UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to _______
Commission file number 0-21554
DENMARK BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1472124
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
103 East Main Street, Denmark, Wisconsin 54208-0130
(Address of principal executive offices)
(920) 863-2161
(Registrant's telephone number, including area code)
___________________________________________________________________________
(Former name, address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1)has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class November 9, 1999
Common Stock 55,005
(no par value)
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report On Form 10-Q
For The Quarter Ended September 30, 1999
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Financial Condition 3
Consolidated Statements of Income 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II. Other Information
Item 6. Exhibit 27 -- Financial Data Schedule N/A
Signatures 12
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, December 31,
1999 1998
(UNAUDITED)
Assets ------------- -------------
Cash and due from banks $5,782,674 $7,794,995
Federal funds sold 1,715,000 8,417,000
Investment securities
Available-for-sale, at fair value 20,862,503 25,074,309
Held-to-maturity, at cost 23,460,043 19,834,609
---------- ----------
Total Investment Securities $44,322,546 $44,908,918
Loans
Commercial 68,323,398 62,005,746
Real estate 160,750,311 135,267,085
Installment 18,799,785 16,927,234
Other 782,825 786,082
----------- -----------
Total Loans $248,656,319 $214,986,147
Allowance for credit losses (3,279,501) (3,058,618)
------------- -------------
Net Loans $245,376,818 $211,927,529
Premises and equipment, net 3,639,695 3,343,253
Accrued interest receivable 1,700,487 1,466,749
Other assets 4,425,120 4,326,031
------------ ------------
TOTAL ASSETS $306,962,340 $282,184,475
============= =============
Liabilities
Deposits
Non-interest bearing $22,498,005 $27,168,398
Interest bearing 184,507,897 184,881,335
----------- -----------
Total Deposits $207,005,902 $212,049,733
Short-term borrowings 50,297,189 22,400,273
Accrued interest payable 1,268,329 1,248,966
Other liabilities 1,170,377 668,138
Long-term debt 15,668,288 15,676,698
---------- ----------
Total Liabilities $275,410,085 $252,043,808
------------- -------------
Stockholders' Equity
Common stock, no par value
authorized 320,000 shares; 55,027
and 54,789 outstanding respectively $10,336,295 $10,336,295
Paid in capital 110,984 37,384
Treasury stock (165,804) (316,686)
Retained earnings 21,518,849 20,050,609
Accumulated other comprehensive income
Unrealized gains (losses) on securities (248,069) 33,065
----------- ------------
Total Stockholders' Equity $31,552,255 $30,140,667
------------- -------------
Total Liabilities and Equity $306,962,340 $282,184,475
============ ============
The accompanying notes are an integral part of these financial statements.
Page 3
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the Quarter Ended For the Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
Interest Income ---------- ---------- ----------- -----------
Loans including fees $4,845,988 $4,656,928 $14,338,887 $13,584,863
Interest and dividends on
investment securities
Taxable 303,875 187,740 1,038,120 639,510
Exempt from federal tax 370,954 351,921 1,040,114 974,862
Federal funds sold 4,005 145,886 58,941 360,687
----------- ---------- ----------- -----------
Total Interest Income $5,524,822 $5,342,475 $16,476,062 $15,559,922
Interest Expense
Deposits $2,142,336 $2,181,524 $6,411,206 $6,427,784
Short-term borrowings 603,119 341,694 1,352,935 996,517
Long-term borrowings 217,352 217,442 645,103 608,994
----------- ---------- ----------- -----------
Total Interest Expense $2,962,807 $2,740,660 $8,409,244 $8,033,295
----------- ---------- ----------- -----------
Net interest income $2,562,015 $2,601,815 $8,066,818 $7,526,627
Provision for Credit Losses 78,000 82,500 234,000 247,500
----------- ---------- ---------- -----------
Net interest income after
provision $2,484,015 $2,519,315 $7,832,818 $7,279,127
Noninterest Income
Service fees and commissions $207,777 $216,747 $577,991 $587,193
Investment security gains(losses) 4,494 0 (2,578) 0
Other 57,968 39,280 209,659 130,052
---------- ---------- ------------ ----------
Total Noninterest Income $270,239 $256,027 $785,072 $717,245
---------- ---------- ------------ ----------
Noninterest Expense
Salaries and employee benefits $1,124,971 $1,058,377 $3,332,053 $3,103,285
Occupancy expenses 167,467 160,655 506,504 481,922
Data processing expenses 102,049 73,978 319,946 242,139
Amortization of intangibles 52,834 52,834 158,503 157,356
Other operating expenses 294,871 331,431 922,918 893,477
---------- ---------- ----------- ----------
Total Noninterest Expense $1,742,192 $1,677,275 $5,239,924 $4,878,179
---------- ---------- ----------- ----------
Income before income taxes $1,012,062 $1,098,067 $3,377,966 $3,118,193
Income tax expense 270,083 309,694 960,411 878,223
---------- ---------- ----------- ----------
NET INCOME $741,979 $788,373 $2,417,555 $2,239,970
========== ========== =========== ==========
Per Share
Net income $13.48 $14.37 $43.96 $40.83
Dividends declared $9.00 $0.00 $17.25 $6.25
Weighted average shares
outstanding 55,032 54,858 54,992 54,866
The accompanying notes are an integral part of these financial statements.
Page 4
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended
September 30,
1999 1998
Cash flows from operating activities: ------------ ------------
Net Income $2,417,555 $2,239,970
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $265,397 $256,497
Provision for credit losses 234,000 247,500
Amortization of intangibles 158,503 157,356
Amortization of bond premium 22,626 32,843
Accretion of bond discount (362,712) (469,268)
Gain on sale of other real estate (16,388) 0
Loss on sale of investments 2,578 0
Increase in interest receivable (233,738) (139,043)
Increase (decrease) in interest payable 19,363 (145,049)
Other, net 192,705 286,923
------------ ------------
Net cash provided by operating activities $2,699,889 $2,467,729
------------ ------------
Cash flows from investing activities:
Maturities of held-to-maturity securities $314,500 $24,784
Maturities of available-for-sale securities 4,716,058 3,986,648
Purchases of held-to-maturity securities (3,590,252) (2,774,475)
Purchases of available-for-sale securities (973,438) (5,687,867)
Federal funds sold, net 6,702,000 (5,670,000)
Proceeds from sale of other real estate 216,388 0
Net increase in loans made to customers (33,753,288) (12,086,856)
Capital expenditures (561,840) (257,374)
------------ ------------
Net cash used by investing activities ($26,929,872)($22,465,140)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits ($5,043,831) $15,017,291
Proceeds from sale of treasury stock 287,712 0
Purchases of treasury stock (63,230) (15,122)
Dividends paid (851,495) (672,125)
Debt proceeds 30,111,968 12,646,356
Debt repayment (2,223,462) (7,027,196)
------------ ------------
Net cash provided by financing activities $22,217,662 $19,949,204
------------ ------------
Net decrease in cash and cash equivalents (2,012,321) (48,207)
Cash and cash equivalents, beginning 7,794,995 7,019,405
------------ ------------
CASH & CASH EQUIVALENTS, ENDING $5,782,674 $6,971,198
============ ============
Supplemental schedule of noncash investing
and financing activities:
Loans transferred to other real estate $70,000 $200,000
============ ============
The accompanying notes are an integral part of these financial statements.
Page 5
DENMARK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - FINANCIAL STATEMENTS
The consolidated financial statements included herein are unaudited. In the
opinion of management, these statements contain all adjustments necessary to
present fairly the financial position of Denmark Bancshares, Inc. (the
"Company"), the results of operations and cash flows for the periods presented.
All adjustments necessary for the fair presentation of the financial statements
are of a recurring nature. These consolidated financial statements should be
read in conjunction with the consolidated financial statements and the notes
thereto included in the Company's latest annual report on Form 10-K.
NOTE 2 - INVESTMENT SECURITIES
The amortized cost and estimated fair value of securities available-for-sale
were as follows:
September 30, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
U.S. Government agencies $13,498 $0 $388 $13,110
Mortgage-backed securities 5,439 14 31 5,422
Equity securities 2,331 0 0 2,331
----------- ----------- ---------- -----------
Total $21,268 $14 $419 $20,863
=========== =========== ========== ===========
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
U.S. Government agencies $13,497 $5 $0 $13,502
Mortgage-backed securities 9,168 59 12 9,215
Equity securities 2,357 0 0 2,357
----------- ----------- ---------- -----------
Total $25,022 $64 $12 $25,074
The amortized cost and estimated fair value of securities held-to-maturity were
as follows:
September 30, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
State and local governments $23,460 $846 $315 $23,991
----------- ----------- ---------- -----------
Total $23,460 $846 $315 $23,991
December 31, 1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
State and local governments $19,835 $1,779 $7 $21,607
---------- ----------- ---------- -----------
Total $19,835 $1,779 $7 $21,607
Page 6
DENMARK BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
The amortized cost and estimated fair values of securities at September 30,
1999, by maturity were as follows:
Available-for-Sale Held-to-Maturity
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
---------- ---------- ---------- ----------
Due in 1 year or less $887 $886 $1,295 $1,314
Due from one to five years 17,570 17,172 2,708 6,548
Due from five to ten years 480 474 3,421 7,272
Due after ten years 0 0 7,023 8,857
Equity securities 2,331 2,331 9,013 0
---------- ---------- ---------- ----------
Total $21,268 $20,863 $23,460 $23,991
========== ========== ========= ==========
Mortgage-backed securities are allocated according to their expected
prepayments rather than their contractual maturities.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for credit losses were as follows:
For the Year
For the Nine Months Ended Ended
September 30, December 31,
1999 1998 1998
----------- ----------- -----------
Balance, beginning of period $3,058,618 $2,825,921 $2,825,921
Provision charged to operations 234,000 247,500 390,000
Recoveries 56,029 47,141 62,370
Charge-offs (69,145) (197,074) (219,673)
----------- ----------- -----------
Balance, end of period $3,279,501 $2,923,488 $3,058,618
Page 7
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Highlights
3nd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr.
1999 1999 1999 1998 1998
(In thousands) --------- --------- -------- --------- --------
Operating Results
Interest income $5,525 $5,497 $5,455 $5,490 $5,342
Interest expense 2,963 2,769 2,678 2,739 2,740
Net interest income 2,562 2,728 2,777 2,751 2,602
Provision for credit losses 78 78 78 142 82
Noninterest income 270 259 256 238 256
Noninterest expense 1,742 1,762 1,736 1,543 1,677
Net income 742 814 862 898 788
Per Share Data
Net income per share $13.48 $14.79 $15.69 $16.37 $14.37
(In thousands)
Financial Condition (1)
Loans $248,656 $237,880 $224,517 $214,986 $211,296
Allowance for credit losses 3,280 3,249 3,142 3,059 2,923
Investment securities 44,323 44,052 43,808 44,909 36,894
Assets 306,962 294,510 284,136 282,184 274,162
Deposits 207,006 206,736 212,509 212,050 204,146
Other borrowed funds 65,965 54,170 38,556 38,077 38,391
Stockholders' equity 31,552 31,382 30,719 30,141 29,739
Financial Ratios
Return on average equity 9.30% 10.43% 11.24% 12.04% 10.71%
Return on average assets 0.99% 1.13% 1.23% 1.31% 1.20%
Interest rate spread 2.83% 3.22% 3.42% 3.37% 3.33%
Average equity to average
assets 10.61% 10.80% 10.95% 10.88% 11.18%
Allowance for credit losses
to total loans (1) 1.32% 1.37% 1.40% 1.42% 1.38%
(1) As of the period ending.
Page 8
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net income for the quarter ended September 30, 1999, was $741,979, or
$13.48 per share, a decrease of $46,394 or 6%, compared to $788,373, or $14.37
per share, for the corresponding period in 1998. This decrease was primarily
the result of lower net interest income and higher noninterest expenses which
more than offset increases in noninterest income and lower income taxes.
Net interest income for the quarter ended September 30, 1999, was
$2,562,015 a decrease of $39,800 over the corresponding period in the prior
year. The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volume and changes in rates:
Increase (Decrease)
Due to Change In
Average Average Nonaccrual Total
(In thousands) Balance Rate Interest Change
------- ------- ---------- ------
Interest income 833 (484) (167) 182
Interest expense 450 (228) 222
--- --- ----- ---
Net interest income 383 (256) (167) (40)
=== ===== ===== ====
The decrease in net interest income is primarily attributable to lower net
interest spread which offset increased net interest income generated by larger
volume. The Company's average interest rate spread was 2.83% during the third
quarter of 1999 compared to 3.33% during the quarter ended September 30, 1998.
The average interest rate spread was negatively impacted by an increase in
nonperforming loans during the third quarter of 1999. Total interest due on
nonperforming loans increased by $167,000 during the quarter. The yield on
earning assets decreased by 85 basis points while the cost of funds decreased
by 35 basis points. Average earning assets increased by $37.1 million during
the third quarter of 1999 and average interest-bearing liabilities increased by
$33.5 million compared to the third quarter of 1998. The increases in volume
improved net interest income by $383,000.
In the third quarter of 1999 the Company's provision for credit losses was
$78,000 compared to $82,500 for the third quarter of 1998. Net charge-offs
were $47,493 in the third quarter of 1999 compared to net charge-offs of
$158,535 during the third quarter of 1998.
Noninterest income for the three months ended September 30, 1999, was
$270,239, an increase of $14,212 over the corresponding period in 1998. This
increase is primarily the result of an increase of $19,554 in ATM surcharges
and check card fees.
Noninterest expense increased by $64,917 or 4% during the three months
ended September 30, 1999, over the corresponding period in 1998. Salaries and
benefits expense increased $66,594 or 6% over the corresponding period in 1998.
This increase is primarily attributed to the hiring of additional staff members
and regular salary increases. Data processing expenses increased by
$28,071. This increase is the result of technology improvements being
implemented by the Bank. The improvements include the installation of local
area networks at each branch office, installation of a software system that
automates the process of opening new deposit accounts and the implementation of
a bank wide on-line teller system. These technology improvements are intended
to improve customer service, increase operating efficiency and replace a system
that was not year 2000 compliant.
Page 9
Return on average assets in the third quarter of 1999 was .99%, compared to
1.20% for the corresponding period in 1998. Return on average equity in the
third quarter of 1999 was 9.3%, compared to 10.7% for the corresponding period
in the prior year.
FINANCIAL CONDITION
Total assets increased by $24,777,865 between December 31, 1998, and
September 30, 1999. Federal funds sold decreased by $6,702,000 during the nine
months ended September 30, 1999. Loan demand continues to be strong as total
loans increased by $33,670,172 during the first nine months of 1999. In
addition, the Bank sold $6.7 million of residential real estate loans to the
secondary mortgage market during the first nine months.
The allowance for credit losses increased by $220,883 during the nine
months ended September 30, 1999. The allowance equals 1.32% of total loans at
September 30, 1999, compared to 1.42% at December 31, 1998. Nonaccrual loans
totaled $10,984,894 at September 30, 1999, an increase of $7,047,782 over
December 31, 1998. The increase in nonaccrual loans is primarily the result of
loans to two borrowers experiencing financial difficulties. Loans totaling
$1.8 million secured by mortgages on apartment buildings were restructured into
a single loan during the second quarter of 1999. This loan is performing as
agreed and will be returned to accruing status if performance continues.
Management considers this restructured loan adequately secured. Loans
totaling $1.1 million secured by mortgages on commercial properties were also
restructured during the second quarter. This borrower also has $1.5 million of
loans secured by personal property. Management decided to discontinue accruing
interest on all of the loans to this borrower because reasonable doubt exists
as to the full, timely collection of interest or principal. As of the time of
this filing nonaccrual loans totaled $8.5 million.
The Company's ratio of loans more than 30 days past due (including
nonaccrual loans) to total loans was 5.2% at September 30, 1999, compared
to 2.4% at December 31, 1998. As of September 30, 1999, management has
identified $11.7 million of potential problem loans. Potential problem loans
are loans that are performing but have a greater risk of nonperformance.
Demand deposits decreased $4,670,393 during the first nine months of 1999.
Management attributes the decrease in demand deposits to a normal seasonal
fluctuation. Interest bearing deposits decreased by $373,438 between December
31, 1998, and September 30, 1999. The decrease in interest bearing deposits is
primarily the result of a $4.5 million decrease in certificates of deposit from
a local business depositor. These funds were deposited during the third
quarter of 1998 and were withdrawn as expected at maturity during the second
quarter of this year. Management attributes the lack of deposit growth to a
very competitive local market.
Short-term borrowings increased by $27,896,916 the first nine months of
1999. The Company utilized short-term borrowings to fund loan growth.
Stockholders' equity increased by $1,411,588 to $31,552,255 as of
September 30, 1999. The Company and the Bank continue to maintain capital
levels well above the regulatory minimum levels. As of September 30, 1999, the
Company's leverage ratio was 9.7%, the risk-based core capital ratio was 13.4%
and the risk-based total capital ratio was 14.6%.
On September 7, 1999, the Company's Board of Directors declared a
semiannual $9.00 per share dividend payable on January 3, 2000, to all
shareholders of record on December 14, 1999.
Page 10
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate
amounts of cash to meet the Company's needs for cash. Cash and cash
equivalents decreased by $2.0 million during the first nine months of 1999.
The major sources and uses of cash are detailed in the accompanying
Consolidated Statements of Cash Flows. The federal funds sold totaling $1.7
million and the available-for-sale investment portfolio amounting to $20.9
million as of September 30, 1999, are readily convertible to cash if needed
for liquidity purposes.
In addition to on-balance sheet sources of funds the Company also has
off-balance sheet sources available to meet liquidity needs. The Company has
unused lines of credit of $15.4 million as of September 30, 1999. The Company
has commitments to extend credit of $26.3 million as of September 30, 1999.
Management believes the Company's liquidity position as of September 30, 1999,
is adequate under current economic conditions.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company's primary market risk position has not materially changed
from that disclosed in the Company's 1998 Form 10-K Annual Report.
PART II - OTHER INFORMATION
Item 6. Exhibits
(a) Exhibit 27.0 Financial Data Schedule
Page 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENMARK BANCSHARES, INC.
Date: November 11, 1999 /s/ Darrell R. Lemmens
Darrell R. Lemmens,
Principal Executive Officer,
Chairman of the Board,
and President
Date: November 11, 1999 /s/ Dennis J. Heim
Dennis J. Heim,
Vice President and Treasurer,
Principal Financial and
Accounting Officer
Page 12
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 5,782,674
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,715,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 20,862,503
<INVESTMENTS-CARRYING> 23,460,043
<INVESTMENTS-MARKET> 23,991,000
<LOANS> 248,656,319
<ALLOWANCE> 3,279,501
<TOTAL-ASSETS> 306,962,340
<DEPOSITS> 207,005,902
<SHORT-TERM> 50,297,189
<LIABILITIES-OTHER> 2,438,706
<LONG-TERM> 15,668,288
0
0
<COMMON> 10,336,295
<OTHER-SE> 21,215,960
<TOTAL-LIABILITIES-AND-EQUITY> 306,962,340
<INTEREST-LOAN> 14,338,887
<INTEREST-INVEST> 2,137,175
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 16,476,062
<INTEREST-DEPOSIT> 6,411,206
<INTEREST-EXPENSE> 8,409,244
<INTEREST-INCOME-NET> 8,066,818
<LOAN-LOSSES> 234,000
<SECURITIES-GAINS> (2,578)
<EXPENSE-OTHER> 5,239,924
<INCOME-PRETAX> 3,377,966
<INCOME-PRE-EXTRAORDINARY> 3,377,966
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,417,555
<EPS-BASIC> 43.96
<EPS-DILUTED> 43.96
<YIELD-ACTUAL> 3.55
<LOANS-NON> 10,984,894
<LOANS-PAST> 0
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<LOANS-PROBLEM> 11,664,933
<ALLOWANCE-OPEN> 3,058,618
<CHARGE-OFFS> 69,145
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