<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 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)
(920) 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 August 11, 1997.
$1.00 par value common
9,006,030 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 June 30, 1997 and December 31,
1996 (Unaudited) 4
Condensed Consolidated Statements of Earnings
for the six months ended June 30, 1997
and 1996 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows
for the six months ended June 30, 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 Disclosure about Market Risk 15
PART II. OTHER INFORMATION
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Item 6. Exhibits and Reports on Form 8-K 16
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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>
June 30, December 31,
1997 1996
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 46,973 $ 46,894
Investment securities (Note B)
Held to maturity 112,623 95,030
Available for sale - stated at fair value 159,824 135,654
Federal funds sold 11,183 21,146
Loans (Note C) 1,067,688 921,508
Less: Allowance for loan losses (13,090) (11,447)
---------- ---------
Net loans 1,054,598 910,061
Bank premises and equipment, net 29,442 28,596
Other real estate 1,860 1,842
Other assets 23,567 21,583
---------- ----------
TOTAL ASSETS $1,440,070 $1,260,806
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Non-interest bearing $153,529 $145,941
Interest bearing 1,013,926 929,297
---------- ----------
Total deposits 1,167,455 1,075,238
Short-term borrowing 76,908 42,048
Other borrowings 53,380 18,194
Accrued expenses and other liabilities 12,599 12,296
---------- ----------
Total liabilities 1,310,342 1,147,776
Shareholders' Equity
Common stock - $1 par value:
Authorized - 20,000,000 shares
Issued - 9,040,625 and
7,595,790 shares, respectively 9,041 7,596
Capital surplus 83,385 59,085
Retained earnings 38,502 47,488
Net unrealized loss on securities available for sale (609) (478)
Less-Common stock held in treasury at cost-
34,595 shares and 39,000 shares, respectively (591) (661)
--------- ----------
Total shareholders' equity 129,728 113,030
--------- ----------
Total liabilities and shareholders' equity $1,440,070 $1,260,806
========== ==========
See accompanying notes to unaudited consolidated financial statements.
</TABLE>
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<PAGE> 5
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $24,079 $19,064 $46,498 $37,125
Interest on investment securities
Taxable 2,160 2,295 4,113 4,668
Exempt from federal tax 1,525 1,200 3,020 2,290
Other interest income 255 313 565 855
------- ------ ------- -------
Total interest income 28,019 22,872 54,196 44,938
------- ------ ------- -------
Interest expense
Interest on deposits 11,581 9,648 22,980 19,169
Interest on short-term borrowing 941 455 1,614 691
Interest on other borrowing 603 229 849 448
------- ------ ------- -------
Total interest expense 13,125 10,332 25,443 20,308
------- ------ ------- -------
Net interest income 14,894 12,540 28,753 24,630
Provision for loan losses 872 416 1,256 850
------- ------ ------- -------
Net interest income after
provision for loan losses 14,022 12,124 27,497 23,780
------- ------ ------- -------
Other income
Service charges on deposit accounts 1,052 785 1,972 1,499
Other operating income 1,050 620 1,851 1,359
Net securities gain (loss) 75 (6) 69 (25)
------- ------ ------- -------
2,177 1,399 3,892 2,833
------- ------ ------- -------
Other expenses
Salaries and employee benefits 5,188 4,190 10,067 8,387
Other operating expense 4,258 3,737 8,286 7,294
------- ------ ------- -------
9,446 7,927 18,353 15,681
------- ------ ------- -------
Income before income taxes 6,753 5,596 13,036 10,932
Income taxes 2,108 1,968 3,985 3,542
------- ------ ------- -------
NET INCOME $ 4,645 $ 3,628 $ 9,051 $ 7,390
======= ======= ======= =======
EARNINGS PER SHARE $ 0.52 $ 0.44 $ 1.01 $ 0.89
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
- 5 -
<PAGE> 6
F & M BANCORPORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six months ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $9,051 $7,390
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and net amortization 1,529 1,265
Provision for loan losses 1,256 850
Loss on sale of investment securities (69) 25
Increase in other assets (1,716) (2,093)
Gain on sale of equipment (267) (48)
Increase (decrease) in other liabilities (237) (2,625)
Provision for other real estate losses 11 40
Gain on sale of other real estate (58) (20)
Minority interest 0 8
------- -------
Net cash provided by operating activities 9,500 4,792
------- -------
Cash flows from investing activities:
Proceeds from sale of investment securities
available for sale 256 1,091
Proceeds from maturities of investment
securities available for sale 22,726 32,102
Purchase of investment securities
available for sale (48,962) (22,069)
Proceeds from maturities of investment
securities held to maturity 4,670 3,889
Purchase of investment securities
held to maturity (8,395) (15,514)
Net increase in loans (32,536) (56,800) (82,039) (56,800)
Capital expenditures (604) (4,272) (1,358) (4,272)
Proceeds from sale of equipment 322 240
Proceeds from sale of other real estate 912 290
Payment for purchase of stock of
subsidiary banks, net of cash received 9,101 (350)
------- -------
Net cash used in investing activities (102,767) (61,393)
------- -------
Cash flows from financing activities:
Net increase in deposits 17,517 19,338
Net increase in short-term borrowings 34,861 28,862
Dividends paid (3,247) (2,536)
Net increase (decrease) in other borrowings 34,185 (10,835)
Net proceeds options exercised 67 101
------- -------
Net cash provided by financing activities 83,383 34,930
------- -------
Net decrease in cash and cash equivalents (9,884) (21,671)
Cash and cash equivalents at beginning of period 68,040 67,876
------- -------
Cash and cash equivalents at end of period $58,156 $46,205
======= =======
</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
JUNE 30, 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 and Wisconsin Ban Corp., acquired on May 30, 1997. These transactions
have 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 and June 9, 1997. Information as to the number
of shares outstanding has not been adjusted. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
fair presentation have been included.
NOTE B - INVESTMENT SECURITIES
Carrying amounts and market values of investment securities held to
maturity at June 30, 1997 are as follows:
<TABLE>
<CAPTION>
Carrying Market
Amount Value
------ -----
(in thousands)
<S> <C> <C>
Exempt obligations of states and political subdivisions $112,623 $115,639
======== ========
</TABLE>
NOTE C - LOANS
At June 30, 1997, loans are as follows:
(in thousands)
<TABLE>
<S> <C>
Commercial and industrial $ 199,925
Agricultural 61,336
Real estate construction 36,707
Real estate mortgage 682,183
Installment and other consumer 87,537
----------
1,067,688
Less allowance for loan losses (13,090)
----------
Net loans $1,054,598
==========
</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 9,005,812 and 8,311,457 for the three months ended
June 30, 1997 and 1996 and 9,004,745 and 8,309,818 for the six months ended June
30, 1997 and 1996, respectively.
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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 June 30, 1997:
<TABLE>
<CAPTION>
<S> <C> <C>
(in thousands)
Non-accrual loans $9,766 0.91%
Loans past due 90 days or more 73 0.01
Restructured loans 534 0.05
------ ----
Total non-performing loans 10,373 0.97
Other real estate owned 1,860 0.18
------ ----
Total non-performing assets $12,233 1.15%
====== ====
</TABLE>
NOTE F - SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes loan balances at June 30, 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:
<TABLE>
<CAPTION>
<S> <C>
(in thousands)
Average balance of loans year to date $1,025,915
==========
Allowance for loan losses at
beginning of period 11,447
Loans charged off
Commercial and Industrial 295
Real Estate - Mortgage 150
Installments and Other Consumer Loans 324
----------
Total charge offs 769
Recoveries on loans previously
charged off
Commercial and Industrial 47
Real Estate - Mortgage 82
Installment and Other Consumer Loans 62
-------
Total recoveries 191
Net loans charged off 578
Provisions for loan losses of banks
acquired at date of acquisition 965
Provisions for loan
losses 1,256
-----
Allowance for loan losses
at end of period $13,090
=======
Ratio of net charge offs
during period to average
loans outstanding (annualized) 0.11%
Allowance for loan
losses to total loans 1.23%
</TABLE>
-8-
<PAGE> 9
NOTE G - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table summarizes the allocation of allowances for loan
losses and gives a breakdown of the percentage of loans in each category at
June 30, 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 $ 5,365 24.5%
Real estate -
construction 276 3.4
Real estate - mortgage 4,901 63.9
Installment and other
consumer loans 2,548 8.2
------- ------
$13,090 100.0%
======= ======
</TABLE>
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<PAGE> 10
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding
F & M Bancorporation, Inc.'s (the "Company") results of operations for the
three and six months ended June 30, 1997 and 1996 and financial condition at
June 30, 1997. These statements have been restated to reflect the acquisition
of Community State Bank ("Community"), acquired on June 28, 1996 and Prairie
City Bank acquired on May 30, 1997. These transactions have 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 dividends,
paid to shareholders on June 10, 1996 and June 9, 1997. Information as to the
number of shares outstanding has not been adjusted.
The Company has announced two pending acquisition which, if
consummated, would affect the Company's future operations. In June 1997, the
Company announced that it had entered into a letter of intent to acquire Sentry
Bancorp. Inc., Dundas, Minnesota, a holding company of the Cannon Valley Bank,
which has an offices in Dundas, with total assets of approximately $25 million.
The company intends to account for this pending acquisition using the purchase
method of accounting. A definitive agreement was signed with Security Bank,
S.S.B., in June 1997 for the Company to purchase its branch located in Antigo,
Wisconsin. In the transaction, F&M will acquire approximately $35 million of
deposits of the Antigo office, the building and fixed assets. The company
expects to account for this acquisition using the purchase method of
accounting. Consummation of these acquisitions is expected in the third and
forth 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.
SUBSEQUENT EVENTS
On August 12, 1997 the Company acquired 100% of the outstanding shares of
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. The Company issued
161,040 shares of Common Stock in the transaction. On August 14, 1997 the
Company is scheduled to acquired 100% of the outstanding shares of Citizens
National Bancorporation, Inc. the holding company of Citizens National Bank of
Darlington ("Darlington Bank"). Darlington Bank has two offices, in Darlington
and Hazel Green (in southwest Wisconsin), with total assets of $75 million.
The Company intends to account for these acquisitions using the pooling of
interests method of accounting.
RESULTS OF OPERATIONS
For the three months ended June 30, 1997, net income increased $1.0
million, or 28.0%, to $4.6 million from $3.6 million in the second quarter of
1996. The annualized return on average assets was 1.34% for the second quarter
of 1997 compared with 1.27% for the second quarter of 1996. Returns on average
stockholders' equity on an annualized basis for the second quarters of 1997 and
1996 were 14.57% and 13.73%, respectively.
For the six months ended June 30, 1997, net income increased $1.7 million,
or 22.5%, to $9.1 million from $7.4 million in the first half of 1996. The
annualized return on average assets was 1.33% for the six months ended June 30,
1997 compared with 1.32% for the first half of 1996. Return on average
stockholders' equity on an annualized basis for the six months ended June 30,
1997 and 1996 were 14.55% and 14.11%, respectively.
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<PAGE> 11
Net Interest Income
Net interest income for the three months ended June 30, 1997 increased
$2.4 million, or 18.8%, to $14.9 million from $12.5 million in the second
quarter of 1996. Total interest income for the second quarter of 1997
increased $5.1 million, or 22.5%, to $28.0 million from $22.9 million in the
second quarter of 1996. Interest expense increased $2.8 million, or 27.0%, to
$13.1 million in the second quarter of 1997 from $10.3 million in the second
quarter of 1996.
Net interest income for the six months ended June 30, 1997 increased $4.1
million, or 16.7%, to $28.8 million from $24.6 million in the first half of
1996. Total interest income for the six months ended June 30, 1997 increased
$9.3 million, or 20.6%, to $54.2 million from $44.9 million in the first half
of 1996, while interest expense increased $5.1 million, or 25.3%, to $25.4
million in the six months ended June 30, 1997 from $20.3 million in 1996.
Increased net interest income for the three and six month periods 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 and six month period in
1997 compared to the same periods 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 and six month periods in 1997 compared to 1996 as a result of increased
levels of deposits primarily due to acquisitions.
Provision for Loan Losses
The provision for loan losses for the three months ended June 30, 1997
increased $456,000, or 109.6%, to $872,000 from $416,000 in the second quarter
of 1996. The provision for loan losses for the six months ended June 30, 1996
was $1.3 million, a 47.7% increase from $850,000 for the six months ended June
30, 1996. This increase in the provision for the first six months was due
mainly to increased charge offs and an increase in the loan portfolio. Despite
the increase in charge offs and the increase in the loan portfolio for the
first six months the Company was able to maintain the loan loss reserve as a
percentage of loans at 1.23% due to an increased provision and recovery
activity. 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 June 30, 1997 increased $778,000, or 55.6%, to $2.2 million from $1.4
million in the second quarter of 1996. Non-interest income for the six months
ended June 30, 1997 increased $1.1 million, or 37.4%, to $3.9 million. The
increase was due principally to increases in service charges, other fee income
and security gains. Increases for both the three and six month periods were
due primarily to increases in service charges, other fee income, resulting from
increase customer activity and the acquisitions in which prior period
information was not restated.
Non-Interest Expense
Non-interest expense for the three months ended June 30 1997 increased
$1.5 million, or 19.2%, to $9.5 million from $7.9 million in the second quarter
of 1996. Non-interest expense for the six months ended June 30, 1997 increased
$2.7 million, or 17.0% to $18.4 million from $15.7 million in the first half of
the year. The 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 2.14% in the first half of 1997 compared with
2.25% in the first half of 1996. The decrease in this ratio in the first half
of 1997 was the result of the factors set forth above.
-11-
<PAGE> 12
Provision for Income Taxes
The Company's provision for income taxes for the three months ended June
30, 1997 increased $140,000, or 7.1%, to $2.1 million from $2.0 million in the
second quarter of 1996. The increase in income tax provision was principally
due to increased taxable income.
The provision for income taxes for the six months ended June 30, 1997
increased $443,000 , or 12.5% to $4.0 million from $3.5 million in 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 $1.0 million, or
28.0% to $4.6 million from $3.6 million in the same period for 1996. Net
income for the first half of 1997 increased by $1.7 million, or 22.5%, to $9.1
million from $7.4 million in the first half of 1996.
Net income per common share was $0.52 for the second quarter of 1997
compared with $0.44 in the second quarter of 1996 an increase of 18.2%.
Although the Company adopted a stock option plan in 1993, as of June 30, 1997,
fully diluted earnings per share are equal to the stated earnings per share
numbers. The increase in shares outstanding resulted primarily from
acquisitions for which prior period financial statements were not restated.
Net income per share was $1.01 for the first half of 1997, compared with
$0.89 in the same period for 1996, an increase of 13.5%. As of June 30, 1997,
fully diluted earnings per share are equal to the stated earnings per share
numbers.
FINANCIAL CONDITION
Loan Portfolio
At June 30, 1997, total loans increased $146.2 million, or 15.9%, to
$1.068 billion from $921.5 million at December 31, 1996. The loan mix in the
Company's portfolio at June 30, 1997 did not change in any material respect
compared with December 31, 1996. Approximately $66 million in loans, or 45% of
the first half of the year's growth, resulted from acquisitions in which the
Company did not restate its prior financial statements and the remaining
balance resulted primarily from loan demand spread throughout the Company's
subsidiary banks.
Non-Performing Assets
Maintaining excellent credit quality continues to be a priority for the
Company. At June 30, 1997, non-performing assets amounted to $12.2 million,
compared to $12.8 million at December 31, 1996. Non-performing loans at June
30, 1997 were $10.4 million, or 0.97% of total loans, compared to $11.0 million
at December 31, 1996. Other real estate owned ("OREO") at June 30, 1997 was
$1.7 million as compared to $1.8 million at December 31, 1996. The ratio of
non-performing assets to total loans at June 30, 1997 was 1.15%. Management
continues to work at reducing the level of non-performing assets.
Non-performing assets increased in 1996 because of acquisitions and
developments with respect to a number of separate loans, in different locations
and industries, and decreased slightly in the first half of 1997 due to
write-offs, and improvements in repayments of non-performing loans offset by
non-performing loans of banks acquired in 1997 for which prior periods were not
restated. 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 half of 1997, total charge-offs were $769,000 and total
recoveries were $191,000. The annualized ratio of net charge-offs to average
loans outstanding for the six months ended June 30, 1997 was 0.11%. The
charge-offs were not concentrated in any particular industry.
-12-
<PAGE> 13
Allowance for Loan Losses
At both June 30, 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 June 30, 1997, the investment portfolio increased $41.8 million, or
18.1%, to $272.4 million from $230.7 million at December 31, 1996. At June 30,
1997 and December 31, 1996, the investment portfolio represented 18.9% and
18.3% of total assets, respectively. Increases in the investment portfolio is
primarily attributed to acquisitions that have not been restated and due to the
Company's decision to increase the investment portfolio.
Deposits
Total deposits at June 30, 1997 increased $92.2 million, or 8.6%, to
$1.167 billion from $1.075 billion at December 31, 1996. Interest-bearing
deposits at June 30, 1997 increased $84.6 million, or 9.1%, to $1.014 billion
from $929 million at December 31, 1996. The increase in deposits is primarily
attributable to the two acquisitions in the first quarter of 1997 representing
approximately 76 million that have not been restated. The Antigo acquisition
will result in a cash payment to the Company in consideration of the assumption
of deposit liabilities.
Borrowings
Short-term borrowings at June 30, 1997 were $76.9 million, as compared to
$42.0 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.
Several of the Company's subsidiary banks, as members of the Federal Home
Loan Bank (FHLB), had borrowings from the FHLB as of June 30, 1997. These
borrowings are secured by pledges of mortgage loans, and totaled $53.4 million
at June 30, 1997, compared to $18.2 million at December 31, 1996. These FHLB
borrowings had original maturities of three months to nine years at June 30,
1997.
CAPITAL ADEQUACY
During the first half of 1997, stockholders' equity increased $16.7
million due to net income of $9.1 million in the first half of 1997 and the
acquisitions of East Troy and Brodhead, offset by dividends paid to
stockholders and a slight increase due to the effect of FASB 115 resulting from
the decreased net unrealized loss on securities available for sale. At June
30, 1997, the Company's risk-based Tier 1 capital ratio was 11.42%. The total
risk-based capital ratio was 12.62% and the leverage ratio was 8.93%. All such
ratios exceed regulatory minimums of 4.0%, 8.0% and 3.0%, respectively. The
average equity to average assets ratio was 9.17% at June 30, 1997, compared
with 9.32% at June 30, 1996.
F & M's common stock dividend payout ratio was 32.8% in the first half of
1997 as compared to 29.0% in the comparable 1996 period. These numbers do not
include the dividends historically paid by Prairie, Community, Monycor,
Brodhead and East Troy prior to their acquisitions by the Company.
At June 30, 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 half of the year 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. The Company expects to finance the cash purchase of Cannon
Valley Bank through earnings and existing capital resources.
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<PAGE> 14
LIQUIDITY
As shown in the Company's Consolidated Statements of Cash Flows for the
six months ended June 30, 1997, cash and cash equivalents decreased by $9.9
million during the period to $58.2 million at June 30, 1997. The decrease
primarily reflected $9.5 million in net cash provided by operating activities
and $83.4 million in net cash provided by financing activities, offset by $102.8
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.
-14-
<PAGE> 15
OTHER
SFAS No. 114 (Accounting by Creditors for Impairment of a Loan) as amended
by SFAS No. 118 (Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures) was adopted by the Company as of January 1, 1995.
In accordance with the new standard, the 1995 allowance for loan losses
includes specific allowances related to loans which have been judged to be
impaired and which fall within the scope of SFAS No. 114 (primarily commercial
loans). A loan is impaired when, based on current information, it is probable
that the Company will not collect all amounts due in accordance with the
contractual terms of the loan agreement. These specific allowances are based
on discounted cash flows of expected future payments using the loan's initial
effective interest rate or the fair value of the collateral if the loan is
collateral dependent. Since the Company evaluates the overall adequacy of the
allowance for credit losses on an ongoing basis, the adoption of SFAS No. 114
did not affect the amount of the allowance for credit losses or the existing
income recognition and charge-off policies for nonperforming loans.
SFAS No. 121 (Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of) was issued by FASB in March 1995. SFAS
No. 121 requires long-lived assets and certain intangibles to be held and used
by an entity be reviewed for impairment whenever events or changes in
circumstances indicate the carrying amount of an asset may not be recoverable.
The statement also requires long-lived assets and certain intangibles to be
disposed of or be reported at the lower of carrying amount or fair value less
cost to sell. This statement was adopted by the Company effective January 1,
1996. The adoption of SFAS No. 121 did not have a significant impact on the
Company's financial condition or results of operations 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 Disclosure about Market Risk
Not Applicable.
-15-
<PAGE> 16
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Exhibit Index, which follows the
signature page hereof.
(b) Reports on Form 8-K:
The Registrant filed one report on Form 8-K during the
second quarter of fiscal 1997. The Report, dated May 30,
1997, related to the Registrant's acquisition of Wisconsin
Ban Corp. ("WCB") on that date.
-16-
<PAGE> 17
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
F & M BANCORPORATION, INC.
--------------------------------
(Registrant)
Date August 13, 1997 /s/ Daniel E. Voet
--------------- --------------------------------
Daniel E. Voet
Chief Financial Officer and Treasurer
<PAGE> 18
EXHIBIT INDEX
F & M BANCORPORATION, INC.
Form 10-Q for Quarter Ended June 30, 1997
Exhibit No. Description
----------- -----------
27 Financial Data Schedule
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<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> US
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 46,973
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 11,183
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<INVESTMENTS-HELD-FOR-SALE> 159,824
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<LOANS> 1,067,688
<ALLOWANCE> 13,090
<TOTAL-ASSETS> 1,440,070
<DEPOSITS> 1,167,455
<SHORT-TERM> 76,908
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9,041
0
<COMMON> 0
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<INTEREST-TOTAL> 54,196
<INTEREST-DEPOSIT> 22,980
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<INTEREST-INCOME-NET> 28,753
<LOAN-LOSSES> 1,256
<SECURITIES-GAINS> 69
<EXPENSE-OTHER> 18,353
<INCOME-PRETAX> 13,036
<INCOME-PRE-EXTRAORDINARY> 13,036
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,051
<EPS-PRIMARY> 1.01
<EPS-DILUTED> 1.01
<YIELD-ACTUAL> 4.74
<LOANS-NON> 10,300
<LOANS-PAST> 73
<LOANS-TROUBLED> 0
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<ALLOWANCE-OPEN> 11,447
<CHARGE-OFFS> 769
<RECOVERIES> 191
<ALLOWANCE-CLOSE> 13,090
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