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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the fiscal year ended December 31, 2000
[ ] 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: 0-18542
MID-WISCONSIN FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 06-1169935
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
132 West State Street
Medford, Wisconsin 54451
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (715) 748-8300
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
$.10 Par Value Common Stock
(Title of Class)
Indicate by check 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 report), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
As of March 3, 2001 the aggregate market value of the common shares held by
non-affiliates was approximately $34,162,062.
The number of common shares outstanding at March 3, 2001 was 1,695,452.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement dated March 23, 2001 (to the extent specified herein): Part III
FORM 10-K
MID-WISCONSIN FINANCIAL SERVICES, INC.
TABLE OF CONTENTS
PART I
ITEM
1. Business..................................................................3
2. Properties................................................................7
3. Legal proceedings.........................................................8
4. Submission of matters to a vote of security holders.......................8
PART II
5. Market for registrant's common equity
and related stockholder matters...........................................8
6. Selected financialdata...................................................11
7. Management's discussion and analysis of financial
condition and results of operations......................................12
7A. Quantitative and qualitative disclosures about market risk...............29
8. Financial statements and supplementary data..............................30
9. Changes in and disagreements with accountants on accounting
and financialdisclosure..................................................61
PART III
10. Directors and executive officers of the registrant.......................61
11. Executive compensation...................................................61
12. Security ownership of certain beneficial owners and management ..........61
13. Certain relationships and related transactions...........................61
PART IV
14. Exhibits, financial statement schedules, and reports on Form 8-K.........62
PART I
ITEM 1. BUSINESS
GENERAL
Mid-Wisconsin Financial Services, Inc. ("the Company") is a registered bank
holding company under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). The Company's subsidiary operates under the name Mid-Wisconsin Bank
(the "Bank") and has its principal office in Medford, Wisconsin. Except as may
otherwise be noted, this annual report on Form 10-K describes the business of
the Company and the Bank as in effect on December 31, 2000.
ACQUISITIONS
The Company has a policy of actively pursuing opportunities to acquire
additional bank subsidiaries so that, at any given time, it may be engaged in
some tentative or preliminary discussions for such purpose with officers,
directors or principal shareholders of other holding companies or banks. There
are no plans, understandings, or arrangements, written or oral, regarding other
acquisitions as of the date hereof.
BUSINESS OF THE BANK
The day-to-day management of the Bank rests with its officers and board of
directors. The Bank is engaged in general commercial and retail banking
services, including trust services. The Bank serves individuals, businesses
and governmental units and offers most forms of commercial and consumer
lending, including lines of credit, term loans, real estate financing and
mortgage lending. In addition, the Bank provides a full range of personal
banking services, including checking accounts, savings and time accounts,
installment and other personal loans, as well as mortgage loans. New services
are frequently added to the Bank's retail banking departments.
The Trust and Investment Center located in Medford offers a wide variety of
fiduciary, investment management and advisory services to individuals,
corporations, charitable trusts, and foundations. The Bank also administers
pension, profit sharing and other employee benefit plans, and personal trusts
and estates.
THE BANK
The Bank was incorporated on September 1, 1890, as a state bank under the laws
of Wisconsin. The Bank's principal office is located at 132 West State Street,
Medford, Wisconsin, 54451. The Bank's principal office and 10 branches,
provide various commercial and consumer banking services for customers located
principally in Taylor County and portions of Eau Claire, Lincoln, Clark,
Marathon, Price and Oneida Counties, Wisconsin.
The Bank's principal branch offices are located in Medford, Colby, Rhinelander,
and Phillips, Wisconsin. These branches provide commercial and consumer
banking services for customers located in the surrounding market areas.
The Bank is constantly looking for new technology to serve the customers'
needs. Automated Teller Machines (ATMs), which provide 24-hour banking
services, are installed in many locations in the service area. A call center
was established in February 1999 to provide financial services to customers
over the phone. The call center is currently handling general customer service
questions, account inquiries, fund transferring, stop payments, and opening
deposit accounts. In March 2000 the Bank rolled out online banking to its
customers. Customers are able to check balances and activity in deposit and
loan accounts, transfer funds, view check images, and pay bills electronically
using the bill payer service. The Bank is the first bank of its size in
central Wisconsin to implement a call center and online banking.
BANK MARKET AREA AND COMPETITION
The Bank has substantial competition in its market area. Much of this
competition comes from companies which are larger and have greater resources
than the Company. The Bank competes for deposits and other sources of funds
with other banks, savings associations, credit unions, finance companies,
mutual funds, life insurance companies and other financial and non-financial
companies. Many of these nonbank competitors offer products and services which
are functionally equivalent to the products and services offered by the Bank.
The Bank's trust department and brokerage operations also compete with other
banks, insurance companies, brokerage firms, financial advisors, trust
companies, mutual funds and investment bankers on a local, state and national
level.
Recent changes in banking laws have had a significant effect on the competitive
environment in which the Bank operates and are likely to continue to increase
competition for the Bank. For example, current federal law permits adequately
capitalized and managed bank holding companies to engage in interstate banking
on a much broader scale than in the past. Banks are also permitted to create
interstate branching networks in states which do not "opt out" of the new laws.
The Gramm-Leach-Bliley Act of 1999 has also increased the competitive
environment for the Bank. Under this act, financial holding companies are now
permitted to conduct a broad range of banking, insurance and securities
activities. The Company believes that the combined effects of more interstate
banking and the development of greater "one-stop" availability for banking,
insurance and securities services will both increase the overall level of
competition and attract competitors with which the Bank may not now compete for
its customers.
EMPLOYEES
All officers of the Company except the Chairman, and the Vice President are
full-time employees of the Bank. As of December 31, 2000, the total employees
of the Company and its subsidiaries were approximately 121 on a full-time basis
and 30 on a part-time basis. Officers and certain supervisors are salaried,
and all other full and part-time employees are paid on an hourly basis.
Employee relations are considered to be good and none of the employees are
covered by a collective bargaining agreement.
EXECUTIVE OFFICERS
The executive officers of the the Company as of March 1, 2001, their ages,
offices and principal occupation during the last five years are set forth
below.
James F. Melvin, 51
Chairman of the Board of the Company (since May 2000); Vice Chairman
of the Board of the Company (August 1996-May 2000); also Chairman of
the Board of the Bank (May 1998-May 2000) and President of the Melvin
Companies.
Fred J. Schroeder, 63
Vice President of the Company (since May 1999) and former Mayor of the
City of Medford.
Gene C. Knoll, 47
President of the Company (since October 1996) and President, Chief
Executive Officer and a director of the Bank; previously, Vice President
of the Company (1994 to 1996), President and CEO of the Company's Bank of
Colby (1988 to 1994).
William A. Weiland, 46
Secretary and Treasurer of the Company (since May 1998) also
Executive Vice President of the Bank.
Rhonda R. Kelley, 27
Controller of the Company (since September 1998).
All executive officers are elected annually by the board of directors at its
annual meeting and hold office until the next annual meeting of the board of
directors, or until their respective successors are elected and qualified.
REGULATION AND SUPERVISION
The Company and the Bank are subject to regulation under both federal and state
law. The Company is a registered bank holding company and is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System (the "Board") pursuant to the BHCA. The Bank is subject to regulation
and examination by the Federal Deposit Insurance Corporation ("FDIC") and, as a
Wisconsin chartered bank, by the Wisconsin Department of Financial
Institutions.
The Board expects a bank holding company to be a source of strength for its
subsidiary banks. As such, the Company may be required to take certain actions
or commit certain resources to the Bank when it might otherwise choose not to
do so. Under federal and state banking laws, the Company and the Bank are also
subject to regulations which govern the Company's and the Bank's capital
adequacy, loans and loan policies (including the extension of credit to
affiliates), deposits, payment of dividends, establishment of branch offices,
mergers and other acquisitions, investments in or the conduct of other lines of
business, management personnel, interlocking directors and other aspects of the
operation of the Company and the Bank. Bank regulators having jurisdiction
over the Company and the Bank generally have the authority to impose civil
fines or penalties and to impose regulatory sanctions for noncompliance with
applicable banking regulations and policies. In particular, the FDIC has broad
authority to take corrective action if the Bank fails to maintain required
capital level. Information concerning the Company's compliance with applicable
capital requirements is set forth under the subheading "Capital Adequacy" in
this Item 7 and in Note 13 of the Notes to Consolidated Financial Statements.
Banking laws and regulations have undergone periodic revisions that often have
a direct effect on the Bank's operations and its competitive environment. From
time to time various formal or informal proposals, including new legislation,
relating to, among other things, changes with respect to deposit insurance,
permitted bank activities and restructuring of the federal regulatory scheme
have been made or may be made or adopted in the future. It is likely that such
changes may have a significant impact on the Company's competitive
circumstances and that such changes may have a material adverse effect on the
Company's consolidated financial condition, liquidity or results of operations.
MONETARY POLICY
The earnings and growth of the Bank, and therefore the Company, are affected by
the monetary and fiscal policies of the federal government and governmental
agencies. The Board has a direct and indirect influence on the costs of funds
used by the Bank for lending and its actions have a substantial effect on
interest rates, the general availability of credit and the economy as a whole.
These policies therefore affect the growth of bank loans and deposits and the
rates charged for loans and paid for deposits. Governmental and Board policies
have had a significant effect on the operating results of commercial banks in
the past and are expected to do so in the future. Management of the Company is
not able to anticipate the future impact of such policies and practices on the
growth of the profitability of the Company.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING INFORMATION
This report contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995 (the "Reform Act"). In
addition, certain statements in future filings by the Company with the
Securities and Exchange Commission, reports to shareholders, in press releases,
and in other oral and written statements made by or with the approval of the
Company which are not statements of historical fact will constitute forward-
looking statements within the meaning of the Act.
Examples of forward-looking statements include, but are not limited to : (i)
projections of revenues, income or loss, earnings or loss per share, the
payment or non-payment of dividends, capital structure and other financial
items; (ii) statements of plans and objectives of the Company or its management
or Board of Directors, including those relating to products or services; (iii)
statements of future economic performance; and (iv) statements of assumptions
underlying such statements. Words such as "believes", "anticipates",
"expects", "intends", "targeted", and similar expressions are intended to
identify forward-looking statements but are not the exclusive means of
identifying such statements. In making forward-looking statements within the
meaning of the Reform Act, the Company undertakes no obligation to publicly
update or revise any such statement.
Forward-looking statements of the Company are based on information available to
the Company as of the date of such statements, and reflect the Company's
expectations as of such date, but are subject to risks and uncertainties that
may cause actual results to vary materially. In addition to specific factors
which may be described in connection with any of the Company's forward-looking
statements, factors which could cause actual results to differ materially from
those discussed in the forward looking statements include, but are not limited
to the following: (i) the condition of the U.S. economy in general and the
condition of the local economies in which operations are conducted; (ii) the
effects of increased competition in the banking and financial services
industry; (iii) the effects of and changes in trade, monetary and fiscal
policies and laws, including interest rate policies of the Board of Governors
of the Federal Reserve System which reduce interest margins; (iv) the effects
of inflation, interest rate, market, and monetary fluctuations; (v) the timely
development of and acceptance of new products and services and perceived
overall value of these products and services by users; (vi) changes in consumer
spending, borrowing and saving habits; (vii) technological changes, including
increases in on-line banking or delivery of financial services; (viii) the
effect of acquisitions or the inability to consummate acquisitions to expand
the Company's service area; (ix) the ability to increase market share and
control expenses; (x) the effect of changes in laws and regulations (including
laws and regulations concerning taxes, banking, securities and insurance) with
which the Company and its subsidiaries must comply or which result in increased
competition (xi) the effect of changes in accounting policies and practices
required by bank or securities regulatory agencies or to comply with generally
accepted accounting principles; (xii) the costs and effects of litigation and
of unexpected or adverse outcomes in such litigation; and (xiii) the success of
the Company at managing the risks involved in the foregoing.
ITEM 2. PROPERTIES
The Company's operations are carried out at the Bank's administrative office
facility at 132 West State Street, Medford, Wisconsin. The Company does not
maintain any separate offices.
The Bank's administrative office is located at 132 West State Street, Medford,
Wisconsin, in the main business district. The Bank's main retail facility is
located at 134 South Eighth Street, Medford, Wisconsin. The Bank owns both
facilities.
In addition to its administrative office, the Bank also owns ten branch
facilities. All of the branches are free-standing buildings that provide
adequate customer parking and, with two exceptions, all have drive-in
facilities. The Company considers its properties to be adequate for its needs.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings before any court,
administrative agency or other tribunal. Further, the Company is not aware of
any litigation, which is threatened against it in any court, administrative
agency or other tribunal.
The Bank is engaged in legal actions and proceedings, both as plaintiffs and
defendants, from time to time in the ordinary course of its business. In some
instances, such actions and proceedings involve substantial claims for
compensatory or punitive damages or involve claims for an unspecified amount of
damages. There are, however, presently no proceedings pending or contemplated
which, in the opinion of the Company's management, would have a material
adverse effect on the operations, liquidity or consolidated financial condition
of the Bank or the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of shareholders during the fourth quarter
of 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
There is no active established public trading market in Company common stock,
although two regional broker-dealers act as market makers for the stock. Bid
and ask quotations are published periodically in the MILWAUKEE JOURNAL SENTINEL
and prices are quoted on the OTC Bulletin Board under the symbol "MWFS.OB".
Transactions in the Company common stock are limited and sporadic.
On December 15, 2000, the Company made a self-tender offer to purchase up to
90,557 shares and reserved the right to expand its offer and purchase up to 7%
of its issued and outstanding common stock for $25.50 per share. The tender-
offer expired on January 31, 2001. The Company accepted 116,117 shares of its
common stock for repurchase in connection with its tender offer. The shares
repurchased represented approximately 6.4% of the shares outstanding
immediately prior to the tender offer. Following the purchase of accepted
shares, 1,695,452 shares of the Company's common stock were outstanding.
HOLDERS
As of March 15, 2001, there were approximately 802 holders of record of the
Company's $.10 per share par value common stock. Some of the Company's shares
are held in "street" name and the number of beneficial owners of such shares is
not known nor included in the foregoing number.
DIVIDEND POLICY
The Company's Bylaws provide that, subject to the provisions of applicable law,
the Board of Directors may declare dividends from unreserved and unrestricted
earned surplus, at such times and in such amounts as the board shall deem
advisable.
The Company's ability to pay dividends depends upon the receipt of dividends
from the Bank. Bank dividends are subject to limitation under banking laws and
regulations. As of December 31, 2000, the Bank could have paid $10,601,724 of
additional dividends to the Company without prior regulatory approval. The
declaration of dividends by the Company is discretionary and will depend upon
operating results and financial condition, regulatory limitations, tax
considerations and other factors. The Company has paid regular dividends since
its inception in 1986.
MARKET PRICES AND DIVIDENDS
Price ranges of over-the-counter quotations and dividends declared per share on
the Company common stock for the periods indicated are:
2000 1999
Prices:
Quarter High Low Dividends (1) High Low Dividends (2)
1st $27.50 $27.00 .20 $27.38 $25.50 .17
2nd 27.00 27.00 .60 27.38 27.38 .60
3rd 27.00 25.75 .20 27.38 27.38 .20
4th 25.75 21.50 .20 27.50 27.50 .20
(1) The $.60 per share dividend declared in the second quarter of 2000 includes
a special dividend of $.40 per share.
(2) The $.60 per share dividend declared in the second quarter of 1999 includes
a special dividend of $.40 per share.
Prices of the common stock for the year ended December 31, 1998 represent the
bid quotations as published in the MILWAUKEE JOURNAL SENTINEL and since 1998,
the bid prices reported on the OTC Bulletin Board. The prices do not reflect
retail mark-up, mark-down or commissions, and may not necessarily represent
actual transactions. There is no active established trading market.
SALES OF UNREGISTERED SECURITIES
During the three-fiscal year period ended December 31, 2000, the Company sold
common stock in connection with the exercise by employees of options granted
under the 1991 Stock Option Plan. These shares were not registered under the
Securities Act of 1933, but were offered in reliance on the exemptions afforded
under sections 4(2) and 3(a)(11) thereof as all optionees were officers of the
Bank and all are residents of the State of Wisconsin. All proceeds from the
sale of such shares were used for general corporate purposes. Sales of shares
during each fiscal year were as follows:
Aggregate
Aggregate Consideration
Year Ended Shares Sold Received
2000 1,906 $37,167
1999 3,539 $65,959
1998 4,678 $72,068
ITEM 6. SELECTED FINANCIAL DATA
Table 1: Earnings Summary and Selected Financial Data
Years Ended December 31
2000 1999 1998 1997 1996
(Dollars in Thousands, Except Per Share Amounts)
Earnings and Dividends:
Net Interest Income $11,305 $11,395 $11,038 $10,800 $10,757
Provision for credit losses 400 180 420 140 400
Other Non-Interest Income 2,303 2,107 2,085 2,258 2,033
Other non-interest expense 9,859 9,974 9,455 9,411 9,114
Net Income $3,349 $3,348 $3,248 $3,507 $3,276
Per common share:
Basic And Diluted Earnings $1.85 $1.83 $1.74 $1.88 $1.76
Dividends declared 1.20 1.17 0.81 0.75 0.67
Book Value At Year End 16.75 15.62 15.89 14.95 13.79
Average common shares (000's) 1,813 1,826 1,862 1,868 1,865
Dividend Payout Ratio 64.86% 63.93% 46.55% 39.89% 38.07%
Shareholders of record at year end 803 816 830 790 750
Balance Sheet Summary:
At year end:
Loans Net Of Unearned Income $226,942 $217,546 $189,952 $185,015 $174,842
Assets 321,102 307,684 280,479 263,675 251,501
Deposits 244,691 230,170 222,322 211,149 202,412
Shareholders equity 30,345 28,499 29,570 27,867 25,725
Average Balances:
Loans net of unearned income 225,308 200,497 190,014 178,968 171,381
Assets 314,318 288,287 272,084 254,352 244,772
Deposits 235,655 222,755 214,246 198,935 192,220
Shareholders Equity 28,520 28,396 28,558 26,633 24,544
Performance Ratios:
Return On Average Assets 1.07% 1.16% 1.19% 1.38% 1.34%
Return on average common equity 11.74% 11.79% 11.37% 13.17% 13.35%
Equity To Assets 9.45% 9.26% 10.54% 10.57% 10.23%
Total risk-based capital 13.17% 12.93% 15.11% 14.94% 15.66%
Net Loan Charge-Offs As A Percentage
of average loans 0.04% 0.03% 0.13% 0.10% 0.12%
Nonperforming Assets As A Percentage
of loans and other real estate 0.97% 0.63% 0.75% 0.70% 0.58%
Net Interest Margin 4.02% 4.47% 4.55% 4.56% 4.78%
Efficiency ratio 61.34% 61.12% 58.37% 56.40% 56.08%
Fee Revenue As A Percentage Of
average assets 0.46% 0.46% 0.45% 0.44% 0.43%
Stock Price Information:
High $27.50 $27.50 $27.50 $27.25 $24.00
Low 21.50 25.50 23.00 24.00 21.00
Market Price at year end (1) 22.00 27.50 26.00 27.25 24.00
(1) Market value at year-end represents the bid price. The quotations reflect
prices, without retail mark-up, markdown, or commissions, and may not
necessarily represent actual transactions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCAL
CONDITION AND RESULTS OF OPERATIONS
The following management's discussion and analysis reviews significant factors
with respect to the Company's financial condition and results of operation at
and for the three-year period ended December 31, 2000. This discussion should
be read in conjunction with the consolidated financial statements, notes,
tables, and the selected financial data presented elsewhere in this report.
Management's discussion and analysis contains forward-looking statements that
are provided to assist in the understanding of anticipated future financial
performance. However, such performance involves risks and uncertainties that
may cause actual results to differ materially from those in such statements.
For a discussion of certain factors that may cause such forward-looking
statements to differ materially from actual results see Item 1, Cautionary
Statement Regarding Forward-Looking Information, in this Annual Report on Form
10-K for the year ended December 31, 2000.
RESULTS OF OPERATIONS
The Company's consolidated net income for 2000 remained constant at $3,349,060
compared to 1999 earnings of $3,348,117. Return on average common
stockholders' equity and return on average assets were 11.74% and 1.07% for
2000 compared to 11.79% and 1.16% for 1999. Net income per share was $1.85 in
2000, compared to $1.83 in 1999. Cash dividends declared in 2000 were $1.20,
compared to $1.17 per share in 1999. The dividend payout ratio was 64.86% in
2000 compared to 63.93% in 1999.
MARKET RISK
Market risk is the risk of loss from adverse changes in market prices and
rates. The Company's market risk arises primarily from interest-rate risk
inherent in its lending and deposit taking activities. Management actively
monitors and manages its interest-rate risk exposure. The measurement of the
market risk associated with financial instruments is meaningful only when all
related and offsetting on- and off-balance sheet transactions are aggregated,
and the resulting net positions are identified. Disclosures about the fair
value of financial instruments that reflect changes in market prices and rates
can be found in footnotes 15 and 16 on the Notes to the Financial Statements.
The Company's primary objective in managing interest-rate risk is to minimize
the adverse impact of changes in interest rates on the Company's net interest
income and capital, while adjusting the Company's asset-liability structure to
obtain the maximum yield-cost spread on that structure. The Company relies
primarily on its asset-liability structure to control interest-rate risk.
However, a sudden and substantial increase in interest rates may adversely
impact the Company's earnings, to the extent that the interest rates borne by
assets and liabilities do not change at the same speed, to the same extent, or
on the same basis. The Company does not engage in trading activities.
NET INTEREST INCOME
Net interest income represents the difference between interest earned on loans,
securities and other interest-earning assets, and the interest expense
associated with the deposits and borrowings that fund them. Interest rate
fluctuations together with changes in volume and types of earning assets and
interest-bearing liabilities combine to affect total net interest income.
Table 2: Interest Income and Expense Volume and Rate Change
2000 Compared to 1999 1999 Compared to 1998
Increase (Decrease) Increase (Decrease)
(In Thousands of Dollars) Due to (1) Due to (1)
Volume Rate Net Volume Rate Net
Interest income:
Loans (2) $2,210 $384 $2,594 $444 $(403) $41
Investment securities:
Taxable 133 112 245 94 (77) 17
Tax exempt (2) 195 8 203 236 (38) 198
Other interest income (97) 65 (32) (79) (17) (96)
Total earning assets (2) 2,441 569 3,010 695 (535) 160
Interest expense:
Savings deposits $(56) $491 $435 $104 $(304) $(200)
Time deposits 880 661 1,541 48 (492) (444)
Short Term Borrowing 251 342 593 200 (30) 170
Long Term Borrowing 476 23 499 209 3 212
Total interest-bearing liabilities 1,551 1,517 3,068 561 (823) (262)
Net interest income $890 $(948) $(58) $134 $288 $422
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) The yield on tax-exempt loans and investment securities has been adjusted
to its fully taxable equivalent using a 34% tax rate.
Volumes and changes in the mix offset most of the impact from the interest rate
environment and competitive pricing changes. Average earning asset volume
increased $28.5 million, and average interest-bearing liabilities increased $26
million from 1999.
During 2000, the higher interest rate environment drove up the cost of funds
more rapidly than earning asset yields. A significant portion of the asset
growth was funded by non-core sources. The higher cost and rate sensitivity of
these funds put downward pressure on the net interest margin.
Table 3: Yield on Earning Assets
Year Ended Year Ended Year Ended
December 31, 2000 December 31, 1999 December 31, 1998
Yield Change Yield Change Yield Change
Yield on earning assets 8.41% 0.23% 8.18% -0.39% 8.57% -0.17%
Effective rate on all liabilities
as a % of earning assets 4.39% 0.68% 3.71% -0.31% 4.02% -0.16%
Net yield on earning assets 4.02% -0.45% 4.47% -0.08% 4.55% -0.01%
Loans are the largest component of earning assets. On average, loans grew $25
million to $225 million for 2000, and represented 76.6% of earning assets. A
change in the total yield on the loan portfolio generally has the largest
impact on net interest income. The yield on total loans increased 19 basis
points to 8.94% in 2000.
Deposits are the largest component of interest bearing liabilities. Deposit
growth has not kept pace with asset growth, in part because of a low rate of
personal savings by households and competition for depositor funds from higher-
yielding investments. On average, interest-bearing deposits grew $13.3 million
in 2000, and represented 81.6% of interest bearing liabilities, compared to
85.1% for 1999. As a result, the Bank had greater dependence on wholesale funds
to fund the asset growth. On average, borrowed funds increased 38% to $46
million in 2000.
Table 4: Average Balances and Interest Rates (2)
Average 2000 Yield Average 1999 Yield Average 1998 Yield
(Dollars in Thousands) Balance Interest Rate Balance Interest Rate Balance Interest Rate
Assets
Earnings Assets
Interest earning assets:
Loans (1) (3) $225,308 $20,133 8.94% $200,497 $17,539 8.75% $190,014 $17,506 9.21%
Investment securities:
Taxable 50,112 3,263 6.51% 48,039 3,018 6.28% 46,218 2,994 6.48%
Tax exempt 17,177 1,236 7.20% 14,465 1,033 7.14% 11,130 835 7.50%
Other Interest Income 1,476 91 6.17% 2,562 123 4.80% 4,186 219 5.23%
Total earning assets $294,073 24,723 8.41% $265,563 21,713 8.18% $251,548 21,554 8.57%
Non-interest earning assets:
Cash & cash equivalents 11,817 12,816 10,114
Other assets 10,868 12,152 12,558
Allow.for credit losses (2,440) (2,244) (2,136)
Total assets $314,318 $288,287 $272,084
Liabilities & Stockholders' Equity:
Interest bearing liabilities:
Interest bearing demand $18,950 $343 1.81% $19,813 $294 1.48% $18,410 $341 1.85%
Savings deposits 57,481 2,152 3.74% 58,826 1,766 3.00% 56,967 1,919 3.37%
Time deposits 129,281 7,647 5.92% 113,776 6,106 5.37% 112,948 6,550 5.80%
Short-term borrowings 28,300 1,684 5.95% 23,485 1,091 4.65% 19,149 921 4.81%
Long-term borrowings 18,086 1,085 6.00% 10,136 586 5.78% 6,521 374 5.74%
Total interest bearing
liabilities $252,098 $12,911 5.12% $226,036 $9,843 4.35% $213,995 $10,105 4.72%
Demand deposits 29,944 30,341 25,920
Other liabilities 3,756 3,514 3,611
Stockholders' equity 28,520 28,396 28,558
Total liabilities and
stockholders' equity $314,318 $288,287 $272,084
Net interest income and
rate spread $11,812 3.29% $11,870 3.83% $11,449 3.85%
Net interest margin 4.02% 4.47% 4.55%
Taxable equivalent adjustment $507 $474 $412
(1) Non-accrual loans are included in the daily average loan balances outstanding.
(2) The yield on tax-exempt loans and securities is computed on a tax-equivalent basis using a tax rate of 34%.
(3) Interest income includes loan fees: 2000 - $255,082; 1999 - $338,050 1998 - $331,754.
The net interest margin was 4.02% for 2000, a 45 basis point decline from 4.47%
in 1999. The interest spread decreased 54 basis points to 3.29% for 2000. The
yield on earning assets increased 23 basis points to 8.41%, while the rate on
interest bearing liabilities increased 77 basis points to 5.12% for 2000.
As the largest component of operating income, improvements in the growth of net
interest income are important to the Company's earnings performance. The
Company uses modeling and analysis techniques to its asset-liability structure
to manage net interest income and the related interest rate risk position. The
Company seeks to meet the needs of its customers, yet provide for stability in
net interest income in the event of significant interest rate changes.
Table 5: Mix of Average Interest-Earning Assets and Average Interest-Bearing
Liabilities
2000 1999 1998
Loans 76.62% 75.50% 75.54%
Taxable investments 17.04% 18.09% 18.37%
Non-taxable 5.84% 5.45% 4.42%
Other 0.50% 0.96% 1.67%
100.00% 100.00% 100.00%
Interest bearing demand 7.52% 8.77% 8.60%
Savings deposits 22.80% 26.03% 26.62%
Time deposits 51.28% 50.34% 52.78%
Short Term Borrowing 11.23% 10.39% 8.95%
Long Term Borrowing 7.17% 4.47% 3.05%
100.00% 100.00% 100.00%
NONINTEREST INCOME
Total 2000 operating noninterest income, excluding gains from security
transactions, increased $195,830 or 9.3%, over 1999, compared to an increase
of $23,407, or 1.1% in 1999 over 1998.
Table 6: Noninterest income
Years Ended December 31,
2000 1999 1998
Service fees $803,155 $706,026 $696,768
Trust service fees 629,372 569,312 487,795
Net realized gain on sale of securities
available for sale - - 1,900
Investment product commissions 265,675 241,466 271,903
Other operating income 604,351 589,919 626,850
Total $2,302,553 $2,106,723 $2,085,216
Service fees continued to increase to $803,155 in 2000, compared to $706,206 in
1999 primarily due to a profit improvement initiative implemented in 2000.
Trust service fees increased to $629,372 in 2000, compared to $569,312 in 1999
and $487,795 in 1998. This increase reflects the continued growth in trust
business volume and growth in the assets managed by the Bank's Trust
Department. The market value of assets under management totaled $146,033,919
at December 31, 2000, from $134,956,486 at December 31, 1999, and $123,583,201
at December 31, 1998.
NONINTEREST EXPENSE
Total noninterest expense increased $115,411 or 1.4% in 2000, compared to the
$641,468 or 8.1% increase from 1999 to 1998.
Table 7: Noninterest Expense
2000 1999 1998
Salaries & employee benefits $4,636,860 $4,510,574 $4,237,853
Occupancy 1,277,739 1,328,126 1,161,954
Data processing & information systems 450,178 433,885 348,828
Goodwill & core deposit intangibles amortization 339,767 323,193 307,704
Other operating expense 1,952,734 1,946,089 1,844,060
Total $8,657,278 $8,541,867 $7,900,399
Salaries and employee benefits increased $126,286 or 2.8% compared to 1999.
This category continues to be the largest component of noninterest expense,
representing 53.6% of operating expenses in 2000 and 52.8% and 53.6% in 1999
and 1998, respectively. Salary and benefit expense was controlled by decreasing
the number of employees. The number of full-time equivalent employees at the
end of 2000 was 128 compared to 135 at the end of 1999. Occupancy expense
decreased in 2000 due to the decrease in equipment depreciation, and related
maintenance expenses.
PROVISION FOR CREDIT LOSSES
The adequacy of the reserve for credit losses is assessed based upon credit
quality, existing and prospective economic conditions and loss exposure by loan
category. Management determines the allowance for credit losses based on past
loan experience, current economic conditions, composition of the loan
portfolio, and the potential for future loss. Accordingly, the amount charged
to expense is based on management's evaluation of the loan portfolio. It is
the Company's policy that when available information confirms that specific
loans and leases, or portions thereof, including impaired loans, are
uncollectible, these amounts are promptly charged off against the allowance.
The provision for credit losses was $400,000 in 2000; compared to $180,000 in
1999 and $420,000 in 1998. The increased provision in 2000 is intended to
provide adequate reserves for potential losses.
The allowance for credit losses as a percentage of gross loans outstanding was
1.14% at December 31, 2000; 1.05% at December 31, 1999; and 1.14% at December
31, 1998. Net charge-offs as a percentage of average loans outstanding were
.04% in 2000; .02 % in 1999; and .13% in 1998. Charge-offs have not been
concentrated in any industry or business segment as reflected in Table 8.
The loan portfolio is the primary asset subject to credit risk. Credit risk is
controlled through the use of credit standards, review of potential borrowers,
and loan payment performance. As of December 31, 2000, the allowance for
credit losses grew by 13.5% to $2,593,099, compared to $2,285,675 last year.
Table 8: Loan Loss Experience
2000 1999 1998 1997 1996
Allowance for credit losses at beginning
of period $2,286 $2,159 $1,990 $2,031 $1,836
Loans Charged off:
Commercial, financial and
agricultural 78 31 211 111 190
Real Estate 12 11 46 45 17
Installment and other consumer loans
to individuals 103 86 72 89 105
Total charge offs 193 128 329 245 312
Recoveries on loans previously charged
off:
Commercial, financial and
agricultural 38 25 60 27 80
Real estate 34 30 0 0 2
Installment and other consumer
loans to indivuduals 28 20 18 37 25
Total recoveries 100 75 78 64 107
Net loans charged-off 93 53 251 181 205
Additions charged to operations 400 180 420 140 400
Allowance for credit losses at end of
period $2,593 $2,286 $2,159 $1,990 $2,031
Ratio of allowance for credit losses
to total loans at end of period 1.14% 1.05% 1.14% 1.08% 1.16%
Ratio of net charge-offs during the
period to average loans outstanding 0.04% 0.02% 0.13% 0.10% 0.12%
The allowance for credit losses represents management's estimate of an amount
adequate to provide for potential losses in the loan portfolio. Adequacy of
the allowance for credit losses is based on management's ongoing review and
grading of the loan portfolio, past loan loss experience, trends in past due
and nonperforming loans, current economic conditions, and collateral.
In the opinion of management, the allowance for credit losses is adequate as of
December 31, 2000. While management uses available information to recognize
losses on loans, future adjustments may be necessary based on changes in
economic conditions.
The allocation of the year-end allowance for credit losses for each of the past
five years based on management's estimates of loss exposure by category of
loans is shown in Table 9. Management believes this allocation is appropriate
in light of current and expected economic conditions, the geographic and
industry mix of the loan portfolio and other risk related factors. Commercial
loans secured by real estate are included in this table under the category of
real estate and the allowance for credit losses is allocated to cover
expectations of loss.
Table 9: Allocation of the Allowance for Credit Losses
2000 1999 1998 1997 1996
as a % as a % as a % as a % as a %
(Dollars in Thousands) of Total of Total of Total of Total of Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
Commercial, financial,
agricultural $1,200 37.83% $858 35.44% $865 35.88% $763 32.64% $814 32.03%
Real Estate 850 56.05% 1,091 58.61% 967 58.13% 842 60.19% 850 60.92%
Installment and other
loans to individuals 202 4.92% 181 5.02% 193 5.74% 191 6.79% 162 6.57%
Impaired Loans 341 1.20% 156 0.93% 134 0.25% 194 0.38% 132 0.48%
Unallocated 0 n/a 0 n/a 0 n/a 0 n/a 73 n/a
Total $2,593 100.00% $2,286 100.00% $2,159 100.00% $1,990 100.00% $2,031 100.00%
Factors that are critical to managing overall credit quality are sound loan
underwriting and administration, and monitoring existing loans. The Company's
process for monitoring loan quality includes weekly analysis of delinquencies,
non-performing assets and potential problem loans. The Company's policy is to
place loans on a non-accrual status when they become contractually past due 90
days or more as to interest or principal payments. All interest accrued
(including applicable impaired loans) but not collected for loans that are
placed on non-accrual or charged off is reversed against interest income. The
interest on these loans is accounted for on the cash basis until qualifying for
return to accrual. Loans are returned to accrual status when all the principal
and interest amounts contractually due have been collected and there is
reasonable assurance that repayment will continue within a reasonable time
frame.
A loan is impaired when, based on current information, it is probable that the
Company will not be able to collect all amounts due in accordance with the
contractual terms of the loan agreement. Impairment is based on discounted
cash flows of expected future payments using the loans effective interest rate
or the fair value of the collateral if the loan is collateral dependent.
Table 10: Risk-Element Loans
Risk-element loans Dec. 31 % of total Dec. 31 % of total Dec. 31 % of total Dec. 31 % of total Dec. 31 % of total
(Dollars in Thousands) 2000 loans 1999 loans 1998 loans 1997 loans 1996 loans
Non-accrual, past due,
and restructured loans $2,527 1.11% $1,854 0.85% $2,164 1.14% $1,238 0.67% $1,072 0.61%
Potential problem loans 1,026 0.45% 1,152 0.53% 476 0.25% 161 0.09% 448 0.26%
Foreign outstandings 0 0.00% 0 0.00% 0 0.00% 0 0.00% 0 0.00%
Total risk-element
loans $3,553 1.56% $3,006 1.38% $2,640 1.39% $1,399 0.76% $1,520 0.87%
Included above in non-accrual loans is $1,691,325 of impaired loans (.74%) in
non-accrual status at December 31, 2000. In addition, there is $1,025,820
(.45%) of impaired loans which management has considered in the allowance for
credit losses. The average balance of impaired loans during 2000 was
$2,489,941.
Total risk-element assets (loans and other real estate) increased during 2000.
As a percentage of total outstanding loans, the non-performing assets increased
.18% to 1.56% in 2000. The percentage of risk-element assets had decreased
.01% in 1999 and increased .63% in 1998. There are no foreign loans
outstanding and no concentrations of credit requiring disclosure.
Nonperforming loans are defined as nonaccrual loans, loans 90 days or more
past due but still accruing, and restructured loans. Loans are generally
placed on nonaccrual status when contractually past due 90 days or more as to
interest or principal payments. Previously accrued and uncollected interest on
such loans is reversed, and income is recorded only to the extent that interest
payments are subsequently received and principal is collectible.
Interest payments on impaired loans are typically applied to principal unless
collectability of the principal amount is fully assured, in which case interest
is recognized on the cash basis. The interest that would have been reported in
2000 if all loans had been current throughout the year in accordance with their
original terms was $134,400 in comparison to $106,650 actually collected.
Table 11 shows the composition of non-performing assets. Included in non-
performing loans are non-accrual loans 90 days or more past due and loans past
due 90 days or more but still accruing interest. Loans past due 90 days or
more but still accruing interest are classified as such where the underlying
loans are both well secured and in the process of collection. Also included in
non-performing loans are restructured loans. Restructured loans involve
granting a concession to the borrower modifying the terms of the loan.
Table 11: Non-performing Loans and Other Real Estate Owned
(Dollars in Thousands) 2000 1999 1998 1997 1996
Non-accrual loans $517 $505 $1,416 $1,087 $847
Impaired loans 1,691 866
Loans past due 90 days
or more and accruing 24 64 38 35 36
Restructured loans 295 419 710 116 189
Total non-performing
loans $2,527 $1,854 $2,164 $1,238 $1,072
Other real estate owned $98 $70 $56 $50 $135
Total non-performing
assets $2,625 $1,924 $2,220 $1,288 $1,207
The reserve for credit losses continues to provide non-performing loan
coverage, at 103% at December 31, 2000. This compares to non-performing loan
coverage of 123% at December 31, 1999, and 100% at December 31, 1998.
INCOME TAXES
The effective tax rate was 26.4% in 2000, 30.0% in 1999, and 32.4% in 1998.
LIQUIDITY AND INTEREST SENSITIVITY
The Bank's Asset Liability Management process provides a unified approach to
management of liquidity, capital and interest rate risk, and to providing
adequate funds to support the borrowing requirements and deposit flow of its
customers. Management views liquidity as the ability to raise cash at a
reasonable cost or with a minimum of loss and as a measure of balance sheet
flexibility to react to marketplace, regulatory, and competitive changes.
Deposit growth is the primary source of liquidity. Deposits as a percentage of
total funding sources were 85.3% at December 31, 2000 and 83.4% at December 31,
1999. Wholesale funding represents the balance of the Company's total funding
needs. The primary wholesale funding sources utilized are Federal Home Loan
Bank advances, federal funds purchased, repurchase agreements from a base of
individuals, businesses, and public entities, and brokered CDs.
Management's overall strategy is to coordinate the volume of rate sensitive
assets and liabilities to minimize the impact of interest rate movement on the
net interest margin. Over the past year funding pressures have tended to make
bank liabilities more rate sensitive. The rate increases drove up the cost of
funds more rapidly than earning assets yields. Table 12 represents the
Company's earning sensitivity to changes in interest rates at December 31,
2000.
Table 12 reflects a negative gap position in all categories one year or less;
the cumulative one-year gap ratio is negative at 48.28%. The Bank is
attempting to change this trend in the gap ratio by shortening final loan
maturities and offering more variable rate loan products. A significant
portion of consumer deposits do not re-price or mature on a contractual basis.
These deposit balances and rates are considered to be core deposits since these
balances are generally not susceptible to significant interest rate changes.
The Bank's Asset/Liability Committee distributes these deposits over a number
of periods to reflect those portions of such accounts that are expected to re-
price fully with market rates over the simulation period. The assumptions are
based on historical experience with the Bank's individual markets and customers
and include projections for how management expects to continue to price in
response to marketplace and market changes. The Asset/Liability Committee uses
financial modeling techniques that measure the interest rate risk. Policies
established by the Bank's Asset/Liability Committee limit exposure of earnings
at risk. Management considers that an acceptable range for the rate
sensitivity ratio is 70-130%.
Table 12: Rate Sensitivity Gap Position
December 31, 2000
90 day 91-180 days 181-365 days 1-5 Years Beyond 5 Years Total
Loans $26,362 $16,838 $30,683 $128,013 $25,046 $226,942
Securities 4,823 822 2,913 32,983 29,311 $70,852
Fed Funds & Other 19 19
$31,204 $17,660 $33,596 $160,996 $54,357 $297,813
Cumulative Rate Sensitive Assets $31,204 $48,864 $82,460 $243,456 $297,813
<100 CDs & Other Time Dep 22,458 13,207 33,318 25,545 0 94,528
Money Market Plus Accounts 9,880 4,940 4,940 13,174 32,934
Money Market Savings Accounts 2,993 1,497 1,497 3,991 9,978
Regular Savings 1,849 1,849 1,849 12,942 18,488
Now Accounts 5,742 3,828 3,828 5,742 19,141
100 & Over 12,970 6,544 14,565 3,387 37,466
FF Purch, Repo, & Other Borrowed Funds 25,959 6,000 3,200 4,000 3,000 42,159
$81,851 $25,751 $63,197 $45,046 $38,849 $254,694
Cumulative Rate Sensitive Liabilities $81,851 $107,602 $170,799 $215,845 $254,694
Rate Sensitivity Gap $(50,647) $(8,091) $(29,601) $115,950 $15,508
Cumulative Rate Sensitivity $(50,647) $(58,738) $(88,339) $27,611 $43,120
Gap
Cumulative gap ratio 38.12% 45.41% 48.28% 112.79% 116.93%
INVESTMENT PORTFOLIO
The investment securities portfolio is intended to provide liquidity, flexible
asset/liability management and a source of stable income.
Table 13: Investment Securities Portfolio Maturities (1)
After After
(Dollars in Thousands) One But Five but
Within Weighted Within Weighted Within Weighted After Weighted
December 31, 2000 One Year Yields Five Years Yields Ten Years Yields Ten Years Yields
U.S. Treas & other U.S.
Gov't agencies & corp $5,308 6.29% $24,614 6.53% $9,151 6.54% $6,920 6.56%
State & political sub-
divisions (domestic) 1,326 7.34% 8,344 7.09% 8,372 7.18% 163 8.14%
Other bonds, notes, and
debentures 50 8.20% 25 7.50% 4564 6.72%
Debt Securities $6,684 6.51% $32,983 6.67% $17,523 6.85% $11,647 6.64%
Equity Securities 1,874 5.54% 141 1.06%
Total Securities $8,558 6.30% $32,983 6.67% $17,664 6.80% $11,647 6.64%
(1) Weighted average yields on tax-exempt securities have been calculated on a tax equivalent basis using a tax rate of 34%.
All securities are classified as available-for-sale. There are no securities
in the investment portfolio that are in excess of ten percent of stockholders'
equity.
Securities with an approximate carrying value of $42,244,400 and $41,142,109,
at December 31, 2000 and 1999 respectively, were pledged primarily to secure
public deposits and for other purposes required by law.
Table 14: Investment Securities Distribution (1)
December 31, 2000 December 31, 1999 December 31, 1998
(Dollars in Thousands) Amount % of total Amount % of total Amount % of total
U.S. Treas & other U.S. Gov't
Agencies & Corp. $50,555 71.35% $44,877 70.82% $40,741 71.58%
State & Political subdivisions
(domestic) 18,207 25.70% 16,047 25.33% 14,007 24.61%
Other securities and
investments 2,090 2.95% 2,441 3.85% 2,169 3.81%
Total $70,852 100.00% $63,365 100.00% $56,917 100.00%
(1) Weighted average yields on tax-exempt securities have been calculated on a
tax equivalent basis using a tax rate of 34%.
The market value of the fixed income portion on the investment portfolio as a
percentage of book value has increased due to the decrease in interest rates.
At December 31, 2000 market value was 100.8% of book value. The net unrealized
gain on securities available for sale, recorded as a separate component of
stockholders' equity, was $245,915, net of deferred income taxes of $139,300
compared to a loss of $800,525, net of deferred taxes of $489,446 at December
31, 1999.
The Bank's investment subsidiary, Mid-Wisconsin Investment Corp., was formed in
June 1994, and currently holds approximately $75,000,000 in investments and
loans at book value. Income tax expense for 2000 was approximately $279,000
lower as a result of holding these investments and loans at the subsidiary.
Table 15: Market Value of Investment Securities
December 31, 2000 December 31, 1999
U.S. Treasury securities and obligations
of other U.S. Govt agencies & corp $50,554,843 $44,876,832
Obligations to states & political
subdivisions 18,207,577 16,046,592
Other securities 2,089,873 2,441,241
Totals $70,852,293 $63,364,665
LOAN PORTFOLIO
Table 16 sets forth the approximate maturities of the loan portfolio, excluding
consumer, other loans, and non-accrual loans; and the sensitivity of loans to
interest changes as of December 31, 2000.
Table 16: Loan Maturity Distribution and Interest Rate Sensitivity
Loan Maturity
(Dollars in Thousands) One Year Over one Year Over
or Less to Five Years Five Years
Commercial, financial and
commercial real estate $36,372 $61,239 $9,090
Agricultural 24,596 10,918 4,919
Real estate mortgage 8,671 42,604 10,832
Total $69,639 $114,761 $24,841
Interest Sensitivity
Amount of Loans Due After One Year With: Fixed Variable
(Dollars in thousands) Rate Rate
Commercial and financial $59,862 $10,467
Agricultural 10,291 5,546
Real Estate 26,906 26,530
Total $97,059 $42,543
Total loans increased by $9,396,000, or 4.4%, to $226,942,000 at the end of
2000. Residential mortgages increased $8,528,000 and agricultural loans
increased $1,155,000.
Table 17: Loan Composition
Dec. 31 % of Dec. 31 % of Dec. 31 % of Dec. 31 % of Dec. 31 % of
(Dollars in Thousands) 2000 total 1999 total 1998 total 1997 total 1996 total
Commercial and financial 42,772 18.85% 43,360 19.93% 32,585 17.15% 26,943 14.56% 26,923 15.40%
Construction Loans 4,200 1.85% 4,137 1.90% 3,455 1.82% 1,700 0.92% 891 0.51%
Agricultural 41,435 18.26% 40,280 18.52% 36,103 19.01% 34,952 18.89% 30,869 17.66%
Real estate 127,119 56.01% 118,591 54.51% 106,530 56.08% 108,360 58.57% 104,002 59.48%
Installment 11,177 4.93% 10,931 5.03% 10,962 5.77% 12,642 6.83% 11,499 6.58%
Lease financing 239 0.10% 247 0.11% 317 0.17% 418 0.23% 658 0.37%
Total loans $226,942 100.00% $217,546 100.00% $189,952 100.00% $185,015 100.00% $174,842 100.00%
Real estate mortgage loans totaled $127,119,000 at the end of 2000 and
$118,591,000 at the end of 1999. Loans in this classification in 2000 include
$66,355,000 of loans secured by 1-to-4 family residential properties.
Residential real estate loans consist of home mortgages, home equity lines, and
second mortgages. Commercial loans were $42,772,000 at the end of 2000, down
$588,000 since year-end 1999, and comprising 18.9% of the total loans
outstanding, down from 19.9% at the end of 1999. The commercial, and financial
loan classification primarily consists of commercial loans to small businesses.
Loans of this type are in a broad range of industries. Loans to finance
agricultural production total $41,436,000 or 18.3% of total loans.
Real estate construction loans grew 1.5% to $4,200,000 at the end of 2000
compared to $4,137,000 at the end of 1999. Loans in this classification are
primarily short-term loans that provide financing for the acquisition or
development of commercial real estate, such as multi-family or other commercial
development projects.
Installment loans to individuals totaled $11,177,000, up from $10,931,000 at
year-end 1999. Installment loans include short-term installment loans,
automobile loans, recreational vehicle loans, credit card loans, and other
personal loans.
DEPOSITS
Table 18 sets forth the average daily deposits and the percentage of total
deposits for the periods indicated.
Table 18: Average daily deposits
Dec. 31, % of Dec. 31, % of Dec. 31, % of
(Dollars in Thousands) 2000 Total 1999 Total 1998 Total
Non-interest bearing demand $29,944 12.71% $30,341 13.62% $25,920 12.10%
Interest-bearing demand 18,950 8.04% 19,813 8.89% 18,410 8.59%
Savings deposits 57,480 24.39% 58,825 26.41% 56,968 26.59%
Time deposits 129,281 54.86% 113,776 51.08% 112,948 52.72%
Total $235,655 100.00 $222,755 100.00% $214,246 100.00%
Average total deposits in 2000 were $236 million, an increase of 5.8% or $13
million over 1999. Average noninterest-bearing demand deposits as a percentage
of total average deposits decreased to 12.7% compared to 13.6% in 1999 and
12.1% in 1998. The total average interest-bearing demand, savings, and money
market deposits decreased to $76 million for 2000 from $79 million in 1999.
Table 19: Maturity Distribution of Time Certificates of deposit of $100,000 or
More
(Dollars in Thousands) December 31, 2000
3 months or less $12,970
Over 3 months through 6 months 6,544
Over 6 months through 12 months 14,565
Over 12 months 3,387
Total $37,466
The Company continues to experience strong competition for deposits in its
markets. As a result, deposit products are being designed to retain core
deposit accounts, attract new customers, and create opportunities for providing
other bank services or relationships.
SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under repurchase agreements
and federal funds purchased. The repurchase agreements are payable on demand.
Average total short-term borrowings were $28.3 million in 2000 compared with
$23.5 million in 1999.
Table 20: Short-term Borrowings
December 31,
2000 1999 1998
Securities sold under repurchase agreements $25,277,753 $22,708,665 $19,688,031
Federal funds purchased 681,000 3,211,000 0
Totals $25,958,753 $25,919,665 $19,688,031
Average amounts outstanding during year $28,293,620 $23,486,859 $19,193,892
Average interest rates on amounts
outstanding during year 5.95% 4.64% 4.80%
Maximum month-end amounts outstanding $42,095,209 $27,017,836 $23,192,687
Average interest rates on amounts
outstanding at end of year 6.00% 4.92% 4.26%
The Company continues to supplement the funding of asset growth with other
sources of borrowed funds.
CAPITAL ADEQUACY
Stockholders' equity at December 31, 2000, increased to $30,345,094 or $16.75
per share compared with $28,498,637 or $15.62 per share at the end of 1999.
The primary decrease in stockholders' equity in 2000 was a function of the
repurchase of common stock and cash dividends. Included in capital at year-end
2000 is a $245,915 equity component compared to $(800,525) at December 31,
1999, related to unrealized gains(losses) on securities AFS, net of their tax
effect. Cash dividends paid in 2000 were $1.20 per share compared to $1.17 per
share in 1999. As a result of the completion of the Company's self-tender
offer of common stock during 2001 stockholders' equity decreased $2,960,984.
The adequacy of the Company's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. As of December 31, 2000, 1999, and
1998, the Company's Tier 1 risk-based capital ratios, total risk-based capital
ratios and Tier 1 leverage ratios were well in excess or regulatory
requirements. Management feels the capital structure of the Company is
adequate.
Table 21: Capital Ratios
(Dollars in Thousands)
2000 1999 1998
Total Assets $321,102 $307,684 $280,479
Capital 30,345 28,499 29,570
Capital Ratio 9.5% 9.3% 10.5%
Total Assets $321,102 $307,684 $280,479
Less Goodwill (1,817) (2,156) (2,480)
Tangible Assets $319,285 $305,528 $277,999
Stockholders Equity $30,345 $28,499 $29,570
Less Goodwill (1,817) (2,156) (2,480)
Tangible Capital $28,528 $26,343 $27,090
Tangible Capital Ratio 8.9% 8.6% 9.7%
Risk-based Assets $234,424 $227,553 $190,547
Tangible Equity 28,528 26,343 27,090
Less Security Valuation (246) 800 (459)
Tier 1 Capital $28,282 $27,143 $26,631
Plus Allowance for Credit Losses 2,593 2,286 2,159
Total Risk-based Capital $30,875 $29,429 $28,790
Tier 1 Capital Ratio 12.1% 11.9% 14.0%
Total Risk-based Capital Ratio 13.2% 12.9% 15.1%
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The information required by this Item 7A is set forth in Item 6, "Selected
Financial Data" and under subcaptions "Results of Operations", "Market Risk",
"Net Interest Income", "Provision for Credit Losses", "Liquidity and Interest
Sensitivity", "Investment Portfolio", and "Deposits" under Item 7, Management's
Discussion and Analysis of Financial Conditions.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Mid-Wisconsin Financial Services, Inc.
Meddord, Wisconsin
We have audited the accompanying consolidated balance sheets of Mid-Wisconsin
Financial Services, Inc. and Subsidiary as of December 31, 2000 and 1999, and
the related consolidated statements of income, changes in stockholders' equity,
and cash flows for each of the years in the three-year period ended
December 31, 2000. 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mid-Wisconsin
Financial Services, Inc. and Subsidiary at December 31, 2000 and 1999, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with generally accepted
accounting principles.
Wipfli Ullrich Bertelson LLP
January 24, 2001
Wausau, Wisconsin
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
Assets
Cash and due from banks $14,126,994 $16,400,484
Interest-bearing deposits in other financial institutions 18,574 16,628
Securities available for sale - At fair value 70,852,293 63,364,665
Loans held for sale 169,600 50,000
Loans receivable, net of allowance for credit losses of $2,593,099
in 2000 and $2,285,675 in 1999 224,348,597 215,260,185
Accrued interest receivable 2,156,122 2,048,587
Premises and equipment 6,287,659 6,740,834
Goodwill and purchased intangibles 1,816,745 2,156,512
Other assets 1,325,160 1,645,693
TOTAL ASSETS $321,101,744 $307,683,588
Liabilities and Stockholders' Equity
Non-interest-bearing deposits $32,155,566 $30,615,700
Interest-bearing deposits 212,534,981 199,554,383
Total deposits 244,690,547 230,170,083
Short-term borrowings 25,958,753 25,919,665
Long-term borrowings 16,200,000 20,000,000
Accrued expenses and other liabilities 3,907,350 3,095,203
Total liabilities 290,756,650 279,184,951
Stockholders' equity:
Common stock - Par value $.10 per share:
Authorized - 6,000,000 shares in 2000 and 1999
Issued and outstanding - 1,811,356 shares in 2000 and
1,824,718 shares in 1999 181,136 182,472
Additional paid-in capital 11,698,317 11,759,737
Retained earnings 18,219,726 17,356,953
Accumulated other comprehensive income (loss), net of tax 245,915 (800,525)
Total stockholders' equity 30,345,094 28,498,637
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $321,101,744 $307,683,588
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999, 1998
2000 1999 1998
Interest income:
Interest and fees on loans $20,046,389 $17,415,808 $17,377,398
Interest and dividends on investment securities:
Taxable 3,262,893 3,018,331 2,994,394
Tax-exempt 816,100 682,334 551,107
Other interest and dividend income 91,084 122,435 219,142
Total interest income 24,216,466 21,238,908 21,142,041
Interest expense:
Deposits 10,141,916 8,166,015 8,809,600
Short-term borrowings 1,683,779 1,090,912 921,090
Long-term borrowings 1,085,697 586,505 373,753
Total interest expense 12,911,392 9,843,432 10,104,443
Net interest income 11,305,074 11,395,476 11,037,598
Provision for credit losses 400,000 180,000 420,000
Net interest income after provision for credit losses 10,905,074 11,215,476 10,617,598
Noninterest income:
Service fees 803,155 706,026 696,768
Trust service fees 629,372 569,312 487,795
Net realized gain on sale of securities available for sale 1,900
Investment product commissions 265,675 241,466 271,903
Other operating income 604,351 589,919 626,850
Total noninterest income 2,302,553 2,106,723 2,085,216
Noninterest expenses:
Salaries and employee benefits 4,636,860 4,510,574 4,237,853
Occupancy 1,277,739 1,328,126 1,161,954
Data processing and information systems 450,178 433,885 348,828
Goodwill and purchased intangibles amortization 339,767 323,193 307,704
Other operating 1,952,734 1,946,089 1,844,060
Total noninterest expenses 8,657,278 8,541,867 7,900,399
Income before income taxes 4,550,349 4,780,332 4,802,415
Provision for income taxes 1,201,289 1,432,215 1,554,331
Net income $3,349,060 $3,348,117 $3,248,084
Basic and diluted earnings per share $1.85 $1.83 $1.74
Cash dividends declared per share $1.20 $1.17 $0.81
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 2000, 1999, and 1998
Accumulated
Other
Additional Comprehensive
Common Stock Paid-In Retained Income
Shares Amount Capital Earnings (Loss) Totals
Balance, January 1, 1998 1,864,122 $186,412 $12,653,703 $14,678,785 $348,257 $27,867,157
Comprehensive income:
Net income 3,248,084 3,248,084
Unrealized gain on securities available
for sale, net of tax of $71,160 111,175 111,175
Total comprehensive income 3,359,259
Proceeds from stock options 4,678 468 71,600 72,068
Repurchase of common stock
returned to unissued (7,907) (791) (77,129) (143,575) (221,495)
Cash dividends paid $.81 per share (1,506,905) (1,506,905)
Balance, December 31, 1998 1,860,893 186,089 12,648,174 16,276,389 459,432 29,570,084
Comprehensive income:
Net income 3,348,117 3,348,117
Unrealized loss on securities available
for sale, net of tax of $743,424 (1,259,957) (1,259,957)
Total comprehensive income 2,088,160
Proceeds from stock options 3,539 354 65,605 65,959
Repurchase of common stock
returned to unissued (39,714) (3,971) (954,042) (134,507) (1,092,520)
Cash dividends paid $1.17 per share (2,133,046) (2,133,046)
Balance, December 31, 1999 1,824,718 182,472 11,759,737 17,356,953 (800,525) 28,498,637
Comprehensive income:
Net income 3,349,060 3,349,060
Unrealized gain on securities available
for sale, net of tax of $628,746 1,046,440 1,046,440
Total comprehensive income 4,395,500
Proceeds from stock options 1,906 191 36,977 37,168
Repurchase of common stock
returned to unissued (15,268) (1,527) (98,397) (311,037) (410,961)
Cash dividends paid $1.20 per share (2,175,250) (2,175,250)
Balance, December 31, 2000 1,811,356 $181,136 $11,698,317 $18,219,726 $245,915 $30,345,094
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $3,349,060 $3,348,117 $3,248,084
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for depreciation and net amortization 1,165,490 1,228,235 946,992
Provision for credit losses 400,000 180,000 420,000
Benefit for deferred income taxes (206,910) (146,591) (114,504)
Proceeds from sales of loans held for sale 2,755,311 6,725,002 9,559,744
Gain on sale of loans held for sale (40,791) (86,662) (159,774)
Originations of loans held for sale (2,834,120) (5,736,690) (9,182,270)
Gain on sale of investment securities (1,900)
Loss on premises and equipment disposals 17,748 12,956 12,489
(Gain) loss on sale of other real estate (22,012) 11,522 28
FHLB stock dividends (62,000)
Changes in operating assets and liabilities:
Other assets (179,742) (191,105) 74,064
Other liabilities 812,147 (3,842) (81,378)
Net cash provided by operating activities 5,154,181 5,340,942 4,721,575
Cash flows from investing activities:
Securities available for sale:
Proceeds from sales 1,499,869
Proceeds from maturities 15,001,991 23,665,982 21,777,200
Payment for purchases (20,740,328) (32,163,812) (25,695,462)
Net increase in loans (9,512,647) (27,900,132) (5,509,352)
Net (increase) decrease in interest-bearing deposits in
other institutions (1,946) 26,825 (22,193)
Net (increase) decrease in federal funds sold 9,223,000 (4,607,000)
Capital expenditures (407,869) (1,162,680) (1,501,908)
Proceeds from sale of equipment 10,908
Proceeds from sale of other real estate 11,711 224,607 315,925
Net cash used in investing activities (15,638,180) (28,086,210) (13,742,921)
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 2000, 1999, 1998
2000 1999 1998
Cash flows from financing activities:
Net increase (decrease) in non-interest-bearing deposits $1,539,866 $(924,660) $5,915,191
Net increase in interest-bearing deposits 12,980,598 8,773,083 5,257,011
Proceeds from exercise of stock options 37,168 65,959 72,068
Payment for repurchase of common stock (410,961) (1,092,520) (221,495)
Net increase in short-term borrowings 39,088 6,231,634 3,609,508
Proceeds from issuance of long-term borrowings 4,000,000 15,200,000 4,000,000
Principal payments on long-term borrowings (7,800,000) (1,000,000) (3,600,000)
Dividends paid (2,175,250) (2,133,046) (1,506,905)
Net cash provided by financing activities 8,210,509 25,120,450 13,525,378
Net increase (decrease) in cash and due from banks (2,273,490) 2,375,182 4,504,032
Cash and due from banks at beginning 16,400,484 14,025,302 9,521,270
Cash and due from banks at end $14,126,994 $16,400,484 $14,025,302
Supplemental cash flow information:
Cash paid during the year for:
Interest $12,361,909 $9,931,587 $10,285,845
Income taxes 1,486,000 1,611,591 1,541,025
Supplemental schedule of noncash investing and
financing activities:
Loans charged off 192,430 128,654 328,569
Loans transferred to other real estate 106,024 250,830 322,004
Loans made in connection with the sale of other real estate 88,772 99,187
See accompanying notes to consolidated financial statements.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPAL BUSINESS ACTIVITY
The Company operates as a full-service financial institution with a primary
market area including, but not limited to, Clark, Taylor, Price, and Oneida
Counties, Wisconsin. It provides a variety of core banking products in
addition to trust services and uninsured investment product sales.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mid-Wisconsin
Financial Services, Inc. (the "Company") and its subsidiary, Mid-Wisconsin Bank
(the "Bank"). All significant intercompany balances and transactions have been
eliminated. The accounting and reporting policies of the Company conform to
generally accepted accounting principles and to general practice within the
banking industry.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain 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 income and expenses during the reporting
period. Actual results could differ from those estimates.
CASH EQUIVALENTS
For purposes of presentation in the consolidated statements of cash flows, cash
and cash equivalents are defined as those amounts included in the balance sheet
caption "cash and due from banks." Cash and due from banks includes cash on
hand and noninterest-bearing deposits at correspondent banks.
SECURITIES
Securities are assigned an appropriate classification at the time of purchase
in accordance with management's intent. Securities held to maturity represent
those securities for which the Company has the positive intent and ability to
hold to maturity. Accordingly, these securities are carried at cost adjusted
for amortization of premium and accretion of discount calculated using the
effective yield method. Unrealized gains and losses on securities held to
maturity are not recognized in the financial statements. The Company has no
held to maturity securities.
Trading securities include those securities bought and held principally for the
purpose of selling them in the near future. The Company has no trading
securities.
Securities not classified as either securities held to maturity or trading
securities are considered available for sale and reported at fair value
determined from estimates of brokers or other sources. Unrealized gains and
losses are excluded from earnings but are reported as other comprehensive
income in a separate component of stockholders' equity, net of income tax
effects.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
SECURITIES (CONTINUED)
Any gains and losses on sales of securities are recognized at the time of sale
using the specific identification method.
INTEREST AND FEES ON LOANS
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest deemed uncollectible is reversed and charged against current
income. After being placed on nonaccrued status, additional income is recorded
only to the extent that payments are received or the collection of principal
becomes reasonably assured. Interest income recognition on impaired loans is
consistent with the recognition on all other loans (as detailed above).
Loan origination fees and certain direct loan origination costs are deferred
and amortized to income over the contractual lives of the underlying 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. Management believes the allowance for credit losses is adequate to
cover probable credit losses relating to specifically identified loans, as well
as probable credit losses inherent in the balance of the loan portfolio. In
accordance with current accounting standards, the allowance is provided for
losses that have been incurred as of the balance sheet date. The allowance is
based on past events and current economic conditions, and does not include the
effects of expected losses on specific loans or groups of loans that are
related to future events or expected changes in economic conditions. While
management uses the best information available to make its evaluation, future
adjustments to the allowance may be necessary if there are significant changes
in economic conditions.
In addition, various regulatory agencies periodically review the allowance for
credit losses. These agencies may require the subsidiary Bank to make
additions to the allowance for credit losses based on their judgments of
collectibility based on information available to them at the time of their
examination.
LOANS HELD FOR SALE
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of cost or estimated market value in the aggregate.
Net unrealized losses are recognized through a valuation allowance by
charges to income. Mortgage servicing rights are not retained.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, net of accumulated depreciation.
Maintenance and repair costs are charged to expense as incurred. Gains or
losses on disposition of premises and equipment are reflected in income.
Depreciation is computed on both accelerated and straight-line methods and is
based on the estimated useful lives of the assets varying from 10 to 50 years
on buildings and 3 to 20 years on equipment.
FORECLOSED REAL ESTATE
Real estate properties acquired through, or in lieu of, loan foreclosure are to
be sold and are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. After foreclosure, valuations are periodically
performed by management and the real estate is carried at the lower of carrying
amount or fair value less estimated cost to sell. Revenue and expenses from
operations and changes in the valuation allowance are included in loss on
foreclosed real estate.
GOODWILL AND PURCHASED INTANGIBLES
The excess of cost over the net assets acquired (goodwill) is being amortized
using the straight-line method over a 15-year period from the date of
acquisition.
Purchased deposit base intangible is amortized using the systematic method over
an eight-year period.
The Company periodically evaluates the carrying value and remaining
amortization period of all long-lived assets including intangible assets for
impairment. Adjustments are recorded when the benefit of the asset decreases
due to disposition of deposits associated with the entity acquired in the
purchase business combination.
RETIREMENT PLANS
The Company maintains a money purchase defined contribution pension plan
covering substantially all full-time employees. The Company also maintains a
defined contribution 401(k) profit-sharing plan that covers substantially all
employees.
INCOME TAXES
Deferred income taxes have been provided under the liability method. Deferred
tax assets and liabilities are determined based upon the differences between
the financial statement and tax bases of assets and liabilities, as measured by
the enacted tax rates which will be in effect when these differences are
expected to reverse. Deferred tax expense is the result of changes in the
deferred tax asset and liability.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
EARNINGS PER SHARE
Earnings per common share are based upon the weighted average number of common
shares outstanding that includes the potential common stock shares issuable
under the stock options granted. The weighted average number of shares
outstanding were 1,813,653 in 2000, 1,826,440 in 1999, and 1,861,787 in 1998.
NOTE 2 CHANGES IN ACCOUNTING PRINCIPLE
Effective January 1, 2001, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and
Hedging Activities" and SFAS No. 138, " Accounting for Certain Derivative
Instruments and Certain Hedging Activities." Under these SFAS, the Company
must recognize all material derivatives as either assets or liabilities in the
balance sheet and measure those instruments at fair value. Changes in fair
value are generally recognized in earnings in the period of the change. The
adoption of SFAS No. 133 and No. 138 did not have an impact on the Company's
financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 130, "Reporting
Comprehensive Income." Under this SFAS, the Company reports those items
defined as comprehensive income in the statement of changes in stockholders'
equity. The adoption of SFAS No. 130 did not have an impact on the Company's
financial condition or results of operations.
Effective January 1, 1998, the Company adopted SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" which was issued in June
1997. This statement establishes new standards for reporting information about
operating segments in annual and interim financial statements. The standard
also required descriptive information about the way operating segments are
determined, the products and services provided by the segments, and the nature
of differences between reportable segment measurements and those used for the
consolidated enterprise. The disclosure requirements had no impact on the
Company's financial position or results of operations.
NOTE 3 CASH AND DUE FROM BANKS
Cash and due from banks in the amount of $1,081,000 was restricted at
December 31, 2000 to meet the reserve requirements of the Federal Reserve
System.
In the normal course of business, the Company and its subsidiary maintain cash
and due from bank balances with correspondent banks. Accounts at each
institution are insured by the Federal Deposit Insurance Corporation up to
$100,000. Total uninsured balances at December 31, 2000 were approximately
$11,132,000.
NOTE 4 SECURITIES
The fair value, amortized cost, and gross unrealized gains and losses for the
Company's securities available for sale follow:
Gross Gross
Fair Unrealized Unrealized Amortized
Value Gains Losses Cost
December 31, 2000
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $16,006,707 $35,552 $53,891 $16,025,046
Obligations of states and political
subdivisions 18,207,578 251,582 81,496 18,037,492
Corporate debt securities 75,000 75,000
Mortgage-backed securities 34,548,135 360,941 127,473 34,314,667
Equity securities 2,014,873 2,014,873
Totals $70,852,293 $648,075 $262,860 $70,467,078
December 31, 1999
U.S. Treasury securities and
Obligations of U.S. government
corporations and agencies $12,487,600 $8,383 $468,322 $12,947,539
Obligations of states and political
subdivisions 16,046,592 81,150 310,752 16,276,194
Corporate debt securities 574,400 600 575,000
Mortgage-backed securities 32,389,232 56,369 656,199 32,989,062
Equity securities 1,866,841 1,866,841
TOTALS $63,364,665 $145,902 $1,435,873 $64,654,636
NOTE 4 SECURITIES (CONTINUED)
As a member of the Federal Home Loan Bank (FHLB) system, the banking subsidiary
is required to hold stock in the FHLB based on the anticipated amount of FHLB
borrowings to be advanced. This stock is recorded at cost, which is equal to
par value. Equity securities included $1,294,600 and $1,000,000 of FHLB stock
at December 31, 2000 and 1999, respectively. Transfer of the stock is
substantially restricted.
The amortized cost and fair values of debt securities at December 31, 2000, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
Fair Amortized
Debt Securities Available for Sale Values Cost
Due in one year or less $5,947,785 $5,949,306
Due after one year through five years 15,626,657 15,571,770
Due after five years through ten years 12,714,846 12,616,462
Mortgage-backed securities 34,548,132 34,314,667
Total debt securities available for sale $68,837,420 $68,452,205
During 1998, proceeds from sales of investments were $1,499,869. There were
$3,150 of gross realized gains and $1,250 of gross realized losses.
There were no sales of securities during 2000 and 1999.
Securities with an approximate carrying value of $42,244,400 and $41,142,000 at
December 31, 2000 and 1999, respectively, were pledged to secure public
deposits, short-term borrowings, and for other purposes required by law.
NOTE 5 LOANS
The composition of loans at December 31 follows:
2000 1999
Commercial $42,805,527 $43,406,191
Agricultural $41,438,724 40,282,795
Real estate:
Construction 5,232,822 4,871,219
Commercial 60,932,645 55,240,005
Residential 66,201,230 63,370,909
Installment 11,177,677 10,932,981
Lease financing 238,573 247,149
Subtotals 228,027,198 218,351,249
Net deferred loan fees (52,672) (70,910)
Loans in process of disbursement (1,032,830) (734,479)
Allowance for credit losses (2,593,099) (2,285,675)
Net loans $224,348,597 $215,260,185
The Company, in the ordinary course of business, grants loans to the Company's
executive officers and directors, including firms in which they are principal
owners. The Bank has a policy of making loans (limited to $50,000 per
individual) available to employees and executive officers at interest rates
slightly below those prevailing for comparable transactions with other
customers. In the opinion of management, such loans do not involve more than
the normal risk of collectibility or present other unfavorable features.
Activity in related party loans for the years ended December 31, is summarized
below:
2000 1999
Loans outstanding, January 1 $4,379,724 $3,129,518
New loans 1,394,006 3,241,525
Repayments (5,070,435) (1,991,319)
Loans outstanding, December 31 $703,295 $4,379,724
NOTE 5 LOANS (CONTINUED)
The allowance for credit losses includes specific allowances related to loans
which have been judged to be impaired under current accounting standards
(primarily commercial loans). A loan is impaired when, based on current
information, it is probable that the Company will not collect all amounts due
in accordance with the contractual terms of the loan agreement. These specific
allowances are based on discounted cash flows of expected future payments using
the loan's initial effective interest rate or the fair value of the collateral
if the loan is collateral dependent.
An analysis of impaired loans follows:
At December 31, 2000 1999
Nonaccrual $1,691,325 $865,947
Accruing income 1,025,820 1,151,755
Total impaired loans 2,717,145 2,017,702
Less - Allowance for credit losses 341,400 155,800
Net investment in impaired loans $2,375,745 $1,861,902
Years Ended December 31, 2000 1999 1998
Average recorded investment, net of allowance
for credit losses $2,489,941 $1,842,855 $608,798
Interest income recognized $223,998 $143,502 $48,157
Interest income recognized using the cash basis $126,719 $60,255 $48,157
An analysis of the allowance for credit losses for the three years ended
December 31, follows:
2000 1999 1998
Balance, January 1 $2,285,675 $2,159,145 $1,990,090
Provision charged to operating expense 400,000 180,000 420,000
Recoveries on loans 99,854 75,184 77,624
Loans charged off (192,430) (128,654) (328,569)
Balance, December 31 $2,593,099 $2,285,675 $2,159,145
NOTE 6 PREMISES AND EQUIPMENT
Premises and equipment consists of the following at December 31:
2000 1999
Land and improvements $896,903 $916,153
Buildings 5,880,859 5,859,867
Furniture and equipment 5,766,476 5,644,420
Total cost 12,544,238 12,420,440
Less - Accumulated depreciation 6,256,579 5,679,606
TOTAL $6,287,659 $6,740,834
Depreciation and amortization charged to operating expense totaled $820,398 in
2000, $834,282 in 1999, and $682,465 in 1998.
NOTE 7 INTEREST-BEARING DEPOSITS
Aggregate annual maturities of certificate and IRA accounts at December 31,
2000 are as follows:
2001 $103,010,067
2002 17,761,674
2003 8,091,108
2004 2,942,901
2005 136,374
TOTAL $131,942,124
Deposits from Company directors, executive officers, and related firms in which
they are principal owners totaled $1,892,592 and $1,487,515 at December 31,
2000 and 1999, respectively.
Interest-bearing deposits include $37,465,501 and $28,849,483 of certificates
of deposit in denominations greater than $100,000 at December 31, 2000 and
1999, respectively.
NOTE 8 SHORT-TERM BORROWINGS
Short-term borrowings at December 31, consist of the following:
2000 1999
Securities sold under repurchase agreements $25,277,753 $22,708,665
Federal funds purchased 681,000 3,211,000
Totals $25,958,753 $25,919,665
The Company pledges U.S. Treasury and agency securities available for sale as
collateral for repurchase agreements. The fair value of pledged securities,
including accrued interest receivable totaled $31,264,418 and $27,854,399 at
December 31, 2000 and 1999, respectively.
As a member of the FHLB System, the Company has available a line of credit
totaling $33,498,000 at December 31, 2000. At December 31, 2000, the Company's
available and unused portion of this line of credit totaled $17,298,000.
The following information relates to federal funds purchased, securities sold
under repurchase agreements, and FHLB open line of credit, for the years ended
December 31:
2000 1999 1998
Weighted average rate at December 31 6.00% 4.92% 4.26%
For the year:
Highest month-end balance $42,095,209 $27,017,836 $23,192,687
Daily average balance 28,293,620 23,486,859 19,193,892
Weighted average rate 5.95% 4.64% 4.80%
At December 31, 2000, the Company maintained repurchase agreements aggregating
$13,150,000 with two entities. The repurchase agreements are payable on
demand.
NOTE 9 LONG-TERM BORROWINGS
Long-term borrowings at December 31, consist of the following:
2000 1999
5.41% TO 6.21% FHLB advances, interest payable monthly with principal due
during 2001 $6,200,000 $6,200,000
FHLB advance, interest payable monthly with principal due during 2001.
interest rate equal to .5% above the LIBOR or 6.72% AT December 31, 2000 3,000,000
6.28% FHLB advance, interest payable monthly with principal due during 2003,
callable during 2001 4,000,000
5.30% TO 5.51% FHLB advances, interest payable monthly with principal due
during 2008, callable during 2003 3,000,000 3,000,000
5.37% TO 5.97% FHLB advances, interest payable monthly, repaid during 2000 10,800,000
Totals $16,200,000 $20,000,000
The FHLB advances are secured by a blanket lien consisting principally of one-
to four-family real estate loans totaling $27,000,000 and $33,333,000 at
December 31, 2000 and 1999, respectively.
NOTE 10 INCOME TAXES
The components of the income tax provision are as follows:
2000 1999 1998
Current income tax provision:
Federal $1,408,174 $1,440,244 $1,471,839
State 25 138,562 196,996
Total current 1,408,199 1,578,806 1,668,835
Deferred income tax expense (benefit):
Federal (142,156) (117,665) (91,237)
State (64,754) (28,926) (23,267)
Total deferred (206,910) (146,591) (114,504)
Total provision for income taxes $1,201,289 $1,432,215 $1,554,331
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
2000 1999 1998
Percent Percent Percent
of of of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
Tax expense at
statutory rate $1,547,119 34.0 $1,625,313 34.0 $1,632,821 34.0
Increase (decrease) in
taxes resulting from:
Tax-exempt interest (316,982) (7.0) (295,772) (6.2) (232,289) (4.8)
State income tax (42,721) (0.9) 72,360 1.5 114,661 2.4
Other 13,873 0.3 30,314 0.7 39,138 0.8
Provision for income
taxes $1,201,289 26.4 $1,432,215 30.0 $1,554,331 32.4
NOTE 10 INCOME TAXES (CONTINUED)
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The major components of the net deferred taxes are as follows:
2000 1999
Deferred tax assets:
Allowance for credit losses $662,335 $538,958
Deferred compensation 313,390 287,354
State net operating losses 49,623 39,213
Purchased deposit intangible 114,341 72,515
Unrealized loss on securities available for sale 489,446
Other deferred expenses 2,560 3,020
Totals 1,142,249 1,430,506
Less - valuation allowance (33,565) (39,213)
Total deferred tax assets 1,108,684 1,391,293
Deferred tax liabilities:
Premises and equipment 151,209 167,880
Direct lease financing 13,370 20,426
Unrealized gain on securities available for sale 139,300
Other deferred income 24,788 1,134
Total deferred tax liabilities 328,667 189,440
Net deferred tax assets $780,017 $1,201,853
The Company, and its subsidiary bank, pay state income taxes on individual,
unconsolidated net earnings. At December 31, 2000, tax net operating losses at
the parent company and Bank of approximately $625,000 and $299,000,
respectively, existed to offset future state taxable income. These net
operating losses will begin to expire in 2007. The valuation allowance has
been recognized to adjust deferred tax assets to the amount of tax net
operating losses expected to be realized. If realized, the tax benefit for
this item will reduce current tax expense for that period.
NOTE 11 RETIREMENT PLANS
The Company has established a noncontributory defined contribution money
purchase pension plan. Company contributions to this plan, as determined by
the Board of Directors, totaled $143,426, $137,158, and $137,071 during 2000,
1999, and 1998, respectively. Under the terms of the plan, the Company will
contribute annually to the plan based on a percentage of annual salaries and
wages.
Contributions to the Company's 401(k) profit-sharing plan are based on
achieving desired Company profitability and the Board of Directors'
authorization. The Company matches 100% of participant contributions to the
plan up to 5% of pay deferred in addition to the discretionary profit-sharing
contribution. For the years ended December 31, 2000, 1999, and 1998, the
amount of the plan expense was $137,850, $125,048, and $171,312, respectively.
NOTE 12 STOCK OPTION PLANS
Under the Company's Employee Stock Purchase Plan adopted during 2000, the
Company is authorized to issue up to 50,000 shares of common stock to its full-
time employees, nearly all of whom are eligible to participate. Under the
terms of the Plan, employees can choose each year to have up to 5% of their
annual gross earnings withheld to purchase the Company's common stock. Options
purchased by employees under the plan are exercised annually. The purchase
price of the stock is 95% of the lower of its beginning-of-year or end-of-year
market price. Approximately 30% of eligible employees participated in the plan
during 2000. Under the plan, the Company issued 213 options to employees in
2000, which were exercised in January 2001.
Under the terms of a stock option plan adopted during 2000, shares of unissued
common stock are reserved for options to officers and key employees of the
Company at prices not less than the fair market value of the shares at the date
of the grant.
Options granted after 1999 (under the current stock option plan) may be
exercised anytime after the option grant's first anniversary. These options
expire ten years after the grant date. Options granted prior to 2000 (under
the prior stock option plan) may be exercised only between the fourth and fifth
anniversaries of the date of the grant. These options expire approximately
five years after the grant date.
At December 31, 2000, 8,599 options outstanding were eligible to be exercised.
The following table summarizes information regarding stock options outstanding
at December 31, 2000:
Options Exercisable
Weighted
Range of Average
Exercise Exercise
Prices Shares Price
$20 to $24 1,806 $24.00
$25 to $29 6,793 27.20
NOTE 12 STOCK OPTIONS (CONTINUED)
For the years ended December 31, 1998, 1999 and 2000, activity in stock options
outstanding was as follows:
Weighted
Average
Shares Price
January 1, 1998 11,952 $18.14
Options granted 2,316 27.25
Options exercised (4,678) (15.41)
Options forfeited (230) (24.00)
December 31, 1998 9,360 21.62
Options granted 2,318 26.00
Options exercised (3,539) (18.64)
December 31, 1999 8,139 24.16
Options granted 2,575 28.25
Options exercised (1,906) (19.50)
Options forfeited (209) (19.50)
December 31, 2000 8,599 $26.53
As of December 31, 2000, 257,788 shares of common stock remain reserved for
future grants to officers and key employees under option plans approved by the
shareholders.
The Company follows the provisions of Accounting Principles Board Opinion (APB)
No. 25, "Accounting for Stock Issued to Employees," and uses the "intrinsic
value method" of recording stock-based compensation cost. Because stock
options are granted with an exercise price equal to fair value at the date or
grant, no compensation expense is recorded. The Employee Stock Purchase Plan
is considered a noncompensatory stock purchase plan. Therefore, no
compensation expense is recorded upon issuance of the discounted shares.
However, had compensation cost for the Company's stock-based plans been
determined in accordance with SFAS No. 123, "Accounting for Stock-Based
Compensation" based on the fair value of the stock options, net income would
have decreased $4,455, $6,954, and $5,419 in 2000, 1999, and 1998,
respectively. Earnings per share, assuming dilution, would have been $1.84 in
2000, $1.83 in 1999, and $1.74 in 1998.
NOTE 13 CAPITAL REQUIREMENTS
The Company and subsidiary bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory-and possibly
additional discretionary-actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Bank's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of December 31, 2000,
that the bank meets all capital adequacy requirements to which it is subject.
As of December 31, 2000, the most recent notification from the Federal Deposit
Insurance Corporation categorized the bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as well-
capitalized the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios as set forth in the table. There are no conditions
or events since that notification that management believes have changed the
Bank's category.
NOTE 13 CAPITAL REQUIREMENTS (CONTINUED)
The Company and subsidiary Bank's actual capital amounts and ratios are also
presented in the table.
To Be Well-
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 2000:
Total capital (to risk
weighted assets):
Consolidated $30,875,000 13.2% $18,754,000 8.0% N/A
Subsidiary Bank $28,196,000 12.1% $18,626,000 8.0% $23,282,000 10.0%
Tier I capital (to risk
weighted assets):
Consolidated $28,282,000 12.1% $9,377,000 4.0% N/A
Subsidiary Bank $25,603,000 11.0% $9,313,000 4.0% $13,969,000 6.0%
Tier I capital (to
average assets):
Consolidated $28,282,000 8.9% $12,771,000 4.0% N/A
Subsidiary Bank $25,603,000 8.0% $12,765,000 4.0% $15,956,000 5.0%
As of December 31, 1999:
Total capital (to risk
weighted assets):
Consolidated $29,429,000 12.9% $18,024,000 8.0% N/A
Subsidiary Bank $25,862,000 11.5% $18,059,000 8.0% $22,573,000 10.0%
Tier I Capital (to risk
weighted assets):
Consolidated $27,143,000 11.9% $9,102,000 4.0% N/A
Subsidiary Bank $23,576,000 10.4% $9,029,000 4.0% $13,544,000 6.0%
Tier I capital (to
average assets):
Consolidated $27,143,000 8.9% $12,221,000 4.0% N/A
Subsidiary Bank $23,576,000 7.7% $12,216,000 4.0% $15,270,000 5.0%
NOTE 14 RESTRICTIONS ON RETAINED EARNINGS
The Bank is restricted by banking regulations from making dividend
distributions above prescribed amounts and limited in making loans and advances
to the Company. At December 31, 2000, the retained earnings of the Bank
available for distribution as dividends without regulatory approval was
approximately $10,601,724.
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
CREDIT RISK
The Company is a party 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 risk in excess of the amount recognized in the balance sheets.
The Company's exposure 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 amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. These
commitments at December 31, 2000 and 1999 are as follows:
2000 1999
Commitments to extend credit:
Fixed rate $11,249,823 $16,845,408
Adjustable rate 12,697,560 11,728,344
Standby and irrevocable letters of credit - fixed rate 1,931,742 1,702,505
Credit card commitments 5,870,239 5,500,463
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 evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is based
on management's credit evaluation of the party. Collateral held varies but may
include accounts receivable, inventory, property, plant, and equipment, and
income-producing commercial properties.
NOTE 15 FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED)
CREDIT RISK (CONTINUED)
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for collateralization on all standby letters of credit in
the same manner and terms as exist on loans of similar risk.
Credit card commitments are commitments on credit cards issued by the Company
and serviced by Elan Financial Services. These commitments are unsecured.
COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
In December 2000, the company committed to repurchase shares under a stock buy
back program. The stock buy back program was completed by February 2001 by
repurchasing 116,117 shares of common stock at $25.50 per share.
CONCENTRATION OF CREDIT RISK
The Company grants residential, commercial, agricultural, and consumer loans
predominantly in central and northern Wisconsin. There were no significant
concentrations of credit to any one debtor or industry group. It is felt that
the diversity of the local economy will prevent significant losses in the event
of an economic downturn.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS
Current accounting standards require that the Company disclose estimated fair
values for its financial instruments. Fair value estimates, methods, and
assumptions are set forth below for the Company's financial instruments.
Cash and Short-Term Investments: The carrying amounts reported in the balance
sheets for cash and due from banks, interest-bearing deposits in other
financial institutions, and federal funds sold approximate the fair value of
these assets.
Securities: Fair values are based on quoted market prices, where available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Loans: Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
residential mortgage, and other consumer. The fair value of loans is
calculated by discounting scheduled cash flows through the estimated maturity
using estimated market discount rates that reflect the credit and interest rate
risk inherent in the loan. The estimate of maturity is based on the Company's
repayment schedules for each loan classification. In addition, for impaired
loans, marketability and appraisal values for collateral were considered in the
fair value determination. The carrying amount of accrued interest approximates
its fair value.
Deposit Liabilities: The fair value of deposits with no stated maturity, such
as noninterest-bearing demand deposits, savings, NOW accounts, and money market
accounts, is equal to the amount payable on demand at the reporting date. The
fair value of certificates of deposit is based on the discounted value of
contractual cash flows. The discount rate reflects the credit quality and
operating expense factors of the Company.
Short-Term Borrowings: The carrying amount reported in the consolidated
balance sheets for short-term borrowings approximates the liability's fair
value.
Long-Term Borrowings: The fair values of the Company's long-term borrowings
(other than deposits) are estimated using discounted cash flow analyses, based
on the Company's current incremental borrowing rates for similar types of
borrowing arrangements.
Off-Balance-Sheet Instruments: The fair value of commitments would be
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements, the current interest
rates, and the present creditworthiness of the counter parties. Since this
amount is immaterial, no amounts for fair value are presented.
NOTE 16 FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table presents information for financial instruments:
At December 31, 2000 at December 31, 1999
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Financial assets:
Cash and short-term
investments $14,145,568 $14,145,568 $16,417,112 $16,417,112
Investment securities 70,852,293 70,852,293 63,364,665 63,364,665
Net loans 224,518,197 221,491,138 215,310,185 214,921,905
Financial liabilities:
Deposits 244,690,547 247,184,844 230,170,083 234,042,194
Short-term borrowings 25,958,753 25,958,753 25,919,665 25,919,665
Long-term borrowings 16,200,000 15,802,394 20,000,000 19,498,662
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgement and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include premises and equipment,
goodwill and intangibles, and other assets and other liabilities. In addition,
the tax ramifications related to the realization of the unrealized gains or
losses can have a significant effect on fair value estimates and have not been
considered in the estimates.
NOTE 17 CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY
BALANCE SHEETS
December 31, 2000 AND 1999
2000 1999
Assets
Cash and due from banks $2,707,045 $3,620,253
Investment in subsidiary 27,666,361 24,932,454
Securities available for sale - At fair value 100,000
Premises and equipment 29,430 107,813
Other assets 35,069 24,390
Total assets $30,537,905 $28,684,910
Liabilities and stockholders' equity
Total liabilities $192,811 $186,273
Total stockholders' equity 30,345,094 28,498,637
Total liabilities and stockholders' equity $30,537,905 $28,684,910
NOTE 17 CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
STATEMENTS OF INCOME
Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
Income:
Dividends from subsidiary $1,600,000 $2,250,000 $2,000,000
Interest 162,130 138,329 181,953
Rental income 180,000 180,000 180,000
Total income 1,942,130 2,568,329 2,361,953
Expenses:
Salaries and benefits 30,096 40,741 52,717
Other 218,711 186,135 177,274
Total expenses 248,807 226,876 229,991
Income before income taxes and equity in
undistributed net income of subsidiary 1,693,323 2,341,453 2,131,962
Provision for income tax expense 31,730 31,119 44,892
Net income before equity in undistributed net
income of subsidiary 1,661,593 2,310,334 2,087,070
Equity in undistributed net income of subsidiary 1,687,467 1,037,783 1,161,014
Net income $3,349,060 $3,348,117 $3,248,084
NOTE 17 CONDENSED FINANCIAL INFORMATION - PARENT COMPANY ONLY (CONTINUED)
STATEMENTS OF CASH FLOWS
Years ended December 31, 1999, 1998, AND 1997
2000 1999 1998
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $3,349,060 $3,348,117 $3,248,084
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and net
Amortization 78,383 87,207 85,096
Equity in undistributed net income of
Subsidiary (1,687,467) (1,037,783) (1,161,014)
Changes in operating assets and liabilities:
Other assets (10,679) (3,010) 9,988
Liabilities 6,538 79,210 (50,289)
Net cash provided by operating activities 1,735,835 2,473,741 2,131,865
Cash flows from investing activities:
Capital expenditures (17,944) (190,201)
Payment for purchase of securities available
for sale (100,000)
Net cash used in investing activities (100,000) (17,944) (190,201)
Cash flows from financing activities:
Proceeds from exercise of stock options 37,168 65,959 72,068
Payments for repurchase of common stock (410,961) (1,092,520) (221,495)
Dividends paid (2,175,250) (2,133,046) (1,506,905)
Net cash used in financing activities (2,549,043) (3,159,607) (1,656,332)
Net increase (decrease) in cash and due from banks (913,208) (703,810) 285,332
Cash and due from banks at beginning 3,620,253 4,324,063 4,038,731
Cash and due from banks at end $2,707,045 $3,620,253 $4,324,063
Supplemental cash flow information:
Cash paid during the year for income taxes $1,460,000 $1,463,591 $1,367,000
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information relating to directors is incorporated in this Form 10-K by this
reference to the table on page 3 of registrant's 2001 Proxy Statement dated
March 23, 2001 (the "2001 Proxy Statement") under the caption Proposal No. 1
"Election of Directors" through the material ending at the caption "Committees
and Meetings, page 5. Information relating to executive officers is found in
Part I, page 5 of this Form 10-K. Information required under Rule 405 of
Regulation S-K is incorporated in this Form 10-K by reference to page 8 of the
2001 Proxy Statement under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance."
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive and director compensation is incorporated in
this Form 10-K by this reference to the registrant's 2001 Proxy Statement under
(1) the caption "Executive Officer Compensation," pages 9 through the material
ending at the caption "Committees' Report on Executive Compensation Policies",
page 10 (2) the material under the subcaption "Committee Interlocks and Insider
Participation", page 12, and (3) the material under the subcaption "Director
Compensation", pages 7 and 8.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT
Information relating to security ownership of certain beneficial owners is
incorporated in this Form 10-K by this reference to the registrant's 2001 Proxy
Statement under the caption "Beneficial Ownership of Common Stock," page 8.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to certain relationships and related transactions is
incorporated in this Form 10-K by this reference to the registrant's 2001 Proxy
Statement under the caption "Certain Relationships and Related Transactions,"
page 15.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT
SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements
Description Page
Mid-Wisconsin Financial Services, Inc.
Consolidated Financial Statements
Accountants' Report 30
Consolidated Balance Sheets 31
Consolidated Statements of Income 32
Consolidated Statements of Changes in Stockholders' Equity 33
Consolidated Statements of Cash Flows 34
Notes to Consolidated Financial Statements 36
(b) Reports on Form 8-K
None
(c) Exhibits Required by Item 601 of Regulation S-K:
The following exhibits required by Item 601 of Regulation S-K are filed
as part of this annual report on Form 10-K:
4.1 Articles of Incorporation, as amended
4.2 Bylaws, as amended September 20, 1995
10.1* Mid-Wisconsin Financial Services, Inc. 1991 Employee Stock Option Plan
10.2* Mid-Wisconsin Financial Services, Inc. Directors' Deferred Compensation
Plan as last amended July 19, 2000 (incorporated by reference to Exhibit
10.2 to the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 2000)
10.3* Director Retirement Benefit Policy (incorporated by reference to
Exhibit 10(e) to the Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1999)
10.4* 1999 TeamBank Bonus Plan (incorporated by reference to Exhibit 10(f) to
the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999)
10.5 Mid-Wisconsin Financial Services, Inc. Employee Stock Purchase Plan
(incorporated by reference to exhibit 10.7 to the Registrant's Quarterly
Report on form 10-Q for the quarterly period ended June 30, 2000)
10.6* Mid-Wisconsin Financial Services, Inc. 1999 Stock Option Plan
(incorporated by reference to exhibit 10.8 to the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended June 30, 2000)
21.1 Subsidiaries of the Registrant
23.1 Consent of Wipfli Ullrich Bertelson LLP
*Denotes executive compensation plans and arrangements
The exhibits listed above are available upon request in writing to William A.
Weiland, Secretary, Mid-Wisconsin Financial Services, Inc., 132 West State
Street, Medford, Wisconsin 54451.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1994, the registrant had duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on March 23, 2001.
MID-WISCONSIN FINANCIAL SERVICES, INC.
JAMES F. MELVIN
James F. Melvin, Chairman of the Board
WILLIAM A. WEILAND
William A. Weiland, Secretary
and Treasurer
(Principal Financial Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant on
March 21, 2001, and in the capacities indicated.
FRED J. SCHROEDER GENE C. KNOLL
Fred J. Schroeder, Vice Chairman Gene C. Knoll, President and Chief
of the Board, and a Director Executive Officer
(Principal Executive Officer and a
Director)
JAMES N. DOUGHERTY NORMAN A. HATLESTAD
James N. Dougherty, DVM, Director Norman A. Hatlestad, Director
KIM A. GOWEY JAMES P. HAGER
Kim A. Gowey, DDS, Chairman of James P. Hager, Director
the Board of Mid-Wisconsin Bank
and a Director
KURT D. MERTENS KATHRYN M. HEMER
Kurt D. Mertens, Director Kathryn M. Hemer, Director
ROBERT J. SCHOOFS BRIAN B. HALLGREN
Robert J. Schoofs, Director Brian B. Hallgren, Director
RHONDA R. KELLEY
Rhonda R. Kelley, Controller
(Principal Accounting Officer)
EXHIBIT INDEX
to
FORM 10-K
of
MID-WISCONSIN FINANCIAL SERVICES, INC.
for the period ended December 31, 2000
Pursuant to Section 102(d) of Regulation S-T
(17 C.F.R. 232.102(d))
4.1 Articles of Incorporation, as amended
4.2 Bylaws, as amended September 20, 1995
10.1* Mid-Wisconsin Financial Services, Inc. 1991 Employee Stock Option Plan
21.1 Subsidiaries of the Registrant
23.1 Consent of Wipfli Ullrich Bertelson LLP
Exhibits required by Item 601 of Regulation S-K which have been
previously filed and are incorporated by reference are set forth in Part IV,
Item 14 of the Form 10-K to which this Exhibit Index relates.
Exhibit 4.1
ARTICLES OF INCORPORTION OF
MID-WISCONSIN FINANCIAL SERVICES, INC.
Executed by the undersigned for the purpose of forming a Wisconsin corporation
under the Wisconsin Business Corporation Law, Chapter 180 of the Wisconsin
Statutes.
ARTICLE I
The name of the corporation is Mid-Wisconsin Financial Services, Inc.
ARTICLE II
The purpose of the corporation is to hold the stock of the State Bank of
Medford, and to engage in any other lawful act or activity for which
corporations may be organized under the laws of the State of Wisconsin.
ARTICLE III
The corporation shall have authority to issue 6,000,000 shares, all of one
class, each share of which shall have a par value of $.10.
ARTICLE IV
No holder of any shares of the stock of the corporation shall have any
preemptive right to purchase, subscribe for or otherwise acquire any shares of
stock of the corporation of any class now or hereafter authorized, or any
securities exchangeable for or convertible into such shares, or any warrants or
other instruments evidencing rights or options to purchase, subscribe for or
otherwise acquire such shares.
ARTICLE V
The address of the initial registered office of the corporation is 132 West
State Street, Taylor County, Medford, Wisconsin 54451. The name of its
registered agent at such address is Mr. Fred J. Schroeder.
ARTICLE VI
No shareholder of this corporation shall have cumulative voting rights in the
election of directors.
ARTICLE VII
SECTION 1. The management and conduct of the business of the corporation shall
be vested in a Board o Directors, which shall consist of such number of
directors, not less than the minimum permitted by law, as shall be fixed in the
Bylaws, or in the absence of such provision in the Bylaws, as shall be
determined by the shareholders at any annual or special meeting thereof.
SECTION 2. The Board of Directors shall be divided into three classes, Class
I, Class II and Class III, which shall be as nearly equal in number as
possible, and no class shall include less than three directors. Each director
shall serve for a term ending on the date of the third annual meeting following
the annual meeting at which such director was elected; provided, however, that
each initial director in Class I shall hold office until the annual meeting of
stockholders in 1987; each initial director in Class II shall hold office until
the annual meeting of stockholders in 1998; and each initial director in Class
III shall hold office until the annual meeting in 1989.
SECTION 3. The names and class designations of the initial Board of Directors
of the Corporation are:
Dr. James N. Dougherty (I) James R. Peterson (I)
Norman Hatlestad (II) Fred J. Schroeder (II)
Ronald Isaacson (III) Raymond H. Scott (III)
Thomas F. Keefe (I) Robert L. Spencer (I)
Raymond F. Lange (II) Peter Wanke (II)
Dr. Walther W. Meyer (III)
ARTICLE VIII
The name and address of the incorporator of the corporation is:
Fred J. Schroeder
132 West State Street
Medford, Wisconsin 54451
Executed in duplicate on the 4{th} day of December, 1985.
Fred J. Schroeder
EXHIBIT 4.2
AMENDED AND RESTATED BYLAWS OF MID-WISCONSIN
FINANCIAL SERVICE, INC
(A Wisconsin Corporation)
As last amended September 20, 1995
ARTICLE I.
OFFICES
SECTION1. REGISTERED OFFICE. The registered office of the corporation in
Wisconsin shall be that set forth in the Articles of Incorporation or in the
most recent amendment of the Articles of Incorporation or statement executed by
a principal officer of the corporation and filed with the Secretary of State of
Wisconsin in accordance with Wisconsin law, changing the registered office.
SECTION 2. OTHER OFFICES. The corporation may also have an office or offices
at such other place or places, within or without the State of Wisconsin, as the
Board of Directors may from time to time designate or the business of the
corporation require.
SECTION 3. CORPORATE SEAL. The corporate seal of the corporation shall
consist of the name of the corporation and the name of the state of
incorporation and shall be in such form and bear such other inscription as the
Board of Directors may determine. Failure to use such seal, however, shall not
affect the validity of any documents executed on behalf of the corporation.
ARTICLE II.
SHAREHOLDERS' MEETINGS
SECTION 1. PLACE AND TIME OF MEETINGS. Meetings of the shareholders of the
corporation may be held at any place, within or without the State of Wisconsin,
designated by the directors and, in the absence of such designation, shall be
held at the registered office of the corporation in the State of Wisconsin.
The directors shall designated the time of day for each meeting, which shall be
between the hours of 10:00 a.m. and 10:00 p.m., local time.
SECTION 2. ANNUAL MEETINGS. The annual meeting of the shareholders shall be
held on the fourth Tuesday in April in each year, or on such other date as the
Board of Directors shall by resolution designate.
At the annual meeting, the shareholders, voting as provided in the Articles of
Incorporation, shall elect directors, and shall transact such other business as
may properly come before them.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may be held
upon call of the Board of Directors or the President, and shall be called by
the Secretary at the written request of the holders of not less than one-tenth
of all the shares entitled to vote at any such meeting.
SECTION 4. NOTICE OF MEETING. Each shareholder of record shall be entitled to
receive, either personally or by mail, written notice of any meeting of
shareholders, stating the place, day and hour of the meeting, by or at the
direction of the person calling the meeting.
Notice shall be delivered not less than ten (10) days nor more than fifty (50)
days prior to the meeting; provided that notice of a meeting in which there is
to be considered either (i) an agreement of merger or consolidation, or (ii) a
proposal to dispose of all or substantially all of the property and assets of
the corporation, shall be delivered to all shareholders at least twenty (20)
days prior to the date of such meeting. If mailed, such notice shall be deemed
to be delivered when deposited in the United States mail addressed to the
shareholder at his or her address as it appears in the stock record books or
similar records of the corporation, with postage thereon prepaid.
Every notice of special meeting shall state the purpose or purposes for which
the meeting has been called; every notice of meeting called to consider an
amendment of the Articles of Incorporation shall include a statement of the
nature of the proposed amendment; and every notice of meeting called to
consider an agreement of merger, consolidation, or disposition of all or
substantially all of the property and assets of the corporation shall include a
statement of the rights of dissenting shareholders.
A shareholder may waive notice of any shareholder meeting only by executing a
written waiver of such notice either before, at or after such meeting.
SECTION 5. QUORUM.
(a) Share entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect
to that matter. Except as otherwise provided by the articles of
incorporation, these bylaws, or any provision of the Wisconsin Business
Corporation Law, a majority of the votes entitled to be cast on the
matter by the voting group shall constitute a quorum of that voting
group for action on that matter. Once a share is represented for any
purpose at a meeting, other than for the purpose of objecting to holding
the meeting or transacting business at the meeting, it is considered
present for purposes of determining whether a quorum exists, for the
remainder of the meeting and for any adjournment of that meeting, unless
a new record date is or must be set for that adjourned meeting. At the
adjourned meeting at which a quorum is represented, any business may be
transacted that might have been transacted at the meeting as originally
noticed.
(b) If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the
voting group favoring the action exceed the votes cast within the voting
group opposing the action, unless the articles of incorporation, these
bylaws, or any provision of the Wisconsin Business Corporation Law
requires a greater number of affirmative votes. With respect to the
election of directors, each director shall be elected by a plurality of
the votes cast by the shares entitled to vote in the election at a
meeting at which a quorum is present.
SECTION 6. ORGANIZATION. Meetings of the shareholders shall be presided
over by the Chairman of the Board, or by the President if the Chairman is
not present, or if neither the Chairman or the President is present, by a
meeting chairman to be chosen by the holders, present in person or by proxy,
entitled to cast a majority of the votes. The Secretary of the corporation,
or in his or her absence, an Assistant Secretary shall act as Secretary of
all shareholder meetings, and if neither the Secretary nor Assistant
Secretary of the Corporation is present, the meeting shall choose any person
present to act as Secretary of the meeting.
SECTION 7. VOTING. Each outstanding share shall be entitled to one vote on
each matter submitted to a vote at a meeting of shareholders.
A shareholder may vote either in person or by proxy appointed in writing by
the shareholder or by his or her duly authorized attorney-in-fact. No proxy
shall be valid after one (1) month from the date of its execution, unless
otherwise provided in the proxy.
Before each meeting of shareholders, the Secretary of the corporation shall
make a complete record of the shareholders entitled to vote at such meeting
or any adjournment thereof, with the address of and the number of shares
held by each. Such record shall be produced and kept open at the time and
place of the meeting and shall be subject to the inspection of any
shareholder during the whole time of the meeting.
SECTION 8. CLOSING OF BOOKS. The Board of Directors may fix a time, not
less than ten (10) days nor more than fifty (50) days preceding the date of
any meeting of shareholders, as a record date for the determination of the
shareholders entitled notice of, and to vote at such meeting,
notwithstanding any transfer of shares on the books of the corporation after
any record date so fixed.
In the absence of action by the Board of Directors to fix a record date, the
record date for such determination of shareholders shall be the close of
business on the date on which notice of the meeting is mailed.
SECTION 9. INFORMAL ACTION BY SHAREHOLDERS. Any action which may be taken
at a meeting of shareholders may be taken without a meeting if a consent in
writing setting forth the action so taken shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof.
ARTICLE III.
DIRECTORS
SECTION 1. GENERAL. The property, business and affairs of the corporation
shall be managed by its Board of Directors.
SECTION 2. NUMBER AND QUALIFICATIONS.
(a) The Board of Directors of the corporation shall consist of not less than
nine (9) nor more than eleven (11) directors, the number to be set by
resolution of the Board of Directors. The Board of Directors shall not
have authority to decrease the number of directors if such decrease
shall have the effect of shortening the term of any incumbent director.
(b) Supplemental to the provisions of Article VII of the Articles of
Incorporation and pursuant to Section 180.0802, the following additional
qualifications are herby prescribed for directors of the corporation:
Each director, regardless of class, shall hold office until the first to
occur of: (1) The date on which the regular three-year term for which
such director was elected (and is serving on the date on which these
Amended and Restated Bylaws are adopted) expires and the date on which
the director's successor has been elected and qualified, or (2) On or
before March 31, 1996, the last day of the calendar quarter in which the
director reaches age 70, and form and after April 1, 1996, the last day
of the calendar quarter in which the director reaches age 65, or (3) The
director's death, or (4) The director's resignation, or (5) The date on
which such director is removed by the Commission of Banking from a
directorship of a subsidiary bank owned by the corporation, as provided
in Section 221.08(9), Wisconsin Statutes; provided, however that a
director who has already attained the mandatory retirement age first
established during his term shall hold office until the first to occur
of the date specified in clauses (1), (3), (4) or (5).
(c) Any director or the entire Board of Directors may be removed from office
with or without cause by the affirmative vote of a majority of the
outstanding shares entitled to vote at a special meeting called for that
purpose, and any vacancy so created may be filled by the shareholders at
such meeting. A director may resign at any time by filing his or her
written resignation with the chief executive officer of the Corporation.
Directors need not be shareholders of the corporation.
SECTION 3. ANNUAL MEETING. As soon as practicable after each annual
meeting of shareholders, the Board of Directors shall meet at the registered
office of the corporation, or at such other place within or without the
State of Wisconsin as may be designated by the Board of Directors, for the
purpose of electing the officers of the corporation and for the transaction
of such other business as shall come before the meeting.
SECTION 4. REGULAR MEETING. Regular meetings of the Board of Directors
shall be held from time to time at such time and place within or without the
State of Wisconsin as may be fixed by resolution adopted by a majority of
the whole Board of Directors.
SECTION 5. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called at any time by the President or by and of the directors and
shall be held at such time and place as may be designated in the notice of
such meeting.
SECTION 6. NOTICE OF MEETINGS. Regular meetings of the Board of Directors
may be held without notice.
Notice of each special meeting of the Board of Directors shall be given by
the Secretary who shall give at least twenty-four (24) hours' notice thereof
to each director by mail, telephone, telegram or in person. Neither the
business to be transacted at, nor the purpose of, any special meeting of the
Board of Directors need be specified in the notice.
SECTION 7. WAIVER OF NOTICE. Notice of any meeting of the Board of
Directors may be waived by a director either before, at, or after such
meeting in a writing signed by such director. A director shall be deemed to
have waived notice of any meeting by his or her attendance, in the absence
of his or her objection to the transaction of any business because the
meeting was not lawfully called or convened.
SECTION 8. QUORUM. A majority of the number of directors fixed in the
manner provided in Section 2 of this Article, above, shall constitute a
quorum for the transaction of business. The action of the majority of the
directors present at a meeting in which a quorum is present shall be the
action of the Board of Directors.
SECTION 9. VACANCIES. A vacancy on the Board of Directors, including a
vacancy created by an increase in the number of directors, may be filled
until the next succeeding annual meeting of shareholders by the affirmative
vote of a majority of the directors then in office, although less than a
quorum; provided, however, that a vacancy created by a removal of a director
by the shareholders may be filled by the shareholders.
SECTION 10. EXECUTIVE COMMITTEE. The Board of Directors, by resolution
adopted by a majority of the directors, may designate an Executive
Committee, consisting of three or more directors elected by the Board of
Directors, which to the extent provided in said resolution shall have and
may exercise, when the Board of Directors is not in session, the powers of
the Board of Directors in the management of the business and affairs of the
corporation; provided, however, such Executive Committee shall not have the
power to take action with respect to dividends to shareholders, election of
the principal officers or the filling of vacancies in the Board of Directors
or committees.
SECTION 11. INFORMAL ACTION BY DIRECTORS OR COMMITTEE. Any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting if a consent in writing
setting forth the action so taken shall be signed by all of the directors or
members of committee thereof entitled to vote with respect to the subject
matter thereof.
ARTICLE IV.
OFFICERS
SECTION 1. NUMBER. The Board of Directors, initially and as soon as may be
after the election thereof held in each year, shall elect a Chairman of the
Board, a President, one or more Vice Presidents as may be prescribed by
resolution of the Board of Directors, a Secretary and a Treasurer, and from
time to time may elect or appoint one or more Assistant Secretaries,
Assistant Treasurers and such other officers, agents, and employees as it
may deem proper. Any two or more offices may be held by the same person,
except the offices of Chairman and Secretary, and the office of President
and Vice President.
SECTION 2. TERM AND REMOVAL. The term of office of all officers shall be
one year and until their respective successors are elected and qualify. Any
officer or agent elected or appointed by the Board of Directors may be
removed by a majority of the whole Board of Directors with or without cause.
Such removal, however, shall be without prejudice in the contract rights of
the person so removed.
Any vacancy among the officers of the corporation by reason of death,
resignation or otherwise, may be filled for the unexpired term by the Board
of Directors.
SECTION 3. CHAIRMAN OF THE BOARD. The Chairman of the Board of Directors
shall preside at all regular and special meetings of the shareholders and at
all meetings of the Board of Directors. In the event of his or her absence,
the President shall preside. In the event of the absence of both the
Chairman and the President, the meeting shall elect a Chairman who shall
preside.
SECTION 4. PRESIDENT. The President shall be the chief executive officer
and shall have responsibility for the general active management of the
corporation. The President or a Vice President, and the Secretary, unless
some other person is specifically authorized by vote of the Board of
Directors, shall sign all certificates of stock, bonds, deeds, mortgages,
agreements, modification or mortgage agreements, leases and contracts of the
corporation. He shall perform such other duties as the Board of Directors
shall designate.
SECTION 5. VICE PRESIDENT. Each Vice President shall have such powers and
shall perform such duties as may be prescribed by the Board of Directors or
by the President. In the event of absence or disability of the President,
Vice Presidents shall succeed to his or her power and duties in the order
designated by the Board of Directors.
SECTION 6. SECRETARY. The Secretary shall keep accurate minutes of all
meetings of the shareholders and the Board of Directors, shall give proper
notice of meetings of shareholders and directors, and shall perform such
other duties and have such other powers as the Board of Directors of the
President may from time to time prescribe. In his or her absence at any
meeting an Assistant Secretary or a Secretary Pro Tempore shall perform his
or her duties.
SECTION 7. TREASURER. The Treasurer, subject to the order of the Board of
Directors, shall have the care and custody of the money, funds, valuable
papers, and documents of the corporation (other than his or her own bond, if
any, which shall be in the custody of the President), and shall have and
exercise, under the supervision of the Board of Directors, all the powers
and duties commonly incident to his or her office. The Treasurer shall keep
accurate accounts of all monies of the corporation received or disbursed.
He shall deposit all monies, drafts and checks in the name of, and to the
credit of, the corporation in such banks and depositories as a majority of
the whole Board of Directors from time to time designates. He shall have
power to endorse for deposit all notes, checks and drafts received by the
corporation. He shall disburse the funds of the corporation in the manner
prescribed by the Board of Directors, making proper vouchers therefore. He
shall render to the President and the Directors, whenever required an
account of all his or her transactions as Treasurer and of the financial
condition of the corporation and shall perform such other duties as may be
prescribed from time to time by the Board of Directors or by the President.
ARTICLE V.
CERTIFICATES REPRESENTING SHARES
SECTION 1. FORM AND TRANSFERS. The shares of the corporation shall be
represented by certificates signed by the President or a Vice President and the
Secretary or an Assistant Secretary of the corporation.
SECTION 2. TRANSFER OF SHARES. Transfers of shares of the corporation shall
be made only on the books of the corporation by the registered holder thereof,
or by his or her attorney authorized by power of attorney duly executed and
filed with the Secretary or other designated officer of the corporation, and on
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares stand on
the books of the corporation shall be deemed the owner thereof for all purposes
as regards the corporation.
SECTION 3. LOSS OF CERTIFICATES. Any shareholder claiming loss or destruction
of a share certificate shall make an affidavit of that fact in such form as the
Board of Directors shall require and shall, if the Board of Directors so
requires, give the corporation a bond of indemnity in form and amount
satisfactory to the Board of Directors to indemnify the corporation against any
claim which may be made against it on the account of the reissue of such
certificate.
ARTICLE VI.
DIVIDENDS
SECTION 1. DIVIDENDS. Subject to the provisions of applicable law, the Board
of Directors may declare dividends from unreserved and unrestricted earned
surplus, at such times and in such amounts as the Board shall deem available.
SECTION 2. RECORD DATE. The Board of Directors may fix a date, not to exceed
fifty (50) days preceding the date fixed for the payment of any dividend or
allotment or other rights as the record date for the determination of the
shareholders entitled to receive such payment or allotment.
In the absence of the fixing of such a record date by the Board of Directors,
the record date shall be the date on which the resolution of the Board of
Directors declaring such dividend or allotment is adopted.
ARTICLE VII.
BOOKS AND RECORDS; FISCAL YEAR
SECTION 1. BOOKS AND RECORDS. The Board of Directors of the corporation shall
cause to be kept at its registered office:
(a) A share register, giving the names and addresses of the shareholders,
the number and classes of shares held by each, and the dates on which
the certificates therefore were issued;
(b) Minutes of all proceedings of shareholders and directors;
(c) A true statement of assets and liabilities at the close of each fiscal
year, in reasonable detail, prepared within 4 months of the end of each
fiscal year;
(d) Such other records and books of account as shall be necessary and
appropriate to the conduct of the corporate business; and
(e) Bylaws of the corporation and all amendments thereto.
SECTION 2. FISCAL YEAR. The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
ARTICLE VIII.
INSPECTION OF BOOKS
Every person who has been a shareholder of the corporation for at least six
month or who is the holder of record of at least 5% of the outstanding shares
of corporation stock shall, upon written demand stating the purpose thereof,
have the right to examine, in person or by agent or attorney authorized in
writing to represent the shareholder, at any reasonable time or times, for any
proper purpose, and at the place or places where usually kept, relevant books
and records of account, and minutes and record of shareholders and to make
extracts therefrom.
ARTICLE IX.
INDEMNIFICATION
Any person who at any time shall serve or shall have served as a director,
officer, employee or agent of the corporation, or of any other enterprise at
the request of the corporation, and the heirs, executors and administrators of
such person shall be indemnified by the corporation in accordance with, and to
the fullest extent permitted by, the provisions of Wisconsin law, as it may be
amended from time to time.
ARTICLE X.
AMENDMENTS
SECTION 1. Subject to Section 2 of this Article, these Bylaws may be amended
by a vote of the majority of the whole Board of Directors at any meeting. The
Board of Directors shall not amend or repeal any Bylaw adopted by the
shareholders unless such authority has been conferred upon the directors by the
Bylaw.
SECTION 2. Notwithstanding the provisions of Section 1 of this Article, the
shareholders may amend or repeal any Bylaw by a majority vote of the
shareholders present or represented at any annual meeting or at any special
meeting of shareholders called for such purposes.
EXHIBIT 10.1
MID-WISCONSIN FINANCIAL SERVICES, INC.
1991 EMPLOYEE STOCK OPTION PLAN
Mid-Wisconsin Financial Services, Inc., a bank holding company organized under
the laws of the state of Wisconsin (the "Company"), herby adopts the Mid-
Wisconsin Financial Services, Inc. 1991 Employee Stock Option Plan (the
"Plan"), as hereinafter set forth.
Section 1. PURPOSE. The Plan has been adopted for the purpose of recognizing
and rewarding the performance of key employees of the Company and to enable the
Company to attract and retain superior management level employees by increasing
the personal interest of all such employees in the growth and success of the
Company. It is the express intent of the Company that all options granted
hereunder shall meet the requirements of Section 422A of the Internal Revenue
Code of 1986, as amended (the "Code"), or any successor section or sections.
Section 2. NUMBER OF SHARES AVAILABLE FOR OPTIONS. The aggregate number of
shares of $.10 par value common stock of the Company (the "Shares") which may
be issued under options granted pursuant to the Plan shall be 25,000.
Section 3. ADMINISTRATION OF THE PLAN.
Section 3.1 GENERAL. The Plan shall be administered by a committee of at least
three members to be appointed by the Board of Directors of the Company (the
"Committee") from among its members. Each director appointed to the Committee
shall be a disinterested person as determined pursuant to Section 3.2. In the
absence of specific rules to the contrary, action by the Committee shall
require the consent of a majority of the members of the Committee, expressed
either orally at a meeting of the Committee or in writing in the absence of a
meeting.
Section 3.2 DISINTERESTED PERSONS. Each member of the Committee shall be a
person who:
(a) during one year prior to the time of exercising discretion in
administering the Plan, has not been eligible for selection as a person
to whom options or other rights may be allocated or granted pursuant to
the Plan, or any other plan of the Company or any of its subsidiaries or
affiliates (within the meaning of Rule 16b-3 as promulgated by the
Securities and Exchange Commission ("Rule 16b-3")), entitling the
participants therein to acquire Shares or other equity securities of the
Company; and
(b) is not so eligible for one year after such exercise of discretion.
Section 3.3 AUTHORITY OF COMMITTEE. The Committee shall have full and
complete authority to grant options to such eligible employees on such terms,
which need not be the same as to all eligible employees, as will, in its
discretion and subject only to specific limitations elsewhere contained in the
Plan, carry out the purpose of the Plan. The Committee shall also have full
and complete authority to interpret the Plan and adopt rules governing the
administration of the Plan. The Committee's decision on any matter with
respect to the Plan shall be final.
Section 3.4 INDEMNIFICATION OF COMMITTEE. To the extent permitted by
application law, the members of the Committee and each of them shall be
indemnified and saved harmless by the company from any liability or claim of
liability which may arise from the administration of the Plan unless the acts
giving rise to such liability or claim of liability constitute gross negligence
or willful misconduct.
Section 4. ELIGIBLE EMPLOYEES. Key employees of the Company, its current
subsidiaries, and any subsidiary of the Company hereafter acquired shall be
eligible to participate in the Plan and are herein referred to as "eligible
employees". For purposes of the Plan, the term "key employee" shall include
all employees of the Company and its subsidiaries, now or hereafter acquired,
employed in management, administrative or professional capacities.
Section 5. GRANTING OF OPTIONS. Subject to the limitations of Section 6.3,
options to purchase Shares shall be granted to such eligible employees as the
Committee may, from time to time and at any time, select. Status as an
eligible employee shall not, without specific Committee action, entitle an
eligible employee to receive an option to purchase Shares. Eligible employees
selected by the Committee shall be hereafter referred to as "Optionees".
Section 6. TERMS AND CONDITIONS OF THE OPTIONS.
Section 6.1 WRITTEN INSTRUMENT. Each option to purchase Shares granted under
the Plan shall be evidenced by a written option agreement signed on behalf of
the Company and the Optionee which sets forth the name of the Optionee, the
date granted, the price at which the Shares subject to the option may be
purchased (the "option price") and the number of Shares subject to the option.
Such option agreement shall incorporate by reference all terms, conditions and
limitations set forth in the Plan.
Section 6.2 TERMS AND CONDITIONS. In addition to any other limitations, terms
and conditions specified in the Plan, each option granted hereunder shall, as
to each Optionee, satisfy the following requirements:
(a) DATE OF GRANT. Options must be granted on or before February 19, 2001.
(b) RESTRICTIONS REGARDING TIME WITHIN WHICH OPTION IS TO BE EXERCISED AS TO
CERTAIN SHARES.
(1) Each option shall contain such restriction or restrictions, if
any, with respect to the stated percentage of Shares covered by
such option as to which such option may be exercised prior to the
expiration of any period or periods of time as the Committee may
deem desirable or necessary in order to carry out the purpose of
the Plan; provided, however, that in no event shall any option be
exercisable until a date which is more than six months from the
date of grant (except in the case of death or disability).
(2) Unless otherwise specified by the Committee and subject to
Section 6.2(g), no option shall be exercisable until the fourth
anniversary of the date of grant of such option and no option
shall be exercisable after the fifth anniversary of the date of
grant of such option.
(c) PRICE. The option price as to any Share shall be the fair market value
of the Share on the date the option was granted.
(d) TRANSFERABILITY. No option shall be transferable by the Optionee
otherwise than by will or the laws of descent and distribution, nor can
it be exercised by anyone other that the Optionee during the Optionee's
lifetime.
(e) 10% SHAREHOLDERS. No option shall be granted to any employee who, at
the time the option is to be granted, owns stock of the Company or of a
subsidiary or subsidiaries of the Company or a parent corporation of the
Company, if any, possessing more than 10% of the total combined voting
power of all classes of stock of the Company and such subsidiary or
subsidiaries and parent corporation unless the requirements of paragraph
6.3 are satisfied.
(f) MAXIMUM FAIR MARKET VALUE. Options to purchase Shares shall not be
exercisable for the first time during any calendar year (under all plans
of the Optionee's employer corporation and any parent or subsidiary of
such employer corporation) in an amount having a fair market value
(determined on the date the option is granted) of more than $100,000.
This subparagraph shall be applied by taking all options into account in
the order in which they were granted.
(g) EXPIRATION.
(1) Notwithstanding any other provision of this Plan to the contrary,
no option shall be exercisable after the expiration of ten years
from the date such option is granted.
(2) Notwithstanding any other provision of this Plan to the contrary,
except as provided in (3), no option shall be exercisable after
the date on which the Optionee's employment with the Company and
each of its subsidiaries terminates.
(3) An option granted to an Optionee whose termination of employment
occurs by reason of (i) voluntary retirement after attaining a
retirement age as defined by the principal retirement plan then
maintained by the Company and qualified under section 401(a) of
he Code in which he is a participant or, in the absence of such a
plan, voluntary retirement from the Company in accordance with
the retirement policies of the company then inI effect, (ii)
death or (iii) long-term disability, as defined by a long-term
disability benefit plan then maintained by the Company in which
he is a participant, or, in the absence of such a plan, a long-
term disability as determined in accordance with the long-term
disability retirement policy of the Company as then in effect,
shall be and remain exercisable until a date which is three
months subsequent to the day next following the date on which the
Optionee's termination of employment occurs.
Section 6.3 ADDITIONAL TERMS AND CONDITIONS. No employee who owns stock of
the Company or of a subsidiary or subsidiaries of the Company or of a parent
corporation of the Company, if any, possessing more than 10% of the total
combined voting power of all classes of stock of the Company or such subsidiary
or subsidiaries shall be eligible to receive an option unless such option, in
addition to the other terms and conditions specified in Section 6.2 and
elsewhere in the Plan, provides that the option price is at least 110% of the
fair market value of the Shares subject to such option and that such option is
not exercisable after the expiration of five years from the date it was
granted. Notwithstanding the preceding sentence of this Section 6.3, options
outstanding prior to the employee acquiring such 10% shareholder status shall
remain in effect.
Section 7. EXERCISE AND PAYMENT OF OPTION PRICE.
Section 7.1 EXERCISE OF OPTION. Options shall be exercised as to all or a
portion of the Shares (but not as to less that than the lessor of (a) 10
shares, or (b) the aggregate number of Shares which may then be purchased,
under a particular option) by written notice to the Company setting forth the
exact number of Shares as to which the option is being exercised and including
with such notice payment of the option price. The date of exercise shall be
the date such written notice and payment have been delivered to the Secretary
of the Company either in person or by depositing said notice and payment in the
United States mail, postage pre-paid and addressed to such officer at the
Company's home office. In the event of death of an Optionee, the option may be
exercised by the Optionee's personal representative.
Section 7.2 PAYMENT FOR SHARES. Payment of the option price may be made (a)
by tendering cash (in the form of a check or otherwise) or (b) by directing the
Company to withhold from those Shares which would otherwise be received upon
exercise, that number of Shares which has a fair market value of the date of
exercise equal to the aggregate option price of all Shares then being purchased
pursuant to the exercise of he option, or (c) by any combination of (a) and
(b).
Section 8. ADJUSTMENT UPON CHANGES IN CAPITALIZATION.
Section 8.1 ADJUSTMENT OF SHARES ISSUABLE UPON EXERCISE OF OPTION. In the
event of any stock dividend, stock split, recapitalization, reorganization,
merger or other change in the corporate structure of the Company pursuant to
which (a) shares of any class or classes of the Company are issued in respect
of the Shares or (b) the Shares are changed into the same or a different number
of shares of the same or another class or classes of the Company or another
corpration, the number and option price of Shares issuable upon the exercise of
any option then outstanding shall be adjusted to reflect such stock dividend,
stock split, recapitalization, reorganization, merger or other change in the
corporate structure of the Company.
Section 8.2 ADJUSTMENT OF NUMBER OF SHARES AVAILABLE FOR OPTIONS. In the
event of any stock dividend, stock split, recapitalization, reorganization,
merger or other change in the corporate structure of the Company described in
Section 8.1, the aggregate number of shares which may be issued under options
granted pursuant to the Plan but not theretofore issued shall be adjusted
accordingly, taking into account options which have been granted and exercised
and options which have been granted but not yet exercised.
Section 9. TERMINATION OR LAPSE OF OPTIONS. Each option shall terminate or
lapse upon the first to occur of (1) the date on which it is no longer
exercisable as determined in accordance with Section 6.2(g) or (2) termination
of employment for cause or for a reason not specified in Section 6.2(g)(3).
Section 10. AMENDMENT AND TERMINATION OF PLAN.
Section 10.1 AMENDMENT OF PLAN. The Board of Directors of the Company may
amend the Plan from time to time and at anytime; provided, however, that no
amendment shall be effective with respect to any option which has been granted
prior to the amendment and (a) no amendment with respect to the maximum number
of Shares which may be issued pursuant to options or the class or eligible
employees or (b) for which shareholder approval is required under Section 422A
of the Code in order to maintain the status of the plan as an incentive stock
option plan under said Section 422A or (c) for which shareholder approval is
required in order to comply with the provisions of Rule 16b-3 shall be
effective unless approved by a majority of the shares entitled to vote at a
meeting of shareholders.
Section 10.2 TERMINATION OF PLAN. The Plan shall terminate on the first to
occur of (1) February 19, 2001, or (2) the date specified by the Board of
Directors of the Company as the effective date of Plan termination. The
termination of the Plan shall not limit or otherwise affect any options
outstanding on the date of termination.
Section 11. EFFECTIVE DATE. The effective date of the Plan shall be February
20, 1991.
Section 12. INVESTMENT INTENT. Shares acquired pursuant to the exercise of an
option, if not registered by the Company under the Securities Act of 1933 (the
"Act"), will be "restricted" stock which will not be freely transferable by the
holder after exercise of the option. Each participating employee and assignee
in interest of the employee accordingly represents, as a condition of
participation in the Plan, that Shares which are unregistered under the Act are
being acquired for the Optionee's (or his assignee's) own account for
investment only and not with a view to offer for sale or for sale in connection
with the distribution or transfer thereof. The certificate or certificates
representing Shares acquired pursuant to the exercise of an option which are
not registered under the Act shall bear a legend as to the restrictions on
transfer of such Shares.
Section 13. SHAREHOLDER AGREEMENT. The issuance of Shares following the
exercise of an option shall be conditioned upon the Optionee's execution of a
Shareholder Agreement in substantially the form and substance as shown in
Exhibit A attached hereto with respect to such Shares, and the certificate or
certificates representing Shares acquired pursuant to the exercise of an option
shall bear the endorsement required by said Shareholder Agreement.
Section 14. STOP TRANSFER ORDER. A stop transfer order will be placed with
the Company, as well as with any transfer agent appointed by the Company,
preventing the transfer of any Shares acquired pursuant to the exercise of an
option pending a determination by the Board of Directors of the Company of
compliance with the terms and conditions of the Plan.
Section 15. AVAILABILITY OF INFORMATION. The Company shall furnish each
Optionee with (a) a copy of the Plan and (b) a copy of financial statements
contained in the Company's annual report to shareholders or a copy of the
financial statements contained in annual report on Form 10-K at the time the
option agreement provided for in Section 6.1 is executed by the Optionee and
(c) copies of the Company's financial statements contained in each subsequent
annual report to shareholders or annual report on Form 10-K on or about the
same date as such report shall be filed with the Securities and Exchange
Commission but, in no event, later than 120 days after the end of the Company's
most recent fiscal year.
Section 16. CONDITIONS OF EMPLOYMENT. Participation in or eligibility for
participation in the Plan shall not confer upon any employee the right to be
continued as an employee of the Company or any of its subsidiaries and the
Company and its participating subsidiaries hereby expressly reserve the right
to terminate the employment of any employee, with or without cause, as if the
Plan and any options granted pursuant to it were not in effect.
IN WITNESS WHEREOF, the Company has caused the Plan to be executed by its duly
authorized officers this 20{th} day of February, 1991.
MID-WISCONSIN FINANCIAL SERVICES, INC.
By: Ronald D. Isaacson, President
ATTEST:
By: Ruth M. Zuleger, Secretary
EXHIBIT 21.1
SUBSIDIARIES OF THE REGISTRANT
SUBSIDIARY STATE OF INCORPORATION
Mid-Wisconsin Bank Wisconsin
Successor in interest by merger as of
March 24, 1994:
Mid-Wisconsin Bank of Medford
Mid-Wisconsin Bank of Colby
Mid-Wisconsin Neillsville Bank
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in Registration Statement
No. 33-37264 on Form S-8 pertaining to the Mid-Wisconsin Financial Services,
Inc. Employee Stock Purchase Plan, 1999 Stock Option Plan and 1991 Employee
Stock Option Plan of our report, dated January 24, 2001, on our audits of the
consolidated financial statements of Mid-Wisconsin Financial Services, Inc. as
of December 31, 2000 and 1999, and for each of the years in the three-year
period ended December 31, 2000 which is included in this Annual Report on Form
10-K.
WIPFLI ULLRICH BERTELSON LLP
March 23, 2001
Wausau, Wisconsin