UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2003



OR

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______



Commission file number 0-21554



DENMARK BANCSHARES, INC.

(Exact name of registrant as specified in its charter)





|Wisconsin                                                      | 39-1472124                          
|-------------------------------------------------------------- | ------------------------------------
|(State or other jurisdiction of
incorporation or organization) | (I.R.S. Employer Identification No.)

103 East Main Street, Denmark, Wisconsin 54208-0130

(Address of principal executive offices)



(920) 863-2161

(Registrant's telephone number, including area code)





---

(Former name, address and former fiscal year, if changed since last report)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes [X]  No [  ]



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).



Yes [ ]  No [X]





APPLICABLE ONLY TO CORPORATE ISSUERS:



As of October 22, 2003, there were 108,527 shares of the registrant's Common Stock (no par value) issued and outstanding.







DENMARK BANCSHARES, INC.

TABLE OF CONTENTS

Quarterly Report On Form 10-Q

For The Quarter Ended September 30, 2003





|                                                                                                | Page No.
|----------------------------------------------------------------------------------------------- | --------
|                                                                                                |         
|PART I.Financial Information                                                                    |         
|                                                                                                |         
|Item 1.    Financial Statements                                                                 |         
|                                                                                                |         
|Consolidated Statements of Financial Condition                                                  | 3       
|                                                                                                |         
|Consolidated Statements of Income                                                               | 4       
|                                                                                                |         
|Consolidated Statements of Cash Flows                                                           | 5       
|                                                                                                |         
|Notes to Consolidated Financial Statements                                                      | 6       
|                                                                                                |         
|Item 2.    Managements Discussion and Analysis of Financial Condition
and Results of Operations | 8       
|                                                                                                |         
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk                           | 13      
|                                                                                                |         
|Item 4.    Controls and Procedures                                                              | 13      
|PART II.Other Information                                                                       |         
|                                                                                                |         
|Item 6.    Exhibits and Reports on Form 8-K                                                     | 14      
|                                                                                                |         
|                                                                                                |         
|Signatures                                                                                      | 15      
|                                                                                                |         















































This report may contain certain forward-looking statements, including without limitation, statements regarding results of operations, the adequacy of the allowance for loan losses, the amounts of charge-offs and recoveries, capital to assets ratios, capacity for paying dividends and liquidity.  These forward-looking statements are inherently uncertain and actual results may differ from Company expectations. The following factors which, among others, could impact current and future performance include but are not limited to: (i) adverse changes in asset quality and resulting credit risk-related losses and expenses; (ii) adverse changes in the local economy; (iii) fluctuations in market rates and prices which can negatively affect net interest margin, asset valuations and expense expectations; and (iv) changes in regulatory requirements of federal and state agencies applicable to banks and bank holding companies, which could have materially adverse effects on the Company's future operating results. When relying on forward-looking statements to make decisions with respect to the Company, investors and others are cautioned to consider these and other risks and uncertainties.  All forward-looking statements contained in this report are based upon information presently available and the Company assumes no obligation to update any forward-looking statements.



8



Results of Operations



Net income for the quarter ended September 30, 2003, was $1,013,892, or $9.35 per share, a decrease of $197,186 or 16%, compared to $1,211,078, or $11.15 per share, for the corresponding period in 2002.  This decrease was the result of lower net interest income and higher noninterest expenses, which more than offset decreases in the provision for loan losses and income tax expense and higher noninterest income.



Net interest income for the quarter ended September 30, 2003, was $3,244,947, a decrease of $250,958 over the corresponding period in the prior year.  The following table sets forth a summary of

the changes in interest earned and interest paid resulting from changes in volume and changes in rates:







|                    | Increase (Decrease) Due to Change In
|------------------- | ------------------------------------
|                    | Average Balance                     
|                    |                                     
|Interest income     | ($8,959)                            
|Interest expense    | 16,199                              
|Net interest income | ($25,158)                           
|                    |                                     



This decrease was primarily attributable to the lower average net interest rate spread, which fell from 3.85% during the third quarter of 2002 to 3.58% during the quarter ended September 30, 2003.  The Company's yield on earning assets was 5.81% during the third quarter of 2003 compared to 6.71% during the quarter ended September 30, 2002.  The average cost of funds was 2.23% during the third quarter of 2003, a decrease of 63 basis points compared to the quarter ended September 30 , 2002.



In the third quarter of 2003 the Company's provision for credit losses was $87,000 compared to $186,000 for the third quarter of 2002.  Net charge-offs were $252,247 in the third quarter of 2003 compared to net charge-offs of $204,797 during the corresponding period in the prior year.



Noninterest income for the three months ended September 30, 2003, was $616,530, an increase of $106,470 over the corresponding period in 2002.  Gains from the sales of residential real estate loans increased by $132,678 during the third quarter of 2003.  The Bank sold $22.7 million of mortgage loans in the third quarter of 2003 compared to $9.7 million during the second quarter of 2002.  Other noninterest income was $136,540, a decrease of $17,981 compared to the third quarter of 2002.  The decrease was primarily the result of a decrease in the gains on the sale of acquired properties, which more than offset an increase in income from bank owned life insurance contracts that were acquired during the second quarter of 2003.  Gains from the sales of acquired properties were $68,806 during the third quarter of 2002.  Increases in the cash surrender value of bank owned life insurance contracts totaled $56,800 during the third quarter of 2003.



Noninterest expense increased by $254,868 or 12% during the three months ended September 30, 2003, over the corresponding period in 2002.  Salaries and benefits expense increased $68,573 or 5% over the corresponding period in 2002.  This increase is the result of higher salaries and wages, which increased by $27,297 or 3% primarily as a result of regular salary increases and higher group health insurance expenses, which increased by $30,969 or 14%.   Directors' fees increased $25,400 over the corresponding period in 2002.  The increase was the result of a $500 increase in the annual fees paid in September to each director of the Company, the Bank and DACC.  During 2002, the annual fees (including a projected $500 increase) were accrued for throughout the year but the Board of Directors decided to not increase the fee amount and consequently a credit to expense was made during the third quarter to reverse the accrual.



9



Data processing expenses increased by $38,615 primarily as a result of one-time expenses related to a conversion of the Bank's ATM's to triple data encryption standard and encrypted PIN pads.  All ATM's affiliated with the Visa or MasterCard network must comply with these encryption requirements by 2005. At the same time the Bank converted its ATM's to a different processor and incurred one-time fees associated with this conversion.



Other operating expenses increased by $122,592 during the three months ended September 30, 2003, compared to the third quarter of 2002.  Losses from the sales of acquired properties totaled $34,490 during the third quarter of 2003.  Printing and supplies expenses increased by $33,164 primarily as a result of costs associated with the Wrightstown branch office that opened during August 2003.  Professional and legal fees increased by $28,389 primarily as a result of fees incurred to establish the new Wrightstown branch and for the application costs associated with a second Wrightstown branch office, which has received regulatory approval.  The Company intends to begin construction of a full service banking facility at this second Wrightstown site during the fourth quarter of 2003.  The Bank incurred $19,681 in expenses related to acquired properties during the third quarter of 2003.  These expenses included real estate taxes, insurance and repairs and maintenance.  The Bank acquired two properties during the quarter and sold three properties.  As of September 30, 2003, the Bank holds three acquired properties with a carrying value of  $1.1 million.



Return on average assets in the third quarter of 2003 was 1.15%, compared to 1.42% for the corresponding period in 2002.  Return on average equity in the third of 2003 was 10.6%, compared to 13.7% for the corresponding period in the prior year.



Financial Condition



Total assets increased by $4,701,568 between December 31, 2002, and September 30, 2003.  Interest-bearing deposits in other banks increased by $4.0 million.  The Bank purchased a $4 million short-term certificate of deposit that yields a higher rate of interest compared to federal funds sold.  Total loans, excluding loans held for sale, decreased by $5.2 million during the first nine months of 2003. The Bank sold $54.2 million of fixed rate mortgages to the secondary mortgage market.  Other assets increased $5.6 million during the first nine months.  The Bank purchased $5 million of bank owned life insurance contracts during the second quarter.  Total deposits increased by $3.0 million during the nine-month period ending September 30, 2003.



The following table sets forth major types of loans (excluding loans held for sale) by primary collateral and the percentage of total loans for each type:





|                   | September 30, 2003 |  | December 31, 2002
|------------------ | ------------------ |  | -----------------
|(In thousands)     | Amount             |  | %                
|Real Estate:       |                    |  |                  
|Residential        | $99,904            |  | 39.1%            
|Commercial         | 37,269             |  | 14.6%            
|Agricultural       | 32,556             |  | 12.7%            
|Construction       | 15,856             |  | 6.2%             
|                   | $185,585           |  | 72.6%            
|Commercial         | 29,401             |  | 11.5%            
|Agricultural       | 29,719             |  | 11.6%            
|Consumer and other | 11,015             |  | 4.3%             
|TOTAL              | $255,720           |  | 100.0%           
|                   |                    |  |                  







10





Loans secured by residential properties declined by $8.8 million during the first nine months as borrowers continue to choose fixed rate loans for fifteen or thirty years during this historically low interest rate environment.  The Bank sells substantially all of these fixed rate mortgage loans to the secondary mortgage market.  During the first nine months, several agricultural borrowers secured their loans with real estate in order to lengthen the amortization period and reduce the payment amount.   This resulted in an increase in agricultural loans secured by real estate and a decrease in other agricultural loans.



The allowance for credit losses increased by $155,795 during the nine-month period ended September 30, 2003. The allowance equals 2.17% of total loans at September 30, 2003, compared to 2.06% at December 31, 2002.  Nonaccrual loans totaled $5,581,614 at September 30, 2003, a decrease of $508,878 compared to December 31, 2002.  The Company's ratio of loans more than 30 days past due (including nonaccrual loans) to total loans was 4.05% at September 30, 2003, compared to 3.87% at December 31, 2002.  As of September 30, 2003, management has identified $14.9 million of potential problem loans compared to $13.9 million at year-end.  Potential problem loans are loans that are performing but have a greater risk of nonperformance.



The Company has no accruing loans that are past due 90 days or more.  The Bank's policy is to place in nonaccrual status all loans which are contractually past due 90 days or more as to any payment of principal or interest and all other loans as to which reasonable doubt exists as to the full, timely collection of interest or principal based on management's view of the financial condition of the borrower.  Previously accrued but uncollected interest on loans placed on nonaccrual status is charged against the current earnings, and interest income thereafter is recorded only when received.



The following table sets forth certain data concerning nonaccrual loans, past due accruing loans, restructured loans and other real estate (property acquired through foreclosure or in satisfaction of loans):



|                        | September 30, 2003 |  | December 31, 2002
|----------------------- | ------------------ |  | -----------------
|                        |                    |  | % of Total       
|(In thousands)          | Amount             |  | Loans            
|                        |                    |  |                  
|Nonaccrual Loans (1)    | $5,582             |  | 2.2%             
|Accruing Loans Past Due |                    |  |                  
|90 Days or More         | 0                  |  | 0.0%             
|Total                   | $5,582             |  | 2.2%             
|Other Real Estate       | $1,098             |  |                  
|                        |                    |  |                  



(1) Includes restructured loans of $1,008,132 and $1,027,966 as of September 30, 2003 and December 31, 2002, respectively.



Demand deposits decreased $2,124,278 or 6.8% during the first nine months of 2003.  The decrease in demand deposits is attributable to a normal seasonal fluctuation.  Interest bearing deposits increased by $5,116,743 or 2.3% between December 31, 2002, and September 30, 2003.



Stockholders' equity increased by $2,104,716 to $38,254,300 as of September 30, 2003.  As of September 30, 2003, the Company's leverage ratio was 10.4%, the risk-based core capital ratio was 14.0% and the risk-based total capital ratio was 15.3%.  The Company and the Bank continue to maintain capital levels well above the regulatory minimum levels.



11

Liquidity







In addition to on-balance sheet sources of funds the Company also has off-balance sheet sources available to meet liquidity needs.  The Company has unused lines of credit of $36.8 million as of September 30, 2003.  Management believes the Company's liquidity position as of September 30, 2003, is adequate under current economic conditions.



Off-Balance Sheet Arrangements



The Company and its subsidiaries are parties to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers.  These financial instruments include commitments to extend credit and standby letters of credit.  Those instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the statement of financial condition.  The contract or notional amounts of those instruments reflect the extent of involvement the Company and its subsidiaries have in particular classes of financial instruments.



The exposure of the Company and its subsidiaries to credit loss in the event of nonperformance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of these instruments.  The Company and its subsidiaries use the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments.  The Company and its subsidiaries require collateral or other security to support financial instruments with credit risk.





The following table sets forth the Companys commitments to extend credit and standby letters of credit:



Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract.  Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee.  Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.  The Company and its subsidiaries evaluate each customer's creditworthiness on a case-by-case basis.  Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties.



Standby letters of credit are conditional commitments issued by the bank to guarantee the performance of a customer to a third party.   Those guarantees are primarily issued to support commercial business transactions.  When a customer fails to perform according to the terms of the agreement, the bank honors drafts drawn by the third party in amounts up to the contract amount.  A majority of the letters of credit expire within one year.  The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers.  Collateral held varies but may include accounts receivable, inventory, property, plant and equipment and income-producing commercial properties and residential properties.  All letters of credit are fully collateralized.

12

Other Events



In August, 2003, DSB received a notice of audit from the Wisconsin Department of Revenue.  The notice stated that the audit would cover tax years 1997 to 2002 and would relate primarily to the issue of income of DSB's Nevada investment subsidiary.  Like many financial institutions in Wisconsin, DSB transferred investment securities to a subsidiary located in Nevada.  The income of this subsidiary has not been reported to Wisconsin for income tax purposes in reliance on private rulings issued to DSB by the Department.  The Department has told representatives of the Wisconsin banking industry that it will be conducting audits of numerous banks with investment subsidiaries to determine if all or part of the income of the subsidiary should be attributed to the parent bank and that it will be revoking private rulings previously issued.  DSB's audit appears to be part of this initiative.



If the Department should be successful in taxing the income of DSB's Nevada subsidiary, DBI's net income will be reduced in the future in approximately the amount of the new taxes imposed.  At this time, DBI management does not know whether the Department will attempt to impose taxes (and interest or penalties) with respect to prior periods, despite the rulings received for those periods from the Department.  If the Department made such attempt and were fully successful, the tax liability for prior periods subject to the audit would be approximately $1 million, based on approximately $12.2 million of net income of the Nevada subsidiary during those periods.  In addition, DBI is likely to incur expenses in addressing the audit, including legal and accounting fees.  Because the matter has arisen so recently, DBI management has not yet determined whether it is appropriate to create a loss contingency reserve.



Subsequent Events



The Company's common stock offering of 10,850 shares was substantially oversubscribed.  On November 4, 2003, the Board of Directors authorized the sale of an additional 2,000 shares, then held in treasury, in order to satisfy some portion of the oversubscribed amount.  The offering period ended on

October 31, and the Company expects that the stock sales will be closed during November.  The net proceeds of the offering, totaling $9.3 million will be used to payoff the Company's outstanding line of credit of $4.7 million.  The remaining proceeds will be used for the branch office construction in Wrightstown estimated to cost $1.5 million and for future working capital purposes.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk







Item 4.  Controls and Procedures

The Company's management,under the supervision and with the participation of the Company's principalexecutive officer and principal financial officer, has evaluated theCompany's disclosure controls and procedures prior to thefiling date of this report.  Based on that evaluation, managementbelieves that the Company's disclosure controls and procedures are effective in ensuring that information required to be disclosed by the Company in the reports that it files or submits under the Securities and Exchange Act of 1934, as amended, is recorded, processed, summarized and reported, within the time period specified by the Securities and Exchange Commission's rules and forms.

There were no significant changes in the Company's internal controls or in other factors that could significantly affect these controls subsequent to the date of management's evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.









13





Part II.  Other Information



Item 6.  Exhibits and Reports on Form 8-K









31.1 Certification by the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



31.2 Certification by the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.



32.1 Certification of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.





(b) The Company filed no reports on Form 8-K during the third quarter of 2003.













14





























































SIGNATURES





Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.









|                        | DENMARK BANCSHARES, INC.



/s/ Darrell R. Lemmens
|----------------------- | --------------------------------------------------
|Date:  November 4, 2003 | Darrell R. Lemmens,                               
|                        | Principal Executive Officer,                      
|                        | Chairman of the Board, and                        
|                        | President



/s/ Dennis J. Heim                   
|Date:  November 4, 2003 | Dennis J. Heim                                    
|                        | Vice President and Treasurer,                     
|                        | Principal Financial and                           
|                        | Accounting Officer                                















15