===== ======== ===== ======== ======
<PAGE> 27
The following sets forth the maturities of various categories of loans at
December 31, 1997:
Due from
Due in One One to Due after
Year or Less Five Years Five Years
------------ ----------- ----------
(In thousands)
Real estate $108,790 $18,279 $1,308
Commercial 46,394 7,148 361
Installment 8,307 8,147 169
------------ ----------- ----------
TOTAL $163,491 $33,574 $1,838
============ =========== ==========
Substantially all loans maturing over one year are at fixed interest rates.
Of the real estate loans shown in the above table, $74 million or 58% are
residential mortgages, the Company's largest single category of loans.
Approximately $59 million of these are one-year notes which are renewed
annually, subject to updated credit and collateral valuation information but
generally without fees or closing costs to the customer. The remaining
residential mortgages are fixed rate loans for three and five year terms.
Virtually all of these notes amortize principal indebtedness over a ten to
twenty-five year period, and are repriceable at fixed rates that generally
follow prevailing longer term rates.
At December 31, 1997, $45 million or 23% of the Company's outstanding loans
were deemed "agriculture-related", constituting the highest industrial
concentration in the portfolio. Of these loans, over 90% relate directly to
the dairy farming industry. Virtually all of these notes are written on a
one-year basis, which allows the Company to review credit information and
collateral values annually to ensure continued loan quality.
The Company does not make unsecured loans other than credit card advances,
which aggregated $427,503 at December 31, 1997, or .21% of total loans
outstanding, and personal reserve overdraft protection accounts, which
aggregated $183,017 or .09% of total loans outstanding at December 31, 1997.
Nonaccrual loans totaled $4,667,707, $3,313,363 and $1,169,136 at December 31,
1997, 1996 and 1995 respectively. Approximately $3.3 million of the total
nonaccrual loans at December 31, 1997, are real estate loans. Approximately
$1.4 million of these are secured by three low income multifamily residential
properties, $1.1 million are secured by commercial properties and $.8 million
are secured by residential properties. The Bank started formal collection
procedures on the three low income multifamily properties after the loans
became nonperforming in November 1997. Management believes the values of these
properties and related tax credits are sufficient to cover the loans and
minimal charge-offs are expected. If the Bank ultimately acquires these
properties through foreclosure proceedings, certain deed restrictions relating
to these properties could result in the Bank owning them for an extended
period. Approximately $1.1 million of the total nonaccrual loans are
commercial loans. Almost $700,000 of the commercial nonaccrual loans are to a
single borrower. The Bank has started foreclosure proceedings against this
borrower. Management considers the loans to this borrower, which are secured
by personal property, commercial real estate and residential real estate, well
secured.
The Company has no accruing loans that are past due 90 days or more. The
Bank's policy is to place in nonaccrual status all loans which are
contractually past due 90 days or more as to any payment of principal or
interest, and all other loans as to which reasonable doubt exists as to the
full, timely collection of interest or principal based on management's view of
the financial condition of the borrower. Therefore, the Company is aware of no
potential problem loans that have not been placed on nonaccrual status.
Previously accrued but uncollected interest on loans placed on nonaccrual
status is charged against current earnings, and interest income thereafter is
recorded only when received.
Impaired loans totaled $3,425,149, $2,493,985 and $821,561 at December 31,
1997, 1996 and 1995 respectively. Impaired loans include some loans that are
also considered nonaccrual and/or restructured. The impairment of
approximately $1.4 million of loans secured by low income multifamily
properties contributed to the increase in impaired loans at year end. As
discussed above, formal collection procedures have started on these loans and
foreclosure proceedings have started on the properties securing approximately
$700,000 of impaired loans. Management does not feel the substantial increases
to nonaccrual and impaired loans at year end are indicative of a trend.
<PAGE> 28
Restructured loans at December 31, 1997, were $974,519 compared to $882,871 and
$776,452 in 1996 and 1995 respectively. Restructured loans involve the
granting of some concession to the borrower involving the modification of terms
of the loan, such as changes in payment schedule or interest rate. Of the
restructured loans $672,513 involved the granting of a reduced rate and
$302,006 involved the lengthening of the amortization period.
The following table sets forth certain data concerning nonaccrual loans and
restructured loans:
December 31,
----------------------------------------------------
1997 1996 1995
--------------- ---------------- -------------------
(Amounts in thousands) % of Total % of Total % of Total
Amount Loans Amount Loans Amount Loans
------ ---------- ------ ---------- ------ ----------
Nonaccrual loans (1) $4,668 2.34% $3,313 1.89% $1,169 0.75%
Restructured loans(2) 406 0.20 299 0.17 501 0.32
------ ---------- ------ ---------- ------ ----------
Total $5,074 2.54% $3,612 2.06% $1,670 1.07%
====== ========== ====== ========== ====== ==========
(1)Includes impaired loans of $3,056,643, $2,228,438 and $676,437 as of
December 31, 1997, 1996 and 1995, respectively.
(2)Excludes restructured loans of $568,042, $584,164 and $275,962 as of the
years ended December 31, 1997, 1996 and 1995, respectively, which are
included with nonaccrual loans.
Allowance For Credit Losses
- ---------------------------
The allowance for credit losses is established through a provision for credit
losses charged to expense. Loans are charged against the allowance for credit
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount that management believes will be adequate
to absorb losses inherent in existing loans and commitments to extend credit.
These evaluations take into consideration a number of factors, including the
Bank's and DACC's loss experience in relation to outstanding loans and the
existing level of the allowance for credit losses, changes in the nature and
volume of the portfolio, overall portfolio quality, loan concentrations,
specific problem loans, regular examinations and appraisals of loan portfolios
conducted by state and federal supervisory agencies, and current and
anticipated economic conditions. The allowance for credit losses represents
management's best judgment as to a prudent aggregate allowance in connection
with the total loan portfolio.
At December 31, 1997, the Company's investment in impaired loans totaled
$3,425,149. The investment in impaired loans that does not require a related
allowance for credit losses amounted to $2,717,153 while the remaining impaired
loans totaling $707,996 require a related allowance for credit losses of
$106,505.
In 1997 the Company's provision for credit losses was $351,000 compared to
$210,000 and $200,000 during 1996 and 1995 respectively. Net charge-offs were
$31,807 for the year ended December 31, 1997, compared to net charge-offs of
$22,373 and net recoveries of $40,094 for the years ended 1996 and 1995
respectively. The ratio of allowance for credit losses to total loans at year
end was 1.42% compared to 1.43% at December 31, 1996. The net increase to the
allowance was $319,193 or 12.7% higher than year end 1996.
The Company's ratio of loans more than 30 days past due (including nonaccrual
loans) to total loans was 3.29% at December 31, 1997, compared to 2.92% and
1.56% at December 31, 1996 and 1995, respectively.
The Company's portfolio is heavily concentrated in the Bank's three-county
primary service area and would be subject to fluctuations in local economic
conditions. The Company does have a concentration of agricultural-related
loans amounting to approximately 23% of total loans as of December 31, 1997.
The factors that influence the agricultural economy are complex and difficult
to predict. Agricultural loans more than 30 days past due (including
nonaccrual loans) totaled $203,940 at December 31, 1997. This represents .10%
of total loans outstanding and 3.1% of the Company's total past due loans.
During 1997 there were $22,627 of net charge-offs on loans considered
agricultural-related. Management does not believe that these risks associated
with the Company's loan portfolio have changed materially during the past three
years.
<PAGE> 29
Management believes its allowance for credit losses as of December 31, 1997, of
$2,825,921 (equal to 1.42% of the total loans) is adequate to cover credit
risks in the loan portfolio.
Changes in the allowance for credit losses in each of the three most recent
years were as follows:
Year Ended December 31,
---------------------------------------
1997 1996 1995
---------- ---------- ----------
Balance - beginning of year $2,506,728 $2,319,101 $2,079,007
---------- ---------- ----------
Charge-offs:
Real estate $0 $0 $2,650
Installment 18,643 3,322 46,676
Credit cards and related plans 1,277 4,877 1,690
Commercial loans 40,662 48,000 77,997
---------- ---------- ----------
$60,582 $56,199 $129,013
---------- ---------- ----------
Recoveries:
Real estate $3,861 $5,019 $69,588
Installment 10,535 24,527 27,298
Credit cards and related plans 787 267 767
Commercial loans 13,592 4,013 71,454
---------- ---------- ----------
$28,775 $33,826 $169,107
---------- ---------- ----------
Net charge-offs (recoveries) $31,807 $22,373 $(40,094)
---------- ---------- ----------
Provision charged to
operations $351,000 $210,000 $200,000
---------- ---------- ----------
Balance - end of year $2,825,921 $2,506,728 $2,319,101
========== ========== ==========
Ratio of net charge-offs
(recoveries) during the
year to average loans
outstanding during the year 0.02% 0.01% (0.03)%
========== ========== ==========
Ratio of allowance for
credit losses to total
loans at the end of year 1.42% 1.43% 1.49%
========== ========== ==========
In 1997 the Company's ratio of charge-off loans to average loans outstanding
was .03% compared to .03% and .09% during 1996 and 1995 respectively.
Charge-offs on loans have been notably low the last two years.
Recoveries on loans decreased by $135,281 in 1996 compared to 1995. The 1995
recoveries were notably high. Recoveries on real estate loans during 1995
totaling $60,000 were from loans charged-off prior to 1990 on agricultural
properties. The 1995 commercial loan recoveries include $48,000 from a single
borrower whose loan was charged off during 1993.
<PAGE> 30
Deposits
- --------
The following table sets forth the deposits as of the end of each of the three
most recent fiscal years and period-to-period percentage increases (decreases):
Percent
Increase (Decrease)
(In thousands)
1997 1996 1995 1997/96 1996/95
-------- --------- ------- -------- --------
Non-interest bearing
accounts $19,494 $16,078 $15,078 21.2 % 6.6 %
NOW accounts 10,395 9,591 9,345 8.4 2.6
Savings accounts 17,036 16,179 16,909 5.3 (4.3)
Money market accounts 40,451 29,104 25,775 39.0 12.9
Certificates of deposit 81,310 62,377 60,673 30.4 2.8
Time deposit open accounts 20,443 17,088 17,038 19.6 0.3
-------- --------- ------- -------- --------
Total deposits $189,129 $150,417 $144,818 25.7 % 3.9 %
======== ========= ======== ======= ========
At December 31, 1997, total deposits were $189,129,109, an increase of
$38,712,407 or 25.7% compared to December 31, 1996. This followed an increase
of $5,598,933 or 3.9% at December 31, 1996, compared to year end 1995. The
Reedsville Branch added $20,233,266 of deposits at year end 1997. Year end
1997 deposits also include $5,490,000 of certificates of deposit from a local
school district. The funds are expected to be withdrawn during 1998 to fund
construction of a new school. The increase in total deposits at year end 1997,
excluding the Reedsville Branch and the school district funds discussed above,
was $12,989,141 or 8.6% compared to year end 1996. Of this increase, $6.2
million were money market and savings deposits, $5.0 million were certificates
and other time deposits and $1.8 million were checking accounts.
Average total deposits increased by $5,142,930 or 3.9% during 1995 primarily as
a result of an increase in money market accounts. The Company began offering
money market accounts that pay interest at rates comparable to money market
mutual funds during the fourth quarter of 1994 . The average balance of money
market accounts increased by $6,208,627 or 37.6% during 1995. Some of this
increase can be attributed to a shift by depositors from lower yielding
passbook savings accounts. The average balance of passbook savings accounts
decreased by $2,304,640 or 11.4%.
The following sets forth the daily weighted average balance of deposits during
each of the last three years, together with the average rate paid on each
category of interest-bearing deposits:
Year Ended December 31,
----------------------------------------------------------
1997 1996 1995
--------------------- ------------------ -----------------
Average Average Average
Average Interest Average Interest Average Interest
Amount (1) Rate Amount Rate Amount Rate
---------- --------- -------- ------- ------- -----
(In thousands)
NOW accounts $9,112 2.02% $8,959 2.01% $8,569 2.10%
Savings accounts 16,521 2.53% 16,911 2.53% 17,977 2.69%
Money market accounts 33,352 4.69% 27,383 4.56% 22,719 5.05%
Certificates of deposit 72,144 5.73% 61,612 5.87% 58,697 5.57%
Time deposit open
accounts 17,600 6.02% 16,996 5.92% 16,452 5.85%
---------- -------- -------- ------ ------- -------
Total interest-bearing
accounts $148,729 4.95% $131,861 5.09% $124,414 4.86%
Noninterest-bearing
demand accounts 14,108 N/A 12,393 N/A 11,230 N/A
---------- -------- -------
Total deposits $162,837 $144,254 $135,644
========== ======== ========
(1) The average balance during 1997 includes the deposits of the Reedsville
Branch as of the date of acquisition.
<PAGE> 31
The following table shows, as of December 31, 1997, the maturities of time
certificates of deposit in amounts of $100,000 or more and other time deposits
in amounts of $100,000 or more:
3 Months 3 to 6 7 to 12 Over 12
Or Less Months Months Months Total
-------- ------- --------- ------- --------
(In thousands)
Certificates of deposit $4,403 $5,565 $6,701 $2,782 $19,451
Other time deposits 0 172 2,251 574 2,997
-------- ------- --------- ------- --------
Total $4,403 $5,737 $8,952 $3,356 $22,448
======== ======= ========= ======= ========
Other Borrowed Funds
The following sets forth information concerning other borrowed funds for the
Company during each of the last three years:
December 31,
(In thousands) 1997 1996 1995
-------- -------- ---------
Short-term borrowings:
Notes payable to banks $22,791 $25,840 $23,310
U.S. Treasury demand notes 300 279 53
Current maturities of long-term
borrowings 3,004 3,112 0
-------- -------- ---------
Total short-term borrowings $26,095 $29,231 $23,363
-------- -------- ---------
Long-term borrowings:
Long-term borrowings $9,681 $9,793 $3,063
Less: Current maturities 3,004 3,112 0
-------- -------- ---------
Total long-term borrowings $6,677 $6,681 $3,063
-------- -------- ---------
Total other borrowed funds $32,772 $35,912 $26,426
======== ======== =========
Average amounts outstanding during
the year $36,557 $28,408 $24,628
Average interest rates on amounts
outstanding during the year 5.97% 5.92% 6.48%
Weighted average interest rate at
year end 6.05% 5.89% 6.25%
Maximum month-end amounts outstanding $41,693 $35,912 $26,636
Notes payable to banks consists of secured borrowings under existing lines of
credit. At December 31, 1997, the Company had $35 million of established lines
of credit. The decrease in other borrowed funds at year end 1997 is
attributable to a reduction in notes payable by the Bank amounting to $5.0
million which more than offset an increase in notes payable by DACC amounting
to $1.9 million. Cash received in consideration for the assumption of the
deposit liabilities of the acquired Branch was used in part to reduce other
borrowed funds of the Bank. DACC used the proceeds of the additional notes
payable to fund loans.
The increase in other borrowed funds at year end 1996 is attributable to an
increase in notes payable by the Bank amounting to $5.6 million and by DACC
amounting to $3.5 million. The proceeds from the borrowings incurred during
1996 were used primarily to fund loans.
Note 9 of the Notes To Consolidated Financial Statements contains information
concerning the significant terms of the long-term borrowings.
<PAGE> 32
Stockholders' Equity
Pursuant to regulations promulgated by the Federal Reserve Board, bank holding
companies are required to maintain minimum levels of core capital as a
percentage of total assets (leverage ratio) and total capital as a percentage
of risk-based assets. Under these regulations, the most highly rated banks
must meet a minimum leverage ratio of at least 3%, while lower rated banks must
maintain a ratio of at least 4% to 5%. The regulations assign risk weightings
to assets and off-balance sheet items and require a minimum risk-based capital
ratio of 8%. At least half of the required 8% must consist of core capital.
Core capital consists principally of shareholders' equity less intangibles,
while qualifying total capital consists of core capital, certain debt
instruments and a portion of the allowance for credit losses. The table set
forth below describes the ratios of the Company as of December 31, 1997, and
the applicable regulatory requirements. The Company's core and risk-based
capital ratios, as shown on the table, are well above the minimum levels.
Regulatory
Ratio Requirements
---------- ------------
Equity as a % of assets 11.02% N/A
Core capital as a % of assets 10.13% 4.00%
Core capital as a % of
risk-based assets 14.58% 4.00%
Total capital as a % of
risk-based assets 15.83% 8.00%
Stockholders' equity at December 31, 1997, increased 7.0% to $27,739,074 or
$506 per share, compared with $25,913,137 or $471 per share one year ago.
The ability of the Company to pay dividends on the Common Stock is largely
dependent upon the ability of the Bank to pay dividends on the stock held by
the Company. The Bank's ability to pay dividends is restricted by both state
and federal laws and regulations. The Bank is subject to policies and
regulations issued by the FDIC and the Division of Banking of the Wisconsin
Department of Financial Institutions ("the Division") which, in part, establish
minimum acceptable capital requirements for banks, thereby limiting the ability
to pay dividends. In addition, Wisconsin law provides that state chartered
banks may declare and pay dividends out of undivided profits but only after
provision has been made for all expenses, losses, required reserves, taxes and
interest accrued or due from the bank. Payment of dividends in some
circumstances may require the written consent of the Division.
Cash dividends declared in 1997 were $11.75 per share compared with $10.75
and $9.75, in 1996 and 1995, respectively. The dividend payout ratio
(dividends declared as a percentage of net income) was 25.30%, 24.84% and
25.76% in 1997, 1996 and 1995, respectively.
The adequacy of the Company's capital is reviewed periodically to ensure
that sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. Management is committed to maintaining
capital at a level that will allow the Company to take advantage of future
opportunities when they arise. The Company's current level of capitalization
is strong. This will allow the Company to pursue profitable growth
opportunities.
Liquidity
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet the Company's need for cash. Loan repayments as well as net cash
provided by operating activities amounting to $2.6 million, net cash received
from the acquisition of the branch of $13.8 million, an increase in deposits
totaling (net of the acquired deposits) $19.6 million, as shown in the
Consolidated Statements of Cash Flows, all provided sources of funds during
1997. The net increase in loans of $22.1 million (net of the acquired loans),
the net increase in federal funds sold of $6.2 million, the net decrease in
other borrowed funds of $3.1 million, and the net increase in investment
securities of $2.7 million were the major uses of cash during 1997.
During 1996 the major sources of funds were loan repayments, net cash provided
by operating activities of $2.3 million, an increase in deposits totaling $5.6
million and a net increase in other borrowed funds amounting to $9.5 million.
The major uses of funds during 1996 were the net increase in loans of $19.2
million and the increase in investment securities amounting to $2.6 million.
<PAGE> 33
The Bank maintains liquid assets to meet its liquidity needs. These include
cash and due from banks, marketable investment securities designated as
available-for-sale and federal funds sold. The Bank also has the ability to
borrow approximately $10 million by means of the purchase of short-term federal
funds from its principal correspondent banks. Management strives to maintain
enough liquidity to satisfy customer credit needs, meet deposit withdrawal
requests and any other expected needs for cash. Excess liquid assets are
reallocated to achieve higher yields.
One ratio used to measure the liquidity of banking institutions is the net loan
to deposit ratio. The net loan to deposit ratio of the Bank was 88.9%, 97.5%
and 90.8% at December 31, 1997, 1996 and 1995, respectively. A high net loan
to deposit ratio creates a greater challenge in managing adverse fluctuations
in deposit balances and consequently this can limit loan growth.
The net loan to deposit ratio reflects only on-balance sheet items.
Off-balance sheet items such as commitments to extend credit and established
borrowing lines of credit also affect the liquidity position. In order to
increase available funding sources the Bank is a member of the Federal Home
Loan Bank (FHLB) of Chicago. Membership enables the Bank to borrow on a
secured basis approximately $18.4 million. As of December 31, 1997, the amount
owed to the Federal Home Loan Bank was $9.6 million. The amount of eligible
borrowing from the FHLB of Chicago is determined by the amount of residential
loans held by the Bank and by the amount of common stock of FHLB of Chicago
purchased by the Bank. An additional investment in stock of $1.4 million would
allow the Bank to borrow up to $45.6 million from FHLB of Chicago. The Bank
has also sold loans to DACC, the parent company and to the secondary mortgage
market to improve its liquidity position.
Other sources of liquidity for the Company consist of established lines of
credit by DACC and by the parent company. As of December 31, 1997, DACC has
unused lines of credit of $8.2 million and the parent company has an unused
line of credit of $4 million. See Note 11 -- Financial Instruments with
Off-Balance Sheet Risk in the Notes To Consolidated Financial Statements for a
discussion of the Company's commitments to extend credit. Management believes
the Company's liquidity position as of December 31, 1997, is adequate under
current economic conditions.
Interest Rate Sensitivity
The following table shows the repricing period for interest earning assets and
interest-bearing liabilities and the related gap based on contractual
maturities, at December 31, 1997:
(In thousands) 0 to 6 7 to 12 1 to 2 Over 2
Months Months Years Years
-------- -------- -------- --------
Loans $72,486 $91,292 $16,876 $18,906
Investment securities 1,917 1,870 2,550 25,489
Federal funds sold 7,112 0 0 0
-------- -------- -------- --------
Total interest-earning assets $81,515 $93,162 $19,426 $44,395
-------- -------- -------- --------
Interest-bearing deposits $112,339 $31,592 $21,920 $3,784
Other borrowed funds 26,093 2 2,205 4,472
-------- -------- -------- --------
Total interest-bearing liabilities $138,432 $31,594 $24,125 $8,256
-------- -------- -------- --------
Rate sensitivity gap $(56,917) $61,568 $(4,699) $36,139
Cumulative rate sensitivity gap $(56,917) $4,651 $(48) $36,091
Cumulative ratio of rate sensitive
assets to rate sensitive liabilities 58.88% 102.74% 99.98% 117.83%
Ratio of cumulative gap to average
earning assets (25.98)% 2.12% (0.02)% 16.47%
Mortgage backed securities are allocated according to their expected
prepayments rather than their contractual maturities.
<PAGE> 34
Interest rate risk is the exposure to a bank's earnings arising from changes in
future interest rates. Interest rate sensitivity is measured using gap
analysis. Gap analysis is used to identify mismatches in the repricing of
assets and liabilities within specified periods of time or interest sensitivity
gaps. The rate sensitivity or repricing gap is equal to total interest-earning
assets less total interest-bearing liabilities available for repricing during a
given time interval. A positive gap exists when total interest-earning
repricing assets exceed total interest-bearing repricing liabilities and a
negative gap exists when total interest-bearing repricing liabilities exceed
total interest-earning repricing assets. Generally a positive repricing gap
will result in increased net interest income in a rising rate environment and
decreased net interest income in a falling rate environment. A negative gap
tends to produce increased net interest income in a falling rate environment
and decreased net interest income in a rising rate environment.
The preceding table indicates the Company has a positive gap of $4.7 million or
2.1% of average earning assets for all assets and liabilities repricing within
one year. The cumulative ratio of rate sensitive assets to rate sensitive
liabilities within one year is 102.7%. For purposes of this analysis, NOW,
savings and money market accounts are considered repriceable within six months.
Accounting Developments
In February 1997, the Financial Accounting Standards Board (FASB) issued FAS
No. 128, "Earnings per Share" effective for financial statements issued after
December 15, 1997. This statement establishes standards for computing and
presenting earnings (EPS) and supersedes APB Opinion No. 15. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also requires
dual presentation of basic and diluted EPS on the face of the income statement
for all entities with complex capital structures and requires a reconciliation
of the numerator and denominator of the basic EPS computation to the numerator
and denominator of the diluted EPS computation. The Company presently does not
have a complex capital structure and therefore, the adoption of FAS No. 128
will have no effect on the Company's financial statements in the year of
adoption.
In June 1997, FASB issued FAS No. 130, "Reporting Comprehensive Income"
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 adoption of FAS
No. 130 will result in additional disclosures in the Consolidated Statements of
Income.
In June 1997, FASB issued FAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information" effective for fiscal years beginning after
December 15, 1997. This statement establishes standards for the way that
public business enterprises report information about operating segments in
annual financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports issued to
shareholders. FAS No. 131 also establishes standards for related disclosures
about products and services, geographic areas, and major customers. The
Company has not made a detailed evaluation of the expected impact the adoption
of this statement will have on the Company's financial statements. The
adoption of FAS No. 131 may result in additional disclosures about the
operating results of the Bank and DACC.
Other Developments
The Company is reliant on computer systems to conduct its daily operations.
The Bank has adopted a Year 2000 policy to address concerns about whether its
computer systems will properly recognize date sensitive information when the
year changes to 2000. Systems that do not properly recognize such information
could generate erroneous data or cause a system to fail. The Bank has
performed an initial assessment of the problem and established a detailed
action plan to address Year 2000 difficulties in a timely manner. The
Company's primary data services vendor began its Year 2000 compliance in 1995
and have committed to having its systems compliant by December 31, 1998. The
expenses associated with Year 2000 issues are not expected to have a material
impact on the Company's results of operations. The Company is assessing the
potential impact Year 2000 problems could have on the ability of large
borrowers to repay their outstanding loans.
<PAGE>35
MARKET INFORMATION
The following table shows market price information and cash dividends paid for
the Company's common stock:
Book Value
End of Market
Quarter Value (1) Dividends
1996 (Unaudited) High Low Paid (2)
------------- ----------- ----- ----- ---------
1st Quarter $443 $506 $506 $5.00
2nd Quarter 453 * * -
3rd Quarter 458 566 566 5.25
4th Quarter 471 585 585 -
1997
1st Quarter $478 $595 $590 $5.50
2nd Quarter 490 704 693 -
3rd Quarter 493 715 710 5.75
4th Quarter 506 728 725 -
1998
Through March 2 N/A $733 $733 $6.00
(1) In recent years the Common Stock has traded sparsely. To the
knowledge of management the price of each share has ranged in value
as shown in the table. There is no established market for the
Common Stock of the Company and it is unlikely that such a market
for the shares will develop in the foreseeable future. All of the
transactions at the prices reported in the table are either purchases
by the Company pursuant to a Stock Repurchase Policy or sales by the
Company made at its direction to its employee pension plan. The
Stock Repurchase Policy provides that shares offered to the Company
may be purchased as an accommodation to shareholders at a specified
percentage of book value computed as of the end of the month
preceding the purchase. The applicable percentage was 115% of book
value until March 26, 1996, 125% of book value until March 25, 1997,
and 145% of book value until March 16, 1998, and 175% of book value
thereafter. The Board of Directors of the Company may consider changes
in the applicable percentage at future meetings.
(2) The ability of the Company to pay dividends is subject to certain
limitations. See "Stockholders' Equity" in Management's Discussion and
Analysis.
* Indicates no reported sale of stock occurred in that quarter.
Per share amounts have been adjusted to reflect the 2-for-1 stock split
effective July 1, 1997.
As of March 2, 1998, the Company had 836 shareholders of record.
SELECTED FINANCIAL INFORMATION
The following table sets forth certain unaudited results of operations for the
periods indicated:
(In thousands except For the Quarter Ended
per share data)
June 30 December 31
1996 March 31 September 30
----------------------------------------------------------
Interest income $3,903 $3,936 $4,051 $4,183
Interest expense 2,029 2,005 2,049 2,069
Provision for credit
losses 51 51 51 57
Net income 543 556 601 680
Net income per share(1) 9.87 10.10 10.93 12.36
1997
----------------------------------------------------------
Interest income $4,336 $4,402 $4,735 $4,990
Interest expense 2,151 2,257 2,508 2,627
Provision for credit
losses 87 87 87 90
Net income 684 632 546 689
Net income per share 12.44 11.49 9.95 12.56
(1)
(1) Adjusted to reflect the 2-for-1 stock split effective July 1, 1997.
<PAGE> 36
