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, 2004



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 April 21, 2004, there were 121,234 shares of the registrant's Common Stock (no par value) outstanding.







DENMARK BANCSHARES, INC.

TABLE OF CONTENTS

Quarterly Report On Form 10-Q

For The Quarter Ended March 31, 2004





|                                                                                                | 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 2.    Changes in Securities, Uses of Proceeds and Issuer Purchases of                      |         
|Equity Securities                                                                               | 13      
|                                                                                                |         
|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 DBI's future operating results. When relying on forward-looking statements to make decisions with respect to DBI, 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 DBI assumes no obligation to update any forward-looking statements.





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Results of Operations



Net income for the quarter ended March 31, 2004, was $965,466, a decrease of $307,502 or 24%, compared to $1,272,968, for the corresponding period in 2003.  This decrease was the result of lower net interest income, lower noninterest income and higher noninterest expenses, which more than offset decreases in the provision for loan losses and income tax expense.



Net interest income for the quarter ended March 31, 2004, was $3,280,076, a decrease of $369,572 compared to the corresponding period in the prior year.  The following table sets forth a summary of the changes in interest earned and interest paid resulting from changes in volume and changes in rates:





This decrease was primarily attributable to the lower average net interest rate spread, which fell from 4.02% during the first quarter of 2003 to 3.58% during the quarter ended March 31, 2004.  DBI's yield on earning assets was 5.63% during the first quarter of 2004 compared to 6.54% during the quarter ended March 31, 2003.  The average cost of funds was 2.05% during the first quarter of 2004, a decrease of 47 basis points compared to the quarter ended March 31, 2003.  Other interest income decreased by $238,906 during the three months ended March 31, 2004, compared to the corresponding period in 2003.  In the first quarter of 2003, DACC received a special dividend from AgriBank.  The dividends from AgriBank in the first quarter of 2004 were $10,340, a reduction of $255,361 compared to the dividends totaling $265,701 in the first quarter of 2003.



In the first quarter of 2004 DBI's provision for credit losses was $115,000 compared to $162,000 for the first quarter of 2003.  Net recoveries were $19,820 in the first quarter of 2004 compared to net charge-offs of $18,510 during the corresponding period in the prior year.



Noninterest income for the three months ended March 31, 2004, was $456,704, a decrease of $28,089 compared to the corresponding period in 2003.  Gains from the sales of residential real estate loans decreased by $126,191 during the first quarter of 2004.  DSB sold $5.3 million of mortgage loans in the first quarter of 2004 compared to $16.6 million during the first quarter of 2003.  Service fees and commissions increased by $59,766 during the quarter ended March 31, 2004, compared to the corresponding period in 2003.  Commissions from the sales of mutual funds, annuities and common stocks increased by $25,225 and commissions from insurance sales increased by $26,828.  The higher insurance commissions are mostly attributable to an increase in bonuses received based on volume and loss experience from previous years.  Other noninterest income for the three months ended March 31, 2004, was $137,606, an increase of $38,336 compared to the first quarter of 2003.  The increase was primarily the result of increases in the cash surrender value of bank owned life insurance ("BOLI") contracts totaling $57,000.  The BOLI contracts were acquired during the second quarter of 2003.



Noninterest expense increased by $172,153 or 8% during the three months ended March 31, 2004, compared to corresponding period in 2003.  Salaries and benefits expense increased $138,025 or 10% over the corresponding period in 2003.  This increase is primarily the result of higher salaries and wages, which increased by $86,343 or 9% as a result of regular salary increases and the addition of three full-time equivalent employees.  Higher group health insurance expenses, which increased by $37,224 or 15%, also contributed to the increase in salaries and benefits expense.



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Occupancy expenses increased by $65,415 or 29% during the three months ended March 31, 2004, compared to the first quarter of 2003.  The increase is primarily attributable to higher depreciation expense which rose $50,033 as a result of DBI's Financial Center building, furniture, fixtures and equipment and also the furniture and equipment at the Wrightstown branch.  Rent expense increased by $6,153 as a result of the lease of the Wrightstown branch office beginning in August 2003.



On a per share basis, net income was $7.96 in the first quarter of 2004 compared with $11.75 in the first quarter of 2003.  The reduction for the three months ended March 31, 2004, was caused in part by a 24% reduction in net income compared with the corresponding period in the prior year and also by a substantial increase in the weighted average shares from 108,545 in the first quarter of 2003 to 121,295 during the first quarter of 2004 as a result of the sale of an additional 12,850 shares of stock in November 2003.  Return on average assets in the first quarter of 2004 was 1.09%, compared to 1.47% for the corresponding period in 2003.  Return on average equity in the first quarter of 2004 was 7.9%, compared to 13.7% for the corresponding period in the prior year.



Financial Condition



Total assets increased by $3,289,806 between December 31, 2003, and March 31, 2004.  Interest-bearing deposits in other banks decreased by $4.0 million.  DSB redeemed a $4 million short-term certificate of deposit for liquidity purposes.  Federal funds sold (unsecured loans of immediately available funds to correspondent banks for one business day) increased by $5.6 million primarily as a result of the redemption of the short-term certificate of deposit.  Total loans, excluding loans held for sale, increased by $5.6 million during the first three months.  Total deposits increased by $3.6 million during the three-month period ending March 31, 2004.



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:







The allowance for credit losses increased by $134,820 during the three-month period ended March 31, 2004. The allowance equals 2.08% of total loans at March 31, 2004, compared to 2.07% at December 31, 2003.  Nonaccrual loans totaled $6,027,220 at March 31, 2004, a decrease of $254,252 compared to December 31, 2003.  DBI's ratio of loans more than 30 days past due (including nonaccrual loans) to total loans was 3.79% at quarter end, compared to 3.67% at year end.



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As of March 31, 2004 management has identified $13.2 million of potential problem loans compared to $12.4 million at year-end.  Potential problem loans are loans that are performing but have a greater risk of nonperformance.



DBI has no accruing loans that are past due 90 days or more.  DSB'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.









(1) Includes restructured loans of $1,127,189 and $1,141,041 as of March 31, 2004 and December 31, 2003, respectively.



Demand deposits increased $1,618,378 or 5% during the first three months of 2004.  Interest bearing deposits increased by $1,964,979 or 1% between December 31, 2003 and March 31, 2004.



Stockholders' equity increased by $117,972 to $48,686,773 as of March 31, 2004.  As of March 31, 2004, DBI's leverage ratio was 13.3%, the risk-based core capital ratio was 17.2% and the risk-based total capital ratio was 18.5%.  DBI and DSB continue to maintain capital levels well above the regulatory minimum levels.



Liquidity







In addition to on-balance sheet sources of funds DBI also has off-balance sheet sources available to meet liquidity needs.  DBI has unused lines of credit of $48.5 million as of March 31, 2004.  Management believes DBI's liquidity position as of March 31, 2004, is adequate under current economic conditions.



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Off-Balance Sheet Arrangements



DBI 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 DBI and its subsidiaries have in particular classes of financial instruments.



The exposure of DBI 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.  DBI and its subsidiaries use the same credit policies in making commitments and conditional obligations as for on-balance sheet instruments.  DBI and its subsidiaries require collateral or other security to support financial instruments with credit risk.





The following table sets forth DBI's 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.  DBI 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 DSB 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, DSB 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.



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 in Wisconsin for income tax purposes in reliance on private rulings issued to DSB by the Department.

Despite the private rulings, the Department has recently indicated to DSB that the Department intends to allocate the entire income of the Nevada subsidiary to DSB and assess back taxes and statutory interest.  As of March 31, 2004, DBI's potential exposure for taxes and interest for the years

12

under audit, as well as for 2003, totals approximately $1.3 million.  The Department has also offered to settle the matter for a lesser amount and a limit on the amount of income from the Nevada subsidiary in future years that is not subject to taxation in Wisconsin.

DSB believes that it complied with Wisconsin law and the private rulings received from the Department and that it is not liable for the taxes and interest now claimed by the Department.  As of March 31, 2004, DBI had not established a loss contingency reserve for the matter.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk







Item 4.  Controls and Procedures

DBI's management, under the supervision and with the participation of DBI's principal executive officer and principal financial officer, has evaluated DBI's disclosure controls and procedures prior to the filing date of this report.  Based on that evaluation, management believes that DBI's disclosure controls and procedures as of the end of the March 31, 2004, quarter are effective in ensuring that information required to be disclosed by DBI in the reports that it files or submits under the Securities 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 DBI'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.

Part II.  Other Information



Item 2.  Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities

1. DBI announced a Stock Repurchase Policy on March 30, 1995, as an accommodation to shareholders.
2. DBI limits purchases under the Policy in any six-month period to less than six percent of the common shares outstanding.  The Policy has no fixed expiration date, although DBI may terminate the Policy at any time.  DBI is not soliciting or encouraging shareholders to sell shares under the Policy.

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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) DBI filed no reports on Form 8-K during the first quarter of 2004.













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SIGNATURES





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









|                      | DENMARK BANCSHARES, INC.     
|--------------------- | -----------------------------
|Date:  April 28, 2004 | Darrell R. Lemmens,          
|                      | Principal Executive Officer, 
|                      | Chairman of the Board, and   
|                      | President                    
|Date:  April 28, 2004 | Dennis J. Heim               
|                      | Vice President and Treasurer,
|                      | Principal Financial and      
|                      | Accounting Officer           















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