UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities

Exchange Act of 1934 (Amendment No.            )

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Definitive Proxy Statement

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Soliciting Material Pursuant to §240.14a-12

                                                                              MID-WISCONSIN FINANCIAL SERVICES, INC.

(Name of Registrant as Specified In Its Charter)

                                                                                                NOT APPLICABLE

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Mid-Wisconsin Financial Services, Inc.

____________________________

Notice of 2007 Annual Meeting of Shareholders

Proxy Statement

2006 Form 10-K Annual Report

Mid-Wisconsin Financial Services, Inc.

Notice of Annual Meeting of Shareholders

_______________

The annual meeting of shareholders of Mid-Wisconsin Financial Services, Inc. will be held at the Simek Recreational Center, 1037 West Broadway Avenue, Medford, Wisconsin, on April 24, 2007, at 5:00 p.m. local time.  Registration will begin at 4:30 p.m. to allow the meeting to begin promptly at 5:00 p.m.  The following proposals will be presented to the shareholders at the annual meeting:

1.

The election of three Class III directors for terms that will expire at the annual meeting of shareholders to be held in 2010;

2.

Approval of the appointment of Wipfli LLP as independent auditor for the year ending December 31, 2007; and

3.

Any other business that properly comes before the meeting.

The record date for determining the holders of common stock entitled to notice of and to vote at the annual meeting or any adjournment thereof is March 1, 2007.

Please promptly vote, sign, date, and return the enclosed proxy in the enclosed envelope.

March 23, 2007

By order of the Board of Directors

PAUL H. EWIG

Paul H. Ewig

Vice President

____________________________

A proxy card and postage free envelope are enclosed.

Proxy Statement

Mid-Wisconsin Financial Services, Inc.

March 23, 2007

Table of Contents

      Page

i

Proxy Statement

Mid-Wisconsin Financial Services, Inc.

132 West State Street

Medford, Wisconsin 54451

March 23, 2007

Solicitation of Proxies

We are providing these proxy materials in connection with the solicitation of proxies by the Board of Directors of Mid-Wisconsin Financial Services, Inc. (the “Company”) for use at the 2007 annual meeting of shareholders, including any adjournment thereof.  The annual meeting will be held at 5:00 p.m., at the Simek Recreational Center, 1037 West Broadway Avenue, Medford, Wisconsin, on April 24, 2007.  Registration will begin at 4:30 p.m. to allow the meeting to begin promptly at 5:00 p.m.  

Proxies and Voting Procedures

Your Vote

Your vote is important.  Whether or not you plan to attend the annual meeting, please sign, date, and return the enclosed proxy promptly in order to be sure that your shares are voted.  You may revoke your proxy at any time before it is voted by giving written notice to the Secretary of the Company at our principal office in Medford, Wisconsin by filing another duly executed proxy bearing a later date with the Secretary, or by giving oral notice at the annual meeting.

All shares represented by your properly completed proxy, if it has been submitted to the Company prior to the meeting and has not been revoked, will be voted in accordance with your instructions.  If you do not indicate how your shares should be voted on a proposal, the shares represented by your properly completed proxy will be voted as the Board recommends.

If any other matters are properly presented at the annual meeting for consideration, including, among other things, consideration of a motion to adjourn the meeting to another time or place, the persons named as proxies in the form of proxy furnished to you by the Board will have discretion to vote on those matters according to their best judgment to the same extent as you would be entitled to vote.

Shareholders Entitled to Vote

Shareholders at the close of business on the record date are entitled to notice of and to vote at the annual meeting.  Each share is entitled to one vote on each proposal properly brought before the annual meeting.  Votes cast by proxy or in person at the annual meeting will be

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tabulated by an inspector of elections appointed by the Board.  On the record date, March 1, 2007, there were 1,639,907 shares of common stock outstanding.

Quorum, Required Vote, and Related Matters

Quorum.  A quorum is present if a majority of the votes entitled to be cast on a proposal are represented at the annual meeting in person or by proxy.  For purposes of determining a quorum, shareholders who are present in person or are represented by proxy, but who abstain from voting, are considered present and count toward the determination of the quorum.  Shares reported as broker non-votes are also considered to be shares present for purposes of determining whether a quorum is present.  

“Street Name” Accounts.  If you hold shares in “street name” with a broker, bank, or other custodian, you will receive voting instructions from the holder of record of your shares.  In some cases, a broker may be able to vote your shares even if you provide no instructions (such as the election of directors), but on other matters your broker may vote the shares held for you only if you provide voting instructions.  Shares for which a broker does not have the authority to vote are recorded as a “broker non-vote” and are not counted in the vote by shareholders.  

Election of Directors.  Directors are elected by a plurality of the votes cast by the shares entitled to vote (Proposal No. 1).  For this purpose, a “plurality” means that the individuals receiving the largest number of votes are elected as directors, up to the maximum of three directors to be chosen at the annual meeting.  You may vote in favor of the nominees specified on the accompanying form of proxy or may withhold your vote as to one or more of such nominees.  Shares withheld or not otherwise voted in the election of directors (because of abstention, broker non-vote, or otherwise) will have no effect on the election of directors.

Approval of Auditor.  The appointment of our independent auditor (Proposal No. 2) will be approved if more shares are voted for the proposal than are voted against the proposal.  Shares not voted (because of abstention, broker non-vote, or otherwise) will have no effect on the approval of the auditor.  

All Other Proposals.  As of the date of this proxy statement, we do not know of any other proposals to be brought before the annual meeting.  Generally, a proposal other than the election of directors which is brought before the meeting will be approved if the votes cast for the proposal exceed the votes cast against the proposal.  

Costs of Solicitation

In addition to solicitation by mail, officers, directors, and regular employees of the Company and its subsidiaries may solicit proxies in person or by telephone, facsimile, electronic mail, or other forms of communication.  Expenses in connection with the solicitation of proxies, including the reasonable expenses of brokers, fiduciaries, and other nominees in forwarding proxy material to beneficial owners of our common stock, will be borne by the Company.

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Proxy Statement and Other Shareholder Proposals

Any shareholder who intends to present a proposal at the annual meeting to be held in 2008 must deliver the written proposal to the Secretary of the Company at our office in Medford, Wisconsin:

·

not later than November 14, 2007, if the proposal is submitted for inclusion in our proxy materials for that meeting pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”); or

·

on or after January 24, 2008, but on or before February 24, 2008, if the proposal is submitted pursuant to our bylaws, in which case we are not required to include the proposal in our proxy materials.

Shareholders may present a proposal at the 2008 annual meeting for consideration only if proper notice of the proposal has been given in accordance with one of these requirements.  Nominations for directors made from the floor at the annual meeting of shareholders to be held in 2008 require advance notice in accordance with the bylaws.

Governance of the Company

The Board

Number of Directors.  Our Board is composed of three classes, each consisting of three directors.  One class of directors is to be elected each year to serve a three-year term.  Any vacancy may be filled by the Board until the next succeeding annual meeting of shareholders.

Communicating with the Board.  Shareholders and others may communicate with the Board by writing to the Chairman at the Company’s corporate office, 132 West State Street, Medford, Wisconsin 54451.  Individual directors may also be contacted in writing at the same address.  Mail that prominently contains the words “Shareholder Communication” on the envelope will be forwarded unopened to the director to whom it is addressed.  Mail that is not so marked may be opened for sorting before forwarding to the individual directors to whom it is addressed.  If a complaint or concern involves accounting, internal accounting controls, or auditing matters, the correspondence may be addressed, and will be forwarded, to the Chairman of the Audit Committee.

Attendance at Board Meetings.  During 2006, the Board met twelve times.  All of the directors, except Mr. Hatlestad, attended at least 75% of the aggregate number of meetings of the Board and meetings of the committees of the Board on which they served.

Attendance at Annual Meetings.  The Board has an informal policy under which all directors are expected to attend the annual meeting of shareholders.  All individuals who were then directors attended the annual meeting held in 2006.

Certain Relationships and Related Transactions.  The Company has not adopted any formal policies or procedures for the review, approval, or ratification of transactions that may be

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required to be reported under the Securities and Exchange Commission (“SEC”) disclosure rules.  Any proposed transactions will be reviewed by the entire Board (other than the director involved) on a case-by-case basis, taking into consideration the availability of alternative providers to meet the Company’s requirements, the amount involved in the proposed transaction, the interest of the director or executive officer (or immediate family member) in the transaction, whether the services or products being proposed are available on terms that are comparable to similar arms-length transactions between unrelated parties, and such other factors as the Board may consider important and appropriate to its determination.

There was no transaction with related parties in 2006 that is required to be disclosed under the rules of the SEC because it exceeded $120,000 and one of our directors or executive officers (or their affiliates or members of their immediate family) had a direct or indirect material interest in such transaction.  During the year, in the ordinary course of business, our directors and officers and the directors and officers of the Bank, and many of their associates and the firms for which they serve as directors and officers, conducted banking transactions with the Bank or provided certain services to the Company.  All employees of the Bank are eligible to borrow up to a maximum of $100,000 at rates that are adjusted quarterly to an amount equal to the sum of (1) the average rate paid by the Bank on certificates of deposit, (2) 1.5%, and (3) the FDIC premium rate on deposits.  All other loans in 2006 to directors and officers and to persons or firms affiliated with such directors and officers were made at substantially the same interest rates as those prevailing at the time for comparable transactions with unrelated persons.  All loans made in 2006 to directors and officers and their affiliates were subject to substantially the same collateral requirements, did not involve more than normal risk of collectibility, and did not present other unfavorable features as compared to loans made to unrelated persons.  We expect that transactions such as those described above will continue in the future.

Director Independence.  Each of our directors, other than Mr. Warsaw, satisfies the criteria for director independence under the listing standards applicable to companies listed on The Nasdaq National Market stock exchange.  In reaching its determination of director independence, the Board considered the banking relationship described under the preceding paragraph.

Committees and Meetings

Nominating Committee.  The functions of a nominating committee are performed by the Board as a whole.  See “Proposal No. 1 – Election of Directors - Nominations for Director.”

Audit Committee.  The Audit Committee is appointed by the Board to assist the Board in monitoring (1) the integrity of our financial statements, (2) the independent auditor’s qualifications and independence, (3) the performance of our internal audit function and independent auditors, and (4) our compliance with legal and regulatory requirements.  The Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act.  Each member of the Committee satisfies the criteria for independence under the listing standards applicable to companies listed on The Nasdaq National Market.  The Committee held six meetings during 2006.  Mr. Schoofs, Mrs. Hemer, Mr. Hallgren, and Mr. Lundin serve as members of the Audit Committee.  See “Audit Committee Report and Related Matters – Audit Committee Report.”

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Compensation Committee.  The functions of a compensation committee are fulfilled by the Board’s Executive Committee and the Executive Committee of the board of directors of Mid-Wisconsin Bank (the “Bank”).  The Executive Committees of the Company and the Bank consist of the same individuals and are responsible for the administration of the compensation policies of the Company and the Bank.  The committees met nine times during 2006.  See “Executive Officer Compensation – Compensation Discussion and Analysis.”

Proposal No. 1 – Election of Directors

Nominations for Director

The Board.  The Board believes that it is appropriate for the Board, as a whole, to identify and recommend nominees for directorships rather than using a separate nominating committee.  The basis for the Board’s position rests on the following considerations:

·

the nature of community-based banking requires directors who can be strong supporters of our business in our market area and the Board, as a whole, is better able to identify and evaluate such persons;

·

the nature of our community-based banking business increases the need to identify Board members who understand our market area rather than candidates who have national or regional banking experience;

·

all but one member of the Board is an independent director; and

·

the Board is relatively small and engages in active discussion of appropriate candidates.

Members of the Board do not take part in the consideration of their own candidacy.

Identification of Candidate and Shareholder Recommendations.  The Board will consider candidates recommended by shareholders, Board members, executive officers, employees, or other sources.  From time to time, the size of the Board may be adjusted to reflect the number of qualified Board candidates.  Persons considered for nomination also will include incumbents whose term will expire at the next annual meeting.  

To recommend an individual for consideration as a director nominee by the Board, a shareholder should mail or otherwise deliver a written recommendation to the Board not later than the December 1 immediately preceding the annual meeting for which the individual is to be considered for inclusion as a nominee of the Board.  At a minimum, a shareholder recommendation should include the individual’s current and past business or professional affiliations and experience, age, stock ownership, particular banking or business qualifications, if any, and such other information as the shareholder deems relevant to assist the Board in considering the individual’s potential service as a director.  

Qualifications.  The Board has adopted certain minimum qualifications for directors, including the requirement that each director is expected to acquire beneficial ownership of a

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minimum of 1,000 shares of our stock during the director’s first four years in office.  Directors may not continue to serve beyond the end of the calendar quarter in which they attain age 65.  In addition, certain actions or events are grounds for resignation, including filing for bankruptcy, maintaining a loan that has been classified because of default in its payment or other terms, or a physical or mental condition that renders the director incapable of performing his duties.

In addition to meeting the specific qualifications for director, the Board believes that persons nominated for director should have had a successful career in business or a profession which demonstrates an ability to understand the economic, financial, operational, and regulatory issues that have an impact on our banking business; possess a reputation for personal and professional integrity; be able to exercise independent judgment; and have a familiarity with our market area and customers.  Incumbent Board members are considered by the Board on the basis of these qualities and also on the basis of their service during their term in office.  In addition to considering the qualifications of a potential nominee, the Board also considers the qualifications of the nominee; the mix of age, skills, and experience of current Board members; and the expectation that one or more directors may leave the Board because of attaining mandatory retirement age or for other personal reasons.  All potential nominees submitted to, or identified by, the Board are evaluated on a similar basis for their level of qualifications and experience.

Election of Directors

At the annual meeting, shareholders will be asked to elect Frederick T. Lundin, James F. Melvin, and Robert J. Schoofs as Class III directors for terms that will expire at the annual meeting of shareholders to be held in 2010.  Each of the candidates has consented to serve if elected, but in the event one or more of the nominees is not a candidate at the annual meeting, it is the intention of the proxies to vote for such substitute or substitutes as may be designated by the Board.

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The Board recommends a vote FOR the election of the three nominees for Class III director.  The following information is furnished with respect to the nominees and all continuing directors.  Unless specified, all current positions listed for a director have been held at least five years.

Name, Age, Principal		Class and Year	Year First
Occupation or Employment,		in Which Term	Became a
and Other Affiliations*		Will Expire	Director
Nominees for Class III Director
Frederick T. Lundin, 58		Class III	2006
	Koenig & Lundin SC, Certified Public Accountants	2010
James F. Melvin, 57		Class III	1992
	Vice Chairman of the Company	2010
	President of the Melvin Companies (concrete products,
	construction materials, and services)
Robert J. Schoofs, 53		Class III	2000
	Vice President, Administration, Clasen Quality Coatings, Inc.; previously,	2010
	Corporate General Manager, Weather Shield Mfg., Inc. (1994-2005)
	and CEO, The Peachtree Companies, Inc. (2001-2005)
Continuing Directors
Dr. Kim A. Gowey, 53		Class I	2000
	Chairman of the Company and Mid-Wisconsin Bank	2008
	Kim A. Gowey, DDS Ltd
James P. Hager, 55		Class I	2000
	General Manager, Harmony Country Cooperatives	2008
Brian B. Hallgren, 46		Class I	2000
	Vice President, B&B Engineering Corporation	2008
Kathryn M. Hemer, 47		Class II	1999
	Family Nurse Practitioner, The Medford Clinic	2009
Kurt D. Mertens, 51		Class II	1997
	Secretary and Treasurer, Loos Machine Shop, Inc.	2009
James F. Warsaw, 56		Class II	2005
	President and Chief Executive Officer of the Company and the Bank;	2009
	previously, Bank Consultant, November 2003 to December 2005; Executive
	Vice President, Bank of Ann Arbor, February 2003 to November 2003;
	President and COO, Amcore Bank, NA, December 1998 to April 2001

* Each director of the Company is also a director of Mid-Wisconsin Bank.

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Director Compensation for 2006

The following table presents the compensation of our directors for 2006.  A description of our director compensation policy and plans follows the table.

					Change in Pension
					Value and
	Fees Earned			Non-Equity	Nonqualified Deferred
	or Paid in	Stock	Option	Incentive Plan	Compensation	All Other
Name(1)	Cash	Awards	Awards	Compensation	Earnings	Compensation	Total
	($)(2)	($)	($)	($)	($)	($)	($)
Dr. Kim A. Gowey	$25,300	–	–	–	$4,587(3)	–	$29,887
James P. Hager	$17,100	–	–	–	–	–	$17,100
Brian B. Hallgren	$13,300	–	–	–	$1,585(3)	–	$14,885
Norman A. Hatlestad*	$12,550	–	–	–	$6,361(3)	$5,700(4)	$24,611
Kathryn M. Hemer	$13,350	–	–	–	$1,623(3)	–	$14,973
Frederick T. Lundin*	$     825	–	–	–	–	–	$    825
James F. Melvin	$16,700	–	–	–	–	–	$16,700
Kurt D. Mertens	$17,000	–	–	–	$1,182(3)	–	$18,182
Robert J. Schoofs	$15,800	–	–	–	$1,767(3)	–	$17,567

 * Mr. Lundin became a director on December 1, and Mr. Hatlestad resigned as a director on December 20, 2006, under the Company’s mandatory retirement policy.

⁽¹⁾ This table excludes Mr. Warsaw and Mr. Knoll.  No compensation was paid to executive officers in 2006 for services as a director.  Amounts paid to Mr. Knoll under the Directors Deferred Compensation Plan are disclosed in the Nonqualified Deferred Compensation Table, page 20.

⁽²⁾ Includes directors’ annual retainers which are automatically deferred under the 2005 Directors Deferred Compensation Plan and any meeting fees deferred on a voluntary basis by participating directors.  

⁽³⁾ Amounts represent above-market interest paid under Directors Deferred Compensation Plan.

⁽⁴⁾ Accrued benefit payable under director retirement plan.

Retainer and Fees.  Neither Mr. Warsaw nor Mr. Knoll received any retainer or meeting fees for service on the boards of directors of the Company or the Bank in 2006.  All other directors were compensated in accordance with the following schedule:

Company				Bank
	Annual Retainer				Annual Retainer
		Directors	$2,100			Directors	$3,600
		Chairman	$4,200			Chairman	$7,800
		Vice Chairman	$3,000
	Meeting Fees				Meeting Fees
		Board	$   350			Board	$   350
		Committee	$   250			Loan Committee	$   300
						Other Committees	$   250
						All-day Meeting	$   500

Directors Deferred Compensation Plans.  Each director’s annual retainer is deferred and credited to the director’s stock equivalent account under the 2005 Directors Deferred Compensation Plan.  Fees paid prior to 2005 were deferred and held under the Directors Deferred Compensation Plan.  Directors may also elect to defer Company and/or Bank meeting or committee fees and other director compensation into a stock equivalent account or a cash

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account.  Account balances may not be transferred between funds.  Stock equivalent units represent the number of shares of our common stock that could have been purchased with the amount of fees deferred if the fees had been paid in cash.  A director’s account under either plan is also credited with stock equivalent units representing the common stock that could have been purchased with the cash dividends earned on the accumulated stock equivalent units had they actually been issued common stock.  The value of stock equivalent units is determined based on the closing bid and ask prices for the Company’s common stock as quoted on the OTC Bulletin Board on the applicable date of payment of the retainer, meeting fees, or hypothetical dividend.  No actual stock is made available to the directors under the plan.  In addition to the annual retainer deferred for all directors during 2006, Dr. Gowey, Mr. Hallgren, Mr. Hatlestad, Mrs. Hemer, Mr. Lundin, Mr. Melvin, Mr. Mertens, and Mr. Schoofs elected to defer all or a portion of their director or meeting fees otherwise payable to them.

Deferred fees credited to the cash account are credited with interest each fiscal year at a rate equal to 400 basis points less than our return on equity for the preceding fiscal year.  Accounts become payable after a director’s termination of service in a lump sum or in annual installments payable over a period not to exceed of five years.  Amounts payable in installments are credited with interest at a rate equal to the prime rate as published by The Wall Street Journal.  The timing and form of payments are elected by each director.  In the event a director’s service terminates because of a change in control of the Company, payment of all deferred amounts will be made in a lump sum.  A “change in control” includes the acquisition of 25% or more of the Company’s common stock by a person or group (excluding stock acquired from the Company or acquired by an employee benefit plan sponsored by the Company), a change in the composition of the Board so that the individuals on the effective date of the plan (or the successive directors approved by them) no longer constitute a majority of the directors, shareholder approval of a merger in which the Company’s shareholders will own less than 60% of the shares of the new combined entity in substantially the same proportions as immediately prior to the merger, and shareholder approval of a liquidation or dissolution of the Company.

Retirement Plan.  Directors who complete 20 years of service as a director are eligible to receive a retirement benefit equal to the retainer fees that would have been earned during their first year of retirement.  Directors who retire with less than 20 years of service receive a prorated retirement benefit (with a minimum of 50%) of the retainer fees paid by the Company and the Bank during their first year of retirement.  Retired directors remain available for consultation for a one-year period following retirement.

Beneficial Ownership of Common Stock

Ownership of Board and Management

Based on information publicly available from the SEC on the record date, no shareholder was known to us to be the beneficial owner of more than 5% of the outstanding shares of our common stock.

The following table sets forth, based on statements filed with the SEC or otherwise made to us, the amount of common stock that is deemed beneficially owned on the record date by each of the directors and each of the executive officers named in the Summary Compensation table

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under “Executive Officer Compensation.”  The amounts indicated include, as applicable, shares subject to options exercisable within 60 days, shares held by spouses and minor children, and shares held indirectly in trust for the benefit of the directors and/or their spouses, children, or parents.

	Shares of Common	Percent
Name	Stock Beneficially Owned	of Class
Kim A. Gowey, DDS	54,246	3.31%
James P. Hager	1,399	*
Brian B. Hallgren	1,418	*
Kathryn M. Hemer	3,120	*
Frederick T. Lundin	0	–
James F. Melvin	43,357	2.64%
Kurt D. Mertens	15,702	*
Robert J. Schoofs	3,250	*
James F. Warsaw	24,308(1)	1.48%
Paul H. Ewig	0	*
William A. Weiland	6,977(1)	*
All directors, nominees, and executive officers as a group (11 persons)	153,777(1)	9.38%

 * Less than 1%

⁽¹⁾ Includes options exercisable by:  Mr. Warsaw, (7,500 shares) and Mr. Weiland (6,037 shares).

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our directors and officers and persons who own more than 10% of our common stock (“reporting persons”) to file reports of ownership and changes in ownership with the SEC.  Reporting persons are also required by SEC regulations to furnish us with copies of all Section 16(a) forms filed by them with the SEC.  The report with respect to two purchases of an aggregate of 2,000 shares of the Company’s common stock by Dr. Gowey on July 24, 2006, was not filed until August 2, 2006.  Based solely on our review of the copies of the Section 16(a) forms received by us or upon written representations from certain of these reporting persons as to compliance with the Section 16(a) regulations, we are of the opinion that during the 2006 fiscal year, all other filing requirements applicable under Section 16 to the reporting persons were satisfied.

Executive Officer Compensation

Compensation Discussion and Analysis

Introduction.  The following discussion and analysis describes our philosophy, the objectives, and the components of our executive compensation program and how it is administered.  As used in this proxy statement, the term “named executive officers” refers to each person who served as our chief executive officer (“CEO”), our chief financial officer (“CFO”), or was one of the other executive officers named in the Summary Compensation table on page 16.

Our Compensation Philosophy.  Our philosophy in establishing the executive compensation program is driven by three components, each of which is designed to promote the

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short- and long-term interests of our shareholders.  First, we offer a competitive base salary and comprehensive package of employee benefits which meet the immediate needs of our staff and their family members.  Second, we provide short-term cash incentives to reward above average performance.  Third, we encourage and provide the opportunity for our executive officers to become owners in the Company and benefit directly from the increased value they are expected to create.  Through ownership, we intend to align their interests with those of our shareholders.

Objectives of Our Compensation Program.  The objective of our compensation program is to attract and retain highly competent, team oriented, and motivated individuals who thrive on the achievement of both personal and team goals.  Personal and team goals directly relate to increasing shareholder value through achievement of the following strategic objectives.  

1.

Achieve meaningful growth targets by increasing our “share of wallet” with current customers in existing markets and entering new markets via branch expansion or appropriate mergers/acquisitions.

2.

Become recognized as a high performance financial institution, ranking among the top 25% of peer group institutions in like markets.

3.

Provide innovative financial products and services beyond our customers’ expectations through a dedicated staff of professionals using state of the art technology.

Components of Executive Compensation.  Our executive compensation program consists of three components:  base salary and benefits, cash incentive compensation, and long-term incentive compensation in the form of non-qualified stock options.  

Base Salary and Benefits.  Our base salary and benefit programs are intended to provide basic economic security at a comparable and competitive level in our markets and within the state of Wisconsin.  We provide employee benefits to executive officers and all other salaried employees that are consistent with other financial institutions in our markets, including tax-qualified retirement plan benefits, health insurance, dental insurance, life and disability insurance, and other welfare benefits.  Executive officers participate in these plans on the same basis as other employees.  Increases or other adjustments to base salaries primarily reflect the services performed for the respective bank or holding company operations for which the individual has principal management responsibilities and job performance in the previous year.  Cost of living adjustments are also considered.  Certain executive officers are provided the use of company owned and operated vehicles.  Personal use of the vehicles is taxed to the officer.

Short-term Cash Incentive Compensation.  The second component is a short-term cash incentive program.  The principal objective of the Board is to achieve a high level of performance when compared to comparable financial institutions.  Our short-term cash incentive compensation is designed to reward management that achieves above average performance.  Incentive compensation opportunities in 2006 were set at 50% of base salary for Mr. Warsaw, 35% for Mr. Knoll, and 25% for Mr. Weiland.  Mr. Ewig did not join the Company until October and did not participate in the 2006 incentive plan.

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Our executive short-term cash incentive plan is performance based and includes the achievement of personal, business unit, and corporate goals.  The benefits of such a program are as follows:

·

Direct the focus of key executives on achieving our corporate strategic and financial objectives;

·

Foster and directly support a standard of excellence in individual and group performance;

·

Encourage improved managerial practices in key areas such as planning, internal communications, goal setting, and sharing; and

·

Enhance our competitive position by retaining the level of management required to meet or exceed short- and long-term goals.

The use of short-term cash incentives provides competitive compensation opportunities for executives without locking in high, fixed-cost base salaries.

In 2006, 80% of the incentive opportunity was based solely on the Company achieving various levels of income over that reported in 2005.  Personal objectives, which represented the remaining 20% of each officer’s incentive opportunity, were based on the officer’s position and responsibilities with the Company and were established at the beginning of the fiscal year by the Executive Committee.  The degree to which personal objectives have been achieved is subjective and determined by the Executive Committee in its review of the officer’s overall job performance.  There was no formal weighting assigned to any of the different elements of an officer’s objectives.  Personal objectives for the officers named in the Summary Compensation table for 2006 were:

Mr. Warsaw.  Mr. Warsaw’s personal objectives for 2006 related to (a) potential expansion of business through acquisition or branch expansion, (b) development of new sources of revenue for the Company, (c) enhancement of organizational goals including review of compensation and other Company benefit plans, (d) overall review of business, employees, and customers, and (e) all other duties as directed by the Board of Directors.

Mr. Knoll.  Mr. Knoll’s personal objectives for 2006 related to (a) working with the CEO and directing certain activities in achieving goals described above, (b) continual business development efforts to expand business, (c) overseeing various departments in enhancing and documenting processes and procedures, and (d) all other duties as may be directed by the CEO.

Mr. Weiland.  Mr. Weiland’s personal objectives for 2006 related to (a) working with the CEO and directing certain activities in achieving goals described above, (b) continual business development efforts to expand business, (c) establishment of private client banking services in selected markets, and (d) all other duties as may be directed by the CEO or the Bank president.

For 2006, no incentive compensation would be paid if the Company failed to achieve a targeted income level of $4.3 million; maximum payouts could be made if the Company’s after-tax income exceeded $5.1 million.

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Equity-Based Incentive Compensation.  The third component of our compensation program is the award of non-qualified stock options.  Options are directly tied to our philosophy of increasing shareholder value by providing an opportunity for our officers to acquire an equity position in the Company.  Specific grants were increased in 2006 over past grant practices in recognition that past grant amounts were likely too small to provide a meaningful long-term incentive and benefit to grantees.  At the same time, we granted non-qualified options rather then incentive stock options which will benefit the Company through the availability of income tax deductions on the spread between the exercise price and the value of our stock when exercised.  Option grants in 2006 were also structured to require the execution of a one-year non-solicitation agreement, committing the recipients to a long-term relationship with the Company.  The long-term nature of the program is also indicated by the provision that the options vest in equal increments over a four-year period.  

The size of the 2006 grants were based on the 2005 grant to Mr. Warsaw as part of the arms-length negotiations which occurred in connection with his employment.  Based on other information acquired in our search for a chief financial officer in 2006, we believe these grants are in a competitive range with comparable financial institutions.

Detailed information on the 2006 option grants can be found in the Grant of Plan Based Awards table, page 17 and the narrative discussion following that table.  Information on all options held by our executives at December 31, 2006, can be found in the Outstanding Equity Awards at Fiscal Year-End table on page 19.

Our option grants coincide with our annual performance reviews and typically occur mid-first quarter.  We do not engage in any plan or practice to coordinate the timing of equity awards with the release of material non public information.

Administration of Our Program.  The Executive Committees of the Company and the Bank are comprised of the same individuals and, for purposes of this discussion, will be referred to as the “Executive Committee.”  The Executive Committee serves the interests of both the Company and the Bank and oversees and approves all compensation programs for staff members, including our named executive officers, with the exception of the CEO whose compensation program is reviewed and approved by the Board.

General Compensation Discussion.  Mr. Warsaw’s salary, incentive compensation opportunity, and 2006 option grant were determined through a negotiation between the Board and Mr. Warsaw in connection with his recruitment to the Company in 2005 and are fixed under a three-year employment agreement.  For approximately two years prior to his hiring, we conducted a search for an executive to fill the position of CEO.  The salary, incentive, and initial option levels provided for in Mr. Warsaw’s contract are the product of arms-length negotiation and are therefore indicative of competitive levels for a person of the type of background and experience we sought to retain.

In setting the base salary and incentive compensation levels of our other executive officers for 2006, we took into consideration Mr. Warsaw’s compensation program and also reviewed base salary and total compensation surveys published by the Wisconsin Bankers Association, Community Bankers of Wisconsin, America’s Community Bankers, Bank

13

Administration Institute, the Delves Group, and Watson Wyatt.  In making compensation comparisons, we took into consideration the fact that many of the bank holding companies or banks which comprise the survey data are of a size or have operations which are larger than our Company and/or are located in larger metropolitan areas.  Given the disparity in size between financial institutions and the fact that many, but not all, bank holding company executives also serve as executive officers of bank subsidiaries, it is difficult to draw exact comparisons with the compensation policies of other bank holding companies or banks.  Therefore, although we believe such comparison data provides a useful starting point, the determination of appropriate compensation levels is subjective.

In January 2006, option grants were made pursuant to Mr. Warsaw’s recommendations and subject to the guidelines approved by the Executive Committee.  Our Executive Committee met in February and March 2006 to review and take action with respect to Mr. Warsaw’s recommendations for cash incentive compensation for our named executive officers.

The Executive Committee met in January 2007 to evaluate the overall performance of executive management in achieving corporate and personal objectives.  In view of the significant financial impact caused by a non-performing commercial loan transaction, the Committee determined that no executive short-term cash incentive payments would be awarded in 2007.  However, the Committee agreed to consider stock option grants as several key initiatives were implemented during 2006 which will contribute to the long-term performance of the Company.

Paul H. Ewig joined the Company in October 2006 as our Chief Financial Officer.  His salary and option grants were negotiated by Mr. Warsaw and approved by the entire Board of Directors.  Mr. Ewig did not participate in an incentive compensation program in 2006.

Change in Control and Severance Arrangements.  We maintain two arrangements that provide severance or change in control benefits (see “Termination and Change in Control Payments,” page 20).  Severance benefits will be paid to Mr. Warsaw in the event of his termination without cause before the expiration of his three-year agreement or within one year after a change in control of the Company.  This provision was entered into as a result of the arms-length negotiations which resulted in our hiring Mr. Warsaw in 2005.  It reflects the Board’s belief that in order to induce a capable and experienced officer to relocate to the Company, we must provide certain minimum economic guarantees in the event employment terminates through no fault of the officer.  In the case of the change in control severance arrangement, a “double trigger” requiring both the occurrence of the change in control and a termination was deemed appropriate and consistent with our purpose in providing a fixed minimum period of financial security as an inducement to join the Company.

The 1999 Stock Option Plan provides for the full vesting of all outstanding options and allows optionees to elect to receive a lump sum cash payment upon a change in control.  This is a “single trigger” in that only a change in control is required in order for the optionee to receive this payment.  While these provisions may have some antitakeover effect in cases where large numbers of options are outstanding, that effect would be limited given the number of options outstanding at the Company.  Its larger benefit is to provide optionees with a measure of security with respect to giving them the choice to realize the value of their option grants in the Company’s growth rather than transferring that potential to the stock in another entity for which they have not worked and with which they may be unfamiliar.  A second trigger, actual

14

termination of employment, would not address the risks which the optionee may not want to take with the unfamiliar entity.

Compensation Committee Report

Committee Interlocks and Insider Participation.  During 2006, the Executive Committee consisted of Dr. Kim A. Gowey, Chairman of the Company and James F. Melvin, Vice-Chairman.  Neither Dr. Gowey nor Mr. Melvin are employees of the Company or the Bank and each satisfy the definition of an independent director.  The Executive Committee met at various times throughout the 2006 fiscal year to review and establish executive compensation levels and programs.  See “Governance of the Company – Committees and Meetings – Compensation Committee.”

Compensation Committee Report.  The Executive Committee has reviewed and discussed with management the Compensation Discussion and Analysis contained under that heading in this proxy statement.  On the basis of its reviews and discussions, the Committee has recommended to the Board that the Compensation Discussion and Analysis be included in the Company’s annual report on Form 10-K for the year ended December 31, 2006, and this proxy statement.  

Executive Committee

Dr. Kim A. Gowey

James F. Melvin

15

Summary Compensation Table for 2006

The following table sets forth the compensation awarded to, earned by, or paid by us and our subsidiaries during the year ended December 31, 2006, to our principal executive officer, principal financial officer, and each other executive officer as of December 31, 2006, whose total compensation exceeded $100,000.  

							Change in
							Pension Value
							and
							Nonqualified
						Non-Equity	Deferred
Name and				Stock	Option	Incentive Plan	Compensation	All Other
Principal Position	Year	Salary	Bonus	Awards	Awards	Compensation	Earnings	Compensation	Total
		($)(1)	($)	($)	($)(2)	($)(1)	($)	($)	($)
James F. Warsaw	2006	$230,000	–	–	$5,746	–	–	$31,463(3)	$267,209
President, CEO, and a
director of the
Company and the Bank(a)
Paul H. Ewig	2006	$  30,000	$10,000(4)	–	$2,979	–	–	$  5,000(5)	$  47,979
Vice President and
Chief Financial
Officer(b)
Gene C. Knoll	2006	$160,000	–	–	$4,216	–	–	$27,352(6)	$191,568
Vice President and a
Director; President
and CEO, Executive Vice
President and Chief
Credit Officer, and
director of the Bank(c)
William A. Weiland	2006	$124,500	–	–	$2,934	–	–	$19,888(7)	$147,322
Secretary of the
Company and
Executive Vice
President of the Bank
Rhonda R. Kelley	2006	$  66,166	–	–	$   296	–	–	$  6,678(8)	$  73,140
Director of Internal
Audit and Controller of
the Bank(b)

^(a) Mr. Warsaw assumed the office of President and CEO of the Bank on December 1, 2005.

^(b) Mr. Ewig commenced employment with the Company on October 2, 2006; Ms. Kelley served as principal financial officer until Mr. Ewig’s appointment and continues to serve as Director of Internal Audit.

^(c) Mr. Knoll served as a director of the Company until April 25, 2006 and as President and CEO and a director of the Bank until December 1, 2006 when he assumed his current office of Executive Vice President and Chief Credit Officer.

⁽¹⁾ Includes compensation deferred by officers under 401(k) plan.

⁽²⁾ Amounts indicated represent the compensation expense for financial reporting purposes recognized in 2006 as determined under Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment (“FAS 123R”).  Additional information concerning the recognition of compensation expense with respect to these

16

grants, and the assumptions used in the calculation of compensation expense attributable to the grant of the options included in the table, is set forth in Notes 1 and 15 to the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Form 10-K for the year ended December 31, 2006.

⁽³⁾ Includes contribution of $5,750 under 401(k) plan; $5,750 discretionary money purchase plan contribution; $10,250 for the lease value of company-owned vehicle; and $9,713 as reimbursement of relocation and temporary housing expenses.

⁽⁴⁾ Signing bonus in connection with initial employment.

⁽⁵⁾ Reimbursement of relocation and temporary housing expenses of $5,000.

⁽⁶⁾ Includes contribution of $8,801 under 401(k) plan; $8,801 discretionary money purchase plan contribution; and $9,750 for the lease value of company-owned vehicle.

⁽⁷⁾ Includes contribution of $6,519 under 401(k) plan; $6,519 discretionary money purchase plan contribution; and $6,850 for the lease value of company-owned vehicle.

⁽⁸⁾ Includes contribution of $3,339 under 401(k) plan and $3,339 discretionary money purchase plan contribution.

Grants of Plan-Based Awards for 2006

The following table indicates potential cash incentive compensation under our incentive plans for, and stock options granted in, 2006.  Actual cash incentive compensation earned is included in the Summary Compensation table on page 16.

		Estimated Future Payouts Under			Estimated Future Payouts			All
		Non-Equity Incentive Plan			Under Equity Incentive Plan			Other
		Awards(1)			Awards			Stock
								Awards:	All Other		Grant
								Number	Awards:	Exercise	Date Fair
								of	Number of	or Base	Value of
								Shares	Securities	Price of	Stock and
	Grant							of Stock	Underlying	Option	Option
Name	Date	Threshold	Target	Maximum	Threshold	Target	Maximum	or Units	Options	Awards	Awards(3)
		($)	($)	($)	(#)	(#)	(#)	(#)	(#)	($/Sh)(2)
James F. Warsaw	01/31/06	28,060	66,700	115,000	–	–	–	–	7,500(4)	$36.00	$22,986
Paul H. Ewig	10/02/06	–	–	–	–	–	–	–	3,500(4)	$38.25	$11,918
Gene C. Knoll	01/31/06	13,664	32,480	56,000	–	–	–	–	5,503(4)	$36.00	$16,865
William A. Weiland	01/31/06	7,473	17,763	30,625	–	–	–	–	3,829(4)	$36.00	$11,735
Rhonda R. Kelley	01/31/06	–	–	–	–	–	–	–	386(4)	$36.00	$  1,183

⁽¹⁾ Cash incentive plans are described under “Short-term Cash Incentive Compensation,” in the Compensation Discussion and Analysis, page 11.

⁽²⁾ Mean between the highest bid and lowest ask prices of Company common stock as quoted on OTC Bulletin Board on date of grant.

⁽³⁾ Amounts indicated represent the grant date fair value of the option grant used for financial reporting purposes as determined under FAS 123R.  Additional information concerning the recognition of compensation expense with respect to these grants is set forth in Notes 1 and 15 to the Notes to Consolidated Financial Statements included in Item 8 of the Company’s Form 10-K for the year ended December 31, 2006.

⁽⁴⁾ Options vest in four annual installments of 25% beginning on the anniversary of grant date.  See “Stock Option Grants,” below.

Employment Agreement.  Mr. Warsaw is the only executive officer of the Company employed under an employment agreement.  All other executive officers are at-will employees of the Company or the Bank.  Mr. Warsaw’s employment agreement is for a term of three years

17

unless the term of employment is terminated earlier pursuant to its terms.  Mr. Warsaw receives an annual base salary of $230,000 and is eligible to participate in a cash bonus plan which will provide for a target bonus equal to 30% of his base salary and a maximum bonus equal to 50%.  The criteria for such plan are to be established annually by agreement between Mr. Warsaw and the Board with 80% based on Company and Bank-wide criteria and 20% on satisfaction of individual performance goals.  Mr. Warsaw participates, on the same terms as other executives, in all of the retirement and welfare benefit plans of the Company and receives the use of an automobile.  The compensation attributable to the Company’s provision of an automobile is included in the Summary Compensation table.  Amounts payable to Mr. Warsaw in connection with his termination of employment prior to the expiration of the term of his agreement are described under “Termination and Change in Control Payments,” page 20.

Stock Option Grants.  All option grants indicated in the Grant of Plan Based Awards for 2006 table were made pursuant to the 1999 Stock Option Plan.  Options granted in 2006 vest in four annual increments of 25% on anniversary of date of grant, with vesting accelerated upon optionee’s termination of employment due to death, disability, or retirement, or a change in control.  See “Termination and Change in Control Payments,” page 20.  Options must be exercised within 10 years of the date of grant, or if termination of employment occurs before 10 years under extended time periods which can range from three months for a normal termination to two years in the case of retirement.  Options are forfeitable upon a termination of employment for cause, as defined in the plan.  The 2006 options contain a one-time reload feature.  The Company will issue (reload) a new grant for the number of shares required to pay for the cost of the shares being exercised and the number of shares needed to cover related tax liability incurred when exercising the option.  Reloaded options are subject to the same maturity date as the original, although the new option price will be adjusted to reflect the market price of our stock on the date of exercise of the original option.  The reload feature is intended to encourage the exercise of options and the acquisition of actual shares of stock.  The reload feature must be exercised before termination of employment.  Each optionee has also signed a non-solicitation agreement as a further condition to exercise of the options.  The non-solicitation agreement contains a one-year prohibition on soliciting Bank customers, as defined in the agreement, or performing substantially similar executive or managerial services for a competitor of the Bank whose principal office is located within specified Bank market areas.  The non-solicitation agreements also contain a two-year prohibition on the use of confidential information of the Company or the Bank.  

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Outstanding Equity Awards at Fiscal Year-End 2006

Stock options outstanding at December 31, 2006, held by the officers named in the Summary Compensation table are indicated below.

	Option Awards					Stock Awards
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares or Units of Stock That Have Not Vested (#)	Market Value of Shares or Units of Stock That Have Not Vested ($)	Equity Incentive Plan Awards: Number of Unearned Shares, Units, or Other Rights That Have Not Vested (#)	Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units, or Other Rights That Have Not Vested ($)
James F. Warsaw	0	7,500(1)	0	$36.00	01/31/16	–	–	–	–
Paul H. Ewig	0	3,500(1)	–	$38.25	10/02/16	–	–	–	–
Gene C. Knoll	0	5,503(1)	–	$36.00	01/31/16	–	–	–	–
	475	–	–	$33.70	01/19/15
	548	–	–	$29.25	01/02/14
	661	–	–	$28.13	01/02/13
	575	–	–	$26.63	01/02/12
	529	–	–	$25.50	01/02/11
	478	–	–	$28.25	01/12/10
William A. Weiland	–	3,829(1)	–	$36.00	01/31/16	–	–	–	–
	319	–	–	$33.70	01/19/15
	375	–	–	$29.25	01/02/14
	411	–	–	$28.13	01/02/13
	379	–	–	$26.63	01/02/12
	384	–	–	$25.50	01/02/11
	340	–	–	$28.25	01/12/10
Rhonda R. Kelley	0	386(1)	–	$36.00	01/31/16	–	–	–	–
	123	–	–	$33.70	01/02/15
	153	–	–	$29.25	01/02/14
	137	–	–	$28.13	01/02/13
	199	–	–	$26.63	01/02/12
	200	–	–	$25.50	01/02/11
	165	–	–	$28.25	01/12/10

⁽¹⁾ Options vest in annual increments of 25% beginning on the first anniversary of date of grant.

Option Exercises and Stock Vested in 2006

The following table indicates options exercised in 2006 by our executive officers named in the Summary Compensation table.

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	Option Awards		Stock Awards(1)
			Number of Shares
	Number of Shares	Value Realized on	Acquired on	Value Realized
	Acquired on Exercise	Exercise	Vesting	on Vesting
Name	(#)	($)	(#)	($)
James F. Warsaw	16,000(1)	$32,000	–	–

⁽¹⁾ Exercise of option to purchase up to 20,000 shares of Company stock on or before February 15, 2006, granted in connection with Mr. Warsaw’s employment.

Nonqualified Deferred Compensation for 2006

The following table presents information concerning the nonqualified deferred compensation of our named executive officers.

	Executive	Registrant	Aggregate	Aggregate	Aggregate
	Contributions in	Contributions in	Earnings in	Withdrawals/	Balance in Last
	Last FY	Last FY	Last FY	Distributions	FYE
Name	($)	($)	($)	($)	($)
Gene C. Knoll(1)	–	–	$1,719	$18,160	–

⁽¹⁾ Represents account under Directors Deferred Compensation Plan.  The balance credited to Mr. Knoll on December 31, 2006, was paid to him on that date in accordance with the terms of the plan in connection with his termination of service as a director of the Bank.  The plan is described under “Directors Deferred Compensation Plans,” page 8.

Termination and Change in Control Payments

The Company maintains certain arrangements that will provide payments to officers named in the Summary Compensation table at, following, or in connection with their termination of employment or a change in control of the Company.  The following paragraphs describe those arrangements and the estimated dollar amounts of the payments to be made under such arrangements.

Mr. Warsaw’s Employment Agreement.  In order to assure management continuity and stability, the Company has entered into an employment and change in control agreement with Mr. Warsaw (see “Employment Agreement,” page 17).  Mr. Warsaw’s agreement provides for a three-year term of employment which expires on December 12, 2008, subject to certain termination rights of Mr. Warsaw and the Company under the terms of the agreement.  In the event of a termination by the Company without cause, Mr. Warsaw is entitled to receive a severance payment equal to one year’s salary, and $650,000 if the termination occurs within one year after, or in contemplation of, a “change in control” at the Company.  In either event, the Company will reimburse Mr. Warsaw for amounts paid by him to continue medical, health, and dental coverage for a period of eighteen months.  For purposes of this agreement, a “change in control” means:

20

·

the acquisition of 30% or more of the Company’s common stock by a person or group (excluding stock acquired from the Company or acquired by an employee benefit plan sponsored by the Company);

·

a change in the composition of the Board so that the incumbent directors on the effective date of the plan (or the successive directors approved by them) no longer constitute a majority of the directors;

·

shareholder approval of a merger in which (1) the Company’s shareholders will beneficially own less than 60% of the shares of the new combined entity in substantially the same proportion as shares of the Company were beneficially owned immediately prior to the merger, (2) any person will own at least 30% of the stock of the combined entity, and (3) less than a majority of the members of the board of directors of the new entity were members of the Board at the time the agreement was signed or approved by the Board; and

·

shareholder approval of a liquidation or dissolution of the Company or sale of all or substantially all of the assets of the Company, other than a sale to a corporation in which (1) the Company’s shareholders will beneficially own less than 60% of the shares in substantially the same proportion as shares of the Company were beneficially owned immediately prior to the sale, (2) any person will own at least 30% of the stock of the corporation (except to the extent such person owned 30% before such sale), and (3) less than a majority of the members of the board of directors of the new entity were members of the Board at the time the agreement of sale was signed or approved by the Board.

In the event of termination for cause, Mr. Warsaw is not entitled to any further benefits under the agreement.  “Cause” is defined under the agreement as (1) acts that result in the payment of a claim under a blanket banker fidelity bond policy; (2) any intentional and willful failure on the part of Mr. Warsaw to substantially perform his duties under the agreement; (3) any willful misconduct in the course of Mr. Warsaw’s employment that is demonstrably and materially injurious to the Company or the Bank; (4) any breach of fiduciary duty involving personal profit or the commission of certain crimes, including theft, embezzlement, misapplication of funds, unauthorized issuance of obligations, and false entries; (5) acts or omissions to act that result in the material violation by Mr. Warsaw of any policy established by the Bank that is designed to insure compliance with applicable banking, securities, employment discrimination, or other laws or that cause or result in the Bank’s violation of such laws; or (6) any breach of the employment agreement by Mr. Warsaw.  The non-competition provisions of the agreement have been superceded by a non-solicitation and confidentiality agreement in a form entered into with other executive officers that prohibits competition with the Company for a period of twelve months after termination of employment.

Option Grants.  The Company’s 1999 Stock Option Plan provides that in the event of a change in control, all options become immediately vested and exercisable.  In addition, each optionee may elect, within 60 days following the change in control, to surrender the option for an immediate lump sum cash payment equal to the excess of (1) highest price in any tender or exchange offer for the Company’s stock resulting in the change in control, or (2) the highest fair market value of the Company’s stock on any day in the 60-day period ending on the effective

21

date of the change in control.  Payments are to be made by the Company within five business days after an employee’s election to receive the lump sum value provided.  For purposes of the 1999 Stock Option Plan, a “change in control” means:

·

the acquisition of 25% or more of the Company’s common stock by a person or group (excluding stock acquired from the Company or acquired by an employee benefit plan sponsored by the Company);

·

a change in the composition of the Board so that the incumbent directors on the effective date of the plan (or the successive directors approved by them) no longer constitute a majority of the directors;

·

shareholder approval of a merger in which (1) the Company’s shareholders will beneficially own less than 60% of the shares of the new combined entity in substantially the same proportion as shares of the Company were beneficially owned immediately prior to the merger, (2) any person will own at least 25% of the stock of the combined entity, and (3) less than a majority of the members of the board of directors of the new entity were members of the Board at the time the agreement was signed or approved by the Board; and

·

shareholder approval of a liquidation or dissolution of the Company.

The following table describes the potential payments to the named person upon a change in control or termination of employment based on the assumption that the termination of employment or change in control occurred on December 31, 2006.

			Mr. Warsaw	Mr. Ewig	Mr. Knoll	Mr. Weiland
Involuntary Termination without Cause
		salary	$230,000(1)	–	–	–
		health insurance	$  16,101(3)
		dental insurance	$    1,215(3)
Retirement, death, or disability
		stock options	$  18,375	$700	$13,482	$9,381
Termination without Cause within
	one year of Change in Control
		salary	$650,000(2)	–	–	–
		health insurance	$  16,101(3)	–	–	–
		dental insurance	$    1,215(3)	–	–	–
		stock options(4)	$  18,375	$700	$13,482	$9,381

⁽¹⁾ Payable in equal monthly installments over a 12-month period beginning on termination of employment.

⁽²⁾ Payable in equal monthly installments over a 36-month period beginning on termination of employment.

⁽³⁾ Cost of continuation coverage for 18 months following termination.

⁽⁴⁾ Based on vesting on all options and excess of (a) $38.45 (the highest fair market value of our stock on the 60-day period preceding December 31, 2006) over (b) per share exercise price of each outstanding option held by named individual on December 31, 2006.  The highest 60-day fair market value for the period ended December 31, 2006, was reached on that date.  “Fair market value” is defined as the mean between the highest bid and lowest ask price as quoted on the OTC Bulletin Board on any day.

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Audit Committee Report and Related Matters

Audit Committee Report

The Audit Committee assists the Board in monitoring the integrity of the Company’s financial statements and the independence and the performance of the Company’s independent auditor.  This report summarizes the actions of the Committee with respect to the Company’s financial statements for the last fiscal year.  

Management has primary responsibility for the Company’s financial statements and the filing of financial reports with the SEC.  The Committee met periodically with management, internal audit personnel, and representatives of the Company’s independent auditor, to review and discuss the Company’s financial statements prior to their issuance.  Management advised the Committee that all financial statements were prepared in accordance with generally accepted accounting principles.  The Committee’s review of the financial statements included discussion with the independent auditor of matters required to be discussed pursuant to Statement on Auditing Standards No. 61 (Communication with Audit Committees).

The Audit Committee received from the independent auditor the written disclosure and the letter relating to the independence of the firm required by the Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees).  The Committee also discussed with the independent auditor the independence of the firm for the purposes of expressing an opinion on the Company’s financial statements and considered whether the provision of nonaudit services is compatible with maintaining the independence of the firm.

On the basis of its reviews and discussions concerning the financial statements and the independence of the auditor described above, the Audit Committee recommended to the Board that it approve the inclusion of the Company’s audited financial statements in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2006, for filing with the SEC.

Audit Committee

Robert J. Schoofs, Chair

Frederick T. Lundin

Kathryn M. Hemer

Brian B. Hallgren

23

Independent Auditor Fees

The following table presents aggregate professional fees paid or accrued during the 2006 and 2005 fiscal years in the categories specified.  All services performed received pre-approval by the Audit Committee.

	2006	2005
Audit Fees(1)	$  69,500	$  66,837
Audit-Related Fees(2)	11,691	20,624
Tax Fees(3)	10,091	7,543
All Other Fees(4)	0	9,000
	$  91,282	$104,004

⁽¹⁾ Audit fees consisted of audit work performed in the preparation of financial statements, as well as work generally only the independent auditor can reasonably be expected to provide, such as statutory audits and review of SEC filings.

⁽²⁾ Audit-related fees consisted principally of audits of employee benefit plans and due diligence services, and include fees related to accounting consultations in 2006 and a trust department examination in 2005.

⁽³⁾ Tax fees represent professional services related to tax compliance and consultation.

⁽⁴⁾ Assistance in human resources director selection in 2005.

Audit Committee Pre-Approval Policy

Audit services and related fees for 2006 were approved on a case-by-case basis by the Audit Committee prior to the performance of such services.  In granting approval for a service, the type and scope of service, the fees, whether the service is permitted to be performed by an independent auditor, and whether such service is compatible with maintaining the auditor’s independence were considered.

24

Proposal No. 2 – Ratification of The

Appointment of Independent Auditors

At the annual meeting, shareholders will be asked to ratify the appointment of the firm of Wipfli LLP (“Wipfli”) as independent auditor to audit our books, records, and accounts for the fiscal year ending December 31, 2007.  Although action by the shareholders in this matter is not required and is not binding should the Board believe it is appropriate to retain another firm as independent auditor, the Board believes it is appropriate to seek shareholder ratification of this appointment in light of the critical role played by the independent auditor in maintaining the integrity of our financial controls and reporting.  The firm has served as our auditor since 1990.

Representatives of Wipfli will be present at the annual meeting and will have an opportunity to make a statement or respond to appropriate questions.

The Board recommends a vote FOR the approval of the appointment of Wipfli LLP.  In the event the shareholders do not ratify the appointment, the appointment will be reconsidered by the Audit Committee and the Board.  

Corporate Summary Annual Report

The 2006 Summary Annual Report, which includes condensed consolidated financial statements for the years ended December 31, 2006, 2005, and 2004, has been mailed concurrently with this proxy statement to shareholders as of the record date.  The 2006 Summary Annual Report and the 2006 Form 10-K Annual Report do not constitute a part of this proxy statement.

Please sign, date, and return your proxy promptly.

25

MID-WISCONSIN FINANCIAL SERVICES, INC.

PROXY SOLICITED BY DIRECTORS FOR ANNUAL MEETING

April 24, 2007

The undersigned hereby appoint(s) Kim A. Gowey, DDS and James F. Melvin, and each of them, with full power of substitution, proxies of the undersigned to vote all shares of common stock of Mid-Wisconsin Financial Services, Inc. that the undersigned is entitled to vote at the annual meeting of shareholders to be held on April 24, 2007, and at any adjournments thereof (the “Annual Meeting”).  The proxies have the authority to vote such stock as directed below with respect to the proposals set forth in the proxy statement dated March 23, 2007, with the same effect as though the undersigned were present in person and voting such shares.  The undersigned hereby revokes all proxies previously given to vote at the Annual Meeting.  

The Board of Directors recommends a vote FOR the election of each nominee and ratification of the appointment of the independent auditor.

1.

Election of Class III directors:  Frederick T. Lundin, James F. Melvin, and Robert J. Schoofs

FOR   £    WITHHOLD AUTHORITY   £

Instruction:  To withhold authority to vote for any individual nominee(s), print the name of the nominee(s) on the line below:

____________________________________________________________________________________________________

2.

To ratify the appointment of Wipfli LLP as independent auditor for the year ending December 31, 2007.

FOR   £     AGAINST   £     ABSTAIN   £

(Continued and to be signed on reverse side.)

If no specific voting instructions are given, the shares represented by this proxy will be voted as recommended by the Board of Directors.

(Continued from other side)

Please sign exactly as name appears below.

When shares are held by joint tenants, both should sign.  When signing as attorney, executor, administrator, trustee, or guardian, please give full title.  If a corporation, please sign in full corporate name by president or other authorized officer.  If a partnership, please sign in partnership name by authorized person.

_______________________________________________

Signature

_______________________________________________

Signature if held jointly

Dated  ____________________________________, 2007

Please mark, sign, date, and return the proxy card promptly using the enclosed envelope.