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, 2010



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, zip code)



(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [   ]	No [   ]



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  (Check one):

___ Large accelerated filer      					 Accelerated filer

_ Non-accelerated filer					_X_Smaller reporting company





Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes [   ]  No [X]



As of May 5, 2010, there were 118,917 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, 2010





|                                                                                                 | Page No.
|------------------------------------------------------------------------------------------------ | --------
|                                                                                                 |         
|PART I.Financial Information                                                                     |         
|                                                                                                 |         
|Item 1.    Financial Statements                                                                  |         
|                                                                                                 |         
|Consolidated Statements of Financial Condition                                                   | 3       
|                                                                                                 |         
|Consolidated Statements of Income                                                                | 4       
|                                                                                                 |         
|Consolidated Statement of Changes in Stockholders' Equity                                        | 5       
|                                                                                                 |         
|Consolidated Statements of Cash Flows                                                            | 6       
|                                                                                                 |         
|Notes to Consolidated Financial Statements                                                       | 7       
|                                                                                                 |         
|Item 2.    Management's Discussion and Analysis of Financial Condition
and Results of Operations | 15      
|                                                                                                 |         
|Item 3.    Quantitative and Qualitative Disclosures About Market Risk                            | 21      
|                                                                                                 |         
|Item 4T.    Controls and Procedures                                                              | 22      
|PART II.Other Information                                                                        |         
|                                                                                                 |         
|Item 1A.    Risk Factors                                                                         | 22      
|                                                                                                 |         
|Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds                           | 22      
|                                                                                                 |         
|Item 6.    Exhibits                                                                              | 23      
|Signatures                                                                                       | 23      
|                                                                                                 |         



























Item 1.  Financial Statements

































Denmark Bancshares, Inc. and Subsidiaries

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE 1 - FINANCIAL STATEMENTS



The consolidated financial statements included herein are unaudited.  In the opinion of management, these statements contain all adjustments necessary to present fairly the financial position of Denmark Bancshares, Inc. ("DBI"), its results of operations and cash flows for the periods presented.  All adjustments necessary for the fair presentation of the financial statements are of a normal recurring nature.  These consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in DBI's latest annual report on Form 10-K.  DBI's subsidiaries are Denmark State Bank ("DSB"), Denmark Agricultural Credit Corporation ("DACC"), and DBI Properties, Inc. ("Properties").  DBI Properties, Inc. was formed in February 2009 but there is no material activity included in these financial statements related to this entity.



Reclassifications - Certain amounts in the prior period financial statements have been reclassified for comparative purposes to conform to the presentation in the current year.









7







Notes to the Consolidated Financial Statements

(Unaudited)



Mortgage-backed securities are allocated according to their expected prepayments rather than their contractual maturities. Certain state and local governments' securities are allocated according to their put date.  Fair values of securities are estimated based on financial models or prices paid for similar securities.  It is possible interest rates could change considerably resulting in a material change in the estimated fair value.

At March 31, 2010, seventeen debt securities have unrealized losses with aggregate depreciation of 12.1% from DSB's amortized cost basis.  Information pertaining to securities with gross unrealized losses aggregated by investment category and length of time that individual securities have been in a continuous loss position follows:













8



Notes to the Consolidated Financial Statements

(Unaudited)





All securities with unrealized losses are assessed to determine if the impairment is other-than-temporary. Factors that are evaluated include the mortgage loan types supporting the securities, delinquency and foreclosure rates, credit support, weighted average loan-to-value, and year of origination, among others.



Currently, a quarterly analysis by a third party is performed on three residential mortgage-backed securities secured by non-traditional loan types in order to determine whether they are other-than temporarily impaired ("OTTI"). The purpose of the third party evaluation is to determine if the present value of the expected cash flows was less than the amortized costs, thereby resulting in credit loss, in accordance with the authoritative accounting guidance under FASB ASC Topic 320. The third party determines an estimated fair value for each security based on discounted cash flow analyses.  The estimates are based on the following key valuation assumptions - collateral cash flows, prepayment assumptions, default rates, loss severity, liquidation lag, bond waterfall and internal rate of return.  Since there is currently no active secondary market for these types of securities due to the non-traditional loan types these valuations are considered Level 3 inputs as defined below in Note 5 - Fair Value Measurement.  Additional securities may be analyzed in the future if deemed necessary to determine whether they are OTTI and if so, if any possible credit loss exists.

Two of the three securities supported by non-traditional loan types were found to have credit losses during an analysis as of March 31, 2009 since a portion of the unrealized losses is due to an expected cash flow shortfall.  As such, these securities were determined to be other-than-temporarily impaired.  DBI does not intend to sell the investments and it is not more likely than not that DBI will be required to sell the securities before the anticipated recovery of their remaining amortized cost bases, which may be maturity. The total credit loss that was recognized in earnings as of March 31, 2009 for these securities was $312,716.  Based on the March 31, 2010 analysis, no additional credit loss was recognized during the current quarter.  The analysis on the other security did not reveal any credit loss nor was the security found to be OTTI.  Unrealized losses on the three securities analyzed by the third party were recognized through accumulated other comprehensive loss on the balance sheet as of March 31, 2010, net of tax, in the amount of $1,271,311.



The unrealized losses on the remainder of the residential mortgage-backed securities are due to the distressed and illiquid markets for collateralized mortgage obligations.  The securities are investments in senior tranches with adequate credit support from subordinate tranches, are supported by traditional mortgage loans that originated between 2002 and 2005, have low delinquency and foreclosure rates, and reasonable loan-to-value ratios.  DBI does not consider these investments to be OTTI at March 31, 2010.























9





Notes to the Consolidated Financial Statements

(Unaudited)







Nonaccrual loans totaled $11,271,398 and $12,753,127 at March 31, 2010 and December 31, 2009, respectively.  Information concerning DBI's investment in impaired loans is as follows:











NOTE 4 - NEW ACCOUNTING PRONOUNCEMENTS





In January 2010, the Financial Accounting Standards Board ("FASB") issued updated guidance to amend Topic 820, "Fair Value Measurements and Disclosures" requirements related to recurring and nonrecurring fair value measurements.  This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy, including the reasons for these transfers, and the reasons for any transfers in or out of Level 3.  This update also requires a reconciliation of recurring Level 3 measurements about purchases, sales, issuances and settlements on a gross basis.



In an effort to clarify existing fair value disclosures, these amendments also add a level of disaggregation by requiring





10





Notes to the Consolidated Financial Statements

(Unaudited)



entities to provide fair value measurement disclosures for each class of assets and liabilities rather than each major category of assets and liabilities.  A class is often a subset of assets or liabilities within a line item in the financial statements.  Additional clarification is also required on the valuation techniques and inputs. Entities should provide disclosures about the valuation techniques and inputs used to measure fair value for assets or liabilities valued on both a recurring and non-recurring basis where those measurements are considered to be either Level 2 or Level 3 inputs.  The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances and settlements in roll forward activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.  Adoption of these disclosures did not have a significant impact on DBI's financial statements.



In February 2010, the FASB issued guidance that amended Topic 855, "Subsequent Events."  These Amendments to Certain Recognition and Disclosure Requirements remove the requirement for a Securities and Exchange Commission ("SEC") filer to disclose a date through which subsequent events have been evaluated in both issued and revised financial statements.  The FASB believes these amendments remove potential conflicts with the SEC's literature.  This amendment was effective immediately upon final issuance and did not have a significant impact on DBI's financial statements.



NOTE 5 - FAIR VALUE MEASUREMENT

Fair value is the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in a transaction between market participants on the measurement date.   Some assets and liabilities are measured on a recurring basis while others are measured on a non-recurring basis, as required by U.S. GAAP which also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.   Fair value estimates are made at a specific point in time based on relevant market information and information about the financial instrument. The three levels of inputs defined in the standard that may be used to measure fair value are as follows:



Level 1:  Quoted prices for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.



Level 2:  Significant other observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, quoted prices in markets that are not active, and other inputs that are observable or can be corroborated by observable market data.



Level 3:  Significant unobservable inputs that are supported by little, if any, market activity.  These unobservable inputs reflect estimates that market participants would use in pricing the asset or liability.



DBI used the following methods and significant assumptions to estimate fair value.



Cash, Cash Equivalents, and Federal Funds Sold:  For cash, cash equivalents and federal funds sold, the carrying amount is a reasonable estimate of fair value.



Investment Securities:  Investment securities available-for-sale are recorded at fair value on a recurring basis.  The fair value measurement of most of DBI's available-for-sale securities is currently determined by an independent provider using Level 2 inputs (except as noted below).  The measurement is based upon quoted prices for similar assets, if available.  If quoted prices are not available, fair values are measured using matrix pricing models, or other model based valuation techniques requiring observable inputs other than quoted prices such as yield curves, prepayment speed and default rates.  Two of DBI's available-for-sale mortgage-backed securities (MBS) that are secured by non-traditional mortgage loans and one available-for-sale MBS secured by traditional mortgage loans that was downgraded during 2009 were analyzed by a third party in order to determine an estimated fair value.  The estimated fair values were based on discounted cash flow analyses and are considered Level 3 inputs.



11



Notes to the Consolidated Financial Statements

(Unaudited)



Refer to Note 2 - Investment Securities above for additional detail on the assumptions used in determining the estimated fair values and additional disclosures regarding DBI's investment securities. For other securities held as investments, fair value equals quoted market price, if available.  If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities.



Loans Receivable: The fair value of loans is estimated by discounting the future cash flows using the current rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities.



Loans Held for Sale:  Mortgage loans held for sale are recorded at the lower of cost or market value.  The fair value is based on a market commitment for the sale of the loan in the secondary market.  These loans are typically sold within one week of funding.  DBI classifies mortgage loans held for sale as nonrecurring Level 2 assets.



Impaired Loans:  As defined below in the Glossary of Loan Termssection, a loan is considered to be impaired when, based on current information or events, it is probable that not all amounts due will be collected according to the contractual terms of the loan agreement.  Impairment is measured based on the fair value of the underlying collateral.  The collateral value is determined based on appraisals and other market valuations for similar assets.  Under FASB ASC Topic 820, "Fair Value Measurements and Disclosures," the fair value of impaired loans is reported before selling costs of the related collateral, while FASB ASC Topic 310, "Receivables," requires that impaired loans be reported on the balance sheet net of estimated selling costs.  Therefore, significant estimated selling costs would result in the reported fair value of impaired loans being greater than the measurement value of impaired loans as maintained on the balance sheet.  In most instances, selling costs were estimated for real estate-secured collateral and included broker commissions, legal and title transfer fees and closing costs.  Impaired loans are classified as nonrecurring Level 2 assets.



Other Investments:  For other investments, the carrying amount is a reasonable estimate of fair value.



Other Real Estate Owned:  Real estate that DBI has taken control of in partial or full satisfaction of debt is currently valued at fair value.  The fair value is determined by analyzing the collateral value of the real estate using appraisals and other market valuations for similar assets less any estimated selling costs.  The value carried on the balance sheet for other real estate owned is the estimated fair value of the properties.  Other real estate owned is classified as nonrecurring Level 2 assets.



Bank Owned Life Insurance:  The carrying amount of bank owned life insurance approximates fair value.



Deposit Liabilities:  The fair value of demand deposits, savings accounts and certain money market deposits is the amount payable on demand at the reporting date.  The fair value of fixed-maturity certificates of deposit is estimated using the rates currently offered for deposits of similar remaining maturities.



Borrowings:  Rates currently available to DSB for debt with similar terms and remaining maturities are used to estimate fair value of existing debt.



Commitments to Extend Credit, Standby Letters of Credit and Financial Guarantees Written:  The fair value of commitments is estimated using the fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the present creditworthiness of the counterparties.  For fixed-rate loan commitments, fair value also considers the difference between current levels of interest rates and the committed rates.  The fair value of guarantees and letters of credit is not material.

















12



Notes to the Consolidated Financial Statements

(Unaudited)



.Assets Recorded at Fair Value on a Recurring Basis



Assets measured at fair value on a recurring basis, are summarized in the table below:





The table below presents a reconciliation and income statement classification of gains and losses for all assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) for the quarter ended March 31, 2010.

























13

Notes to the Consolidated Financial Statements

(Unaudited)



Assets Recorded at Fair Value on a Nonrecurring Basis



Assets measured at fair value on a nonrecurring basis, are summarized in the following table:



















14

Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations



This report may contain certain forward-looking statements, including without limitation, statements regarding results of operations, the appropriateness of the allowance for loan losses, the amounts of charge-offs and recoveries, capital to assets ratios, capacity for paying dividends and liquidity.  These statements speak of DBI's plans, goals, beliefs or expectations, refer to estimates or use similar terms.  Forward looking statements can generally be identified because they contain words and phrases such as "may," "project," "are confident," "should," "predict," "believe," "plan," "expect," "estimate," "anticipate," and similar expressions. These forward looking statements are inherently uncertain and actual results may differ from DBI's expectations. The factors that, 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; (iv) changes in regulatory requirements of federal and state agencies applicable to banks and bank holding companies, and (v) the factors set forth in Item 1A of DBI's Annual Report on Form 10-K for the year ended December 31, 2009 (the "2009 Annual Report") which item is incorporated herein by reference, as well as other risks identified in this Report. When reviewing 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.

15



Management's Discussion and Analysis



Critical Accounting Policies



The accounting and reporting policies of DBI are in accordance with accounting principles generally accepted in the United States of America and conform to general practices in the banking industry. The preparation of financial statements in conformity with these principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on information available at the date of the financial statements. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and as such have a greater possibility of producing results that could be materially different than originally reported.



Management believes that DBI's critical accounting policies are those relating to the allowance for loan and lease losses.



Allowance for Loan and Lease Losses



The allowance for loan and lease losses ("ALLL") is an estimate of the losses that may be sustained in the loan and lease portfolio. The allowance is based on two basic principles of accounting: (1) Statement of Financial Accounting Standards ("SFAS") No. 5, "Accounting for Contingencies," which has been incorporated into FASB ASC Topic 450, "Contingencies"and requires that losses be accrued when they are probable of occurring and estimable, and (2) SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which has been incorporated into FASB ASC Topic 310, "Receivables," which requires that the loan be categorized as impaired when it is probable that DBI will not collect all principal and interest payments according to the loan's or lease's contractual terms. Guidelines for determining allowances for loan losses are also provided in the ASC 310-10-S99, "Accounting for Loan Losses by Registrants Engaged In Lending Activities," and the Federal Financial Institutions Examination Council's interagency guidance, "Interagency Policy Statement on the Allowance for Loan and Lease Losses" (the "FFIEC Policy Statement").



DSB's and DACC's boards of directors have approved policies to provide management with a systematic methodology to determine an appropriate allowance for loan and lease losses. This methodology includes a systematic loan grading system that requires quarterly reviews, identification of loans to be evaluated on an individual basis for impairment, results of independent reviews of asset quality and the adequacy of the allowance by regulatory agencies as an integral part of their examination process, consideration of current trends and volume of total nonperforming, past due, nonaccrual and potential problem loans, and consideration of national and local economic trends and industry conditions.



In applying the methodology, nonaccrual loans, restructured loans and potential problem loans, above a certain size, are reviewed to determine if they are impaired. Impaired loans are individually analyzed and an allowance amount is calculated for each one of these loans, based on the estimated fair value of collateral, in conjunction with FAS 114. Loans that are not impaired are segmented into groups by type of loan. The following loan types are utilized so that each segment of loans will have similar risk factors; 1) residential real estate, 2) agricultural real estate, 3) commercial real estate, 4) agricultural, 5) commercial, 6) consumer installment, and 7) other. In addition, based on internal reviews and external reviews performed by regulatory authorities, DSB and DACC further segregate loans that are not impaired by loan risk classification within each type of loan based on an assessment of risk for a particular loan. The applicable risk classifications are "special mention" and "substandard". A "substandard" loan is a loan that is inadequately protected by the current net worth and paying capacity of the borrower or of any collateral. Loans classified "substandard" have well-defined weaknesses that jeopardize liquidation and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected



Loans classified "special mention" are one step above substandard; these loans contain some weakness which if not corrected or improved upon could lead to further deterioration and a lower rating. Risk factor percentages are applied to the identified segments of each of the nonclassified and classified portions of the portfolios to calculate an allowance in conjunction with ASC Topic 450. These risk factor percentages are based on historical loan loss experience adjusted for current economic conditions and trends and internal loan quality trends.



16



Management's Discussion and Analysis



The foregoing calculations in accordance with ASC Topics 310 and 450 are used to confirm the adequacy and appropriateness of the ALLL as developed through provisions for credit losses charged to expense, recognizing that the ALLL represents an aggregation of judgments and estimates by management. Such calculations also influence the amount of future provisions for credit losses charged to expense, pending reapplication of the described systematic methodology.



Management evaluates the appropriateness of the ALLL on a quarterly basis and submits to the board of directors of DSB each quarter a recommendation of the amount of a monthly provision for loan losses. If the amount of future charge-offs differ significantly from those assumptions used by management in making its determination, the ALLL and the provision for loan losses on the income statement could be materially affected. Management believes that the ALLL is appropriate as of March 31, 2010.





Glossary of Loan Terms



Impaired Loan - A loan is impaired when, based on current information and events, it is probable that not all amounts due will be collected according to the contractual terms of the loan agreement.  Impaired loans are measured at the estimated fair value of the collateral.  If the estimated fair value of the impaired loan is less than the recorded investment in the loan, an impairment is recognized by creating a valuation allowance.



Nonaccrual Loan - 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.  When a loan is placed on nonaccrual, all interest previously accrued but not collected is reversed against current period interest income.  Income on such loans is then recognized only to the extent that cash is received and where the future collection of principal is probable.  Interest accruals are resumed on such loans only when they are brought fully current with respect to interest and principal and when, in the judgment of management, the loans are estimated to be fully collectible as to both principal and interest.



Non-Performing Assets - Non-performing assets include nonaccrual loans as defined above and real and personal properties acquired in satisfaction of debts previously owed.



Past Due Accruing Loans - A loan on which all or part of a scheduled payment is delinquent by more than 30 days but less than 90 days past due, except loans that are considered nonaccrual.



Potential Problem Loans - Potential problem loans are accruing loans in which there exists doubt as to the ability of the borrower to comply with present loan repayment terms.  Management's decision to place loans in this category does not necessarily mean that DBI expects losses to occur on these loans, but that management recognizes that a higher degree of risk is associated with these accruing loans and they deserve closer scrutiny.

Restructured Loans - Restructured loans involve the granting of some concession to the borrower involving the modification of terms of the loan, such as changes in the payment schedule, the amortization term, the interest rate, or a combination of these.



Risk Rating - Risk rating, which is also sometimes referred to as loan grade, is the credit quality grade assigned to each loan.  Loans are assigned a risk rating upon origination.  Lenders and credit review analysts conduct periodic reviews and evaluations and make adjustments to the assigned grades when appropriate.  The range of categories from the best quality to worst is as follows:highest quality, solid quality, some weakness, inherent industry weakness, special mention, substandard, doubtful and loss.  Impaired loans are generally assigned a substandard risk grade.

Special Mention Loans - Loans classified "special mention" are one step above substandard loans as described below.  These loans contain some weakness, which if not corrected or improved upon could lead to further deterioration and a lower rating.



17

Management's Discussion and Analysis



Substandard - A "substandard" loan is a loan that is inadequately protected by the current net worth and paying capacity of the borrower or the value of any collateral. Loans classified "substandard" have well-defined weaknesses that jeopardize prospects for liquidation and are characterized by the distinct possibility that some loss will be sustained if the deficiencies are not corrected.



Results of Operations

Net income for the quarter ended March 31, 2010, was $794,521, an increase of $552,290 or 228.0%, compared to $242,231 for the corresponding period in 2009.  This improvement was primarily the result of a $600,000 decrease in the provision for loan losses and a decline in noninterest expenses of $173,438.  In addition, credit losses of $312,716 that were recognized in 2009 for securities found to be other than temporarily impaired were not repeated in 2010.  These were partially offset by an increase in income tax expense of $415,409 and a decrease in net interest income of $216,611.



Net interest income for the quarter ended March 31, 2010 was $3,544,969 a decrease of 5.8%, compared to $3,761,580 recorded for the corresponding period of 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 in net interest income is attributable to a slight decrease in net interest spread due to a reduction in the yield on earning assets which was nearly offset by a decline in the cost of funds.  The average net interest rate spread decreased 1 basis point from 3.55% during the quarter ended March 31, 2009 to 3.54% during the current period.  DBI's yield on earning assets was 5.22% during the first quarter of 2010 compared to 5.81% during the quarter ended March 31, 2009, a decline of 59 basis points.  The average cost of funds was 1.68% during the most recent quarter, a decrease of 58 basis points compared to 2.26% for the quarter ended March 31, 2009. The average balances of interest-earning assets declined by $7.9 million while the volume of interest-bearing liabilities increased by $1.6 million during the first quarter of 2010 compared to average balances for the first quarter of 2009.



For the first quarter of 2010 DBI's provision for credit losses was $400,000 as compared to $1 million during the same period of 2009.  Net charge-offs of $49,874 were recognized in the current period compared to net charge-offs of $1,079,679 during the corresponding period in 2009.



Noninterest income for the three months ended March 31, 2010 was $512,982 compared to $414,826 during the corresponding period in 2009, an increase of 23.7%.  Gains on the sale of securities of $59,267 were recognized during the first quarter of 2010 while there were no security sales during the same period of 2009.  Service fees and commissions increased $12,127 when comparing the same period while gains on the sale of loans declined $11,157 in 2010.



Noninterest expense for the three months ended March 31, 2010 declined $173,438 or 6.2% compared to the corresponding period in 2009.  Reductions in expenses related to the FDIC insurance premiums and occupancy expense, as well as gains realized on the sale of foreclosed properties were the primary factors in the decline in noninterest expenses.  These reductions were partially offset by an increase in data processing expenses of $47,176.



FDIC Insurance premiums decreased $129,049 or 48.7% during the first quarter of 2010 as compared to the corresponding period in 2009.  This decline is due to the fact that in 2009, an anticipated 20 basis point special assessment was being accrued for during the first quarter that was not repeated during 2010, as well as the fact that average deposits were approximately 2.9% lower in the first quarter of 2010 versus the first quarter of 2009.



Occupancy expenses were $27,857 or 9.3% lower during the first quarter of 2010 when compared with the same period in 2009.  This is primarily due to a decline in depreciation expense of $17,896 to $122,786 in 2010 from $140,682 in 2009 along with lower expenses for building maintenance, which fell $9,704 during 2010.

18

Management's Discussion and Analysis



Two foreclosed properties were sold during the first quarter of 2010 resulting in gains of $71,632 compared to losses recorded during the same period of 2009 of $25,059.  This improvement in realized gains of $96,691 more than offset the increase in expenses related to the operation of other real estate of $70,196, which was primarily due to increases in real estate taxes and legal expenses during 2010.



The increase in data processing expenses of $47,176 is attributed to expenses related to DBI's core processing services.  During 2009, $10,000 monthly credits were offset against the normal billings in the first quarter.



For the three months ended March 31, 2010 and 2009, DBI recorded combined federal and state income tax expense of $246,574 and benefit of $168,835, respectively.  These benefits and provisions reflect effective income tax rates of 24% in 2010 and (230%) in 2009.  DBI's combined statutory tax rate is 39%. The lower effective income tax rates are primarily due to certain federally tax exempt interest earned on state and local government investment securities.



Financial Condition



Total assets decreased by $6.4 million between December 31, 2009 and March 31, 2010.  Cash, cash equivalents and fed funds sold declined by $3.9 million since December 31, 2009.  Investment securities decreased $3.5 million during the first three months of 2010 due to sales of $4.8 million, $4.0 million in calls, and regular pay-downs.  These reductions were partially offset by purchases of new securities during the first quarter of 2010 of $5.7 million along with the improvement in the fair value of certain available-for-sale securities.



Loan volume was $2.7 million higher as of March 31, 2010 when compared to year-end 2009 balances.  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:





During the first three months of 2010, commercial loans increased by $8.4 million or 30.8% while agricultural real estate loans increased by $1.4 million, or 2.5%.  These increases were partially offset by a decline in commercial real estate loans during the same period of $2.6 million or 4.5%, along with decreases of $2.0 million in agricultural loans not secured by real estate and $1.5 million in construction and development loans.



The allowance for credit losses increased approximately $350,000 during the three months ended March 31, 2010.  Provisions of $400,000 were added to the allowance during the first quarter of 2010 and were slightly offset by net charge offs of $49,876.  The allowance equals 2.20% of total loans at March 31, 2010 compared to 2.10% at December 31, 2009.  Nonaccrual loans totaled $11.3 million at March 31, 2010, a decrease of approximately $1.5 million compared to December 31, 2009.  DBI's ratio of loans more than 30 days past due (including nonaccrual loans) to total loans was 4.12% at March 31, 2010, compared to 5.47% at year-end 2009.  As of March 31, 2010, management has identified $42.0 million of potential problem loans compared to $43.0 million at year-end 2009.  Loan quality continues to be a concern and improving the portfolio is the primary focus for management. DBI has no accruing loans that are past due 90 days or more.

19



Management's Discussion and Analysis



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):







(1)	Includes restructured loans of $884,474 and $1,232,585 as of March 31, 2010 and December 31, 2009, respectively.



Noninterest-bearing deposits decreased by $3.4 million, or 9.1%, during the first three months of 2010.   Management attributes this decline to a seasonal fluctuation.



Interest-bearing deposits decreased by $2.1 million between December 31, 2009 and March 31, 2010.  Money market accounts increased $4.9 million or 4.9%, during this period while certificates of deposits declined $5.4 million or 4.1% during the same period.  The increase in money market accounts is primarily attributable to an increase in municipal accounts while the decline in certificates of deposits is primarily due to some local competitors that are currently offering certificates at above market rates.  Interest-bearing deposits consisted of the following:





Short-term borrowings increased $2.6 million or 14.3% as of March 31, 2010 when compared to the prior year-end while long-term borrowings declined $4.0 million or 13.0% during the same period.  A $4.0 million long-term note matured during the first quarter of 2010 and was refinanced into short-term borrowings.



Stockholders' equity increased by $1.3 million to $52.4 million as of March 31, 2010 due in part to a reduction in accumulated other comprehensive loss on securities of $478,676.  As of March 31, 2010 DBI's leverage ratio was 13.1% its risk-based core capital ratio was 16.8% and its risk-based total capital ratio was 18.1%.  DBI and DSB continue to maintain capital levels well above the regulatory minimum levels.  Management has agreed with regulators to maintain DSB's leverage ratio at a level equal to or exceeding 8% and its risk-based total capital ratio equal to or exceeding 10%.  As of March 31, 2010, DSB's leverage ratio was 10.3% and its risk-based total capital ratio was 14.7%.

Liquidity



Liquidity refers to the ability of DBI to generate adequate amounts of cash to meet its needs. DBI maintains liquid assets and established lines of credit to meet its liquidity needs.  DBI's Board of Directors annually approves a Consolidated Contingent Liquidity Plan which reviews the sources and uses of liquidity for DBI, DSB and DACC.  Cash and cash equivalents total over $17 million despite decreasing by $3.9 million, or 18.7% during the first three months of 2010.  The major sources and uses of cash are detailed in the accompanying Consolidated Statements of Cash Flows.



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Management's Discussion and Analysis



In addition to on-balance sheet sources of funds, DBI also has off-balance sheet sources available to meet liquidity needs.  Specifically, DBI has unused lines of credit of $53.8 million as of March 31, 2010.  This includes a $20 million line of credit with the Federal Reserve Bank that was established in 1999.  DSB has not borrowed on this line.  DBI also has $65.3 million of eligible loans and securities that could be pledged to increase its available credit.  Management believes DBI's liquidity position as of March 31, 2010 is adequate under current economic conditions.

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 their 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.



Item 3.  Quantitative and Qualitative Disclosures About Market Risk

DBI's primary market risk position has not materially changed from that disclosed in DBI's 2009 Form 10-K Annual Report.













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Management's Discussion and Analysis



Item 4T.  Controls and Procedures

As required by Rule 13a-15 under the Securities Exchange Act of 1934, as amended, 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 as of the end of the period covered by this report.  Based on that evaluation, management believes that DBI's disclosure controls and procedures are effective as of the end of the period covered by this report.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.  Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.



There were no significant changes in DBI's internal controls over financial reporting or in other factors that have significantly affected these controls during the fiscal quarter covered by this report, including any corrective actions with regard to significant deficiencies and material weaknesses.



Part II.  Other Information

Item 1A.  Risk Factors

A discussion of the risks that may affect DBI's business can be found at Item 1A - Risk Factors of DBI's Annual Report on Form 10-K for the year ended December 31, 2009.  There have been no material changes in risk factors as described in such Report.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds



During the quarter ended March 31, 2010, DBI did not sell any equity securities which were not registered under the Securities Act of 1933, as amended, or repurchase any of its equity securities.



The Federal Reserve Board ("the Board") has adopted regulations that deal with the measure of capitalization for bank holding companies.  The Board has also issued a policy statement on the payment of cash dividends by bank holding companies, wherein the Board has stated that a bank holding company experiencing earnings weaknesses should not pay cash dividends exceeding its net income or which could only be funded in ways that weaken the bank holding company's financial health, such as by borrowing.



The ability of DBI to pay dividends on the Common Stock is largely dependent upon the ability of DSB to pay dividends on the stock held by DBI.  DSB's ability to pay dividends is restricted by both state and federal laws and regulations.   DSB is subject to policies and regulations issued by the FDIC and the Division of Banking of the Wisconsin Department of Financial Institutions ("the Division"), which, in part, establish minimum acceptable capital requirements for banks, thereby limiting the ability to pay dividends.  In addition, Wisconsin law provides that state chartered banks may declare and pay dividends out of undivided profits but only after provision has been made for all expenses, losses, required reserves, taxes and interest accrued or due from the bank.  Payment of dividends in some circumstances may require the written consent of the Division.





















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Item 6.  Exhibits



1. Exhibits:



3.2 Second Amended and Restated Bylaws (incorporated by reference to Exhibit 3.2 to Current Report on Form 8-K dated February 23, 2010).



10.1 Executive Deferred Compensation Agreement with John P. Olsen (incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K dated April 9, 2010).



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.







SIGNATURES





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



|                   | DENMARK BANCSHARES, INC.
/s/ John P. Olsen
|------------------ | ------------------------------------------
|Date:  May 5, 2010 | John P. Olsen,                            
|                   | President and CEO                         
|                   |                                           
|                   | /s/ Dennis J. Heim                        
|Date:  May 5, 2010 | Dennis J. Heim                            
|                   | Vice President, CFO and Treasurer,        

























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