UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 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 May 5, 1999
Common Stock 55,061
(no par value)
<PAGE> 1
DENMARK BANCSHARES, INC.
TABLE OF CONTENTS
Quarterly Report On Form 10-Q
For The Quarter Ended March 31, 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 10
Part II. Other Information
Item 6. Exhibit 27 -- Financial Data Schedule N/A
Signatures 11
<PAGE> 2
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, December 31,
1999 1998
(UNAUDITED)
Assets ----------- -----------
Cash and due from banks $7,852,158 $7,794,995
Federal funds sold 1,963,000 8,417,000
Investment securities
Available-for-sale, at fair value 23,893,937 25,074,309
Held-to-maturity, at cost 19,914,078 19,834,609
----------- -----------
Total Investment Securities $43,808,015 $44,908,918
Loans
Commercial 65,377,573 62,005,746
Real estate 140,393,447 135,267,085
Installment 18,006,294 16,927,234
Other 740,140 786,082
------------ ------------
Total Loans $224,517,454 $214,986,147
Allowance for credit losses (3,141,817) (3,058,618)
------------ ------------
Net Loans $221,375,637 $211,927,529
Premises and equipment, net 3,317,383 3,343,253
Accrued interest receivable 1,667,699 1,466,749
Other assets 4,151,807 4,326,031
------------ ------------
TOTAL ASSETS $284,135,699 $282,184,475
============ ============
Liabilities
Deposits
Non-interest bearing $23,448,034 $27,168,398
Interest bearing 189,060,841 184,881,335
------------ ------------
Total Deposits $212,508,875 $212,049,733
Other borrowed funds 38,555,509 38,076,971
Accrued interest payable 1,156,171 1,248,966
Other liabilities 1,196,600 668,138
------------ ------------
Total Liabilities $253,417,155 $252,043,808
------------ ------------
Stockholders' Equity
Common stock, no par value
authorized 320,000 shares;
55,071 and 54,789
outstanding respectively $10,336,295 $10,336,295
Paid in capital 110,984 37,384
Treasury stock (116,074) (316,686)
Retained earnings 20,457,820 20,050,609
Accumulated other comprehensive
income:
Unrealized gains (losses) on
securities (70,481) 33,065
------------ ------------
Total Stockholders' Equity $30,718,544 $30,140,667
------------ ------------
TOTAL LIABILITIES AND EQUITY $284,135,699 $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 Quarter Ended
March 31, 1999 March 31, 1998
--------------------- -------------------
Interest Income
Loans including fees $4,673,571 $4,348,412
Interest and dividends
on investment securities
Taxable 398,228 249,502
Exempt from federal tax 329,778 304,836
Federal funds sold 52,976 98,115
---------- ----------
Total Interest Income $5,454,553 $5,000,865
---------- ----------
Interest Expense
Deposits $2,166,321 $2,125,753
Short-term borrowings 298,495 326,871
Long-term borrowings 212,717 179,762
----------- ----------
Total Interest Expense $2,677,533 $2,632,386
----------- ----------
Net interest income $2,777,020 $2,368,479
----------- ----------
Provision for Credit Losses 78,000 82,500
----------- ----------
Net interest income after provision $2,699,020 $2,285,979
----------- ----------
Noninterest Income
Service fees and commissions $171,413 $179,432
Other 84,903 45,989
----------- ----------
Total Noninterest Income $256,316 $225,421
----------- ----------
Noninterest Expense
Salaries and employee benefits $1,096,861 $1,020,414
Occupancy expenses 175,561 160,508
Data processing expenses 108,598 88,465
Amortization of intangibles 52,834 52,876
Other operating expenses 302,361 255,603
----------- ----------
Total Noninterest Expense $1,736,215 $1,577,866
----------- ----------
Income before income taxes $1,219,121 $933,534
Income tax expense 357,575 252,814
----------- ----------
NET INCOME $861,546 $680,720
----------- ----------
Per Share
Net income $15.70 $12.41
Dividends declared $8.25 $6.25
Weighted average shares outstanding 54,890 54,873
The accompanying notes are an integral part of these financial statements.
<PAGE>4
DENMARK BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Quarter Ended
March 31, March 31,
1999 1998
Cash flows from operating activities: ------------ ----------
Net Income $861,546 $680,720
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation $88,466 $85,166
Provision for credit losses 78,000 82,500
Amortization of intangibles 52,834 52,876
Amortization of bond premium 8,125 9,887
Accretion of bond discount (121,272) (156,039)
Gain on sale of other real estate (16,388) 0
Increase in interest receivable (200,950) (23,972)
Decrease in interest payable (92,795) (42,673)
Other, net 459,483 303,264
----------- ---------
Net cash provided by operating activities $1,117,049 $991,729
----------- ---------
Cash flows from investing activities:
Maturities of held-to-maturity securities $305,000 $22,784
Maturities of available-for-sale securities 1,320,088 939,511
Purchases of held-to-maturity securities (268,019) (239,475)
Purchases of available-for-sale securities (313,108) (582,626)
Federal funds sold, net 6,454,000 1,221,000
Proceeds from sale of other real estate 216,388 0
Net increase in loans made to customers (9,526,108) (2,725,708)
Capital expenditures (62,596) (24,707)
------------ ------------
Net cash used by investing activities ($1,874,355) ($1,389,221)
------------ ------------
Cash flows from financing activities:
Net increase (decrease) in deposits $459,142 ($616,183)
Proceeds from sale of treasury stock 287,712 0
Purchases of treasury stock (13,500) (1,466)
Dividends paid (397,423) (329,262)
Debt proceeds 2,149,669 4,645,960
Debt repayment (1,671,131) (5,160,044)
------------ ------------
Net cash provided by financing activities $814,469 ($1,460,995)
------------ ------------
Net increase (decrease) in cash and cash equivalents 57,163 (1,858,487)
Cash and cash equivalents, beginning 7,794,995 7,019,405)
------------ ------------
CASH & CASH EQUIVALENTS, ENDING $7,852,158 $5,160,918
============ ============
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:
March 31, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
U.S. Government agencies $13,497 $0 $162 $13,335
Mortgage-backed securities 8,844 53 9 8,888
Equity securities 1,671 0 0 1,671
----------- ----------- ---------- -----------
Total $24,012 $53 $171 $23,894
=========== =========== ========== ===========
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:
March 31, 1999
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
(In thousands) Cost Gains Losses Value
----------- ----------- ---------- -----------
State and local governments $19,914 $1,621 $7 $21,528
----------- ----------- ---------- -----------
Total $19,914 $1,621 $7 $21,528
=========== =========== ========== ===========
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,
1997 by maturity were as follows:
Available-for-Sale Held-to-Maturity
Estimated Estimated
Amortized Fair Amortized Fair
(In thousands) Cost Value Cost Value
----------- ----------- ----------- ----------
Due in 1 year or less $1,267 $1,270 $859 $885
Due from one to five years 16,077 16,026 6,253 6,894
Due from five to ten years 4,997 4,927 6,748 7,246
Due after ten years 0 0 6,054 6,503
Equity securities 1,671 1,671 0 0
----------- ----------- ----------- ----------
Total $24,012 $23,894 $19,914 $21,528
=========== =========== =========== ==========
Mortgage-backed securities are allocated according to their expected
prepayments rather than their contractual maturities.
NOTE 3 - ALLOWANCE FOR LOAN LOSSES
Changes in the allowance for credit losses were as follows:
For the Three Months Ended For the Year Ended
Ended March 31, December 31,
1999 1998 1998
----------- ----------- ----------
Balance, beginning of period $3,058,618 $2,825,921 $2,825,921
Provision charged to operations 78,000 82,500 390,000
Recoveries 8,627 10,842 62,370
Charge-offs (3,427) (11,357) (219,673)
----------- ----------- -----------
Balance, end of period $3,141,817 $2,907,906 $3,058,618
=========== =========== ===========
<PAGE> 7
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Financial Highlights
1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
1999 1998 1998 1998 1998
(In thousands) --------- --------- --------- -------- --------
Operating Results
Interest income $5,455 $5,490 $5,342 $5,217 $5,001
Interest expense 2,678 2,739 2,740 2,661 2,632
Net interest income 2,777 2,751 2,602 2,556 2,369
Provision for credit losses 78 142 82 83 83
Noninterest income 256 238 256 236 225
Noninterest expense 1,736 1,543 1,677 1,623 1,578
Net income 862 898 788 771 681
Per Share Data
Net income per share $15.70 $16.37 $14.37 $14.05 $12.41
(In thousands)
Financial Condition (1)
Loans $224,517 $214,986 $211,296 $206,899 $202,284
Allowance for credit losses 3,142 3,059 2,923 3,000 2,908
Investment securities 43,808 44,909 36,894 31,821 31,916
Assets 284,136 282,184 274,162 262,434 251,267
Deposits 212,509 212,050 204,146 192,926 188,513
Other borrowed funds 38,556 38,077 38,391 38,532 32,258
Stockholders' equity 30,719 30,141 29,739 28,890 28,131
Financial Ratios
Return on average equity 11.24% 12.04% 10.71% 10.69% 9.70%
Return on average assets 1.23% 1.31% 1.20% 1.20% 1.09%
Interest rate spread 3.42% 3.37% 3.33% 3.41% 3.21%
Average equity to average assets 10.95% 10.88% 11.18% 11.27% 11.19%
Allowance for credit losses
to total loans (1) 1.40% 1.42% 1.38% 1.45% 1.44%
(1) As of the period ending.
<PAGE> 8
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Results of Operations
Net income for the quarter ended March 31, 1999, was $861,546, or $15.70 per
share, an increase of $180,826 or 26.6%, compared to $680,720, or $12.41 per
share, for the corresponding period in 1998. This increase was primarily the
result of an increase in net interest income and higher noninterest income
which more than offset increases in noninterest expense and income taxes.
Net interest income for the quarter ended March 31, 1999, was $2,777,020, an
increase of $408,541 or 17.3%, compared to the corresponding period in the
prior year. The following table sets forth a summary of the changes in interest
earned and interest paid resulting from changes in volume and changes in rates:
Increase (Decrease)
Due to Change In
Average Average Total
(In thousands) Balance Rate Change
- ------------------ ----------------------------------
Interest income 585 (131) 454
Interest expense 264 (219) 45
--- ----- ---
Net interest income 321 88 409
=== == ===
This increase in net interest income is primarily attributable to higher volume
but was also aided by an increase in the net interest income spread. Average
earning assets during the first quarter of 1999 increased by $28.3 million and
average interest-bearing liabilities increased by $21.7 million compared to the
first quarter of 1998. The Company's average interest rate spread was 3.42%
during the first quarter of 1999 compared to 3.21% during the quarter ended
March 31, 1998. The yield on earning assets decreased by twenty-one basis
points while the cost of funds decreased by fourty-two basis points.
In the first quarter of 1999 the Company's provision for credit losses was
$78,000 compared to $82,500 for the first quarter of 1998. Net recoveries were
$5,200 in the first quarter of 1999 compared to net charge-offs of $515 during
the first quarter of 1998.
Noninterest income for the three months ended March 31, 1999, was $256,316, an
increase of $30,895 over the corresponding period in 1998. This increase is
primarily the result of an increase of $17,021 from gains on the sales of other
real estate and from higher appraisal fees which increased by $8,400.
Noninterest expense increased by $158,350 or 10% during the three months ended
March 31, 1999, over the corresponding period in 1998. Salaries and benefits
expense increased $76,447 or 7.5% over the corresponding period in 1998. This
increase is primarily attributed to regular salary increases. Data processing
expenses increased by $20,133 and occupancy expenses increased by $15,053.
Management expects higher data processing expenses and occupancy expenses as a
result of a planned remodeling of the Bellevue banking facility and technology
improvements. The technology improvements include 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 online teller system. These technology improvements are intended
to improve customer service, increase operating efficiency and replace a
system that was not year 2000 compliant. Other operating expenses increased
by $46,758 or 18.3 % higher than the first quarter of 1998. This is
attributable to higher printing and supplies expense which increased by $18,756
and to higher marketing expenses which increased by $15,011.
Return on average assets in the first quarter of 1998 was 1.23%, compared to
1.09% for the corresponding period in 1998. Return on average equity in the
first quarter of 1999 was 11.2%, compared to 9.7% for the corresponding period
in the prior year.
<PAGE> 9
DENMARK BANCSHARES, INC.
Management's Discussion and Analysis of Financial
Condition and Results of Operations
Financial Condition
Total assets increased by $2.0 million between December 31, 1998, and March 31,
1999. During the first three months of 1999 federal funds sold decreased
by $6.5 million while total loans increased by $9.5 million.
The allowance for credit losses increased by $83,199 during the quarter ended
March 31, 1999. The allowance equals 1.40% of total loans at March 31, 1999,
compared to 1.42% at December 31, 1998. Nonaccrual loans totaled $3,950,963 at
March 31, 1999, an increase of $13,851 over December 31, 1998. The Company's
ratio of loans more than 30 days past due (including nonaccrual loans) to total
loans was 3.2% at March 31, 1999, compared to 2.4% at December 31, 1998. As of
March 31, 1999, management has identified $12.6 million of potential problem
loans. Potential problem loans are loans that are performing but have a
greater risk of nonperformance.
Demand deposits decreased $3.7 million or 13.7% during the first quarter of
1999. Interest bearing deposits increased by $4.2 million or 2.3% between
December 31, 1998, and March 31, 1999. Management attributes the decrease in
demand deposits to a normal seasonal fluctuation.
Stockholders' equity increased by $577,877 to $30,718,544 as of March 31, 1999.
As of March 31, 1999, the Company's leverage ratio was 10.1%, the risk-based
core capital ratio was 14.3% and the risk-based total capital ratio was 15.5%.
The Company and the Bank continue to maintain capital levels well above the
regulatory minimum levels.
On March 16, 1999, the Company's board of directors declared a semiannual $8.25
per share dividend payable on July 1, 1999, to all shareholders of record on
June 8, 1999.
Liquidity
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet the Company's needs for cash. Cash and cash equivalents increased
by $57,163 during the first quarter of 1999. Loan repayments as well as net
cash provided by operating activities amounting to $1.1 million and a decrease
in federal funds sold of $6.5 million were the major sources of funds during
the first quater of 1999. The net increase in loans of $9.5 million was the
major use of cash during the first three months.
In addition to on-balance sheet sources of funds the Company also has
off-balance sheet sources available to meet liquidity needs. The Company has
unused lines of credit of $17.5 million as of March 31, 1999. Management
believes the Company's liquidity position as of March 31, 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> 10
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DENMARK BANCSHARES, INC.
Date: May 5, 1999 /s/ Darrell R. Lemmens
----------------------------
Darrell R. Lemmens,
Principal Executive Officer,
Chairman of the Board,
and President
Date: May 5, 1999 /s/ Dennis J. Heim
-----------------------------
Dennis J. Heim,
Vice President and Treasurer,
Principal Financial and
Accounting Officer
<PAGE> 11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 7,852,158
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,963,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 23,893,937
<INVESTMENTS-CARRYING> 19,914,078
<INVESTMENTS-MARKET> 21,528,000
<LOANS> 224,517,454
<ALLOWANCE> 3,141,817
<TOTAL-ASSETS> 284,135,699
<DEPOSITS> 212,508,875
<SHORT-TERM> 25,079,942
<LIABILITIES-OTHER> 2,352,771
<LONG-TERM> 13,475,567
0
0
<COMMON> 10,336,295
<OTHER-SE> 20,382,249
<TOTAL-LIABILITIES-AND-EQUITY> 284,135,699
<INTEREST-LOAN> 4,673,571
<INTEREST-INVEST> 728,006
<INTEREST-OTHER> 52,976
<INTEREST-TOTAL> 5,454,553
<INTEREST-DEPOSIT> 2,166,321
<INTEREST-EXPENSE> 2,677,533
<INTEREST-INCOME-NET> 2,777,020
<LOAN-LOSSES> 78,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,736,215
<INCOME-PRETAX> 1,219,121
<INCOME-PRE-EXTRAORDINARY> 861,546
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 861,546
<EPS-PRIMARY> 15.70
<EPS-DILUTED> 15.70
<YIELD-ACTUAL> 4.15
<LOANS-NON> 3,950,963
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 12,616,286
<ALLOWANCE-OPEN> 3,058,618
<CHARGE-OFFS> 3,427
<RECOVERIES> 8,627
<ALLOWANCE-CLOSE> 3,141,817
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 3,141,817
</TABLE>
