<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-14553
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F & M Bancorporation, Inc.
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(Exact name of registrant as specified in its charter)
Wisconsin 39-1365327
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bank Avenue, Kaukauna, Wisconsin 54130
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(Address of principal executive offices) (Zip Code)
(414) 766-1717
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
------ -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock as of May 12, 1997.
$1.00 par value common
7,608,200 shares
<PAGE> 2
F & M BANCORPORATION, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION: ------
Item l. Financial Statements 3
Condensed Consolidated Balance Sheets
as of March 31, 1997 and December 31,
1996 (Unaudited) 4
Condensed Consolidated Statements of Earnings
for the three months ended March 31, 1997
and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the three months ended March 31, 1997
and 1996 (Unaudited) 6
Notes to Condensed Consolidated Financial
Statements (Unaudited) 7
Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 15
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<PAGE> 3
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
The condensed consolidated financial statements included herein have been
included by F & M Bancorporation, Inc. (the "Company") pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. This information is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which, in the opinion of Company
management, are necessary for a fair presentation of the results for such
periods.
The results of operations for interim periods are not necessarily indicative of
the results of operations for the entire year. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1996 Annual Report.
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<PAGE> 4
F & M BANCORPORATION, INC. AND
SUBSIDIARIES CONSOLIDATED
BALANCE SHEETS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
-------- ---------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 37,647 $ 44,626
Investment securities (Note B)
Held to maturity 104,427 95,030
Available for sale - stated at fair value 115,436 111,198
Federal funds sold 13,072 18,204
Loans (Note C) 961,855 864,674
Less: Allowance for loan losses (11,783) (10,602)
--------- ---------
Net loans 950,072 854,072
Bank premises and equipment, net 28,706 27,935
Other real estate 2,200 1,824
Other assets 22,467 20,605
--------- ---------
TOTAL ASSETS $1,274,027 $1,173,494
========= ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $ 127,409 $137,657
Interest bearing 936,256 868,103
---------- ----------
Total deposits 1,063,665 1,005,760
Short-term borrowing 59,600 41,332
Other borrowings 18,100 9,817
Accrued expenses and other liabilities 14,139 11,636
---------- ----------
Total liabilities 1,155,504 1,068,545
Shareholders' Equity
Common stock - $1 par value:
Authorized - 20,000,000 shares
Issued - 7,639,650 and
7,016,690 shares, respectively 7,640 7,017
Capital surplus 62,266 60,157
Retained earnings 49,671 38,784
Net unrealized loss on securities available for sale (450) (348)
Less-Common stock held in treasury at cost-
32,050 shares and 39,000 shares, respectively (604) (661)
---------- ----------
Total shareholders' equity 118,523 104,949
---------- ----------
Total liabilities and shareholders' equity $1,274,027 $1,173,494
========== ==========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 5
F & M BANCORPORATION, INC. AND
SUBSIDIARIES CONSOLIDATED
STATEMENTS OF INCOME
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended March 31,
1997 1996
----------- -----------
<S> <C> <C>
Interest income
Interest and fees on loans $21,146 $16,919
Interest on investment securities
Taxable 1,680 2,060
Exempt from federal tax 1,427 1,023
Other interest income 289 498
------ ------
Total interest income 24,542 20,500
------ ------
Interest expense
Interest on deposits 10,677 8,836
Interest on short-term borrowing 657 232
Interest on other borrowing 138 166
------ ------
Total interest expense 11,472 9,234
------ ------
Net interest income 13,070 11,266
Provision for loan losses 383 419
------ ------
Net interest income after
provision for loan losses 12,687 10,847
------ ------
Other income
Service charges on deposit accounts 887 679
Other operating income 728 676
Net security gain (loss) (6) (18)
------ ------
1,609 1,337
------ ------
Other expenses
Salaries and employee benefits 4,557 3,906
Other operating expense 3,761 3,303
------ ------
8,318 7,209
----- ------
Income before income taxes 5,978 4,975
Income taxes 1,831 1,549
------ ------
NET INCOME $ 4,147 $ 3,426
====== ======
EARNINGS PER SHARE .55 .49
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 6
F & M BANCORPORATION, INC. AND
SUBSIDIARIES CONSOLIDATED
STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Three months ended
March 31,
1997 1996
--------- ---------
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 4,147 $ 3,426
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 716 618
Provision for loan losses 383 419
Loss on sale of investment securities 6 18
Increase in other assets (1,476) (968)
Gain on sale of equipment 0 (38)
Increase (decrease) in other liabilities 1,950 (201)
Provision for other real estate losses 2 12
Gain on sale of other real estate 21 (9)
Minority interest 0 4
------- -------
Net cash provided by operating activities 5,749 3,281
------- -------
Cash flows from investing activities:
Proceeds from sale of investment securities
available for sale 0 1,040
Proceeds from maturities of investment
securities available for sale 10,555 12,994
Purchase of investment securities
available for sale (10,285) (16,489)
Proceeds from maturities of investment
securities held to maturity 428 1,659
Purchase of investment securities
held to maturity (2,266) (1,773)
Net increase in loans (32,536) (19,613)
Capital expenditures (604) (1,134)
Proceeds from sale of equipment 0 230
Proceeds from sale of other real estate 420 222
Payment for purchase of stock of
subsidiary banks, net of cash received 9,101 2,736
-------- --------
Net cash used in investing activities (25,187) (20,128)
-------- --------
Cash flows from financing activities:
Net decrease in deposits (16,795) (6,551)
Net increase in short-term borrowings 18,268 15,523
Dividends paid (1,485) (1,256)
Net increase (decrease) in other borrowings 7,283 (5,959)
Net proceeds options exercised 56 0
-------- -------
Net cash provided by financing activities 7,327 1,757
-------- -------
Net decrease in cash and cash equivalents (12,111) (15,090)
Cash and cash equivalents at beginning of period 62,830 62,966
-------- --------
Cash and cash equivalents at end of period $ 50,719 $ 47,876
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
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<PAGE> 7
F & M BANCORPORATION, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements,
which include the accounts of F&M Bancorporation, Inc. and its subsidiaries,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. These statements have been
restated to reflect the acquisition of Community State Bank, acquired on June
28, 1996. This transaction has been accounted for using the pooling of
interests method of accounting. Monycor Bancshares, Inc., acquired on February
5, 1996, East Troy Bancshares, acquired on January 10, 1997, and Green County
Bank, acquired on February 27, 1997, accounted for as pooling of interests,
were not material to prior years' reported operating results and accordingly,
previous years' results have not been restated. The acquisitions of the TCF
office in Little Chute, acquired April 26, 1996, and the Bradley Bank, acquired
May 10, 1996, were accounted for using the purchase method of accounting;
accordingly, the financial data includes results of operations only since the
dates of acquisition. All per share information has been adjusted to reflect
the 10% stock dividend, paid to shareholders on June 10, 1996. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for fair presentation have been included.
NOTE B - INVESTMENT SECURITIES
Carrying amounts and market values of investment securities held to
maturity at March 31, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Market
Amount Value
-------- -------
(in thousands)
<S> <C> <C>
Exempt obligations of states and political subdivisions $104,427 $106,124
======== ========
</TABLE>
NOTE C - LOANS
At March 31, 1997, loans are as follows:
(in thousands)
<TABLE>
<S> <C>
Commercial and industrial $179,540
Agricultural 51,870
Real estate construction 36,249
Real estate mortgage 616,471
Installment and other consumer 77,725
-------
961,855
Less allowance for loan losses (11,783)
-------
Net loans $950,072
========
</TABLE>
NOTE D - EARNINGS PER SHARE OF COMMON STOCK
Earnings per share of common stock are based on weighted average number
of common shares outstanding of 7,606,051 and 6,973,051 for the three months
ended March 31, 1997 and 1996.
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<PAGE> 8
NOTE E - NON-PERFORMING ASSETS
The following table sets forth the amount of non-performing loans, other
real estate owned and non-performing assets, and each of their percentages to
total loans at March 31, 1997:
(in thousands)
<TABLE>
<S> <C> <C>
Non-accrual loans $10,832 1.13%
Loans past due 90 days or more 100 0.01
Restructured loans 0 0.00
------ ----
Total non-performing loans 10,932 1.14
Other real estate owned 2,200 0.23
------ ----
Total non-performing assets $13,132 1.37%
======= ====
</TABLE>
NOTE F - SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at March 31, 1997; 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:
(in thousands)
<TABLE>
<S> <C>
Average balance of loans for period $947,157
========
Allowance for loan losses at
beginning of period 10,602
Loans charged off
Commercial and Industrial 86
Real Estate - Mortgage 65
Installments and Other Consumer Loans 134
-----
Total charge offs 285
Recoveries on loans previously
charged off
Commercial and Industrial 14
Real Estate - Mortgage 74
Installment and Other Consumer Loans 20
-----
Total recoveries 108
Net loans charged off 177
Provisions for loan losses of banks
acquired at date of acquisition 975
Provisions for loan
losses 383
-----
Allowance for loan losses
at end of period $11,783
=======
Ratio of net charge offs
during period to average
loans outstanding (annualized) 0.08%
Allowance for loan
losses to total loans 1.23%
</TABLE>
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<PAGE> 9
NOTE G - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table summarizes the allocation of allowances for loan
losses and gives a breakdown of the percentage of loans in each category at
March 31, 1997:
<TABLE>
<CAPTION>
Percent
of loans
Amount of in each
reserve category
for loan to total
(in thousands) losses loans
- ------------------------------------------------------------
<S> <C> <C>
Commercial,
industrial, and
agricultural $ 4,829 24.0%
Real estate -
construction 248 3.8
Real estate - mortgage 4,412 64.1
Installment and other
consumer loans 2,294 8.1
------ -----
$11,783 100.0%
======= =====
</TABLE>
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<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding
F & M Bancorporation, Inc.'s (the "Company") results of operations for the
three months ended March 31, 1997 and 1996 and financial condition at March 31,
1997. These statements have been restated to reflect the acquisition of
Community State Bank ("Community"), acquired on June 28, 1996. This
transaction has been accounted for using the pooling of interests method of
accounting. Monycor Bancshares, Inc., acquired on February 5, 1996, East Troy
Bancshares, acquired on January 10, 1997 and Green County Bank, acquired on
February 27, 1997, accounted for as pooling of interests, were not material to
prior years' reported operating results; accordingly, previous years' results
have not been restated. The acquisitions of TCF office in Little Chute,
acquired April 26, 1996, and Bradley Bank, acquired May 10, 1996, were
accounted for using the purchase method of accounting; accordingly, the
Company's financial data includes results of operations of these entities only
since the dates of acquisition. All per share information has been adjusted to
reflect the 10% stock dividend, paid to shareholders on June 10, 1996.
The Company has announced three pending acquisitions which, if
consummated, would affect the Company's future operations. In April 1997, the
Company announced that it had entered into a letter of intent to acquire Clear
Lake Bancorp Inc., Clear Lake, Wisconsin, a holding company of the Landmark
Bank, which has offices in Clear Lake, Amery and two offices in Hudson, with
total assets of approximately $35 million. A definitive agreement was signed
in March 1997 to acquire Wisconsin Ban Corp, the holding company of Prairie
City Bank ("PCB"), with five offices in southwest Wisconsin. In February 1997,
F&M announced the execution of a definitive agreement providing for the
acquisition of Citizens National Bancorporation, Inc. ("CNB"), the holding
company of Citizens National Bank of Darlington ("Darlington Bank").
Darlington Bank has two offices, in Darlington and Hazel Green (in southwest
Wisconsin). The Company intends to account for the pending acquisitions using
the pooling of interests method of accounting. The Company expects these
acquisitions to be consummated in the second and third quarters of 1997.
Discussions in this Management's Discussion and analysis that are not
statements of historical fact (including statements which include terms such as
"believe", "expect", "anticipate", "will" or "may") are forward-looking
statements that involve risks and uncertainties, and the Company's actual
future results could materially differ from those discussed. Factors that
could cause or contribute to such differences include, but are not limited to,
the Company's future lending and collections experiences, the effects of
acquisitions, competition from other institutions, changes in the banking
industry and its regulation, changes in prevailing interest rates, needs for
technological change, and other factors, including those described in this
Management's Discussion and analysis and elsewhere in this report.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, net income increased $721,000, or
21.1%, to $4.1 million from $3.4 million in the first quarter of 1996. The
annualized return on average assets was 1.34% for the first quarter of 1997
compared with 1.34% for the first quarter of 1996. Returns on average
stockholders' equity on an annualized basis for the first quarters of 1997 and
1996 were 14.57% and 14.24%, respectively.
Net Interest Income
Net interest income for the three months ended March 31, 1997 increased 1.8
million, or 16.0%, to $13.1 million from $11.3 million in the first quarter of
1996. Total interest income for the first quarter of 1997 increased $4.0
million, or 19.7%, to $24.5 million from $20.5 million in the first quarter of
1996. Interest expense increased $2.2 million, or 24.2%, to $13.1 million in
the first quarter of 1997 from $9.2 million in the first quarter of 1996.
Increased net interest income for the three month period is attributable to
the increase in asset volume due to the Company's internal growth,
acquisitions, and relative stability of the Company's net interest margin.
Total interest income increased for the three month period in 1997 compared to
the same period last year as a result of an increase in interest and fees on
loans due to increased loan activity, acquisitions, and generally stable
interest rates, while total interest expense increased for the three month
period in 1997 compared to 1996 as a result of increased levels of deposits
primarily due to acquisitions.
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<PAGE> 11
Provision for Loan Losses
The provision for loan losses for the three months ended March 31, 1997
had a slight decrease of $36,000, or 8.5%, to $383,000 from $419,000 in the
first quarter of 1996. Despite this decrease in the provision for loan losses
the Company was able to maintain the loan loss reserve as a percentage of loans
at 1.23%. See "Allowance for Loan Losses" for further discussion.
Non-Interest Income
The Company stresses the importance of growth in non-interest income as
one of its key long-term strategies. Non-interest income for the three months
ended March 31, 1997 increased $272,000, or 20.4%, to $1.6 million from $1.3
million in the first quarter of 1996. The increase was due principally to
increases in service charges and other fee income, offset by small securities
losses. The increase was also attributable to the acquisitions in which prior
period information was not restated.
Non-Interest Expense
Non-interest expense for the three months ended March 31, 1997 increased
$1.1 million, or 15.4%, to $8.3 million from $7.2 million in the first quarter
of 1996. This increase was primarily due to the acquisitions in 1996 and 1997,
resulting from both the cost of the acquisitions and increase from those with
respect for which prior periods were not restated (additional staffing,
occupancy expense, etc.), and the normal increases in salaries and employee
benefits.
The overhead ratio, which is computed by subtracting non-interest income
from non-interest expense (excluding net securities transactions) and dividing
by average total assets, was 2.16% in the first quarter of 1997 compared with
2.29% in the first quarter of 1996. The decrease in this ratio in the first
quarter of 1997 was the result of the factors set forth above.
Provision for Income Taxes
The Company's provision for income taxes for the three months ended
March 31, 1997 increased $283,000, or 18.3%, to $1.8 million from $1.5 million
in the first quarter of 1996. The increase in income tax provision was
principally due to increased taxable income.
Net Income
Net income for the first quarter of 1997 increased by $721,000, or 21.1%
to $4.1 million from $3.4 million in the same period for 1996.
Net income per common share was $0.55 for the first quarter of 1997
compared with $0.49 in the first quarter of 1996 an increase of 12.2%.
Although the Company adopted a stock option plan in 1993, as of March 31, 1997,
fully diluted earnings per share are equal to the stated earnings per share
numbers.
FINANCIAL CONDITION
Loan Portfolio
At March 31, 1997, total loans increased $97.2 million, or 11.2%, to
$961.9 million from $864.7 million at December 31, 1996. The loan mix in the
Company's portfolio at March 31, 1997 did not change in any material respect
compared with December 31, 1996. Approximately 66 million in loans or 68% of
the first quarter's growth resulted from acquisitions in which the Company did
not restate its prior financial statements and the remaining balance resulted
primarily from steady loan demand spread throughout the Company's subsidiary
banks.
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<PAGE> 12
Non-Performing Assets
Maintaining excellent credit quality continues to be a priority for the
Company. At March 31, 1997, non-performing assets amounted to $13.1 million,
compared to $12.3 million at December 31, 1996. Non-performing loans at March
31, 1997 were $10.8 million, or 1.12% of total loans, compared to $10.5 million
at December 31, 1996. Other real estate owned ("OREO") at March 31, 1997 was
$2.2 million as compared to $1.8 million at December 31, 1996. The ratio of
non-performing assets to total loans at March 31, 1997 was 1.35%. Management
continues to work at reducing the level of non-performing assets.
Non-performing assets increased in 1996 and the first three months of 1997
because of acquisitions and developments with respect to a number of separate
loans, in different locations and industries. Management does not believe that
there is any common reason or general trend which accounts for the increase (or
that it necessarily is an indication of expected future developments).
However, particularly in view of the developments, management continues to take
an aggressive collection effort on these assets, carefully monitors these (and
other) loans, and regularly reviews and evaluates the non-performing credits to
determine appropriate handling and action.
Summary of Loan Loss Experience
For the first three months of 1997, total charge-offs were $285,000 and
total recoveries were $108,000. The annualized ratio of net charge-offs to
average loans outstanding for the three months ended March 31, 1997 was 0.08%.
The charge-offs were not concentrated in any particular industry.
Allowance for Loan Losses
At both March 31, 1997 and December 31, 1996, the allowance for loan
losses as a percentage of total loans was 1.23%. Management continually
reviews the loan portfolio, and other factors, to determine the appropriate
allowance. The allowance for loan losses is an amount that management believes
will be adequate to absorb possible losses on existing loans that may become
uncollectible based on evaluations of the collectibility of loans and prior
loan loss experience. In determining the additions to the allowance charged to
operating expenses, management considered historical loss experience, changes
in the nature and volume of the loan portfolio, overall portfolio quality, and
current economic conditions that may affect the borrower's ability to pay.
Investment Portfolio
At March 31, 1997, the investment portfolio increased $13.6 million, or
6.6%, to $219.9 million from $206.2 million at December 31, 1996. At March 31,
1997 and December 31, 1996, the investment portfolio represented 17.3% and
17.6% of total assets, respectively.
Deposits
Total deposits at March 31, 1997 increased $57.9 million, or 5.8%, to
$1.064 billion from $1.006 billion at December 31, 1996. Interest-bearing
deposits at March 31, 1997 increased $68.2 million, or 7.9%, to $936 million
from $868 million at December 31, 1996. The increase in deposits is
attributable to the two acquisitions in the first quarter of 1997 representing
approximately 75 million offset by internal decrease in deposits of
approximately 15 million. Historically, deposits have typically increased at
year end and then gradually returned to prior levels, resulting in a typical
first quarter decrease in deposits.
Borrowings
Short-term borrowings at March 31, 1997 were $59.6 million, as compared
to $41.3 million at December 31, 1996. Short-term borrowings consist primarily
of federal funds purchased. The Company has used short-term borrowings to
assist in funding its increasing loan demand. Management has taken steps to
monitor short-term borrowings and is comfortable with the current level.
-12-
<PAGE> 13
Several of the Company's subsidiary banks, as members of the Federal
Home Loan Bank (FHLB), had borrowings from the FHLB as of March 31, 1997.
These borrowings are secured by pledges of mortgage loans, and totaled $18.1
million at March 31, 1997, compared to $9.8 million at December 31, 1996.
These FHLB borrowings had original maturities of three months to nine years at
March 31, 1997.
CAPITAL ADEQUACY
During the three months ended March 31, 1997, stockholders' equity
increased $13.6 million due to net income of $4.1 million in the first quarter
and the acquisitions of East Troy and Brodhead, offset by dividends paid to
stockholders and a slight decrease due to the effect of FASB 115 resulting from
the increased net unrealized loss on securities available for sale. At March
31, 1997, the Company's risk-based Tier 1 capital ratio was 11.73%. The total
risk-based capital ratio was 12.96% and the leverage ratio was 8.96%. All such
ratios exceed regulatory minimums of 4.0%, 8.0% and 3.0%, respectively. The
average equity to average assets ratio was 9.18% at March 31, 1997, compared
with 9.40% at March 31, 1996.
F & M's common stock dividend payout ratio was 35.8% in the first three
months of 1997 as compared to 31.3% in the comparable 1996 period. These
numbers do not include the dividends historically paid by Community, Monycor,
Brodhead and East Troy prior to their acquisitions by the Company.
At March 31, 1997, each of the Company's subsidiary banks was in compliance
with all applicable capital requirements, and management believes that the
capitalization of those banks is adequate.
During the first quarter the Company incurred minimal capital
expenditures for replacement and renovation of facilities. The Company to date
has not committed to any major commitments to build or purchase in 1997, but
also expects to finance any such expenditures through earnings and existing
capital resources.
LIQUIDITY
As shown in the Company's Consolidated Statements of Cash Flows for the
three months ended March 31, 1997, cash and cash equivalents decreased by $12.1
million during the period to $50.7 million at March 31, 1997. The decrease
primarily reflected $5.8 million in net cash provided by operating activities
and $7.3 million in net cash provided by financing activities, offset by $25.2
million in net cash used in investing activities. Net cash provided by
operating activities primarily consisted of the Company's net income in the
period increased by adjustments for non-cash credits. Net cash provided by
financing activities principally reflected an increase in short-term and other
borrowings. Net cash used in investing activities consisted primarily of a net
increase in loans plus necessary capital expenditures offset by net cash
received in acquisitions for which prior periods were not restated.
The Company manages its liquidity to provide adequate funds to support
the borrowing requirements and deposit flow of its customers. Management views
liquidity as the ability to raise cash at a reasonable cost or with a minimum
of loss and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the Company's
liquidity are investment securities available for sale and other marketable
assets maturing within one year. The Company attempts, when possible, to match
relative maturities of assets and liabilities, while maintaining the desired
net interest margin. The Company can also utilize borrowing capacities if
appropriate. Although the percentage of earning assets represented by loans is
increasing, management believes that its sources of liquidity are adequate.
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<PAGE> 14
OTHER
SFAS No. 114 (Accounting by Creditors for Impairment of a Loan) as
amended by SFAS No. 118 (Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures) was adopted by the Company as of
January 1, 1995. In accordance with the new standard, the 1995 allowance for
loan losses includes specific allowances related to loans which have been
judged to be impaired and which fall within the scope of SFAS No. 114
(primarily commercial loans). A loan is impaired when, based on current
information, it is probable that the Company will not collect all amounts due
in accordance with the contractual terms of the loan agreement. These specific
allowances are based on discounted cash flows of expected future payments using
the loan's initial effective interest rate or the fair value of the collateral
if the loan is collateral dependent. Since the Company evaluates the overall
adequacy of the allowance for credit losses on an ongoing basis, the adoption
of SFAS No. 114 did not affect the amount of the allowance for credit losses or
the existing income recognition and charge-off policies for nonperforming
loans.
SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of) was issued by FASB in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The statement also requires long-lived assets and certain intangibles to be
disposed of or be reported at the lower of carrying amount or fair value less
cost to sell. This statement was adopted by the Company effective January 1,
1996. The adoption of SFAS No. 121 did not have a significant impact on the
Company's financial condition or results of operations 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 was adopted by the Company effective January
1, 1996. The adoption of SFAS No. 122 did not have a significant impact on the
Company's financial condition or results of operations. Future impact of
adoption is contingent on the future levels of mortgage loan sales.
SFAS No. 123 (Accounting for Stock-Based Compensation) was issued by
FASB in October 1995. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. The statement
encourages a "fair value- based method" of accounting for stock-based
compensation plans. Upon adoption of SFAS No. 123, the Company will be
required to disclose in the notes to the financial statements the difference
between the "fair value method" and the "intrinsic value method" as prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees." The Company
will continue to account for stock-based compensation in accordance with APB
Opinion No. 25 on the Company's financial statements. SFAS No. 123 was adopted
as of January 1, 1996, and did not have a significant impact on the Company's
financial condition or results of operations.
The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," in June
1996, SFAS No. 125 provides accounting and reporting standards for transfers
and servicing of financial assets and extinguishment of liabilities.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
-14-
<PAGE> 15
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the annual meeting of the Company's shareholders on April 22, 1997,
pursuant to Proposal 1 (the only matter voted upon), management's nominees
named below were elected as directors, of the class whose term expires in the
year 2000, by the indicated votes cast for and withheld with respect to each
nominee. Of the 5,681,858 shares of Common Stock which were represented at the
meeting, the shares voting were voted for the election of each of management's
nominees as follows:
Name of Nominee FOR WITHHELD
--------------- --- --------
John W. Johnson 5,666,164 15,694
Gary A. Lichtenberg 5,668,349 13,509
Duane G. Peppler 5,669,688 12,170
Joseph F. Walsh 5,647,736 34,122
There were no abstentions or broker non-votes with respect to the
election of directors. In addition to the directors elected at the meeting, the
Company's continuing directors are Otto L. Cox, Paul J. Hernke, Gail E. Janssen,
Douglas A. Martin, Robert C. Safford and Glenn Schilling.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index, which follows the signature page hereof.
(b) Reports on Form 8-K:
The Registrant filed one report on Form 8-K during the first quarter of
fiscal 1997. The Report on Form 8-K, dated January 10, 1997, related to
the Registrant's acquisition of East Troy Bancshares, Inc. ("ETB") on that
date. Because of the relative size of the Company and ETB, the report did
not include historical financial statements of ETB or pro forma financial
statements of the Company.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F&M BANCORPORATION, INC.
(Registrant)
Date: May 14, 1997 /s/ Gail E. Janssen
-------------------------------------
Gail E. Janssen
Chairman and Chief Executive Officer
Date: May 14, 1997 /s/ Daniel E. Voet
-------------------------------------
Daniel E. Voet
Chief Financial Officer and Treasurer
<PAGE> 17
EXHIBIT INDEX
F & M BANCORPORATION, INC.
Form 10-Q for Quarter Ended March 31, 1997
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<EXCHANGE-RATE> 1
<CASH> 37,647
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 13,072
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 115,436
<INVESTMENTS-CARRYING> 104,427
<INVESTMENTS-MARKET> 106,124
<LOANS> 961,855
<ALLOWANCE> 11,783
<TOTAL-ASSETS> 1,274,027
<DEPOSITS> 1,063,665
<SHORT-TERM> 59,600
<LIABILITIES-OTHER> 14,140
<LONG-TERM> 18,100
0
0
<COMMON> 7,640
<OTHER-SE> 110,882
<TOTAL-LIABILITIES-AND-EQUITY> 1,274,027
<INTEREST-LOAN> 21,146
<INTEREST-INVEST> 3,107
<INTEREST-OTHER> 289
<INTEREST-TOTAL> 24,542
<INTEREST-DEPOSIT> 10,676
<INTEREST-EXPENSE> 11,472
<INTEREST-INCOME-NET> 13,070
<LOAN-LOSSES> 383
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 9,932
<INCOME-PRETAX> 5,978
<INCOME-PRE-EXTRAORDINARY> 5,978
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,147
<EPS-PRIMARY> .55
<EPS-DILUTED> .55
<YIELD-ACTUAL> 4.74
<LOANS-NON> 10,832
<LOANS-PAST> 100
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,577
<CHARGE-OFFS> 285
<RECOVERIES> 108
<ALLOWANCE-CLOSE> 11,783
<ALLOWANCE-DOMESTIC> 11,783
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
