<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 3, 1996
REGISTRATION NO. 333-______
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
F&M BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>3
WISCONSIN 6022 39-1365327
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
ONE BANK AVENUE
KAUKAUNA, WISCONSIN 54130
(414) 766-1717
(Address, including Zip Code, and telephone number,
including area code, of registrant's principal executive offices)
RANDALL A. HAAK, ESQ.
MCCARTY, CURRY, WYDEVEN, PEETERS & HAAK
120 E. 4TH STREET
KAUKAUNA, WISCONSIN 54130
(414) 766-4693
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
COPIES TO:
KENNETH V. HALLETT, ESQ. JAMES A. SHERIFF, ESQ.
QUARLES & BRADY GODFREY & KAHN, S.C.
411 EAST WISCONSIN AVENUE 780 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202 MILWAUKEE, WI 53202
(414) 277-5000 (414) 273-3500
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO
THE PUBLIC: As soon as practicable after the Registration Statement becomes
effective.
If any of the securities being registered on this Form are being
offered in connection with the formation of a holding company and there is
compliance with General Instruction G, check the following box. [ ]
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED(1) PRICE PER UNIT(2) OFFERING PRICE(2) FEE
<S> <C> <C> <C> <C> <C>
Common Stock, $1.00 par value...... (3) (3) $8,175,380 $2,819.10
</TABLE>
(1) Estimated maximum amount. The actual maximum number of shares to be
issued in the Merger, as described herein, will be the number of
outstanding shares of Common Stock, $10.00 par value, of Community
State Bank (the "Bank") outstanding at the time of the Merger
(expected to be 46,000) multiplied by the conversion ratio under the
related merger agreement. The actual number of shares issued would
depend upon the final conversion ratio.
(2) Estimated pursuant to Rules 457(f)(2) under the Securities Act of 1933
solely for the purpose of calculating the registration fee, based on
the $8,175,380 aggregate book value of shares of Bank Common Stock, in
the absence of a market for such shares, at December 31, 1995 (the
latest practicable date for which such information is available).
(3) Omitted pursuant to Rule 457(o). It is estimated that approximately
462,760 shares of F&M Common would have been issued based upon the
conversion ratio which would have been in effect at March 31, 1996;
the actual conversion ratio (and number of shares issued) may be
higher or lower.
________________
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE
OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 3
F&M BANCORPORATION, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B)
OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 LOCATION OR CAPTION IN
ITEM NUMBER AND CAPTION PROXY STATEMENT/PROSPECTUS
<S> <C> <C>
A. Information about the Transaction.
1. Forepart of Registration Statement and
Outside Front Cover Page of
Prospectus/Proxy Statement . . . . . . . Outside Front Cover Page
2. Inside Front and Outside Back Cover
Pages of Prospectus/Proxy Statement . . . Available Information; Incorporation of Certain
Documents by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to
Fixed Charges and Other Information . . . Summary; Risk Factors
4. Terms of the Transaction . . . . . . . . Summary; The Merger; Description of Securities
5. Pro Forma Financial Information . . . . . Summary; Index to Financial Statements
6. Material Contacts with the Company
Being Acquired . . . . . . . . . . . . . Summary; The Merger; Community State Bank
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters . . . . . . . . *
8. Interests of Named Experts and Counsel . . Legal Opinions; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities . . . . . . . . . . . . . . . *
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
Form S-4 Location or Caption in
Item Number and Caption Proxy Statement/Prospectus
----------------------- --------------------------
<S> <C> <C>
B. INFORMATION ABOUT THE REGISTRANT.
10. Information with Respect to S-3
Registrants . . . . . . . . . . . . . . . . *
11. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . *
12. Information with Respect to S-2 or S-3
Registrants . . . . . . . . . . . . . . . Summary; F&M Selected Financial Data; F&M Management's
Discussion and Analysis of Results of Operations and
Financial Condition; F&M Bancorporation, Inc.; Market
Information and Dividends; Index to Financial
Statements
13. Incorporation of Certain Information by
Reference . . . . . . . . . . . . . . . . . Incorporation of Certain Documents by Reference
14. Information with Respect to Registrants
Other Than S-3 or S-2 Registrants. . . . . . *
C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED.
15. Information with Respect to S-3
Companies . . . . . . . . . . . . . . . . . *
16. Information with Respect to S-2 or S-3
Companies. . . . . . . . . . . . . . . . . . *
17. Information with Respect to Companies
Other Than S-3 or S-2 Companies . . . . . . Summary; Bank Selected Financial Data; Bank
Management's Discussion and Analysis of Results of
Operations and Financial Condition; Community State
Bank; Market Information and Dividends; Index to
Financial Statements
D. VOTING AND MANAGEMENT INFORMATION.
18. Information if Proxies, Consents
or Authorizations are to be Solicited . . . General Information; The Special Meeting; Summary;
The Merger; Community State Bank
19. Information if Proxies, Consents or
Authorizations are not to be Solicited
or in an Exchange Offer . . . . . . . . . *
</TABLE>
_________________
* Not applicable.
<PAGE> 5
[Bank Letterhead]
April __, 1996
Dear Fellow Shareholder:
You are cordially invited to attend a Special Meeting of Shareholders
of Community State Bank (the "Bank") to be held on _______, May __, 1996 at the
offices of the Bank, 208 Steele Street, Algoma, Wisconsin (the "Special
Meeting"). The Special Meeting will begin at _____, p.m., Central Time. At
the Special Meeting, you will be asked to approve a Plan and Agreement of
Merger and Reorganization dated as of February 22, 1996 (the "Agreement"),
which provides for the merger (the "Merger") of the Bank and a wholly-owned
subsidiary of F&M Bancorporation, Inc. ("F&M"). The Agreement provides that,
upon consummation of the Merger, each holder of Bank Common Stock will be
entitled to receive, for each share of Bank Common Stock held at the time of
the Merger, shares of F&M Common Stock valued at $271.74, as provided in the
Agreement and subject to the conditions and potential adjustments discussed in
the Agreement.
THE BOARD OF DIRECTORS OF THE BANK BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF THE BANK AND ITS SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS THAT
THE SHAREHOLDERS VOTE FOR THE APPROVAL OF THE AGREEMENT.
The attached Prospectus/Proxy Statement will provide you with a
detailed description of the Agreement and the transactions contemplated
thereby. The Agreement itself is attached as Appendix C to the
Prospectus/Proxy Statement. Extensive information concerning F&M and the Bank
is also provided in the Prospectus/Proxy Statement. Please give this
information your attention.
The affirmative vote of the holders of at least 75% of the shares of
Bank Common Stock entitled to vote at the Special Meeting is required to
approve the Agreement and the Merger. The failure to execute and return the
accompanying proxy card and or to vote in person at the Special Meeting will
have the effect of a vote cast against the Agreement. Furthermore, abstentions
will have the same effect as votes cast against approval of the Agreement. To
assure that your shares are represented in voting on this very important
matter, please complete and return the accompanying proxy card promptly in the
enclosed envelope, whether or not you plan to attend the Special Meeting. If
you do attend, you may, if you wish, revoke your proxy and vote your shares in
person at the Special Meeting.
If you require assistance, please contact Sylven Konkel at the Bank at
414/487-5261.
Very truly yours,
John Meyer,
President
<PAGE> 6
COMMUNITY STATE BANK
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY __, 1996
To the Shareholders of Community State Bank:
NOTICE is hereby given that a special meeting of the shareholders of
Community State Bank, a Wisconsin state bank (the "Bank"), will be held at the
offices of the Bank, 208 Steele Street, Algoma, Wisconsin on May __, 1996, at
____ p.m. local time, for the purpose of considering and voting upon the
following matters:
1. Approval of the transactions contemplated in an Agreement and
Plan of Reorganization and Merger (the "Agreement") among F&M
Bancorporation, Inc. ("F&M"), F&M Interim Bank ("Interim
Bank") and the Bank, including approval for F&M to acquire and
hold up to all of the outstanding shares of the Bank (the
"Acquisition") and approval of the merger transaction
contemplated by the Agreement (the "Merger") in which shares
of Bank Common Stock will be converted into shares of F&M
Common Stock; and
2. Such other matters relating to the foregoing as may properly
be brought before the meeting or any adjournment thereof;
all as set forth in the accompanying Prospectus/Proxy Statement.
The Board of Directors has fixed the close of business on April __,
1996 as the record date for the determination of shareholders entitled to
receive notice of and to vote at the Special Meeting or any adjournment
thereof.
The affirmative vote of the holders of not less than 75% of the
outstanding shares of Bank Common entitled to be cast is required for approval
of the Acquisition and the Merger. Dissenting Bank shareholders have certain
rights of appraisal in this matter; see "Rights of Dissenting Bank
Shareholders" in the Prospectus/Proxy Statement and the statutory provisions of
Wisconsin law set forth on Exhibit B thereto.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE MARK,
SIGN, DATE, AND RETURN THE ENCLOSED PROXY TO THE BANK PROMPTLY IN THE
ACCOMPANYING POST-PAID ENVELOPE. IT IS IMPORTANT THAT YOUR SHARES BE
REPRESENTED AT THE SPECIAL MEETING, WHETHER YOUR HOLDINGS ARE LARGE OR SMALL.
IF FOR ANY REASON YOU SHOULD DESIRE TO REVOKE YOUR PROXY, YOU MAY DO SO AT ANY
TIME BEFORE IT IS VOTED.
By order of the Board of Directors,
Sylven A. Konkel
Cashier
April __, 1996
Algoma, Wisconsin
<PAGE> 7
PROXY STATEMENT PROSPECTUS
FOR OF
SPECIAL MEETING OF SHAREHOLDERS F&M BANCORPORATION, INC.
OF
COMMUNITY STATE BANK
This Prospectus/Proxy Statement (the "Prospectus/Proxy Statement")
relates to the proposed acquisition of Community State Bank, a Wisconsin state
bank (the "Bank"), by F&M Bancorporation, Inc., a Wisconsin corporation
("F&M"), as described herein.
The acquisition of the Bank by F&M will be made by means of a merger
transaction (the "Merger") in which F&M Interim Bank, a wholly owned subsidiary
of F&M ("Interim Bank") will be merged into the Bank, and each outstanding
share of common stock, $10.00 par value, of the Bank ("Bank Common") will be
converted into shares of Common Stock, $1.00 par value, of F&M ("F&M Common")
in a ratio provided in the Stock Plan and Agreement of Merger and
Reorganization among F&M, Interim Bank and the Bank dated as of February 22,
1996 (the "Agreement"). This Proxy Statement/Prospectus also relates to the
proposed Special Meeting of shareholders of the Bank called to obtain approval
for F&M to acquire and hold shares of Bank Common (the "Acquisition") and the
Merger, which will occur pursuant to the Agreement.
In the Merger, Bank shareholders will receive shares of F&M Common
valued at $271.74 (subject to adjustment in certain specified cases). The
value of F&M Common will be based upon its average trading prices in the period
preceding the determination date, with a minimum value per share of F&M Common
of $21.50, and a maximum of $32.50. Assuming a $27.00 F&M market value (which
would have been the approximate value at March 31, 1996), Bank shareholders
would have received approximately 10.06 shares of F&M Common for each share of
Bank Common. Assuming a $32.50 F&M market value, Bank shareholders would have
received 8.36 shares of F&M Common for each share of Bank Common. Assuming a
$21.50 F&M stock value, Bank shareholders would have received 12.64 shares of
F&M Common for each share of Bank Common. For further information, see "The
Merger--Conversion Ratio."
The date of this Prospectus/Proxy Statement is April __, 1996, and
this Prospectus/Proxy Statement is first being mailed to the Bank shareholders
on or about that date.
The information contained in this Prospectus/Proxy Statement
concerning the Bank and F&M has been supplied by each of them, respectively.
No person has been authorized in connection with this offering to give any
information or to make any representations other than contained, or
incorporated by reference, in this Prospectus/Proxy Statement.
_____________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS/PROXY
STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<PAGE> 8
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS/PROXY STATEMENT
IN CONNECTION WITH THE SOLICITATIONS OF PROXIES OR THE OFFERING OF SECURITIES
MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY F&M, THE BANK, OR ANY OTHER PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS/PROXY STATEMENT NOR ANY DISTRIBUTION OF
SECURITIES MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF F&M OR THE BANK SINCE THE DATE
HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO
ITS DATE.
AVAILABLE INFORMATION
F&M is subject to the informational requirements of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and
Exchange Commission (the "Commission"). The reports, proxy statements and
other information filed by F&M with the Commission can be inspected and copied
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
Regional Offices at 7 World Trade Center, 13th Floor, New York, New York 10048
and Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois
60661. Copies of such material can also be obtained from the Public Reference
Section of the Commission, Washington, D.C. 20549 at prescribed rates. In
addition, material filed by F&M can be inspected at the offices of National
Association of Securities Dealers, Inc., 1735 K Street N.W., Washington, D.C.
20006.
F&M has filed with the Commission a Registration Statement on Form S-4
(together with any amendments thereto, the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"), with respect to the
securities to be issued pursuant to or as contemplated by the Agreement. This
Prospectus/Proxy Statement does not contain all the information set forth in
the Registration Statement. Such additional information may be obtained from
the Commission's principal office in Washington, D.C. Statements contained in
this Prospectus/Proxy Statement or in any document incorporated in this
Prospectus/Proxy Statement by reference as to the contents of any contract or
other document referred to herein or therein are not necessarily complete
(although all required material disclosures are included herein), and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by F&M pursuant to the
Exchange Act are incorporated by reference in this Prospectus/Proxy Statement:
F&M's Annual Report on Form 10-K for the year ended December 31, 1995; and
F&M's Current Report on Form 8-K dated February 5, 1996. In lieu of
incorporation by reference of a description of F&M's Common Stock, a
description is included herein under the caption "Description of
Securities--F&M Common."
Any statement contained in a document incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Prospectus/Proxy
Statement to the extent that a statement contained herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of
this Prospectus/Proxy Statement.
THIS PROSPECTUS/PROXY STATEMENT INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE
NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE) ARE AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO
WHOM THIS PROSPECTUS/PROXY STATEMENT IS DELIVERED, WITHOUT CHARGE, ON WRITTEN
OR ORAL REQUEST TO F&M BANCORPORATION, INC., ONE BANK AVENUE, KAUKAUNA,
WISCONSIN 54130 (TELEPHONE 414/766-1717), ATTN: CORPORATE SECRETARY. IN ORDER
TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS PRIOR TO THE SPECIAL MEETING, ANY
REQUESTS SHOULD BE MADE BY ___________, 1996.
-2-
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
<S> <C>
GENERAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
RIGHTS OF DISSENTING BANK SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
MARKET INFORMATION AND DIVIDENDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
F&M SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
F&M MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
F&M BANCORPORATION, INC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
BANK SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
BANK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
COMMUNITY STATE BANK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
INFORMATION AS TO SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
LEGAL OPINIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
INDEX TO FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
EXHIBIT A: Fairness Opinion of Robert W. Baird & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
EXHIBIT B: Wis. Stats. Section 221.25(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . B-1
EXHIBIT C: Text of the Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . C-1
ENCLOSURES:
Proxy Form, with return envelope
</TABLE>
-3-
<PAGE> 10
GENERAL INFORMATION
This Proxy Statement/Prospectus is being furnished to the shareholders
of the Bank in connection with the proposed Merger, in which shares of Bank
Common would be converted into shares of F&M Common, and the solicitation of
proxies on behalf of the Bank's Board of Directors to be voted at the special
meeting of shareholders of the Bank to be held on May __, 1996 and at any
adjournment thereof (the "Special Meeting"). The purpose of the Special
Meeting and of this solicitation is to obtain shareholder action with regard to
the approval of the Merger and the acquisition of shares of the Bank by F&M
pursuant to the Agreement.
The Agreement provides for the acquisition of the Bank by F&M through
the merger of Interim Bank, a Wisconsin state bank chartered by F&M
specifically for this transaction, into the Bank. In the Merger, shares of
Bank Common will be converted into shares of F&M Common valued (based upon then
current market prices at $271.74). See "The Merger--Conversion Ratio." Under
current Wisconsin law and the Agreement, in addition to approval of the Merger,
approval of shareholders of the Bank of the acquisition and holding by F&M of
up to all of the outstanding shares of the Bank (the "Acquisition") is required
for F&M to effect the Merger. See "The Special Meeting" and "The Merger."
Consummation of the Merger is subject to the satisfaction of several
conditions, including approval by the shareholders of the Bank at the Special
Meeting, qualifying for pooling of interests accounting, and approval by the
Board of Governors of the Federal Reserve System, the Wisconsin Commissioner of
Banking and the Federal Deposit Insurance Corporation. See "The
Merger--Conditions to the Merger." Applications seeking approval of the
transaction of the Board of Governors of the Federal Reserve System (the "FRB")
and the Wisconsin Commissioner of Banking (the "Wisconsin Commissioner") were
filed in March 1996. Those applications are now pending. An application for
approval of the Federal Deposit Insurance Corporation ("FDIC") will be filed in
April 1996. It is expected that the Merger will be consummated in summer 1996,
provided all conditions precedent have been met or waived by that time.
The cost of solicitation of proxies will be borne by the Bank.
However, because this Proxy Statement/Prospectus also constitutes a disclosure
document with respect to F&M Common, F&M paid the costs and expenses of the
preparation hereof. In addition to solicitation by mail, directors, officers
and employees of the Bank may solicit proxies by telephone or personal contact,
but will receive no additional compensation for such services.
The information contained in this Proxy Statement/Prospectus
concerning the Bank and F&M has been supplied by each of them, respectively.
This Proxy Statement/Prospectus is being mailed to Bank shareholders on or
about April __, 1996.
-4-
<PAGE> 11
THE SPECIAL MEETING
In order to approve the transactions contemplated by the Agreement,
under current law the affirmative vote of holders of not less than 75% of
outstanding shares of Bank Common entitled to be cast must be received at the
Special Meeting. Obtaining this vote is a requirement of Wisconsin law, and is
therefore required by the Agreement and may not be waived. Bank shareholders
have certain dissenters' rights of appraisal under Wisconsin law with respect
to the matters to be considered at the Special Meeting, but it is a condition
to consummation of the Merger that the holders of not more than 10% of the
outstanding shares of Bank Common exercise such dissenters' rights. See
"Rights of Dissenting Shareholders" and Exhibit B hereto.
Each shareholder of record of Bank Common at the close of business on
April __, 1996, will be entitled to one vote for each share of Bank Common
registered in such shareholder's name. At that date, there were 46,000 shares
of Bank Common issued and outstanding, all of which are entitled to vote.
Directors and executive officers of the Bank, all of whom intend to vote FOR
the Merger and the Acquisition, together own 8,987 shares of Bank Common, or
19.5% of the issued and outstanding shares. See "Community State Bank--Share
Ownership."
Shares represented at the Special Meeting by a properly executed proxy
will be voted in accordance with the specification made on the proxy; if no
specification is made, such shares will be voted FOR approval of the
Acquisition and the Merger. Any shareholder submitting a proxy has the right
to revoke the proxy at any time before it is voted by giving written notice to
the Cashier of the Bank, by giving oral notice to the presiding officer during
the Special Meeting that the shareholder intends to vote in person, or by
submitting a subsequently dated proxy. Attendance by a shareholder at the
Special Meeting will not in and of itself constitute revocation of a proxy.
PLEASE RETURN THE SIGNED PROXIES TO THE BANK IN THE POST-PAID ENVELOPE PROVIDED
FOR THAT PURPOSE.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS APPROVAL OF
THE ACQUISITION AND THE MERGER, AS IT BELIEVES THEM TO BE IN THE BEST INTERESTS
OF THE BANK AND ITS SHAREHOLDERS.
Proxies are being solicited on behalf of the Bank's Board of
Directors. The Bank's Board of Directors does not intend to present any other
matter before the Special Meeting. By law, the only business that may be
conducted at a special meeting of shareholders is the business described in the
notice of meeting.
-5-
<PAGE> 12
SUMMARY
The following is a brief summary of certain information contained in
this Prospectus/Proxy Statement, including summaries of information believed by
the parties to be material. This summary is intended merely to supply
pertinent facts and highlights of the material contained in or accompanying
this Prospectus/Proxy Statement. The information contained in this summary is
qualified by reference to more detailed information contained elsewhere, or
incorporated by reference, in this Prospectus/Proxy Statement.
Unless otherwise indicated, all F&M financial and other data in this
Prospectus/Proxy Statement have been restated to give retroactive effect to
F&M's acquisitions of Park Ridge Bancshares, Inc., First National Financial
Corporation, Pulaski Bancshares, Inc. and Union State Bank using the pooling of
interests method of accounting. See Note 3 of Notes to F&M's Consolidated
Financial Statements. However, unless otherwise indicated, they do not give
effect to F&M's acquisition on February 5, 1996 of Monycor Bankshares, Inc.
("Monycor"); although that acquisition is being accounted for using the pooling
of interests method of accounting, its effect on F&M is not material due to the
relatively small size of Monycor as compared to F&M.
The Merger
The Agreement provides for the acquisition of the Bank by F&M through
the merger of Interim Bank into the Bank (the "Merger"). In the Merger, shares
of Bank Common will be automatically converted into shares of F&M Common. See
"The Merger" and the text of the Agreement at Exhibit C hereto.
Purpose of the Special Meeting
Shareholders of the Bank are being asked to approve the Merger and the
acquisition and holding by F&M of shares of Bank Common (the "Acquisition").
Such approval is required for F&M to complete the Merger.
Parties
The Bank, which has its principal executive offices at 208 Steele
Street, Algoma, Wisconsin 54201 (telephone: 414/487-5261), had total assets of
$53 million at December 31, 1995. The Bank has its main office in Algoma, in
Kewaunee County, and an office in Forestville in Door County, both in
northeastern Wisconsin. The Bank is a Wisconsin state bank subject to the
supervision of the Wisconsin Commissioner and the FDIC.
F&M, which has its principal executive offices at One Bank Avenue,
Kaukauna, Wisconsin 54130 (telephone: 414/766-1717), had total consolidated
assets of $973 million (giving effect to the Monycor transaction) at December
31, 1995. F&M has 14 Wisconsin state bank subsidiaries, all of which are
Federal Reserve System and FDIC members and are subject to Wisconsin
Commissioner supervision, with 42 offices, all in Wisconsin. F&M, a Wisconsin
corporation, is a registered bank holding company subject to supervision and
regulation by the Federal Reserve Board ("FRB") under the Federal Bank Holding
Company Act of 1956, as amended (the "Bank Holding Company Act"). Interim Bank
is a wholly-owned subsidiary of F&M formed to effect the Merger.
See "F&M Bancorporation, Inc." and "Community State Bank."
Conversion Ratio
In the Merger, shares of Bank Common will be converted into shares of
F&M Common, in accordance with the conversion ratio set forth in the Agreement.
Only full shares will be issued; fractional share interests will be converted
into cash at per share price keyed to the value of F&M Common used to determine
the conversion ratio.
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<PAGE> 13
The conversion ratio specified in the Agreement provides that each
share of Bank Common will be valued at $271.74 (subject to adjustment in
certain specified cases). Each such share will be converted into that number
of shares of F&M Common determined by dividing $271.74 by the market value of
the F&M Common over a specified period preceding the Merger. The Agreement
provides for a maximum value of F&M Common of $32.50, and a minimum of $21.50.
For example, assuming a $27.00 market value for the F&M Common (which
would have been the approximate value at March 31, 1996), Bank shareholders
would receive 10.06 shares of F&M Common for each share of Bank Common.
Assuming a $32.50 market value for the F&M Common, the conversion ratio would
be 8.36 shares of F&M Common for each share of Bank Common. Assuming a $21.50
market value for the F&M Common, the conversion ratio would be 12.64 shares of
F&M Common for each share of Bank Common.
The Agreement provides that the $271.74 value of Bank Common may be
adjusted in the event that: the number of the shares of Bank Stock outstanding
increase; dividends which are declared by the Bank from January 1, 1996 through
closing exceed $314,000; the Bank's expenses of the transaction exceed
$145,000; or the actual earnings of the Bank are less than as provided in the
Agreement.
See "The Merger--Conversion Ratio" and "Market Prices and Dividends--F&M."
Dissenters' Appraisal Rights
Any shareholder or beneficial shareholder of Bank who complies with
the procedural requirements of Section 221.25(1) of the Wisconsin Statutes in
exercising his or her dissenters' rights will be entitled to receive cash equal
to the value of the shares so held by the shareholder, to be determined by a
committee of three persons, one to be selected by the shareholder, one by the
directors of the Bank, and third by the two so chosen, instead of shares of F&M
Common as contemplated by the terms of the Agreement. Failure to comply with
each of the detailed statutory procedural requirements may result in a loss of
such appraisal rights.
If a Bank shareholder fails to perfect his or her dissenters' right by
failing strictly to comply with the applicable statutory requirements, he or
she will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the Bank Special Meeting but preserve his or her dissenters' rights
must mark his or her proxy card either to vote against the Merger or to
abstain from voting thereon, in addition to complying with the other
requirements as described herein.
A condition, which can be waived by F&M and Interim Bank, to their
obligation to conclude the transaction is that holders of less than 10% of the
issued and outstanding Bank Common will have elected to exercise such rights.
See "The Merger--Conditions to the Merger," "Rights of Dissenting Bank
Shareholders," and the text of Wis. Stats. Section 221.25(1) at Exhibit B
hereto.
Fairness Opinion
The Bank has received an opinion of Robert W. Baird & Co. Incorporated
("Baird"), its investment advisor, that the Merger is fair to the holders of
Bank Common from a financial point of view. See "The Merger--Fairness Opinion"
and Exhibit A hereto.
Conditions to the Merger
The Merger is conditioned upon approval by Bank shareholders,
appropriate regulatory approvals by the FRB, the FDIC and the Wisconsin
Commissioner, and other conditions set forth in the Agreement. See "The
Merger--Conditions to the Merger."
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<PAGE> 14
As of April __, 1996, directors and executive officers of the Bank,
including their spouses and their affiliates, beneficially owned an aggregate
of 8,987 shares of Bank Common, or 19.5% of the outstanding shares of Bank
Common. Such persons have indicated that they intend to vote their shares of
Bank Common in favor of the Merger. The directors and executive officers of
F&M, and their affiliates, do not own any shares of Bank Common. See
"Community State Bank-Share Ownership."
Federal Income Tax Consequences
The transaction contemplated by the Agreement has been structured by
the parties with the intent that it will constitute a reorganization resulting
in no recognizable gain or loss for federal income tax purposes by those Bank
Common shareholders to the extent they receive shares of F&M Common in exchange
for their shares of Bank Common. (However, the receipt of cash in lieu of
fractional share interests, and upon exercise of dissenters' rights, will be
taxable.) The parties have not sought any rulings from the Internal Revenue
Service that the transaction constitutes a non-taxable reorganization.
However, it is a condition to consummation of the Merger that Godfrey & Kahn,
S.C., counsel to the Bank, will issue an opinion as to the tax-free nature of
the exchange to holders of Bank Common who receive F&M Common in the Merger,
and as to the tax effects of cash in lieu of fractional share interests. In
the Agreement, however, F&M has made no representations or warranties as to tax
consequences of the Merger. See "The Merger--Federal Income Tax Consequences."
Comparison of F&M Common with Bank Common
F&M is organized under the Wisconsin Business Corporation Law
("WBCL"), while the Bank is organized under Wisconsin banking statutes (Chapter
221 of the Wisconsin statutes). The respective laws determine the rights of
holders of common stock of each such entity, except as otherwise permissibly
provided in their respective articles of incorporation or bylaws. While the
rights of both corporations' shareholders are similar, there are also important
differences.
F&M is subject to statutory anti-takeover provisions and its articles
of incorporation and bylaws provide for classification of the Board of
Directors; neither apply to the Bank, although Wisconsin statutes currently
require approval of holders of 75% of the outstanding shares of the common
stock of a bank for a corporation to acquire more than 10% of the bank's
outstanding shares. F&M's articles of incorporation require a majority vote of
shareholders to amend the articles or to effect a merger or similar significant
corporate action; the affirmative vote of holders of two-thirds of the
outstanding shares of Bank Common currently is required for these actions.
Both F&M and the Bank shareholders are subject to statutory personal liability
for certain employee wage claims. See "Information as to Securities--
Comparison of F&M Common with Bank Common."
In addition to the differences between F&M Common and Bank Common
themselves, differences exist in their trading markets. F&M trades on the
NASDAQ Stock Market, while the trading market for shares of Bank Common has
been limited.
Required Vote
The affirmative vote of holders of not less than 75% of the
outstanding shares of Bank Common entitled to be cast is currently required
under Chapter 221 to permit the Acquisition of Bank Common by F&M.
Interests of Bank Insiders
As of April __, 1996, directors and executive officers of the Bank,
including their spouses and their affiliates, beneficially owned an aggregate
of 8,987 shares of Bank Common, or 19.5% of the outstanding shares of Bank
Common entitled to vote at the Special Meeting. Such persons have indicated
that they intend to vote for the Acquisition, and to vote their shares of Bank
Common in favor of the Merger. The
-8-
<PAGE> 15
directors and executive officers of F&M, and their affiliates, do not own any
shares of Bank Common. See "General Information" and "Community State
Bank--Share Ownership."
The Agreement contemplates that the Bank will enter into an employment
agreement with Sylven A. Konkel, currently Vice President and Cashier of the
Bank, in a form to be proposed by F&M. The form of the employment agreement
has not yet been agreed upon. It is expected that the employment agreement
will be for a one year term, with rolling extensions, and provide that Mr.
Konkel will remain in his current position at his current salary and benefit
level. It is further expected that the Agreement will provide that, upon John
Meyer ceasing to be president of the Bank, Mr. Konkel will assume that
position, and that Mr. Konkel will then be nominated to membership on the
Bank's board of directors.
See "The Merger--Management after the Merger."
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate
the Bank as a separate entity under the control, direction and general policies
of F&M. It is further anticipated that F&M's Chairman of the Board, Gail E.
Janssen, or another F&M designee, will be elected to the Board of Directors of
the Bank. As with all of F&M's subsidiary banks (the "F&M Banks"), F&M will
perform certain functions and provide certain services for the Bank, and the
Bank will pay F&M a management fee therefor.
See "Interests of Bank Insiders" above for information regarding the
proposed employment contracts of a bank officer. See also "The Merger --
Management after the Merger."
Accounting Treatment
F&M intends to account for the acquisition of the Bank by using the
pooling of interests method of accounting.
Recommendation of the Bank Directors
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS APPROVAL OF
THE MERGER. See "The Merger--Reasons for the Merger."
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<PAGE> 16
Comparative Unaudited Per Share Data
The following table sets forth for F&M Common and Bank Common certain
unaudited historical, pro forma and pro forma equivalent per share financial
information for each of the three years ended December 31, 1995, 1994 and 1993.
The information should be read in conjunction with the financial statements and
other information, appearing elsewhere in this Prospectus/Proxy Statement. In
all cases, the actual conversion ratio as determined under the Agreement may be
higher or lower than the ratios assumed in the pro forma information herein,
and will depend upon the average trading price of F&M Common, which has yet
been determined. See "The Merger--Conversion Ratio."
<TABLE>
<CAPTION>
As of and for the
years ended
December 31,
-------------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
F&M
Net Income per Common Share (1):
Historical . . . . . . . . . . . . . . . . . . . . . . $1.96 $1.33 $1.44
Pro forma (2):
Assuming $32.50 F&M Common Value . . . . . . . . . . 1.94 1.35 1.47
Assuming $27.00 F&M Common Value . . . . . . . . . . 1.91 1.33 1.45
Assuming $21.50 F&M Common Value . . . . . . . . . . 1.88 1.31 1.42
Dividends Paid per Common Share:
Historical . . . . . . . . . . . . . . . . . . . . . . .60 .48 .36
Pro forma (3) . . . . . . . . . . . . . . . . . . . . . .60 .48 .36
Shareholders' Equity per Common Share:
Historical . . . . . . . . . . . . . . . . . . . . . . 14.82 12.96 12.61
Pro forma (2):
Assuming $32.50 F&M Common Value . . . . . . . . . . 15.22 (A) (A)
Assuming $27.00 F&M Common Value . . . . . . . . . . 15.03 (A) (A)
Assuming $21.50 F&M Common Value . . . . . . . . . . 14.75 (A) (A)
THE BANK
Net Income per Common Share (1):
Historical . . . . . . . . . . . . . . . . . . . . . . $13.68 $14.36 $16.20
Pro forma equivalent:
Assuming $32.50 F&M Common Value . . . . . . . . . . 16.22 11.29 12.29
Assuming $27.00 F&M Common Value . . . . . . . . . . 19.21 13.38 14.59
Assuming $21.50 F&M Common Value . . . . . . . . . . 23.73 16.56 17.95
Dividends Paid per Common Share:
Historical . . . . . . . . . . . . . . . . . . . . . . 6.60 6.65 5.25
Pro forma equivalent:
Assuming $32.50 F&M Common Value . . . . . . . . . . 5.02 4.01 3.01
Assuming $27.00 F&M Common Value . . . . . . . . . . 6.04 4.83 3.62
Assuming $21.50 F&M Common Value . . . . . . . . . . 7.58 6.07 4.55
Shareholders' Equity per Common Share:
Historical . . . . . . . . . . . . . . . . . . . . . . 177.73 160.02 158.09
Pro forma equivalent:
Assuming $32.50 F&M Common Value . . . . . . . . . . 127.24 (A) (A)
Assuming $27.00 F&M Common Value . . . . . . . . . . 151.20 (A) (A)
Assuming $21.50 F&M Common Value . . . . . . . . . . 186.44 (A) (A)
</TABLE>
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<PAGE> 17
(1) Before extraordinary items and cumulative effect of change in
accounting principles.
(2) Giving effect to F&M's proposed acquisition of the Bank as of December
31, 1995, assuming no adjustment to the $271.74 per Bank share
valuation. Does not give effect to the Monycor transaction; however,
the effect of the Monycor transaction is not material.
(3) The F&M pro forma dividends per share amounts represent historical
dividends per share, restated for prior stock splits and dividends,
but not restated for acquisitions.
(A) Presented only at December 31, 1995.
* * *
The following table presents historical data on a per common share
basis for F&M and the Bank, and equivalent per common share basis for the Bank,
as of the last trading date preceding the first public announcement of the
proposed Merger.
<TABLE>
<CAPTION>
The Bank
-------------------------------------
Per Share
F&M Equivalent
Historical Historical (1) Basis
---------- -------------- ---------
<S> <C> <C> <C>
Market Value Per Share as of:
January 5, 1996...................... $ 26.00 $180.00 $271.74
</TABLE>
(1) Trading in shares of Bank Common is infrequent, and there is no
independent market with respect to such shares. There has been only a
limited number of transactions in shares of Bank Common, and the Bank
has not regularly tracked the sales prices of those transactions. The
reported price represents a transaction for 20 shares of Bank Common
in December 1995, which is the most recent arms length transaction
known to Bank management. See "Market Information and Dividends."
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<PAGE> 18
RISK FACTORS
In evaluating the Merger, the Bank's shareholders should consider
carefully the following factors, along with the other information contained, or
incorporated by reference, in this Prospectus/Proxy Statement, in connection
with their decision to accept the Merger.
Potential Reduction in Dividends, Earnings per Share and Book Value
per Share
Based upon the pro forma comparative calculations referred to
elsewhere herein, dividends paid on the shares of F&M Common into which shares
of Bank Common would be converted in certain periods would have been less than
those paid on shares of Bank Common. However, F&M's increase in per share
dividends in early 1996 would eliminate many of the shortfalls on a
going-forward basis. In addition, in certain periods, the F&M pro forma net
income per share, and book value per share, on the shares of F&M Common to be
received by Bank shareholders was less than the earnings per share, and book
value per share, on a share of Bank Common. Actual comparisons will depend
upon the definitive conversion ratio, which has not yet been determined and may
be higher or lower than that presented for purposes of the pro forma
calculations.
Acquisitions
Since its inception, F&M has experienced substantial growth through
acquisitions of other financial institutions. F&M's strategy to continue to
make acquisitions is dependent upon its ability to identify potential targets
for acquisition and consummate transactions on terms acceptable to F&M.
Also, F&M's future success is dependent in part upon its ability to
integrate the operations of, and manage over time, acquired financial
institutions. In addition to its pending acquisition of the Bank and two other
banks, F&M has acquired eight financial institutions within the past six years,
including two acquisitions in the first quarter of 1994, one in the first
quarter of 1995, and one in the first quarter of 1996. The two 1994
acquisitions were the largest acquisitions undertaken by F&M in terms of the
consideration paid and the size of the acquired institution, respectively. The
1995 acquisition was F&M's second largest acquisition in both categories. In
addition, one acquisition announced by F&M in 1995 was not completed due to
failure of the target bank to secure the required bank shareholder approval.
Competition
Banks, including the F&M's subsidiary banks and the Bank (together,
the "Banks"), actively compete with other financial institutions and businesses
in both attracting and retaining deposits and making loans. Financial
institution competitors include banks, savings banks, savings and loan
associations and credit unions. Other business competitors include insurance
companies, securities brokerage firms, trust companies and investment
management firms. While F&M believes it has a competitive advantage because 21
of its 42 bank office locations represent the only commercial bank office in
their community, competition with other financial institutions and businesses
can affect the Banks' ability to obtain and retain customers as well as the
pricing levels of their products and services.
F&M also faces competition in seeking institutions to acquire.
Wisconsin has recently experienced a significant consolidation of its banking
industry, and many large holding companies with greater resources than F&M
(including several out-of-state holding companies) are actively pursuing
acquisitions in Wisconsin. This competition affects the available acquisition
opportunities for F&M and can affect the costs of such acquisitions.
Need for Technological Change
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. While F&M's
community
-12-
<PAGE> 19
banking strategy stresses "traditional" personal service, F&M's future success
will depend in part on its ability to address the needs of its customers by
using technology to provide products and services that will satisfy customer
demands for convenience as well as to create additional efficiencies in F&M's
Banks operations. Many of F&M's competitors have substantially greater
resources to invest in technological improvements.
Banking Industry
The banking industry is highly regulated by both federal and state
regulatory authorities. Regulation includes, among other things, capital
reserve requirements, dividend limitations, limitations on products and
services offered, geographical limits, consumer credit regulations, community
investment requirements and restrictions on transactions with affiliated
parties. Financial institution regulation has been the subject of significant
legislation in recent years, may be the subject of further significant
legislation in the future, and is not within the control of F&M or the Bank.
This regulation substantially affects the business and financial results of all
financial institutions and holding companies, including F&M, the Bank and the
F&M Banks.
F&M, as a member of the banking industry, is affected by general
economic conditions, particularly as those conditions affect the Wisconsin
communities served by the F&M Banks. A financial institution's earnings also
depend to a large extent upon the relationship between the cost of funds
(primarily deposits) and the yield on earning assets (loans and investments).
This relationship, known as the interest rate margin, is subject to fluctuation
and is affected by regulatory, economic and competitive factors which influence
interest rates, the volume and rate of interest on interest-earning assets and
interest-bearing liabilities, and the level of non-performing assets.
Dependence on Chief Executive Officer
F&M has historically been highly dependent on the services of its
Chairman and Chief Executive Officer, Gail E. Janssen. F&M does not have an
employment agreement with Mr. Janssen or maintain "key person" life insurance
on Mr. Janssen. F&M has recently taken actions to reorganize operations on a
regional basis and to augment its corporate staff to help support F&M's
substantial growth, to place less dependence on any one individual, and to
anticipate management succession.
Cautionary Statement Regarding Forward-Looking Statements
The discussions in this Prospectus/Proxy Statement contain
forward-looking statements that involve risks and uncertainties. F&M'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 in "Risk Factors" and in F&M's Management's Discussion
and Analysis, as well as those discussed elsewhere in this Prospectus/Proxy
Statement and the documents incorporated herein by reference.
-13-
<PAGE> 20
THE MERGER
The Agreement contains the representations, warranties and covenants
of the Bank and F&M, the conditions to the consummation of the Merger and other
terms and provisions with respect to the Merger. The following is a brief
description of the provisions of the Agreement believed by F&M and the Bank to
be material. The summaries herein of certain provisions of the Agreement do
not purport to be complete statements thereof and are qualified in their
entirety by reference to the text of the Agreement (excluding exhibits and
schedules), a copy of which is appended hereto as Exhibit C.
Reasons for the Merger and Board Recommendation
The Bank
The Board of Directors of the Bank has concluded that the proposed
Merger is in the best interest of the Bank and its shareholders. The principal
factors considered by the Board of Directors in recommending the Merger are:
- Affiliation with F&M will provide Bank shareholders with
ownership of a company with geographically diverse operations,
diminishing the risk of erosion of franchise value that
ownership of a local community bank stock entails.
- F&M offered an acquisition price which provides a premium to
past market value to holders of Bank Common in a tax-free
reorganization.
- Holders of Bank Common will receive F&M Common, which unlike
Bank Common has an active trading market.
- In the opinion of Baird, the Bank's investment advisor, the
transaction is fair to Bank shareholders from a financial
point of view, for the reasons discussed in greater detail
below.
- Affiliation with a holding company provides opportunity to
realize economies of scale and increased efficiencies of
operation, to the benefit of shareholders and customers.
- Affiliation with F&M will also permit or enhance the
development of new products and services for bank customers.
- The Board of Directors believes that an affiliation with a
holding company such as F&M which emphasizes local autonomy is
in the best interest of shareholders, as it enhances bank
customer relationships and opportunities.
In the Merger, Bank Common shareholders will be given the opportunity
to obtain stock in a larger and more diversified banking organization. Shares
of F&M Common trade on the NASDAQ National Market System, and have greater
marketability than currently is the case for shares of Bank Common. In
general, past trading of Bank Common has been isolated.
As an affiliate of F&M, the Bank will be able to provide its customers
with expanded banking, financing, and related services. The Merger is expected
to create economies of scale and enhance the ability of customers of the Bank
to obtain financial services provides by F&M to its other affiliates.
FOR THESE REASONS, THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY
RECOMMENDS APPROVAL OF THE ACQUISITION AND ACCEPTANCE OF THE TRANSACTIONS
CONTEMPLATED BY THE AGREEMENT.
-14-
<PAGE> 21
F&M
From F&M's standpoint, the combination of its business with that of
the Bank will expand F&M's service area to an additional market in east central
Wisconsin, expanding the areas of the state of Wisconsin served by F&M Banks at
an attractive location. The acquisition of the Bank is also anticipated by F&M
to help F&M achieve economies of scale by combining certain operations and
creating additional efficiencies due to F&M's existing capacity to provide
various services to additional subsidiary banks such as the Bank. For example,
F&M offers its subsidiary banks centralized services relating to marketing,
credit review and analysis, auditing, human resources, accounting, investment
management and data processing, all of which could be provided for the Bank by
existing F&M personnel.
Negotiation of Terms
In September of 1994, the Bank's Board of Directors retained Baird to
perform an appraisal of Bank Common shares. In June, 1995, the Board engaged
Baird to solicit offers for the sale of the Bank. The Board authorized Baird
to solicit expressions of interest from nine potential buyers for the Bank.
From this group of nine potential buyers, Baird received positive expressions
of interest from five. Baird and the Bank also received five expressions of
interest from parties not on the original list. From the total list of
positive respondents, the Board authorized Baird to solicit final offers from
four of the offerees.
After receiving these bids, the Board, with assistance of Baird,
evaluated the offers and selected two of the bidders to make final
presentations to the Board.
A special meeting of the Board was held in late December, 1995 at
which the bidders made their presentations which included their final offers.
In January, 1996 at a special meeting of the Board, the two presentations were
discussed, and Baird provided a comparative analysis of the two final offers.
The Board then authorized Mr. Slaby, Chairman of the Board, to enter into the
Letter of Intent with F&M. The Board further authorized Mr. Slaby and Mr.
Meyer, President of the Bank, to conduct negotiations with F&M leading to
execution of the Agreement.
Once direct negotiations began, the terms of the Merger were
determined by arm's length negotiations between selected directors of the Bank,
particularly Messrs. Slaby and Meyer, and the executive officers of F&M,
particularly Mr. Janssen.
Terms of Merger
The Agreement provides that Interim Bank, a wholly-owned subsidiary of
F&M, will merge into the Bank. Pursuant to the terms of the Agreement, as of
the effective time of the Merger, each of the then outstanding shares of Bank
Common will be converted into shares of F&M Common. The Bank will then be a
wholly-owned subsidiary of F&M.
Outstanding shares of Bank Common with respect to which the record or
beneficial holder has perfected dissenters' rights in strict accordance with
the requirements of Wis. Stats. Section 221.25 will not be converted under the
terms of the Agreement into shares of F&M Common in the Merger. The holders
thereof shall be entitled only to payment of the "fair value" of their shares
in accordance with that section. See "Rights of Dissenting Shareholders" and
Exhibit B hereto.
Conversion Ratio
In the Merger, and as provided in the Agreement, each share of Bank
Common automatically will be converted into $271.74 in value of F&M Common
(subject to adjustment in certain specified cases). Only full shares of F&M
Common will be issued. Fractional share interests resulting from the Merger
will be converted into cash at the F&M Common Value.
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<PAGE> 22
F&M Common Value is defined in the Agreement as the average closing
price quoted on the NASDAQ National Market System on the fifteen (15) actual
trading days immediately prior to the five days before closing. The Agreement
further provides for a maximum F&M Common Value of $32.50, and a minimum F&M
Common Value of $21.50. See "Conditions to the Merger" below.
The Agreement provides for an adjustment of the $271.74 value for Bank
Common in certain circumstances. In the event the Bank increases the number of
outstanding shares of Bank Common, or is obligated to do so, or issues of
another class of stock, the actual number of shares then outstanding, and any
additional shares of which the Bank is obligated to issue, shall be divided
into the aggregate price to determine the value per Bank share. If dividends
declared by the Bank between January 1, 1996 and the Closing Date exceed
$314,000, or the Bank's expenses of the transaction exceed $145,000, the
conversion ratio shall be adjusted as follows: (1) the total amount of such
excess will be multiplied by 1.35; (2) the product will be deducted from
$12,500,000; and (3) such revised aggregate price shall have been used to
determine the conversion ratio by dividing by the number of Bank shares.
Excess amounts for dividends and transaction expenses will be separately
determined, and no offset will be made if one amount exceeds its limitation and
the other does not. Further, if the actual earnings of the Bank, determined in
accordance with generally accepted accounting standards are less than the
amounts corresponding to the month end set forth in Schedule A to the
Agreement, the conversion ratio should be adjusted as follows: (1) the amount
of such difference shall be multiplied by 1.35; (2) the product will be
deducted from $12,500,000; and (3) such revised aggregate price will then be
used to determine the conversion ratio divided by the number of Bank shares
outstanding. As of the date hereof, F&M is unaware of any facts which would
result in an adjustment hereunder.
Effective Time of the Merger
The Agreement provides that the Effective Time of the Merger shall be
the date specified in the Certificate of Merger issued by the Wisconsin
Commissioner, after recording of the Certificate. The Certificate of Merger
shall be requested as soon as practicable after all conditions precedent to the
parties' obligations have been satisfied or waived. Unless further extended by
agreement of the parties, if the closing for the Merger has not taken place by
October 15, 1996, F&M, Interim Bank and the Bank each may terminate the
Agreement and abandon the Merger. See "Conditions to the Merger" and "Waiver,
Amendment or Termination" below.
Distribution of F&M Common
After the Special Meeting, either F&M or Firstar Trust Company, F&M's
transfer agent, or another agent acting on its behalf (the "Exchange Agent")
will send a notice and transmittal form to each holder of Bank shares, advising
such holder of the procedure for surrendering to the Exchange Agent
certificates representing the shares of Bank Common for exchange into one or
more certificates evidencing F&M Common, as provided in the Agreement. Such
exchange will be made as of the Effective Time of the Merger.
Until so surrendered, each outstanding certificate which prior to the
Effective Time represented shares of Bank Common will be deemed for all
purposes to evidence only the right to receive the shares of F&M Common into
which such shares of Bank Common have been converted; provided, however, unless
and until such certificates representing Bank Common are so surrendered, no
stock certificates representing the shares of F&M Common, nor any dividends or
other distributions of any kind payable in respect of shares of F&M Common into
which such Bank Common has been converted, shall be paid or delivered to the
holder of an unsurrendered certificate and no interest shall be earned on such
cash dividend amounts. After the Effective Time, upon surrender of
certificates representing shares of Bank Common, there shall be delivered to
the record holder of the certificates representing F&M Common issued in
exchange therefor, on or as soon as practicable after such date of surrender,
the amount of any such dividends, or other distributions, and the certificates
representing the F&M Common, which as of any date subsequent to the Effective
Time, but prior to the surrender of Bank certificates, became payable or
deliverable and were not paid or delivered to such holder with respect to such
shares.
-16-
<PAGE> 23
Fairness Opinion
Baird. The Bank originally retained Robert W. Baird & Co.
Incorporated ("Baird") in September 1994 to provide its opinion as to the fair
market value of the Bank Common and the value of the Bank Common as a whole
within a change of control transaction. Baird provided its opinions that on
October 31, 1994 the Bank Common had a fair market value of $140.00 per share
and a range of value as a whole, within a 100% change-of-control transaction,
of no less than $205.00 per share and conceivably as much as $250.00 per share
depending on marketing tactics and other considerations.
The Bank later retained Baird in June 1995 to act as its financial
advisor in connection with the possible acquisition of the Bank. Baird was
selected by the Bank on the basis of Baird's capabilities as a recognized
investment banking firm with experience in evaluating transactions such as
those contemplated by the Agreement. As part of its investment banking
business, Baird is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, secondary distributions of listed and unlisted securities,
private placements and valuations for estate, corporate and other purposes.
Baird acts as a market-maker with respect to the trading of the F&M Common and
quotations on the NASDAQ/NMS. Also, in June 1993 Baird was the lead managing
underwriter in an offering of F&M Common.
Bank shareholders will receive for each share of Bank Common the
number of F&M's voting shares of Common Stock based on a floating conversion
ratio that will be determined by dividing $271.74 (subject to possible certain
adjustments as provided in the Agreement) by the market value of the F&M Common
based on the average closing price quoted on the NASDAQ National Market System
on the fifteen (15) actual trading days immediately prior to the five days
before closing.
The Agreement may be terminated and the transaction abandoned by F&M
if the F&M Per Share Price is more than $32.50 per share and by the Bank if the
F&M Per Share Price is less than $21.50 per share. Only full shares of F&M
common will be issued. Fractional share interests resulting from the Merger
will be converted into cash at the F&M Common Value.
As part of its engagement, Baird has delivered its opinion to the
Bank's Board that, as of the date of the opinion, each outstanding share of the
Bank Stock will be converted into a number of shares of F&M Common Stock to be
determined by the Bank Stock Value and F&M's Common Value as defined above was
fair to the holders of the Bank Common Stock from a financial point of view.
No limitations were imposed by the Bank Board of Directors upon Baird with
respect to the investigations made or procedures followed by it in rendering
its opinion. Baird assisted the Board of Directors of the Bank in its
negotiations with F&M and provided them with analysis of the proposed ratio's
effect on earnings, return on average assets and equity, dividends, book value,
and capital ratios and a comparison of the proposed ratio to the consideration
received in other similar bank mergers and acquisitions. Baird and the Bank's
legal counsel were the contacts with F&M and during the negotiations Baird and
Bank's legal counsel specifically discussed with F&M on behalf of the Bank's
Board of directors key issue concerns regarding the transaction.
The full text of the opinion of Baird dated as of April __, 1996,
which sets forth the assumptions made, matters considered, procedures followed
and limits of its review, is attached as Exhibit A to this Prospectus/Proxy
Statement. Baird has consented to the inclusion of its fairness opinion, and
related disclosures, in the Prospectus/Proxy Statement. The Bank shareholders
are urged to read this opinion in its entirety.
BAIRD'S OPINION IS DIRECTED ONLY TO THE CONVERSION RATIO. THE SUMMARY
OF THE OPINION OF BAIRD SET FORTH IN THIS PROSPECTUS IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION ATTACHED HERETO AS
EXHIBIT A.
-17-
<PAGE> 24
Baird Analysis. In arriving at its opinion, Baird, among other
things, reviewed, studied or considered; (i) the Agreement, including exhibits;
(ii) the Registration Statement on Form S-4 including this Prospectus; (iii)
the financial statements as filed with bank regulatory authorities of the Bank
for the five years ended December 31, 1995; (iv) the audited financial
statements of F&M for the five years ended December 31, 1995 and certain
publicly available information concerning F&M, including Annual Reports to
Shareholders and on Forms 10-K for the five years ended December 31, 1995; (v)
certain information regarding current operations, business history and future
prospects for the Bank and F&M, including financial forecasts relating to the
businesses and earnings trends of F&M as furnished to Baird by F&M; (vi) the
historical market prices and trading activity for shares of the Bank Common and
F&M Common compared with those of certain other publicly traded companies which
it deemed to be reasonably similar to F&M in size, financial character,
operating character, historical performance and geographic market, and a
financial analysis of the Bank with a peer group of Wisconsin banks deemed to
be reasonably similar to the Bank; (vii) discussions with senior management of
the Bank and F&M concerning their respective financial conditions, businesses,
prospects and financial forecasts; (viii) discussions with legal counsel for
the Bank and F&M concerning the Merger; (ix) the results of operations of the
Bank and F&M compared with those of certain companies which it deemed to be
reasonably similar to the Bank and F&M, respectively; (x) the financial terms
in the Agreement compared with the financial terms of certain other mergers and
acquisitions which it deemed to be relevant; (xi) the pro-forma effect of the
Merger on F&M's capitalization ratios, earnings and book value; and (xii) such
other information as Baird deemed relevant to its analysis.
The following is a summary of the analysis on which Baird based its
opinion that the conversion ratio is fair to the holders of the Bank Common
from a financial point of view.
Transaction Analysis. Baird summarized the offer made by F&M to the
Bank analyzing the potential effect of the proposed conversion ratio of 10.32
based on a $26.325 F&M Common Per Share Price and a value of $271.74 for each
share of the Bank and other financial terms of the Merger on earnings per share
of the F&M Common, returns on average assets and equity, capital ratios and
cash flow based on pro-forma combined earnings for the Bank as of November 30,
1995 and F&M as of September 30, 1995. This analysis shows an earnings
dilution of approximately 2.1% per share, an equity accretion of approximately
4.5% per share, a slight increase in the ratio of equity to assets, an
unchanged return on average assets and a slight decline for return average
equity.
The dividends to be received by the Bank shareholders following the
Merger based on the proposed conversion ratio of 10.32 and an indicated annual
dividend of $0.72 per share for F&M Common (announced on February 1, 1996) will
be $7.43 per share, which is $0.83 more than the $6.60 per share declared in
1995.
Analysis of selected comparable companies. Baird reviewed the
following publicly traded Midwest-based bank holding companies' earnings
history and valuation, using price/earnings multiples: Associated Banc-Corp
(Green Bay, WI), AMCORE Financial Inc. (Rockford, IL), Firstbank of Illinois
(Springfield, IL), Northern States Financial Corp. (Waukegan, IL), Today's
Bancorp (Freeport, IL), Premier Financial Services (Freeport, IL), Independent
Bank Corporation (Ionia, MI), Michigan Financial Corp. (Marquette, MI),
Shoreline Financial Services (Benton Harbor, MI), ANB Corporation (Muncie, IN),
First Merchants Corporation (Muncie, IN), and National City Bancshares
(Evansville, IN). Baird then compared the valuation ratios of F&M to the
comparable financial institutions as a group. At December 31, 1995, the
price/earnings multiples of the comparable financial institutions ranged from a
low of 10.7 to a high of 18.2, with an average of 13.8. F&M's price/earnings
multiple was 14.
In performing financial analysis of the Bank, Baird reviewed
historical information regarding income statement ratios, capital ratios,
non-performing ratios, asset mix, deposit mix, among other performance ratios
for a peer group of banks. This peer group contained a total of 30 Wisconsin
headquartered banks of similar size, geographical market area, asset quality
and earnings, the stock of which is not publicly traded. The banks in this
peer group have assets ranging from $50 million to $100 million, and averaging
$68 million.
-18-
<PAGE> 25
Analysis of Recent Mergers and Acquisitions. Baird reviewed numerous
completed and pending mergers and acquisitions in the banking industry since
March 1993. Baird then selected acquisitions of Wisconsin banks and bank
holding companies in which price and financial information was available, to
ascertain if such acquisitions are comparable to this acquisition and thus
pertinent to Baird's fairness opinion. Information reviewed included asset
size of the acquiree, value of the deal, structure of the deal (cash or stock)
equity to assets, return on average assets and price paid as a multiple of
earnings per share and book value per share. The transactions selected for
comparison were (Acquirer/Acquiree): Firstar Corporation/Athens Bancorp; F&M
Bancorporation/First National Financial Corporation; Greater Columbia
Bancshares/First Columbia Corporation; Valley Bancorporation/Pierce County Bank
& Trust; F&M Bancorporation/ Pulaski Bancshares; Capital Commerce
Bancorp/Milwaukee Western Bank; F&M Bancorporation/Union State Bank (Wautoma);
Marshall & Ilsley Corporation/Bank of Burlington; Marshall & Ilsley
Corporation/Citizens Bancorp of Delavan; F&M Bancorporation/Peoples State Bank
of Bloomer; and State Financial Services, Inc./Waterford Bancshares, Inc. Some
of the announced mergers had not yet been consummated and there can be no
assurance that they would be completed. A review of such comparable
transactions yielded the following information.
<TABLE>
<CAPTION>
Unweighted
Average Range of Bank at
Transaction Transaction 6/30/95*
----------- ----------- --------
<S> <C> <C> <C>
Assets ($ millions): $91.8 $39.0 to $172.6 $52.6
Equity to Assets: 10.88% 4.96% to 18.84% 14.99%
Return on Average Assets: 1.36% 0.41% to 2.76% 1.21%**
Deal Value ($ millions): $15.1 $6.6 to $31.3 $12.5
Price/Equity Multiple: 1.60x 2.15x to 1.31x 1.59x
Price/Earnings Multiple: 14.6x 6.7x to 29.8x 19.7x***
</TABLE>
- ---------------------------
* Based on $271.74 for each share of the Bank
** Annualized
*** Based on latest 12 months' earnings.
The above comparison shows that the Bank's ratio of equity to assets is well
above the average and in the upper half of the range, and that the Bank's
return on average assets is slightly lower than the average. The Bank's
price/equity multiple is slightly lower than the average and in the lower half
of the range, and the Bank's price/earnings multiple is well above the average
and above the middle of the range.
No company or transaction used in any comparable analysis as a
comparison is identical to the Bank, F&M or to this acquisition. Accordingly,
an analysis of the results is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the comparable companies to which they are being
compared. The preparation of a fairness opinion is a complex process and not
necessarily susceptible to partial analysis or summary description. Baird
believes that its analyses must be considered as a whole and that singling out
portions of these analyses and the individual factors considered in reaching
its opinion is inappropriate. The analyses of Baird are not necessarily
indicative of actual values, which may be significantly more or less favorable
than as set forth therein. Analyses relating to the value of companies do not
support the appraisals or necessarily reflect the price at which companies may
actually be sold.
In preparing its opinion, Baird relied upon and assumed without
independent verification the accuracy and completeness of all information
provided to it by the Bank and F&M or otherwise publicly
-19-
<PAGE> 26
available. Baird did not examine all of the contracts entered into by the Bank
or F&M; it did not make an independent evaluation of any of the assets of the
Bank or F&M; it did not make any inspection of any potential environmental
issues or liability, or of the properties or physical facilities of the Bank or
F&M; and it did not make inquiries of customers, competitors, regulatory bodies
or others. Baird's opinion is based upon market, economic and other conditions
as they existed on a particular date, and should be evaluated only as of the
date of this opinion.
For Baird's services as financial advisor in connection with this
acquisition, the Bank has agreed to pay a fee of 3/4 of 1% of the consideration
received by the Bank shareholders in this transaction less $3,333 (2/3 of the
$5,000 appraisal fee referenced above) (or approximately $90,000), plus
reasonable out-of-pocket expenses. Of this amount, the Bank has paid Baird a
non-refundable retainer of $10,000 and the balance is payable at closing. The
Bank has also agreed to indemnify Baird against certain liabilities and
expenses, including liabilities under the federal securities laws, relating to
or arising out of Baird's engagement as financial advisor. Prior to its
engagement as financial advisor to the Bank in connection with the valuation
and later the Merger, Baird did not have any material relationship or
understanding with the Bank.
Conditions to the Merger
The obligations of F&M to consummate the Merger are conditioned upon
obtaining the requisite approval of the FRB under the Bank Holding Company Act
and expiration of the statutory 15-day waiting period after such approval. The
application seeking approval of the FRB was filed in March 1996. [Current
status to be inserted.] In addition, the acquisition requires the approval of
the Wisconsin Commissioner and the FDIC. An application for approval of the
acquisition was filed with the Wisconsin Commissioner in March, 1996. [Current
status to be inserted.] An application for approval of the Merger by the FDIC
will be filed in April 1996. [Current status to be inserted.]
The obligations of both F&M and the Bank to consummate the Merger are
further conditioned upon the truth and correctness of the representations and
warranties made by the parties to the Agreement on and as of the closing date;
compliance by the other party with all obligations under the Agreement which
are to be performed or complied with prior to or on the closing date; the
absence of litigation or investigation in connection with the Merger; receipt
of an opinion of counsel as to certain federal income tax consequences of the
Merger; consummation of the Merger not later than October 15, 1996; and the
occurrence of all proceedings to be taken in connection with the Merger
transaction and the delivery of all documents incident thereto.
The obligations of F&M are further conditioned upon approval of the
Acquisition by the 75% vote of shareholders of the Bank required by Wisconsin
law, which is being sought at the Special Meeting; qualification of the Merger
for pooling of interests accounting; exercise of dissenters' rights by holders
of fewer than 10% of the outstanding shares of Bank Common; registration of the
shares of F&M Common to be issued in the transaction pursuant to the Securities
Act of 1933; the Bank meeting specified earnings tests; and other conditions
set forth in the Agreement. See "Management after the Transaction" below.
The Agreement provides that F&M may terminate the Agreement in the
event that the F&M per share price is more than $32.50, and that the Bank may
do so in the event that the F&M per share price is less than $21.50.
Waiver, Amendment or Termination
In addition to the right of F&M or the Bank to waive certain of the
conditions to their obligations to proceed with the Merger, the Agreement is
subject to amendment, modification and supplementation by a written agreement
signed by the duly authorized representatives of F&M and the Bank.
The Agreement may be terminated and the Merger abandoned without
liability on the part of any party at any time prior to the Closing Date by
mutual consent of F&M and the Bank, or by either F&M or the Bank if the
conditions to their obligations to proceed under the Agreement have not been
met or waived
-20-
<PAGE> 27
in writing. In the event of termination and abandonment, not as a result of a
breach of the Agreement, each party would be responsible to pay its own
expenses incident to the Merger.
Management after the Merger
Upon consummation of the Merger, F&M expects to continue to operate
the Bank as a separate entity under the direction and general policies of F&M,
and the Bank's board of directors. F&M initially intends to retain the Bank's
current employees, officers and board of directors, with the addition of Gail
E. Janssen, Chairman of the Board and Chief Executive Officer of F&M, or
another F&M designee, as a member of the Board of Directors of the Bank. F&M
performs certain functions and provides various services (such as internal
audit, marketing and lending assistance, investment coordination, etc.) for its
subsidiary banks, and expects to do the same for the Bank. F&M will receive a
management fee from the Bank for these functions and services.
The Agreement contemplates that the Bank will enter into an employment
agreement with Sylven A. Konkel, currently Vice President and Cashier of the
Bank, in a form to be proposed by F&M. The form of the employment agreement
has not yet been agreed upon. It is expected that the employment agreement
will be for a one year term, with rolling extensions, and provide that Mr.
Konkel will remain in his current position at his current salary and benefit
level. It is further expected that, upon John Meyer ceasing to be president of
the Bank, Mr. Konkel will assume that position, and that Mr. Konkel will then
be nominated to membership on the Bank's board of directors.
Federal Income Tax Consequences
Godfrey & Kahn, S.C., counsel to the Bank, expects to issue a legal
opinion as to the tax-free nature of the Merger to holders of Bank Common under
federal law, and such an opinion is a condition to consummation of the
transactions contemplated by the Agreement. However, the parties have not
sought any rulings from the Internal Revenue Service that the Merger
constitutes a non-taxable reorganization under the Internal Revenue Code of
1986, as amended (the "Code"). The parties also have not sought any rulings or
opinions with respect to the state or local tax consequences of the Merger. In
the Agreement, F&M has made no representations or warranties as to tax
consequences. Bank shareholders are therefore urged to consult their own tax
advisors as to the tax effects of the Merger on their own particular
situations.
The Godfrey & Kahn opinion as to the federal income tax effects of the
proposed transaction, which would be delivered upon the closing of the Merger,
is expected to include the following matters: (a) No gain or loss will be
recognized by holders of Bank Common who receive solely shares of F&M Common in
exchange for their shares of Bank Common; (b) The aggregate basis of the shares
of F&M Common received by holders of Bank Common in the transaction will be the
same as the basis of their shares of Bank Common surrendered in exchange
therefor; and (c) The holding period of the shares of F&M Common received by
holders of Bank Common in the exchange will include the holding period for
their shares of Bank Common exchanged therefor, provided their shares of Bank
Common were held as capital assets on the date of the exchange.
A Bank shareholder who receives cash in lieu of a fractional share
interest in F&M Common will be treated as having received the cash in
redemption of the fractional share interest. The receipt of cash in lieu of a
fractional share interest should generally result in capital gain or loss to
the holder equal to the difference between the amount of cash received and the
portion of the holder's federal income tax basis in the Bank Stock allocable to
the fractional share interest. Such capital gain or loss will be long term
capital gain or loss if the holder's holding period for the F&M Common
received, determined as set forth above, is longer than one year.
-21-
<PAGE> 28
Resale of F&M Common
The shares of F&M Common to be issued to Bank shareholders in the
Merger have been registered under the Securities Act and may be freely traded
by Bank shareholders who, at the Effective Time, are not "affiliates" of the
Bank and who are not "affiliates" of F&M at the time of the proposed resale.
Shares of F&M Common received by "affiliates" of the Bank may be
resold by them only (i) in conformity with the resale provisions of Rule 145
under the Securities Act, (ii) pursuant to a further registration under the
Securities Act, or (iii) in accordance with another available exemption from
the registration requirements of the Securities Act. F&M's obligation to
consummate the Merger is conditioned upon the receipt of an executed
Affiliate's Undertaking to comply with such resale restrictions from each
person who may be deemed an "affiliate" of the Bank within the meaning of the
Securities Act and Rule 145.
An "affiliate" is defined under the rules promulgated pursuant to the
Securities Act as a person that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with, an
entity. For this purpose, the Bank will treat each executive officer, director
and greater-than-10% shareholder of the Bank, and each other person identified
by counsel for the Bank as a person who may be deemed to be an affiliate, as an
affiliate. Shares of F&M Common issued to such persons in the Merger will be
transferable only in compliance with the Affiliate's Undertaking. F&M is not
obligated to register F&M Common owned by affiliates of the Bank under the
Securities Act for resale.
Each of the persons executing an Affiliate's Undertaking also will
represent that he or she will not dispose of or otherwise reduce his or her
risk relative to any beneficially owned shares of F&M Common prior to the
publication by F&M of an earnings statement covering at least 30 days of
operations subsequent to the Effective Time of the Merger, and has not sold or
otherwise reduced his or her risk relative to any shares of F&M Common or
shares of Bank Common beneficially owned by such person within a 30 day period
preceding the Effective Time. The purpose of these requirements is to
demonstrate the continuity of risk-sharing necessary for pooling of interests
accounting treatment.
Accounting Treatment
F&M intends to account for the acquisition of the Bank using the
pooling of interests method of accounting. F&M's ability to use pooling of
interests accounting is a condition to the Merger.
-22-
<PAGE> 29
RIGHTS OF DISSENTING BANK SHAREHOLDERS
Pursuant to Section 221.25(1) of the Wisconsin Statutes, the full text
of which is set forth as Exhibit B attached hereto, any shareholder of Bank has
the right to object to the Merger and demand payment in cash the value of the
shares so held by the shareholder.
Section 221.25(1) provides that, when the Merger is approved by the
Wisconsin Commissioner, any Bank shareholder who has not voted for Merger shall
be given notice of that approval by the Bank and of the shareholder's right to
receive the appraised value for the shareholder's shares. If within 20 days
after the date that notice of approval is mailed or delivered to a shareholder,
the shareholder notifies the directors of the Bank that the shareholder
dissents from the Agreement and desires to withdraw from the Bank, the
shareholder shall be entitled to receive in cash the value of the Bank shares
so held by the shareholder rather than the consideration provided in the
Agreement.
The value of the shares so held is to be ascertained by an appraisal
made by a committee of three persons, one to be selected by the shareholders
who dissent, one by the directors, and the third by the two so chosen. The
expense of the appraisal will be borne by the Bank. In the event that the
value fixed by the appraisal committee is not satisfactory to the shareholder
he or she may within five days after being notified of the appraisal appeal to
the Wisconsin Commissioner, who will cause a reappraisal to be made by an
appraiser or appraisers to be named by the Wisconsin Commissioner. The
Wisconsin Commissioner's appraisal will be final and binding. If the Wisconsin
Commissioner's reappraisal exceeds the value fixed by appraisal committee the
Bank will pay the expense of the reappraisal, otherwise the shareholder will
pay the expense. The value of the shares so ascertained and determined will be
deemed to be a debt due and be forthwith paid to the dissenting shareholder
from the Bank, and the share or shares so paid shall be surrendered and after
such notice as the board of directors of the Bank may provide, be sold at
public auction within 30 days after the final appraisement.
If a Bank shareholder fails to perfect his or her dissenters' rights
by failing strictly to comply with the applicable statutory requirements, he or
she will be bound by the terms of the Agreement. An executed proxy on which no
voting direction is made will be voted FOR approval of the Merger, so a
dissenting shareholder who wishes to have his or her shares represented by a
proxy at the Special Meeting but preserve his dissenters' rights must mark his
or her proxy card either to vote against the Merger or to abstain from voting
thereon, in addition to complying with the other requirements as described
herein.
The foregoing is only a summary, and any Bank shareholder who intends
to exercise his or her rights under Section 221.25(1) is urged to carefully
read Exhibit B attached hereto, and to consult his or her own attorney.
In the event the Wisconsin Commissioner's approval of the Merger is
received prior to the Special Meeting, the Bank intends to provide all
shareholders notice of such approval. In the event such approval is obtained
after the Special Meeting, such notice will be given to all persons who have
not voted in favor of the Merger.
It is condition to the consummation of the Merger that such
dissenter's rights are not exercised by holders of more than 10% of the
outstanding shares of Bank Common.
-23-
<PAGE> 30
MARKET INFORMATION AND DIVIDENDS
F&M
F&M Common trades on The NASDAQ Stock Market ("NASDAQ") under the
symbol "FMBK". F&M had approximately 2,400 shareholders of record at February
29, 1996. The following table summarizes high and low prices and cash
dividends paid for F&M Common for the periods indicated. The high and low
prices represent actual trade prices as reported on NASDAQ.
<TABLE>
<CAPTION>
CALENDAR CASH DIVIDENDS
PERIOD HIGH LOW PAID PER SHARE
- ------------------------------ ---- --- --------------
<S> <C> <C> <C> <C>
1994 1st quarter 20.50 19.00 .12
2nd quarter 23.75 19.75 .12
3rd quarter 23.25 20.75 .12
4th quarter 23.00 21.00 .12
1995 1st quarter 22.00 20.50 .15
2nd quarter 22.00 19.75 .15
3rd quarter 25.00 20.50 .15
4th quarter 27.50 23.75 .15
1996 1st quarter 28.50 24.25 .18
2nd quarter _____ _____
(through April __)
</TABLE>
According to information provided by NASDAQ, the trading volume of F&M Common
on NASDAQ was 795,367 shares during 1995, and 609,955 shares during 1994.
The closing sale price of F&M Common as reported on NASDAQ on January
5, 1996, the trading day immediately preceding the announcement of the proposed
transaction with the Bank, was $26.00. The closing sale price of F&M Common on
NASDAQ on April __, 1996, was $____.
F&M has paid quarterly or annual cash dividends since its inception.
The holders of F&M Common are entitled to receive such dividends as are
declared by the board of directors of F&M, which considers (and may change)
payment of dividends quarterly. The ability of F&M to pay dividends is
dependent upon the receipt of dividends from the F&M Banks, payment of which is
subject to regulatory restrictions. In determining cash dividends, the board
of directors of F&M considers the earnings, capital requirements, debt
servicing requirements, financial ratio guidelines issued by the FRB and other
banking regulators, financial condition of F&M and the F&M Banks, and other
relevant factors. See Note 15 of Notes to F&M's Consolidated Financial
Statements and the discussion under "Management's Discussion and Analysis of
Results of Operations and Financial Condition--Financial Condition--Capital
Adequacy" for restrictions on the ability of the F&M Banks to pay dividends.
-24-
<PAGE> 31
The Bank
The number of holders of record of Bank Common at April __, 1996, was
approximately 350.
Trading in shares of Bank Common is infrequent, and there is no
independent market with respect to such shares. To Banks management's
knowledge, in 1994 there were 16 arms length transactions in Bank Common,
involving a total of 283 shares, at prices ranging from $125 to $150 per share,
and in 1995 there were 7 transactions, involving 180 shares, at prices from
$150 to $180 per share. Bank management is unaware of any arms length
transactions in shares of Bank Common in 1996.
The following table presents the total annual payment of dividends per
share of Bank Common:
<TABLE>
<CAPTION>
Calendar Year Dividends Paid
------------- --------------
<S> <C>
1994 $6.65
1995 $6.60
1996 $4.00
(through April __)
</TABLE>
The Agreement provides that the Bank shall not pay any dividends in
excess of $314,000 ($6.83 per share of Bank Common) prior to consummation of
the Merger, which amount is consistent with the Bank's past practices. In the
event the Bank pays dividends in excess of that amount, F&M may either
terminate the transaction, or reduce the consideration to be received per share
of Bank Common by the amount of any such excess dividend.
-25-
<PAGE> 32
F&M SELECTED FINANCIAL DATA
The selected financial data presented below for F&M Bancorporation,
Inc. for each of the years in the five year period ended December 31, 1995 are
derived from the Consolidated Financial Statements of F&M and should be read in
conjunction with other financial information presented elsewhere in this
Prospectus. The Consolidated Financial Statements of F&M for each of the years
in the three year period ended December 31, 1995 have been audited by Wipfli
Ullrich Bertelson, Certified Public Accountants, to the extent and for the
periods indicated in their reports thereon. The information presented below
should be read in conjunction with the separate Consolidated Financial
Statements and notes thereto of F&M, and Management's Discussion and Analysis
of Results of Operations and Financial Condition, all included elsewhere in
this Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------------------------------------------------------
1995 1994 1993 1992 1991
-------- ---- ---- ------ --------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (1)
Interest income $ 72,596 $ 60,734 $ 57,902 $61,965 $63,671
Interest expense 32,209 23,762 23,704 29,054 36,116
-------- -------- -------- -------- --------
Net interest income 40,387 36,972 34,198 32,911 27,555
Provision for loan losses 1,599 1,318 1,289 1,630 1,084
Non-interest income 4,508 3,965 5,039 5,006 3,410
Net income before extraordinary
and cumulative effect of change
in accounting principle (2) 11,357 7,764 8,082 7,861 5,817
Net income 11,357 7,764 8,082 8,576 6,091
Net income applicable to
common stock 11,357 7,743 7,895 8,389 5,904
PERIOD END BALANCE SHEET DATA
Total assets 943,126 870,599 827,177 779,430 753,136
Net loans 671,420 622,869 532,494 476,577 462,126
Total deposits 822,189 762,235 724,801 691,571 664,561
Other borrowings 10,833 6,366 13,941 16,302 18,757
Preferred stock 0 0 2,073 2,073 2,073
PER SHARE DATA (3)
Net income per common share
before extraordinary item
and cumulative effect of
change in accounting
principle (2) 1.96 1.33 1.44 1.50 1.16
Net income per common share 1.96 1.33 1.44 1.64 1.20
Cash dividends (4) .60 .48 .36 .27 .22
- ------------------
</TABLE>
(1) Includes the results of operations of F&M Bank-Lakeland and F&M
Bank-Kiel from their respective acquisition dates in 1991. Except as
indicated, the data have been restated to reflect F&M's acquisition of
F&M Bank-Lancaster in 1990, F&M Bank-Portage County in 1993, F&M Bank
- Northeast (including both the FNFC and PBI acquisitions) in 1994 and
F&M Bank-Waushara County in 1995 using the pooling of interests method
of accounting. See Note 3 of Notes to F&M's Consolidated Financial
Statements. The data have not been restated to reflect F&M's
acquisition of Monycor in February 1996.
(2) Cumulative effect of change in accounting principle in 1992 represents
the adoption of SFAS No. 109 (Accounting for Income Taxes) by F&M.
Extraordinary items for 1991 represent utilization of operating loss
carryforwards of subsidiaries of F&M arising prior to their
acquisition by F&M. See Note 12 of Notes to F&M's Consolidated
Financial Statements.
(3) Per share information has been restated to reflect the 10% stock
dividend paid to stockholders on March 26, 1992 and the two-for-one
stock split paid to stockholders on March 19, 1993.
(4) Cash dividends per common share are not restated to reflect the
acquisitions accounted for using the pooling of interests method of
accounting.
-26-
<PAGE> 33
F&M 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 (in this section, "F&M" or the "Company") results of
operations and financial condition for the years ended December 31, 1995, 1994
and 1993. These statements have been restated to reflect the acquisitions of
Park Ridge Bancshares, Inc. ("Park Ridge") acquired September 24, 1993, First
National Financial Corporation ("FNFC"), acquired February 11, 1994, Pulaski
Bancshares, Inc. ("PBI") acquired March 21, 1994 and Union State Bank ("USB")
acquired January 9, 1995. These transactions have been accounted for using the
pooling of interests method of accounting.
In February 1996, the Company acquired Monycor Bancshares Inc. ("Monycor"). The
acquisition is being accounted for using the pooling of interests method of
accounting. See Note 19 of Notes to the Company's Consolidated Financial
Statements. Because it was consummated after December 31, 1995, the Monycor
acquisition is not reflected in the following discussion. Although the Company
believes that the Monycor acquisition will not have a material effect upon the
Company (because of the relative size of Monycor as compared to F&M), the
acquisition will result in changes in future reporting of the Company's past
results, and may affect the Company's future operations.
Also, the Company has announced three pending acquisitions: Bradley Bank
(Tomahawk, Wisconsin), Community State Bank (Algoma, Wisconsin) and the Little
Chute, Wisconsin office of TCF Bank. The Bradley and Little Chute acquisitions
will be accounted for using the purchase method of accounting. The Community
acquisition will be accounted for using the pooling of interests method of
accounting. Because of the relative size of the entities, none of the
acquisitions is expected to have a material effect upon F&M or its financial
results or condition. Although the pending acquisitions are expected to be
consummated in 1996, each remains subject to conditions precedent and there
can be no assurance of completion.
RESULTS OF OPERATIONS
In addition to the Monycor acquisition noted above, 1995 was a year of
continuing growth for F&M. Net interest income in 1995 increased $3.4
million, or 9.2%, to $40.4 million from $37.0 million in 1994 (compared with
$34.2 million in 1993). Net income in 1995 increased $3.6 million, or 46.3%, to
$11.4 million from $7.8 million in 1994 (compared with $8.1 million in 1993).
Net income per common share was $1.96 in 1995 compared with $1.33 in 1994 and
$1.44 in 1993. Although the Company adopted a stock option plan in 1993, as of
December 31, 1995, fully diluted earnings per share are equal to the earnings
per share numbers mentioned above.
Return on average assets was 1.25% in 1995, compared with 0.93% in 1994 and
1.03% in 1993. Return on average common stockholders' equity was 14.16% in
1995, compared with 10.26% in 1994 and 12.09% in 1993.
Increased net interest income has been the major factor affecting the growth
in earnings over the last three years. The Company has been able to keep its
net interest margin relatively constant over this time period, while at the
same time increasing its interest earning assets.
The remainder of this section provides a more detailed explanation of factors
affecting the results of operations.
<PAGE> 34
NET INTEREST INCOME
Net interest income is the most significant component of the Company's
earnings. For analytical purposes, interest earned on tax exempt assets, such
as industrial development revenue bonds and state and municipal obligations,
is adjusted in this discussion to a fully-taxable equivalent basis. This
adjustment is based upon the statutory federal corporate income tax rate, and
any interest expense which is disallowed as a deduction in connection with
carrying these tax exempt assets, and thus facilitates a meaningful comparison
between taxable and nontaxable earning assets.
Net interest income in 1995 increased $3.4 million, or 9.2%, to $40.4 million
from $37.0 million in 1994. This increase is attributable to the increase in
asset volume due to the Company's internal growth and relative stability of
the Company's net interest margin. Net interest income in 1994 increased 8.1%
from $34.2 million in 1993, also attributable to the increase in asset volume.
Changes in net interest income occur due to fluctuations in the balances
and/or mixes of interest-earning assets and interest-bearing liabilities, and
changes in their corresponding interest yields and costs. Changes in
nonperforming assets, together with interest lost and recovered on those
assets also affect comparisons of net interest income.
The following table presents the relative contribution of changes in volume
and interest rates on changes in net income for the periods indicated using
average balances.
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 VS. 1994
--------------------------------------
INCREASE (DECREASE) DUE TO (1)
--------------------------------------
VOLUME
---------
INTERNAL
GROWTH RATE NET
- ----------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans (2) $7,601 $4,098 $11,699
Taxable investment securities (534) 700 166
Non-taxable investment securities (2) 48 (132) (84)
Other interest income (73) 203 130
- ----------------------------------------------------------------------------------
Total 7,042 4,869 11,911
Interest paid on:
Savings deposits (171) 910 739
Time deposits 2,968 4,183 7,151
Short-term borrowings (128) 255 127
Other borrowings 393 38 431
- ----------------------------------------------------------------------------------
Total 3,062 5,386 8,448
- ----------------------------------------------------------------------------------
Net interest income $3,980 $ (517) $ 3,463
==================================================================================
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1994 VS. 1993
--------------------------------------
INCREASE (DECREASE) DUE TO (1)
--------------------------------------
VOLUME
---------
INTERNAL
GROWTH RATE NET
- ----------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Interest earned on:
Loans (2) $6,211 $(1,517) $4,694
Taxable investment securities (1,213) (681) (1,894)
Non-taxable investment securities (2) 670 (183) 487
Other interest income (372) 44 (328)
- ----------------------------------------------------------------------------------
Total 5,296 (2,337) 2,959
Interest paid on:
Savings deposits 212 (808) (596)
Time deposits 843 (409) 434
Short-term borrowings 447 55 502
Other borrowings (367) 85 (282)
- ----------------------------------------------------------------------------------
Total 1,135 (1,077) 58
- ----------------------------------------------------------------------------------
Net interest income $4,161 $(1,260) $2,901
==================================================================================
</TABLE>
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amounts of the change in each.
(2) The amount of interest income on nontaxable loans and investment
securities has been adjusted to its fully taxable equivalent.
<PAGE> 35
The following table presents the components of the changes in the net yield on
interest-earning assets (on a fully tax equivalent basis) for the three-year
period ended December 31, 1995. Although interest rates decreased in 1995, the
yield on interest-earning assets and interest-bearing liabilities for 1995
increased from 1994. The increase over the period is reflected in the 1995
yield on interest-earning assets which increased by 0.71%, after decreases of
0.13% and 0.96% in 1994 and 1993 respectively. The effective rate on
liabilities as a percentage of interest-earning assets increased by 0.73% in
1995 and decreased 0.19% in 1994, producing a negative impact on net interest
margin on interest-earning assets of 0.02% for 1995 and a positive impact on
net interest margin on interest-earning assets of 0.06% for 1994. In 1993, net
interest margin on interest-earning assets decreased 0.04%.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------------
YIELD/ CHANGE YIELD/ CHANGE YIELD/ CHANGE
RATE FROM 1994 RATE FROM 1993 RATE FROM 1992
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Yield on interest-earning assets 8.77% 0.71% 8.06% (0.13)% 8.19% (0.96)%
Effective rate on liabilities as a
percent of interest-earning assets 3.81% 0.73% 3.08% (0.19)% 3.27% (0.92)%
- -------------------------------------------------------------------------------------------------------------
Net interest margin on
interest-earning assets 4.96% (0.02)% 4.98% 0.06% 4.92% (0.04)%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Despite the relatively steady decrease in interest rates during 1995, yields
on interest-earning assets and the effective rate on liabilities as a
percentage of interest-earning assets both rose as the repricing of loans and
deposits lag the decreases in the discount rate. In the decreasing interest
rate environment, the Company had a slight decrease in its net interest margin
on interest-earning assets. The yield on interest-earning assets was
positively affected by the higher percentage of the Company's interest-earning
assets represented by loans, which tend to have higher yields than other
assets.
<PAGE> 36
The following table sets forth average consolidated balance sheet data and
average yield and rate data on a tax equivalent basis for the periods
indicated.
<TABLE>
<CAPTION>
1995 1994 1993
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
ASSETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
Loans (1) (2) (3) $664,691 $61,848 9.30% $581,010 $50,149 8.63% $509,448 $45,455 8.92%
Taxable investment
securities 110,562 6,826 6.17% 119,792 6,661 5.56% 140,900 8,555 6.07%
Nontaxable investment
securities (2) 60,760 4,928 8.11% 60,187 5,012 8.33% 52,220 4,525 8.67%
Other investments 10,743 620 5.77% 12,422 490 3.95% 21,881 818 3.74%
-------------------- -------------------- ------------------
Total $846,756 $74,222 8.77% $773,411 $62,312 8.06% $724,449 $59,353 8.19%
Non-interest earning assets
Cash and due from banks 30,193 34,482 34,280
Premises & Equip. - net 20,342 19,222 16,776
Other assets 15,834 15,237 15,786
Less: Allowance
for loan loss (8,130) (7,372) (6,688)
-------- -------- --------
Total $904,995 $834,980 $784,603
======== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing liabilities
Savings deposits $274,760 $7,206 2.62% $282,077 $6,467 2.29% $273,710 $ 7,063 2.58%
Time deposits 411,917 23,101 5.61% 352,319 15,950 4.53% 333,835 15,516 4.65%
Short-term borrowings 16,151 934 5.79% 18,864 808 4.28% 8,312 306 3.68%
Other borrowings 14,888 968 6.50% 8,811 537 6.10% 14,983 819 5.47%
-------------------- -------------------- ------------------
Total $717,716 $32,209 4.49% $662,071 $23,762 3.59% $630,840 $23,704 3.76%
Non-interest bearing liabilities
Demand deposits 97,162 90,891 80,623
Other liabilities 9,882 6,537 5,774
Stockholders' equity 80,235 75,481 67,366
-------- -------- --------
Total $904,995 $834,980 $784,603
======== ======== ========
Net interest income $42,013 $38,550 $35,649
Rate spread 4.28% 4.47% 4.43%
Net interest margin 4.96% 4.98% 4.92%
</TABLE>
(1) For the purposes of these computations, non-accruing loans are included
in the daily average loan amounts outstanding.
(2) The amount of interest income on non-taxable investment securities and
loans has been adjusted to its fully taxable equivalent.
(3) Loan fees are included in total interest income as follows:
1995-$1,137,000; 1994-$1,302,000; 1993-$1,047,000.
<PAGE> 37
The following table sets forth the mix of average interest-earning assets and
average interest-bearing liabilities.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31
- ---------------------------------------------------------------------------------------
1995 1994 1993
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans 78.5% 75.1% 70.3%
Taxable investment securities 13.0% 15.5% 19.5%
Non-taxable investment securities 7.2% 7.8% 7.2%
Other investments 1.3% 1.6% 3.0%
- ---------------------------------------------------------------------------------------
100.0% 100.0% 100.0%
=======================================================================================
Savings deposits 38.3% 42.6% 43.4%
Time deposits 57.4% 53.2% 52.9%
Short-term borrowings 2.2% 2.9% 1.3%
Other borrowings 2.1% 1.3% 2.4%
- ---------------------------------------------------------------------------------------
100.0% 100.0% 100.0%
=======================================================================================
</TABLE>
The preceding table reflects the results of management's strategy to increase
loans as a percent of earning assets coupled with generally strong demand for
loans. Based on the current economic conditions, management has established a
range of average loans to earning assets of between 70% and 80% as the optimum
level.
As interest rates continued to decline in 1995, time deposits increased faster
than savings deposits, as depositors sought to lock in higher interest rates.
Short-term borrowing remained relatively constant. The increase in other
borrowing is due to additional utilization by the Company of Federal Home Loan
Bank financing. For more information regarding borrowing, see Notes 10 and 11
of Notes to the Company's Consolidated Financial Statements.
PROVISION FOR LOAN LOSSES
The amount charged to provision for loan losses is based on management's
evaluation of the loan portfolio. Management determines the adequacy of the
allowance for loan losses, both on a bank by bank basis and on an overall
basis for the Company, based on past loan loss experience, current economic
conditions, composition of the loan portfolio (including the historical
performance of, and the F&M subsidiary banks' evaluation of the prospects for,
each of the component loans, and the collateral value therefor) and the
potential for future loss. Management is also mindful of the expectations in
recent years of banking industry regulators for increased levels of
allowances, although no particular regulatory obligations have been imposed on
the Company in this regard.
The provision for loan losses was $1.6 million in 1995, compared with $1.3
million in 1994 and $1.3 million in 1993. The allowance for loan losses as a
percentage of gross loans outstanding was 1.27% at December 31, 1995, as
compared to 1.23% and 1.33% at December 31, 1994 and 1993, respectively. Net
charge-offs as a percentage of average loans outstanding were 0.11% in 1995,
0.12% in 1994 and 0.11% in 1993. Charge-offs in 1995 were not concentrated in
any industry or business segment.
<PAGE> 38
NON-INTEREST INCOME
The following table presents the major components of non-interest income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service fees $ 2,534 $ 2,231 $ 2,156
Net securities gains 37 50 459
Other operating income 1,937 1,684 2,424
- -------------------------------------------------------------------------------
Total $ 4,508 $ 3,965 $ 5,039
===============================================================================
</TABLE>
The Company stresses the importance of growth in non-interest income as one of
its key long-term strategies. Non-interest income for 1995 increased $544,000
or 13.7% when compared to 1994. The increase in service fees during 1995 was
attributable primarily to increased services (primarily relating to checking
and other depository accounts) sold, along with an increase in the amount
charged for those services.
During 1995 and 1994, net security gains were minimal. These gains were
realized as management responded to market conditions and opportunities. For
additional detail see Note 5 of Notes to the Company's Consolidated Financial
Statements.
The increase in other operating income during 1995 was due principally to
increases in secondary market commissions, along with an increase in other
miscellaneous charges. The decreasing interest rate environment in 1995
increased the volume of mortgage refinancings as compared to 1994, and
therefore increased the Company's related secondary market commissions. The
decrease in the operating income between 1993 and 1994 reflects a reduction in
mortgage refinancing (and, therefore, secondary market commissions) resulting
from the increased interest rate environment in 1994.
NON-INTEREST EXPENSE
The following table presents the major components of non-interest expense.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $13,604 $14,627 $13,508
Occupancy expenses, net 3,910 3,909 3,418
Data processing 1,282 1,292 962
Goodwill amortization 398 398 376
FDIC insurance premiums 879 1,637 1,538
Other operating expenses 6,439 7,068 6,813
- -------------------------------------------------------------------------------
Total $26,512 $28,931 $26,615
===============================================================================
</TABLE>
The Company's total non-interest expense in 1995 decreased $2.4 million, or
8.4%, to $26.5 million from $28.9 million in 1994. The decrease was due to
acquisition and restructuring costs in 1994 in connection with the addition of
USB, FNFC and PBI, along with the FDIC substantially reducing the rate charged
for deposit insurance to banks effective May, 1995 and cost cutting
initiatives implemented by the Company during 1994 and 1995. The 1994 level
represents an 8.7% increase from $26.6 million in 1993, resulting primarily
from restructuring costs mentioned above, along with a new institutional
advertising campaign, increases in data processing costs due to conversions
from the Company's previous system to an outside data processor, the opening
of three new branch offices in 1994 and normal increases in salaries and
employee benefits.
The Company's 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 2.44% in 1995, 3.00% in 1994, and 2.81%
in 1993.
<PAGE> 39
Due to the sensitivity of the overhead ratio to changes in the size of the
balance sheet, management also looks at trends in the efficiency ratio to
assess the changing relationship between operating expenses and income. The
efficiency ratio measures the amount of cost expended by the Company to
generate a given level of revenues in the normal course of business. It is
computed by dividing total operating expense by net interest income on a
fully-taxable equivalent basis and non-interest income from ongoing
operations, excluding nonrecurring items. The efficiency ratio was 57.03% in
1995, 68.13% in 1994 and 66.16% in 1993. The decrease in this ratio and the
overhead ratio was the result of the factors set forth above.
INCOME TAXES
The Company's provision for income taxes in 1995 increased $2.5 million, or
85.7%, to $5.4 million from $2.9 million in 1994. The 1994 level represents a
10.1% decrease from $3.3 million in 1993. As a percentage of taxable income,
the effective tax rate was 32.3% in 1995, 27.4% in 1994 and 28.7% in 1993 of
income before taxes. The effective tax rate has increased as compared to 1994
and 1993, principally due to the fact that tax-exempt income as a percent of
total income has decreased. For more information regarding income taxes see
Note 12 of Notes to the Company's Consolidated Financial Statements.
NET INCOME
Net income applicable to common stock, in 1995 increased by $3.6 million, or
46.7% to $11.4 million from $7.7 million in 1994. This compares with a
decrease in income of $152,000, or 1.9%, for 1994 from $7.9 million in 1993.
The difference between net income and net income applicable to common stock
results from dividends paid on preferred stock of FNFC, which was redeemed as
part of F&M's acquisition of FNFC in 1994.
Return on average common stockholders' equity was 14.16% in 1995 compared with
10.26% in 1994 and 12.09% in 1993. The return on average assets was 1.25% in
1995 compared with 0.93% in 1994 and 1.03% in 1993.
Net income per common share was $1.96 in 1995 compared with $1.33 in 1994 and
$1.44 in 1993. Although the Company adopted a stock option plan in 1993, as of
December 31, 1995, fully diluted earnings per share are equal to the earnings
per share numbers mentioned above.
FINANCIAL CONDITION
In addition, 1995 was a year of growth for F&M in total assets and equity.
Year end total assets in 1995 grew to $943 million, an 8.3% increase from $871
million in 1994. Total stockholders' equity at December 31, 1995 was $86
million, a 13.7% increase from $76 million in 1994. The balance of this
section further discusses changes in the Company's assets, liabilities and
equity.
<PAGE> 40
LOAN PORTFOLIO
The following table sets forth the major categories of loans outstanding and
the percentage of total loans for each category at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT % AMOUNT %
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $118,571 17.4% $105,612 16.7% $100,001 18.5%
Agricultural 40,837 6.0% 40,212 6.4% 40,108 7.4%
Real estate construction 22,374 3.3% 17,369 2.8% 17,604 3.3%
Real estate mortgage 453,292 66.7% 420,795 66.7% 339,439 62.9%
Installment and other consumer loans 44,949 6.6% 46,633 7.4% 42,497 7.9%
- ------------------------------------------------------------------------------------------------------
Total $680,023 100.0% $630,621 100.0% $539,649 100.0%
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992 DECEMBER 31, 1991
------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial and industrial $75,703 15.7% $69,910 14.9%
Agricultural 33,912 7.0% 32,822 7.0%
Real estate construction 13,778 2.9% 8,639 1.8%
Real estate mortgage 316,241 65.4% 313,075 67.0%
Installment and other consumer loans 43,358 9.0% 43,295 9.3%
- --------------------------------------------------------------------------------
Total $482,992 100.0% $467,741 100.0%
- --------------------------------------------------------------------------------
</TABLE>
Loan growth was 7.8% in 1995 compared with 16.9% in 1994. The 1995 increase
was a result of increased sales efforts at the Company's subsidiary banks. The
1994 increase was further influenced by the Company's entry into the Green Bay
market.
During 1995 the loan mix in the Company's portfolio remained relatively
constant, with a slight trend toward commercial loans. During 1994 the Company
experienced an increase in real estate mortgages as a percentage of total
loans.
The Company maintains a diversified loan portfolio and therefore believes
there is minimal exposure to loan concentration losses. At December 31, 1995,
the Company believes that there were no loan concentrations to a multiple
number of borrowers engaged in similar activities which would cause them to be
similarly impacted by economic or other conditions. By maintaining a diversity
of types of borrowers, the Company has attempted to prevent losses due to
economic difficulties of certain industries.
<PAGE> 41
The following table sets forth the scheduled repayments of the loan portfolio
and the sensitivity of loans to interest rate changes at December 31, 1995
(excluding one to four family residential property mortgages and consumer
loans).
<TABLE>
<CAPTION>
MATURITY
------------------------------------------
OVER ONE
ONE YEAR YEAR THRU OVER
OR LESS FIVE YEARS FIVE YEARS
(IN THOUSANDS)
------------------------------------------
<S> <C> <C> <C>
Commercial and industrial $ 92,269 $23,228 $3,074
Agricultural 35,913 3,596 1,328
Real estate construction 20,020 2,337 17
- ------------------------------------------------------------------------------------
Total $148,202 $29,161 $4,419
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
INTEREST SENSITIVITY
-----------------------
AMOUNT OF LOANS DUE AFTER ONE YEAR WITH: FIXED VARIABLE
RATE RATE
-----------------------
(IN THOUSANDS)
<S> <C> <C>
Commercial and industrial $25,006 $1,296
Agricultural 4,674 250
Real estate construction 2,354 0
- --------------------------------------------------------------------
Total $32,034 $1,546
- --------------------------------------------------------------------
</TABLE>
NON-PERFORMING ASSETS
Non-performing assets are a broad measure of problem loans. 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 as of
the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 % 1994 % 1993 %
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $5,698 0.84% $5,532 0.88% $4,121 0.76%
Loans past due 90 days or more 210 0.03 127 0.02 337 0.06
Restructured loans 481 0.07 25 0.00 259 0.05
- -----------------------------------------------------------------------------------------------------
Total non-performing loans 6,389 0.94 5,684 0.90 4,717 0.87
Other real estate owned 644 0.09 936 0.15 2,367 0.44
- -----------------------------------------------------------------------------------------------------
Total non-performing assets $7,033 1.03% $6,620 1.05% $7,084 1.31%
- -----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
(DOLLARS IN THOUSANDS) 1992 % 1991 %
- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accrual loans $4,874 1.01% $7,057 1.51%
Loans past due 90 days or more 136 0.03 149 0.03
Restructured loans 497 0.10 768 0.17
- ---------------------------------------------------------------------------
Total non-performing loans 5,507 1.14 7,974 1.71
Other real estate owned 3,460 0.72 3,791 0.81
- ---------------------------------------------------------------------------
Total non-performing assets $8,967 1.86% $11,765 2.52%
- ---------------------------------------------------------------------------
</TABLE>
Maintaining excellent credit quality continues to be a priority for the
Company. Non-performing assets as a percentage of total loans outstanding
decreased in 1995 to 1.03% compared with 1.05% in 1994 and 1.31% in 1993. The
decrease in 1995 was due largely to the Company's continued monitoring of the
loan portfolio and collection efforts as well as the
<PAGE> 42
strong Wisconsin economy; the decrease in 1994 also resulted from dispositions
of other real estate owned which had been held by FNFC.
Non-accrual loans at December 31, 1995 decreased 0.04% as a percentage of
total loans, as compared to 1994. Non-accrual loans are at a level the Company
considers manageable and at a level that compares favorably with Company
peers. Furthermore, the Company considers its allowance for loan losses
adequate to cover this level of non-accrual loans, although it regularly
reviews the various factors used in determining the provision and allowance
for loan losses.
The gross interest income that would have been recognized on non-accrual loans
in 1995 if the loans had been current in accordance with their original terms
was approximately $569,000, of which approximately $192,000 was collected and
included in the Company's income for 1995.
It is the policy of the F&M subsidiary banks to place a loan on non-accrual
status when the loan's principal and accrued interest is not expected to be
collected in full or when the loan becomes contractually past due 90 days or
more as to principal or interest and is not guaranteed by an outside source.
Loans past due 90 days or more may be retained on accrual status if they are
guaranteed by a third party and the bank believes that such guaranty will be
adequate to assure collection.
There were no particular loans as to which payments were current at December
31, 1995, which in the opinion of management, and to its best knowledge, will
not be paid according to their terms.
<PAGE> 43
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at the end of each period;
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>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balance of loans for period $664,691 $581,010 $509,448 $479,911 $444,011
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at beginning of period 7,752 7,155 6,415 5,616 4,727
Allowance for loan losses of banks
acquired in purchase transactions -- -- -- -- 660
Loans charged off
Commercial and Industrial 594 446 364 493 612
Agricultural 36 30 51 11 33
Real Estate - Mortgage 31 112 53 149 117
Installments and Other Consumer Loans 264 303 287 406 279
- ------------------------------------------------------------------------------------------------------------------------
Total charge offs 925 891 755 1,059 1,041
Recoveries on loans previously charged off
Commercial and Industrial 49 70 87 85 40
Agricultural 5 7 1 10 23
Real Estate - Mortgage 37 11 11 26 29
Installment and Other Consumer Loans 86 82 107 107 94
- ------------------------------------------------------------------------------------------------------------------------
Total recoveries 177 170 206 228 186
Net loans charged off 748 721 549 831 855
Provisions for loan losses 1,599 1,318 1,289 1,630 1,084
- ------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 8,603 $ 7,752 $ 7,155 $ 6,415 $ 5,616
- ------------------------------------------------------------------------------------------------------------------------
Ratio of net charge offs during period to
average loans outstanding 0.11% 0.12% 0.11% 0.17% 0.19%
Allowance for loan losses to total loans 1.27% 1.23% 1.33% 1.33% 1.20%
</TABLE>
<PAGE> 44
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
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994 DECEMBER 31, 1993
---------------------------------------------------------------
PERCENT PERCENT PERCENT
OF LOANS OF LOANS OF LOANS
AMOUNT OF IN EACH AMOUNT OF IN EACH AMOUNT OF IN EACH
RESERVE CATEGORY RESERVE CATEGORY RESERVE CATEGORY
FOR LOAN TO TOTAL FOR LOAN TO TOTAL FOR LOAN TO TOTAL
(DOLLARS IN THOUSANDS) LOSSES LOANS LOSSES LOANS LOSSES LOANS
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial,industrial, and agricultural $3,550 23.4% $3,232 23.1% $3,399 25.9%
Real estate - construction 142 3.3 109 2.8 115 3.3
Real estate - mortgage 3,197 66.7 3,093 66.7 2,575 62.9
Installment and other consumer loans 1,714 6.6 1,318 7.4 1,066 7.9
- ---------------------------------------------------------------------------------------------------------
$8,603 100.0% $7,752 100.0% $7,155 100.0%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1992 DECEMBER 31, 1991
-----------------------------------------
PERCENT PERCENT
OF LOANS OF LOANS
AMOUNT OF IN EACH AMOUNT OF IN EACH
RESERVE CATEGORY RESERVE CATEGORY
FOR LOAN TO TOTAL FOR LOAN TO TOTAL
(DOLLARS IN THOUSANDS) LOSSES LOANS LOSSES LOANS
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial,industrial, and agricultural $2,924 22.7% $2,561 21.9%
Real estate - construction 116 2.9 101 1.8
Real estate - mortgage 2,412 65.4 2,111 67.0
Installment and other consumer loans 963 9.0 843 9.3
- -----------------------------------------------------------------------------------
$6,415 100.0% $5,616 100.0%
- -----------------------------------------------------------------------------------
</TABLE>
The allowance for loan losses is maintained at a level sufficient to provide
for estimated loan losses based on evaluating known and inherent risks in the
loan portfolio. 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.
For discussion of the impact of the adoption of SFAS No. 114 (Accounting by
Creditors for Impairment of a Loan) and SFAS No. 118 (Accounting by Creditors
for Impairment of a Loan--Income Recognition and Disclosures) see "Recent
Accounting Developments."
The degree of risk associated with the Company's loans is generally greater in
the commercial, industrial and agricultural categories, representing 23.4% of
total loans at December 31, 1995. Accordingly, management has allocated a
significantly larger portion of the allowance for loan losses to these types
of loans.
The ultimate recovery of all loans is susceptible to future market factors
beyond the Company's control. These factors may result in losses or recoveries
differing significantly from those provided in the financial statements.
<PAGE> 45
INVESTMENT PORTFOLIO
The following table sets forth the distribution of investment securities
(securities held to maturity and available for sale) and their percentage to
total investment securities at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------
1995 1994 1993
------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT PERCENT AMOUNT PERCENT AMOUNT PERCENT
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and obligations
of U.S. Government corporations
and agencies $35,395 20.1% $43,019 25.0% $59,407 29.0%
Obligations of states and
political subdivisions 72,355 41.0 72,311 42.1 60,546 29.6
Debt securities issued by
foreign government 25 0.0 25 0.0 25 0.0
Mortgage-backed securities 51,128 29.0 45,165 26.3 59,014 28.9
Other securities 17,476 9.9 11,372 6.6 25,556 12.5
- -------------------------------------------------------------------------------------------------
Total investments $176,379 100.0% $171,892 100.0% $204,548 100.0%
- -------------------------------------------------------------------------------------------------
</TABLE>
During 1995, the investment portfolio make-up remained relatively consistent
with past years, with a decrease in U.S. treasuries and agencies and a slight
increase in money market mutual funds. The Company generally limits its mutual
fund holdings to money market funds.
The following tables show the relative maturities and weighted average
interest rates on a tax equivalent basis of investment securities as of
December 31, 1995. Although the maturities of the investment portfolio have
lengthened from 1994, the Company feels liquidity remains adequate.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
(DOLLARS IN THOUSANDS) ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
- -----------------------------------------------------------------------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury and other
U.S. Government
agencies and
corporations* $5,592 6.25% $34,795 5.73% $14,232 6.63% $31,904 9.50%
States and political
subdivisions (domestic) 1,349 7.96 20,112 8.25 26,581 8.72 24,313 7.94
Other bonds, notes,
and debentures 10,199 5.79 1,336 6.62 450 6.67 5,516 6.52
- -----------------------------------------------------------------------------------------
Total $17,140 6.11% $56,243 6.65% $41,263 7.98% $61,733 8.62%
- -----------------------------------------------------------------------------------------
</TABLE>
*Includes floating rate securities which reprice monthly but which mature
during the indicated time period.
<PAGE> 46
Inherent in any portfolio which includes mortgage-backed securities, there
exist both prepayment and maturity extension risk. The Company is not immune
to these same type risks. The Company's investments in these type of
securities are predominantly in straight U.S. Agency issued mortgage-backed
pass-throughs and lower risk types of real estate mortgage investments
conduits/collateralized mortgage obligations. The major categories of the
mortgage-backed security portfolio and dollar values as of December 31, 1995,
are as follows: fixed rate mortgage-backed pass-throughs-$8.8 million;
variable rate mortgage-backed pass-throughs-$4.7 million; fixed rate real
estate mortgage investment conduits/collateralized mortgage obligations-$22.3
million; and floating rate real estate mortgage investment
conduits/collateralized mortgage obligations-$15.3 million.
For more information regarding the investment portfolio, including the
breakdown between securities held to maturity and available for sale, see Note
5 of Notes to the Company's Consolidated Financial Statements.'
DEPOSITS
The following table sets forth average deposits and their percentage to total
average deposits at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1995 1994 1993
------------------------------------------------------------------------
AMOUNTS PERCENT AMOUNTS PERCENT AMOUNTS PERCENT
- -----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-interest bearing demand $97,162 12.4% $90,891 12.5% 80,623 11.7%
Interest-bearing demand 78,039 10.0 84,759 11.7 91,017 13.2
Savings deposits 196,721 25.1 197,318 27.2 182,693 26.6
Time deposits 411,917 52.5 352,319 48.6 333,835 48.5
- ----------------------------------------------------------------------------------------------------
Total $783,839 100.0% $725,287 100.0% $688,168 100.0%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Year-end deposits increased 7.9% in 1995 compared with an increase of 5.2% in
1994 over 1993.
The amount of time certificates of deposit issued in amounts of $100,000 or
more and outstanding as of December 31, 1995 is: 75,303,000. Their maturing
distribution is as follows:
<TABLE>
<S> <C>
--three months or less $32,060,000
--over three months and through twelve months $33,891,000
--over one year $ 9,352,000
</TABLE>
Neither F&M or its subsidiaries have any deposits in foreign banking offices.
BORROWINGS
Short-term borrowings at December 31, 1995 were $12.2 million, as compared to
$19.8 million at December 31, 1994. Short-term borrowings consist primarily of
repurchase agreements. During 1995, F&M used short-term borrowings (along with
increased deposits) to fund its increasing loan demand. Management has taken
steps to reduce short-term borrowings by increasing interest rates paid to
depositors and carefully monitoring the growth in the loan portfolio, although
continued reliance on short-term borrowings may be required if loan demand
outpaces deposit growth, therefore, short-term borrowings are expected to vary
from time to time.
Several of the Company's subsidiary banks, as members of the Federal Home Loan
Bank (FHLB), had borrowings from the FHLB as of December 31, 1995 and 1994.
These borrowings are secured by pledges of mortgage loans, and totaled $10.8
million at December 31, 1995, compared to $5.3 million at December 31, 1994.
These borrowings had original maturities of three months to seven years, with
rates at December 31, 1995 ranging from 4.60% to 7.73%.
The Company had previously maintained a credit facility with a third party
bank. During 1995 the Company repaid in full the term borrowings under the
credit facility, which were $1.0 million at December 31, 1994. This
arrangement expired on May 31, 1995.
<PAGE> 47
CAPITAL ADEQUACY
Stockholders' equity increased in 1995 by $10.3 million, to $85.9 million.
This increase was a result of net income during the year, along with the net
increase in fair values of securities available for sale of $3.2 million,
offset by dividends of $3.5 million paid to common stockholders.
At December 31, 1995, the risk-based capital ratio for Tier 1 capital was
11.66% and the total risk-based capital ratio was 12.87%, as compared to
minimum regulatory requirements of 4.0% and 8.0%, respectively. The ratio of
average equity to average assets amounted to 8.87% at December 31, 1995
compared with 9.04% at December 31, 1994 and 8.59% at December 31, 1993. The
Company's leverage ratio at December 31, 1995 was 8.88%, as compared to a
minimum regulatory requirement of 3.0%.
At December 31, 1995, the F&M subsidiary banks in the aggregate could have
paid approximately $16,976,000 of additional dividends to the Company without
prior regulatory approval. The payment of dividends is subject to the statutes
governing Wisconsin state chartered banks. At December 31, 1995, each of the
F&M banks was in compliance with all applicable capital requirements, and
management believes that the capital structure of the F&M Banks is adequate.
The Company's common stock dividend payout ratio was 30.6% in 1995, as
compared to 30.8% in 1994 and 32.5% in 1993. These numbers include the
dividends historically paid by USB, FNFC and PBI prior to their acquisitions
by the Company; differences in dividend policies affect the comparability of
information.
F&M's acquisition of Monycor was in exchange for 157,563 shares of F&M common
stock. As a result of the use of F&M stock, the Monycor transaction increased
F&M capital; the acquisition did not significantly affect F&M's capital ratios.
F&M's pending acquisition of Community State Bank is also expected to be in
exchange for F&M Common Stock.
F&M's proposed acquisition of Bradley Bank will be made in exchange for
approximately $6.0 million in cash. In addition, F&M has identified capital
needs during 1996 of approximately $3.0 million for replacement and renovation
of facilities and establishment of additional branch offices. F&M expects to
meet these cash capital needs through earnings and its existing capital
resources.
LIQUIDITY AND INTEREST SENSITIVITY MANAGEMENT
As shown in the Company's Consolidated Statement of Cash Flow for 1995, cash
and cash equivalents increased by $18.8 million during 1995 to $59.0 million
at December 31, 1995. The increase primarily reflected $52.5 million in net
cash provided by financing activities plus $17.9 million in net cash provided
by operating activities offset by $51.6 million in net cash used in investing
activities. Net cash used in investing activities consisted primarily of a net
increase in loans plus necessary capital expenditures. Net cash provided by
operating activities primarily consisted of the Company's net income in 1995,
increased by adjustments for non-cash charges. Net cash provided by financing
activities principally reflected a
<PAGE> 48
net increase in deposits and other borrowings offset in part by payments on
the Company's short-term borrowings, and dividends paid.
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 marketable assets maturing within one year. At December 31,
1995, the carrying value of securities maturing within one year was $17.1
million, or 9.7% of the total investment securities portfolio. 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 liquidity is adequate.
Managing interest rate risk is fundamental to banking. Banking institutions
manage the inherently different maturity and repricing characteristics of the
lending and deposit-taking lines of business to achieve a desired interest
rate sensitivity position and to limit their exposure to interest rate risk.
The Company manages its balance sheet to achieve maximum shareholder value
within the constraints of its interest rate risk discipline, the maintenance
of high credit quality, and sound leverage and liquidity positions. Both the
interest rate sensitivity and liquidity position of the Company are reviewed
regularly. The primary objective of interest rate sensitivity management is to
maintain net interest income growth while reducing exposure to the risks
inherent in interest rate movements.
A historical tool for measuring interest rate sensitivity is the gap analysis.
The following table shows the Company's approximate consolidated rate
sensitivity gap position at December 31, 1995.
<TABLE>
<CAPTION>
0-90 91-365 1-5 OVER 5
(DOLLARS IN THOUSANDS) DAYS DAYS YEARS YEARS TOTAL
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $211,625 $282,752 $162,498 $23,148 $680,023
Investment securities 29,982 17,570 69,608 59,219 176,379
Other earnings assets 20,118 0 0 0 20,118
- --------------------------------------------------------------------------------------------------
Total rate-sensitive assets (RSA) $261,725 $300,322 $232,106 $82,367 $876,520
==================================================================================================
Savings deposits $144,216 $0 $77 $9,237 $153,530
Time deposits 132,302 195,596 109,204 41 437,143
Other non-deposit interest-bearing liabilities 20,894 133 1,200 800 23,027
- --------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities (RSL) $297,412 $195,729 $110,481 $10,078 $613,700
==================================================================================================
Interest sensitivity gap $(35,687) $104,593 $121,625 $72,289 $262,820
==================================================================================================
Cumulative interest sensitivity gap $(35,687) $68,906 $190,531 $262,820
==================================================================================================
Ratio of cumulative rate sensitivity gap to RSA (13.6)% 12.3% 24.0% 30.0%
Cumulative ratio of rate sensitive assets
to rate sensitive liabilities 88.0% 114.0% 131.6% 142.8%
</TABLE>
Rate-sensitive liabilities in the preceding table exclude 50% of negotiable
order of withdrawal interest-bearing demand accounts and 70% of regular
savings accounts because management believes, based on the Company's previous
experience, that this treatment more closely approximates actual results due
to the relatively stable nature of these accounts. The F&M banks' regulators
have acknowledged these formulas for examination purposes.
Management's overall strategy is to coordinate the volume of rate-sensitive
assets and liabilities to minimize the impact of interest rate movements on
the net interest margin. The above table reflects a negative gap position for
the 90-day interval with a positive position for the longer maturities. A
negative position is favorable in a falling interest rate environment; a
positive position is favorable in a rising interest rate environment. The gap
is within the acceptable range established by management at each level of
maturity. The December 31, 1995 net interest margin indicates that the
<PAGE> 49
actual decrease in interest rates for the year resulted in a slight decrease
in the margin to 4.96% from 4.98% for 1994. Since this is a dynamic ratio,
management has the ability to influence net interest income in a positive
manner when interest rate changes do occur.
The Company's rollover policy is such that loans are written with limited
maturities if they are not in conjunction with amortized payments or otherwise
tied to a variable rate. This allows the F&M banks to restructure the terms
and interest rate of the loan to correspond with the Company's cost of funds.
RECENT ACCOUNTING DEVELOPMENTS
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 be reported at the lower of carrying amount or fair value less
cost to sell. This statement is required to be adopted by the Company
effective January 1, 1996. The adoption of SFAS No. 121 is not anticipated to
have a significant impact on the Company's financial condition or results of
operations once implemented.
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 is required to be adopted by the Company
effective January 1, 1996. The adoption of SFAS No. 122 is not anticipated to
have a significant impact on the Company's financial condition or results of
operations. The actual 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 is required
to be adopted as of January 1, 1996, and will not have a significant impact on
the Company's financial condition or results of operations.
<PAGE> 50
F&M BANCORPORATION, INC.
F&M Bancorporation, Inc. was formed in 1980 to acquire the shares of
Farmers and Merchants Bank of Kaukauna, Wisconsin (now known as F&M
Bank-Kaukauna). F&M has grown internally and through acquisitions from a
one-bank holding company with total assets of $37 million at its inception to
a 14-bank holding company with 42 banking offices, and total assets of $973
million at December 31, 1995, giving effect to its February 1996 acquisition
of Monycor Bancshares, Inc. ("Monycor").
At December 31, 1995, F&M's subsidiary banks (the "F&M Banks") ranged
in size from $28.4 million to $226.6 million in total assets. The F&M Banks
are community banks which provide a full range of services to consumers and
businesses in small and medium-sized communities throughout northeastern, north
central and southwestern Wisconsin. F&M provides the benefits of holding
company affiliation while allowing the F&M Banks to operate with considerable
autonomy.
See "Index to Financial Statements" for historical financial
statements of F&M.
Recent Developments
Monycor Acquisition. On February 5, 1996, F&M acquired Monycor.
Monycor owned a 98.4% interest in Monycor Bank (which was subsequently renamed
"F&M Bank-Superior"). F&M Bank-Superior is a Wisconsin state bank
headquartered, with a single office, in Superior, Wisconsin, in the
northwestern corner of the state. In the Monycor transaction, Monycor merged
into a subsidiary of F&M, and outstanding shares of Monycor Common Stock were
converted into an aggregate of 157,563 shares of F&M Common, valued for
purposes of the transaction at $3.6 million.
At December 31, 1995, Monycor had total assets of $29.5 million, net
loans of $18.4 million, total deposits of $26.4 million and shareholders'
equity of $1.7 million. For the fiscal year ended December 31, 1995, Monycor
had net income of $380,000. F&M is accounting for the Monycor transaction
using the pooling of interest method of accounting.
USB Acquisition. On January 9, 1995, F&M acquired Union State Bank
("USB") which has been renamed "F&M Bank-Waushara County." F&M Bank-Waushara
County is a Wisconsin state bank headquartered in Wautoma, Wisconsin,
approximately 40 miles south-southeast of the city of Stevens Point, and 40
miles west of the city of Oshkosh. USB has five full-service offices located
in Waushara County, Wisconsin.
In the USB transaction, F&M offered to exchange outstanding shares of
USB Common Stock for shares of F&M Common. The stock exchange offer was
accepted by holders of over 99.9% of the outstanding shares of USB's Common
Stock, and F&M issued 740,561 shares of F&M Common in the transaction, valued
for purposes of the transaction at $16.2 million. The remaining shares of
USB's Common Stock were subsequently acquired by F&M for cash.
At December 31, 1994, USB had total assets of $93.8 million, total
deposits of $83.1 million and shareholders' equity of $8.9 million. For the
fiscal year ended December 31, 1994, USB had net income of $177,000, which
included a special after tax charge of approximately $470,000 relating to the
freezing of benefits under USB's defined benefit plan, and certain additional
charges relating to the acquisition. F&M accounted for the USB transaction
using the pooling of interest method of accounting.
-45-
<PAGE> 51
Proposed Algoma Acquisition. On January 8, 1996, F&M announced that
it had entered into a letter of intent to acquire Community State Bank ("CSB").
A definitive agreement was signed on February 22, 1996. See "The Merger" and
"Community State Bank."
Proposed Tomahawk Acquisition. On January 11, 1996, F&M entered into
a definitive agreement providing for the acquisition of Bradley Bank
("Bradley") from its holding company and minority shareholders. The agreement
in principle to acquire Bradley had been announced in September 1995. Bradley
has two full service offices in Tomahawk, Wisconsin, and the acquisition of
Bradley will enhance F&M's presence in north central Wisconsin; Bradley will be
combined with F&M Bank-Lakeland. The proposed Bradley acquisition will be for
cash. The acquisition price will be in a formula amount set forth in the
agreement, which is expected to be approximately $6.2 million.
At December 31, 1995, Bradley had total assets of $36.1 million, net
loans of $25.5 million, total deposits of $32.6 million and shareholders'
equity of $3.3 million. For the year ended December 31, 1995, Bradley had net
income of $505,000.
The Bradley acquisition is subject to regulatory approval and other
customary contingencies. Applications for federal and state regulatory
approvals have been filed; federal approval has been received and state
approval is expected in April 1996. While there can be no assurances, the
parties expect that the Bradley transaction will be consummated in the second
quarter of 1996. F&M management does not expect the Bradley acquisition will
have a material effect upon F&M because of the relative size of Bradley as
compared to F&M, and the proposed acquisition price as compared to F&M's total
equity.
Proposed Little Chute Acquisition. As of January 15, 1996, F&M
entered into a definitive agreement to acquire the Little Chute branch office
of TCF Bank Wisconsin. The acquisition, which will include purchase of fixed
assets and assumption of deposit liabilities by F&M Bank-Kaukauna, will enhance
F&M's presence in the Fox River Valley. The proposed acquisition will be a
cash transaction, in which F&M purchases the fixed assets of the Little Chute
branch, and is reimbursed in cash (reduced by an agreed-upon premium) by TCF
for the assumption of deposits. F&M Bank-Kaukauna will also acquire loans
secured by deposits, if any, of the office. At December 31, 1995, the TCF
Little Chute branch office had total deposits of approximately $8.0 million.
The Little Chute acquisition is subject to regulatory approvals (which
have been received) and other customary contingencies. While there can be no
assurances, the parties expect that the Little Chute transaction will be
consummated in the second quarter of 1996. F&M management does not expect that
the Little Chute acquisition will have a material effect upon F&M because of
the relative size of the Little Chute office as compared to F&M, and the
proposed acquisition price as compared to F&M's total equity.
Subsidiary Banks
F&M owns 14 subsidiary banks (the "F&M Banks"), all of which are
Wisconsin state banks, and each of which is a member of the Federal Reserve
System. The Banks are community banks which provide a full range of services
to consumers and businesses in small and medium-sized communities throughout
Wisconsin. F&M provides the benefits of holding company affiliation while
allowing the Banks to operate with considerable autonomy.
-46-
<PAGE> 52
The following table presents certain information as to the F&M Banks.
Unless otherwise indicated, each of the F&M Banks is wholly-owned by F&M.
<TABLE>
<CAPTION>
NO. OF FULL TOTAL
YEAR SERVICE OFFICES ASSETS
BANK ACQUIRED (1) AT 3/31/96 AT 12/31/95
---- ------------ -------------- -----------
(in millions)
<S> <C> <C> <C>
F&M Bank-Kaukauna(2) 1980 3 $104.1
F&M Bank-Appleton 1981 3 50.4
F&M Bank-Hilbert 1983 3 28.4
F&M Bank-Winnebago County 1985 3 86.8
F&M Bank-New London 1987 1 31.6
F&M Bank-Portage County 1987 3 57.7
F&M Bank-Fennimore(3) 1988 1 43.7
F&M Bank-Potosi 1988 2 30.2
F&M Bank-Lancaster 1990 1 38.6
F&M Bank-Lakeland 1991 5 101.6
F&M Bank-Kiel 1991 1 41.1
F&M Bank-Northeast 1994 10 226.6
F&M Bank-Waushara County 1995 5 97.3
F&M Bank-Superior(4) 1996 1 29.5
- ------------------
</TABLE>
(1) In the case of F&M Banks resulting from mergers, represents the date
F&M first acquired any of the constituent banks in those mergers.
(2) F&M Bank-Kaukauna is 98.9% owned by F&M.
(3) F&M Bank-Fennimore is 97.3% owned by F&M.
(4) F&M Bank-Superior is 98.4% owned by F&M.
F&M's network of community banks generally operates with significant
local autonomy, with general oversight and support from F&M. F&M believes this
autonomy allows the F&M Banks to better serve the customers in their respective
communities, and thus enhances the F&M Banks' business opportunities and
operations. After acquiring banks, F&M generally maintains local bank charters
and keeps intact existing management and boards of directors. Generally, F&M
Bank managements operate independently of F&M in selecting deposit products
developed by F&M and in making pricing and credit decisions. F&M maintains an
approval procedure for new loans above certain threshold amounts and provides
ongoing loan review and administration assistance and other services for the
F&M Banks. F&M encourages F&M Bank officers and employees to be active in
community groups and projects.
Lending and Investments
The F&M Banks offer short-term and long-term loans on a secured or
unsecured basis for business or personal purposes. The F&M Banks focus their
lending activities on individuals and small businesses in their immediate
market areas. Lending has been almost exclusively within the State of
Wisconsin. The markets of the F&M Banks include a wide variety of businesses;
therefore, F&M does not believe it is unduly exposed to problems in any
particular industry group.
F&M believes that it can best serve its customers, and thereby enhance
F&M's business, operations and profitability, by maximizing local autonomy in
credit decisions. Generally, managements of the F&M Banks operate
independently of F&M in making credit decisions. F&M maintains an approval
procedure
-47-
<PAGE> 53
for any new loan that exceeds a specified threshold amount (varying depending
upon the F&M Bank) or loan participations exceeding $750,000. F&M also
provides continuing loan review and administrative assistance for the F&M
Banks. The foregoing are in addition to each F&M Bank's internal loan
procedures.
The F&M Banks participate in lending guaranteed by the Small Business
Administration and/or the Federal Housing Administration. For residential
customers, the F&M Banks make mortgage loans and offer a variety of programs
which are for resale in secondary mortgage markets or which are retained in the
F&M Banks' portfolios. F&M does not have any substantial business with foreign
obligors.
Deposits
Each of the F&M Banks offers the usual and customary range of
depository products provided by commercial banks, including checking, savings
and money market accounts, and certificates of deposit. Deposits at each F&M
Bank are insured by the Federal Deposit Insurance Corporation up to statutory
limits.
Local managements of the F&M Banks are given significant latitude in
determining and pricing the depository products offered. F&M makes a general
determination of the deposit products which may be offered by the F&M Banks,
and its corporate staff regularly consults with local management in developing
new products which may be appropriate for local communities. However, local
management selects which of F&M's various products can be most successfully
offered in the various communities which its F&M Bank serves. In addition,
local management is given the flexibility to price deposit products locally, to
best compete in an F&M Bank's particular marketplace.
Competition
The F&M Banks actively compete with other financial institutions and
businesses in both attracting and retaining deposits and making loans. Direct
competitors include banks, savings and loans and credit unions. These
institutions offer direct competition in the areas of deposits and loans.
Other competitors include insurance companies, securities brokerage firms,
trust companies and investment management firms which also offer competition
for many of the services offered by the F&M Banks, such as discount brokerage.
F&M believes it has a competitive advantage because 21 of its 42 F&M
Bank office locations represent the only commercial bank office in their
respective communities. However, in certain of these communities, savings and
loan associations, savings banks or credit unions also maintain offices, and
there are bank offices located in other nearby communities. F&M believes its
focus on establishing continuing banking relationships and on individualized
customer service provides additional competitive advantages.
F&M also faces competition in acquiring institutions. Wisconsin has
recently experienced a significant consolidation of its banking industry, and
many large holding companies with greater resources than F&M (including several
out-of-state holding companies) are actively pursuing acquisitions in
Wisconsin. This competition affects the acquisition opportunities for F&M and
can affect the cost of such acquisitions.
The banking industry is undergoing rapid technological changes with
frequent introductions of new technology-driven products and services. In
addition to better serving customers, the effective use of technology increases
efficiency and enables financial institutions to reduce costs. While F&M's
community banking strategy stresses "traditional" personal service, F&M's
future success will depend in part on its ability to address the needs of its
customers by using technology to provide products and services that will
satisfy customer demands for convenience as well as to create additional
efficiencies in F&M's bank operations. Many of F&M's competitors have
substantially greater resources to invest in technological improvements.
-48-
<PAGE> 54
BANK SELECTED FINANCIAL DATA
The selected financial data presented below for Community State Bank
(the "Bank") for each of the years in the five year period ended December 31,
1995, are derived from the financial statements of the Bank and should be read
in conjunction with other financial information presented elsewhere in this
Prospectus/Proxy Statement. The financial statements of the Bank for the year
ended December 31, 1995, have been audited by Wipfli Ullrich Bertelson to the
extent indicated in their report thereon. The selected financial data for the
years ended December 31, 1994, 1993, 1992 and 1991 are unaudited, but in the
opinion of the Bank management reflect all adjustments, consisting of normal
recurring accruals, considered necessary for a fair presentation. The
information presented below should be read in conjunction with the separate
financial statements and notes thereto of the Bank, and the Bank's Management's
Discussion and Analysis of Results of Operations and Financial Condition, all
included elsewhere in this Prospectus/Proxy Statement.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income $3,496 $3,208 $3,400 $3,827 $4,177
Interest expense 1,598 1,311 1,460 1,828 2,258
------ ------ ------ ------ ------
Net interest income 1,898 1,897 1,940 1,999 1,919
Provision for loan losses 54 20 40 165 60
------ ------ ------ ------ ------
Net interest income after provision for loan 1,844 1,877 1,900 1,834 1,859
losses
Non-interest income 140 147 247 190 160
Non-interest expense 1,215 1,212 1,127 1,140 1,198
------ ------ ------ ------ ------
Income before income taxes 769 812 1,020 884 821
Provision for income taxes 140 152 202 247 218
------ ------ ------ ------ ------
Net income $629 $660 $818 $637 $603
====== ====== ====== ====== ======
PERIOD END BALANCE SHEET DATA:
Total assets $53,152 $50,784 $50,787 $50,815 $47,877
Net loans 19,703 19,266 20,797 20,778 21,377
Securities 28,469 26,846 24,141 24,481 22,902
Total deposits 44,523 43,196 43,343 43,856 41,292
Total stockholders' equity 8,175 7,361 7,272 6,696 6,281
PER COMMON SHARE DATA:
Net income $13.68 $14.36 $17.78 $13.85 $13.11
Period end book value $177.73 $160.02 $158.09 $145.56 $136.54
Dividends $6.60 $6.65 $5.25 $4.05 $3.55
</TABLE>
-49-
<PAGE> 55
BANK MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding
the historical results of operations and financial condition of the Bank for
the years ended December 31, 1995, 1994 and 1993. This discussion and analysis
should be read in conjunction with the related financial statements and notes
thereto and the other financial information included herein.
RESULTS OF OPERATIONS
For the year ended December 31, 1995, net income was $629,000, a
decrease of $31,000, or 4.7% from 1994. For the year ended December 31, 1994,
net income was $660,000, a decrease of $158,000, or 19.3%, from the 1993 net
income of $818,000.
NET INTEREST REVENUE
Net interest revenue stayed constant at $1.9 million in 1995 and 1994.
Total interest income increased 9.0% to $3.5 million in 1995. Average earning
assets increased $1.1 million to $48.6 million in 1995 over 1994. Average
yields on loans increased to 8.60% from 8.37%, while the yield on investments
increased to 7.00% from 6.50%. Deposit costs increased slightly from 3.46% at
December 31, 1994 to 4.21% at December 31, 1995. Interest bearing liabilities
increased 2.6% or $1.0 million from 1994 to 1995.
Net interest revenue decreased $42,000 or 2.2% to $1.9 million in
1994. Total interest income decreased $192,000 in 1994 from $3.4 million.
Average earning assets increased $0.6 million from 1993 to 1994 while interest
bearing deposits increased only $64,000.
PROVISION FOR LOAN LOSSES
The amount charged to provision for loan losses is based on
management's evaluation of the loan portfolio. Management determines the
adequacy of the allowance for loan losses based on past loan loss experience,
current economic conditions, composition of the loan portfolio and the
potential for future loss. The provision for loan losses was $54,000 in 1995,
as compared to $20,000 in 1994 and $40,000 in 1993.
OTHER OPERATING REVENUE AND EXPENSES
Other operating revenue decreased $7,000 to $140,000 in 1995,
primarily due to $20,000 of security gains in 1994 and none in 1995. Other
operating revenue decreased $100,000 in 1994 from $247,000 in 1993. Security
gains were $20,000 in 1994 compared with $118,000 in 1993 while service charges
decreased slightly from $129,000 in 1993 to $127,000 in 1994.
Other operating expenses stayed constant at $1.2 million in 1995.
Salaries and benefits accounted for an $18,000, or 3.0%, increase while
occupancy expenses increased $12,000, or 14.8%, and other operating expenses
decreased $27,000, or 5.6%, as a result of decreased FDIC premiums partially
offset by other increases. Other operating expenses increased $85,000, or
7.5%, to $1.2 million in 1994 from 1993. All categories of other operating
expenses increased in this time period; salaries and benefits increased
$26,000, while all other operating expenses increased $59,000.
-50-
<PAGE> 56
INCOME TAXES
Income taxes were $140,000 in 1995 compared with $152,000 in 1994 and
$275,000 in 1993. Tax expense as a percent of income before income taxes was
18.2% in 1995, 18.8% in 1994 and 27.0% in 1993. The decrease in income taxes
is the result of decreased profitability and the organization of the Bank's
Nevada investment subsidiary in 1994.
SFAS No. 109, "Accounting for Income Taxes" (SFAS No. 109), was issued
by the FASB in February 1992 and required a change from deferred method to the
asset and liability method of accounting for income taxes. Under the asset and
liability method of SFAS No. 109, deferred income taxes are recognized for the
future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to be recovered or settled. Under SFAS No. 109, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date. The Bank adopted SFAS No. 109 in
1993 and recognized a cumulative benefit of $72,000 in 1993.
FINANCIAL CONDITION
At December 31, 1995, total assets of $53.1 million represent an
increase of 4.67% or $2.4 million from a year earlier. The increase resulted
primarily from an increase in deposits of $1.3 million from $43.2 million and
increase in stockholders equity of $815,000. Loans increased $437,000 while
cash and cash equivalents increased $671,000 and investments increased $1.6
million.
LOAN PORTFOLIO
The following table sets forth the major categories of loans
outstanding and the percentage of total loans for each category at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------
1995 1994 1993
--------------------------- ------------------------- -----------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Commercial $2,323 11.60% $1,987 10.13% $1,572 7.41%
Agricultural production 1,038 5.18 1,215 6.19 1,250 5.90
Real estate:
Construction 417 2.09 785 4.00 578 2.73
Commercial 3,332 16.65 2,818 14.37 3,109 14.67
Agricultural 3,012 15.04 3,421 17.44 3,708 17.49
Residential 6,501 32.47 6,201 31.61 6,679 31.51
Other 3,398 16.97 3,188 16.26 4,302 20.29
------- ------- ------ ------ ------ -----
Total loans $20,021 100.00% $19,615 100.00% $21,198 100.00%
======= ====== ======= ====== ======= ======
</TABLE>
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<PAGE> 57
NON-PERFORMING ASSETS
Non-performing assets are a broad measure of problem loans. The
following table sets forth the amount of the Bank's non-performing loans, other
real estate owned and non-performing assets and each of their percentages to
total loans as of the dates indicated.
<TABLE>
<CAPTION>
December 31,
--------------
1995 1994 1993
------- ------- ------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $491 2.45% $356 1.82% $277 1.31%
Accruing loans past due 90 days or 2 0.01 18 0.09 7 0.03
more
Total non-performing loans 493 2.46 374 1.91 284 1.34
Other real estate owned 164 0.82 301 1.53 177 0.83
---- ---- ---- ----- ---- ----
Total non-performing assets $657 3.28% $675 3.44% $461 2.17%
==== ==== ==== ===== ==== ====
</TABLE>
-52-
<PAGE> 58
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at the end of each
year; 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 that have been charged to expense.
<TABLE>
Years Ended December 31,
---------------------------------------------------
1995 1994 1993
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Average balance of loans for year $20,748 $20,464 $21,071
======= ======= =======
Allowance for loan losses at beginning of year $ 348 $ 401 $ 352
Loan charge-offs:
Commercial, municipal and agricultural 66 53 6
Consumer 39 43 34
------- ------- -------
Total charge-offs 105 96 40
Loan recoveries:
Commercial, municipal and agricultural 2 3 33
Consumer 19 20 16
------- ------ -------
Total recoveries 21 23 49
------- ------ -------
Net loan charge-offs (recoveries) 84 73 (9)
Provision for loan losses 54 20 40
------- ------ -------
Allowance for loan losses at end of year $318 $348 $401
======= ====== =======
Ratio of net charge-offs during year to
average loans outstanding 0.40% 0.36% (.04%)
Allowance for loan losses to total loans 1.59% 1.77% 1.89%
</TABLE>
CAPITAL
Total stockholders' equity increased $815,000 to $8.2 million from
1994 to 1995, as compared to an increase of $100,000 from 1993 to 1994. The
1995 increase includes a positive impact of $489,000, and the 1994 increase is
net of a $266,000 negative impact, due to the adjustment to fair value of
investment securities available for sale.
LIQUIDITY
The management of assets and liabilities provides for the availability
of funds to meet loan commitments, deposit withdrawals and other maturing
liabilities. Liquidity to service these requirements is generated from
maturing short and long-term assets, internally generated earnings and from new
deposits. Management of the Bank has tended to rely on the maturity structure
of loans, investments available for sale
-53-
<PAGE> 59
and transactions in federal funds to meet liquidity needs. The Bank does not
rely on brokered deposits as a source of liquidity. The Bank's liquidity
management is not only as a point in time, but also involves the future
estimated needs of the market area served by the Bank. The Bank primarily
monitors the liquidity ratio of rate-sensitive assets to rate-sensitive
liabilities in the one-year time range. The ratio in the one year category has
ranged between 105% and 127% between 1993 and 1995. During the same time
period, the ratio of total loans to total deposits has ranged between 47% and
51%.
The following table shows the approximate rate-sensitivity gap
position at December 31, 1995:
<TABLE>
<CAPTION>
0 - 90 91 - 365 1 - 5 Over 5
Days Days Years Years Total
------------- ------------- ----------- ----------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans $ 7,350 $ 8,495 $ 4,386 $ 366 $20,597
Investment securities 1,378 2,903 12,715 11,262 28,258
Other earning assets 2,210 -- -- -- 2,210
------- ------- ------- ------- -------
Total rate-sensitive assets (RSA) $10,938 $11,398 $17,101 $11,628 $51,065
======= ======= ======= ======= =======
Time deposits $10,931 $ 7,400 $ 7,756 $12,944 $39,071
======= ======= ======= ======= =======
Total rate-sensitive liabilities (RSL) $10,931 $ 7,440 $ 7,756 $12,944 $39,071
======= ======= ======= ======= =======
Interest sensitivity gap $ 7 $ 3,958 $ 9,345 $(1,316) $11,994
======= ======= ======= ======= =======
Cumulative interest sensitivity gap $ 7 $ 3,965 $13,310 $11,994
======= ======= ======= =======
Ratio of cumulative rate-sensitivity
gap to RSA 0.1% 17.8% 33.8% 23.5%
======= ======= ======= =======
Cumulative ratio of rate-sensitive assets
to rate-sensitive liabilities 100.1% 121.58% 150.94% 130.7%
======= ======= ======= =======
</TABLE>
Management's overall strategy is to coordinate the volume of
rate-sensitive assets and liabilities to minimize the impact of interest rate
movements on the net interest margin. The above table reflects a positive gap
position for all but the over 5 years to maturity. Management assumes 100% of
NOW are not rate sensitive and are included in the 5+ years category. Savings
accounts also are included in the 5+ years category. A negative position is
favorable in a falling interest rate environment; a positive position is
favorable in a rising interest rate environment. The gap is within the
acceptable range established by management at each level of maturity, most
significantly management's target range at the one-year level. Management
anticipates the decrease in interest rates during 1996 will be gradual and,
therefore, the Bank's positive gap at the three-month and one-year interval
will not significantly impact earnings.
-54-
<PAGE> 60
RECENT ACCOUNTING DEVELOPMENTS
Effective January 1, 1995, the Bank adopted 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." There was no impact on net income as a result of the adoption of
SFAS No. 114 at January 1, 1995.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain
Investments in Debt and Equity Securities." As required under the statement,
the Bank adopted the provisions of the new standard at the beginning of 1994.
In accordance with SFAS No. 115, prior-period financial statements were not
restated to reflect the change in accounting principle. The impact of the
adoption of SFAS No. 115 on January 1, 1994, was an increase in the value of
investment securities of $51,367, an increase in deferred tax liabilities of
$20,547, and an increase in stockholders' equity of $30,820. The adoption of
SFAS No. 115 had no impact on 1994 net income.
Effective January 1, 1993, the Bank adopted the liability method of
accounting for income taxes prescribed by SFAS No. 109. Deferred tax assets
and liabilities are determined based on the temporary differences between the
consolidated financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences are expected to reverse. Deferred tax expense (benefit) is the
result of changes in the deferred tax asset and liability. The Bank elected to
recognize the cumulative effect of the change as of January 1, 1993, totaling
$72,400, as a credit to income in 1993.
SFAS No. 122, "Accounting for Mortgage Servicing Rights," was issued
and is effective for fiscal years beginning after December 15, 1995. SFAS No.
122 requires recognition as a separate asset, the rights to service mortgage
loans for others. This would occur when an entity would sell loans while
retaining the mortgage servicing rights. Since the Bank does not retain
servicing rights on loans it sells, the adoption of SFAS No. 122 will not have
a material impact.
The Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," 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 be reported at the lower of carrying
amount or fair value less cost to sell. This statement is required to be
adopted by the Bank effective January 1, 1996. The adoption of SFAS No. 121 is
not anticipated to have a significant impact on the Bank's financial condition
or results of operations once implemented.
-55-
<PAGE> 61
COMMUNITY STATE BANK
Business
The Bank offers a wide range of traditional bank services through its
full service office. These include commercial, consumer, agricultural and real
estate lending, depository account services, and other services to individuals
and businesses. The Bank also offers Farm Service Agency guaranteed
agricultural loans and WHEDA first time home buyer loans. The Bank does not
offer trust services. The Bank's business is a general mix of business,
agricultural and consumer banking. There is one TYME machine located at the
main office in Algoma.
The Bank's service area generally is the eastern and northern part of
Kewaunee County and the southern part of Door County. The Bank's primary
service area extends from Kewaunee to Luxemburg, and from Dyckesville to
Sturgeon Bay, Wisconsin. The Bank's main office is located at 208 Steele
Street in Algoma, Wisconsin, with another location at 216 Main Street in
Forestville, Wisconsin. The main office building was newly constructed in 1973
and remodeled in 1986. The Forestville office was newly constructed in 1959
with remodeling done in subsequent years, with the last being done in early
1996.
The Bank is a Wisconsin state bank, subject to regulation by the
Wisconsin Commissioner and the FDIC. The Bank's deposits are insured by the
FDIC, up to statutory limits.
See "Index to Financial Statements" for historical financial
statements of the Bank.
Management
The directors of the Bank are elected by its shareholders and serve
for one-year terms. The following persons currently serve as directors of the
Bank:
<TABLE>
<CAPTION>
Director
Name and Age Principal Occupation Since
------------ -------------------- ---------
<S> <C> <C>
Janet E. Dumman, 49 Real estate broker 1985
John Meyer, 64 President of the Bank 1982
Ronald C. Opicka, 48 Director of Kewaunee 1986
County Development Center
S. Dean Pies, 68 Retired 1992
Ronald E. Prodell, 51 Farmer 1981
William Schinderle, 66 Retired 1978
James L. Slaby, 68 Retired 1971
Dennis E. Wautlet, 53 Grocery store owner 1981
</TABLE>
The table below shows the executive officers of the Bank, each of whom
was elected by the Board of Directors to a one-year term.
<TABLE>
<CAPTION>
Name Office with the Bank Since
---- -------------------- ---------
<S> <C> <C>
John Meyer President and Chief Executive Officer 1990
Sylven A. Konkel Vice President and Cashier 1990
</TABLE>
At December 31, 1995, the Bank employed 19 persons on a full-time
equivalent basis.
-56-
<PAGE> 62
Share Ownership
The table below sets forth information regarding the beneficial
ownership of shares of Bank Common (both the number of shares owned and the
percent of the class) by the Bank's directors, and by the Bank's directors and
executive officers as a group, and by persons who are known to the Bank to
beneficially own more than 5% of Bank Common as of April __, 1996.
<TABLE>
<CAPTION>
Name Number of Shares Percent
------------------------- ---------------- -------
<S> <C> <C>
Janet E. Dumman(1) 100 *
John Meyer(1) 330 *
Ronald C. Opicka(1) 100 *
S. Dean Pies 1,440 3.1%
Ronald E. Prodell 20 *
William Schinderle(1) 1,275 2.8%
James L. Slaby(1)(2) 3,995 8.7%
Dennis E. Wautlet 1732 3.8%
All directors and executive 8,987 19.5%
officers as a group(1)
ESOR and Company(3) 3,950 8.6%
- ----------------------
* Less than 1%
</TABLE>
(1) Includes any shares held by, or jointly with, spouse and dependent
children. The shares are reported in such cases on the presumption
that the individual may share voting and/or investment power because
of the family relationship.
(2) Mr. Slaby's address is 807 Clark St., Algoma, WI 54201.
(3) ESOR and Company's address is c/o Associated Bank, Trust Department,
P.O. Box 19006, Green Bay, Wisconsin 54307.
To the Bank's knowledge, directors and executive officers of the Bank
as a group own no shares of F&M Common. The Bank and F&M are unaware of any
ownership of Bank Common by directors or executive officers of F&M.
-57-
<PAGE> 63
INFORMATION AS TO SECURITIES
F&M Common
The Restated Articles of Incorporation of F&M, as amended (the
"Articles"), provide that F&M has authority to issue 10,000,000 shares of
Common Stock, $1.00 par value ("F&M Common"). The outstanding shares of F&M
Common are, and the shares to be issued in the Merger will be, fully paid and
nonassessable, except for statutory liability of shareholders under Section
180.0622(2) (b) of the Wisconsin Business Corporation Law (the "WBCL"), as
judicially interpreted, for certain unpaid indebtedness to employees for
services rendered.
The holders of F&M Common are entitled to one vote for each share held
of record on each matter submitted to a vote of shareholders. Shareholders
have no cumulative voting rights, which means that the holders of shares
entitled to exercise more than 50% of the voting rights are able to elect all
of the directors. F&M's Articles and Bylaws provide for classification of the
board of directors into three classes, one class being subject to election in
each year, and directors serve three-year terms.
Dividends may be paid to holders of F&M Common when, as and if
declared by the board of directors out of funds legally available therefor,
subject to any contractual restrictions on the payment of dividends. In the
event of any liquidation, dissolution or winding-up of F&M, the holders of F&M
Common will be entitled to receive a pro rata share of the assets of F&M
remaining after payment or provision for payment of the debts and other
liabilities of F&M. The holders of F&M Common are not entitled to any
preemptive, subscription, redemption or conversion rights. See "Management's
Discussion and Analysis of Results of Operations and Financial Condition--
Financial Condition--Capital Adequacy" and Note 15 of Notes to F&M's
Consolidated Financial Statements for discussions of restrictions on F&M Banks'
ability to pay dividends to F&M.
Certain Statutory Provisions
Except as may otherwise be provided by law, the requisite affirmative
vote of shareholders for certain corporate actions, including a merger or share
exchange with another corporation, sale of all or substantially all of the
corporate property and assets, or voluntary liquidation of F&M, is a majority
of all the votes entitled to be cast on the transaction by each voting group of
outstanding shares entitled to vote thereon. Sections 180.1130 through
180.1134 of the WBCL provide generally that, in addition to the vote otherwise
required by law or the articles of incorporation of an "issuing public
corporation" (defined to mean a corporation domiciled in Wisconsin with at
least 500 shareholders of record, including 100 shareholders of record who have
unlimited voting rights and are Wisconsin residents), certain "business
combinations" not meeting certain adequacy-of-price standards specified in the
statute must be approved by (a) the holders of at least 80% of the votes
entitled to be cast and (b) two-thirds of the votes entitled to be cast by the
corporation's outstanding voting shares owned by persons other than a
"significant shareholder" who is a party to the transaction or an affiliate or
associate thereof. Section 180.1130 defines "business combination" to include,
subject to certain exceptions, a merger or share exchange of the issuing public
corporation (or any subsidiary thereof) with or the sale or other disposition
of substantially all assets of the issuing public corporation to, any
significant shareholder or affiliate thereof. "Significant shareholder" is
defined generally to mean a person that is the beneficial owner of 10% or more
of the voting power of the outstanding voting shares of the issuing public
corporation. The statute also restricts the repurchase of shares and the sale
of corporate assets by an issuing public corporation in response to a take-over
offer. F&M presently meets the definition of "issuing public corporation."
-58-
<PAGE> 64
Also, Section 180.1150 of the WBCL provides that the voting power of
shares of an "issuing public corporation" which are held by any person in
excess of 20% of the voting power of the issuing public corporation's shares
shall be limited to 10% of the full voting power of such excess shares. This
statutory voting restriction is not applicable to shares acquired directly from
F&M, to shares acquired in a transaction incident to which shareholders of F&M
vote to restore the full voting power of such shares and under certain other
circumstances.
Sections 180.1140 through 180.1144 of the WBCL prohibit certain
"business combinations" between a "resident domestic corporation" and a person
beneficially owning 10% or more of the outstanding voting stock of such
corporation (an "interested shareholder") within three years after the date
such person became a 10% beneficial owner (the "acquisition date"), unless the
business combination or the acquisition of such stock has been approved before
the acquisition date by the corporation's board of directors. After such
three-year period, a business combination with the interested shareholder may
be consummated only with the approval of the holders of a majority of the
voting stock not beneficially owned by the interested shareholder, unless the
combination satisfies certain adequacy-of-price standards intended to provide a
fair price for shares held by disinterested shareholders. F&M presently meets
the definition of a "resident domestic corporation."
The foregoing provisions of the WBCL, the classification of F&M's
board of directors and the ability to issue additional shares of F&M Common
without further shareholder approval (except as may be required under NASDAQ
Stock Market corporate governance standards), could have the effect, among
others, of discouraging take-over proposals for F&M or impeding a business
combination between F&M and a major shareholder.
Bank Common
The Articles of Incorporation of the Bank provide that the Bank has
authority to issue 46,000 shares of common stock, $10.00 par value ("Bank
Common"), and all shares are issued.
Holders of Bank Common are entitled to receive dividends thereon if
and when declared and payable by the Board of Directors. Upon any voluntary or
involuntary liquidation, dissolution or winding up of the Bank, the holders of
Bank Common would be entitled to receive any remaining assets available for
distribution to the Bank shareholders.
The holders of Bank Common are entitled to one vote for each share
held and are not entitled to cumulative voting rights. Most actions involving
the Bank, including the election of directors, are subject to approval of the
holders of a majority of the outstanding Bank Common, although amendments to
articles of incorporation and mergers currently require a two-thirds majority.
Wisconsin law currently requires the affirmative vote of holders of 75% of the
outstanding shares of Bank Common for a corporation to acquire and hold more
than 10% of the outstanding Bank Common. Effective July 1, 1996, statutory
changes will reduce the two-thirds requirement to a majority, and eliminate the
75% vote.
Holders of Bank Common are not entitled to any preemptive rights,
except in certain circumstances required by Wisconsin law. Bank Common is
fully paid and not liable to any calls or assessments by the Bank, except for
potential calls for additional capital under Section 220.07 of the Wisconsin
Statutes, in the event of a capital impairment of the Bank, and under Section
180.0622(2)(b) of the WBCL. See the discussion of Section 180.0622(2)(b) above
under "F&M Common."
-59-
<PAGE> 65
Comparison of F&M Common with Bank Common
F&M's and the Bank's respective common stocks, and the rights of their
shareholders, are similar. However certain differences exist, including the
following, which include all of those which are deemed by F&M and the Bank to
be potentially material.
1. Shares of F&M Common are traded on The NASDAQ Stock Market,
and several regional brokerage firms foster a trading market in F&M Common.
F&M Common is a class of securities registered with the SEC, and F&M therefore
is subject to periodic public reporting with respect thereto. F&M is unaware
of any active market for shares of Bank Common, and the Bank is not subject to
SEC reporting requirements.
2. F&M is subject to the statutory anti-takeover provisions of
Sections 180.1130 through 180.1150 of the WBCL because it currently meets the
definitions of "issuing public corporation" and "resident domestic corporation"
thereunder. (See the discussion thereof under "F&M Common--Certain Statutory
Provisions" above.) Those statutory provisions do not currently apply to the
Bank. However, Wisconsin banking statutes currently require the approval of
holders of 75% of outstanding shares of Bank Common before a corporation may
acquire and hold more than 10% of the outstanding shares of Bank Common, which
requirement does not apply to F&M, and is repealed for the Bank effective July
1, 1996.
3. The Articles and bylaws of F&M provide for the classification
of the Board of Directors into three classes, whereby directors serve
three-year terms and one of the three classes of directors is subject to
election at each annual meeting. The articles and bylaws of the Bank do not
provide for such classification, and each of the Bank's directors is elected
annually for a one-year term.
4. The Articles of F&M require a majority vote of shareholders to
amend the Articles of Incorporation, or to effect a merger or similarly
significant corporate action involving F&M. Under Wisconsin banking statutes,
the affirmative vote of holders of a two-thirds majority of outstanding shares
of Bank Common is currently required for these actions, although the
requirement will be reduced to a majority vote effective July 1, 1996.
5. Holders of Bank Common are subject to personal liability under
the capital impairment statute applicable to Wisconsin state banks. While F&M,
as a shareholder of the F&M Banks, is subject to this statute, shareholders of
F&M are not personally liable for such a capital impairment. However,
shareholders of both F&M and the Bank are subject to the personal liability
provisions of Section 180.0622(2)(b) of the WBCL.
LEGAL OPINIONS
Quarles & Brady, Milwaukee, Wisconsin, special counsel for F&M, and
McCarty, Curry, Wydeven, Peeters & Haak, Kaukauna, Wisconsin, general counsel
for F&M, will render opinions on the legality of the shares being offered
hereby and as to certain other matters in connection with the Merger. Two
Quarles & Brady attorneys providing services with respect to the Merger own an
aggregate of 5,590 shares of F&M Common. Certain legal matters in connection
with the Merger will be passed upon for the Bank by Godfrey & Kahn, S.C.,
Milwaukee, Wisconsin. Godfrey & Kahn, S.C. is also expected to render an
opinion to Bank shareholders as to certain federal income tax matters of the
Merger.
-60-
<PAGE> 66
EXPERTS
The consolidated financial statements of F&M included and incorporated
by reference in this Prospectus/Proxy Statement, and the other consolidated
financial statements from which the five-year selected financial data included
herein have been derived, have been audited by Wipfli Ullrich Bertelson,
independent certified public accountants, as indicated in their reports with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
The financial statements of the Bank as of, and for the year ended,
December 31, 1995, included in this Prospectus/Proxy Statement have been
audited by Wipfli Ullrich Bertelson, independent certified public accountants,
as indicated in their report with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said report.
PROCEDURE FOR SUBMITTING SHAREHOLDER PROPOSALS
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, F&M
shareholders may present proper proposals for inclusion in F&M's proxy
statement and for consideration at its annual meeting of shareholders in a
timely manner. If F&M's 1997 annual meeting is held as scheduled, the date for
timely submission is December 1, 1996; if the meeting is materially delayed,
shareholders will be informed of a new date for submission.
-61-
<PAGE> 67
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE NO.
F&M BANCORPORATION, INC. HEREIN
<S> <C>
Audited Financial Information:
Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
Consolidated Balance Sheets at
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Statements of Income for the years
ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1995,
1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . F-8
Summary Quarterly Financial Information
for 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-25
<CAPTION>
PAGE NO.
COMMUNITY STATE BANK HEREIN
<S> <C>
Annual Financial Information*
Independent Auditor's Report* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-27
Consolidated Balance Sheets at December 31, 1995 and 1994 . . . . . . . . . . . . . . . . F-28
Consolidated Statements of Income for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . F-30
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 1995, 1994 and 1993. . . . . . . . . . . . . . . . . . . . . . . F-32
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . F-34
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-36
</TABLE>
__________________
* The Bank's financial statements at, and for the year
ended, December 31, 1995, are audited. All other Bank financial statements
are unaudited.
-62-
<PAGE> 68
F&M BANCORPORATION
38
........
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
<TABLE>
<CAPTION>
ASSETS
1995 1994
- --------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH AND DUE FROM BANKS $ 38,887,046 $ 35,962,434
FEDERAL FUNDS SOLD 20,118,000 4,231,000
- --------------------------------------------------------------------------------------------------------
Cash and cash equivalents 59,005,046 40,193,434
INVESTMENTS:
Interest-bearing deposits in other financial institutions 551,021 839,558
Investment securities available for sale - Stated at fair value 109,879,167 106,266,144
Investment securities held to maturity - Fair value of
$67,545,476 in 1995 and $63,067,682 in 1994 65,948,661 64,786,382
TOTAL LOANS 680,022,665 630,620,843
Allowance for credit losses (8,602,625) (7,751,629)
- --------------------------------------------------------------------------------------------------------
NET LOANS 671,420,040 622,869,214
PREMISES AND EQUIPMENT 20,490,971 19,922,867
OTHER ASSETS 15,831,225 15,721,388
- --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $943,126,131 $870,598,987
========================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------------------------------
DEPOSITS:
Non-interest-bearing deposits $104,735,506 $104,674,374
Interest-bearing deposits 717,453,068 657,560,918
- --------------------------------------------------------------------------------------------------------
Total deposits 822,188,574 762,235,292
SHORT-TERM BORROWINGS 12,194,134 19,846,230
OTHER BORROWINGS 10,833,244 6,366,488
OTHER LIABILITIES 11,828,482 6,370,926
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 857,044,434 794,818,936
- --------------------------------------------------------------------------------------------------------
MINORITY INTEREST IN SUBSIDIARIES 189,863 209,712
- --------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 18)
STOCKHOLDERS' EQUITY:
Common stock - $1 par value:
Authorized - 10,000,000 shares
Issued - 5,836,545 shares 5,836,545 5,836,545
Capital surplus 41,813,467 41,838,442
Retained earnings 39,157,371 31,277,335
Unrealized loss on securities available for sale - Net of tax (91,111) (3,271,983)
Less - Common stock held in treasury at cost -
39,000 shares in 1995 and 5,000 shares in 1994 (824,438) (110,000)
- --------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 85,891,834 75,570,339
- --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $943,126,131 $870,598,987
========================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 69
F&M BANCORPORATION
39
........
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $61,654,323 $50,028,274 $45,320,242
Interest on investment securities:
Taxable 6,826,626 6,660,923 8,555,570
Tax-exempt 3,494,926 3,554,558 3,209,175
Other interest income 619,899 490,408 817,504
- --------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 72,595,774 60,734,163 57,902,491
- --------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 30,306,628 22,416,988 22,578,801
Short-term borrowings 934,570 807,833 306,078
Other borrowings 968,040 537,575 819,237
- --------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 32,209,238 23,762,396 23,704,116
- --------------------------------------------------------------------------------------------
NET INTEREST INCOME 40,386,536 36,971,767 34,198,375
Provision for credit losses 1,599,435 1,318,050 1,288,770
- --------------------------------------------------------------------------------------------
Net interest income after provision for credit losses 38,787,101 35,653,717 32,909,605
- --------------------------------------------------------------------------------------------
OTHER INCOME:
Service fees 2,533,945 2,231,039 2,156,296
Net security gains 36,529 49,833 459,304
Other operating income 1,937,973 1,683,805 2,423,313
- --------------------------------------------------------------------------------------------
TOTAL OTHER INCOME 4,508,447 3,964,677 5,038,913
- --------------------------------------------------------------------------------------------
OTHER EXPENSES:
Salaries and employee benefits 13,604,169 14,627,022 13,507,635
Net occupancy expense 3,909,449 3,909,477 3,418,384
FDIC assessment 879,156 1,636,560 1,538,399
Data processing 1,281,501 1,291,862 961,763
Goodwill amortization 398,056 397,602 376,095
Other operating expenses 6,439,273 7,068,722 6,813,199
- --------------------------------------------------------------------------------------------
TOTAL OTHER EXPENSES 26,511,604 28,931,245 26,615,475
- --------------------------------------------------------------------------------------------
Income before provision for income taxes 16,783,944 10,687,149 11,333,043
Provision for income taxes 5,426,590 2,923,017 3,251,529
- --------------------------------------------------------------------------------------------
NET INCOME $11,357,354 $7,764,132 $8,081,514
============================================================================================
Net income applicable to common stock $11,357,354 $7,742,965 $7,894,927
============================================================================================
Earnings per common share $1.96 $1.33 $1.44
============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 70
F&M BANCORPORATION
40
........
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CAPITAL
SHARES AMOUNT SURPLUS
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1, 1993 4,395,072 $4,395,072 $26,191,335
Pooling of interests - Union State Bank 740,561 740,561 4,763,439
- ----------------------------------------------------------------------------------------------
Balance, January 1, 1993, as restated 5,135,633 5,135,633 30,954,774
Net income
Cash dividends declared:
Common stock
Preferred stock
Contribution of 6,236 shares of treasury stock to
retirement and savings plan 41,033
Sale of 13,102 shares of treasury stock 74,945
Sale of 14,012 shares of common stock to
dividend reinvestment plan 14,012 14,012 220,753
Proceeds from issuance of 683,100 shares of common stock 683,100 683,100 10,491,994
Purchase of 1,301 shares of treasury common stock
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1993 5,832,745 5,832,745 41,783,499
Change in accounting for investments - Adoption
of SFAS No. 115
Net income
Cash dividends declared:
Common stock
Preferred stock
Exercise of stock options 3,800 3,800 31,730
Redemption of preferred stock
Contribution of 2,092 shares of treasury stock to
retirement and savings plan 23,213
Purchase of 5,000 shares of treasury common stock
Change in unrealized loss on securities
available for sale - Net of tax
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1994 5,836,545 5,836,545 41,838,442
Net income
Cash dividends declared:
Common stock
Exercise of stock options (24,975)
Purchase of 40,000 shares of treasury common stock
Change in unrealized loss on securities
available for sale - Net of tax
- ----------------------------------------------------------------------------------------------
Balance, December 31, 1995 5,836,545 $5,836,545 $41,813,467
==============================================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 71
F&M BANCORPORATION
41
........
<TABLE>
<CAPTION>
UNREALIZED
LOSS ON
PREFERRED STOCK SECURITIES
RETAINED TREASURY -------------------------------------------- AVAILABLE FOR
EARNINGS STOCK CLASS A CLASS B CLASS C SALE - NET OF TAX
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$17,235,799 $(147,654) $ 420,750 $ 1,236,938 $ 415,500 $
3,359,408
- -------------------------------------------------------------------------------------------------------------
20,595,207 420,750 1,236,938 415,500
8,081,514
(2,567,781)
(186,587)
54,066
94,983
(19,500)
- -------------------------------------------------------------------------------------------------------------
25,922,353 (18,105) 420,750 1,236,938 415,500
847,449
7,764,132
(2,387,983)
(21,167)
(420,750) (1,236,938) (415,500)
18,105
(110,000)
(4,119,432)
- -------------------------------------------------------------------------------------------------------------
31,277,335 (110,000) -0- -0- -0- (3,271,983)
11,357,354
(3,477,318)
131,187
(845,625)
3,180,872
- -------------------------------------------------------------------------------------------------------------
$39,157,371 $(824,438) $ -0- $ -0- $ -0- $ (91,111)
=============================================================================================================
</TABLE>
See accompanying notes to consolidate financial statements.
<PAGE> 72
F&M BANCORPORATION
42
........
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
- --------------------------------------------------------------------------------------------------------------
Net income $11,357,354 $7,764,132 $8,081,514
- --------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net amortization 2,170,986 2,867,412 2,880,369
Provision for credit losses 1,599,435 1,318,050 1,288,770
Credit for deferred income taxes (249,974) (668,914) (366,441)
Net security gains (36,529) (49,833) (459,304)
(Gain) loss on sale of premises and
equipment and other real estate (69,296) 44,786 10,485
Provision for other real estate losses 55,481 271,501 469,032
Change in other assets (550,193) (1,139,283) 1,187,544
Change in other liabilities 3,598,832 1,327,303 (700,881)
Increase (decrease) in minority interest 3,160 9,051 (3,556)
- -------------------------------------------------------------------------------------------------------------
Total adjustments 6,521,902 3,980,073 4,306,018
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 17,879,256 11,744,205 12,387,532
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in other financial institutions 288,537 1,033,717 154,380
Proceeds from sale of securities:
Available for sale 11,229,819 27,113,364
Held to maturity 1,540,731 1,930,460
Held for sale 33,995,757
Proceeds from maturities of securities:
Available for sale 27,618,004 30,219,680
Held to maturity 8,177,699 13,450,932 14,507,154
Held for sale 43,029,668
Payment for purchases of securities:
Available for sale (32,757,096) (28,280,765)
Held to maturity (14,095,195) (18,194,011) (16,940,453)
Held for sale (87,808,464)
Net increase in loans (50,357,589) (90,914,232) (55,444,614)
Capital expenditures (2,295,685) (4,070,259) (3,908,330)
Proceeds from sale of premises and equipment 16,020 280,152 30,064
Proceeds from sale of other real estate 579,640 277,016 916,066
Purchase of equity in subsidiary bank (23,009) (22,975)
- -------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (51,618,855) (67,543,675) (69,561,287)
=============================================================================================================
</TABLE>
<PAGE> 73
F&M BANCORPORATION
43
........
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1995, 1994, and 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $59,953,282 $37,434,017 $33,229,928
Net increase (decrease) in short-term borrowings (7,652,096) 14,002,557 843,642
Proceeds from other borrowings 5,500,000 4,100,000 1,200,000
Principal payments on other borrowings (1,033,244) (11,674,361) (3,560,691)
Proceeds from exercise of stock options 106,212 35,530
Payment for redemption of preferred stock (2,073,188)
Purchase of shares of treasury common stock (845,625) (110,000)
Proceeds from sale of common
stock held in treasury 169,928
Sale of shares of common stock to
dividend investment plan 234,765
Proceeds from issuance of common stock 11,175,094
Dividends paid (3,477,318) (2,409,150) (2,737,863)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 52,551,211 39,305,405 40,554,803
- ---------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 18,811,612 (16,494,065) (16,618,952)
Cash and cash equivalents at beginning 40,193,434 56,687,499 73,306,451
- ---------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end $59,005,046 $40,193,434 $56,687,499
=========================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $29,926,288 $23,307,403 $24,030,949
Income taxes 5,914,449 3,613,372 4,092,959
NONCASH INVESTING AND FINANCING ACTIVITIES:
Loans charged off $925,481 $891,340 $755,347
Loans transferred to other real estate 328,093 541,038 1,049,890
</TABLE>
During 1994 and 1993, the Company contributed 2,092 and 6,236 shares of
treasury stock, respectively, to the 401(k) retirement and savings plan.
During 1993, 1,301 shares of treasury stock were acquired by a subsidiary of
the Company in lieu of repayment of loans.
See Note 3 for details of noncash consideration paid in acquisitions which
occurred in 1995 and 1994.
See accompanying notes to consolidated financial statements.
<PAGE> 74
F&M BANCORPORATION
44
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company and its subsidiaries
conform to generally accepted accounting principles and general practices
within the banking industry. Significant accounting policies are summarized
below.
NATURE OF OPERATIONS
F&M Bancorporation, Inc. (the "Company") is a Wisconsin multibank holding
company. Its 13 subsidiary banks provide a full range of commercial and retail
banking services to customers at 45 locations throughout Wisconsin. Through
its subsidiary banks, the Company provides to its customers commercial, real
estate, agricultural, and consumer loans, as well as a variety of traditional
deposit products.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of F&M
Bancorporation, Inc. and all of its subsidiaries. All significant intercompany
balances and transactions have been eliminated.
USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results may differ from these estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash
on hand and non-interest-bearing deposits in correspondent banks and federal
funds sold. Generally, federal funds are purchased and sold for one-day
periods.
INVESTMENT SECURITIES
The Company's investment securities are classified in two categories and
accounted for as follows in accordance with Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and
Equity Securities."
Securities available for sale - Securities available for sale consist of
investment securities not classified as securities held to maturity. These
securities are stated at fair value. Unrealized holding gains and losses,
net of tax, on securities available for sale are reported as a net amount in
a separate component of stockholders' equity until realized.
Securities held to maturity - Investment securities for which the Company
has the positive intent and ability to hold to maturity are reported at
cost, adjusted for amortization of premiums and accretion of discounts,
which are recognized in interest income using the interest method over the
period to maturity.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
INTEREST AND FEES ON LOANS
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest
is doubtful. When a loan is placed on nonaccrual status, previously accrued
but unpaid interest deemed uncollectible is reversed and charged against
current income. Unamortized net loan fees are recorded as part of the balance
of outstanding loans.
ALLOWANCE FOR CREDIT LOSSES
Effective January 1, 1995, the Company adopted 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."
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
<PAGE> 75
F&M BANCORPORATION
45
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Prior to 1995, the allowance for credit losses related to these loans was
based on undiscounted cash flows, collateral value, and other information used
by management.
The Company continues to maintain a general allowance for credit losses for
loans not within the scope of SFAS No. 114. The allowance for credit losses is
maintained at a level which management believes is adequate to provide for
possible credit losses. Management periodically evaluates the adequacy of the
allowance using the Company's past loan loss experience, known and inherent
risks in the portfolio, composition of the portfolio, current economic
conditions, and other factors. This evaluation is inherently subjective since
it requires material estimates (including the amounts and timing of future
cash flows expected to be received on impaired loans) that may be susceptible
to significant change.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost. Maintenance and repair costs are
charged to expense as incurred. Gains or losses on disposition of premises and
equipment are reflected in income. Depreciation is computed principally on the
straight-line method and is based on the estimated useful lives of the assets
varying from five to fifty years on buildings and five to twenty years on
equipment.
GOODWILL
The excess of cost over the net assets of subsidiaries acquired is amortized
using the straight-line method over a 15-year period from the date of
acquisition.
OTHER REAL ESTATE
Other real estate is carried at the lower of cost or fair value, less
estimated sales costs.
INCOME TAXES
Deferred income taxes have been provided under the liability method prescribed
by SFAS No. 109. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the current enacted tax rates which will be in
effect when these differences are expected to reverse. Deferred tax expense
(benefit) is the result of changes in the deferred tax asset and liability.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
In the ordinary course of business, the Company has entered into
off-balance-sheet financial instruments consisting of commitments to extend
credit, commitments under credit card arrangements, commercial letters of
credit, and standby letters of credit. Such financial instruments are recorded
in the consolidated financial statements when they become payable.
EARNINGS PER SHARE
Earnings per common share are based upon the weighted average number of common
shares outstanding. The weighted average number of shares outstanding was
5,797,107 in 1995; 5,833,046 in 1994; and 5,500,875 in 1993. The outstanding
stock options are not dilutive; therefore, fully diluted earnings per share
are not presented.
FUTURE ACCOUNTING CHANGE
The Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," 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
<PAGE> 76
F&M BANCORPORATION
46
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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 be
reported at the lower of carrying amount or fair value less cost to sell. This
statement is required to be adopted by the Company effective January 1, 1996.
The adoption of SFAS No. 121 is not anticipated to have a significant impact
on the Company's financial condition or results of operations once
implemented.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards 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." There was no impact on net income
as a result of the adoption of SFAS No. 114 at January 1, 1995.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." As required under the statement, the Company
adopted the provisions of the new standard at the beginning of 1994. In
accordance with SFAS No. 115, prior-period financial statements were not
restated to reflect the change in accounting principle. The impact of the
adoption of SFAS No. 115 on January 1, 1994, was an increase in the value of
investment securities of $1,373,910, an increase in deferred tax liabilities
of $526,461, and an increase in stockholders' equity of $847,449. The adoption
of SFAS No. 115 had no impact on 1994 net income.
NOTE 3 - BUSINESS COMBINATIONS
On January 9, 1995, F&M Bancorporation, Inc. acquired 100% of the outstanding
stock of Union State Bank (n/k/a F&M Bank - Waushara County) in an exchange
offer. Company stock totaling 740,561 shares was issued in exchange for 99.97%
of the outstanding shares of Union State Bank. The remaining shares of Union
State Bank stock were acquired for cash.
This transaction has been accounted for as a pooling of interests. All
financial information included in the consolidated financial statements and
notes thereto has been restated to include the results of Union State Bank.
The following summarizes the separate results of operations of the Company and
Union State Bank for the years ended December 31:
<TABLE>
<CAPTION>
1994 1993
- ----------------------------------------------------------------
<S> <C> <C>
Net interest income:
F&M Bancorporation, Inc. $32,587,190 $29,636,030
F&M Bank - Waushara County 4,384,577 4,562,345
- ----------------------------------------------------------------
Combined and restated $36,971,767 $34,198,375
================================================================
Net income applicable to common stock:
F&M Bancorporation, Inc. $7,565,585 $6,830,034
F&M Bank - Waushara County 177,380 1,064,893
- ----------------------------------------------------------------
Combined and restated $7,742,965 $7,894,927
================================================================
Earnings per share:
F&M Bancorporation, Inc. $1.49 $1.43
================================================================
Combined and restated $1.33 $1.44
================================================================
</TABLE>
On February 11, 1994, F&M Merger Corporation ("Merger"), a wholly owned
subsidiary of the Company, acquired, through a merger, 100% of the outstanding
stock of First National Financial Corporation (FNFC), which owned 100% of
First National Bank of Wisconsin (n/k/a F&M Bank - Northeast). Company stock
totaling 347,328 shares was issued in exchange for all of the outstanding
shares of FNFC stock. As part of the transaction, the Company redeemed the
outstanding preferred stock of FNFC for cash of $2,073,188.
On March 21, 1994, Merger acquired, through a merger, 100% of the outstanding
stock of Pulaski Bancshares, Inc. ("Pulaski") which owned 100% of Pulaski
State Bank (F&M Bank - Pulaski). Company stock totaling 867,214 shares was
issued in exchange for all of the outstanding shares of Pulaski stock. On
August 31, 1994, F&M Bank - Pulaski merged its operations into F&M Bank -
Northeast.
These two transactions have been accounted for as poolings of interests. All
financial information included in the consolidated financial statements and
notes thereto has been restated to include the results of F&M Bank - Northeast.
<PAGE> 77
F&M BANCORPORATION
47
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
NOTE 4 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the amount of $3,244,000 are restricted at
December 31, 1995, to meet the reserve requirements of the Federal Reserve
System.
NOTE 5 - INVESTMENT SECURITIES
The estimated fair value and amortized cost of investment securities are as
follows:
<TABLE>
<CAPTION>
1995
--------------------------------------------------
GROSS GROSS
ESTIMATED UNREALIZED UNREALIZED AMORTIZED
FAIR VALUE GAINS LOSSES COST
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 35,394,858 $ 194,416 $148,468 $ 35,348,910
Obligations of states and
political subdivisions 6,405,972 8,366 50,782 6,448,388
Mortgage-related securities 51,127,634 401,649 565,088 51,291,073
Other securities 16,950,703 46,656 37,520 16,941,567
- ---------------------------------------------------------------------------------------------
Total investment securities
available for sale $109,879,167 $ 651,087 $801,858 $110,029,938
=============================================================================================
Investment securities held to maturity:
Obligations of states and
political subdivisions $ 67,545,476 $1,745,970 $149,155 $ 65,948,661
=============================================================================================
</TABLE>
<TABLE>
<CAPTION>
1994
--------------------------------------------------
GROSS GROSS
ESTIMATED UNREALIZED UNREALIZED AMORTIZED
FAIR VALUE GAINS LOSSES COST
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Investment securities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 38,253,941 $ 23,595 $1,338,880 $ 39,569,226
Obligations of states and
political subdivisions 14,207,170 41,305 708,744 14,874,609
Mortgage-related securities 44,298,180 85,688 3,034,434 47,246,926
Other securities 9,506,853 985 259,062 9,764,930
- ---------------------------------------------------------------------------------------------
Total investment securities
available for sale $106,266,144 $151,573 $5,341,120 $111,455,691
=============================================================================================
Investment securities held to maturity:
Obligations of states and
political subdivisions $ 56,720,183 $575,594 $1,959,057 $ 58,103,646
Obligations of other U.S. government
corporations and agencies 4,469,979 3,418 298,144 4,764,705
Corporate and other securities 1,032,220 532 20,078 1,051,766
Mortgage-related securities 845,300 706 21,671 866,265
- ---------------------------------------------------------------------------------------------
Total investment securities
held to maturity $ 63,067,682 $580,250 $2,298,950 $ 64,786,382
=============================================================================================
</TABLE>
Fair values of securities are estimates based on financial methods or prices
paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
<PAGE> 78
F&M BANCORPORATION
45
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS(CONTINUED)
NOTE 5 - INVESTMENT SECURITIES (CONTINUED)
The estimated fair value and amortized cost of investment securities
(available for sale and held to maturity) at December 31, 1995, by contractual
maturity, are shown below. Contractual maturities will differ from expected
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
SECURITIES AVAILABLE FOR SALE SECURITIES HELD TO MATURITY
- ---------------------------------------------------------------------------------------------------------
ESTIMATED AMORTIZED ESTIMATED AMORTIZED
FAIR VALUE COST FAIR VALUE COST
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Due in three months or less $ 12,606,239 $ 12,626,249 $ 284,950 $ 248,795
Due after three months through one year 2,816,699 2,788,289 978,343 975,959
Due after one year through five years 32,479,099 32,545,138 15,737,927 15,314,951
Due after five years through ten years 5,143,289 5,091,777 26,158,086 25,286,060
Due after ten years 5,706,207 5,687,412 24,386,170 24,122,896
- ---------------------------------------------------------------------------------------------------------
58,751,533 58,738,865 67,545,476 65,948,661
Mortgage-related securities 51,127,634 51,291,073
- ---------------------------------------------------------------------------------------------------------
Total $109,879,167 $110,029,938 $67,545,476 $65,948,661
=========================================================================================================
</TABLE>
Following is a summary of the proceeds from sales of investment securities
available for sale and held for sale as well as gross gains and losses for the
years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------
<S> <C> <C> <C>
Proceeds from sales of investment securities
available for sale and held for sale $11,229,819 $28,654,095 $35,926,217
Gross gains on sales 61,245 183,953 529,422
Gross losses on sales 24,716 134,120 70,118
</TABLE>
Proceeds from sales of investment securities for 1994 include $1,540,731 of
proceeds from the sale of held-to-maturity securities which were held by Union
State Bank (the "Bank"). These sales were made to adjust the Bank's credit
risk policy to that of the Company's. Gross gains and gross losses on the sale
of these securities were $1,346 and $94,546, respectively.
The estimated fair value and amortized cost of investment securities pledged
to secure public deposits, short-term borrowings, and for other purposes
required by law as of December 31 follow:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------
<S> <C> <C>
Amortized cost $34,080,000 $16,908,000
Estimated fair value 33,835,000 15,889,000
</TABLE>
The obligations of states and political subdivisions are generally purchased
with the intent to hold to maturity. A significant portion of these securities
are rated by Moody's with ratings ranging from A to AAA. For those securities
not rated, market values are obtained from brokerage services utilized by the
Company. At December 31, 1995, the total carrying value of nonrated
obligations of states and political subdivisions was approximately
$16,189,000.
<PAGE> 79
F&M BANCORPORATION
49
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------
<S> <C> <C>
Commercial, industrial, and financial $118,570,368 $105,611,790
Agricultural 40,837,106 40,211,787
Real estate:
Construction 22,373,753 17,369,196
Mortgage 453,292,146 420,794,956
Installment 44,949,292 46,633,114
- ----------------------------------------------------------------------------------
Total loans $680,022,665 $630,620,843
==================================================================================
</TABLE>
The aggregate amount of nonperforming loans was approximately $6,389,000 and
$5,684,000 at December 31, 1995 and 1994, respectively. Nonperforming loans
are those which are contractually past due 90 days or more as to interest or
principal payments, those loans on a nonaccrual status, or loans the terms of
which have been renegotiated to provide a reduction or deferral of interest or
principal. If nonaccrual and renegotiated loans had been current, or not
troubled, approximately $569,000, $634,000, and $602,000 of interest income
would have been recorded for the years ended December 31, 1995, 1994, and
1993, respectively. Interest income actually recorded on these loans was
approximately $192,000, $279,000, and $184,000 for the years ended December
31, 1995, 1994, and 1993, respectively.
At December 31, 1995, the recorded investment in loans considered to be
impaired was $4,045,000 of which $1,578,000 was on a nonaccrual basis.
Included in this amount is $3,684,000 of impaired loans for which the related
allowance for loan losses is $843,000. The average recorded investment in
impaired loans during 1995 was approximately $4,327,000. For the year ended
December 31, 1995, the Company recognized interest income on those impaired
loans of $325,000 which included $73,000 of interest income recognized using
the cash basis method of income recognition.
The subsidiary banks in the ordinary course of banking business grant loans to
the Company's executive officers and directors including their families and
firms in which they are principal owners.
Substantially all loans to executive officers and directors were made on the
same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with others and did not involve more than
the normal risk of collectibility or present other unfavorable features.
Activity in such loans during 1995 is summarized below:
<TABLE>
<S> <C>
Loans outstanding, December 31, 1994 $11,309,274
New loans 4,599,152
Repayment (5,464,093)
- ----------------------------------------------------------------------
Loans outstanding, December 31, 1995 $10,444,333
======================================================================
</TABLE>
An analysis of the allowance for credit losses for the years
ended December 31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $7,751,629 $7,154,555 $6,414,897
Provision for credit losses 1,599,435 1,318,050 1,288,770
Recoveries on loans 177,042 170,364 206,235
Loans charged off (925,481) (891,340) (755,347)
- ----------------------------------------------------------------------------------------------
Balance, December 31 $8,602,625 $7,751,629 $7,154,555
- ----------------------------------------------------------------------------------------------
</TABLE>
FUTURE ACCOUNTING CHANGE
The FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," 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 is required to be adopted by the Company
effective January 1, 1996. The adoption of SFAS No. 122 is not
<PAGE> 80
F&M BANCORPORATION
50
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 - LOANS (CONTINUED)
anticipated to have a significant impact on the Company's financial condition
or results of operations. The actual impact of adoption is contingent on the
future levels of mortgage loan sales.
NOTE 7 - PREMISES AND EQUIPMENT
An analysis of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 3,776,201 $ 3,525,636
Buildings and improvements 18,873,090 18,248,774
Furniture and equipment 13,911,470 13,736,531
Construction in progress 680,520 220,796
- ---------------------------------------------------------------------------------------------
Totals 37,241,281 35,731,737
Less - Accumulated depreciation and amortization (16,750,310) (15,808,870)
- ---------------------------------------------------------------------------------------------
Net book value $ 20,490,971 $ 19,922,867
=============================================================================================
</TABLE>
Depreciation and amortization of premises and equipment charged to operating
expenses amounted to $1,669,815 in 1995, $1,599,904 in 1994, and $1,495,273 in
1993.
NOTE 8 - OTHER REAL ESTATE
Included in other assets is other real estate totaling $644,131 and $936,407
at December 31, 1995 and 1994, respectively. There is no allowance for losses
on other real estate. Other real estate expenses, including depreciation,
totaled $115,270, $401,206, and $630,718 for 1995, 1994, and 1993,
respectively.
NOTE 9 - DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Non-interest-bearing demand deposits $104,735,506 $104,674,374
Interest-bearing demand deposits 79,030,552 82,202,836
Savings deposits 134,425,745 131,608,583
Money market deposits 73,300,086 65,062,386
Time deposits 430,696,685 378,687,113
- --------------------------------------------------------------------------------------
Total deposits $822,188,574 $762,235,292
======================================================================================
</TABLE>
Time deposits of $100,000 or more were $75,303,000 and $53,802,000 at December
31, 1995 and 1994, respectively. Interest expense on time deposits of $100,000
or more was $3,792,000, $1,674,000, and $1,329,000, for the years ended
December 31, 1995, 1994, and 1993, respectively.
<PAGE> 81
F&M BANCORPORATION
51
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 - SHORT-TERM BORROWINGS
The composition of short-term borrowings at December 31 follows:
<TABLE>
<CAPTION>
1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and securities sold
under repurchase agreements $12,194,134 $19,442,374
Other short-term borrowings 403,856
- ------------------------------------------------------------------------------------------
Totals $12,194,134 $19,846,230
==========================================================================================
</TABLE>
The following information relates to federal funds purchased and securities
sold under repurchase agreements for the years ended December 31:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
As of year end - Weighted average rate 5.65% 5.90%
For the year:
Highest month-end balance $31,903,945 $32,508,681
Daily average balance 15,884,926 18,590,214
Weighted average rate 5.81% 4.38%
</TABLE>
NOTE 11 - OTHER BORROWINGS
Other borrowings at December 31 consist of the following:
<TABLE>
<CAPTION>
1995 1994
- -----------------------------------------------------------------------------------
<S> <C> <C>
Federal Home Loan Bank advances (a) $10,800,000 $5,300,000
Note payable, due May 31, 1995 (b) 1,000,000
Note payable to former stockholder (c) 33,244 66,488
- -----------------------------------------------------------------------------------
Totals $10,833,244 $6,366,488
===================================================================================
</TABLE>
(a) As members of the Federal Home Loan Bank (FHLB) system, individual bank
subsidiaries may utilize various borrowing alternatives, secured by
pledges of mortgage loans (totaling approximately $93,555,000) and FHLB
stock. At December 31, 1995, the subsidiaries' outstanding advances had
original maturities ranging from three months to seven years and fixed
and adjustable rates ranging from 4.60% to 7.73%. Interest is payable
monthly.
The scheduled principal maturities of these advances at December 31, 1995,
are summarized as follows:
<TABLE>
<S> <C>
1996 $8,600,000
1997 300,000
1998 200,000
1999 400,000
Thereafter 1,300,000
----------------------------------------------
$10,800,000
==============================================
</TABLE>
(b) This note was paid in 1995. The interest rate on this note at December
31, 1994, was 7.23%. The note was secured by all of the common stock of
the subsidiary banks owned by the Company.
(c) Note payable is due August 1, 1996. The note is unsecured with interest
payable at F&M Bank - Lancaster's one-year CD rate, adjusted annually.
The interest rate was 5.75% and 4.30% at December 31, 1995 and 1994,
respectively.
<PAGE> 82
F&M BANCORPORATION
52
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - INCOME TAXES
The components of the provision for income taxes are as follows for
the years ended December 31:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current tax expense:
Federal $4,747,593 $2,848,700 $2,881,965
State 928,971 743,231 736,005
- ----------------------------------------------------------------------------------------------------------
Total current 5,676,564 3,591,931 3,617,970
- ----------------------------------------------------------------------------------------------------------
Deferred tax credit (249,974) (668,914) (314,979)
- ----------------------------------------------------------------------------------------------------------
Tax benefit of net operating loss carryforward (51,462)
- ----------------------------------------------------------------------------------------------------------
Total provision for income taxes $5,426,590 $2,923,017 $3,251,529
==========================================================================================================
</TABLE>
Included in the total provision for income taxes is expense of approximately
$15,000, $20,000, and $184,000 for the years ended December 31, 1995, 1994,
and 1993, respectively, related to security transactions.
As of December 31, 1995 and 1994, deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis
of the Company's assets and liabilities. The major components of deferred tax
assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $2,560,028 $1,961,453
Deferred compensation 212,792 246,823
Nonperforming assets 364,734 420,923
Net operating losses 835,622 897,444
Unrealized loss on securities available for sale 59,660 1,917,564
Pension 314,411 335,083
Other 130,921 156,704
- -------------------------------------------------------------------------------------
4,478,168 5,935,994
Valuation allowance (560,000) (547,000)
- -------------------------------------------------------------------------------------
Deferred tax assets 3,918,168 5,388,994
- -------------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation (1,376,292) (1,237,184)
Leases (69,256) (71,260)
- -------------------------------------------------------------------------------------
Deferred tax liabilities (1,445,548) (1,308,444)
- -------------------------------------------------------------------------------------
Net deferred tax assets $2,472,620 $4,080,550
=====================================================================================
</TABLE>
The Company and two of its subsidiaries have separate Wisconsin net operating
loss carryforwards totaling approximately $10,800,000 at December 31, 1995.
These net operating loss carryforwards begin to expire in 1996. Since the
Company and these subsidiaries are required to file separate returns for
Wisconsin and they are not expected to generate taxable income, no tax benefit
from these losses is anticipated. The valuation allowance represents the
benefit of these losses, which is not expected to be realized.
One subsidiary has a federal net operating loss carryforward of approximately
$278,000 and a tax credit carryforward of $13,024. Another subsidiary has a
Wisconsin net operating loss carryforward of approximately $3,475,000. These
carryforwards occurred prior to the acquisition of these subsidiaries and,
therefore, can only be used to offset future taxable income of these
subsidiaries. The federal carryforwards begin to expire in 2001 and the
Wisconsin carryforwards begin to expire in 2006. Based on the annual usage
limitations, it is expected these net operating losses and tax credits will be
utilized.
<PAGE> 83
F&M BANCORPORATION
53
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 - INCOME TAXES (CONTINUED)
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------------------------------------------------------------------
% OF % OF % OF
PRETAX PRETAX PRETAX
AMOUNT INCOME AMOUNT INCOME AMOUNT INCOME
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $5,706,541 34.0 $3,633,630 34.0 $3,853,234 34.0
Increase (decrease) in
taxes resulting from:
Tax-exempt interest (1,169,422) (7.0) (1,162,210) (10.9) (1,081,612) (9.5)
State income tax 645,415 3.8 405,250 3.8 403,300 3.6
Goodwill amortization 135,339 0.8 135,185 1.3 127,872 1.1
Other 108,717 0.7 (88,838) (0.8) (51,265) (0.5)
- ---------------------------------------------------------------------------------------------------------------------
Provision for income taxes $5,426,590 32.3 $2,923,017 27.4 $3,251,529 28.7
=====================================================================================================================
</TABLE>
NOTE 13 - RETIREMENT PLANS
The Company sponsors a defined contribution 401(k) retirement savings plan
covering substantially all employees. Employees are allowed to make voluntary
contributions to the plan. The Company makes a matching contribution which is
determined based on the Company's return on equity. The Company may also make
a discretionary profit-sharing contribution.
F&M Bank - Lakeland continues to maintain an Employee Stock Ownership Plan
(ESOP), which was established prior to the Company's acquisition of this bank.
The assets of this plan which include 164,882 shares of the Company stock
remain frozen and have not been transferred into the Company's 401(k)
retirement savings plan as of December 31, 1995.
F&M Bank - Waushara County sponsors a defined contribution retirement savings
plan which covers substantially all the employees of the former Union State
Bank. The contributions to this plan for 1995 were consistent with those of
the Company's 401(k) retirement savings plan discussed above. The assets of
this plan will be transferred into the Company's plan during 1996.
Retirement plan contribution expense charged to operations for all plans
(excluding the defined benefit pension plans discussed below) totaled
$881,793, $689,152, and $593,820 for 1995, 1994, and 1993, respectively.
F&M Bank - Waushara County sponsored a defined benefit plan covering
substantially all employees of the former Union State Bank. Effective August
27, 1994, the plan was frozen resulting in a plan curtailment. A net loss of
$445,551 resulted from this curtailment and is included in pension expense in
the consolidated income statement for 1994. Subsequent to the curtailment,
plan participants will not accrue any additional benefit for service. The
Bank's funding policy is to make contributions on an annual basis to the
extent allowed for tax purposes.
<PAGE> 84
F&M BANCORPORATION
54
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 13 - RETIREMENT PLANS (CONTINUED)
The following table sets forth F&M Bank - Waushara County's defined benefit
pension plan funded status and amounts reflected in the accompanying
consolidated balance sheets, at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation $ 2,135,808 $ 2,650,945
Nonvested benefit obligation 39,713
- ---------------------------------------------------------------------------------------------------------------------------
Accumulated benefit obligation $ 2,135,808 $ 2,690,658
===========================================================================================================================
Projected benefit obligation $(2,135,808) $(2,690,658)
Plan assets at fair value 1,323,182 1,847,560
- ---------------------------------------------------------------------------------------------------------------------------
Accrued pension cost recognized in the consolidated balance sheets $ (812,626) $ (843,098)
===========================================================================================================================
</TABLE>
Net pension cost included the following components:
<TABLE>
<CAPTION>
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - Benefits earned during the year $ $ 33,315 $ 50,838
Interest cost on projected benefit obligation 161,439 168,385 171,257
Net amortization and deferral (35,856) (62,077) 67,063
- ---------------------------------------------------------------------------------------------------------------------------
Total periodic pension cost 125,583 139,623 289,158
Less - Actual return on plan assets 104,890 61,261 93,281
- ---------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost $ 20,693 $ 78,362 $ 195,877
===========================================================================================================================
</TABLE>
The following assumptions were used in determining the projected benefit
obligation:
<TABLE>
<CAPTION>
1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 6.0% 6.0% 7.5%
Rates of increase in compensation levels 0.0% 0.0% 3.0%
Expected long-term rate of return on assets 7.5% 7.5% 7.5%
</TABLE>
The plan assets consist primarily of insurance investment contracts, U.S.
government securities, and short-term mutual funds.
NOTE 14 - DEFERRED COMPENSATION PLANS
The Company has entered into deferred compensation agreements with several
current and former officers and directors providing monthly benefits over
periods ranging from ten to twelve years. At December 31, 1995 and 1994, the
Company accrued liabilities of approximately $559,000 and $658,000,
respectively, representing the present value of future payments under these
agreements. The amount charged to operations under these agreements was
approximately $60,000 in 1995, $87,000 in 1994, and $108,000 in 1993.
NOTE 15 - STOCKHOLDERS' EQUITY
The preferred stock as described on the consolidated statement of
stockholders' equity was issued by FNFC, which the Company acquired February
11, 1994. As part of the acquisition, the Company redeemed the preferred stock
at par value plus accrued dividends.
Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and
off-balance-sheet activities. All banks and bank holding companies must meet a
minimum total risk-based capital ratio of 8%. Of the 8% required, half must be
comprised of core capital elements defined as Tier 1 capital. The federal
banking agencies also have adopted leverage capital guidelines which banking
organizations must meet. Under these guidelines, the most highly rated banking
organizations must meet a minimum leverage ratio of at least 3% Tier 1 capital
to total assets, while lower rated banking organizations must maintain a ratio
of at least 4% to 5%.
The Company's and all of its subsidiaries' risk-based capital and leverage
ratios meet or exceed the defined minimum requirements.
<PAGE> 85
F&M BANCORPORATION
55
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
Banking subsidiaries are restricted by banking regulations from making
dividend distributions above prescribed amounts. At December 31, 1995, the
Company's subsidiaries could have paid approximately $16,976,000 of additional
dividends to the Company without prior regulatory approval.
NOTE 16 - STOCK OPTION PLANS
During 1993, the Company established two stock option plans, one for officers
and employees (the "Executive Plan") and one for nonemployee directors (the
"Directors' Plan"). Options under the Executive Plan are granted at the
discretion of the stock option committee of the Company's Board of Directors.
Options under the Directors' Plan are granted automatically each year at a
date and in an amount specified in the Directors' Plan. Under both plans,
options to purchase shares of the Company's common stock are granted at a
price equal to the market price of the stock at the date of grant. A total of
150,000 shares were made available, upon stockholder approval, to be subject
to grant under these plans.
Following is a summary of stock option transactions for the years ended
December 31:
<TABLE>
<CAPTION>
Number of Shares
-------------------------
1995 1994
- --------------------------------------------------------------------------------------
<S> <C> <C>
Outstanding at beginning of year 37,500
Granted during the year 20,250 37,500
Exercised during the year (at prices ranging from
$20.00 to $21.25 per share) (4,500)
Canceled during the year (7,000)
- --------------------------------------------------------------------------------------
Outstanding at end of year (at prices ranging from
$20.00 to $21.50 per share) 46,250 37,500
======================================================================================
Available for grant at end of year 92,250 112,500
======================================================================================
</TABLE>
Options granted under these plans expire ten years after the grant.
In connection with the merger of Merger and Pulaski in 1994, an unexercised
option under a separate Pulaski stock option plan with an officer of Pulaski
was converted into an option for 14,455 shares of the Company's common stock
with an exercise price of $9.35 per share. During 1995 and 1994, this officer,
now an officer of the Company, exercised options for 1,500 shares and 3,800
shares, respectively. These options expire December 15, 2002.
FUTURE ACCOUNTING CHANGE
The Financial Accounting Standards Board issued SFAS No. 123, "Accounting for
Stock-Based Compensation," 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 is required to be adopted as of January 1, 1996, and will not have a
significant impact on the Company's financial condition or results of
operations.
NOTE 17 - ADVERTISING COSTS
Advertising costs are expensed as incurred (or the first time advertising
takes place). Advertising expense for 1995 and 1994 was approximately $575,000
and $510,000, respectively.
<PAGE> 86
F&M BANCORPORATION
56
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 18 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Financial Instruments With Off-Balance-Sheet Risk
The Financial Accounting Standards Board has issued three statements
concerning financial instruments. SFAS No. 105 requires that certain
information be disclosed about financial instruments with off-balance-sheet
risk and financial instruments with concentrations of credit risk. SFAS No.
107 requires such entities to disclose the fair value of financial
instruments. SFAS No. 119 requires certain disclosures for derivative
financial instruments. The Company does not presently have nor has it had any
derivative type instruments requiring disclosure.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. Those instruments involve, to varying degrees, elements of
credit risk in excess of the amount recognized in the balance sheets.
The Company's exposure to credit loss, in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit and
standby letters of credit, is represented by the contractual amount of those
instruments. The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet instruments. These
commitments at December 31, 1995 and 1994, are as follows:
<TABLE>
<CAPTION>
1995 1994
- -------------------------------------------------------------------
<S> <C> <C>
Commitments to extend credit $48,904,000 $52,852,000
Standby letters of credit 5,087,000 4,164,000
Credit card commitments 10,686,000 10,693,000
- -------------------------------------------------------------------
$64,677,000 $67,709,000
===================================================================
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Company evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit, is
based on management's credit evaluation of the party. Collateral held varies
but may include accounts receivable; inventory; property, plant, and
equipment; and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for 100% collateralization on all standby letters of
credit.
Credit card commitments are commitments on credit cards issued by the
Company's subsidiaries and serviced by other companies. These commitments are
unsecured.
COMMITMENTS
The Company has committed to purchase land and buildings in 1996 for
approximately $1,400,000.
CONTINGENCIES
In the normal course of business, the Company is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
CONCENTRATION OF CREDIT RISK
The Company's subsidiary banks grant residential, commercial, agricultural,
and consumer loans throughout Wisconsin. Due to the diversity of locations,
the ability of debtors to honor their contracts is not tied to any particular
economic sector.
<PAGE> 87
F&M BANCORPORATION
57
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 19 - SUBSEQUENT EVENT
On February 5, 1996, the Company acquired 100% of the outstanding shares of
Monycor Bancshares, Inc., in exchange for 157,563 shares of Company stock by
merger of Monycor Bancshares, Inc., into Merger. Monycor Bancshares, Inc.
owned 98.4% of Monycor Bank of Superior. This acquisition will be accounted
for using the pooling-of-interests method of accounting. Financial information
presented in future reports will be restated to include Monycor Bancshares,
Inc. and its subsidiary.
Pro forma unaudited results of operations, assuming the acquisition
occurred on January 1, 1993, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net interest income (in thousands) $41,680 $38,248 $35,436
Net income (in thousands) 11,709 8,126 8,497
Earnings per share 1.97 1.35 1.47
</TABLE>
NOTE 20 - PENDING ACQUISITIONS
On January 11, 1996, the Company signed a Plan and Agreement of Merger and
Reorganization to acquire Bradley State Bank in Tomahawk for approximately $6
million in cash. This transaction is subject to regulatory and stockholder
approval. The transaction is expected to be completed in the second quarter of
1996.
On February 22, 1996, the Company signed a Plan and Agreement of Merger and
Reorganization to acquire 100% of the outstanding shares of Community State
Bank in Algoma in exchange for Company stock. This transaction is subject to
regulatory and stockholder approval. The transaction is expected to be
completed in the fourth quarter of 1996.
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments:
Cash and cash equivalents - The carrying values approximate the fair value
for these assets.
Investment securities - Fair values are based on quoted market prices, where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Interest-bearing deposits in other financial institutions are included in
this category.
Loans - Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
residential mortgage, and other consumer. The fair value of loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based
on the Company's repayment schedules for each loan classification.
The methodology in determining fair value of nonaccrual loans is to average
them into the blended interest rate at 0% interest. This has the effect of
decreasing the carrying amount below the risk-free rate amount and therefore
discounts the estimated fair value.
Impaired loans are measured at the estimated fair value of the expected
future cash flows at the loan's effective interest rate or the fair value of
the collateral for loans which are collateral dependent. Therefore, the
carrying values of impaired loans approximate the estimated fair values for
these assets.
Deposit liabilities - The fair value of deposits with no stated maturity,
such as non-interest-bearing demand deposits, savings, NOW accounts, money
market, and checking accounts, is equal to the amount payable on demand at
the reporting date. The fair value of certificates of deposit is based on
the discounted value of contractual cash flows. The discount rate reflects
the credit quality and operating expense factors of the Company.
Short-term and other borrowings - Rates currently available for debt with
similar terms and remaining maturities are used to estimate the fair value
of existing debt. The fair value of borrowed funds due on demand is the
amount payable at the reporting date.
<PAGE> 88
F&M BANCORPORATION
58
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Off-balance-sheet instruments - The fair value of commitments is estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the current interest
rates, and the present creditworthiness of the counterparties. Since this
amount is immaterial, no amounts for fair value are presented.
The following table presents information for financial instruments:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995 AT DECEMBER 31, 1994
-----------------------------------------------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 59,005,046 $ 59,005,046 $ 40,193,434 $ 40,193,434
Investment securities 176,378,849 177,975,664 171,892,084 170,173,384
Loans 680,022,665 630,620,843
Allowance for credit losses (8,602,625) (7,751,629)
- -------------------------------------------------------------------------------------------------------------------------
Net loans 671,420,040 696,528,268 622,869,214 619,187,689
- -------------------------------------------------------------------------------------------------------------------------
Total financial assets $906,803,935 $933,508,978 $834,954,732 $829,554,507
=========================================================================================================================
Financial liabilities:
Deposits $822,188,574 $823,616,918 $762,235,292 $749,539,643
Short-term and other borrowings 23,027,378 23,135,846 26,212,718 26,212,718
- -------------------------------------------------------------------------------------------------------------------------
Total financial liabilities $845,215,952 $846,752,764 $788,448,010 $775,752,361
=========================================================================================================================
</TABLE>
Limitations - Fair value estimates are madc point in time based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Company's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Company's financial instruments, fair value estimates are based on
judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on- and off-balance-sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include premises and equipment,
other assets, and other liabilities. In addition, the tax ramifications
related to the realization of the unrealized gains and losses can have a
significant effect on fair value estimates and have not been considered in the
estimates.
NOTE 22 - RECLASSIFICATIONS
Certain reclassifications have been made to the 1994 and 1993 consolidated
financial statements to conform to the 1995 classifications.
<PAGE> 89
F&M BANCORPORATION
59
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
- -----------------------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 2,764,419 $ 814,244
Investment securities available for sale - Stated at fair value 210,000 531,375
Investment in subsidiaries 80,945,615 72,281,454
Loans 232,000
Loans receivable from subsidiaries 300,000 1,500,000
Premises and equipment - Net 1,524,448 1,522,078
Other assets 202,748 318,498
- -----------------------------------------------------------------------------------------
TOTAL ASSETS $86,179,230 $76,967,649
=========================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Other borrowings $ $ 1,000,000
Accrued expenses 287,396 397,310
- -----------------------------------------------------------------------------------------
Total liabilities 287,396 1,397,310
- -----------------------------------------------------------------------------------------
Total stockholders' equity 85,891,834 75,570,339
- -----------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $86,179,230 $76,967,649
=========================================================================================
</TABLE>
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Dividends received from subsidiaries $6,225,255 $1,896,250 $2,445,723
Interest and dividends 57,248 374,026 192,390
Data processing fees 1,190,543 651,388 517,475
Management and service fees 1,850,964 1,568,032 426,162
- ------------------------------------------------------------------------------------------
Total income 9,324,010 4,489,696 3,581,750
- ------------------------------------------------------------------------------------------
Expenses:
Salaries and benefits 1,309,533 1,244,157 1,372,763
Interest 17,655 359,295 440,978
Other 1,891,972 1,677,849 769,892
- ------------------------------------------------------------------------------------------
Total expenses 3,219,160 3,281,301 2,583,633
- ------------------------------------------------------------------------------------------
Income before provision (credit) for income
taxes and equity in undistributed net
income of subsidiaries 6,104,850 1,208,395 998,117
Provision (credit) for income taxes 21,500 (247,000) (526,600)
- ------------------------------------------------------------------------------------------
Income before equity in undistributed
net income of subsidiaries 6,083,350 1,455,395 1,524,717
Equity in undistributed net income of
subsidiaries 5,274,004 6,308,737 6,556,797
- ------------------------------------------------------------------------------------------
NET INCOME $11,357,354 $7,764,132 $8,081,514
==========================================================================================
</TABLE>
<PAGE> 90
F&M BANCORPORATION
60
........
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 23 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
<TABLE>
<CAPTION>
1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $11,357,354 $ 7,764,132 $ 8,081,514
- -------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Gain on sale of investments available for sale (5,156)
Provision for depreciation and amortization 189,007 163,832 130,060
Equity in undistributed net income of subsidiaries (5,274,004) (6,308,737) (6,556,797)
Loss on sale of premises and equipment 26,869
Change in other assets 91,800 (33,227) (14,293)
Change in accrued expenses (142,740) (11,714) 52,988
- -------------------------------------------------------------------------------------------------------------
Total adjustments (5,141,093) (6,162,977) (6,388,042)
- -------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 6,216,261 1,601,155 1,693,472
- -------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Capital contributed to subsidiary banks (250,000)
Purchase of equity in subsidiary banks (23,009) (19,475)
Payment for purchase of securities:
Available for sale (417,312)
Held for sale (9,901,539)
Proceeds from sales and maturities of
investment securities available for sale 423,081 9,797,477
Net (increase) decrease in loans 968,000 (720,000) 320,000
Capital expenditures (167,427) (26,840) (718,021)
Proceeds from sale of premises and equipment 23,600
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 950,645 8,656,925 (10,319,035)
- -------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from issuance of common stock 11,175,094
Proceeds from exercise of stock options 106,212 35,330
Principal payments on other borrowings (1,000,000) (7,250,000) (2,500,000)
Purchase of shares of treasury common stock (845,625) (110,000)
Dividends paid (3,477,318) (2,298,775) (1,219,640)
Sale of shares of common stock to
dividend reinvestment plan 234,765
- -------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (5,216,731) (9,623,445) 7,690,219
- -------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 1,950,175 634,635 (935,344)
Cash and cash equivalents at beginning 814,244 179,609 1,114,953
- -------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end $ 2,764,419 $ 814,244 $ 179,609
=============================================================================================================
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash received during the year for income taxes $ 4,858,774 $ 2,666,876 $ 2,510,482
Cash paid during the year for:
Interest 49,752 360,090 448,076
Income taxes 5,108,147 2,372,978 1,942,957
</TABLE>
<PAGE> 91
SUMMARY QUARTERLY FINANCIAL INFORMATION
The following is a summary of the quarterly results of operations for
the years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- --------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
1995
Interest income $16,857 $17,886 $18,795 $19,058
Interest expense 7,206 8,077 8,427 8,499
Net interest income 9,651 9,809 10,368 10,559
Provision for loan losses 324 286 480 509
Net income applicable to common stock 2,480 2,620 3,098 3,159
Earnings per common share .43 .45 .53 .55
1994
Interest income $14,235 $14,808 $15,506 $16,185
Interest expense 5,637 5,627 5,990 6,508
Net interest income 8,598 9,181 9,516 9,677
Provision for loan losses 199 307 331 481
Net income applicable to common stock 1,817 2,103 2,308 1,515
Earnings per common share .31 .36 .40 .26
</TABLE>
<PAGE> 92
-1-
[WIPFLI ULLRICH BERTELSON LOGO]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Community State Bank
Algoma, Wisconsin
We have audited the accompanying consolidated balance sheet of Community State
Bank and Subsidiary as of December 31, 1995, and the related consolidated
statements of income, stockholders' equity, and cash flows for the year then
ended. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Community State
Bank and Subsidiary at December 31, 1995, and the results of their operations
and their cash flows for the year then ended in conformity with generally
accepted accounting principles.
Wipfli Ullrich Bertelson
------------------------------------------
Certified Public Accountants
March 8, 1996
Appleton, Wisconsin
<PAGE> 93
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Cash and due from banks $ 1,960,999 $ 1,739,974
Federal funds sold 2,000,000 1,550,000
--------------- ----------------
Cash and cash equivalents 3,960,999 3,289,974
Investments:
Investment securities available for sale -
Stated at fair value 28,468,674 8,007,325
Investment securities held to maturity -
Fair value of $18,433,551 in 1994 -0- 18,838,834
Total loans 20,021,281 19,614,760
Allowance for credit losses 318,506 348,398
--------------- ----------------
Net loans 19,702,775 19,266,362
Premises and equipment 227,852 216,211
Other assets 791,595 1,165,903
--------------- ----------------
TOTAL ASSETS $ 53,151,895 $ 50,784,609
=============== ================
</TABLE>
<PAGE> 94
-2-
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Liabilities:
Non-interest-bearing deposits $ 5,452,000 $ 5,112,000
Interest-bearing deposits 39,071,307 38,083,698
--------------- ----------------
Total deposits 44,523,307 43,195,698
Other liabilities 453,208 228,051
--------------- ----------------
Total liabilities 44,976,515 43,423,749
--------------- ----------------
Commitments and contingent liabilities (Note 11)
Stockholders' equity:
Common stock - $10 par value:
Authorized, issued, and outstanding - 46,000 shares 460,000 460,000
Capital surplus 1,750,000 1,750,000
Retained earnings 5,742,431 5,416,574
Unrealized gain (loss) on securities available for sale -
Net of tax 222,949 (265,714)
--------------- ----------------
Total stockholders' equity 8,175,380 7,360,860
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 53,151,895 $ 50,784,609
=============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 95
-3-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,753,899 $ 1,674,761 $ 1,867,169
Interest on investment securities:
Taxable 1,319,528 1,115,304 1,118,084
Tax-exempt 370,318 368,114 374,808
Other interest income 51,884 49,815 39,514
--------------- --------------- ----------------
Total interest income 3,495,629 3,207,994 3,399,575
--------------- --------------- ----------------
Interest expense:
Deposits 1,597,155 1,311,306 1,460,178
Short-term borrowings 870 -0- -0-
--------------- --------------- ----------------
Total interest expense 1,598,025 1,311,306 1,460,178
--------------- --------------- ----------------
Net interest income 1,897,604 1,896,688 1,939,397
Provision for credit losses 54,000 20,000 40,000
--------------- --------------- ----------------
Net interest income after provision
for credit losses 1,843,604 1,876,688 1,899,397
--------------- --------------- ----------------
Other income:
Service fees 77,395 71,954 71,646
Net security gains -0- 20,385 118,026
Other operating income 62,662 54,586 57,701
--------------- --------------- ----------------
Total other income 140,057 146,925 247,373
--------------- --------------- ----------------
Other expenses:
Salaries and employee benefits 652,713 634,215 607,585
Net occupancy expense 92,576 80,691 73,728
FDIC assessment 49,710 96,730 95,439
Data processing 103,240 102,417 102,736
Other operating expenses 316,170 297,316 247,146
--------------- --------------- ----------------
Total other expenses 1,214,409 1,211,369 1,126,634
--------------- --------------- ----------------
</TABLE>
<PAGE> 96
-4-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Income before provision for income
taxes and cumulative effect of
change in accounting principle $ 769,252 $ 812,244 $ 1,020,136
Provision for income taxes 139,795 151,779 274,814
--------------- --------------- ----------------
Income before cumulative effect
of change in accounting principle 629,457 660,465 745,322
Cumulative effect of change in
accounting principle - Initial
adoption of SFAS No. 109,
"Accounting for Income Taxes" -0- -0- 72,400
--------------- --------------- ----------------
Net income $ 629,457 $ 660,465 $ 817,722
=============== =============== ================
Earnings per share $ 13.68 $ 14.36 $ 17.78
=============== =============== ================
Weighted average shares outstanding 46,000 46,000 46,000
=============== =============== ================
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 97
-5-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gain
(Loss) on
Securities
Available
Common Capital Retained for Sale -
Stock Surplus Earnings Net of Tax Total
------------- -------------- -------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
UNAUDITED
Balance, January 1, 1993 $ 460,000 $ 1,750,000 $ 4,485,787 $ -0- $ 6,695,787
Net income 817,722 817,722
Dividends paid (241,500) (241,500)
------------- -------------- -------------- ------------ --------------
Balance, December 31, 1993 460,000 1,750,000 5,062,009 -0- 7,272,009
Net income 660,465 660,465
Change in accounting for
investments - Adoption of
SFAS No. 115 30,820 30,820
Dividends paid (305,900) (305,900)
Change in unrealized gain
(loss) on securities available
for sale - Net of tax (296,534) (296,534)
------------- -------------- -------------- ------------ --------------
Balance, December 31, 1994 460,000 1,750,000 5,416,574 (265,714) 7,360,860
AUDITED
Net income 629,457 629,457
Dividends paid (303,600) (303,600)
Change in unrealized gain
(loss) on securities available
for sale - Net of tax 488,663 488,663
------------- -------------- -------------- ------------ --------------
Balance, December 31, 1995 $ 460,000 $ 1,750,000 $ 5,742,431 $ 222,949 $ 8,175,380
============= ============== ============== ============ ==============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 98
-6-
COMMUNITY STATE BANK AND SUBSIDIARY
-------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 629,457 $ 660,465 $ 817,722
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net
amortization 118,532 242,950 249,207
Provision for credit losses 54,000 20,000 40,000
Provision (credit) for deferred income
taxes 6,826 8,096 (86,000)
Net security gains -0- (20,385) (118,026)
Loss on sale of equipment and other
real estate 4,861 285 2,432
Provision for other real estate losses -0- 2,341 -0-
Change in other assets 70,613 (24,797) 26,084
Change in other liabilities 110,305 (24,969) (6,210)
--------------- --------------- ----------------
Total adjustments 365,137 203,521 107,487
--------------- --------------- ----------------
Net cash provided by operating activities 994,594 863,986 925,209
--------------- --------------- ----------------
Cash flows from investing activities:
Proceeds from sale of securities:
Available for sale -0- 1,438,168 -0-
Held to maturity -0- -0- 1,567,255
Proceeds from maturities of securities:
Available for sale 2,678,875 2,746,332 -0-
Held to maturity 1,973,033 2,572,143 7,974,188
Payment for purchases of securities:
Available for sale (2,090,229) (2,192,472) -0-
Held to maturity (3,509,961) (7,895,623) (9,312,339)
Net (increase) decrease in loans (490,413) 1,395,276 56,784
Capital expenditures (40,722) (37,697) (24,953)
Proceeds from sale of other real estate 131,839 26,872 23,568
--------------- --------------- ----------------
Net cash provided by (used in) investing
activities (1,347,578) (1,947,001) 284,503
--------------- --------------- ----------------
</TABLE>
<PAGE> 99
-7-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1995, 1994, and 1993
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
-------------- -------------- --------
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase (decrease) in deposits $ 1,327,609 $ (31,943) $ (628,311)
Dividends paid (303,600) (305,900) (241,500)
----------- ----------- --------------
Net cash provided by (used in) financing
activities 1,024,009 (337,843) (869,811)
----------- ----------- --------------
Net increase (decrease) in cash and cash
equivalents 671,025 (1,420,858) 339,901
Cash and cash equivalents at beginning 3,289,974 4,710,832 4,370,931
----------- ----------- --------------
Cash and cash equivalents at end $ 3,960,999 $ 3,289,974 $ 4,710,832
=========== =========== ==============
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 1,512,953 $ 1,322,831 $ 1,486,807
Income taxes 100,000 203,000 423,000
Noncash investing and financing activities:
- ------------------------------------------
Loans charged off $ 104,753 $ 95,523 $ 40,343
Loans transferred to other real estate -0- 235,840 -0-
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 100
-8-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Community State Bank (the "Bank") and
its subsidiary conform to generally accepted accounting principles and general
practices within the banking industry. Significant accounting policies are
summarized below.
Nature of Operations
The Bank operates as a full-service financial institution with a primary market
area including, but not limited to, the eastern and northern part of Kewaunee
County and the southern part of Door County. The Bank offers a full range of
commercial and retail banking services to customers at two locations within the
Bank's market area. The Bank provides commercial, real estate, agricultural,
and consumer loans, as well as a variety of traditional deposit products. In
addition, the Bank holds a variety of securities through its wholly owned
subsidiary, Algoma Investment Corporation, a Nevada investment corporation
which was incorporated March 3, 1994. The operation of the investment
corporation commenced on April 1, 1994.
Principles of Consolidation
The consolidated financial statements include the accounts of Community State
Bank and its subsidiary. All significant intercompany balances and
transactions have been eliminated.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period.
Actual results may differ from these estimates.
Cash and Cash Equivalents
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand and non-interest-bearing deposits in correspondent banks and federal funds
sold. Generally, federal funds are purchased and sold for one-day periods.
Investment Securities
The Bank's investment securities are classified in two categories and accounted
for as follows in accordance with Statement of Financial Accounting Standards
(SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities."
<PAGE> 101
-9-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities available for sale - Securities available for sale consist of
investment securities not classified as securities held to maturity.
Unrealized holding gains and losses, net of tax, on securities available for
sale are reported as a net amount in a separate component of stockholders'
equity until realized.
Securities held to maturity - Investment securities for which the Bank has
the positive intent and ability to hold to maturity are reported at cost,
adjusted for amortization of premiums and accretion of discounts, which are
recognized in interest income using the interest method over the period to
maturity.
Gains and losses on the sale of securities available for sale are determined
using the specific-identification method.
Interest and Fees on Loans
Interest on loans is credited to income as earned. Interest income is not
accrued on loans where management has determined collection of such interest is
doubtful. When a loan is placed on nonaccrual status, previously accrued but
unpaid interest deemed uncollectible is reversed and charged against current
income. Unamortized net loan fees are recorded as part of the balance of
outstanding loans.
Allowance for Credit Losses
Effective January 1, 1995, the Bank adopted 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."
In accordance with the new standard, the 1995 allowance for credit 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 Bank 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 Bank 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.
Prior to 1995, the allowance for credit losses related to these loans was based
on undiscounted cash flows, collateral value, and other information used by
management.
<PAGE> 102
-10-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The Bank continues to maintain a general allowance for credit losses for loans
not within the scope of SFAS No. 114. The allowance for credit losses is
maintained at a level which management believes is adequate to provide for
possible credit losses. Management periodically evaluates the adequacy of the
allowance using the Bank's past loan loss experience, known and inherent risks
in the portfolio, composition of the portfolio, current economic conditions,
and other factors. This evaluation is inherently subjective since it requires
material estimates that may be susceptible to significant change.
Premises and Equipment
Premises and equipment are stated at cost. Maintenance and repair costs are
charged to expense as incurred. Gains or losses on disposition of premises and
equipment are reflected in income. Depreciation is computed principally on an
accelerated method and is based on the estimated useful lives of the assets
varying from ten to fifty years on buildings and five to twenty years on
equipment.
Other Real Estate
Other real estate is carried at the lower of cost or fair value, less estimated
sales costs.
Income Taxes
Deferred income taxes have been provided under the liability method prescribed
by SFAS No. 109. Deferred tax assets and liabilities are determined based on
the difference between the financial statement and tax bases of assets and
liabilities as measured by the current enacted tax rates which will be in
effect when these differences are expected to reverse. Deferred tax expense
(benefit) is the result of changes in the deferred tax asset and liability.
Off-Balance-Sheet Financial Instruments
In the ordinary course of business, the Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit, commitments
under credit card arrangements, commercial letters of credit, and standby
letters of credit. Such financial instruments are recorded in the consolidated
financial statements when they become payable.
Advertising Costs
Advertising costs are expensed as incurred.
<PAGE> 103
-11-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future Accounting Change
The Financial Accounting Standards Board (FASB) issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of," 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 be reported at the lower of carrying
amount or fair value less cost to sell. This statement is required to be
adopted by the Bank effective January 1, 1996. The adoption of SFAS No. 121 is
not anticipated to have a significant impact on the Bank's financial condition
or results of operations once implemented.
NOTE 2 - CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, the Bank adopted 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." There
was no impact on net income as a result of the adoption of SFAS No. 114 at
January 1, 1995.
In May 1993, the FASB issued SFAS No. 115, "Accounting for Certain Investments
in Debt and Equity Securities." As required under the statement, the Bank
adopted the provisions of the new standard at the beginning of 1994. In
accordance with SFAS No. 115, prior-period financial statements were not
restated to reflect the change in accounting principle. The impact of the
adoption of SFAS No. 115 on January 1, 1994, was an increase in the value of
investment securities of $51,367, an increase in deferred tax liabilities of
$20,547, and an increase in stockholders' equity of $30,820. The adoption of
SFAS No. 115 had no impact on 1994 net income.
Effective January 1, 1993, the Bank adopted the liability method of accounting
for income taxes prescribed by SFAS No. 109. Deferred tax assets and
liabilities are determined based on the temporary differences between the
consolidated financial statement and tax bases of assets and liabilities as
measured by the enacted tax rates which will be in effect when these
differences are expected to reverse. Deferred tax expense (benefit) is the
result of changes in the deferred tax asset and liability. The Bank elected to
recognize the cumulative effect of the change as of January 1, 1993, totaling
$72,400, as a credit to income in 1993.
<PAGE> 104
-12-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES
The estimated fair value and amortized cost of investment securities are as
follows:
<TABLE>
<CAPTION>
Audited - 1995
------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Investment securities available
for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 4,754,825 $ 56,702 $ 6,222 $ 4,704,345
Obligations of states and
political subdivisions 10,026,081 204,368 14,076 9,835,789
Mortgage-related securities 13,477,522 150,237 53,208 13,380,493
Other securities 210,246 -0- -0- 210,246
--------------- --------------- --------------- ---------------
Total investment securities
available for sale $ 28,468,674 $ 411,307 $ 73,506 $ 28,130,873
=============== =============== =============== ===============
</TABLE>
<TABLE>
<CAPTION>
Unaudited - 1994
------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Investment securities available
for sale:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 1,936,675 $ 194 $ 34,202 $ 1,970,683
Obligations of states and
political subdivisions 1,063,136 -0- 84,578 1,147,714
Mortgage-related securities 4,800,445 -0- 307,297 5,107,742
Other securities 207,069 -0- -0- 207,069
--------------- --------------- --------------- ----------------
Total investment securities
available for sale $ 8,007,325 $ 194 $ 426,077 $ 8,433,208
=============== =============== =============== ================
</TABLE>
<PAGE> 105
-13-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Unaudited - 1994
------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- ----------------
<S> <C> <C> <C> <C>
Investment securities held
to maturity:
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $ 4,315,950 $ -0- $ 83,821 $ 4,399,771
Obligations of states and
political subdivisions 6,927,354 37,046 215,609 7,105,917
Mortgage-related securities 7,190,247 41,376 184,275 7,333,146
--------------- --------------- --------------- ----------------
Total investment securities
held to maturity $ 18,433,551 $ 78,422 $ 483,705 $ 18,838,834
=============== =============== =============== ===============
</TABLE>
Fair values of securities are estimates based on financial methods or prices
paid for similar securities. It is possible interest rates could change
considerably resulting in a material change in the estimated fair value.
As of December 20, 1995, securities with a book value of $17,392,803 and an
estimated fair value of $17,413,989 were transferred from the held to maturity
classification to the available for sale classification. The transfer was made
in accordance with the Financial Accounting Standards Board Guide to
Implementation of SFAS No. 115.
<PAGE> 106
-14-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
The estimated fair value and amortized cost of investment securities at
December 31, 1995, by contractual maturity, are shown below. Contractual
maturities will differ from expected maturities because borrowers may have the
right to call or prepay obligations with or without call or prepayment
penalties.
<TABLE>
<CAPTION>
Securities Available for Sale
-----------------------------------
Estimated Amortized
Fair Value Cost
--------------- ----------------
<S> <C> <C>
Due in three months or less $ 1,208,846 $ 1,210,380
Due after three months through one year 2,811,164 2,789,312
Due after one year through five years 6,607,160 6,453,252
Due after five years through ten years 4,253,672 4,191,247
Due after ten years 110,310 106,189
--------------- ----------------
14,991,152 14,750,380
Mortgage-related securities 13,477,522 13,380,493
--------------- ----------------
Total $ 28,468,674 $ 28,130,873
=============== ================
</TABLE>
Following is a summary of the proceeds from sales of investment securities
available for sale and held for sale as well as gross gains and losses for the
years ended December 31:
<TABLE>
<CAPTION>
Unaudited Unaudited
1994 1993
--------------- ----------------
<S> <C> <C>
Proceeds from sales of investment securities
available for sale and held for sale $ 1,438,168 $ 1,567,255
Gross gains on sales 47,831 118,026
Gross losses on sales 27,446 -0-
</TABLE>
There were no sales of investment securities in 1995.
The estimated fair value and amortized cost of investment securities pledged to
secure public deposits, short-term borrowings, and for other purposes required
by law as of December 31 follow:
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Amortized cost $ 100,000 $ 500,000
Estimated fair value 101,060 490,650
</TABLE>
<PAGE> 107
-15-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - INVESTMENT SECURITIES (CONTINUED)
A significant portion of the securities issued by states and political
subdivisions are rated by Moody's with ratings ranging from A to AAA. For
those securities not rated, market values are obtained from brokerage services
utilized by the Bank. At December 31, 1995, the total carrying value of
nonrated obligations of states and political subdivisions was approximately
$2,947,000.
NOTE 4 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Commercial, industrial, and financial $ 2,323,281 $ 1,986,760
Agricultural 1,038,000 1,215,000
Real estate:
Construction 417,000 785,000
Mortgage 12,845,000 12,440,000
Installment 3,398,000 3,188,000
--------------- ----------------
Total loans $ 20,021,281 $ 19,614,760
=============== ================
</TABLE>
The aggregate amount of nonperforming loans was approximately $491,000 and
$356,000 at December 31, 1995 and 1994, respectively. Nonperforming loans are
those which are either contractually past due 90 days or more as to interest or
principal payments, those loans on a nonaccrual status, or loans the terms of
which have been renegotiated to provide a reduction or deferral of interest or
principal. If nonaccrual and renegotiated loans had been current, or not
troubled, $19,142, $36,824, and $24,973 of interest income would have been
recorded for the years ended December 31, 1995, 1994, and 1993, respectively.
Interest income actually recorded on these loans was $8,257, $765, and $1,444
for the years ended December 31, 1995, 1994, and 1993, respectively.
At December 31, 1995, the recorded investment in loans considered to be
impaired was $184,061, all of which was on a nonaccrual basis. The related
allowance for credit losses on this amount is $11,206. The average recorded
investment in impaired loans during 1995 was approximately $278,000. For the
year ended December 31, 1995, the Bank recognized interest income on those
impaired loans of $4,459 using the cash basis method of income recognition.
The Bank, in the ordinary course of banking business, grants loans to its
executive officers and directors including their families and firms in which
they are principal owners.
<PAGE> 108
-16-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 4 - LOANS (CONTINUED)
Substantially all loans to executive officers and directors were made on the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others and did not involve more than the
normal risk of collectibility or present other unfavorable features. Activity
in such loans during 1995 is summarized below:
<TABLE>
<S> <C>
Loans outstanding, December 31, 1994 $ 510,272
New loans 315,000
Repayment (72,620)
---------------
Loans outstanding, December 31, 1995 $ 752,652
===============
</TABLE>
An analysis of the allowance for credit losses for the years ended December 31
follows:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Balance, January 1 $ 348,398 $ 400,894 $ 351,733
Provision for credit losses 54,000 20,000 40,000
Recoveries on loans 20,861 23,027 49,504
Loans charged off (104,753) (95,523) (40,343)
--------------- --------------- ----------------
Balance, December 31 $ 318,506 $ 348,398 $ 400,894
=============== =============== ================
</TABLE>
NOTE 5 - PREMISES AND EQUIPMENT
An analysis of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Land $ 50,519 $ 50,519
Buildings and improvements 299,035 297,466
Furniture and equipment 345,640 317,823
--------------- ----------------
Totals 695,194 665,808
Less - Accumulated depreciation and amortization 467,342 449,597
--------------- ----------------
Net book value $ 227,852 $ 216,211
=============== ================
</TABLE>
Depreciation and amortization of premises and equipment charged to operating
expenses amounted to $29,081 in 1995, $22,194 in 1994, and $20,205 in 1993.
<PAGE> 109
-17-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - OTHER REAL ESTATE
Included in other assets is other real estate totaling $164,500 and $301,200 at
December 31, 1995 and 1994, respectively. There is no allowance for losses on
other real estate. Other real estate expenses totaled $4,516, $8,285, and
$5,849 for 1995, 1994, and 1993, respectively.
NOTE 7 - DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Non-interest-bearing demand deposits $ 5,452,000 $ 5,112,000
Interest-bearing demand deposits 3,838,307 4,085,698
Savings deposits 9,653,000 10,506,000
Money market deposits 5,658,000 6,402,000
Time deposits 19,922,000 17,090,000
--------------- ----------------
Total deposits $ 44,523,307 $ 43,195,698
=============== ================
</TABLE>
Time deposits of $100,000 or more were $838,000 and $108,000 at December 31,
1995 and 1994, respectively. Interest expense on time deposits of $100,000 or
more was $33,000, $7,000, and $9,000 for the years ended December 31, 1995,
1994, and 1993, respectively.
NOTE 8 - INCOME TAXES
The components of the provision for income taxes are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------- --------------- ----------------
<S> <C> <C> <C>
Current tax expense:
Federal $ 118,050 $ 143,183 $ 198,814
State 25 500 89,600
--------------- --------------- ----------------
Total current 118,075 143,683 288,414
Deferred tax expense (credit) 6,826 8,096 (13,600)
--------------- --------------- ----------------
Subtotals 124,901 151,779 274,814
Change in valuation allowance 14,894 -0- -0-
--------------- --------------- ----------------
Total provision for income taxes $ 139,795 $ 151,779 $ 274,814
=============== =============== ================
</TABLE>
<PAGE> 110
-18-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
Included in the total provision for income taxes is expense of approximately
$8,000 and $47,000 for the years ended December 31, 1994 and 1993,
respectively, related to investment security transactions.
As of December 31, 1995 and 1994, deferred income taxes are provided for the
temporary differences between the financial reporting basis and the tax basis
of the Bank's assets and liabilities. The major components of deferred tax
assets and deferred tax liability are as follows:
<TABLE>
<CAPTION>
Audited Unaudited
1995 1994
--------------- ----------------
<S> <C> <C>
Deferred tax assets:
Reserve for credit losses $ 46,303 $ 56,466
Vacation accrued 15,477 14,800
Net operating losses 14,894 -0-
Unrealized loss on securities available for sale -0- 160,169
AMT credit carryover 9,298 6,638
--------------- ---------------
85,972 238,073
Valuation allowance (14,894) -0-
--------------- ---------------
Deferred tax assets 71,078 238,073
Deferred tax liability - Unrealized gain on
securities available for sale (114,852) -0-
--------------- ---------------
Net deferred tax assets (liability) $ (43,774) $ 238,073
=============== ===============
</TABLE>
The Bank has a separate Wisconsin net operating loss carryforward totaling
approximately $285,000 at December 31, 1995. The net operating loss
carryforward expires in 2010. Since the Bank is required to file a separate
return for Wisconsin and is not expected to generate Wisconsin taxable income,
no tax benefit from the loss carryforward is anticipated. The valuation
allowance represents the benefit of the loss carryforward which is not expected
to be realized.
<PAGE> 111
-19-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8 - INCOME TAXES (CONTINUED)
A summary of the source of differences between income taxes at the federal
statutory rate and the provision for income taxes for the years ended December
31 follows:
<TABLE>
<CAPTION>
Audited Unaudited Unaudited
1995 1994 1993
--------------------------- -------------------------- -------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------- -------- -------------- --------- ------------- --------
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $ 261,546 34 $ 276,163 34 $ 346,846 34
Increase (decrease)
in taxes resulting
from:
Tax-exempt interest (130,035) (17) (135,710) (16) (134,348) (13)
State income tax 17 0 330 0 59,000 6
Change in valuation
allowance 14,894 2 -0- 0 -0- 0
Other (6,627) (1) 10,996 1 3,316 0
------------- -------- -------------- --------- ------------- --------
Provision for income
taxes $ 139,795 18 $ 151,779 19 $ 274,814 27
============= ======== ============== ========= ============= ========
</TABLE>
NOTE 9 - RETIREMENT PLAN
The Bank sponsors a defined contribution 401(k) retirement savings plan
covering substantially all employees. Employees are allowed to make voluntary
contributions to the plan. The Bank makes a matching contribution equal to 25%
of employees' contributions. The Bank matches employees' contributions up to
4% of compensation. The Bank may also make a discretionary profit-sharing
contribution.
Retirement plan contribution expense charged to operations under the plan
totaled $41,949, $50,477, $48,317 for 1995, 1994, and 1993, respectively.
<PAGE> 112
-20-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - STOCKHOLDERS' EQUITY
Federal banking regulatory agencies have established capital adequacy rules
which take into account risk attributable to balance sheet assets and
off-balance-sheet activities. All banks must meet a minimum total risk-based
capital ratio of 8%. Of the 8% required, half must be comprised of core
capital elements defined as Tier 1 capital. The federal banking agencies also
have adopted leverage capital guidelines which banking organizations must meet.
Under these guidelines, the most highly rated banking organizations must meet a
minimum leverage ratio of at least 3% Tier 1 capital to total assets, while
lower rated banking organizations must maintain a ratio of at least 4% to 5%.
Based on the Bank's current capital position, the Bank is in compliance with
all minimum capital requirements.
NOTE 11 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK
Financial Instruments With Off-Balance-Sheet Risk
The Financial Accounting Standards Board has issued three statements concerning
financial instruments. SFAS No. 105 requires that certain information be
disclosed about financial instruments with off-balance-sheet risk and financial
instruments with concentrations of credit risk. SFAS No. 107 requires such
entities to disclose the fair value of financial instruments. SFAS No. 119
requires certain disclosures for derivative financial instruments. The Bank
does not presently have nor has it had any derivative type instruments
requiring disclosure.
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit and standby letters
of credit. Those instruments involve, to varying degrees, elements of credit
risk in excess of the amount recognized in the balance sheets.
The Bank's exposure to credit loss, in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit, is represented by the contractual amount of those
instruments. The Bank uses the same credit policies in making commitments and
conditional obligations as it does for on-balance-sheet instruments. A summary
of the Bank's commitments and contingent liabilities at December 31, 1995, is
as follows:
<TABLE>
<CAPTION>
Notional
Amount
---------------
<S> <C>
Commitments to extend credit $ 1,191,000
Standby letters of credit 10,000
Credit card commitments 488,000
</TABLE>
<PAGE> 113
-21-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. The Bank evaluates each
customer's creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is based on
management's credit evaluation of the party. Collateral held varies but may
include accounts receivable; inventory; property, plant, and equipment; and
income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan facilities to customers. The commitments are
structured to allow for 100% collateralization on all standby letters of
credit.
Credit card commitments are commitments on credit cards issued by the Bank and
serviced by other companies. These commitments are unsecured.
Contingencies
In the normal course of business, the Bank is involved in various legal
proceedings. In the opinion of management, any liability resulting from such
proceedings would not have a material adverse effect on the consolidated
financial statements.
Concentration of Credit Risk
The Bank grants residential, commercial, agricultural, and consumer loans
within its market area. The ability of debtors to honor their contracts is
tied to the economy within this area.
NOTE 12 - SUBSEQUENT EVENT
On February 22, 1996, the Bank signed a Plan and Agreement of Merger and
Reorganization to sell 100% of its outstanding shares to F&M Bancorporation,
Inc. in exchange for F&M Bancorporation, Inc. stock. This transaction is
subject to regulatory and stockholder approval. The transaction is expected to
be completed in the fourth quarter of 1996.
<PAGE> 114
-22-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments," requires
the Bank to disclose estimated fair values for its financial instruments. Fair
value estimates, methods, and assumptions are set forth below for the Bank's
financial instruments:
Cash and cash equivalents - The carrying value approximates the fair value
for these assets.
Investment securities - Fair values are based on quoted market prices, where
available. If a quoted market price is not available, fair value is
estimated using quoted market prices for similar securities.
Loans - Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are segregated by type such as commercial,
residential mortgage, and other consumer. The fair value of loans is
calculated by discounting scheduled cash flows through the estimated
maturity using estimated market discount rates that reflect the credit and
interest rate risk inherent in the loan. The estimate of maturity is based
on the Bank's repayment schedules for each loan classification.
The methodology in determining fair value of nonaccrual loans is to average
them into the blended interest rate at 0% interest. This has the effect of
decreasing the carrying amount below the risk-free rate amount and therefore
discounts the estimated fair value.
Impaired loans are measured at the estimated fair value of the expected
future cash flows at the loan's effective interest rate or the fair value of
the collateral for loans which are collateral dependent. Therefore, the
carrying values of impaired loans approximate the estimated fair values for
these assets.
Deposit liabilities - The fair value of deposits with no stated maturity,
such as demand, savings, and money market deposits, is equal to the amount
payable on demand at the reporting date. The fair value of time deposits
are based on the discounted value of contractual cash flows. The discount
rate reflects the interest rates currently being offered on similar
deposits.
Off-balance-sheet instruments - The fair value of commitments is estimated
using the fees currently charged to enter into similar agreements, taking
into account the remaining terms of the agreements, the current interest
rates, and the present creditworthiness of the counterparties. Since this
amount is immaterial, no amounts for fair value are presented.
<PAGE> 115
-23-
COMMUNITY STATE BANK AND SUBSIDIARY
-----------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table presents information for financial instruments at December
31, 1995:
<TABLE>
<CAPTION>
Carrying Estimated
Amount Fair Value
--------------- ----------------
<S> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,960,999 $ 3,960,999
Investment securities 28,468,674 28,468,674
Loans 20,021,281
Allowance for loan losses 318,506
---------------
Net loans 19,702,775 19,994,745
--------------- ----------
Total financial assets $ 52,132,488 $ 52,424,418
=============== ===============
Total financial liabilities - Deposits $ 44,523,307 $ 44,636,862
=============== ===============
</TABLE>
Limitations - Fair value estimates are made at a specific point in time based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Bank's financial instruments, fair value estimates are based on judgments
regarding future expected loss experience, current economic conditions, risk
characteristics of various financial instruments, and other factors. These
estimates are subjective in nature and involve uncertainties and matters of
significant judgment and, therefore, cannot be determined with precision.
Changes in assumptions could significantly affect the estimates. Fair value
estimates are based on existing on- and off-balance-sheet financial instruments
without attempting to estimate the value of anticipated future business and the
value of assets and liabilities that are not considered financial instruments.
Significant assets and liabilities that are not considered financial assets or
liabilities include premises and equipment, other assets, and other
liabilities. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
<PAGE> 116
Exhibit A
[Robert W. Baird & Co. Incorporated letterhead]
April ___, 1996
Board of Directors
Community State Bank
208 Steele Street
Algoma, Wisconsin 54201-1263
Members of the Board:
Community State Bank (the "Bank") and F&M Bancorporation ("F&M") are
about to enter into a Plan and Agreement of Merger and Reorganization (the
"Agreement") pursuant to which Interim Bank, a bank to be organized as a
wholly-owned subsidiary of F&M ("Subsidiary") will be merged with and into the
Bank. Under the terms of the Agreement, the common stock of F&M ("F&M Common")
will be exchanged for the common stock of the Bank ("Bank Stock") with the
Exchange Ratio to be determined as follows:
The Exchange Ratio shall be calculated by dividing the Value Per Bank
Share, which will be equal to $12,500,000 (the aggregate price) divided by
46,000 (the number of Bank Shares outstanding) or $271.74 per share (subject to
certain possible adjustments) by the F&M Per Price Share which shall mean the
average closing price, as quoted on the NASDAQ National Market System for F&M
Common for the 15 trading days on which F&M Common is actually traded,
immediately preceding five calendar days prior to the closing date of the
transaction, provided, however, that the F&M Per Share Price shall not be less
than $21.50 or exceed $32.50.
You have requested our opinion, as investment bankers, as to the fairness
of the proposed terms of the Exchange Ratio to the Bank's shareholders from a
financial point of view. Robert W. Baird & Co. Incorporated, as part of its
investment banking business, is continually engaged in the evaluation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements and valuations for estates, corporate and other
purposes. We are familiar with the markets for common stocks of
publicly-traded Midwest-based banks and bank holding companies.
In arriving at our opinion we have reviewed, studied, or considered,
among other things, the following:
A draft of the Agreement;
Certain information concerning the Bank including the unaudited
financial statements of the Bank for the five years ended December 31,
1995 as filed with bank regulatory authorities;
Audited financial statements of F&M for the five years ended December
31, 1994 and certain publicly available information concerning F&M,
including Annual Reports to Shareholders and Forms 10-K for the five
years ended December 31, 1994 and a News Release dated January 23,
1996 containing unaudited financial statements and results for the
year ended December 31, 1995;
Various aspects of the Bank's and F&M's current operations and business
histories;
The market for common stock of Midwest-based banks and bank holding
companies and the historical prices and trading activity for the Bank
Stock and F&M Common;
<PAGE> 117
Discussions with management and legal counsel for the Bank and F&M;
Certain publicly available information with respect to certain other
banks and bank holding companies and the nature of terms of their merger
and acquisition transactions that we consider similar;
The pro forma effect of the merger on F&M's capitalization ratios, and
earnings and book value per share; and
Such other information as we deemed relevant to our analysis.
In such review, we have not examined all the contracts entered into by
the Bank or F&M; we have not made an independent evaluation of any of the
assets of the Bank or F&M; nor did we make an inspection of any potential
environmental issues liability, or of the properties or physical facilities of
the Bank or F&M. Neither did we make inquiries of customers, competitors,
regulatory bodies or others.
We have relied upon and assumed without independent verification, the
accuracy and completeness of the aforementioned publicly available information
of the Bank and F&M and other information provided to us by the Bank and F&M.
Based upon the foregoing and other matters that we deemed pertinent, and
our general knowledge of the valuation of the businesses and their securities,
it is our opinion that at the date hereof the consideration to be received by
the shareholders of the Bank as set forth in the Agreement is fair to the
Bank's shareholders from a financial point of view.
Very truly yours,
ROBERT W. BAIRD & CO.
Incorporated
draft
Bernard E. Adee
First Vice President
A-2
<PAGE> 118
Exhibit B
WIS. STATS. SECTION 221.25(1)
221.25 CONSOLIDATION OF BANKS. (1) Any 2 or more banks may, with the
approval of the commissioner of banking, consolidate into one bank under the
charter of either existing bank on such terms and conditions as may be lawfully
agreed upon by a majority of the board of directors of each bank proposing to
consolidate and be ratified and confirmed by the affirmative vote of the
stockholders of each such bank owning at least two-thirds of its capital stock
outstanding and at least two-thirds of any outstanding preferred stock having
voting rights, at a meeting to be held on call of the directors, after sending
notice of the time, place and object of the meeting to each shareholder of
record by registered mail at least 30 days prior to said meeting; provided that
the capital stock of such consolidated bank shall not be less than that
required under existing law for the organization of a state bank in the place
in which it is located. When such consolidation is approved by the
commissioner, any shareholder of either of the banks so consolidated who has
not voted for such consolidation shall be given notice of the approval by the
bank in which the shareholder holds an interest and of the shareholder's right
to receive the appraised value for the shareholder's shares. If within 20 days
after the date that notice of approval is mailed or delivered to a shareholder
the shareholder notifies the directors of the bank in which the shareholder is
interested that the shareholder dissents from the plan of consolidation as
adopted and approved and desires to withdraw from such bank, the shareholder
shall be entitled to receive in cash the value of the shares so held by the
shareholder, to be ascertained by an appraisal made by a committee of 3
persons, one to be selected by the shareholders, one by the directors, and the
3rd by the 2 so chosen; the expense of such appraisal shall be bourne by the
bank; and in case the value so fixed shall not be satisfactory to the
shareholder he or she may within 5 days after being notified of the appraisal
appeal to the commissioner, who shall cause a reappraisal to be made by an
appraiser or appraisers to be named by said commissioner, which appraisal shall
be final and binding, and if said reappraisal shall exceed the value fixed by
said committee the bank shall pay the expense of reappraisal, otherwise the
shareholder shall pay said expense, and the value so ascertained and determined
shall be deemed to be a debt due and be forthwith paid to said shareholder from
said bank, and the share or shares so paid shall be surrendered and after such
notice as the board of directors may provide, be sold at public auction within
30 days after the final appraisement provided for by this section.
B-1
<PAGE> 119
Exhibit C
PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
Plan and Agreement of Merger and Reorganization (hereinafter referred to
as "Agreement"), made as of the 22 day of February, 1996, by and between F & M
Bancorporation, Inc., a Wisconsin corporation and Community State Bank, a
Wisconsin banking corporation.
1. Definitions.
The following definitions shall apply in this Plan and Agreement of
Merger and Reorganization:
1.1 "Agreement" shall mean this Plan and Agreement of Merger and
Reorganization.
1.2 "BANK" shall mean Community State Bank, 208 Steele Street,
Algoma, Wisconsin 54201.
1.3 "BANK Stock" shall mean BANK's voting capital stock $10.00 par
value.
1.4 "BANK Shareholders" shall mean the shareholders of BANK shown
in the Schedule previously delivered to F & M.
1.5 "BANK Counsel" shall mean Godfrey & Kahn, 780 North Water
Street, Milwaukee, Wisconsin 53202-3590, Attn: James Sheriff, Esq.
1.7 "Closing Date" shall mean the date set by mutual agreement of
BANK and F & M and will not occur prior to the satisfaction or the waiver of
all of the conditions to the transaction.
1.8 "Effective Time" shall mean the date on which the Certificate
of Consolidation issued by the State of Wisconsin Commissioner of Banking or
the successor thereto (the "Commissioner") is recorded with the Kewaunee County
Register of Deeds. The Certificate of Consolidation shall be filed as soon as
possible after the conditions precedent to this merger have been met or waived
by F & M and BANK, but not prior to the Closing Date.
1.9 "F & M" shall mean F & M Bancorporation, Inc., One Bank Avenue,
Kaukauna, Wisconsin 54130.
1.10 "F & M Common" shall mean F & M's voting common stock, $1.00
par value.
1.11 "F & M Per Share Price" shall mean the average closing price,
as quoted on the NASDAQ National Market System ("NASDAQ"), for F & M Common for
the fifteen (15) trading days on which F & M Common is actually traded,
immediately preceding the five (5) calendar days prior to the Closing Date of
the transaction, provided, however, that the F & M Per Share Price shall not be
less than Twenty-one and 50/100 Dollars ($21.50) or exceed Thirty-two and
50/100 Dollars ($32.50).
1.12 "F & M Counsel" shall mean McCarty, Curry, Wydeven, Peeters &
Haak, 120 East Fourth Street, P.O. Box 860, Kaukauna, Wisconsin 54130-0860,
Attn: Randall A. Haak, Esq.
1.13 "Securities Counsel" shall mean Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett,
Esq.
1.14 "Subsidiary" shall mean F & M Interim Bank, One Bank Avenue,
Kaukauna, Wisconsin 54130, a bank to be organized as a wholly-owned subsidiary
of F & M for the purpose of this transaction.
C-1
<PAGE> 120
1.15 "Registration Statement" shall mean the Registration Statement
of F & M pursuant to which the shares of F & M Common to be issued in the
merger will be registered with the Securities and Exchange Commission ("SEC"),
and which shall include the prospectus of F & M relating to the F & M Common
issuable in the transaction and the proxy statement of BANK to its shareholders
relating to approval of the merger (the "Prospectus/Proxy Statement").
2. Preamble.
F & M is a multi-bank holding company with subsidiaries located in
Wisconsin. BANK is a Wisconsin banking corporation with its main office in
Algoma, Wisconsin and a branch in Forestville, Wisconsin. F & M and BANK, by
their respective employees and agents have had the opportunity to make such
review and investigation of the other as they deem appropriate and to negotiate
the terms and conditions of this Agreement. F & M and BANK each believe that
this transaction is in their best interests and in the best interests of their
shareholders and desire to set forth their agreement and understanding in this
Agreement.
The parties have considered the proposed merger and believe that a merger
between BANK and Subsidiary resulting in BANK becoming a subsidiary of F & M
will be in the best interest of their respective corporations and shareholders.
The merger of Subsidiary into BANK is intended to constitute a reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(E) of the Internal
Revenue Code of 1986, as amended.
In consideration of the foregoing and the terms, conditions and covenants
of this Agreement and in reliance on the warranties and representations
contained herein, the parties adopt this Plan and Agreement of Merger and
Reorganization and agree as follows:
3. Merger of Subsidiary into BANK.
3.1 Surviving Corporation. At the Effective Time of the merger,
Subsidiary shall be merged into BANK in accordance with the laws of the State
of Wisconsin. BANK shall be the surviving corporation and the separate
corporate existence, identity, and the organization of Subsidiary, except as
specifically provided by law and this Agreement, shall cease. As the surviving
corporation, BANK shall succeed to and possess all the assets, properties,
powers, privileges, rights and immunities of Subsidiary and shall be subject to
all liabilities, obligations, limitations and duties of Subsidiary as described
in this Agreement.
3.2 Subsidiary Stock Subscription. Subject to the fulfilling of
the conditions precedent to the closing of this transaction set forth below, F
& M will transfer to Subsidiary such shares of F & M Common as may be necessary
to effect the merger, as described under paragraph 3.3 below.
3.3 Exchange of BANK Stock. At the Effective Time, the shares of
the BANK Stock shall be converted into shares of F & M Common as follows:
(a) All BANK Shareholders will receive shares of F & M Common
based upon the Exchange Ratio. The Exchange Ratio shall be calculated by
dividing the Value Per BANK Share by the F & M Per Price Share. The Exchange
Ratio shall be multiplied by the number of shares of BANK Stock held by each
BANK Shareholder to determine the number of shares of F & M Common to be issued
to that BANK Shareholder.
(b) The Value Per BANK Share will be equal to Twelve Million Five
Hundred Thousand and 00/100 Dollars ($12,500,000.00) (the aggregate price)
divided by Forty-six Thousand (46,000) (the number of BANK Shares outstanding)
or Two Hundred Seventy-one and 74/100 Dollars ($271.74) per share subject to
adjustment under paragraph 3.4.
C-2
<PAGE> 121
(c) No fractional shares of F & M Common shall be issued; all
fractional shares will be converted to cash in an amount equal to the
fractional share determined in accordance with the formula set forth above
multiplied by F & M Price Per Share.
3.4 Adjustment of Value Per BANK Share. The Value Per BANK Share
is subject to adjustment if any of the following occurs between the date of
this Agreement and the Closing Date:
(a) The BANK increases the number of outstanding shares of BANK
Stock, or is obligated to do so which obligation is enforceable by its holder
notwithstanding this Agreement or the BANK issues or agrees to issue any other
class of stock or instrument convertible into stock. The actual number of
shares of BANK Stock outstanding and any additional shares which BANK is
obligated to issue as of the Closing Date shall be divided into the aggregate
price to determine the Value Per BANK Share.
(b) The dividends declared by BANK between January 1, 1996 and
the Closing Date (regardless of when such dividends are payable) exceed Three
Hundred Fourteen Thousand and 00/100 Dollars ($314,000.00) or the expenses of
this transaction [as set forth in paragraph 4.3(d)] exceed the limit
established in paragraph 4.3(d), provided, however, that in the event dividends
or expenses exceed their respective limits the Exchange Ratio shall be adjusted
as follows:
(i) The total amount of such excess shall be multiplied by
1.35;
(ii) The product determined under sub-paragraph (i) above
shall be deducted from Twelve Million Five Hundred Thousand and No/100 Dollars
($12,500,000.00) (the aggregate price) and any adjustment under paragraph
3.4(e) below to determine the "revised aggregate price;"
(iii) The revised aggregate price shall be used to determine
the Exchange Ratio under paragraphs 3.3(a) and (b) above.
(iv) The excess amounts for dividends and transaction
expenses shall be separately determined and no off-set shall be made
if one amount exceeds its limitation and the other does not.
(c) The actual earnings of BANK, determined in accordance with
accepted accounting standards applicable to preparation of Reports of
Condition required to be filed with the Federal Deposit Insurance Corporation,
applied on a consistent basis, net of tax effect, but without deduction for the
expense of this transaction itemized in paragraph 4.3(d) as of the end of the
month prior to the month in which closing occurs (the "Actual Earnings") shall
not be less than the amounts corresponding to such month end as shown on the
attached Schedule A (the "Minimum Earnings"), provided, however, that if the
Actual Earnings are less than the Minimum Earnings, the Exchange Ratio shall be
adjusted as follows:
(i) The total amount of such difference shall be multiplied
by 1.35;
(ii) The product determined under sub-paragraph (i) above
shall be deducted from Twelve Million Five Hundred Thousand and No/100 Dollars
($12,500,000.00) (the aggregate price) and any adjustment under paragraph
3.4(b) above to determine the "revised aggregate price;"
(iii) The revised aggregate price shall be used to determine
the Exchange Ratio under paragraphs 3.3(a) and (b) above.
3.5 Articles of Incorporation. The Articles of Incorporation of
BANK in effect immediately prior to the Effective Time of the merger shall
continue in full force and effect as the Articles of Incorporation of the
surviving corporation.
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3.6 Bylaws. The Bylaws of BANK in effect immediately prior to the
Effective Time of the merger, shall continue in full force and effect as the
bylaws of the surviving corporation.
3.7 Officers and Directors. The officers and directors of BANK
at the Effective Time of the merger shall remain as the officers and directors
of the surviving corporation, provided, however, that nothing in this paragraph
shall create any rights in favor of such officers and directors to continued
status as such following the consummation of the merger.
4. Representations and Warranties of BANK. BANK, by its duly authorized
officers, directors or other agents makes the following representations and
warranties to F & M each of which is true and correct as of the date hereof,
and shall remain true and correct to and including the Closing Date, and shall
be unaffected by any investigation heretofore or hereafter made by or any
notice to F & M:
4.1 Ownership and Authority. The current BANK Shareholders are
identified in the Schedules previously delivered to F & M, which BANK will
update periodically as necessary.
4.2 BANK Organization and Authority.
(a) BANK is duly organized, validly existing and in good standing
under the laws of the State of Wisconsin and has all requisite banking and
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted. BANK's main office is located in
Algoma, Wisconsin and its only branch office is located in Forestville,
Wisconsin. All necessary corporate approval and authorization and regulatory
approval for BANK's present operations has been given and remains in full force
and effect and in good standing.
(b) BANK is authorized to issue Forty-six Thousand (46,000) shares
of BANK Stock, BANK's only class of stock. BANK has Forty-six Thousand
(46,000) shares of BANK Stock issued and outstanding, all of which are legally
and validly issued, fully paid and nonassessable.
(c) BANK has not issued and does not have outstanding any option,
warrant or convertible securities or other right to purchase or convert any
obligation into BANK's securities and has not agreed to issue or sell any
additional securities of any type.
(d) The execution, delivery and performance of this Agreement and the
consummation of the transaction contemplated under it have been duly authorized
by appropriate corporate approval and will not violate any provision of BANK's
articles of incorporation or bylaws or any provisions of, or result in the
acceleration of any obligation under the mortgage, lien, lease, agreement,
instrument, court order, arbitration award, judgment or decree to which BANK is
a party, or by which BANK is bound and will not require the consent,
authorization or approval of any other public or private person or entity other
than the approval by BANK's shareholders and the appropriate federal and state
securities and banking regulatory agencies and will not violate any other
restriction of any kind or character to which BANK is subject.
(e) Algoma Investment Corporation ("AIC") is duly organized, validly
existing and in good standing under the laws of the State of Nevada and has all
requisite corporate power to carry on its business as now being conducted. AIC
is authorized to issue One Thousand (1000) shares of common stock, of which One
Thousand (1000) shares legally and validly issued and fully paid nonassessable.
BANK is the only shareholder of AIC. AIC has one employee in the State of
Nevada.
4.3 Financial Matters.
(a) True copies of BANK's consolidated financial statements,
consisting of consolidated balance sheets, consolidated statements of
operations and consolidated statements of stockholders' equity as of the close
of
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business on December 31, 1995, 1994, and 1993, have been delivered by BANK to F
& M ("BANK's Financial Statements"). All of BANK's Financial Statements are
true and correct in all material respects and present an accurate and complete
disclosure of the financial condition of BANK as of their respective dates, and
the earnings for the periods covered, all determined in accordance with
accepted accounting standards applicable to preparation of Reports of Condition
required to be filed with the Federal Deposit Insurance Corporation, applied on
a consistent basis.
(b) BANK and AIC have good marketable title to all of their
assets, business and properties including, without limitation, all such
properties reflected in the BANK's Financial Statements as of December 31,
1995, free and clear of any mortgage, lien, pledge, security interest,
assessment, levy, charge, claim or other encumbrance, except for real estate
and personal property taxes for 1996 which are not yet due and the One Hundred
Thousand and 00/100 Dollars ($100,000.00) portion of a Five Hundred Thousand
and 00/100 Dollars ($500,000.00) U.S. Treasury Note pledged to the Federal
Reserve Bank of Chicago as collateral for the BANK's Treasury, Tax and Loan
Account. AIC does not own any real property. BANK does not have any notice of
any special assessment which will be levied or assessed against any real
property owned or leased by it. All real property owned, operated and leased
by BANK is in full compliance in all material respects with all applicable
federal, state and local statutes and regulations including, but not limited
to, any building codes, safety codes, OSHA regulations, environmental laws and
regulations, the Americans with Disabilities Act, zoning ordinances and other
similar codes, ordinances, and regulations and BANK has not received any
citations, notices, charges or other complaints claiming a violation of the
foregoing nor is BANK aware of any investigation of any alleged violation.
(c) All property and assets owned or currently in use by BANK or
AIC, or in which they have an interest (excluding interests which arise in
collateral given to secure loans made by BANK or because of a security interest
granted to BANK) or which are in their possession, are in good operating
condition and repair subject only to normal wear and tear. Schedules of all
real and personal property owned by BANK has previously been delivered by BANK
to F & M. If BANK leases any real or personal property, a separate schedule
clearly identifying such leased property will be included in the Schedules
delivered by BANK to F & M. As of the Closing Date, all such property and
assets will be in the condition represented above.
(d) For the period from October 1, 1995 to September 30, 1996,
BANK has projected in good faith that its ordinary earnings determined in
accordance with accepted accounting standards applicable to preparation of
Reports of Condition required to be filed with the Federal Deposit Insurance
Corporation, applied on a consistent basis, net of tax effect shall be Six
Hundred Twenty-two Thousand Four Hundred Eighty and 00/100 Dollars
($622,480.00) but without reduction for the expenses of this transaction. The
expenses of this transaction are those incurred by BANK for legal, accounting
and/or auditing or investment banking and/or brokerage fees or expenses
associated with the acquisition of BANK by F & M and will be reasonable and
customary and will not in any event exceed One Hundred Forty-five Thousand and
00/100 Dollars ($145,000.00).
4.4 Changes Since December 31, 1995. Since December 31, 1995,
with respect to BANK there has not been:
(a) Any loss, damage, destruction or failure to maintain the
tangible assets of BANK (whether or not covered by insurance), or affecting its
business or properties, which will materially adversely affect the financial
condition or operations BANK.
(b) Any lapse, revocation, failure to maintain in full force and
effect or other event which, through the passage of time or the giving of
notice, or both could render any insurance coverage previously maintained by
BANK ineffective in whole or in part.
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(c) Any acquisition by BANK of a capital asset at a cost in excess
of Five Thousand Dollars ($5,000.00) without prior approval of F & M, except
for the renovation of Forestville station which will not exceed Fifteen
Thousand and 00/100 Dollars ($15,000.00).
(d) Any amendment to their Articles of Incorporation or Bylaws.
(e) Any change in accounting procedures, practices or methods from
those used by BANK in prior years except as may be necessary to prepare BANK's
1995 Financial Statements in accordance with generally accepted auditing
standards.
(f) Any increase in or agreement to increase salaries, wages,
fringe benefits, benefits under any plan subject to ERISA, or other
compensation of any officers, directors, employees or agents of BANK, except
that for 1996, BANK may grant wage and/or salary increases consistent with past
practices which do not exceed, in the aggregate, four percent (4%) of the wages
and salaries being paid as of December 31, 1995.
(g) Any issuance, or agreement to issue, on or before the Closing
Date or thereafter, directly or indirectly, any additional shares of BANK
Stock, any other class of stock, or other securities of BANK.
(h) Any declaration, setting aside or payment of any dividend or
any distribution in respect to BANK's stock or any redemption, purchase or
other acquisition by BANK of any stock or any other repayments to the
shareholders of BANK provided, however, that for the period from January 1,
1996, to the Closing Date the dividends which are paid or are declared do not
exceed in total Three Hundred Fourteen Thousand and 00/100 Dollars
($314,000.00).
(i) Any sale, transfer, or other disposition, prior to maturity,
of any security or other earning asset (exclusive of loans and leases).
(j) Any borrowings or other indebtedness (excluding deposit
liabilities) in excess of the amounts disclosed by BANK's December 31, 1995
Financial Statements, provided, however, that BANK may periodically borrow Fed
Funds provided that the total outstanding balances of such borrowing shall not
exceed the total amount historically borrowed by BANK for similar purposes.
(k) Any mortgage, lien, pledge, security interest, assessment,
levy, charge, claim or other encumbrance made with respect to any of the
properties or assets of BANK in addition to those disclosed by BANK's December
31, 1995 Financial Statements.
(l) Any sale, transfer or other disposition of assets of BANK
except in the normal course of business and consistent with past practices,
provided, however, that BANK may not dispose of any securities prior to
maturity without the prior consent of F & M.
(m) Any material change in the manner in which business was being
conducted by BANK prior to December 31, 1995, or other material failure by BANK
to use its best efforts to maintain its present business organization (subject
to the terms of this Agreement), employees and customers.
(n) Any loan or commitment to make a loan by BANK with an interest
rate, repayment term, collateral or security requirements or other conditions
which are materially different from those upon which BANK made loans prior to
December 31, 1995, except to the extent such difference is in response to
competitive conditions encountered by BANK.
(o) The statements made in paragraphs 4.4(a), (b), (c), (d), (e),
(i), (k), (l), (m) and (p) are true and correct if "AIC" is substituted for
"BANK" in such paragraphs.
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(p) Any other materially adverse change in BANK's prospects,
financial condition, assets, liabilities, properties or business.
4.5 Liabilities.
(a) Neither BANK nor AIC have any liabilities, whether accrued,
absolute, contingent or otherwise, which arose or relate to any transaction or
occurrence involving BANK or AIC or their respective officers, directors,
employees, agents or servants prior to the date of this Agreement which are not
disclosed by the BANK's Financial Statements described above. To the best of
its knowledge, after due and diligent inquiry, as of the date hereof, no known
circumstances, conditions, happenings, events or arrangements, contractual or
otherwise, exist which may hereafter give rise to any such liabilities of BANK
or AIC.
(b) To the best of its knowledge, all parties with whom BANK and
AIC have contractual arrangements are in compliance therewith. Neither BANK
nor AIC has declared, and is not prepared to declare, any such parties in
default under any such contractual arrangements. Neither BANK nor AIC is in
default in any material respect under any contracts to which it is a party, nor
has any event occurred, which through the passage of time or the giving of
notice or both, would constitute a default under any such contract or
obligation or cause the acceleration of any obligation of BANK or result in the
creation of a lien, charge, assessment, encumbrance or other claim whatsoever
upon any asset of BANK. None of the contracts to which BANK is a party will be
adversely affected by the transaction contemplated by this Agreement.
(c) To the best of its knowledge, BANK and AIC are in compliance
in all material respects with all applicable federal, state, county and local
statutes, ordinances, regulations, decrees, orders, or other laws. Neither
BANK nor AIC has received notice of any alleged violation of any such statutes,
ordinances, regulations, decrees, orders or other laws.
(d) Except as disclosed in the Schedules previously furnished by
BANK to F & M, no legal, administrative or other proceedings, investigations or
inquiries or other claims, judgments, consent decrees, stipulations,
injunctions or restrictions are either pending or outstanding, or to the best
of its knowledge, threatened against or involving BANK or AIC or affecting
their assets, properties or business except as described in paragraph 4.3(b).
BANK does not know, or have any grounds to know, of any basis for any such
proceedings, investigations or inquiries or other claims, judgments, consent
decrees, stipulations, injunctions or restrictions.
(e) The assets and liabilities or potential liabilities of BANK
and AIC are fully insured (except for the deductible thereunder), except for
taxes, deposits, repurchase agreements or other similar deposit-type
instruments, and any borrowing of Fed Funds and all policies of insurance
carried by BANK or AIC are in full force and all premiums thereon have been
paid in a timely manner and are paid to date and all bonds have been acquired
and maintained on all employees, agents, officers and directors of BANK or AIC
required to be bonded. The limits of coverage, deductibles and other material
provisions of such insurance and bonds are disclosed in the Schedules
previously delivered by BANK to F & M. Said insurance and bonds, including but
not limited to, general comprehensive (commercial) public liability insurance
covering personal injuries, death and property damage, fidelity bonds and
worker's compensation insurance have been acquired and maintained for at least
the past five (5) years.
4.6 Taxes. BANK and AIC have filed all federal, state and local
tax returns and reports covering income, sales, use, real or personal property
or other taxes of any type required to be filed and have paid all taxes
including any interest, penalties and assessments which are due and required to
be paid. The taxes provided for in BANK's Financial Statements and which will
be provided for prior to the Closing Date will be adequate for the payment of
any unpaid taxes as of such dates. BANK's federal income tax return has never
been audited. Neither BANK nor AIC has waived any restrictions on the
assessment or collection of taxes or consented to the extension of any statute
of limitations relating to any tax liability. BANK has not determined
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or been advised that BANK may be liable for a material deficiency or other
liability in respect to any state or federal income tax returns or other tax
returns previously filed by BANK or AIC.
4.7 Contracts and Commitments. Neither BANK nor AIC have any
contracts or commitments, either oral or written, with any officer, director,
shareholder, employee, customer, depositor, supplier of goods or services or
any other entity or person which contain any terms or conditions which are not
usual and customary under the circumstances and which may have a material
adverse effect on the operations, profitability or net worth of BANK.
4.8 Reporting and Withholding on Payment of Interest. To the best
of its knowledge, BANK has fully complied with the Internal Revenue Code (the
"Code"), and all rules and regulations of the Internal Revenue Service ("IRS")
issued thereunder, with respect to the reporting of payments of interest and
other payments by it, and has complied with all provisions requiring the
withholding for income taxes on such amounts when required. BANK has
instituted adequate procedures to assure compliance with such provisions. To
the best of its knowledge, all reporting to the IRS required of BANK has been
done in a timely manner via proper medium. BANK has not been advised of any
violation or potential violation with respect to such reporting requirements.
4.9 Employees and Employee Benefits.
(a) BANK is not a party to or bound by any written or oral (i)
employment or employment-related consulting contract which is not terminable at
will by the BANK without penalty, (ii) plan or agreement providing for any
employee bonus, deferred compensation, pension, profit sharing, retirement
benefits, stock purchase, stock option employee pension benefit plan or
employee welfare benefit plan except as set forth in the Schedules previously
delivered by BANK to F & M as set forth in paragraphs 4.9(b) and 4.9(c) to this
Agreement.
(b) All pension, profit sharing, or other employee pension benefit
plans of BANK ("the Plans") are included in the Schedules previously delivered
by BANK to F & M and are now, and will continue until the Closing Date to be,
qualified Plans under Section 401(a) of the Code, in full compliance with the
Employee Retirement Income Security Act of 1974 as amended ("ERISA"). To
BANK's best knowledge, all premiums, notices, reports and other filings
required to be delivered or filed under applicable law with respect to such
Plans have been duly and timely delivered or filed. BANK has no knowledge of
any fact or circumstance which would materially and adversely affect such
Plans' qualified status or compliance as above described, or of any "reportable
event" (as such term is defined in Section 4043(c) of ERISA) or any "prohibited
transaction" (as such term is defined in Section 406 of ERISA and Section
4975(c) of the Code) which has occurred since the date on which said sections
first became applicable to the Plans. The Plans satisfy the minimum funding
standards set forth in the Code and ERISA. As of the Closing Date there will
be no unfunded vested liability of the Plans, except for the obligation of BANK
for contributions for the current year which are not yet due and payable but
for which adequate amounts are being accrued on a monthly basis.
(c) All employee welfare benefit plans of BANK (the "Welfare
Plans") are included in the Schedules previously delivered by BANK to F & M
and are now, and will continue until the Closing Date to be, in full compliance
with the Code and the Employee Retirement Income Security Act of 1974 as
amended ("ERISA"). To BANK's best knowledge, all notices, reports and other
filings required to be delivered or filed under applicable law with respect to
such Welfare Plans have been duly and timely delivered or filed. BANK has no
knowledge of any fact or circumstance which would adversely affect such Welfare
Plans' compliance as above described or any "prohibited transaction" (as such
term is defined in Section 406 of ERISA and Section 4975(c) of the Code) which
has occurred since the date on which said sections first became applicable to
the Welfare Plans.
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(d) No person or governmental agency has made any claim against
BANK or its directors, officers, employees or agents arising out of any
statute, ordinance or regulation alleging (i) discrimination against applicants
for employment, employees or the public, (ii) any employment practices,
policies or procedures are discriminatory or have been breached, (iii) a
failure to comply with federal and state wage and hour laws, rules or
regulations, (iv) a violation of occupational safety and health statutes,
regulations or standards or (v) that BANK has committed an unfair labor
practice(s).
4.10 Environmental Matters.
(a) To the best knowledge of BANK, there has been no release of
any hazardous substance, as defined in the Comprehensive Environmental
Response, Compensation and Liability Act of 1980 ("CERCLA") nor any release of
oil or hazardous substance as provided under Wis. Stats. Section 144.76, on,
upon or into the real property owned or leased to BANK or, to the best of
BANK's knowledge upon any real estate or property which secures any loan made
by BANK or which BANK has a right to acquire upon foreclosure or otherwise.
(b) To the best of BANK's knowledge, there have been no such
releases on, upon or into any real property adjoining or in the vicinity of the
property described in paragraph 4.10(a) above, which through air, soil or
groundwater migration could have come to be located upon any property owned or
leased by BANK, or which secures a loan made by BANK or may be acquired by BANK
in foreclosure.
4.11 Accuracy of All Statements. No representation or warranty by
BANK in this Agreement or otherwise, in any of BANK's Financial Statements, or
in any other statement, certificate, schedule or exhibit hereto furnished or to
be furnished by or on behalf of BANK pursuant to this Agreement, nor any
document or certificate delivered to F & M pursuant to this Agreement or in
connection with actions contemplated hereby, contains or shall contain any
untrue statement of material fact or omits or shall omit a material fact
necessary to make the statement contained therein not misleading.
4.12 Prospectus/Proxy Statement. The parts of the Prospectus/Proxy
Statement which were provided or reviewed by the BANK with respect to BANK will
not, at the date it is first mailed or delivered to the BANK's Shareholders,
and will not, at the date or dates of the meeting of the BANK's Shareholders
called to approve the Merger, as then amended or supplemented, contain any
statements that are, at the time at which, and in light of the circumstances
under which they are made, false or misleading with respect to any material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not false or misleading.
Notwithstanding the foregoing, the BANK makes no representation or warranty
regarding and shall have no responsibility for the accuracy of any information
with respect to F & M or Subsidiary or any of their affiliates or subsidiaries
contained in the Prospectus/Proxy Statement.
4.13 Financial Adviser. Except for the services of Robert W. Baird &
Co. Incorporated ("Baird"), BANK has not engaged, consented to engage, or
authorized any financial adviser, broker, investment banker, or similar third
party to act on its behalf, directly or indirectly, in connection with the
transaction contemplated by this Agreement. Any fees or expenses payable to
Baird shall be paid by BANK.
4.14 Schedules. The Schedules previously provided by BANK to F & M
as itemized in the attached Exhibit 4.14 to this Agreement are true, complete
and accurate copies of the documents contained therein. BANK will promptly
notify F & M of any changes, amendments, or other modifications to the
Schedules.
5. Representations and Warranties of F & M.
F & M, by its duly authorized officers, employees or other agents makes
the following representations to BANK, each of which is true and correct as of
the date hereof and shall remain true and correct to and including the Closing
Date, shall be unaffected by any investigation heretofore or hereafter made by
or any notice to BANK except as set forth herein.
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5.1 Organization and Authority.
(a) F & M is a corporation duly organized, validly existing and in
good standing under the laws of the State of Wisconsin with all requisite
corporate power and authority to own, operate and lease its properties and to
carry on its business as now being conducted and to enter into and perform its
obligations under this Agreement, upon receiving the necessary approval from
the federal and state regulatory authorities. F & M is only qualified to do
business in the State of Wisconsin and has received approval from the Federal
Reserve Bank of Chicago to engage in business as a bank holding company.
(b) Subsidiary will be organized as a banking corporation under
the State of Wisconsin and upon organization will have all requisite banking
and corporate power and authority to enter into and perform its obligations
under this Agreement, upon receiving the approval of F & M and the federal and
state regulatory authorities. Subsidiary will be a wholly-owned subsidiary of
F & M.
(c) F & M is authorized to issue Ten Million (10,000,000) shares
of F & M Common and has Five Million Nine Hundred Fifty-five Thousand One
Hundred Eight (5,955,108) shares issued and outstanding. F & M anticipates
increasing its authorized shares to Twenty Million (20,000,000) at its annual
shareholders meeting to be held April 23, 1996, and that additional shares of F
& M Common may be issued by it prior to the Closing Date. F & M has not
announced any other acquisition which will result in the issuance of any
additional shares of F & M Common. Additional shares of F & M Common may be
issued by F & M pursuant to its dividend reinvestment plan (up to a maximum of
150,000 shares) or pursuant to its 1993 Stock Option Plans (up to a maximum of
150,000 shares) or pursuant to stock options previously granted to John Johnson
(up to a maximum of 14,455 shares) or in connection with the acquisitions of
other business entities or their assets which are announced after the date of
this Agreement. These outstanding shares are legally and validly issued and
fully paid and nonassessable except as provided by Wis. Stats. Section
180.0622(2)(b).
5.2 Performance of this Agreement. The execution, delivery and
performance of this Agreement and the consummation of the transaction
contemplated under it have been duly authorized by appropriate corporate
approval and will not violate any provision of F & M's articles of
incorporation or bylaws or any provisions of, or result in the acceleration of
any obligation under any mortgage, lien, lease, agreement, instrument, court
order, arbitration award, judgment or decree to which F & M is a party, or by
which F & M is bound and will not require the consent, authorization or
approval of any other public or private person or entity other than the
approval by F & M as the sole shareholder of Subsidiary and the appropriate
federal and state securities and banking regulatory agencies and will not
violate any other restriction of any kind or character to which F & M is
subject except as set forth in this Agreement.
5.3 Legality of Shares to be Issued. The shares of F & M Common
to be delivered pursuant to this Agreement, when so delivered, will have been
duly and validly authorized and issued by F & M and will be fully paid and
nonassessable, except as provided by Wis. Stats. Section 180.0622(2)(b).
5.4 Financial Statements. True copies of the audited consolidated
financial statements of F & M consisting of consolidated balance sheets,
consolidated statements of income, consolidated statements of stockholder's
equity and consolidated statements of cash flows as of the close of business on
December 31, 1994 and 1993, have been delivered by F & M to BANK (F & M's
Financial Statements). All of F & M's Financial Statements are true and
correct in all material respects and present an accurate and complete
disclosure of the financial condition of F & M as of their respective dates and
of the earnings for the periods covered, in accordance with generally accepted
accounting principles applied on a consistent basis.
5.5 Litigation. There are no legal, administrative or other
proceedings, investigations or inquiries or other claims, judgments, consent
decrees, stipulations, injunctions or restrictions, either threatened, pending
or outstanding against or involving F & M or its properties, or business, nor
does F & M know, or have
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reasonable grounds to know, of any basis for any such proceedings,
investigations or inquiries, or other claims, judgments, consent decrees,
stipulations, injunctions or restrictions.
5.6 Directors, Officers and Employees of BANK. Neither F & M
nor their respective directors, officers, employees, agents, attorneys or
accountants have made or will make any representations or warranties as to any
further positions with BANK, F & M following the consummation of the
transaction contemplated by this Agreement to any director, officer or employee
of BANK, except that John Meyer will continue in his current position as
president of BANK until January 1, 1997 and that Sylven A. Konkel shall be
employed pursuant to a written employment agreement with BANK for not less than
twelve (12) months after the Closing Date.
5.7 Accuracy of All Statements. No representation or warranty by
F & M in this Agreement or otherwise, nor any financial statements, statement,
certificate, schedule or exhibit hereto furnished or to be furnished by or on
behalf of F & M pursuant to this Agreement, nor any document or certificate
delivered to BANK pursuant to this Agreement or in connection with actions
contemplated hereby, contains or shall contain any untrue statement of material
fact or omits or shall omit a material fact necessary to make the statement
contained therein not misleading.
5.8 Prospectus/Proxy Statement. The Prospectus/Proxy Statement
will not, at the date it is first mailed or delivered to the BANK's
shareholders, and will not, at the date or dates of the meeting of the BANK's
Shareholders called to approve the Merger, as then amended or supplemented,
contain any statements that are at the time at which, and in light of the
circumstances under which they are made, false or misleading with respect to
any material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not false or
misleading. Notwithstanding the foregoing, F & M make no representation or
warranty and shall have no responsibility for the accuracy of any information
contained in or omitted from the Prospectus/Proxy Statement in so far as it
describes the BANK.
5.9 No Broker. All negotiations relative to this Agreement and
the transaction contemplated hereby have been carried on directly by F & M with
BANK without the intervention of any broker or third party on behalf of F & M.
F & M has not engaged, consented to engage, or authorized any broker,
investment banker, or third party to act on its behalf, directly or indirectly,
in any capacity in connection with the transaction contemplated by this
Agreement.
6. Covenants of BANK.
BANK hereby covenants and agrees as follows:
6.1 Access to Information. F & M and its authorized
representatives shall have full access during normal business hours to all
properties, books, records, contracts and documents of BANK and BANK shall
furnish or cause to be furnished to F & M and its authorized representative all
information with respect to the affairs and business of BANK as F & M may
reasonably request.
6.2 Actions Prior to Closing. From and after the date of this
Agreement and until the Closing Date, BANK:
(a) Shall carry on its business diligently and substantially in
the same manner as heretofore and BANK shall not engage in or institute any
unusual or novel methods of doing business and shall use its best efforts to
inform F & M in advance before either introducing any new products or services
or modifying any existing products or services.
(b) Shall not (i) grant any increase in the rates of pay, salary
or compensation provided to its officers, directors or employees, which in
combination with all increases granted since January 1, 1996 exceed
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in the aggregate four percent (4%) of the total compensation paid to the
officers, directors or employees of BANK as of December 31, 1995, and (ii)
shall not increase or decrease the benefits provided under, the contribution
to, the cost sharing allocation expense or cost to BANK of any employee fringe
benefit or of any of the benefit plans included in the Schedules described in
paragraphs 4.9(b) and 4.9(c), except for normal adjustments imposed by third
party providers.
(c) Shall not enter into any contract or commitment or engage in
any transaction which is not in the normal course of business and which is not
consistent with BANK's past business practices.
(d) Shall not create any indebtedness other than (i) short term
indebtedness incurred in the normal course of business, (ii) indebtedness
incurred pursuant to an existing contract previously disclosed to F & M or
(iii) indebtedness other than as necessary to do the acts and things
contemplated by this Agreement.
(e) Shall not declare or pay any cash dividend, stock dividend or
make any other distribution in respect of its stock, or directly or indirectly
redeem, purchase or otherwise acquire any of its own stock, or grant any stock
warrant, option options or issue directly or indirectly any shares of common or
preferred stock or any other security of any type whatsoever or in any way
dispose of any shares of its own stock or any other security, except that
dividends may be paid by the BANK prior to the Closing Date provided that the
total of all dividends paid between January 1, 1996, and the Closing Date shall
not exceed Three Hundred Fourteen Thousand and 00/100 Dollars ($314,000.00).
(f) Shall not amend its Articles of Incorporation or Bylaws or
make any changes in authorized or issued stock.
(g) Shall maintain current insurance in effect and acquire such
additional insurance as may be reasonably required by increased business and
risks, and operate, maintain and repair all property in a normal business
manner.
(h) Shall make adequate provision for any income tax which will be
due with respect to any 1996 earnings and shall file all tax reports or returns
and pay all income, franchise, sales, use, excise or other taxes on or before
the date on which such reports, returns, or payments are due.
(i) Shall pay all liabilities in a timely manner on or before
their due dates and shall make adequate provision or accruals for all
liabilities of BANK.
(j) Shall use its best efforts (without making any commitments on
behalf of F & M) to preserve its business organization intact, to keep
available to F & M the present key officers and employees of BANK and to
preserve for F & M the present relationships of BANK with its suppliers,
customers and others having business relations with them.
(k) Shall not sell or dispose of any property or assets except in
the normal course of business, including but not limited to, selling or
disposing of any securities held by BANK prior to their normal maturity dates.
(l) Shall promptly notify F & M of any lawsuits, claims,
proceedings, regulatory actions or investigations that may be threatened,
brought, asserted or commenced against it or its officers, directors, employees
or agents involving in any way the business, properties or assets of BANK.
(m) Shall not make loans or grant credit to any customer on terms
materially more favorable than those which are available from competitive
sources. F & M and BANK understand that BANK, in order to meet market
conditions may need to offer terms more favorable than those currently offered
but that BANK will not be a market leader in this regard.
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(n) Shall not allow BANK's primary capital to asset ratio (12
C.F.R. Part 325 method), determined in accordance with accepted accounting
standards applicable to preparation of Reports of Condition required to be
filed with the Federal Deposit Insurance Corporation, applied on a consistent
basis, to drop below eight percent (8%).
(o) Shall remain in compliance with all agreements, commitments,
understandings, undertakings or other obligations to the Commissioner, the FDIC
or any other regulatory agency having jurisdiction over BANK.
(p) Shall cooperate fully and completely with F & M in the
preparation and filing of the Registration Statement, and shall provide to F &
M such information as may be required for use therein pertaining to BANK, or
its businesses or operations.
(q) Shall not take any action which would be reasonably likely to
make unavailable either the pooling of interest accounting treatment of the
merger or to cause the merger not to qualify as a tax-free reorganization.
6.3 Audited Financial Statements. BANK shall deliver audited
financial statements to F & M for the period ended December 31, 1995 on or
before March 31, 1996.
6.4 Stock Records. Prior to the special shareholders meeting to
approve the Merger, the Board of Directors of BANK, in accordance with its
bylaws, shall take such steps as are necessary to close its stock transfer
books and establish a record date for such meeting after the close of the
transfer books, furnish F & M with a current shareholder list as of such record
date and validly call a special shareholders meeting.
7. Covenants of F & M. F & M hereby covenants and agrees as follows:
(a) As promptly as practicable after the execution of this
Agreement, F & M, with the cooperation of BANK, shall prepare and file with the
SEC the Registration Statement. As promptly as practicable after comments, if
any, are received from the SEC on such preliminary Registration Statement, F &
M, with the cooperation of BANK, shall file with the SEC an amendment to the
Registration Statement responding to such comments, and shall seek to have such
Registration Statement declared effective. F & M shall also use its best
efforts to qualify under the blue sky laws of the various states in which
common shareholders of BANK are located the shares of F & M Common Stock to be
issued pursuant to this transaction and shall file the NASD Listing Application
in a timely manner. F & M shall pay the expenses of preparing and delivering
the joint Prospectus/Proxy Statement for BANK's Shareholders.
(b) As promptly as practicable after the execution of this
Agreement, F & M shall take action to organize Subsidiary, to capitalize
Subsidiary and to take such other actions as may be necessary to cause
Subsidiary to perform its obligations in connection with this transaction.
(c) As promptly as practicable after the execution of that
Agreement, F & M shall take action to obtain regulatory approval of this
transaction.
(d) Shall not take any action which would be reasonably likely to
make unavailable either the pooling of interest accounting treatment of the
merger or to cause the merger not to qualify as a tax-free reorganization.
(e) F & M shall provide its proposed employment agreement with
Sylven A. Konkel as soon as reasonably practical after this Agreement is
signed. This employment agreement will provide that Sylven Konkel will remain
in his current position and will become president of BANK when John Meyer no
longer holds that office. The parties anticipate that Mr. Konkel will be
nominated to a position on the BANK's Board of Directors after becoming
president.
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(f) Within ten (10) days after its 1995 audited financial
statements are in final form, F & M shall deliver a copy thereof to BANK.
(g) Upon execution of this Agreement, F & M will investigate the
availability of directors and officers' liability insurance coverage under its
policy covering the directors and officers of F & M and its Subsidiaries and
will promptly notify BANK of the availability and coverage under such insurance
for BANK's directors and officers upon consummation of the acquisition.
8. Conditions Precedent to F & M's Obligation. Each and every obligation of
F & M and Subsidiary to be performed on the Closing Date shall be subject to
the satisfaction prior thereto of the following conditions:
8.1 Truth of Representations and Warranties. The representations
and warranties made in this Agreement or given on behalf of BANK hereunder,
shall have been continuously true and correct from the date of execution of
this Agreement to the Closing Date, and shall be true and correct on and as of
the Closing Date with the same effect as though such representations and
warranties had been made or given on and as of the Closing Date and BANK shall
have complied with all other terms, conditions and covenants of this Agreement.
8.2 Compliance with Covenants. Except as expressly set forth in
paragraph 8.7, BANK shall have performed all of its obligations, and complied
with all of the covenants under this Agreement which are to be performed or
complied with by it from the date of this Agreement through and as of the
Closing Date, including the delivery of the closing documents specified in
paragraph 10.3.
8.3 Absence of Suit. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced or
threatened, and no investigation by any governmental or regulatory authority
shall have been commenced, against F & M, Subsidiary, or BANK, or any of the
affiliates, associates, officers, directors or employees of any of them,
seeking to restrain, prevent or change the transaction contemplated hereby, or
questioning the validity or legality of any such transaction, or seeking
damages in connection with any of such transaction.
8.4 BANK's Director and Shareholder Authorization. The merger
contemplated by this Agreement shall have been duly and validly authorized by
BANK's directors and shareholders in accordance with the laws of the State of
Wisconsin, including but not limited to the provisions of Wis. Stats. Section
221.565.
8.5 Receipt of Approvals. All approvals, consents and/or waivers,
including any approvals required by any federal or state governmental
regulatory agency, that are necessary to effect the transactions contemplated
hereby shall have been received and all waiting periods thereunder shall have
expired.
8.6 Accuracy of Financial Statements. In the event interim
financial statements are provided to F & M by BANK, F & M and its
representatives shall be reasonably satisfied as to the accuracy of all interim
balance sheets, statements of income and other financial statements of BANK
furnished to F & M and Subsidiary for periods ended after December 31, 1995.
8.7 BANK Earnings. The Actual Earnings of BANK from October 1,
1995 through the month end prior to the month in which closing occurs,
determined in accordance with accepted accounting standards applicable to
preparation of Reports of Condition required to be filed with the Federal
Deposit Insurance Corporation, applied on a consistent basis shall not be less
than the Minimum Earnings from October 1, 1995, through the month end prior to
the month in which closing occurs.
8.8 Legal Opinion. F & M shall have received the opinion of BANK
Counsel referred to in subparagraph 10.3(e).
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8.9 Accountants' Letters. F & M and Subsidiary shall receive
before the Closing Date the accountants' letters referred to in subparagraphs
10.3(d).
8.10 Time Limit on Closing. Closing shall have taken place by
October 15, 1996.
8.11 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken in connection with the
transactions contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as F & M may reasonably request shall
have been delivered to F & M. BANK shall have delivered certificates in such
detail as F & M may reasonably request as to compliance with the conditions set
forth in this Article 8.
8.12 Securities Matters. The Registration Statement shall have
been declared effective under the Securities Act of 1933 by the SEC. No stop
order suspending the effectiveness of the Registration Statement shall have
been issued by the SEC and no proceedings for that purpose shall, to the
knowledge of F & M, on or prior to the Effective Time, have been initiated or
threatened by the SEC. F & M shall have received all other federal or state
securities permits exemptions, registrations or other authorizations necessary
to issue the F & M Common in exchange for the BANK Stock to consummate the
merger.
8.13 Prospectus/Proxy Statement. The Prospectus/Proxy Statement
will not contain any untrue statement of a material fact or omit any material
fact required to be stated therein or necessary to make the statements
contained therein, in the light of the circumstances under which they were
made, not misleading.
8.14 Exchange of Stock Certificates. As a condition of delivery of
the consideration required by this Agreement, the BANK Shareholders shall have
executed and delivered documents assigning their shares of BANK Stock to F & M
and/or Subsidiary containing appropriate representations regarding tax matters,
ownership, authority to act, residency and such other matters as F & M shall
request.
8.15 Affiliates of BANK. Each person who shall be deemed to be an
"affiliate" of BANK within the meaning of the Securities Act of 1933 and Rule
145 promulgated by the SEC thereunder shall have executed and delivered to F &
M an Affiliate's Undertaking, in the form attached hereto as Exhibit 8.1, dated
as of the Effective Time.
8.16 Pooling Accounting. The merger contemplated herein shall be
treated as and qualify for accounting using the pooling of interests method
provided that this condition shall be deemed waived if the disqualification is
the result of an omission by F & M.
8.17 No Change Prior to Closing Date. No material adverse change
in the business or financial condition of BANK shall occur after the execution
of this Agreement but prior to the Closing Date.
8.18 Tax Status. No information has been discovered or made known
to F & M to indicate that the IRS has challenged or intends to challenge the
status of this transaction as a tax-free reorganization.
8.19 Dissenters Rights. That no more than ten percent (10%) of the
total consideration paid by F & M in this transaction, determined in accordance
with the accounting rules applicable to the pooling of interests, shall be paid
in cash, including amounts paid for fractional shares and amounts paid to BANK
Shareholders who exercise their dissenters rights under Wis. Stats. Section
221.25.
9. Conditions Precedent to BANK's Obligations.
Each and every obligation of BANK to be performed on the Closing Date
shall be subject to the satisfaction prior thereto of the following conditions:
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9.1 Truth of Representations and Warranties. The representations
and warranties made by F & M in this Agreement or given on their behalf
hereunder, shall be true and correct on and as of the Closing Date with the
same effect as though such representations and warranties had been made or
given on and as of the Closing Date.
9.2 F & M's Compliance. F & M shall have performed and complied
with all of its obligations under this Agreement which are to be performed or
complied with by it prior to or as of the Closing Date, including delivery of
the closing documents.
9.3 Absence of Suit. No action, suit or proceeding before any
court or any governmental or regulatory authority shall have been commenced or
be threatened and, no investigation by any governmental or regulatory authority
shall have been commenced, against F & M, Subsidiary, or BANK, or any of the
affiliates, associates, officers, directors, or employees of any of them,
seeking to restrain, prevent, or change the transactions contemplated hereby,
or questioning the validity or legality of any such transactions, or seeking
damages in connection with any of such transactions.
9.4 Proceedings and Instruments Satisfactory; Certificates. All
proceedings, corporate or otherwise, to be taken by F & M in connection with
the transaction contemplated by this Agreement shall have occurred and all
appropriate documents incident thereto as BANK may reasonably request shall
have been delivered to BANK. F & M shall have delivered certificates in such
detail as BANK may reasonably request as to compliance with the conditions set
forth in this Article 9.
9.5 Receipt of Approvals. All approvals, consents and or waivers,
including any approvals required by any federal or state governmental
regulatory agency, that are necessary to effect the transactions contemplated
hereby shall have been received, and all waiting periods shall have expired
provided the failure to obtain the same was not the result of an act or
omission by BANK.
9.6 Time Limit on Closing. Closing shall have taken place by
October 15, 1996.
9.7 Legal Opinion. BANK shall have received the opinion of F & M
Counsel referred to in subparagraph 10.4(d).
9.8 Prospectus/Proxy Statement. The Prospectus/Proxy Statement
will not contain any untrue statement of material fact or omit any material
fact required to be stated therein or necessary to make the statements
contained therein, in the light of the circumstances under which they were
made, not misleading.
9.9 Tax Status. No information has been discovered or made known
to BANK to indicate that the IRS has challenged or intends to challenge the
status of this transaction as a tax-free reorganization.
9.10 Tax Opinion. BANK Shareholders shall have received an opinion
obtained by BANK at BANK's expense to the effect that the transaction
contemplated by this Agreement shall be tax-free to those BANK Shareholders who
receive F & M Common in exchange for their BANK Stock (excluding fractional or
dissenting shares), provided that if BANK fails to deliver said opinion, F & M
may, but is not required to, deliver such an opinion from legal counsel it
selects in which case this condition shall be deemed satisfied. If BANK has
not made a good faith effort to obtain this opinion from its counsel and such
opinion is provided by F & M, the expense and cost of such opinion provided by
F & M shall be multiplied by 1.35. This product shall be deducted from the
aggregate price and the Exchange Ratio shall be recalculated after making such
deduction. In connection with the rendering of the tax opinion referenced in
this section, the BANK, F & M and Subsidiary agree to execute certificates in
the form attached hereto as Exhibits 9.10 and 9.10(a).
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9.11 Fairness Opinion. BANK shall have obtained a fairness opinion
from Robert W. Baird & Co., Incorporated indicating its opinion that the
proposed transaction is fair from a financial point of view to the BANK
Shareholders.
9.12 Directors and Officers Liability Insurance. F & M shall
furnish evidence to BANK that BANK's directors and officers are covered under
the directors and officers liability insurance provided to the directors and
officers of F & M and its subsidiaries, which coverage shall include coverage
in accordance with the standard terms and conditions of such policy for claims
based upon occurrences which occurred prior to F & M acquisition of BANK. In
the event such coverage is not available, F & M may satisfy this condition by
offering separate coverage to BANK's directors and officers which is
substantially equivalent to the coverage carried by BANK as of the date of this
Agreement.
10. Closing.
10.1 Time and Place. The closing of this transaction ("Closing")
shall take place at the offices of F & M (or such other place as the parties
may agree) on the Closing Date.
10.2 Rights of BANK Shareholders After the Effective Time. After
the Effective Time and until the surrender of a stock certificate representing
shares of BANK Stock, each such outstanding certificate, which prior to the
Effective Time represented shares of BANK Stock, shall be deemed for all
purposes, subject to the further provisions of this Agreement, to evidence the
ownership of the number of full shares of F & M Common into which such shares
have been converted; provided, however, that unless and until any such
certificates representing BANK Stock shall be so surrendered, the stock
certificate representing the shares, any dividends or other distributions of
any kind payable in respect of shares of F & M Common into which such BANK
Stock has been converted, shall be withheld by F & M. Upon the subsequent
surrender and exchange of such BANK Stock certificates, such holder of record
of the certificates formerly representing shares of BANK Stock (or such
holder's assignee) shall be paid the amount of any such cash dividends or other
distributions, without interest, which became payable under this Agreement to
holders of record of shares of F & M Common on or after the Effective Time and
prior to the surrender and exchange of the certificates. Delivery of
certificates representing shares of F & M Common to former BANK Shareholders
who have tendered their certificates for their shares of BANK Stock at or
before the Effective Time shall be made as soon as reasonably possible after
the Effective Time.
10.3 Documents to be Delivered by BANK. At the time of or prior to
the closing, BANK shall deliver the following documents:
(a) A certificate by the chairman, vice-chairman or president of
BANK (i) that the representations and warranties made by BANK as the case may
be in this Agreement are true and correct on as of the Closing Date with the
same effect as though such representations and warranties had been made on or
given on and as of the Closing Date, (ii) that BANK has performed and complied
with all of its obligations under this Agreement which are to be performed or
complied with by or prior to or on the Closing Date, and (iii) that all
Schedules and Exhibits delivered by BANK to F & M prior or as of the Closing
Date are true, correct and complete as of the Closing Date.
(b) An Incumbency Certificate for the officers executing the
documents in connection with the transaction contemplated hereby.
(c) Copies of the Articles of Incorporation and Bylaws of BANK,
duly certified by their respective custodians as true, correct and complete
copies thereof, including any amendments as of the Closing Date.
(d) A letter from BANK's certified public accountants, prepared in
accordance with Statement on Auditing Standards 72, "Letters for Underwriters
and Certain Other Requesting Parties", addressed to F & M
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dated as of the Closing Date to the effect that (i) the audited financial
statements of BANK included in the Registration Statement comply as to form in
all material respects with the applicable accounting requirements of the
Securities Exchange Act of 1934 and related published rules and regulations,
(ii) nothing came to their attention to cause them to believe that the
unaudited condensed interim financial statements of BANK included in the
Registration Statement do not conform in all material respects with the
applicable requirements of the Securities Exchange Act of 1934 and related
published rules and regulations or that such unaudited condensed interim
financial statements of BANK included in the Registration Statement require
material modifications for them to be in conformity with generally accepted
accounting principles, (iii) except as disclosed in the letter, nothing came to
their attention to cause them to believe that as of the date not earlier than
five (5) days prior to the Closing Date, there was any change from the
unaudited condensed interim financial statements of BANK included in the
Registration Statement in capital stock, increase in long-term debt or any
decrease in stockholders' equity of BANK or there were any decreases for the
period from the date of the unaudited condensed interim financial statements of
BANK included in the Registration Statement to the date not earlier than five
(5) days prior to the Closing Date, as compared with the corresponding period
in the preceding year, in net interest revenue or net income of BANK and that
nothing came to their attention to indicate that the condition set forth in
paragraph 8.7 had not been met. Such letter to F & M requires delivery of a
representation letter to BANK's certified public accountants consistent with
the requirements of Statement on Auditing Standards 72.
(e) A written opinion from BANK counsel dated as of the Closing
Date addressed to F & M and F & M Counsel, in form and substance substantially
in the form attached hereto as Exhibit 10.3(e)
(f) Certified copies of resolutions adopted by BANK's board of
directors to the effect that the execution, delivery and performance of this
Agreement and the transactions contemplated by it have been duly and validly
authorized in accordance with the laws of the State of Wisconsin and of the
action taken by the BANK's Shareholders to approve the merger and authorize the
acquisition of 10% or more of BANK's Stock by F & M as provided by Wis. Stats.
Section 221.565.
(g) Such other documents of transfer, certificates or authority
and other documents as F & M may reasonably request.
10.4 Documents to be Delivered by F & M and Subsidiary. At the
closing F & M and Subsidiary shall deliver the following documents:
(a) Certificates for shares of F & M Common as determined under
Article 3 of this Agreement. Such certificates will be in the name of BANK
Shareholders entitled to the same in accordance with their interest in BANK as
of the Effective Time provided, however, that any certificates need not be
delivered until such time as the provisions of paragraph 10.2 have been
complied with by such Shareholders.
(b) An Incumbency Certificate relating to all parties executing
documents relating to any of the transactions contemplated hereby on behalf of
F & M and Subsidiary.
(c) A certificate by an officer of F & M that, to the best of such
officer's knowledge, (i) the representations and warranties made by F & M and
Subsidiary in this Agreement are true and correct as of the Closing Date, (ii)
that F & M and Subsidiary have performed and complied with all of their
obligations which are to be performed or complied with by or prior to or as of
the Closing Date and (iii) that all Schedules and Exhibits delivered by F & M
to BANK are true, correct and complete as of the Closing Date.
(d) A written opinion from counsel for F & M and Subsidiary dated
as of the Closing Date addressed to BANK and BANK Counsel in form and substance
substantially in the form attached hereto as Exhibit 10.4(d).
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(e) A written opinion from Securities Counsel dated as of the
Effective Time addressed to F & M and BANK, reasonably satisfactory in form and
substance to F & M Counsel, to the effect that the shares of F & M Common
issuable in the transaction are the subject of an effective Registration
Statement with the SEC, and that no stop order relating to such Registration
Statement has been issued by the SEC and that, to the knowledge of such
counsel, no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(f) Certified copies of the resolutions adopted by F & M's and
Subsidiary's boards of directors to the effect that the execution, delivery and
performance of this Agreement and the transactions contemplated by it have been
duly and validly authorized in accordance with the laws of the State of
Wisconsin.
11. Law Governing.
This Agreement shall be construed and interpreted according to the laws
of the State of Wisconsin.
12. Assignment.
This Agreement may not be assigned in whole or in part without the
written consent of all parties, provided, however, that Subsidiary's
participation in this transaction shall not require any further consent or
authorization.
13. Amendment and Modification.
This Agreement may only be amended or modified by a written agreement
signed by the duly authorized representatives of F & M and BANK.
14. Abandonment.
This Agreement may be terminated and the transaction provided for by this
Agreement may be abandoned at any time before the Closing Date:
(a) By mutual consent of F & M and BANK;
(b) By F & M if (i) any of the conditions provided for in Article
8 of this Agreement have not been met and have not been waived in writing by F
& M, or (ii) the F & M Per Share Price is more than Thirty-two and 50/100
Dollars ($32.50) per share; or
(c) By BANK if (i) any of the conditions provided for in Article 9
of this Agreement have not been met and have not been waived in writing by
BANK, or (ii) the F & M Per Share Price is less than Twenty-one and 50/100
Dollars ($21.50) per share.
(d) In the event of a breach of this Agreement, by notice from the
non-breaching party to the breaching party as set forth below.
In the event of termination and abandonment by any party as provided in this
Article, written notice shall forthwith be given to the other party setting
forth the breach of this Agreement or the default in performance which has
occurred, or the condition which has not been met. The party to whom the
notice is directed shall, if such party is able to effect a satisfaction or
cure, have ten (10) days after such notice is given to satisfy such condition
or cure such breach or default, provided that if such ten (10) day period is
not sufficient and the party is making a diligent effort to satisfy such
condition or cure such breach or default, the time to do so may be extended for
such period as the parties may agree not to exceed thirty (30) days provided
however, that the F & M Per Share Price shall be the higher of the price as of
the date of the notice or as of the date on which the default is satisfied or
cured. The termination and/or abandonment of this Agreement shall not alter or
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diminish the liability of the party that failed to comply with the conditions
of this Agreement. Each party shall pay its own expenses incident to
preparation for the consummation of this Agreement and the transactions
contemplated hereunder. In the event F & M declares a stock dividend or stock
split, the maximum and minimum F & M Per Share set forth in subparagraphs (b)
and (c), above, and in paragraph 1.11, shall be adjusted in proportionately and
based upon the stock dividend or stock split.
15. Notices.
All notices, requests, demands, and other communications hereunder shall
be deemed to have been duly given, upon actual delivery, if delivered by hand;
or upon receipt by the addressee, if given by mail (certified mail - return
receipt requested with postage prepaid is required for notice by mail); or upon
receipt by the addressee, if by private courier; or upon receipt of the
transmission by the addressee if by telecopy (with a copy sent by first class
mail):
(a) If to BANK, to John Meyer, Community State Bank, 208 Steele
Street, Algoma, Wisconsin 54201, FAX: 414-487-3642, with a copy to James
Sheriff, Esq., Godfrey & Kahn, 780 North Water Street, Milwaukee, Wisconsin
53202-3590, FAX: 414-273-5198.
(b) If to F & M or Subsidiary, to Mr. Gail E. Janssen, One Bank
Avenue, Kaukauna, Wisconsin 54130, FAX: 414-766-5628, with a copy to Randall A.
Haak, Esq., McCarty, Curry, Wydeven, Peeters & Haak, P.O. Box 860, Kaukauna
Wisconsin 54130, FAX: 414-766-4756.
The place to which notice is to be given may be changed by notice given in
accordance with this Article.
16. Entire Agreement.
This Agreement with Exhibits embodies the entire agreement between the
parties hereto with respect to the transaction contemplated herein and
supersedes all prior agreements, written or oral, express or implied and all
negotiations, discussions or other matters between the parties and there have
been and are no agreements representations or warranties between the parties
other than those set forth or provided for herein.
17. Counterparts.
This Agreement may be executed in two (2) or more partially or fully
executed counterparts, each of which shall be deemed an original and shall bind
the signatory, but all of which together shall constitute but one and the same
instrument.
18. Binding Effect.
This Agreement shall inure to the benefit of and bind the parties and
their respective heirs, beneficiaries, transferees, successors, and assigns.
19. Headings.
The headings of this Agreement are inserted for convenience only and
shall not constitute a part hereof.
20. Confidentiality.
Except as necessary to take action pursuant to this Agreement, each party
agrees that all information and documents received from the other party
regarding the proposed transaction shall be held in confidence and that all
documents containing such information will be returned upon request if the
parties abandon the transaction. The parties further agree to use such
information only in connection with the proposed transaction
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contemplated by this Agreement. This paragraph shall not apply to information
or documents which are, or by law must be made, publicly available. The
parties agree to not publicly disclose this Agreement or its Exhibits or any of
the provisions hereof, except as a part of regulatory filings or pursuant to
press releases and other public statements approved by F & M and BANK.
21. Further Documents.
F & M, Subsidiary, and BANK agree to execute any and all other documents
and to take such other action or corporate proceedings as may be reasonably
necessary or desirable to carry out the terms hereof.
1.2. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed all as of the day and year first above written.
F & M BANCORPORATION, INC. ("F & M")
By:__/s/____________________________
Gail E. Janssen, President
ATTEST:
By:__/s/____________________________
Janet M. Lakso, Secretary
COMMUNITY STATE BANK ("BANK")
By:__/s/______________________________
James L. Slaby, Chairman of the Board
ATTEST:
By:__/s/____________________________
John Meyer, President
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REVOCABLE PROXY COMMUNITY STATE BANK
PROXY FOR SPECIAL MEETING OF STOCKHOLDERS
ON MAY __, 1996
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
KNOW ALL MEN BY THESE PRESENTS THAT, I, the undersigned do hereby appoint
_______________ and ______________, and each of them, my true and lawful
attorney, substitute, and proxy, with power of substitution, for me and in my
name to vote at the Special Meeting of the Stockholders of Community State Bank
(the "Bank"), to be held on the ____ day of May, 1996 at ____ p.m., or at any
adjournment of said meeting, with all powers I should have if personally
present, hereby revoking all proxies heretofore given:
1. Approval of the transactions contemplated in an Agreement and Plan
of Reorganization and Merger (the "Agreement") among F&M
Bancorporation, Inc. ("F&M"), F&M Interim Bank and the Bank,
including approval for F&M to acquire and hold up to all of the
outstanding shares of the Bank and approval of the merger
transaction contemplated in the Agreement in which shares of Bank
Common Stock will be converted into shares of F&M Common Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. In their discretion, on such other matters as may properly come
before the meeting or any adjournments or postponements thereof;
all as described and set forth in the Notice and Prospectus/Proxy Statement
relating to the Special Meeting, receipt of which are hereby acknowledged.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSAL 1.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER SPECIFIED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO CHOICE IS SPECIFIED, THIS PROXY
WILL BE VOTED "FOR" PROPOSAL 1.
Dated: ______________________________________________, 1996
___________________________________________________________
(Please sign exactly as name appears at left.)
___________________________________________________________
(If stock is owned by more than one person, all owners
should sign. Persons signing as executors, administrators,
trustees or in similar capacities should so indicate. 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.)
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY TO THE BANK PROMPTLY USING THE
ENCLOSED POST-PAID ENVELOPE.
<PAGE> 141
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
F&M is incorporated under the Wisconsin Business Corporation Law (the
"WBCL").
Under Section 180.0851(1) of the WBCL, F&M is required to indemnify a
director or officer, to the extent such person is successful on the merits or
otherwise in the defense of a proceeding, for all reasonable expenses incurred
in the proceeding if such person was a party because he or she was a director
or officer of F&M. In all other cases, F&M is required by Section 180.0851(2)
to indemnify a director or officer against liability incurred in a proceeding
to which such person was a party because he or she was a director or officer of
F&M, unless it is determined that he or she breached or failed to perform a
duty owed to F&M and the breach or failure to perform constitutes: (i) a
willful failure to deal fairly with F&M or its shareholders in connection with
a matter in which the director or officer has a material conflict of interest;
(ii) a violation of criminal law, unless the director or officer had reasonable
cause to believe his or her conduct was lawful or no reasonable cause to
believe his or her conduct was unlawful; (iii) a transaction from which the
director or officer derived an improper personal profit; or (iv) willful
misconduct. Section 180.0858(1) provides that, subject to certain limitations,
the mandatory indemnification provisions do not preclude any additional right
to indemnification or allowance of expenses that a director or officer may have
under F&M's Articles of Incorporation, Bylaws, any written agreement or a
resolution of the Board of Directors or shareholders.
Section 180.0859 of the WBCL provides that it is the public policy of
the State of Wisconsin to require or permit indemnification, allowance of
expenses and insurance to the extent required or permitted under Sections
180.0850 to 180.0858 of the WBCL, for any liability incurred in connection with
a proceeding involving a federal or state statute, rule or regulation
regulating the offer, sale or purchase of securities.
Section 180.0828 of the WBCL provides that, with certain exceptions, a
director is not liable to a corporation, its shareholders, or any person
asserting rights on behalf of the corporation or its shareholders, for damages,
settlements, fees, fines, penalties or other monetary liabilities arising from
a breach of, or failure to perform, any duty resulting solely from his or her
status as a director, unless the person asserting liability proves that the
breach or failure to perform constitutes any of the four exceptions to
mandatory indemnification under Section 180.0851(1) referred to above.
Under Section 180.0833 of the WBCL, directors of F&M against whom
claims are asserted with respect to the declaration of improper dividends or
distributions to shareholders or certain other improper acts which they
approved are entitled to contribution from other directors who approved such
actions and from shareholders who knowingly accepted an improper dividend or
distribution, as provided therein.
Article X of F&M's Bylaws provides that F&M will indemnify any
director or officer who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or in
the right of F&M) by reason of the fact that he or she is or was a director or
officer of F&M, against expenses reasonably incurred by such person if he or
she acted in good faith and, with respect to any criminal action or proceeding,
had no reasonable cause to believe his or her conduct was unlawful. Directors
and officers are similarly identified under Article X for any action or suit by
or in the right of F&M if they acted in good faith and have not been adjudged
to be liable for misconduct in the performance of their duty to F&M. The
Bylaws also provide that F&M shall have the power to purchase and maintain
insurance on any director or officer for any liability asserted against him or
her and incurred by such person arising out of his or her status as an officer
or director, whether or not
II-1
<PAGE> 142
F&M would have the power to indemnify such person against such liability under
the Bylaws or the WBCL. F&M's Articles of Incorporation and Bylaws do not
limit the indemnification to which directors and officers are entitled under
the WBCL.
Insofar as indemnification for liabilities arising under the Act may
be permitted to directors, officers and controlling persons of F&M pursuant to
the foregoing provisions, or otherwise, F&M has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by F&M of expenses incurred or paid by a director, officer or
controlling person of F&M in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, F&M will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The exhibits set forth on the Exhibit Index attached hereto, which is
incorporated herein by reference, are filed as part of this Registration
Statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement.
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the information
set forth in the registration statement;
(iii) To include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such information in
the registration statement;
Provided, however, that paragraphs (a)(1)(i) and
(a)(1)(ii) do not apply if the registration statement is on Form S-3, and the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If the registration is a foreign private issuer, to file a
post-effective amendment to the
II-2
<PAGE> 143
registration statement to include any financial statements required by 3-19 of
Regulation S-X at the start of any delayed offering or throughout a continuous
offering.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions referred to in Item 20 of
this registration statement, or otherwise, the registrant has been advised that
in the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
(i) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(x) The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of this Form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
II-3
<PAGE> 144
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF KAUKAUNA,
STATE OF WISCONSIN, ON APRIL 3, 1996.
F&M BANCORPORATION, INC.
By: /s/ Gail E. Janssen
-----------------------------------------
Gail E. Janssen, Chairman of the Board
and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gail E. Janssen and Daniel E. Voet, and
either of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the
same, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission and any state securities
commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents or any of them, or their
or his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
_______________
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.*
SIGNATURE AND TITLE
<TABLE>
<S> <C>
/s/ Gail E. Janssen /s/ Douglas A. Martin
- ------------------------------------------------ --------------------------------------
Gail E. Janssen, Chairman of the Douglas A. Martin, Director
Board and Chief Executive Officer
/s/ Daniel E. Voet /s/ Duane G. Peppler
- ------------------------------------------------ --------------------------------------
Daniel E. Voet, Chief Financial Officer and Duane G. Peppler, Director
Treasurer (also, Principal Accounting Officer)
/s/ Otto L. Cox
- ------------------------------------------------ --------------------------------------
Otto L. Cox, Director Robert C. Safford, Director
/s/ Paul J. Hernke
- ------------------------------------------------ --------------------------------------
Paul J. Hernke, Director Glenn L. Schilling, Director
/s/ John W. Johnson /s/ Joseph F. Walsh
- ------------------------------------------------ --------------------------------------
John W. Johnson, Director Joseph F. Walsh, Director
</TABLE>
_____________
* Each of the above signatures is affixed as of April 3, 1996.
<PAGE> 145
F&M BANCORPORATION, INC.
(THE "REGISTRANT")
EXHIBIT INDEX
TO
REGISTRATION STATEMENT ON FORM S-4
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed
Number Description By Reference Herewith
- ------- ----------- -------------------- --------
<S> <C> <C> <C>
2.1 Agreement and Plan of Merger and X (As
Reorganization dated as of Exhibit C
February 22, 1996, by and among the to the
Registrant, F&M Interim Bank and Prospectus/
Community State Bank* Proxy Statement)
5.1 Opinion of Quarles & Brady regarding X
legality of securities being
registered
8.1 [Form of] Tax Opinion of Godfrey & X
Kahn, S.C.
10.1 Registrant's 1993 Incentive Stock Exhibit A to Registrant's
Option Plan Proxy Statement for 1993
Annual Meeting of
Shareholders ("1993 Proxy
Statement")
10.2 Registrant's 1993 Stock Option Plan Exhibit B to 1993 Proxy
for Non-Employee Directors Statement
10.3 Registrant's Executive Bonus Plan Description thereof under
"Compensation Committee
Report on Executive
Compensation" in 1996 Proxy
Statement
10.4 Registrant's Deferred Compensation Exhibit 10.6 to
Agreements with: Registrant's Report on Form
10-K for the year ended
December 31, 1992
(a) Gail E. Janssen
(b) Duane G. Peppler
10.5 Registrant's Executive Stock Purchase Description thereof under
Plan "Stock Purchase Plan" in
1996 Proxy Statement
</TABLE>
EI-1
<PAGE> 146
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed
Number Description By Reference Herewith
- ------- ----------- ------------------- --------
<S> <C> <C> <C>
10.6 Noncompetition Agreement dated Exhibit 10.1 to the
February 11, 1994, between the Registrant's Report on Form
Registrant and Robert C. Safford 8-K dated February 11, 1994
10.7 Agreement dated November 4, 1993, Exhibit 10.1 to the
between Pulaski Bank (n/k/a F&M Bank Registrant's Report on Form
Northeast) and John W. Johnson 8-K dated March 21, 1994
("3/21/94 8-K")
10.8 Option Agreement dated March 17, 1993, Exhibit 10.2 to 3/21/94 8-K
between Pulaski Bancshares, Inc. and
John W. Johnson, together with the
assumption thereof by the Registrant
dated March 21, 1994
10.9 Stock Exchange Agreement dated as of Exhibit B to the definitive
July 20, 1994, as amended October 31, Prospectus/Proxy Statement
1994, between the Registrant and Union dated November 8, 1994,
State Bank* filed under Rule 424
pursuant to Registration
Statement 33-83632
10.10(a) Plan and Agreement of Merger and Exhibit 2.1 to the
Reorganization dated as of November 1, Registrant's Report on Form
1995 by and among the Registrant, 10-Q for the quarter ended
Monycor Bancshares, Inc. and F&M September 30, 1995
Merger Corporation*
10.10(b) Amendment No. 1 thereto, dated Exhibit 2.1(b) to the
December 1, 1995 Registrant's Report on Form
8-K dated February 5, 1996
10.11 Plan and Agreement of Merger and Exhibit 10.11 to the
Reorganization dated as of January 11, Registrant's Report on Form
1996 by and between F&M Bank-Lakeland 10-K for the year ended
and Bradley Bank* December 31, 1995 ("1995
10-K")
10.12 Branch Purchase Agreement dated as of Exhibit 10.12 to 1995 10-K
January 15, 1996 by and between F&M
Bank-Kaukauna and TCF Bank Wisconsin
fsb*
</TABLE>
EI-2
<PAGE> 147
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed
Number Description By Reference Herewith
- ------- ----------- ------------------- --------
<S> <C> <C> <C>
23.1 Consent of Wipfli Ullrich Bertelson X
CPAs.
23.2 Consent of Quarles & Brady X
(included in
Exhibit 5.1)
23.3 [Form of] Consent of Godfrey & Kahn, X
S.C. included in
Exhibit 8.1)
23.4 [Form of] Consent of Robert W. Baird & X
Co. Incorporated
24 Power of Attorney (contained on the X
Signature Page)
</TABLE>
__________________
* Excluding schedules and exhibits, which are identified in such
documents. The Registrant agrees to furnish supplementally a copy of
any omitted schedule or exhibit to the Commission upon request.
EI-3
<PAGE> 1
[Quarles & Brady letterhead]
EXHIBIT 5.1
April 3, 1996
F&M Bancorporation, Inc.
One Bank Avenue
P.O. Box 410
Kaukauna, WI 54130
Gentlemen and Ladies:
We have examined the form of Registration Statement on Form S-4,
being filed by F&M Bancorporation, Inc., a Wisconsin corporation (the
"Company"), and the form of Prospectus included therein, relating to a number
of shares of Common Stock, $1.00 par value ("Common Stock"), of the Company to
be determined as provided in the Registration Statement, the Articles of
Incorporation, Bylaws and corporate proceedings regarding the issuance of
shares of Common Stock in the proposed acquisition of Community State Bank, and
such other documents which we have deemed necessary for purposes of rendering
this opinion.
On the basis of such examination, it is our opinion that the Common
Stock, when issued by the Company pursuant to the terms of the exchange offer
transaction described in the Prospectus, will be validly issued, fully paid and
non-assessable by the Company subject to the personal liability which may be
imposed on shareholders by Section 180.0622(2)(b) of the Wisconsin Business
Corporation Law, as judicially interpreted, for debts owing to employees for
services performed, but not exceeding six months service in any one case.
Although Section 180.0622(2)(b) provides that such personal liability of
shareholders shall be "to an amount equal to the par value of shares owned by
them respectively, and to the consideration for which their shares without par
value was issued," the Wisconsin Supreme Court, by a split decision without a
written opinion, has affirmed a judgment holding shareholders of a corporation
liable under the substantially identical predecessor statute in effect prior to
January 1, 1991 (Section 180.40(6)) for unpaid employee wages to an amount
equal to the consideration for which their par value shares were issued rather
than the shares' lower stated par value. Local 257 of Hotel and Restaurant
Employees and Bartenders International Union v. Wilson Street East Dinner
Playhouse, Inc., 126 Wis. 2d 284, 375 N.W.2d 664 (1985) (affirming the 1983
decision of the Circuit Court for Dane County, Wisconsin, in Case No.
82-CV-0023).
<PAGE> 2
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference of our firm under the caption
"Legal Matters" in the Prospectus.
We call to your attention that attorneys in our firm who are
providing services with respect to the Registration Statement own an aggregate
of 5,590 shares of Common Stock.
Very truly yours,
/s/ Quarles & Brady
QUARLES & BRADY
<PAGE> 1
EXHIBIT 8.1
April __, 1996
Community State Bank
208 Steele Street
Algoma, Wisconsin 54201-1263
Re: Federal Income Tax Consequences of Merger
Gentlemen:
We have acted as counsel for Community State Bank (the "Bank")
in connection with the negotiation and execution of the Plan and Agreement of
Merger and Reorganization dated February 23, 1996 (the "Agreement"), between
the Bank and F&M Bancorporation ("F&M") pursuant to which the F&M's
wholly-owned, newly-formed subsidiary, F&M Interim Bank ("Subsidiary") will be
merged with and into the Bank (the "Merger"). This letter furnishes you with
our opinion as to certain of the federal income tax consequences of the Merger.
The following is a description of the relevant terms of the
transaction based on our examination of the Agreement and our understanding of
the related factual background. All terms not otherwise defined herein shall
have the same meaning as set forth in the Agreement.
PARTIES
F&M, a Wisconsin corporation, is a registered multi-bank
holding company under the Bank Holding Company Act of 1956, as amended. F&M's
principal asset is the stock of its subsidiaries. F&M owned, as of March 1,
1996, substantially all of the outstanding capital stock of 14 banks with a
total of 42 offices in Wisconsin. F&M Common is listed on the National
Association of Securities Dealers Automated Quotations/National Market System
(the "NASDAQ/NMS").
<PAGE> 2
Community State Bank
April __, 1996
Page 2
The Bank, a Wisconsin state bank, provides retail and
commercial banking services for customers through its main office in Algoma,
Wisconsin and a branch in Forestville, Wisconsin. Bank has one class of voting
common stock outstanding which is held by approximately 350 shareholders.
PROPOSED TRANSACTION
Pursuant to Section 3.1 of the Agreement, at the Effective
Time, Subsidiary will be merged with and into the Bank. Under Section 3.3(a)
of the Agreement, the shares of Bank Stock outstanding at the Effective Time,
other than treasury shares and shares held by dissenting Bank Shareholders,
will be converted into the right to receive that number of shares of F&M Common
determined pursuant to the Exchange Ratio. Under Section 3.3(c) of the
Agreement, each Bank shareholder will receive cash in lieu of any fractional
shares of F&M Common to which he would otherwise be entitled in the Merger.
With regard to the Bank's purpose for entering into the
Agreement, the affiliation with F&M will give the Bank the opportunity to
realize economies of scale and increased efficiencies of operation, to the
benefit of its customers. Further, affiliation with F&M will permit or enhance
the development of new products and services for Bank customers.
From F&M's standpoint, the combination of its business with
that of the Bank will expand F&M's service area to an additional market in east
central Wisconsin, expanding the areas of the state of Wisconsin served by F&M
Banks. The acquisition of the Bank is also anticipated to help F&M achieve
economies of scale by combining certain operations and creating additional
efficiencies due to F&M's existing capacity to provide various services to
additional subsidiary banks such as the Bank. For example, F&M offers its
subsidiary banks centralized services relating to marketing, credit review and
analysis, human resources, accounting, investment management and data
processing, all of which could be provided for the Bank by existing F&M
personnel.
<PAGE> 3
Community State Bank
April __, 1996
Page 3
FACTUAL REPRESENTATIONS
In rendering our opinion, we have relied on the
representations received from F&M and the Bank contained in the attached
Certificates, which are incorporated hereby by reference.
CONCLUSIONS
Based on (i) our examination of the Agreement, (ii) the
foregoing description and the representations set forth in the attached
Certificates, (iii) the foregoing description and the representations contained
in the attached Certificates remaining true in all material respects at the
Effective Time, (iv) holders of less than 10% in the aggregate of the Bank
Stock dissenting from the Merger and (v) assuming that the transaction is
consummated in accordance with the terms of the Agreement, it is our opinion
that for federal income tax purposes:
1. The Merger will be a reorganization within the meaning of
Section 368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1986, as
amended.
2. Pursuant to Code Section 354(a)(1), the Bank Shareholders
will recognize no gain or loss on the exchange of their Bank Stock solely in
exchange for F&M Common.
3. Pursuant to Code Section 358(a)(1), the basis of the F&M
Common received by the Bank Shareholders (including any fractional share
interests to which they may be entitled) will be the same as the basis of the
Bank Stock surrendered in exchange therefor.
4. Pursuant to Code Section 1223(1), the holding period of
the F&M Common to be received by the Bank Shareholders (including any
fractional share interests to which they may be entitled) will include the
period during which the Bank Stock surrendered in exchange therefor is held,
provided that the Bank Stock surrendered is held as a capital asset at the
Effective Time.
5. The payment of cash to the Bank Shareholders in lieu of
their fractional interests of F&M Common will be treated as if the fractional
shares were distributed as part of the
<PAGE> 4
Community State Bank
April __, 1996
Page 4
exchange and then redeemed. These payments will be treated as having been
received as distributions in full payment in exchange for stock redeemed as
provided in Code Section 302(a) (Rev. Rul. 66-365, 1966-2 C.B. 116 and Rev.
Proc. 77-41, 1977-2 C.B. 574).
Our opinion is not, nor should it be construed or relied upon
as, a guaranty, nor is it in any way binding on the Internal Revenue Service.
It is intended only to reflect our best professional judgment as to the matters
set forth herein as of the date hereof.
We consent to the use of this opinion as an exhibit to the
Registration Statement. In giving this consent, however, we do not admit that
we are "experts" within the meaning of Section 11 of the Securities Act of
1933, as amended, or within the category of persons whose consent is required
by Section 7 of said Act.
Very truly yours,
draft
GODFREY & KAHN, S.C.
<PAGE> 5
CERTIFICATE
OF
COMMUNITY STATE BANK
Community State Bank ("Bank") is a party to a Plan and
Agreement of Merger and Reorganization dated February 23, 1996 (the
"Agreement") by and between Bank and F & M Bancorporation, Inc. ("F&M")
pursuant to which F&M's wholly-owned, newly-formed subsidiary, F & M Interim
Bank ("Subsidiary") will be merged with and into Bank (the "Merger"). This
Certificate is given in connection with the tax opinion to be rendered by
Godfrey & Kahn, S.C. concerning the conversion of each share of Bank Stock
outstanding at the Effective Time (as defined in the Agreement) into the right
to receive shares of F&M Common.
1. There is no plan or intention by the shareholders of Bank
who own 1 percent or more of the Bank stock, and to the best of the knowledge
of the management of Bank, there is no plan or intention on the part of the
remaining shareholders of Bank to sell, exchange, or otherwise dispose of a
number of shares of F&M Common stock received in the transaction that would
reduce the Bank shareholders' ownership of F&M Common stock to a number of
shares having a value, as of the date of the transaction, of less than 50
percent of the value of all of the formerly outstanding stock of Bank as of the
same date. For purposes of this representation, shares of Bank Stock exchanged
for cash or other property, surrendered by dissenters or exchanged for cash in
lieu of fractional shares of F&M Common stock will be treated as outstanding
Bank Stock on the date of the transaction. Moreover, shares of Bank Stock and
shares of F&M Common stock held by Bank shareholders and otherwise sold,
redeemed, or disposed of prior or subsequent to the transaction will be
considered in making this representation.
2. Following the transaction, Bank will hold at least 90
percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets and at least 90 percent of the fair
market value of Subsidiary's net assets and at least 70 percent of the fair
market value of the Subsidiaries's gross assets held immediately prior to the
transaction. For purposes of this representation, amounts paid by Bank or
Subsidiary to dissenters, amounts paid by Bank or Subsidiary to shareholders
who receive cash or other property, amounts used by Bank or Subsidiary to pay
reorganization expenses, and all redemptions and distributions (except for
<PAGE> 6
regular, normal dividends) made by Bank will be included as assets of Bank or
Subsidiary, respectively, immediately prior to the transaction.
3. F&M, Subsidiary, Bank, and the shareholders of Bank will
pay their respective expenses, if any, incurred in connection with the
transaction.
4. There is no intercorporate indebtedness existing between
F&M and Bank or between Subsidiary and Bank that was issued, acquired, or will
be settled at a discount.
5. In the transaction, shares of Bank Stock representing
control of Bank, as defined in Section 368(c)(1) of the Internal Revenue Code
of 1986, as amended (the "Code"), will be exchanged solely for voting stock of
F&M. For purposes of this representation, shares of Bank Stock exchanged for
cash or other property originating with F&M will be treated as outstanding Bank
Stock on the date of the transaction.
6. At the time of the transaction, Bank will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire stock in Bank that, if
exercised or converted, would affect F&M's acquisition or retention of control
of Bank, as defined in Section 368(c)(1) of the Code.
7. On the date of the transaction, the fair market value of
the assets of Bank will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
8. The payment of cash in lieu of fractional shares of F&M
Common is solely for the purpose of avoiding the expense and inconvenience to
F&M of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to the Bank shareholders instead of issuing fractional shares
of F&M Common will not exceed one percent of the total consideration that will
be issued in the transaction to the Bank shareholders in exchange for their
shares of Bank Stock. The fractional share interests of each Bank shareholder
will be aggregated, and no Bank shareholder will receive cash in an amount
greater than the value of one full share of F&M Common.
9. None of the compensation received by any
shareholder-employees of Bank will be separate consideration for, or allocable
to, any of their shares of Bank Stock; none of the shares of F&M Common
received by any shareholder-employees will
2
<PAGE> 7
be separate consideration for, or allocable to, any employment agreement; and
the compensation paid to any shareholder-employees will be for services
actually rendered and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
COMMUNITY STATE BANK
Date:____________________ By:___________________________
James L. Slaby, Chairman of
the Board
3
<PAGE> 8
CERTIFICATE
OF
F & M BANCORPORATION, INC.
F & M Bancorporation, Inc. ("F&M") is a party to a Plan and
Agreement of Merger and Reorganization dated February 23, 1996 (the
"Agreement") by and between Community State Bank ("Bank") and F&M pursuant to
which F&M's wholly-owned, newly-formed subsidiary, F & M Interim Bank
("Subsidiary") will be merged with and into Bank (the "Merger"). This
Certificate is given in connection with the tax opinion to be rendered by
Godfrey & Kahn, S.C. concerning the conversion of each share of Bank Stock
outstanding at the Effective Time (as defined in the Agreement) into the right
to receive shares of F&M Common.
1. Following the transaction, Bank will hold at least 90
percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets and at least 90 percent of the fair
market value of Subsidiary's net assets and at least 70 percent of the fair
market value of the Subsidiaries's gross assets held immediately prior to the
transaction. For purposes of this representation, amounts paid by Bank or
Subsidiary to dissenters, amounts paid by Bank or Subsidiary to shareholders
who receive cash or other property, amounts used by Bank or Subsidiary to pay
reorganization expenses, and all redemptions and distributions (except for
regular, normal dividends) made by Bank will be included as assets of Bank or
Subsidiary, respectively, immediately prior to the transaction.
2. Prior to the transaction, F&M will be in control of
Subsidiary within the meaning of Section 368(c)(1) of the Internal Revenue Code
of 1986, as amended (the "Code").
3. Following completion of the Merger, Bank has no plan or
intention to issue additional shares of its stock that would result in F&M
losing control of Bank within the meaning of Section 368(c)(1) of the Code.
4. F&M has no plan or intention to reacquire any of its stock
issued in the transaction; F&M does, from time to time, repurchase its own
shares in the public market.
5. F&M has no plan or intention to liquidate Bank; to merge
Bank with or into another corporation; to sell or otherwise dispose of the
stock of Bank except for transfers of stock to
<PAGE> 9
corporations controlled by F&M; or to cause Bank to sell or otherwise dispose
of any of its assets or of any of the assets acquired from Subsidiary, except
for dispositions made in the ordinary course of business or transfers of assets
to a corporation controlled by Bank.
6. The liabilities of Subsidiary assumed by Bank and the
liabilities to which the transferred assets of Subsidiary are subject were
incurred by Subsidiary in the ordinary course of its business. (Alternatively)
Subsidiary will have no liabilities assumed by Bank, and will not transfer to
Bank any assets subject to liabilities, in the transaction.
7. Following the transaction, Bank will continue its historic
business or use a significant portion of its historic business assets in a
business.
8. F&M, Subsidiary, Bank, and the shareholders of Bank will
pay their respective expenses, if any, incurred in connection with the
transaction.
9. There is no intercorporate indebtedness existing between
F&M and Bank or between Subsidiary and Bank that was issued, acquired, or will
be settled at a discount.
10. In the transaction, shares of Bank Stock representing
control of Bank, as defined in Section 368(c)(1) of the Code, will be exchanged
solely for voting stock of F&M. For purposes of this representation, shares of
Bank Stock exchanged for cash or other property originating with F&M will be
treated as outstanding Bank Stock on the date of the transaction.
11. F&M does not own, nor has it owned during the past five
years, any shares of the stock of Bank.
12. The payment of cash in lieu of fractional shares of F&M
Common is solely for the purpose of avoiding the expense and inconvenience to
F&M of issuing fractional shares and does not represent separately
bargained-for consideration. The total cash consideration that will be paid in
the transaction to the Bank shareholders instead of issuing fractional shares
of F&M Common will not exceed one percent of the total consideration that will
be issued in the transaction to the Bank shareholders in exchange for their
shares of Bank Stock. The fractional share interests of each Bank shareholder
will be aggregated, and no Bank shareholder will receive cash in an amount
greater than the value of one full share of F&M Common.
2
<PAGE> 10
13. None of the compensation received by any
shareholder-employees of Bank will be separate consideration for, or allocable
to, any of their shares of Bank Stock; none of the shares of F&M Common
received by any shareholder-employees will be separate consideration for, or
allocable to, any employment agreement; and the compensation paid to any
shareholder-employees will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arm's-length for
similar services.
F & M BANCORPORATION, INC.
Date:____________________ By:___________________________
Gail E. Janssen, President
3
<PAGE> 1
Exhibit 23.1
[Wipfli Ullrich Bertelson Letterhead]
CONSENT OF WIPFLI ULLRICH BERTELSON
We consent to the use of our reports on the financial statements of F&M
Bancorporation, Inc. (dated February 2, 1996) and Community State Bank (dated
March 8, 1996) included in this Registration Statement on Form S-4, the
incorporation therein by reference of our report dated February 2, 1996 on the
financial statements of F&M Bancorporation, Inc. from its report in Form 10-K
for the year ended December 31, 1995, and to the references to our firm under
the headings "F&M Selected Financial Data" "Bank Selected Financial Data" and
"Experts" in the prospectus forming part of the Registration Statement.
/s/ Wipfli Ullrich Bertelson
Certified Public Accountants
April 2, 1996
Appleton, Wisconsin
<PAGE> 1
Exhibit 23.4
CONSENT OF ROBERT W. BAIRD & CO. INCORPORATED
In connection with the proposed merger of F&M Interim Bank, a wholly owned
subsidiary of F&M Bancorporation, Inc., into Community State Bank, Algoma,
Wisconsin, in accordance with an Agreement and Plan of Reorganization among F&M
Bancorporation, F&M Interim Bank and Community State Bank, the undersigned,
acting as an independent financial advisor to the Board of Directors of
Community State Bank, hereby consents to the reference to our firm in the
Registration Statement on Form S-4 and Joint Proxy Statement/Prospectus
included therein and to the inclusion of our fairness opinion as an exhibit to
the Registration Statement and Joint Proxy Statement/Prospectus.
Dated: April __, 1996
ROBERT W. BAIRD & CO.
Incorporated
Draft
By: _________________________
Bernard E. Adee,
First Vice President
