UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-Q



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

THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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 0-21554



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

(Registrants telephone number, including area code)





---

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



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



Yes [X]  No [  ]



APPLICABLE ONLY TO CORPORATE ISSUERS:



As of April 16, 2002, there were 54,326 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 March 31, 2002





|                                                                                                 | Page No.
|------------------------------------------------------------------------------------------------ | --------
|                                                                                                 |         
|PART I.Financial Information                                                                     |         
|                                                                                                 |         
|Item 1.    Financial Statements                                                                  |         
|                                                                                                 |         
|Consolidated Statements of Financial Condition                                                   | 3       
|                                                                                                 |         
|Consolidated Statements of Income                                                                | 4       
|                                                                                                 |         
|Consolidated Statements of Cash Flows                                                            | 5       
|                                                                                                 |         
|Notes to Consolidated Financial Statements                                                       | 6       
|                                                                                                 |         
|Item 2.    Management's Discussion and Analysis of Financial Condition
and Results of Operations | 8       
|                                                                                                 |         
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk                            | 10      
|Signatures                                                                                       | 11      
|                                                                                                 |         
|                                                                                                 |         
|                                                                                                 |         

























































On March 13, 2002, Denmark State Bank ("Bank"), the Companys primary subsidiary, entered into a Memorandum of Understanding ("MOU") with the FDIC and with the State of Wisconsin Department of Financial Institutions, Division of Banking.  The MOU is an informal administrative action designed to guide the Bank in its corrective efforts.  The MOU was requested by the FDIC following a regularly scheduled examination of the Bank as of September 30, 2001.  The MOU requires that the Bank eliminate certain assets from its books, provide for an adequate allowance for loan and lease losses, and amend and refile the Banks Reports of Condition and Income as of December 31, 2000, and forward, to reflect adequate provisions and allowances for loan and lease losses.  The Bank believes that it has complied with these requirements.  In addition, the MOU requires that management of the Bank implement procedures for the timely recognition of losses, that the Banks Board of Directors determine an appropriate allowance for loan and lease losses on a quarterly basis to be documented and recorded in the minutes, and that the Bank address certain documentation and underwriting concerns.  Other significant provisions of the MOU include requirements that the Bank within specific time frames submit written plans to the regulatory agencies to collect or otherwise reduce the balances of certain problem loans, revise the Banks lending policy and practices and submit the revised policy to the regulators for review and comment, implement a comprehensive loan grading and review and reporting system, regularly rotate members of the Loan Committee and improve the Loan Committee loan presentation process, adopt a policy for other real estate owned by the Bank, and report quarterly to the FDIC and the State respecting compliance with the MOU.  The MOU also requires that the Bank correct deficiencies in certain loans, eliminate technical exceptions, and correct certain violations, in each case as identified in the examination.  The MOU also requires that the Bank maintain the following minimum capital ratios as of June 30 and December 31 of each calendar year the MOU is in effect:







Management and the Board of Directors of the Bank are taking actions to comply with all of the provisions of the MOU.  The MOU is in effect until terminated by the FDIC and the State.



7

Management's Discussion and Analysis of Financial Condition and Results of Operations















8





Results of Operations



Net income for the quarter ended March 31, 2002, was $1,303,896, or $23.91 per share, an increase of $478,183 or 58%, compared to $825,713, or $15.07 per share, for the corresponding period in 2001.  This increase was the result of higher net interest income and higher noninterest income, which more than offset an increase in the provision for loan losses and higher noninterest expenses.



Net interest income for the quarter ended March 31, 2002, was $3,736,407, an increase of $859,846 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:





This increase was primarily attributable to the lower cost of funds, which fell from 5.57% during the first quarter of 2001 to 3.02% during the quarter ended March 31, 2002.  The Company's average interest rate spread was 4.19% during the first quarter of 2002 compared to 2.64% during the quarter ended March 31, 2001.  The yield on earning assets fell by 100 basis points while the cost of funds decreased by 255 basis points.



In the first quarter of 2002 the Company's provision for credit losses was $211,000 compared to $111,000 for the first quarter of 2001.  Net charge-offs were $285,597 in the first quarter of 2002 compared to net charge-offs of $85,223 during the first quarter of 2001.



Noninterest income for the three months ended March 31, 2002, was $397,967, an increase of $81,221 over the corresponding period in 2001.  The Bank implemented service charge increases during the third quarter of 2001 and as a result deposit service charges increased $27,851 compared to the first quarter of 2001. Commissions from insurance sales increased by $27,408 during the first quarter of 2002 compared to the corresponding period in 2001.  The higher insurance commissions are mostly attributable to bonuses received based on volume and loss experience from previous years.  Gains from the sales of residential real estate loans increased by $16,318 during the first quarter of 2002.  The Bank sold $7.2 million of mortgage loans in the first quarter of 2002 compared to $3.3 million during the first quarter of 2001.  Appraisal fees were $8,100 higher in the first three months of 2002 compared to the corresponding period in 2001.



Noninterest expense increased by $127,212 or 6% during the three months ended March 31, 2002, over the corresponding period in 2001.  Salaries and benefits expense increased $96,875 or 8% over the corresponding period in 2001.  This increase is the result of higher salaries and wages, which increased by $47,197 or 5% primarily as a result of regular salary increases and higher group health insurance expenses, which increased by $33,281 or 16%.  Data processing expenses increased by $20,297 or 15%.  The data processing expenses include one-time expenditures for the Banks web site, internet firewall and software upgrades.  Other operating expenses increased by $19,667 or 7%.  This increase was primarily the result of $12,252 of expenses associated with real estate properties acquired through foreclosure.  During the first quarter one of the commercial properties was sold.  As of March 31, 2002, the Bank has four properties held as other real estate with a carrying value of $979,041. Legal expenses were $9,976 higher during the first quarter compared to the first quarter of 2001.  The increase in legal fees is primarily attributed to expenses incurred as a result of the Memorandum of Understanding ("MOU") with regulators.  See Note 4  Regulatory Matters of the Notes to Consolidated Financial Statements for additional information concerning the MOU.



Return on average assets in the first quarter of 2002 was 1.54%, compared to .95% for the corresponding period in 2001.  Return on average equity in the first quarter of 2002 was 15.4%, compared to 10.2% for the corresponding period in the prior year.





9

Financial Condition



Total assets decreased by $6,005,944 between December 31, 2001, and March 31, 2002.  Federal funds sold decreased by $11.9 million during the first quarter.  The Bank invested $9.6 million of federal funds sold in short-term taxable municipal securities.  These securities, which are considered available-for-sale, are yielding about 25 basis points higher than federal funds sold.  On April 8, 2002, theses securities were sold and the proceeds were used to reduce a maturing long-term advance from the Federal Home Loan Bank.  Total loans, including loans held for sale, decreased by $2.4 million during the first quarter of 2002.  The Bank sold $7.2 million of fixed rate mortgages to the secondary mortgage market.  Total deposits decreased by $6.7 million during the first three months of 2002.



The allowance for credit losses decreased by $74,597 during the quarter ended March 31, 2002. The allowance equals 2.05% of total loans at March 31, 2002, compared to 2.06% at December 31, 2001.  Nonaccrual loans totaled $6,728,577 at March 31, 2002, a decrease of $254,882 over December 31, 2001.  The Companys ratio of loans more than 30 days past due (including nonaccrual loans) to total loans was 3.9% at March 31, 2002 compared to 4.3% at December 31, 2001.  As of March 31, 2002, management has identified $17.2 million of potential problem loans.  Potential problem loans are loans that are performing but have a greater risk of nonperformance.



Demand deposits decreased $4,169,248 or 13.8% during the first quarter of 2002.  Management attributes the decrease in demand deposits to a normal seasonal fluctuation.  Interest bearing deposits decreased by $2,517,777 between December 31, 2001, and March 31, 2002.



Stockholders' equity increased by $427,487 to $33,798,849 as of March 31, 2002.  As of March 31, 2002, the Company's leverage ratio was 9.2%, the risk-based core capital ratio was 12.2% and the risk-based total capital ratio was 13.5%.



On March 26, 2002, the Company's board of directors declared a semiannual $11.25 per share dividend payable on July 2, 2002, to all shareholders of record on June 11, 2002.



Liquidity



Liquidity refers to the ability of the Company to generate adequate amounts of cash to meet the Company's needs for cash.  Cash and cash equivalents decreased by $1,367,187 during the first quarter of 2002.  The major sources and uses of cash are detailed in the accompanying Consolidated Statements of Cash Flows. The federal funds sold totaling $9.0 million and the available-for-sale investment portfolio amounting to $11.2 million as of March 31, 2002, are readily convertible to cash if needed for liquidity purposes.



In addition to on-balance sheet sources of funds the Company also has off-balance sheet sources available to meet liquidity needs.  The Company has unused lines of credit of $42.8 million as of March 31, 2002.  Management believes the Company's liquidity position as of March 31, 2002, is adequate under current economic conditions.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk



The Company's primary market risk position has not materially changed from that disclosed in the Company's 2001 Form 10-K Annual Report.





10















SIGNATURES





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









|                      | DENMARK BANCSHARES, INC.



s/s Darrell R. Lemmens
|--------------------- | --------------------------------------------------
|Date:  April 16, 2002 | Darrell R. Lemmens,                               
|                      | Principal Executive Officer,                      
|                      | Chairman of the Board, and                        
|                      | President



s/s Dennis J. Heim                   
|Date:  April 16, 2002 | Dennis J. Heim                                    
|                      | Vice President and Treasurer,                     
|                      | Principal Financial and                           
|                      | Accounting Officer                                



























11