<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
----------------------------------------------
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 0-14553
------------------------------------------------------
F & M Bancorporation, Inc.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1365327
- -----------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bank Avenue, Kaukauna, Wisconsin 54130
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(414) 766-1717
- -----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
- -----------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of August 12, 1996.
$1.00 par value common
6,980,940 shares
<PAGE> 2
F & M BANCORPORATION, INC.
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I. FINANCIAL INFORMATION:
Item l. Financial Statements 3
Condensed Consolidated Balance Sheets
as of June 30, 1996 and December 31,
1995 (Unaudited) 4
Condensed Consolidated Statements of Earnings
for the three and six months ended June 30,
1996 and 1995 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30,
1996 and 1995 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 10
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
</TABLE>
- 2 -
<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed consolidated financial statements included herein have been
included by F & M Bancorporation, Inc. (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. This information is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which, in the opinion of Company
management, are necessary for a fair presentation of the results for such
periods.
The results of operations for interim periods are not necessarily indicative of
the results of operations for the entire year. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1995 Annual Report.
- 3 -
<PAGE> 4
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 38,006,941 $ 40,848,045
Federal funds sold 7,817,000 22,118,000
----------- -----------
Total cash and cash equivalents 45,823,941 62,966,045
Investment securities (Note B)
Held to maturity 85,672,344 65,948,661
Available for sale - stated at fair value 129,983,715 138,898,862
Loans (Note C) 799,544,690 700,043,946
Less: Allowance for loan losses (10,031,142) (8,921,131)
----------- -----------
Net loans 789,513,548 691,122,815
Bank premises and equipment, net 25,237,232 20,718,823
Other real estate 768,096 808,631
Other assets 20,228,467 15,814,189
----------- -----------
$1,097,227,343 $996,278,026
============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 122,663,584 $110,187,506
Interest bearing 823,698,549 756,524,375
----------- -----------
Total deposits 946,362,133 866,711,881
Short-term borrowing 39,070,021 12,194,134
Other borrowings 2,333,244 10,833,244
Accrued expenses and other liabilities 9,921,428 12,281,690
----------- -----------
Total liabilities 997,686,826 902,020,949
Minority interest in subsidiaries 95,260 189,863
Shareholders' Equity
Common stock - $1 par value:
Authorized - 20,000,000 shares
Issued - 7,016,690 and 6,259,717 7,016,690 6,259,717
Capital surplus 60,197,318 43,600,295
Retained earnings 33,720,119 44,899,802
Net unrealized loss on securities available for sale (794,736) 131,838
Less-Common stock held in treasury at cost-
36,300 shares and 45,000 shares, respectively (694,134) (824,438)
----------- ------------
Total shareholders' equity 99,445,257 94,067,214
----------- ------------
Total liabilities and shareholders' equity $1,097,227,343 $996,278,026
============= ============
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 4 -
<PAGE> 5
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $17,916,331 $15,686,982 $34,835,629 $30,328,629
Interest on investment securities
Taxable 1,967,774 2,052,423 4,027,253 4,046,870
Exempt from federal tax 1,128,984 944,861 2,152,149 1,900,632
Other interest income 298,559 76,255 796,691 203,161
---------- ---------- ---------- ----------
Total interest income 21,311,648 18,760,521 41,811,722 36,479,292
---------- ---------- ---------- ----------
Interest expense
Interest on deposits 8,974,564 7,865,280 17,810,830 14,962,517
Interest on short-term borrowing 444,241 291,429 676,064 639,409
Interest on other borrowing 77,384 321,368 243,685 449,195
---------- ---------- --------- ----------
Total interest expense 9,496,189 8,478,077 18,730,579 16,051,121
---------- ---------- ---------- ----------
Net interest income 11,815,459 10,282,444 23,081,143 20,428,171
Provision for loan losses 401,333 298,250 820,332 635,000
---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 11,414,126 9,984,194 22,260,811 19,793,171
---------- ---------- ---------- ----------
Other income
Service charges on deposit accounts 744,815 685,243 1,424,249 1,256,973
Other operating income 565,751 410,337 1,241,492 944,504
Net security gain (loss) (6,038) 15,354 (24,520) 25,585
---------- ---------- ---------- ----------
1,304,528 1,110,934 2,641,221 2,227,062
---------- ---------- ---------- ----------
Other expenses
Salaries and employee benefits 3,899,041 3,539,202 7,804,738 7,008,140
Other operating expense 3,500,850 3,526,287 6,804,268 7,170,186
---------- ---------- ---------- ----------
7,399,891 7,065,489 14,609,006 14,178,326
---------- ---------- ---------- ----------
Income before income taxes 5,318,763 4,029,639 10,293,026 7,841,907
Income taxes 1,766,821 1,246,061 3,315,415 2,414,320
---------- ---------- ---------- ----------
NET INCOME $ 3,551,942 $ 2,783,578 $ 6,977,611 $ 5,427,587
========== ========== ========== ==========
EARNINGS PER SHARE $0.51 $0.41 $1.00 $0.80
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 5 -
<PAGE> 6
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
June 30,
1996 1995
--------- ---------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 6,977,611 $ 5,427,587
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 1,208,402 1,141,264
Provision for loan losses 820,332 635,000
(Gain) loss on sale of investment securities 24,520 (25,585)
Increase in other assets (874,205) (450,187)
Gain on sale of equipment (48,369) (599)
Increase (decrease) in other liabilities (2,708,556) 825,867
Provision for other real estate losses 39,925 36,605
Gain on sale of other real estate (19,547) (56,436)
Minority interest 8,383 (18,624)
------------ -----------
Net cash provided by operating activities 5,428,496 7,514,892
------------ -----------
Cash flows from investing activities:
Proceeds from sale of investment securities
available for sale 1,090,800 10,642,838
Proceeds from maturities of investment
securities available for sale 29,990,167 14,247,106
Purchase of investment securities
available for sale (18,318,740) (22,204,651)
Proceeds from maturities of investment
securities held to maturity 3,815,839 4,385,955
Purchase of investment securities
held to maturity (15,263,982) (5,182,443)
Net increase in loans (55,317,255) (43,322,868)
Capital expenditures (4,242,397) (1,261,592)
Proceeds from sale of equipment 240,261 2,225
Proceeds from sale of other real estate 281,942 624,570
Payment for purchase of other real estate 0 (48,991)
Payment for purchase of stock of
subsidiary banks, net of cash received (349,693) ---
----------- -----------
Net cash used in investing activities (58,073,058) (42,117,851)
----------- -----------
Cash flows from financing activities:
Net increase in deposits 19,942,393 17,359,431
Net increase in short-term borrowings 26,875,887 742,859
Dividends paid (2,457,272) (1,922,399)
Purchase of common stock 0 (845,625)
Net increase (decrease) in other borrowings (8,959,250) 14,500,000
Net proceeds options exercised 100,700 ---
----------- -----------
Net cash provided by financing activities 35,502,458 29,834,266
----------- -----------
Net decrease in cash and cash equivalents (17,142,104) (4,768,693)
Cash and cash equivalents at beginning of period 62,966,045 43,483,408
----------- -----------
Cash and cash equivalents at end of period $ 45,823,941 $ 38,714,715
=========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 6 -
<PAGE> 7
F & M BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of F&M Bancorporation, Inc. and its subsidiaries,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These statements have been
restated to reflect the acquisition of Union State Bank, acquired January 9,
1995, and Community State Bank, acquired on June 28, 1996. These transactions
have been accounted for using the pooling of interests method of accounting.
Monycor Bancshares, Inc., acquired on February 5, 1996, accounted for as
pooling of interests, was not material to prior years' reported operating
results and accordingly, previous years' results have not been restated. The
acquisitions of the TCF office in Little Chute, acquired April 26, 1996, and
the Bradley Bank, acquired May 10, 1996, were accounted for using the purchase
method of accounting; accordingly, the financial data includes results of
operations only since the dates of acquisition. All per share information has
been adjusted to reflect the 10% stock dividend, paid to shareholders on June
10, 1996. In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for fair presentation have been
included.
NOTE B - INVESTMENT SECURITIES
Carrying amounts and market values of investment securities held to
maturity at June 30, 1996 are as follows:
<TABLE>
<CAPTION>
Carrying Market
Amount Value
-------- -------
(in thousands)
<S> <C> <C>
Exempt obligations of states and political subdivisions $85,672 $86,006
======= =======
</TABLE>
NOTE C - LOANS
<TABLE>
<S> <C>
At June 30, 1996, loans are as follows:
(in thousands)
Commercial and industrial $140,234
Agricultural 46,261
Real estate construction 26,601
Real estate mortgage 520,632
Installment and other consumer 65,817
--------
799,545
Less allowance for loan losses (10,031)
--------
Net loans $789,514
========
</TABLE>
NOTE D - EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on weighted average number of
common shares outstanding of 6,976,770 and 6,793,872 for the three months ended
June 30, 1996 and 1995 and 6,975,280 and 6,803,473 for the six months ended
June 30, 1996 and 1995, respectively.
- 7 -
<PAGE> 8
NOTE E - NON-PERFORMING ASSETS
The following table sets forth the amount of non-performing loans, other
real estate owned and non-performing assets, and each of their percentages to
total loans at June 30, 1996:
<TABLE>
<S> <C> <C>
(in thousands)
Non-accrual loans $9,164 1.14%
Loans past due 90 days or more 69 0.01
Restructured loans 453 0.06
------ ----
Total non-performing loans 9,686 1.21
Other real estate owned 768 0.10
------ ----
Total non-performing assets $10,454 1.31%
======= ====
</TABLE>
NOTE F - SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at June 30, 1996; changes in
the allowance for loan losses arising from loans charged-off and recoveries on
loans previously charged-off, by loan category; and provisions for loan losses
which have been charged to expense:
<TABLE>
<S> <C>
(in thousands)
Average balance of loans year-to-date $750,930
========
Allowance for loan losses at
December 31, 1995 8,921
Loans charged off
Commercial and Industrial 183
Real Estate - Mortgage 10
Installments and Other Consumer Loans 209
--------
Total charge offs 402
Recoveries on loans previously
charged off
Commercial and Industrial 54
Real Estate - Mortgage 3
Installment and Other Consumer Loans 49
--------
Total recoveries 106
Net loans charged off 296
Adjustments
Balance related to acquisitions 586
Provisions for loan
losses 820
--------
Allowance for loan losses
at end of period $10,031
=======
Ratio of net charge offs
during period to average
loans outstanding (annualized) 0.08%
Allowance for loan
losses to total loans 1.25%
</TABLE>
- 8 -
<PAGE> 9
NOTE G - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table summarizes the allocation of allowances for loan losses
and gives a breakdown of the percentage of loans in each category at June 30,
1996:
<TABLE>
<CAPTION>
Percent
of loans
Amount of in each
reserve category
for loan to total
(in thousands) losses loans
- -----------------------------------------------------------
<S> <C> <C>
Commercial,
industrial, and
agricultural $ 4,139 23.3%
Real estate -
construction 166 3.3
Real estate - mortgage 3,728 65.1
Installment and other
consumer loans 1,998 8.3
------ -----
$10,031 100.0%
======= =====
</TABLE>
- 9 -
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding F & M
Bancorporation, Inc.'s (the "Company") results of operations for the three and
six months ended June 30, 1996 and 1995 and financial condition at June 30,
1996. These statements have been restated to reflect the acquisitions of Union
State Bank ("Union"), acquired January 9, 1995 and Community State Bank
("Community"), acquired on June 28, 1996. These transactions have been
accounted for using the pooling of interests method of accounting. Monycor
Bancshares, Inc., acquired on February 5, 1996, accounted for as pooling of
interests, was not material to prior years' reported operating results;
accordingly, previous years' results have not been restated. The acquisitions
of TCF office in Little Chute, acquired April 26, 1996, and Bradley Bank,
acquired May 10, 1996, were accounted for using the purchase method of
accounting; accordingly, the financial data includes results of operations only
since the dates of acquisition. All per share information has been adjusted to
reflect the 10% stock dividend, paid to shareholders on June 10, 1996.
The Company has announced a pending acquisition which, if consummated,
could affect the Company's future operations. In August 1996, the Company
announced that it had entered into a letter of intent to acquire Green County
Bank, Brodhead, Wisconsin, a bank with total assets of approximately $30
million. The Company intends to account for the pending acquisition using the
pooling of interests method of accounting. The Company expects the Green
County Bank acquisition to be consummated in early 1997.
RESULTS OF OPERATIONS
For the three months ended June 30, 1996, net income increased $768,000, or
27.6%, to $3.6 million from $2.8 million in the second quarter of 1995. The
annualized return on average assets was 1.34% for the second quarter of 1996
compared with 1.18% for the second quarter of 1996. Returns on average
stockholders' equity on an annualized basis for the second quarters of 1996 and
1995 were 14.55% and 12.93%, respectively.
For the six months ended June 30, 1996, net income increased $1.6 million,
or 28.6%, to $7.0 million from $5.4 million in the first half of 1995. The
annualized return on average assets was 1.34% for the six months ended June 30,
1996 compared with 1.17% for the first half of 1995. Returns on average
stockholders' equity on an annualized basis for the six months ended June 30,
1996 and 1995 were 14.40% and 12.96%, respectively.
Net Interest Income
Net interest income for the three months ended June 30, 1996 increased $1.5
million, or 14.9%, to $11.8 million from $10.3 million in the second quarter of
1995. Total interest income for the second quarter of 1996 increased $2.5
million, or 13.6%, to $21.3 million from $18.8 million in the second quarter of
1995, while interest expense increased $1.0 million, or 12.0%, to $9.5 million
in the second quarter of 1996 from $8.5 million in 1995.
- 10 -
<PAGE> 11
Net interest income for the six months ended June 30, 1996 increased $2.7
million, or 13.0%, to $23.1 million from $20.4 million in the first half of
1995. Total interest income for the six months ended June 30, 1996 increased
$5.3 million, or 14.6%, to $41.8 million from $36.5 million in the first half
of 1995, while interest expense increased $2.7 million, or 16.7%, to $18.7
million in the six months ended June 30, 1996 from $16.0 million in 1995.
Increased net interest income for the three month period resulted primarily
from maintaining net interest margins and increased lending activity. Total
interest income increased for the three and six month period in 1996 compared
to the same periods last year as a result of an increase in interest and fees
on loans due to increased loan activity (including the increased loans
resulting from recent company acquisitions), and generally stable interest
rates, while total interest expense increased for the three and six month
period in 1996 compared to 1995 as a result of increased levels of deposits
including those resulting from acquisitions.
Provision for Loan Losses
The provision for loan losses for the three months ended June 30, 1996
increased $103,000, or 34.6%, to $401,000 from $298,000 in the second quarter
of 1995. The provision for loan losses for the six months ended June 30, 1996
was $820,000, a 29.2% increase from $635,000 for the six months ended June 30,
1995. This increase in the provision for the first six months was due mainly
to the increase in the loan portfolio. Subject to its continuing review,
management anticipates the provision for the last two quarters of the year will
be consistent with the provision for the first half of 1996. See "Allowance
for Loan Losses" for further discussion.
Non-Interest Income
Non-interest income for the three months ended June 30, 1996 increased
$194,000, or 17.4%, to $1.3 million from $1.1 million in the second quarter of
1995. Non-interest income for the six months ended June 30, 1996 increased
$414,000, or 18.6%, to $2.6 million. Increases for both the three and six
month periods were due primarily to increases in service charges and other fee
income, resulting from increase customer activity and the effect of the recent
acquisitions.
Non-Interest Expense
Non-interest expense for the three months ended June 30, 1996 increased
$334,000, or 4.7%, to $7.4 million from $7.1 million in the second quarter of
1995. Non-interest expense for the six months ended June 30, 1996 increased
$431,000, or 3.0%, to $14.6 million from $14.2 million in the first half of
1995. The increases were due primarily to the effect of acquisitions,
additional staffing and normal increases in salaries and employee benefits,
partially offset by the decrease in FDIC insurance premiums which occurred in
May, 1995.
The overhead ratio, which is computed by subtracting non-interest income
from non-interest expense (excluding net securities transactions) and dividing
by average total assets, was 2.30% in the second quarter of 1996 compared with
2.53% in the second quarter of 1995. On a year-to- date basis the overhead
ratio was 2.29% for the first half of 1996 as compared to 2.58% for the same
time period in 1995. The decrease in this ratio in the second quarter and the
first half of 1996 was the result of the factors set forth above.
- 11 -
<PAGE> 12
Provision for Income Taxes
The Company's provision for income taxes for the three months ended June
30, 1996 increased $521,000, or 41.8%, to $1.8 million from $1.3 million in the
second quarter of 1995. The provision for income taxes for the six months
ended June 30, 1996 increased $901,000, or 37.3%, to $3.3 million from $2.4
million in 1995. The increase in income tax provision was principally due to
increased taxable income.
Net Income
Net income for the second quarter of 1996 increased by $768,000, or 27.6%,
to $3.6 million from $2.8 million in the same period for 1995. Net income for
the first half of 1996 increased by $1.6 million, or 28.6%, to $7.0 million
from $5.4 million in the first half of 1995.
Net income per share was $0.51 for the second quarter of 1996 compared with
$0.41 in the second quarter of 1995, an increase of 24.4%. Net income per
share was $1.00 for the first half of 1996, compared with $0.80 in the same
period for 1995, an increase of 25.0%. As of June 30, 1996, fully diluted
earnings per share are equal to the stated earnings per share numbers.
FINANCIAL CONDITION
Loan Portfolio
At June 30, 1996, total loans increased $99.5 million, or 14.2%, to $799
million from $700 million at December 31, 1995. The loan mix in the Company's
portfolio at June 30, 1996 did not change in any material respect compared with
December 31, 1995. The increase resulted primarily from continued strong loan
demand spread throughout the Company's subsidiary banks and the acquisitions in
the first half of 1996.
Non-Performing Assets
At June 30, 1996, non-performing assets amounted to $10.5 million compared
to $7.6 million at December 31, 1995. Non-performing loans at June 30, 1996
were $9.7 million, or 1.21% of total loans, compared to $6.8 million at
December 31, 1995. Other real estate owned ("OREO") at June 30, 1996 was
$768,000 as compared to $809,000 at December 31, 1995. The ratio of
non-performing assets to total loans at June 30, 1996 was 1.31%. Management
continues to work at reducing the level of non-performing assets.
Summary of Loan Loss Experience
For the first half of 1996, total charge-offs were $402,000 and total
recoveries were $106,000. The annualized ratio of net charge-offs to average
loans outstanding for the six months ended June 30, 1996 was .08%. The
charge-offs were not concentrated in any particular industry.
- 12 -
<PAGE> 13
Allowance for Loan Losses
At June 30, 1996, the allowance for loan losses as a percentage of total
loans was 1.25% compared with a ratio of 1.27% at December 31, 1995. This
decrease in the first half of 1996 was due primarily to the robust growth in
the loan portfolio, which more than offsets the effect of a $1.0 million net
increase in the allowance in the first half of 1996. Management continually
reviews the loan portfolio, and other factors, to determine the appropriate
allowance. The allowance for loan losses is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible based on evaluations of the collectibility of loans and prior
loan loss experience. In determining the additions to the allowance charged to
operating expenses, management considered historical loss experience, changes
in the nature and volume of the loan portfolio, overall portfolio quality, and
current economic conditions that may affect the borrower's ability to pay.
Investment Portfolio
At June 30, 1996, the investment portfolio increased $10.8 million, or
5.3%, to $216 million from $205 million at December 31, 1995. At June 30,
1996, the investment portfolio represented 19.7% of total assets compared with
20.6% at December 31, 1995.
Deposits
Total deposits at June 30, 1996 increased $79.7 million, or 9.2%, to $946
million from $867 million at December 31, 1995. Interest-bearing deposits at
June 30, 1996 increased $67.2 million, or 8.9%, to $823 million from $756
million at December 31, 1995.
Borrowings
Short-term borrowings at June 30, 1996 were $39.1 million, as compared to
$12.2 million at December 31, 1995. Short-term borrowings consist primarily of
federal funds purchased. The Company has used short-term borrowings to assist
in funding its increasing loan demand. Management has taken steps to monitor
short-term borrowing levels and supplement them by increasing interest rates
paid to depositors, developing new deposit products, and carefully monitoring
the growth in the loan portfolio.
Several of the Company's subsidiary banks, as members of the Federal Home
Loan Bank (FHLB), had borrowings from the FHLB as of June 30, 1996. These
borrowings are secured by pledges of mortgage loans, and totaled $2.3 million
at June 30, 1996, compared to $10.8 million at December 31, 1995. These FHLB
borrowings had original maturities of three month to seven years at June 30,
1996.
Capital Adequacy
During the six months ended June 30, 1996, stockholders' equity increased
$5.4 million due to net income of $7.0 million in the first half, offset by the
effect of SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" which decreased stockholders' equity by $927,000 during the half,
along with dividends paid to stockholders. At June 30, 1996, the Company's
risk-based Tier 1 capital ratio was 11.50%. The total risk-based capital ratio
was 12.74% and the leverage ratio was 8.79%. All such ratios exceed regulatory
minimums of 4.0%, 8.0% and 3.0%, respectively. The average equity to average
assets ratio was 9.30% at June 30, 1996, compared with 9.03% at June 30, 1995.
- 13 -
<PAGE> 14
F & M's common stock dividend payout ratio was 30.7% in the first half of
1996 as compared to 32.0% in the comparable 1995 period. These numbers do not
include the dividends historically paid by Union and Community prior to their
acquisitions by the Company.
At June 30, 1996, each of the Company's subsidiary banks was in compliance
with all applicable capital requirements, and management believes that the
capitalization of those banks is adequate.
During the first quarter the Company incurred capital expenditures of
approximately $3.0 million for replacement and renovation of facilities and the
purchase of a new branch location. In addition, on May 10, 1996, the Company
acquired Bradley for $6.6 million in cash. The Company's Little Chute
acquisition resulted in net cash of $6.6 million paid to F&M, in exchange for
F&M's assumption of $7.5 million in deposits and transfer to F&M of the
physical assets of the Little Chute branch. The capital expenditures are being
paid for by cash provided by operations.
Liquidity
As shown in the Company's Consolidated Statements of Cash Flows for the six
months ended June 30, 1996, cash and cash equivalents decreased by $17.1
million during the period to $45.8 million at June 30, 1996. The decrease
primarily reflected $5.4 million in net cash provided by operating activities
and $35.5 million in net cash provided by financing activities, offset by $58.0
million in net cash used in investing activities. Net cash provided by
operating activities primarily consisted of the Company's net income in the
period increased by adjustments for non-cash credits. Net cash provided by
financing activities principally reflected an increase in deposits, short-term
borrowing and partially offset by a decrease in other borrowings. Net cash
used in investing activities consisted primarily of a net increase in loans
plus necessary capital expenditures.
The Company manages its liquidity to provide adequate funds to support the
borrowing requirements and deposit flow of its customers. Management views
liquidity as the ability to raise cash at a reasonable cost or with a minimum
of loss and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the Company's
liquidity are investment securities available for sale and other marketable
assets maturing within one year. The Company attempts, when possible, to match
relative maturities of assets and liabilities, while maintaining the desired
net interest margin. Although the percentage of earning assets represented by
loans is increasing, management believes that its source of liquidity is
adequate.
- 14 -
<PAGE> 15
OTHER
SFAS No. 114 (Accounting by Creditors for Impairment of a Loan) as amended
by SFAS No. 118 (Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures) was adopted by the Company as of January 1, 1995.
In accordance with the new standard, the 1995 allowance for loan losses
includes specific allowances related to loans which have been judged to be
impaired and which fall within the scope of SFAS No. 114 (primarily commercial
loans). A loan is impaired when, based on current information, it is probable
that the Company will not collect all amounts due in accordance with the
contractual terms of the loan agreement. These specific allowances are based
on discounted cash flows of expected future payments using the loan's initial
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Since the Company evaluates the overall adequacy of the
allowance for credit losses on an ongoing basis, the adoption of SFAS No. 114
did not affect the amount of the allowance for credit losses or the existing
income recognition and charge-off policies for nonperforming loans.
SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of) was issued by FASB in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The statement also requires long-lived assets and certain intangibles to be
disposed of or be reported at the lower of carrying amount or fair value less
cost to sell. This statement was adopted by the Company effective January 1,
1996. The adoption of SFAS No. 121 did not have a significant impact on the
Company's financial condition or results of operations.
SFAS No. 122 (Accounting for Mortgage Servicing Rights) was issued by FASB
in May 1995. SFAS No. 122 requires accounting recognition of the rights to
service mortgage loans for others. The total cost of the mortgage loan will be
allocated between the relative fair values of the loan and the mortgage
servicing rights. The cost allocated to mortgage servicing rights will be
recognized as a separate asset and amortized over the period of estimated
servicing income. This statement was adopted by the Company effective January
1, 1996. The adoption of SFAS No. 122 did not have a significant impact on
the Company's financial condition or results of operations. Future impact of
adoption is contingent on the future levels of mortgage loan sales.
SFAS No. 123 (Accounting for Stock-Based Compensation) was issued by FASB
in October 1995. SFAS No. 123 establishes financial accounting and reporting
standards for stock-based employee compensation plans. The statement
encourages a "fair value-based method" of accounting for stock-based
compensation plans. Upon adoption of SFAS No. 123, the Company will be
required to disclose in the notes to the financial statements the difference
between the "fair value method" and the "intrinsic value method" as prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
will continue to account for stock-based compensation in accordance with APB
Opinion No. 25 on the Company's financial statements. SFAS No. 123 was adopted
as of January 1, 1996, and did not have a significant impact on the Company's
financial condition or results of operations.
- 15 -
<PAGE> 16
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS.
The foregoing discussion contains forward-looking statements that involve
risks and uncertainties. The Company's actual future results could materially
differ from those discussed. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed above and in the
Company's annual report on Form 10-K for the year ended December 31, 1995
(including the Management's Discussion and Analysis incorporated by reference
therein).
-16-
<PAGE> 17
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index, which follows the signature page
hereof.
(b) Reports on Form 8-K:
The Registrant filed one report on Form 8-K during the second
quarter of fiscal 1996. The Report on Form 8-K, dated June 28, 1996, related to
the Registrant's acquisition of Community State Bank, Algoma, Wisconsin ("CSB")
on that date. Because of the relative size of the Company and CSB, the report
did not include historical financial statements of CSB or pro forma financial
statements of the Company.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F & M BANCORPORATION, INC.
(Registrant)
Date: August 14, 1996 /s/ Gail E. Janssen
----------------------------------------
Gail E. Janssen
Chief Executive Officer
Date: August 14, 1996 /s/ Daniel E. Voet
----------------------------------------
Daniel E. Voet
Chief Financial Officer and Treasurer
<PAGE> 19
EXHIBIT INDEX
F & M BANCORPORATION, INC.
FORM 10-Q FOR QUARTER ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
Filed
Exhibit No. Description Herewith
- ----------- ----------- --------
<S> <C> <C>
27 Financial Data Schedule X
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 38,007
<INT-BEARING-DEPOSITS> 823,699
<FED-FUNDS-SOLD> 7,817
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 129,984
<INVESTMENTS-CARRYING> 85,672
<INVESTMENTS-MARKET> 86,006
<LOANS> 799,545
<ALLOWANCE> 10,031
<TOTAL-ASSETS> 1,097,227
<DEPOSITS> 946,362
<SHORT-TERM> 39,070
<LIABILITIES-OTHER> 9,921
<LONG-TERM> 2,333
0
0
<COMMON> 7,017
<OTHER-SE> 92,428
<TOTAL-LIABILITIES-AND-EQUITY> 1,097,227
<INTEREST-LOAN> 34,836
<INTEREST-INVEST> 6,179
<INTEREST-OTHER> 797
<INTEREST-TOTAL> 41,812
<INTEREST-DEPOSIT> 17,811
<INTEREST-EXPENSE> 18,731
<INTEREST-INCOME-NET> 23,081
<LOAN-LOSSES> 820
<SECURITIES-GAINS> (25)
<EXPENSE-OTHER> 14,609
<INCOME-PRETAX> 10,293
<INCOME-PRE-EXTRAORDINARY> 10,293
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,978
<EPS-PRIMARY> 1.00
<EPS-DILUTED> 1.00
<YIELD-ACTUAL> 4.91
<LOANS-NON> 9,164
<LOANS-PAST> 69
<LOANS-TROUBLED> 453
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,921
<CHARGE-OFFS> 402
<RECOVERIES> 106
<ALLOWANCE-CLOSE> 820
<ALLOWANCE-DOMESTIC> 10,031
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
