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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
{X} QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2002
OR
{ } TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-18542
MID-WISCONSIN FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 06-1169935
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
132 West State Street, Medford, WI 54451
(Address of principal executive offices, including zip code)
(715) 748-8300
(Registrant's telephone number, including area code)
(Former name, former address & former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
As of August 2, 2002, there were 1,697,140 shares of $.10 par value common
stock outstanding.
MID-WISCONSIN FINANCIAL SERVICES, INC.
INDEX
PART I. FINANCIAL INFORMATION PAGE
Item 1. Financial Statements
Consolidated Balance Sheets
June 30, 2002 and December 31, 2001 3
Consolidated Statements of Income
Three Months Ended June 30, 2002 and 2001
And Six Months Ended June 30, 2002 and 2001 4
Consolidated Statements of Changes
in Stockholders' Equity
Six Months Ended June 30, 2002 5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001 5-6
Notes to Consolidated Financial Statements 7-8
Item 2. Management's Discussion and Analysis of
Financial Conditions and Results of
Operations 8-16
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 16
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security
Holders 17
Item 6. Exhibits and Reports of Form 8-K 17-18
Signatures 18
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Mid-Wisconsin Financial Services, Inc.
and Subsidiary
Consolidated Balance Sheet
June 30, 2002 December 31, 2001
(Unaudited) (Audited)
ASSETS
Cash and due from banks $14,000,893 $15,052,383
Interest-bearing deposits in other financial institutions 17,077 25,102
Federal funds sold 3,807,223 712,845
Securities available for sale -At fair value 76,960,386 83,514,352
Federal Home Loan Bank stock (at cost) 1,740,000 1,500,000
Loans held for sale 316,900 451,650
Loans receivable, net of allowance for credit losses of
$2,717,337 in 2002 and $2,597,416 in 2001 242,593,010 229,051,540
Accrued interest receivable 1,784,377 1,843,509
Premises and equipment 5,588,270 5,707,450
Purchased core deposit intangible 1,018,908 1,163,929
Goodwill 295,316 295,316
Other assets 671,426 1,171,500
TOTAL ASSETS $348,793,786 $340,489,576
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest-bearing deposits $35,423,725 $35,127,283
Interest-bearing deposits 214,379,086 223,274,164
Total Deposits 249,802,811 258,401,447
Short-term borrowings 34,936,710 19,389,436
Long-term borrowings 30,000,000 30,000,000
Accrued expenses and other liabilities 2,977,861 3,145,572
Total liabilities 317,717,382 310,936,455
Stockholders' equity:
Common stock-Par value $.10 per share:
Authorized - 6,000,000 shares
Issued & outstanding - 1,697,140 shares in 2002
and 1,696,497 shares in 2001 169,714 169,650
Additional paid-in capital 10,989,774 10,972,612
Retained earnings 18,619,958 17,806,485
Unrealized gain on securities available for sale, net of tax 1,296,958 604,374
Total stockholders' equity 31,076,404 29,553,121
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $348,793,786 $340,489,576
The accompanying notes to consolidated financial statements are an integral
part of these statements.
ITEM 1. Financial Statements Continued:
MID-WISCONSIN FINANCIAL SERVICES, INC.
and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six Months Ended
June 30, 2002 June 30, 2001 June 30, 2002 June 30, 2001
Interest income:
Interest and fees on loans $4,267,179 $4,911,712 $8,506,161 $9,944,799
Interest and dividends on securities:
Taxable 832,660 860,322 1,689,017 1,747,102
Tax-exempt 275,774 211,856 544,175 420,106
Other interest and dividend income 4,587 46,532 29,444 104,749
Total interest income 5,380,200 6,030,422 10,768,797 12,216,756
Interest expense:
Deposits 1,382,187 2,532,817 2,904,391 5,284,811
Short-term borrowings 141,898 232,328 226,901 552,618
Long-term borrowings 371,963 226,496 739,838 467,395
Total interest expense 1,896,048 2,991,641 3,871,130 6,304,824
Net interest income 3,484,152 3,038,781 6,897,667 5,911,932
Provision for credit losses 175,000 135,000 355,000 270,000
Net interest income after provision
for credit losses 3,309,152 2,903,781 6,542,667 5,641,932
Noninterest income:
Service fees 217,521 238,404 416,874 431,583
Trust service fees 184,000 169,418 368,000 338,215
Net realized gain on sale of securities available for sale 17,349 62,500 17,349 62,500
Investment product commissions 119,711 47,939 174,363 107,048
Other operating income 162,798 180,993 339,431 338,406
Total noninterest income 701,379 699,254 1,316,017 1,277,752
Noninterest expenses:
Salaries and employee benefits 1,375,407 1,184,515 2,671,849 2,378,569
Occupancy 271,849 331,966 544,176 654,695
Data processing and information systems 101,397 110,198 211,823 229,077
Amortization of intangibles 72,511 89,375 145,021 178,750
Other operating 594,726 705,540 1,151,417 1,185,276
Total noninterest expenses 2,415,890 2,421,594 4,724,286 4,626,367
Income before income taxes 1,594,641 1,181,441 3,134,398 2,293,317
Provision for income taxes 456,202 279,958 895,469 556,645
Net income $1,138,439 $901,483 $2,238,929 $1,736,672
Basic and diluted earnings per share $0.67 $0.53 $1.32 $1.01
Cash dividends declared per share $0.62 $0.60 $0.84 $0.80
The accompanying notes to consolidated financial statements are an integral part of these statements.
ITEM 1. Financial Statements Continued:
Mid-Wisconsin Financial Services, Inc.
Consolidated Statement of Changes in Stockholders' Equity
(Unaudited)
Accumulated
Additional Other
Common Stock Paid-In Retained Comprehensive
Amount Capital Earnings Income (Loss) Totals
Balance, December 31, 2001 $169,650 $10,972,612 $17,806,485 $604,374 $29,553,121
Comprehensive Income:
Net Income 2,238,929 2,238,929
Unrealized gain on securities
for sale, net of tax 692,584 692,584
Total comprehensive income 2,931,513
Proceeds from stock options 64 17,162 17,226
Cash dividends declared $.84 per share (1,425,456) (1,425,456)
Balance June 30, 2002 $169,714 $10,989,774 $18,619,958 $1,296,958 $31,076,404
The accompanying notes to consolidated financial statements are an integral part of these statements.
Mid-Wisconsin Financial Services, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
Increase (decrease) in cash and due from banks:
Cash flows from operating activities:
Net income $2,238,929 $1,736,672
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 462,832 574,891
Provision for credit losses 355,000 270,000
Proceeds from sales of loans held for sale 3,435,301 5,788,295
Gain on sale of loans held for sale (47,861) (65,500)
Originations of loans held for sale (3,252,690) (6,047,395)
Gain on sale of investment securities (17,349) (62,500)
Loss on premises and equipment disposals - 25,416
FHLB stock dividends (39,700) (48,700)
Changes in operating assets and liabilities:
Other assets 147,193 154,481
Other liabilities (167,711) (290,508)
Net cash provided by operating activities 3,113,943 2,035,152
ITEM 1. Financial Statements Continued:
Mid-Wisconsin Financial Services, Inc.
and Subsidiary
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2002 and 2001
(Unaudited)
2002 2001
Cash flows from investing activities:
Net (increase) decrease in interest-bearing deposits
in other institutions 8,025 (12,325)
Net increase in federal funds sold (3,094,378) (2,866,908)
Securities available for sale:
Proceeds from sales 497,920 562,500
Proceeds from maturities 17,232,787 20,590,690
Payment for purchases (10,063,622) (21,267,340)
Payment for purchase of FHLB stock (200,300) -
Net increase in loans (13,896,093) (1,996,136)
Capital expenditures (190,180) (114,038)
Proceeds from sale of premises and equipment - 74,484
Net cash used in investing activities (9,705,841) (2,149,840)
Cash flows from financing activities:
Net increase (decrease) in noninterest-bearing deposits 296,442 (1,741,931)
Net increase (decrease) in interest-bearing deposits (8,895,078) 7,910,183
Net increase in short-term borrowings 15,547,274 3,533,720
Proceeds from exercise of stock options 17,226 5,161
Payment for repurchase of common stock - (2,960,984)
Principal payments on long-term borrowings - (3,000,000)
Dividends paid (1,425,456) (1,356,361)
Net cash provided by financing activities 5,540,408 2,389,787
Net decrease in cash and due from banks (1,051,490) (604,134)
Cash and due from banks at beginning 15,052,383 14,126,994
Cash and due from banks at end $14,000,893 $13,522,860
Supplemental cash flow information:
Cash paid during the year for:
Interest $4,234,880 $6,817,320
Income taxes $1,038,701 $755,941
Supplemental schedule of non-cash investing and financing activities:
Loans transferred to other real estate $- $56,070
Loans charged off $259,481 $178,194
Loans made in connection with the disposition of
other real estate $- $69,382
The accompanying notes to consolidated financial statements are an integral part of these statements.
MID-WISCONSIN FINANCIAL SERVICES, INC.
Notes to Consolidated Financial Statements
NOTE 1 - GENERAL
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments necessary to present fairly Mid-Wisconsin
Financial Services, Inc.'s ("Company") financial position, results of its
operations and cash flows for the periods presented, and all such adjustments
are of a normal recurring nature. The consolidated financial statements
include the accounts of all subsidiaries. All material intercompany
transactions and balances are eliminated. The results of operations for the
interim periods are not necessarily indicative of the results to be expected
for the full year.
These interim consolidated financial statements have been prepared according to
the rules and regulations of the Securities and Exchange Commission and,
therefore, certain information and footnote disclosures normally presented in
accordance with generally accepted accounting principles have been omitted or
abbreviated. The information contained in the consolidated financial
statements and footnotes in the Company's 2001 annual report on Form 10-K,
should be referred to in connection with the reading of these unaudited interim
financial statements.
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
Estimates that are susceptible to significant change include the determination
of the allowance for credit losses and the valuations of investments.
NOTE 2 - EARNINGS PER SHARE
Basic earnings per common share is calculated by dividing net income available
to common stockholders by the weighted average number of common shares
outstanding. Diluted earnings per share is calculated by dividing net income
by the weighted average number of shares adjusted for the dilutive effect of
outstanding stock options.
Presented below are the calculations for basic and diluted earnings per share:
Three Months Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
(In thousands, except per share data)
Net income available to common stockholders $1,138 $901 $2,239 $1,737
Weighted average shares outstanding 1,697 1,695 1,697 1,719
Effect of dilutive stock options outstanding 0 0 0 0
Diluted weighted average shares outstanding 1,697 1,695 1,697 1,719
Basic earnings per common share $0.67 $0.53 $1.32 $1.01
Diluted earnings per common share $0.67 $0.53 $1.32 $1.01
NOTE 3 - LONG-TERM DEBT
Long-term debt at June 30 is as follows:
June 30, December 31,
2002 2001
Federal Home Loan Bank advances:
4.14% to 6.28%, fixed rate, maturing in
2003 through 2008 $30,000,000 $30,000,000
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis is presented to assist in the
understanding and evaluation of the Company's financial condition and results
of operations. It is intended to complement the unaudited financial
statements, footnotes, and supplemental financial data appearing elsewhere in
this Form 10-Q and should be read in conjunction therewith. Quarterly
comparisons reflect continued consistency of operations and do not reflect any
significant trends or events other than those noted in the comments.
Forward-looking statements have been made in this document that are subject to
risks and uncertainties. While the Company believes that these forward-looking
statements are based on reasonable assumptions, all such statements involve
risk and uncertainties that could cause actual results to differ materially
from these contemplated in this report.
The assumptions, risks and uncertainties relating to the forward-looking
statements in this report include those described under the caption "Cautionary
Statements Regarding Forward Looking Information" in Part I of the Company's
Form 10-K for the year ended December 31, 2001 and, from time to time, in the
Company's other filings with the Securities and Exchange Commission.
In the first quarter of 2002, the Company elected to become a financial holding
company. The Company has not engaged in any additional lines of business as of
the date of this report.
RESULTS OF OPERATIONS - SUMMARY
Net income for the quarter ended June 30, 2002 totaled $1.1 million or $0.67
for basic and diluted earnings per share. Comparatively, net income for the
quarter ended June 30, 2001 was $901,000 or $0.53 for basic and diluted
earnings per share. June 30, 2002 results generated an annualized return on
average assets of 1.33% and an annualized return on average equity of 14.92%,
compared to 1.12% and 12.81% for the comparable period in 2001. The June 30,
2002 net interest margin was 4.52% compared to 4.19% for the comparable period
in 2001.
Table 1: Summary Results of Operations
(dollars in thousands, except per share data)
June 30, March 31, December 31, September 30, June 30,
2002 2002 2001 2001 2001
Earnings and Dividends:
Net interest income $3,484 $3,413 $3,330 $3,171 $3,039
Provision for credit losses 175 180 (50) 150 135
Net interest income after
provision for credit losses 3,309 3,233 3,380 3,021 2,904
Noninterest income 701 614 582 628 699
Noninterest expense 2,416 2,308 2,366 2,207 2,422
Income before income taxes 1,594 1,539 1,596 1,442 1,181
Provision for income taxes 456 439 527 399 280
Net income $1,138 $1,100 $1,069 $1,043 $901
Per common share
Basic and diluted earnings $0.67 $0.65 $0.63 $0.62 $0.53
Dividends declared 0.62 0.22 0.22 0.20 0.60
Book Value 18.31 17.84 17.42 17.45 16.79
Average common shares (000's) 1,697 1,696 1,696 1,695 1,695
Dividend payout ratio 92.4% 33.9% 34.9% 32.5% 112.8%
Balance Sheet Summary:
At quarter end:
Loans net of unearned income $245,310 $235,367 $231,649 $226,289 $228,890
Assets 348,794 335,027 340,490 322,460 325,635
Deposits 249,803 248,313 258,401 248,095 250,859
Stockholders' equity 31,076 30,259 29,553 29,588 28,467
Average balances:
Loans net of unearned income 241,320 233,279 228,170 228,848 228,372
Assets 341,219 337,973 325,261 324,476 322,579
Deposits 248,236 254,396 250,131 249,917 250,685
Stockholders' equity 30,511 29,959 28,806 28,600 28,134
Performance Ratios:
Return on average assets 1.33% 1.30% 1.31% 1.29% 1.12%
Return on average common equity 14.92% 14.69% 14.84% 14.59% 12.81%
Tangible equity to assets 8.58% 8.48% 8.45% 8.38% 8.24%
Total risk-based capital 12.72% 12.93% 12.11% 12.56% 12.07%
Net loan charge-offs as a percentage
of average loans 0.10% 0.08% 0.11% 0.02% 0.03%
Nonperforming assets as a percentage
of loans and other real estate 0.53% 0.70% 0.82% 1.43% 0.92%
Net interest margin (1) 4.52% 4.48% 4.39% 4.36% 4.19%
Efficiency ratio 59.66% 59.53% 57.22% 56.08% 62.66%
Stock Price Information: (2)
High $27.60 $26.30 $26.00 $25.10 $23.25
Low 26.30 26.00 24.25 23.25 20.12
Market value at quarter end 27.50 26.30 26.00 25.10 23.25
(1) The yield on tax-exempt loans and securities was computed on a tax-equivalent basis using a tax rate of 34%
for all periods presented.
(2) The quotations reflect bid prices, without retail mark-up, markdown or commissions, and may
not necessarily represent actual transactions.
NET INTEREST INCOME
Net interest income on a fully taxable equivalent basis for the three months
ended June 30, 2002 was $3.6 million, up $476,000 or 15.0% over the comparable
quarter last year. The Company has benefited from the falling interest rate
environment as deposits and short-term borrowings have repriced faster than
loans.
The net interest margin was 4.52% for June 30, 2002, up 33 basis points from
4.19% from the comparable quarter last year. This increase between comparable
quarters is the result of a 56 basis point increase in interest rate spread,
the net of a 183 basis point decrease in the cost of interest-bearing
liabilities and a 127 basis point decrease in the yield on earning assets.
The yields on average earning assets were 6.87% for June 30, 2002, down 127
basis points from the comparable quarter last year. Downward pressure on loan
yields was the result of customer demand to reprice variable rate loans into
fixed rate loans, lower interest rate environment and local competition. The
average loan yield was 7.10% down 153 basis points from June 30, 2001. The
average yield on investments and other earning assets decreased 45 basis points
to 6.19% at June 30, 2002.
The cost of interest bearing liabilities decreased to 2.77% from 4.60% in 2001,
due to the lower rate environment of 2002. The average cost of interest-
bearing deposits decreased 202 basis points predominately in time deposits.
Wholesale funding decreased 117 basis points over the comparable quarter of
2001.
Average earning assets grew $20.0 million or 6.6% over the second quarter 2001.
Earning asset growth occurred in loans, up $12.9 million or 5.7%, while
investments increased $7.0 million or 9.5%.
Average interest-bearing liabilities increased $14.1 million or 5.4% over
second quarter 2001. Interest-bearing deposits were down $5.4 million, with a
notable shift from time deposits to transaction accounts. Therefore, average
wholesale funding increased $19.5 million, predominately in long-term debt, to
21.5% of total interest-bearing liabilities during second quarter 2002 compared
to 15.2% in second quarter 2001. To take advantage of the low interest rate
environment, improve liquidity and mitigate interest rate risk, the Company
increased long-term debt to 10.9% of interest-bearing liabilities compared to
6.8% at June 30, 2001.
Table 2: Net Interest Income Analysis - Taxable Equivalent Basis
(dollars in thousands)
Three months ended June 30, 2002 Three months ended June 30, 2001
Average Interest Average Average Interest Average
Balance Income/Expense Yield/Rate Balance Income/Expense Yield/Rate
Assets
Loans (1) (2) $241,320 $4,282 7.10% $228,372 $4,929 8.63%
Investments and other (2) 81,053 1,255 6.19% 74,007 1,228 6.64%
Total earning assets $322,373 $5,537 6.87% $302,379 $6,157 8.14%
Other assets, net 18,846 20,200
Total assets $341,219 $322,579
Liabilities & Equity:
Interest-bearing deposits $215,194 $1,382 2.57% $220,649 $2,533 4.59%
Wholesale funding 58,981 514 3.48% 39,466 459 4.65%
Total interest-bearing liabilities $274,175 $1,896 2.77% $260,115 $2,992 4.60%
Demand deposits 33,042 30,036
Other liabilities 3,491 4,294
Stockholders' equity 30,511 28,134
Total liabilities and equity $341,219 $322,579
Interest rate spread (2) 4.10% 3.54%
Net free funds 0.42% 0.65%
Net interest income and net interest margin (2) $3,641 4.52% $3,165 4.19%
Tax equivalent adjustment $157 $126
Net interest income, as reported $3,484 $3,039
(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%.
NON-INTEREST INCOME
Non-interest income remained relatively unchanged at $702,000 during the three
months ended June 30, 2002 and 2001.
Table 3: Noninterest Income
(dollars in thousands)
2nd Quarter 2nd Quarter Dollar Percent
2002 2001 Change Change
Service fees on deposit accounts $218 $238 $(20) -8.4%
Trust service fees 184 169 15 8.9%
Net realized gain on sale of
securities available for sale 17 63 (46) -73.0%
Investment product commissions 120 48 72 150.0%
Other operating income 163 181 (18) -9.9%
Total noninterest income $702 $699 $3 0.4%
Investment product commissions consist of annuity sales, brokerage services,
mutual fund sales, life insurance commissions, and self-directed IRA fees.
Investment product commissions increased $72,000, or 150.0% compared to June
30, 2001. The change was predominantly due to an increase in annuity sales.
Investors are seeking an investment with a fixed-rate of return that annuities
offer.
NON-INTEREST EXPENSE
Non-interest expense remained constant at $2.4 million between quarters ending
June 30, 2002 and 2001.
Table 4: Noninterest Expense
(dollars in thousands)
2nd Quarter 2nd Quarter Dollar Percent
2002 2001 Change Change
Salaries and employee benefits $1,375 $1,185 $190 16.0%
Occupancy 272 332 (60) -18.1%
Data processing and information systems 101 110 (9) -8.2%
Amortization of intangibles 73 89 (16) -18.0%
Other operating 595 706 (111) -15.7%
Total noninterest expense $2,416 $2,422 $(6) -0.2%
Salaries and employee benefits increased $190,000 or 16.0% over second quarter
2001 and represented 56.9% of total noninterest expense in 2002 compared to
48.9% in 2001. Salaries and employee benefits increased between comparable
periods, due primarily to merit increases, incentive bonuses, and pension plan
expense.
Occupancy expense decreased $60,000, primarily due to the rate decreases in
utilities, and equipment expense declining predominately in computer
depreciation expense. Data processing and information systems decreased $9,000,
primarily in software amortization expense.
Amortization of intangibles decreased due to the discontinuation of
amortization of goodwill on January 1, 2002 in accordance with SFAS No. 142
"Goodwill and Other Intangible Assets." Other operating expense was $595,000,
down 15.7% from second quarter 2001. The decrease in other operating expense
is predominately due to an error in a trade execution on a security held for
investment during the second quarter 2001.
BALANCE SHEET
At June 30, 2002, total assets were $348.8 million, an increase of $8.3
million, or 2.4%, over December 31, 2001. Loans increased $13.5 million since
December 31, 2001. Agricultural loans decreased $5.1 million due to tightening
agricultural credit standards resulting in refinancing of numerous loans with
other financial institutions. Real estate loans increased $13.4 million. The
housing market remains strong in the Company's market place. Total deposits
decreased $8.6 million or 3.3%, since December 31, 2001. Management held
deposit rates constant despite competitors' higher rates. Wholesale funding
was a cheaper funding source than paying-up for deposits. See Table 6 for the
current deposit composition.
Table 5: Period End Loan Composition
(dollars in thousands)
June 30 % of June 30 % of December 31, % of
2002 total 2001 total 2001 total
Commercial and financial $48,811 19.9% $44,976 19.6% $44,320 19.1%
Construction loans 6,216 2.5% 4,631 2.0% 5,375 2.3%
Agricultural 31,712 12.9% 38,989 17.0% 36,815 15.9%
Real estate 148,853 60.6% 130,398 56.9% 135,421 58.4%
Installment loans to individuals 10,029 4.1% 10,390 4.5% 10,162 4.3%
Lease financing 6 0.0% 0 0.0% 8 0.0%
Total loans (including loans held for sale) $245,627 100.0% $229,384 100.0% $232,101 100.0%
Table 6: Period End Deposit Composition
(dollars in thousands)
June 30, % of June 30, % of December 31, % of
2002 total 2001 total 2001 total
Demand $35,424 14.2% $30,414 12.0% $35,127 13.6%
NOW 21,750 8.7% 17,861 7.1% 25,012 9.7%
Money market 44,719 17.9% 48,546 19.4% 52,245 20.2%
Savings 21,048 8.4% 18,533 7.4% 18,700 7.2%
Brokered CDs 500 0.2% 500 0.2% 500 0.2%
Other time 126,362 50.6% 135,005 53.9% 126,817 49.1%
Total Deposits $249,803 100.0% $250,859 100.0% $258,401 100.0%
ALLOWANCE FOR CREDIT LOSSES
The loan portfolio is the primary asset subject to credit risk. The Company's
process for monitoring credit risks includes weekly analysis of loan quality,
delinquencies, non-performing assets, and potential problem loans.
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, and current economic conditions. The Company has
internal risk analysis and review staff that continuously reviews loan quality.
It is the Company's policy that when available information confirms that
specific loans and leases, or portions thereof, including impaired loans, are
uncollectable, these amounts are promptly charged off against the allowance.
As of June 30, 2002, the allowance for credit losses was $2.7 million,
representing 1.11% of outstanding loans, compared to $2.8 million, or 1.22%, at
June 30, 2001, and $2.6 million, or 1.12% at December 2001. At June 30, 2002,
the allowance for credit losses was 169.0% of nonperforming loans compared to
117.4% and 108.8% at June 30 and December 31, 2001.
Table 7: Allowance for Credit Losses and Nonperforming Assets
(dollars in thousands)
At and for the At and for the
Six months ended Year ended
June 30, December 31,
2002 2001 2001
Allowance for Credit Losses:
Balance at beginning of period $2,597 $2,593 $2,593
Charged off (259) (178) (491)
Recoveries 24 107 125
Net loans charged off (235) (71) (366)
Provision for credit losses 355 270 370
Balance at end of period $2,717 $2,792 $2,597
Nonperforming Assets:
Nonaccrual loans $1,311 $2,105 $1,905
Accruing loans past due 90 days or more 37 22 30
Restructured loans 260 252 453
Total nonperforming loans 1,608 2,379 2,388
Other real estate owned 90 76 90
Total nonperforming assets $1,698 $2,455 $2,478
Ratio of allowance for credit losses
to total loans at end of period 1.11% 1.22% 1.12%
Ratio of net charge offs during the
period to average loans outstanding 0.10% 0.03% 0.16%
Nonperforming loans to total loans 0.65% 1.04% 1.03%
Nonperforming assets to total assets 0.49% 0.75% 0.73%
Management is not aware of any additional loans that represent material credits
or of any information that causes management to have serious doubts as to the
ability of such borrowers to comply with the loan repayment terms.
In the opinion of management, the allowance for credit losses is adequate at
June 30, 2002. While management uses available information to recognize losses
on loans, future adjustments may be necessary based on changes in economic
conditions.
Loans are placed on a nonaccrual status when they become contractually past due
90 days or more as to interest or principal payments. All interest accrued but
not collected for loans (including applicable impaired loans) that are placed
on nonaccrual or charged off are reversed to interest income.
The interest on these loans is accounted for on the cash basis until qualifying
for return to accrual status. 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 considered impaired when, based on current information, it is
probable that the bank will not 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 loan's initial effective
interest rate or the fair value of the collateral if the loan is collateral
dependent. The decision of management to place loans in this category does not
necessarily mean that the Company expects losses to occur but that management
recognizes that a higher degree of risk is associated with these loans.
Total nonperforming loans at June 30, 2002 decreased $780,000 from year-end
2001, and decreased $771,000 from June 30, 2001. The ratio of nonperforming
loans to total loans was .65% at June 30, 2002, as compared to 1.03% and 1.04%
at year-end 2001, and June 30, 2001. The decrease in nonperforming loans was
due to the liquidation of the collateral of two commercial credits in the first
quarter 2002 that were included in nonperforming loans in December 2001.
LIQUIDITY
Liquidity refers to the ability of the Company to generate adequate amounts of
cash to meet requirements of depositors and borrowers as well as the operating
cash needs of the Company. 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. Deposits are the primary source of liquidity. Average deposits as a
percentage of average total funding sources were 80.8% at June 30, 2002 and
86.4% at June 30, 2001. 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.
CAPITAL
Stockholders' equity at June 30, 2002 increased to $31.1 million, compared to
$28.5 million at June 30, 2001. The change in equity between the two periods
was primarily composed of the retention of earnings and the exercise of stock
options, with offsetting decreases to equity from the payment of dividends.
Stockholders' equity at June 30, 2002, included $1.3 million of accumulated
other comprehensive income, primarily related to unrealized gains on securities
available-for-sale, net of the tax effect. At June 30, 2001, stockholders'
equity included $943,000 of accumulated other comprehensive income, primarily
related to unrealized gains on securities available-for-sale, net of the tax
effect.
Cash dividends of $0.62 per share were paid in the second quarter of 2002,
representing a payout ratio of 92.4% for the quarter.
The adequacy of the Company's capital is regularly reviewed to ensure
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. As of June 30, 2002 the Company's
capital ratios were well in excess of regulatory minimums.
Table 8: Capital Ratios
Tier 1 Capital Total Capital
June 30, 2002 11.6% 12.7%
March 31, 2002 11.8% 12.9%
December 31, 2001 11.1% 12.1%
September 30, 2001 11.3% 12.6%
June 30, 2001 10.9% 12.1%
Regulatory minimum requirements 4.0% 8.0%
SUBSEQUENT EVENTS
On July 17, 2002, the Board of Directors declared a $0.22 cash dividend per
share payable September 15, 2002, to shareholders of record at the close of
business September 3, 2002.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
There was no material change in the information provided in response to Item 7A
of the Company's Form 10-K for the year ended December 31, 2001.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION ON MATTERS TO A VOTE OF SECURITY HOLDERS
The annual meeting of shareholders was held on April 23, 2002. The following
matters were acted upon by the shareholders:
MATTER SHARES
Broker
For Against Withheld Abstain Non-Vote
Election of Directors
1 James N. Dougherty, DVM 1,191,391 N/A 53,369 N/A 0
Kim A. Gowey, DDS 1,191,391 N/A 53,369 N/A 0
James P. Hager 1,191,391 N/A 53,369 N/A 0
Brain B. Hallgren 1,191,391 N/A 53,369 N/A 0
2 Approval of the appointment
of independent auditors
for year ending
December 31, 2002 1,194,448 N/A 644 0
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibits required by Item 601 of Regulation S-K
The following exhibits have been filed with the Securities and Exchange
Commission. No exhibits are filed as part of this report.
4.1 Articles of Incorporation, as amended (incorporated by reference to Exhibit
4.1 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000)
4.2 Bylaws, as amended September 20, 1995 (incorporated by reference to Exhibit
4.2 to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000)
10.1* Mid-Wisconsin Financial Services, Inc. 1991 Employee Stock Option Plan
(incorporated by reference to Exhibit 10.1 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 2000)
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)
22.1 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1)
to the Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 2000)
*Denotes Executive Compensation Plans and Arrangements
(b) Reports on Form 8-K.
Form 8-K dated June 30, 2002. The Company filed a Form 8-K on July 19, 2002
reporting earning information for the quarter ended June 30, 2002 under Item 5
and additional disclosure under Item 9, Regulation FD disclosure.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MID-WISCONSIN FINANCIAL SERVICES, INC.
Date August 12, 2002 GENE C. KNOLL
Gene C. Knoll, President
(Principal Executive Officer)
Date August 12, 2002 RHONDA R. KELLEY
Rhonda R. Kelley, Controller
(Principal Accounting Officer)
Exhibit 99.1
Certification
Of
Mid-Wisconsin Financial Services, Inc.
under Section 906 of Sarbanes-Oxley Act of 2002
The undersigned Chief Executive Officer of Mid-Wisconsin Financial Services,
Inc. (the "Company") certifies pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that (1) the Quarterly Report on Form
10-Q of the Company for the quarterly period ended June 30, 2002 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and (2) the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
Date: August 12, 2002 GENE C. KNOLL
Gene C. Knoll
President and CEO
The undersigned Chief Financial Officer of Mid-Wisconsin Financial Services,
Inc. (the "Company") certifies pursuant to section 906 of the Sarbanes-Oxley
Act of 2002, 18 U.S.C. Section 1350, that (1) the Quarterly Report on Form
10-Q of the Company for the quarterly period ended June 30, 2002 (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934, 15 U.S.C. 78m or 78o(d), and (2) the
information contained in the Report fairly presents, in all material
respects, the financial condition and results of operation of the Company.
Date: August 12, 2002 RHONDA R. KELLEY
Rhonda R. Kelley
Controller