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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
F O R M 1 0 - K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
December 31, 1996
For the fiscal year ended ___________________________________________
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to ____________________
Commission file number 0-14553
F & M BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1365327
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(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
ONE BANK AVENUE, KAUKAUNA, WISCONSIN 54130
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 766-1717
------------------
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: COMMON STOCK, $1.00
PAR VALUE
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of March 14, 1997, there were 7,606,124 shares of Common Stock outstanding,
and the aggregate market value of the Common Stock (based upon the $30.375
closing sale price on that date on the NASDAQ National Market) held by
non-affiliates (excludes a total of 454,335 outstanding shares reported as
beneficially owned by directors and officers -- does not constitute an admission
as to affiliate status) was approximately $217.2 million.
DOCUMENTS INCORPORATED BY REFERENCE
PART OF FORM 10-K INTO WHICH
DOCUMENT PORTIONS OF DOCUMENTS ARE INCORPORATED
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Proxy Statement for Annual Meeting of Part III
Shareholders on April 22, 1997
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PART I
ITEM 1. BUSINESS.
F&M Bancorporation, Inc. ("F&M" or the "Company") 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 15-bank holding company with total assets of $1.2 billion at
December 31, 1996.
In January 1997, F&M acquired East Troy Bancshares, Inc. ("ETB"), the
holding company of State Bank of East Troy, with total consolidated assets of
$56.0 million at December 31, 1996. In February 1997, F&M acquired Green
County Bank ("GCB"), with total assets of $31.5 million at December 31, 1996.
See "Recent Developments" below. Giving effect to the ETB and GCB acquisitions,
F&M had pro forma total assets of $1.3 billion at December 31, 1996. The
acquisitions of ETB and GCB are being accounted for using the pooling of
interests method of accounting; however, because the ETB and GCB acquisitions
occurred in 1997, all financial information and data included in this annual
report on Form 10-K are prior to restatement for those transactions unless
otherwise indicated. F&M does not believe that the restatement for the
acquisitions will have a material effect on its financial condition or results
of operations.
Unless otherwise indicated, share and per share amounts in this Report
on Form 10-K have been restated to reflect F&M's 10% stock dividend in June
1996.
Recent Developments
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Proposed Prairie du Chien Acquisition. In October 1996, F&M announced
the proposed acquisition of Wisconsin Ban Corp. ("WBC"), the holding company of
Prairie City Bank ("PCB"). A definitive agreement was signed in March 1997.
PCB, with its main office in Prairie du Chien, has five offices in southwest
Wisconsin. In the letter of intent relating to the proposed acquisition, F&M
has offered to acquire WBC in exchange for 575,000 shares of F&M Common. Also,
outstanding WBC preferred stock will be redeemed for approximately $320,000 in
cash. F&M intends to account for the transaction using the pooling of
interests method of accounting. The acquisition remains subject to WBC
shareholder approval, regulatory approvals, and other customary conditions.
While there can be no assurances, F&M expects that the WBC transaction will be
consummated in the second quarter of 1997.
At December 31, 1996, WBC had total assets of $87.3 million, net loans
of $56.0 million, total deposits of $69.9 million and shareholders' equity of
$8.5 million. For the year ended December 31, 1996, WBC had net income of
$740,000.
Proposed Darlington Acquisition. 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). Under the Agreement, F&M
would acquire CNB in exchange for shares of F&M Common in an exchange ratio set
forth in the Agreement; it is estimated that approximately 525,000 shares of
F&M Common would be issued in the transaction (subject to adjustments provided
in the Agreement). F&M intends to account for the transaction using the pooling
of interest method of accounting. The acquisition remains subject to CNB
shareholder approval, regulatory approvals, and other customary conditions.
While there can be no assurances, F&M expects that the CNB transactions will be
consummated in late 1997.
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At December 31, 1996, CNB had total assets of $75.3 million, net loans
of $48.9 million, total deposits of $65.2 million and shareholder's equity of
$9.5 million. For the year ended December 31, 1996, CNB had net income of
$653,000.
Brodhead Acquisition. On February 27, 1997, F&M acquired Green County
Bank ("GCB"), with one office in Brodhead in south-central Wisconsin. GCB has
been renamed "F&M Bank-Brodhead." F&M acquired GCB in exchange for 182,967
shares of F&M Common Stock ("F&M Common"), in a formula amount set forth in the
definitive acquisition agreement; the total value of those shares was
approximately $5.4 million for purposes of the agreement. F&M is accounting for
the transaction using the pooling of interests method of accounting, although
periods prior to January 1, 1997 will not be restated because of the relatively
small size of GCB as compared to F&M.
At December 31, 1996, GCB had total assets of $31.5 million, net loans
of $21.5 million, total deposits of $28.1 million and shareholders' equity of
$3.2 million. For the year ended December 31, 1996, GCB had net income of
$287,000.
East Troy Acquisition. On January 10, 1997, F&M acquired East Troy
Bancshares, Inc. ("ETB"), which owned all of the shares of State Bank of East
Troy (renamed "F&M Bank-East Troy"), with one office in East Troy in southeast
Wisconsin. F&M's acquisition of ETB was made in exchange for 439,993 shares of
F&M Common, valued for purposes of the transaction at $13.5 million for purposes
of the agreement. F&M is accounting for the transaction using the pooling of
interests method of accounting, although periods prior to January 1, 1997 will
not be restated because of the relatively small size of ETB as compared to F&M.
At December 31, 1996, ETB had total assets of $56.0 million, net loans
of $43.2 million, total deposits of $46.6 million and shareholders' equity of
$7.7 million. For the year ended December 31, 1996, ETB had net income of
$224,000.
Algoma Acquisition. On June 28, 1996, F&M acquired Community State Bank
("CSB") (renamed "F&M Bank-Algoma"). In the transaction, the outstanding shares
of common stock of CSB were converted into 423,172 shares of F&M Common, in a
conversion ratio determined pursuant to a formula set forth in the Agreement.
CSB became a wholly-owned F&M subsidiary.
At December 31, 1995, CSB had total assets of $53.2 million, net loans
of $19.7 million, total deposits of $44.5 million, and shareholders' equity of
$8.2 million. For the fiscal year ended December 31, 1995, CSB had net income of
$629,000. F&M accounted for the CSB acquisition using the pooling of interests
method of accounting, and has restated prior period financial statements.
Tomahawk Acquisition. On May 10, 1996, F&M acquired Bradley Bank
("Bradley") from its holding company and minority shareholders. Bradley had two
full service offices in Tomahawk, Wisconsin which became branches of F&M
Bank-Lakeland through a merger of Bradley into F&M Bank-Lakeland. The Bradley
acquisition was made for approximately $6.6 million in cash.
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 has been accounted for using the
purchase method of accounting, which means that its assets, liabilities and
financial results are reflected only from and after the date of acquisition.
Little Chute Acquisition. On April 26, 1996, F&M acquired the Little
Chute branch office of TCF Bank Wisconsin, fsb. The acquisition included the
purchase of fixed assets and the assumption of deposit liabilities by F&M
Bank-Kaukauna. The acquisition was a cash transaction, in which F&M purchased
the fixed assets of the Little Chute branch, and was reimbursed in cash
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(reduced by an agreed-upon premium) by TCF for the assumption of deposits. At
April 26, 1996, the TCF Little Chute branch office had total deposits of
approximately $7.5 million.
Superior Acquisition. On February 5, 1996, F&M acquired Monycor
Bancshares, Inc. ("Monycor") which 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 173,319 shares of F&M
Common, valued for purposes of the transaction at $3.6 million. F&M
subsequently acquired the remaining minority interest in F&M Bank-Superior.
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 accounted for the Monycor transaction using
the pooling of interests method of accounting. However, because the effect of
the transaction on financial statements is not material, F&M is not restating
financial results prior to January 1, 1996 to reflect the Monycor acquisition.
Additional and Changed Office Locations. In July 1996, F&M
Bank-Northeast opened a second full service Green Bay office as a de novo
branch office. In November 1996, F&M Bank-Kaukauna opened a full-service
supermarket branch in Little Chute, Wisconsin, to complement the branch
acquired in Little Chute earlier in the year.
In October 1996, F&M Bank-Portage County consolidated its main office
in Park Ridge and branch office in Custer into a new location on the east side
of Stevens Point, between those two former locations. In addition, in January
1997, F&M Bank-Portage County relocated its Amherst Junction branch to a new
branch in Amherst, approximately three miles away. In March 1996, F&M
Bank-Lancaster closed its previous main office and relocated, consolidating its
Lancaster operations and former branch location which was expanded to serve are
a customers through a single location.
Subsidiary Banks
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F&M owns 17 subsidiary banks (the "Banks" or the "F&M Banks"), all of
which are Wisconsin state banks, and each of which (other than recently
acquired banks which have not yet applied for membership) 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 the Banks to operate with considerable autonomy.
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The following table presents certain information as to the F&M Banks.
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 3/31/97 AT 12/31/96
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(in millions)
<S> <C> <C> <C>
F&M Bank-Kaukauna 1980 5 $119.6
F&M Bank-Appleton 1981 3 60.7
F&M Bank-Hilbert 1983 3 29.4
F&M Bank-Winnebago County 1985 3 93.5
F&M Bank-New London 1987 1 32.7
F&M Bank-Portgage County 1987 2 74.2
F&M Bank-Fennimore 1988 1 46.3
F&M Bank-Potosi 1988 2 33.4
F&M Bank-Lancaster 1990 1 42.6
F&M Bank-Lakeland 1991 7 149.1
F&M Bank-Kiel 1991 1 43.6
F&M Bank-Northeast 1994 11 259.3
F&M Bank-Waushara County 1995 5 101.2
F&M Bank-Superior 1996 1 32.1
F&M Bank-Algoma 1996 2 51.0
F&M Bank-East Troy 1997 1 56.2
F&M Bank-Brodhead 1997 1 31.5
</TABLE>
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(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.
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.
Markets
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F&M Banks provide services through a total of 50 full service offices in
41 Wisconsin communities. In recent years, the economic and business environment
in the State of Wisconsin has been relatively strong and stable. The communities
in which the F&M Banks maintain offices range in population from almost 100,000
to less than 500. Although many of the communities in which the F&M Banks are
located are relatively small, they generally have diverse economies with
representation from many industry groups. In 21 communities, F&M Banks maintain
the only commercial bank offices in those communities. Each F&M Bank branch
provides complete retail banking services and full service banking for personal,
commercial and service industry customers.
F&M's largest markets are in east-central, northeast and adjacent areas
of central Wisconsin, particularly in and near the group of cities and smaller
communities from Oshkosh to
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Green Bay locally known as the "Fox River Valley." This area includes F&M's
Fox Valley, Northeast and Central Regions. F&M's Fox Valley Region includes
F&M Banks-Appleton, Hilbert, Kaukauna, Kiel and New London. F&M's Northeast
Region includes F&M Banks-Algoma and Northeast. F&M's Central Region includes
F&M Banks-Portage County, Waushara County and Winnebago County.
F&M Banks-Fennimore, Potosi and Lancaster are located in Grant County in
southwest Wisconsin, and together with F&M Bank-Brodhead in south-central
Wisconsinand F&M Bank-East Troy in southeast Wisconsin make up F&M's Southern
Region. PCB and Darlington Bank would also be part of the Southern Region.
F&M's Northern Region consists of F&M Bank-Lakeland in north-central Wisconsin
and F&M Bank-Superior in northwestern Wisconsin.
Acquisition and Expansion Strategy
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The Company's strategy is to continue to grow by actively pursuing
opportunities to acquire other financial institutions and by establishing or
acquiring additional branches. The Company's primary geographic area of focus
for expansion is small metropolitan areas and other communities in Wisconsin.
Although it is not currently pursuing out-of-state acquisitions, it would
consider appropriate opportunities in contiguous states should they arise. The
Company generally concentrates on acquisitions of banks with $25 million or
more in assets, although it would consider acquiring a smaller institution if
the Company would be able conveniently and economically to operate it as a
branch of a nearby Bank or other attractive factors exist.
In addition to the acquisitions described above under "Recent
Developments," in the past five years, F&M has consummated four other
acquisitions:
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. In the USB transaction, F&M issued
814,617 shares of F&M Common in the transaction, valued for purposes of the
transaction at $16.2 million, for over 99% of USB. 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. F&M accounted for the USB
transaction using the pooling of interest method of accounting.
Pulaski Acquisition. On March 21, 1994, F&M acquired Pulaski Bancshares,
Inc. ("PBI") and its wholly-owned subsidiary Pulaski State Bank
(subsequently renamed "F&M Bank-Pulaski" and merged as part of F&M
Bank-Northeast). The PBI acquisition enhanced F&M's presence in northeast
Wisconsin. In the PBI transaction, outstanding shares of PBI common
stock, and share equivalents subject to outstanding PBI options, were
converted into shares of F&M Common. In the merger, F&M issued a total of
953,935 shares of F&M Common, and assumed an option which was converted into
an option to purchase 15,900 shares of F&M Common. At December 31, 1993,
PBI had total assets of $79.9 million and shareholders' equity of $9.2
million. F&M accounted for the PBI transaction using the pooling of
interests method of accounting.
First National Acquisition. On February 11, 1994, F&M acquired First
National Financial Corporation ("FNFC") and its wholly-owned subsidiary
First National Bank of Wisconsin ("Northeast Bank"), which has been renamed
"F&M Bank-Northeast" and converted to a Wisconsin state bank. The FNFC
acquisition established F&M's presence in Wisconsin areas northeast of the
Fox River Valley. In the FNFC transaction, outstanding shares of FNFC
common stock were converted into shares of F&M Common, resulting in the
issuance of 382,061 shares of F&M Common. The then outstanding shares of
FNFC preferred stock were converted into cash at their redemption value
(plus accrued dividends), for aggregate
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cash payments of $2.1 million. Also, F&M repaid certain corporate debt of
FNFC to a third party bank in the amount of $4.5 million, including accrued
interest. At December 31, 1993, FNFC has total assets of $106.3 million
and common shareholders' equity of $3.2 million. F&M accounted for the
FNFC transaction using the pooling of interests method of accounting.
Park Ridge. In September 1993, the Company acquired Park Ridge Bancshares,
Inc. ("Park Ridge"), a Wisconsin bank holding company and its wholly-owned
subsidiary, Bank of Park Ridge (now "F&M Bank-Portage County"), in a stock
transaction valued at $3.3 million. The acquisition of Park Ridge allowed
the Company to establish a presence in Stevens Point and complemented two
nearby offices of F&M Bank-Amherst Junction, which was subsequently
merged into F&M Bank-Portage County. At June 30, 1993, Park Ridge had
total assets of $27.1 million and shareholders' equity of $2.2 million. The
acquisition of Park Ridge was accounted for as a pooling of interests.
The Company's acquisition strategy also focuses on past performance of the
target, management strengths and weaknesses, location, community demographics,
relative health of the local economy, organizational structure of the target,
size of the target and consideration for the acquisition. In evaluating these
criteria, management considers the alternatives and costs associated therewith
to enter a particular market, and the impact of the proposed acquisition on the
Company's earnings and stock price.
To supplement the presence it has established in various markets, and to
expand to new markets, the Banks will from time to time open additional branch
offices, including supermarket and other non-traditional branches, in
communities which warrant additional coverage. Since 1988, the Banks have
established de novo branches in Appleton (two), Darboy, Green Bay (two),
Kaukauna, Little Chute, Minocqua and Oshkosh. The Company will also consider
branch purchases, as in the case of Little Chute, the relocation of bank
offices to more attractive locations, as it has done in Stevens Point, Amherst
and Lancaster, and closing of branch offices where warranted.
The Company believes that its experience in making acquisitions and in
assimilating acquired institutions into the Company's system, as well as its
philosophy of permitting significant independence of the management of the
Banks, position the Company well to take advantage of future expansion
opportunities. The Company believes that its experience with, and willingness
to acquire banks in smaller communities gives it an advantage in responding to
certain acquisition opportunities. These opportunities may be created by
management succession needs, desires to obtain assistance in responding to
increasing regulatory requirements, bank shareholder liquidity needs and
similar situations.
Since its inception, the Company 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.
Business Planning and Marketing
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Company-wide plans are set each year, both for F&M and for the Banks, and
are developed after substantial input from and consultation with Bank
personnel. Progress is regularly monitored in meetings with Bank employees and
in system-wide reports. F&M also uses compensation and performance incentives
for all of its employees to help achieve the plan targets.
F&M developed "Lifestyle Banking" for implementation by the Banks to
bolster each of their marketing efforts in the communities they serve.
Lifestyle Banking seeks to attract new customers and create broad banking
relationships with customers by focusing on their varying needs rather
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than attempting to design products and services of general application or
aggressively price a particular product or service. Bank Employees are trained
to recognize customer needs and take additional responsibility and initiative
in marketing the Bank's products and services to provide more individualized
customer service. Lifestyle Banking is also designed to provide a continuing
customer-level source of ideas to help the Banks better serve their customers
and communities.
Lending and Investments
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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 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.
Real Estate Loans. Real estate loans include residential mortgages and
agricultural real estate, commercial real estate and construction loans. On a
company-wide basis, real estate leading represents F&M's largest category of
loans outstanding. At December 31, 1996, residential, commercial and
agricultural real estate loans represented approximately 64.6% of loans
outstanding, the majority of which consists of residential real estate first
mortgages, with real estate construction loans approximating an additional 4.2%
of the portfolio.
F&M originates residential mortgage loans which generally are long-term,
with either fixed or variable interest rates. F&M's general policy, which is
subject to review by management as a result of changing market and economic
conditions, and other factors, is to retain all variable interest rate mortgage
loans in its portfolio and to sell all long-term fixed interest rate mortgage
loans to the secondary market, but retaining servicing rights to some of those
loans. Variable interest rate real estate loans are generally repriceable on
an annual basis or may be adjusted at F&M's discretion. All commercial and
agricultural real estate loans are written on an adjustable basis, the majority
of which are tied to the prime rate, or short-term fixed rate basis. F&M
believes the most significant risks relating to real estate loans result from
possible declines in value of the real estate securing loans, as well as the
borrower's ability to repay.
Commercial and Industrial Loans. Loans in this category principally
include loans to service, retail, wholesale and manufacturing businesses. At
December 31, 1996, approximately 19.5% of loans outstanding were in this
category. The F&M Banks provide both secured and unsecured loans and lines of
credit for the operations and expansion needs of local business. The F&M Banks
generally look to borrower's business operations as the principal source of
repayment, but they also receive, when appropriate, mortgages on real estate,
security interests in inventory, accounts receivable and other personal
property, and/or personal guaranties. Repayment risk relating to commercial
and industrial loans generally relates to the success or failure of the
underlying business enterprise.
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Agricultural Loans. There is a strong focus on the agricultural industry
in many of the communities in which F&M Banks' offices are located. The
industry agricultural products produced in these communities vary significantly,
and include dairy, livestock, vegetables and other cash crops. At December 31,
1996, approximately 5.4% of loans outstanding were made to agricultural
producers, excluding agricultural real estate lending which constitutes an
additional approximately 4.7% of loans. These loans are in a variety of
communities and relate to a variety of agricultural commodities, thus lessening
F&M's exposure to weaknesses in any one geographical area or type of
agricultural production. Because of the breadth and relative health of
Wisconsin's agricultural industries, F&M has not experienced significant
system-wide problems in agricultural-related loans. Credit risks relating to
agricultural loans generally depend upon varying commodity prices and crop
conditions which affect agricultural producers.
Installment and Other Consumer Loans. F&M makes installment and other
consumer loans, including automobile loans, home improvement loans and personal
lines of credit. At December 31, 1996, approximately 6.3% of the loans were
installment or other consumer loans. F&M believes that consumer loans often
represent the beginning of a long-term banking relationship with new customers.
Credit risks relating to installment and consumer loans include the risks
relating to the repayment capacity of the borrower involved and the
depreciation of the assets used as collateral for such loans.
Other Investments. F&M maintains a diversified portfolio of investments,
primarily consisting of U.S. Treasury securities, obligations of U.S.
government corporations and agencies, and obligations of states and their
political subdivisions. The portfolio includes limited mortgage-backed
securities. F&M attempts to balance its portfolio to meet its liquidity needs
while endeavoring to maximize investment income, and to maximize tax
advantages.
Deposits
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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 deposits. Deposits at each F&M Bank are
insured by the Federal Deposit Insurance Corporation ("FDIC") 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.
Other Customer Services and Products
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Other aspects of the business of the Banks include safety deposit box
services, and the sale and purchase of U.S. government securities, obligations
of U.S. government agencies, obligations of state and political subdivisions
and other similar securities. The Banks use repurchase agreements on a limited
basis, primarily with municipal customers.
Certain of the Banks have established "Investment Centers" which, through
arrangements with other service providers, offer securities brokerage services,
annuities, and mutual fund products in addition to the other banking products
and services offered by the Banks. Currently, only F&M Banks-Kaukauna and
Lancaster offer trust services. F&M intends to establish a separate trust
company subsidiary and, subject to regulatory approval, the Company expects to
begin operations of trust services through the subsidiary in late 1997.
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Administration of the Banks
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Although each of the Banks operates with a significant level of
independence, F&M has centralized operations for certain functions, and makes
available its corporate staff and centralized resources for other functions upon
request. In early 1997, the Corporation reorganized its bank subsidiaries
under five regions, with teams of bank and holding company officers to oversee
the operations of the Banks within those regions.
Credit-Related Services. Initial customer credit decisions are made
by the local management of each Bank. To assist local management and to
maintain system-wide credit standards, F&M has established a system-wide credit
committee to review credits to the extent lending proposals exceed threshold
amounts for the Banks, or if a Bank wishes to participate in a credit with
other Banks. See "Lending and Investments" above. In addition, F&M's
corporate staff will provide individual Banks with assistance on credit review
and collection upon request. Internal audit and compliance officers of F&M
regularly review the Banks' lending portfolios and require periodic reports from
the Banks as to outstanding credits and their quality.
Investments. To help maximize the investment return to F&M and the
Banks, F&M has centralized investment functions through commonly-managed
investment subsidiaries of each Bank. F&M has determined that this centralized
investment management strategy is more efficient and economical and creates the
possibility for more advantageous investment returns to the Banks than would be
possible with each Bank independently managing its investment portfolio.
Data Processing. F&M has contracted with an outside provider for
these services through a combination of on-site Bank personnel and remote
processing hardware and software. Under the data processing agreement, new
hardware and software are being maintained at remote locations although F&M has
the option to acquire both the hardware and the software to perform the data
processing in-house if that is subsequently deemed in its best interests. F&M
provides data processing services to all of the Banks except F&M Banks-Woodruff,
Northeast, Waushara County, Superior, East Troy and Brodhead through this
arrangement. F&M is now considering amendment of its data processing
arrangements to include these other banks under the general data processing
agreement.
Other Operations and Services. F&M provides other services for the
benefit of the Banks such as marketing assistance, human resources services and
benefits administration, internal audit and centralized purchasing of supplies.
F&M believes that centralizing these services promotes efficiency and cost
savings for the Banks without interfering with their community-oriented
management.
Competition
- -----------
The F&M Banks actively compete with other financial institutions and
businesses in both attracting and retaining deposits and making loans. Direct
competition 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
and annuities.
F&M believes it has a competitive advantage because in 21 communities,
F&M Bank office locations represent the only commercial bank office in those
communities. However, in some of these communities, savings and loan
associations, savings banks and/or credit unions also maintain offices, and
there are bank offices located in other nearby communities. 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 believes its focus on establishing
-9-
<PAGE> 11
continuing banking relationships and on individualized customer service
provides additional competitive advantages.
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.
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 the
Company's community banking strategy stresses "traditional" personal service,
the Company'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.
Regulation and Supervision
- --------------------------
The banking industry is highly regulated by both federal and state
regulatory authorities. Regulation includes, among other things, capital and
reserve requirements, dividend limitations, limitations on products and
services offered, geographical limits, consumer credit regulations, community
reinvestment 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. This
regulation substantially affects the business and financial results of all
financial institutions and holding companies, including F&M and the F&M Banks.
All of the F&M Banks are incorporated under the banking laws of
Wisconsin. Each of the F&M Banks is therefore subject to supervision and
regulation by the Department of Financial Institutions (the "Department")
through its Division of Banking.
Each of the F&M Banks (except in certain instances recently acquired
banks, which are expected to apply for membership) is a member of the Federal
Reserve System, and is therefore subject to regulation by the Federal Reserve
Board. The deposits of each of the banks are insured, up to statutory limits,
by the Federal Deposit Insurance Corporation. As a registered bank holding
company under the Bank Holding Company Act of 1956, F&M itself is subject to
review and regulation by the Federal Reserve Board. F&M, as a holding company,
is also subject to review and examination by the Department under Wisconsin law.
-10-
<PAGE> 12
In addition to general requirements that banks retain specified levels
of capital and otherwise conduct their business in a safe and sound manner,
Wisconsin law requires that dividends of Wisconsin banks declared and paid
without the approval of the Department be paid out of current earnings or, no
more than once within the immediate preceding two years, out of dividend
profits in the event there have been insufficient net profits. Any other
dividends require the prior written consent of the Department. Each of the
F&M Banks is in compliance with all applicable capital requirements. Except
for F&M Bank-Lakeland which has capital limitations resulting from its
acquisition of Bradley Bank, each of the F&M Banks may pay dividends to F&M.
Under federal legislation enacted in 1994, beginning in September 1995
Wisconsin bank holding companies, including F&M, have been allowed to acquire
banks and holding companies nationwide, and holding companies in all other
states will be allowed to acquire banks and holding companies in Wisconsin.
Wisconsin law generally requires the approval of the Department for all
acquisitions of banks in Wisconsin, whether by Wisconsin or out-of-state
entities. Interstate bank mergers, under specified circumstances, would be
permitted beginning in 1997. To date, F&M has not actively pursued
acquisitions of institutions outside of Wisconsin, although it would consider
doing so should an appropriate opportunity arise. Wisconsin law permits
establishment of full service bank branch offices statewide.
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
the volume and rate of interest on interest-earning assets and interest-bearing
liabilities, and the level of non-performing assets.
Statistical Information
- -----------------------
The principal sources of income for the subsidiary banks of F&M are
interest and fees on loans, interest on short-term investments and interest on
securities. The total operating income and the percentage of each to total
operating income is shown below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
ITEM OF INCOME 1996 1995 1994
- -------------------------------------------------------------------
<S> <C> <C> <C>
Interest and fees on loans
and short-term borrowings 80.3% 79.4% 76.8%
Interest on securities 13.4% 14.9% 17.2%
Non-interest income 6.3% 5.7% 6.0%
Total operating income (in thousands) $92,753 $80,740 $68,054
</TABLE>
F&M and its subsidiaries do not have any material foreign deposits, loans or
operations.
The following statistical information is offered in response to the
Securities and Exchange Commission's "Guide 3 - Statistical Disclosures by Bank
Holding Companies". Certain of that information is included in the Company's
Management's Discussion and Analysis of Results of Operations and Financial
Condition" ("MD&A") at Item 7 hereof, and is incorporated in this section by
reference thereto.
-11-
<PAGE> 13
I. A. & B. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDER'S EQUITY -
INTEREST RATES AND DIFFERENTIALS
Incorporated by reference from MD&A under the caption "Results
of Operations - Net interest Income."
I. C. INTEREST INCOME AND EXPENSE VOLUME AND RATE CHANGE
Incorporated by reference from MD&A under the caption "Results
of Operations - Net Interest Income."
II. A. INVESTMENT PORTFOLIO
Incorporated by reference from MD&A under the caption "Financial
Conditions - Investment Portfolio."
II. B. RELATIVE MATURITIES & WEIGHTED AVERAGE INTEREST RATES
Incorporated by reference from MD&A under the caption
"Financial Condition - Investment Portfolio."
III. LOAN PORTFOLIO
A. TYPES OF LOANS
Incorporated by reference from MD&A under the caption
"Financial Condition - Loan Portfolio."
The Company does not have any loans known to be to foreign obligors.
The Company is not lessee under leases which, in the aggregate, are material to
it. To the extent the Company utilizes lease financing for its customers, the
leases are accounted for as loans, and included in the appropriate loan
categories.
B. MATURITIES AND SENSITIVITIES OF LOANS TO CHANGES IN INTEREST
RATES
Incorporated by reference from MD&A under the caption "Financial
Condition - Loan Portfolio."
C. RISK ELEMENTS
Incorporated by reference from MD&A under the caption "Financial
Condition - Non-Performancing Assets."
D. OTHER INTEREST BEARING ASSETS
None
IV. A. SUMMARY OF LOAN LOSS EXPERIENCE
Incorporated by reference from MD&A under the caption "Financial
Condition - Summary of Loan Loss Experience."
-12-
<PAGE> 14
IV. B. ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
Incorporated by reference from MD&A under the caption
"Financial Condition - Allocation of Allowance for Loan Loss."
V. DEPOSITS
The Companies average balances of deposits and the average rate paid on these
deposits during the years ended December 31, 1996, 1995 and 1994 are:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS BALANCE RATE BALANCE RATE BALANCE RATE
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand
deposits $118,678 - $102,211 - $95,691 -
Interest bearing demand deposits 86,534 1.91% 87,187 1.98% 94,310 1.93%
Saving deposits 260,477 3.22% 206,658 2.91% 208,170 2.50%
Time deposits 472,222 5.72% 430,593 5.60% 369,771 4.51%
- ---------------------------------------------------------------------------------------------------------------------
Total 937,911 $826,649 $767,942
=====================================================================================================================
</TABLE>
The amount of time certificates of deposit issued in amounts of $100,000 or
more and outstanding as of December 31, 1996 is: $88,021,000. Their maturing
distribution is as follows:
- three months or less $32,121,000
- over three months and through twelve months $43,714,000
- over one year $12,186,000
Neither F&M or its subsidiaries have any deposits in foreign banking offices.
VI. RETURN ON EQUITY AND ASSETS
The various ratios are included in the MD&A under the caption "Results of
Operations" and "Financial Condition - Capital Adequacy" and are incorporated
by reference thereto.
VII. SHORT-TERM BORROWINGS
The comparison of short-term borrowings as of December 31, follows:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1996 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal funds purchased and securities sold
under repurchase agreement $41,332 $12,194 $19,442
Other short-term borrowings - - 404
- -------------------------------------------------------------------------------------------------
Totals $41,332 $12,194 $19,846
=================================================================================================
</TABLE>
-13-
<PAGE> 15
The following information relates to federal funds purchased and securities
sold under repurchase agreements for the years ended December 31:
<TABLE>
<CAPTION>
DOLLARS IN THOUSANDS 1996 1995 1994
- -------------------------------------------------------------------------------------------
As of end of year:
<S> <C> <C> <C>
Weighted average rate 6.37% 5.65% 5.90%
For the year:
Maximum amount outstanding $45,237 $31,904 $32,509
Average amount outstanding $32,692 $15,885 $18,590
Weighted average rate 5.45% 5.81% 4.38%
</TABLE>
ITEM 2. PROPERTIES.
Of the Banks' 50 total offices, 47 are located in buildings which are
owned by the respective Bank. Three grocery store offices are located in leased
facilities; the leases are short-term, which the Company believes is
appropriate for the particular locations. In addition, the Company owns its
headquarters building in Kaukauna, Wisconsin.
All of the owned facilities are designed for commercial banking
operations. All facilities used by the Company and the Banks are suitable for
their current and anticipated expanded utilization, although the Company
regularly reviews whether any changes or improvements would be advisable.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings other than routine
litigation which is not material to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of security holders during the
fourth quarter of fiscal 1996.
<PAGE> 16
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the
executive officers of F&M. Executive officers are elected annually by the
Board of Directors, and serve at the discretion of the Board.
<TABLE>
AGE AT
NAME 3/31/97 POSITION(S)
---- ------- -----------
<S> <C> <C>
Gail E. Janssen 66 Chairman of the Board, Chief
Executive Officer and Director
Gary A. Lichtenberg 53 President and Chief Operating Officer
John W. Johnson 43 Vice President and Director
Douglas A. Martin 45 Vice President and Director
Daniel E. Voet 33 Chief Financial Officer and Treasurer
Donna R. Habert 45 Vice President-Data Processing
Janet M. Lasko 54 Vice President-Administration and
Secretary
Bartholomew Salazar 33 Vice President-Investments
Linda K. Seefeldt 42 Vice President-Marketing
Peter H. Smaby 35 Vice President-Compliance/
Loan Review
Darlene M. Vanden Boogart 38 Vice President-Audit
Constance M. Verbruggen 37 Vice President-Human Resources
</TABLE>
Mr. Janssen has served as Chairman, Chief Executive Officer and a
director of F&M since its inception. Mr. Janssen also serves as Chairman of
the Board of F&M Bank-Kaukauna. Since its inception in 1997, Mr. Janssen has
also served as a member of the Corporation's Office of the Chairman, which is
intended to assist the Chairman in performing the duties of his position and in
management planning and succession. Mr. Janssen served as President of F&M
Bank-Kaukauna from 1977 to 1991, and as President of F&M from its inception
until 1996. F&M has historically considered itself highly dependent upon the
services of Mr. Janssen, although recent changes in management structure were
intended, in part, to lessen that dependence.
In April 1996, Mr. Lichtenberg joined F&M as President and Chief
Operating Officer. Mr. Lichtenberg also serves as chairman of F&M
Banks-Appleton and East Troy since 1997, and is a member of the Office of the
Chairman established in 1997. Mr. Lichtenberg previously served as Senior Vice
President and Banking Controller of Marshall & Ilsley Corporation from its 1994
acquisition of Valley Bancorporation until 1996, and as Valley's Senior Vice
President, Chief Financial Officer and Secretary since 1984. He had served as
a Valley officer since 1970.
Mr. Johnson has been a Vice President of F&M since 1994, and a member
of the Office of the Chairman since its establishment in 1997. Mr. Johnson was
President of F&M Bank-Pulaski since 1989, and also became President of F&M
Bank-Northeast in March 1994, shortly before the merger of the two banks. Mr.
Johnson was elected to F&M's Board of Directors in April 1994, as contemplated
by F&M's acquisition of PBI.
Mr. Martin became a Vice President of F&M in 1992. Mr. Martin became
Chairman of the Board of F&M Banks-Fennimore, Lancaster and Potosi in March
1994. Mr. Martin has been President of F&M Bank-Fennimore since 1985, and has
served as a director of F&M since 1990.
Mr. Voet became Chief Financial Officer in 1994 and Treasurer in 1993.
Mr. Voet previously served as Corporate Accountant of F&M since 1991, before
which he was a certified public accountant in private practice.
-15-
<PAGE> 17
Ms. Habert became Vice President-Data Processing of F&M in 1993. Prior
to that time, she was Assistant Vice President-Data Processing since 1989. Ms.
Habert had been employed by F&M Bank-Kaukauna since 1971.
Ms. Lakso became F&M's Vice President-Administration in 1993 and
Secretary at year end 1994. Ms. Lakso was Assistant Vice
President-Administration since 1992. Ms. Lakso has served F&M since 1980 as
assistant to the President, and was first employed by F&M Bank-Kaukauna in
1970.
Mr. Salazar joined F&M as Assistant Vice President-Investments in 1992
and became Vice President-Investments in 1993. Prior to joining F&M, Mr.
Salazar was employed by First Interstate Bank of Wisconsin and its successor,
Norwest Bank Wisconsin, N.A., in a variety of positions including Manager of
Wire Transfer Operations, Manager of Float Control Operations, Investment
Portfolio Manager and as a financial analyst.
Ms. Seefeldt joined F&M as Vice President-Marketing in 1990.
Previously, she served as Marketing Director of River Valley Bancorporation, a
Wisconsin bank holding company.
Mr. Smaby became Vice President-Compliance/Loan Review in 1993. Mr.
Smaby joined F&M in 1987 as a loan review and compliance officer, and was named
Assistant Vice President-Compliance/Loan Review in 1990.
Ms. Vanden Boogart became Vice President-Audit in 1993. Ms. Vanden
Boogart began employment with F&M Bank-Kaukauna in 1976, and served F&M as
Audit Manager from 1987 to 1993.
Ms. Verbruggen joined F&M as Vice President-Human Resources in March
1995. Ms. Verbruggen was Human Resources Director at Shawano Community
Hospital from 1993 to 1995, and previously served as Human Resource Manager for
C.M.D. Corporation.
F&M and its subsidiaries employed approximately 502 persons on a
full-time equivalent basis at December 31, 1996.
* * * * *
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussions in this Report on Form 10-K and the documents
incorporated herein by reference, which are not statements of historical fact
(including statements which include terms such as "believe", "will", "expect"
and "anticipate"), contain forward-looking statements that involve risks and
uncertainties. The Company's actual future results could materially differ
from those discussed. Factors that could cause or contribute to such
differences include, but are not limited to, the Company's future lending and
collection experience, the effects of acquisitions, competition from other
institutions, changes in the banking industry and its regulation, needs for
technological change, and other factors including those discussed in Item 1
above in this Report and in the Company's Management's Discussion and Analysis
in Item 7, as well as those discussed elsewhere in this Report and the
documents incorporated herein by reference.
-16-
<PAGE> 18
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
F&M Common Stock trades on The NASDAQ Stock Market ("NASDAQ") under the
symbol "FMBK". F&M had approximately 2,950 shareholders of record at February
28, 1997. The following table summarizes high and low prices and cash
dividends paid for F&M Common Stock for the periods indicated.
CALENDAR CASH DIVIDENDS
PERIOD HIGH LOW PAID PER SHARE
- ------------------- ---- --- --------------
1995 1st quarter 20.00 18.64 .136
2nd quarter 20.00 17.95 .136
3rd quarter 22.73 18.53 .136
4th quarter 25.00 21.59 .136
1996 1st quarter 25.91 22.05 .164
2nd quarter 31.50 24.55 .164
3rd quarter 31.50 28.25 .17
4th quarter 32.00 29.75 .17
The high and low prices represent actual trade prices as reported on
NASDAQ. According to information provided by NASDAQ (as adjusted for the June
1996 stock 10% dividend), the trading volume of F&M Common Stock on NASDAQ was
1,202,570 shares during 1996 and 874,903 shares during 1995.
F&M has paid quarterly or annual cash dividends since its inception.
The holders of F&M Common Stock 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. For the first quarter of 1997, the board of
directors has declared a dividend of $.20 per share.
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
restriction. 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," incorporated
herein by reference, for restrictions on the ability of the F&M Banks to pay
dividends.
ITEM 6. SELECTED FINANCIAL DATA.
Incorporated by reference to the Selected Financial Data of the Company
appearing at page F-42 of this report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Incorporated by reference to the Management's Discussion and Analysis
of the Company appearing at pages F-43 through F-62 of this report on Form
10-K.
-17-
<PAGE> 19
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Incorporated by reference to the financial statements of the Company
appearing at pages F-1 through F-41 of this report on Form 10-K, and to the
Quarterly Data appearing at page F-62 of this report on Form 10-K.
Also see the "Index to Financial Statements and Financial Statement Schedules"
filed as part of Item 14(a) hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Information in response to this item is incorporated herein by
reference to "Election of Directors", "Executive Compensation," and "Section
16(a) Beneficial Ownership Reporting Compliance" in the Company's Proxy
Statement to be filed pursuant to Regulation 14A for its Annual Meeting of
Shareholders to be held on April 22, 1997 ("1997 Proxy Statement") and
"Executive Officers of the Registrant" in Part I hereof.
ITEM 11. EXECUTIVE COMPENSATION.
Incorporation by reference to "Election of Directors", "Executive
Compensation" (excluding "Compensation Committee Report on Executive
Compensation" therein) and "Compensation Committee Interlocks and Insider
Participation" in the 1997 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Information in response to this item is incorporated herein by
reference to "Security Ownership of Certain Beneficial Owners and Management"
in the 1997 Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Incorporated by reference to "Transactions with the Corporation" in the
1997 Proxy Statement.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) DOCUMENTS FILED:
1 and 2. Financial Statements and Financial Statement Schedules.
See the following "Index to Financial Statements and
Financial Statement Schedules," which is incorporated
herein by reference.
3. Exhibits. See Exhibit Index included as last part of this
report, which is incorporated herein by reference.
-18-
<PAGE> 20
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the Company during the fourth
quarter of 1996. However, the Company subsequently has filed a report on Form
8-K, dated January 10, 1997, which related to its acquisition of ETB. That
report did not include financial statements of ETB, because of the relative
size of ETB as compared to F&M.
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
See page F-1, which follows.
-19-
<PAGE> 21
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS AND RELATED INFORMATION
Years Ended December 31, 1996, 1995, and 1994
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page
----
Independent Auditor's Report F-2
Financial Statements:
Consolidated Balance Sheets F-3 - F-4
Consolidated Statements of Income F-5 - F-6
Consolidated Statements of Stockholders' Equity F-7 - F-8
Consolidated Statements of Cash Flows F-9 - F-10
Notes to Consolidated Financial Statements F-11 - F-41
* * *
Selected Financial Data F-42
Management's Discussion and Analysis F-43 - F-62
F-1
<PAGE> 22
[WIPFLI ULLRICH BERTELSON LLP LETTERHEAD]
INDEPENDENT AUDITOR'S REPORT
Board of Directors
F&M Bancorporation, Inc.
Kaukauna, Wisconsin
We have audited the accompanying consolidated balance sheets of F&M
Bancorporation, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, stockholders' equity, and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to in the first
paragraph present fairly, in all material respects, the financial position of
F&M Bancorporation, Inc. and Subsidiaries at December 31, 1996 and 1995, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1996, in conformity with
generally accepted accounting principles.
As discussed in Note 2, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 122, "Accounting for Mortgage Servicing
Rights," as of January 1, 1996.
Wipfli Ullrich Bertelson LLP
--------------------------------------
Wipfli Ullrich Bertelson LLP
January 31, 1997
Appleton, Wisconsin
F-2
<PAGE> 23
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in Thousands)
- --------------------------------------------------------------------------------
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Cash and due from banks $ 44,626 $ 40,848
Federal funds sold 18,204 22,118
---------- --------
Cash and cash equivalents 62,830 62,966
Investments:
Interest-bearing deposits in other financial
institutions 97 551
Investment securities available for sale -
Stated at fair value 111,101 138,348
Investment securities held to maturity -
Fair value of $96,824 in 1996 and
$67,545 in 1995 95,030 65,948
Total loans 864,674 700,044
Allowance for credit losses (10,602) (8,921)
---------- --------
Net loans 854,072 691,123
Premises and equipment 27,935 20,719
Other assets 22,429 16,623
---------- --------
TOTAL ASSETS $1,173,494 $996,278
========== ========
</TABLE>
F-3
<PAGE> 24
- --------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
1996 1995
---- ----
Liabilities:
<S> <C> <C>
Non-interest-bearing deposits $ 137,657 $110,188
Interest-bearing deposits 868,103 756,524
---------- --------
Total deposits 1,005,760 866,712
Short-term borrowings 41,332 12,194
Other borrowings 9,817 10,833
Other liabilities 11,636 12,282
---------- --------
Total liabilities 1,068,545 902,021
---------- --------
Minority interest in subsidiaries 190
---------- --------
Commitments and contingent liabilities (Note 18)
Stockholders' equity:
Common stock - $1 par value:
Authorized - 20,000,000 shares
Issued - 7,016,690 and 6,221,247 shares,
at December 31, 1996 and 1995, respectively 7,017 6,221
Capital surplus 60,157 43,639
Retained earnings 38,784 44,900
Unrealized gain (loss) on securities available for sale -
Net of tax (348) 131
Less - Common stock held in treasury, at cost -
34,750 and 39,000 shares, at December 31,
1996 and 1995, respectively (661) (824)
---------- --------
Total stockholders' equity 104,949 94,067
---------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,173,494 $996,278
========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 25
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands, Except Earnings Per Share)
________________________________________________________________________________
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $73,254 $63,408 $51,703
Interest on investment securities:
Taxable 7,723 8,146 7,776
Tax-exempt 4,687 3,865 3,923
Other interest income 1,213 672 540
------- ------- -------
Total interest income 86,877 76,091 63,942
------- ------- -------
Interest expense:
Deposits 37,039 31,904 23,728
Short-term borrowings 1,781 935 808
Other borrowings 426 968 538
------- ------- -------
Total interest expense 39,246 33,807 25,074
------- ------- -------
Net interest income 47,631 42,284 38,868
Provision for credit losses 2,004 1,653 1,338
------- ------- -------
Net interest income after provision
for credit losses 45,627 40,631 37,530
------- ------- -------
Other income:
Service fees 3,061 2,611 2,303
Net security gains 115 37 70
Other operating income 2,700 2,001 1,739
------- ------- -------
Total other income 5,876 4,649 4,112
------- ------- -------
Other expenses:
Salaries and employee benefits 16,366 14,257 15,261
Net occupancy expense 4,277 4,002 3,990
FDIC assessment 83 929 1,733
Data processing 1,356 1,385 1,394
Goodwill amortization 524 398 398
Other operating expenses 7,776 6,756 7,366
------- ------- -------
Total other expenses 30,382 27,727 30,142
------- ------- -------
</TABLE>
F-5
<PAGE> 26
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands, Except Earnings Per Share)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income before provision for income
taxes $21,121 $17,553 $11,500
Provision for income taxes 6,708 5,566 3,075
------- ------- -------
Net income $14,413 $11,987 $ 8,425
======= ======= =======
Net income applicable to common stock $14,413 $11,987 $ 8,403
======= ======= =======
Earnings per common share $ 2.07 $ 1.76 $ 1.23
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 27
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Common Stock
---------------------- Capital
Shares Amount Surplus
--------- ------ -------
<S> <C> <C> <C>
Balance, January 1, 1994 5,832,745 $5,833 $41,783
Pooling of interests - Community State Bank 384,702 384 1,826
--------- ------ -------
Balance, January 1, 1994, as restated 6,217,447 6,217 43,609
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 4 32
Redemption of preferred stock
Contribution of 2,092 shares of treasury stock
to retirement and savings plan 23
Purchase of 5,000 shares of treasury common stock
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------- ------ -------
Balance, December 31, 1994 6,221,247 6,221 43,664
Net income
Cash dividends declared - Common stock
Exercise of stock options (25)
Purchase of 40,000 shares of treasury common stock
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------- ------ -------
Balance, December 31, 1995 6,221,247 6,221 43,639
Acquisition of Monycor Bank 157,563 158 649
Net income
Ten percent stock dividend 637,880 638 15,900
Cash dividends declared - Common stock
Exercise of stock options (31)
Change in unrealized gain (loss) on securities
available for sale - Net of tax
--------- ------ -------
Balance, December 31, 1996 7,016,690 $7,017 $60,157
========= ====== =======
</TABLE>
F-7
<PAGE> 28
<TABLE>
<CAPTION>
_________________________________________________________________________________________________________
Unrealized
Gain (Loss) on
Securities
Retained Treasury Preferred Available for
Earnings Stock Stock Sale - Net of Tax Total
-------------- --------------- --------------- ----------------- ---------------
<S> <C> <C> <C> <C>
$ 25,922 $ (18) $ 2,073 $ $ 75,593
5,062 7,272
-------------- --------------- --------------- --------------- ---------------
30,984 (18) 2,073 82,865
878 878
8,425 8,425
(2,694) (2,694)
(21) (21)
36
(2,073) (2,073)
18 41
(110) (110)
(4,416) (4,416)
-------------- --------------- --------------- --------------- ---------------
36,694 (110) (3,538) 82,931
11,987 11,987
(3,781) (3,781)
131 106
(845) (845)
3,669 3,669
-------------- --------------- --------------- --------------- ---------------
44,900 (824) 131 94,067
838 1,645
14,413 14,413
(16,538)
(4,829) (4,829)
163 132
(479) (479)
-------------- --------------- --------------- --------------- ---------------
$ 38,784 $ (661) $ $ (348) $ 104,949
============== =============== =============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 29
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in cash and cash equivalents:
Cash flows from operating activities:
Net income $ 14,413 $ 11,987 $ 8,425
--------------- --------------- ---------------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and net
amortization 2,486 2,290 3,110
Provision for credit losses 2,004 1,653 1,338
Credit for deferred income taxes (514) (228) (661)
Net security gains (115) (37) (70)
(Gain) loss on sale of premises and
equipment and other real estate (5) (64) 45
Provision for other real estate losses 76 55 274
Change in other assets (1,038) (495) (1,164)
Change in other liabilities (1,250) 3,713 1,311
--------------- --------------- ---------------
Total adjustments 1,644 6,887 4,183
--------------- --------------- ---------------
Net cash provided by operating activities 16,057 18,874 12,608
--------------- --------------- ---------------
Cash flows from investing activities:
Net decrease in interest-bearing deposits
in other financial institutions 454 289 1,034
Proceeds from sale of securities:
Available for sale 5,143 11,230 28,552
Held to maturity 1,541
Proceeds from maturities of securities:
Available for sale 47,240 30,297 32,966
Held to maturity 5,860 10,151 16,023
Payment for purchases of securities:
Available for sale (20,558) (34,847) (30,473)
Held to maturity (26,591) (17,605) (26,090)
Net increase in loans (122,192) (50,849) (89,520)
Capital expenditures (7,964) (2,336) (4,108)
Proceeds from sale of premises and
equipment 284 16 280
Proceeds from sale of other real estate 310 711 304
Purchase of stock in subsidiary banks -
Net of cash received (484) (23)
-------------- -------------- ---------------
Net cash used in investing activities (118,498) (52,966) (69,491)
--------------- -------------- ---------------
</TABLE>
F-9
<PAGE> 30
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Net increase in deposits $ 79,340 $ 61,280 $ 37,401
Net increase (decrease) in short-term
borrowings 29,138 (7,652) 14,003
Proceeds from other borrowings 7,600 5,500 4,100
Principal payments on other
borrowings (9,076) (1,033) (11,674)
Proceeds from exercise of stock options 132 106 36
Payment for redemption of preferred
stock (2,073)
Purchase of shares of treasury
common stock (845) (110)
Dividends paid (4,829) (3,781) (2,715)
--------------- --------------- ---------------
Net cash provided by financing activities 102,305 53,575 38,968
--------------- --------------- ---------------
Net increase (decrease) in cash and cash
equivalents (136) 19,483 (17,915)
Cash and cash equivalents at beginning 62,966 43,483 61,398
--------------- --------------- ---------------
Cash and cash equivalents at end $ 62,830 $ 62,966 $ 43,483
=============== =============== ===============
Supplemental cash flow information:
Cash paid during the year for:
Interest $ 38,911 $ 31,439 $ 24,630
Income taxes 7,356 6,014 3,816
Noncash investing and financing activities:
Loans transferred to other real estate $ 1,580 $ 328 $ 777
</TABLE>
During 1994, the Company contributed 2,092 shares of treasury stock to the
401(k) retirement and savings plan.
See Note 3 for details of noncash consideration paid in acquisitions which
occurred in 1996, 1995, and 1994.
See accompanying notes to consolidated financial statements.
F-10
<PAGE> 31
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of F&M Bancorporation, Inc. (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. is a Wisconsin multibank holding company. Its 15
subsidiary banks provide a full range of commercial and retail banking services
to customers at 48 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:
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.
F-11
<PAGE> 32
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Investment Securities (Continued)
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. Loan-origination fees are credited to income when received, as
capitalization of the fees and related costs would not have a material effect
on the consolidated financial statements.
Allowance for Credit Losses
The allowance for credit losses includes specific allowances related to
commercial loans which have been judged to be impaired. 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.
The Company continues to maintain a general allowance for credit losses for
loans not considered impaired. 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 credit 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.
Mortgage Servicing Rights
The cost of mortgage servicing rights is amortized in proportion to, and over
the period of, estimated net servicing revenues. Impairment of mortgage
servicing rights is assessed based on the fair value of those rights. Fair
values are estimated using discounted cash flows based on a current market
interest rate. For purposes of measuring impairment, the rights are stratified
by rate in the quarter in which the related mortgage loans were sold.
F-12
<PAGE> 33
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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. 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, restated to reflect the 10% stock dividend paid to
shareholders on June 10, 1996. The weighted average number of shares
outstanding was 6,978,220 in 1996; 6,799,990 in 1995; and 6,839,523 in 1994.
The outstanding stock options are not dilutive; therefore, fully diluted
earnings per share are not presented.
F-13
<PAGE> 34
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Future Accounting Changes
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. The statement provides
guidelines for classification of a transfer as a sale. The statement also
requires liabilities incurred or obtained by transferors as part of a transfer
of financial assets be initially recorded at fair value. Subsequent to
acquisition, the servicing assets and liabilities are to be amortized over the
estimated net servicing period. This statement is required to be adopted for
transfers and servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996.
In December 1996, the FASB issued SFAS No. 127, "Deferral of the Effective Date
of Certain Provisions of FASB Statement No. 125." This statement defers
implementation of certain provisions of SFAS No. 125 for one year. Adoption of
SFAS No. 127 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
The FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," in
May 1995. As required under the statement, the Company adopted the provisions
of the new standard effective January 1, 1996. SFAS No. 122 requires
accounting recognition of the rights to service mortgage loans for others. In
accordance with SFAS No. 122, prior-period consolidated financial statements
have not been restated to reflect the change in accounting principle.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation." As required under the statement, the Company adopted the
provisions of the new standard effective January 1, 1996. SFAS No. 123
establishes financial accounting and reporting standards for stock-based
employee compensation plans. The statement requires disclosure in the notes to
the financial statements of 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 has elected to continue to account
for stock-based compensation in accordance with APB Opinion No. 25.
F-14
<PAGE> 35
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - BUSINESS COMBINATIONS
On February 5, 1996, the Company acquired, through a merger, 100% of the
outstanding stock of Monycor Bancshares, Inc. ("Monycor") which owned 98.408%
of Monycor Bank of Superior (n/k/a F&M Bank - Superior). Company stock
totaling 173,319 shares (after giving effect to the 10% stock dividend) was
issued in exchange for all of the outstanding shares of Monycor stock. The
minority shares of Monycor Bank of Superior were subsequently acquired for
cash.
This transaction has been accounted for as a pooling of interests. The
transaction was not material to the Company's consolidated financial
statements; accordingly, previously reported financial information has not been
restated to include the results of F&M Bank - Superior.
On May 13, 1996, F&M Bank - Lakeland, a wholly owned subsidiary, acquired,
through a merger, 100% of the outstanding stock of Bradley Bank for cash of
$6,595,000. Bradley Bank had total assets of $35,310,000 at the time of the
merger. The operations of Bradley Bank were merged into F&M Bank - Lakeland.
This transaction has been accounted for as a purchase; accordingly, the
consolidated financial statements include the results of operations from the
acquisition date. This transaction resulted in goodwill of $3,192,000.
On June 28, 1996, F&M Bancorporation, Inc. acquired 100% of the outstanding
stock of Community State Bank (n/k/a F&M Bank - Algoma) in a merger
transaction. Company stock totaling 423,172 shares was issued in exchange for
all of the outstanding shares of Community State Bank.
F-15
<PAGE> 36
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - BUSINESS COMBINATIONS (CONTINUED)
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 Community State Bank.
The following summarizes the separate results of operations of the Company and
Community State Bank (through the acquisition date noted above) for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands, Except Earnings Per Share)
<S> <C> <C> <C>
Net interest income:
F&M Bancorporation, Inc. $ 46,832 $ 40,386 $ 36,972
F&M Bank - Algoma 799 1,898 1,896
--------------- --------------- ---------------
Combined and restated $ 47,631 $ 42,284 $ 38,868
=============== =============== ===============
Net income applicable to common stock:
F&M Bancorporation, Inc. $ 14,060 $ 11,357 $ 7,743
F&M Bank - Algoma 353 630 660
--------------- --------------- ---------------
Combined and restated $ 14,413 $ 11,987 $ 8,403
=============== =============== ===============
Earnings per share:
F&M Bancorporation, Inc. $ 2.08 $ 1.78 $ 1.21
=============== =============== ===============
Combined and restated $ 2.07 $ 1.76 $ 1.23
=============== =============== ===============
</TABLE>
On January 9, 1995, the Company 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 814,617 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.
On February 11, 1994, 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 382,061 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 $2,073,000.
F-16
<PAGE> 37
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3 - BUSINESS COMBINATIONS (CONTINUED)
On March 21, 1994, the Company 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 953,935 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.
NOTE 4 - RESTRICTIONS ON CASH AND CASH EQUIVALENTS
Cash and cash equivalents in the amount of $3,903,000 are restricted at
December 31, 1996, 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>
1996
-------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities available
for sale:
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies $ 32,486 $ 28 $ 154 $ 32,612
Obligations of states and
political subdivisions 10,602 32 103 10,673
Mortgage-related securities 55,237 338 700 55,599
Other securities 12,776 21 20 12,775
--------------- --------------- --------------- ---------------
Total investment securities
available for sale $ 111,101 $ 419 $ 977 $ 111,659
=============== =============== =============== ===============
Investment securities held
to maturity - Obligations of
states and political subdivisions $ 96,824 $ 2,012 $ 218 $ 95,030
=============== =============== =============== ===============
</TABLE>
F-17
<PAGE> 38
F&M BANCORPORATION, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
1995
-------------------------------------------------------------------------
Gross Gross
Estimated Unrealized Unrealized Amortized
Fair Value Gains Losses Cost
--------------- --------------- --------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Investment securities available
for sale:
U.S. Treasury securities and
obligations of U.S.
government corporations and
agencies $ 40,150 $ 251 $ 155 $ 40,053
Obligations of states and
political subdivisions 16,432 213 65 16,284
Mortgage-related securities 64,605 552 618 64,672
Other securities 17,161 46 37 17,152
--------------- --------------- --------------- ---------------
Total investment securities
available for sale $ 138,348 $ 1,062 $ 875 $ 138,161
=============== =============== =============== ===============
Investment securities held
to maturity - Obligations of
states and political subdivisions $ 67,545 $ 1,745 $ 148 $ 65,948
=============== =============== =============== ===============
</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.
The estimated fair value and amortized cost of investment securities (available
for sale and held to maturity) at December 31, 1996, 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.
F-18
<PAGE> 39
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - INVESTMENT SECURITIES (CONTINUED)
<TABLE>
<CAPTION>
Securities Available for Sale Securities Held to Maturity
---------------------------------- -----------------------------------
Estimated Amortized Estimated Amortized
Fair Value Cost Fair Value Cost
---------------- ---------------- ----------------- ----------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Due in three months or less $ 9,747 $ 9,765 $ 326 $ 326
Due after three months through
one year 7,443 7,446 2,348 2,324
Due after one year through
five years 34,840 35,022 22,316 21,615
Due after five years through
ten years 1,585 1,586 28,623 27,997
Due after ten years 2,249 2,241 43,211 42,768
---------------- ---------------- ----------------- ---------------
55,864 56,060 96,824 95,030
Mortgage-related securities 55,237 55,599
---------------- ---------------- ----------------- ---------------
Total $ 111,101 $ 111,659 $ 96,824 $ 95,030
================ ================ ================= ===============
</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>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Proceeds from sales of investment
securities $ 5,143 $ 11,230 $ 30,093
Gross gains on sales 151 62 232
Gross losses on sales 36 25 162
</TABLE>
Proceeds from sales of investment securities for 1994 include $1,541,000 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 $1,000 and $95,000, 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 were $32,822,000 and $33,194,000, respectively, as of December 31, 1996.
F-19
<PAGE> 40
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5 - INVESTMENT SECURITIES (CONTINUED)
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, 1996, the total carrying value of nonrated
obligations of states and political subdivisions was approximately $20,808,000.
NOTE 6 - LOANS
The composition of loans at December 31 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Commercial, industrial, and financial $ 169,141 $ 120,894
Agricultural 46,389 41,875
Real estate:
Construction 36,100 22,791
Mortgage 558,589 466,137
Installment 54,455 48,347
--------------- ----------------
Total loans $ 864,674 $ 700,044
=============== ================
</TABLE>
The aggregate amount of nonperforming loans was approximately $10,496,000 and
$6,880,000 at December 31, 1996 and 1995, 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, $811,000, $588,000, and $671,000 of interest income would have been
recorded for the years ended December 31, 1996, 1995, and 1994, respectively.
Interest income actually recorded on these loans was $236,000, $200,000, and
$280,000 for the years ended December 31, 1996, 1995, and 1994, respectively.
The recorded investment in loans considered to be impaired was $6,396,000 and
$4,229,000 of which $4,628,000 and $1,762,000 was on a nonaccrual basis at
December 31, 1996 and 1995, respectively. The related allowance for loan
losses on impaired loans was $1,075,000 and $854,000 as of December 31, 1996
and 1995, respectively. The average recorded investment in impaired loans was
$5,038,000 and $4,605,000 during 1996 and 1995, respectively. The Company
recognized interest income on those impaired loans of $254,000 and $329,000
which included $98,000 and $77,000 of interest income recognized using the cash
basis method of income recognition for the years ended December 31, 1996 and
1995, respectively.
F-20
<PAGE> 41
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6 - LOANS (CONTINUED)
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 1996 is summarized below:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Loans outstanding, December 31, 1995 $ 11,197
New loans 15,195
Repayment (7,852)
--------------
Loans outstanding, December 31, 1996 $ 18,540
==============
</TABLE>
An analysis of the allowance for credit losses for the years ended December 31
follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Balance, January 1 $ 8,921 $ 8,100 $ 7,555
Provision for credit losses 2,004 1,653 1,338
Allowance for credit losses of banks
acquired at date of acquisition 587
Recoveries on loans 249 198 193
Loans charged off (1,159) (1,030) (986)
-------------- --------------- ---------------
Balance, December 31 $ 10,602 $ 8,921 $ 8,100
============== =============== ===============
</TABLE>
NOTE 7 - MORTGAGE SERVICING RIGHTS
An analysis of changes in mortgage servicing rights in 1996 follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Balance, January 1, 1996 $
Capitalized amounts 297
Less - Amortization 37
---------------
Balance, December 31, 1996 $ 260
===============
</TABLE>
F-21
<PAGE> 42
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 7 - MORTGAGE SERVICING RIGHTS (CONTINUED)
No impairment of mortgage servicing rights existed at December 31, 1996;
therefore, no valuation allowance was recorded.
The carrying value of the mortgage servicing rights is included with other
assets and approximates fair market value at December 31, 1996.
NOTE 8 - PREMISES AND EQUIPMENT
An analysis of premises and equipment at December 31 follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Land $ 4,264 $ 3,827
Buildings and improvements 25,391 19,172
Furniture and equipment 16,310 14,257
Construction in progress 703 681
--------------- ---------------
Totals 46,668 37,937
Less - Accumulated depreciation and amortization (18,733) (17,218)
--------------- ---------------
Net book value $ 27,935 $ 20,719
=============== ===============
</TABLE>
Depreciation and amortization of premises and equipment charged to operating
expenses amounted to $1,926,000 in 1996, $1,699,000 in 1995, and $1,622,000 in
1994.
NOTE 9 - OTHER REAL ESTATE
Included in other assets is other real estate totaling $1,824,000 and $809,000
at December 31, 1996 and 1995, respectively. There is no allowance for losses
on other real estate. Other real estate expenses totaled $141,000, $120,000,
and $409,000 for 1996, 1995, and 1994, respectively.
F-22
<PAGE> 43
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 10 - DEPOSITS
The distribution of deposits at December 31 is as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Non-interest-bearing demand deposits $ 137,657 $ 110,188
Interest-bearing demand deposits 86,863 82,868
Savings deposits 134,998 144,079
Money market deposits 155,424 78,958
Time deposits 490,818 450,619
--------------- ----------------
Total deposits $ 1,005,760 $ 866,712
=============== ================
</TABLE>
Time deposits of $100,000 or more were $88,021,000 and $76,141,000 at December
31, 1996 and 1995, respectively. Interest expense on time deposits of $100,000
or more was $4,744,000, $3,825,000, and $1,681,000 for the years ended December
31, 1996, 1995, and 1994, respectively.
NOTE 11 - SHORT-TERM BORROWINGS
The short-term borrowings of $41,332,000 and $12,194,000 at December 31, 1996
and 1995, respectively, consisted of federal funds purchased and securities
sold under repurchase agreements.
The following information relates to federal funds purchased and securities
sold under repurchase agreements for the years ended December 31:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
As of year end - Weighted average rate 6.37% 5.65%
For the year:
Highest month-end balance $ 45,237 $ 31,904
Daily average balance 32,692 15,885
Weighted average rate 5.45% 5.81%
</TABLE>
F-23
<PAGE> 44
F&M BANCORPORATION, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12 - OTHER BORROWINGS
Other borrowings at December 31 consist of the following:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Federal Home Loan Bank advances (a) $ 9,800 $ 10,800
Note payable to former stockholder (b) 17 33
--------------- ---------------
Totals $ 9,817 $ 10,833
=============== ===============
</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 $81,687,000) and FHLB
stock. At December 31, 1996, the subsidiaries' outstanding advances had
original maturities ranging from three months to nine years and fixed and
adjustable rates ranging from 5.49% to 7.73%. Interest is payable
monthly.
The scheduled principal maturities of these advances at December 31,
1996, are summarized as follows:
<TABLE>
<Cation>
(Dollars in Thousands)
<S> <C>
1997 $ 7,300
1998 200
1999 400
2000 500
Thereafter 1,400
---------------
$ 9,800
===============
</TABLE>
(b) Note ayable is due January 1, 1997. The note is unsecured.
F-24
<PAGE> 45
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - INCOME TAXES
The components of the provision for income taxes are as follows for the years
ended December 31:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Current tax expense:
Federal $ 5,886 $ 4,865 $ 2,992
State 1,336 929 744
--------------- --------------- ---------------
Total current 7,222 5,794 3,736
--------------- --------------- ---------------
Deferred tax credit (530) (256) (719)
--------------- --------------- ---------------
Subtotals 6,692 5,538 3,017
Change in valuation allowance 16 28 58
--------------- --------------- ---------------
Total provision for income taxes $ 6,708 $ 5,566 $ 3,075
=============== =============== ===============
</TABLE>
Included in the total provision for income taxes is expense of $42,000,
$23,000, and $67,000 for the years ended December 31, 1996, 1995, and 1994,
respectively, related to security transactions.
F-25
<PAGE> 46
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - INCOME TAXES (CONTINUED)
As of December 31, 1996 and 1995, 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>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Deferred tax assets:
Reserve for loan losses $ 3,478 $ 2,606
Deferred compensation 232 213
Nonperforming assets 452 365
Net operating losses 803 851
Unrealized loss on securities available for sale 210
Pension 272 314
Other 144 155
--------------- ---------------
5,591 4,504
Valuation allowance (591) (575)
--------------- ----------------
Deferred tax assets 5,000 3,929
--------------- ---------------
Deferred tax liabilities:
Unrealized gain on securities available for sale (56)
Depreciation (1,536) (1,376)
Other (136) (69)
--------------- ---------------
Deferred tax liabilities (1,672) (1,501)
--------------- ---------------
Net deferred tax assets $ 3,328 $ 2,428
=============== ===============
</TABLE>
The change in net deferred assets in 1996 includes changes related to
acquisitions and $266,000 of tax benefit allocated directly to stockholders'
equity for unrealized losses on securities available for sale.
The Company and two of its subsidiaries have separate Wisconsin net operating
loss carryforwards totaling approximately $11,359,000 at December 31, 1996.
These net operating loss carryforwards begin to expire in 1998. 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.
F-26
<PAGE> 47
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 13 - INCOME TAXES (CONTINUED)
One subsidiary has a federal net operating loss carryforward of approximately
$163,000 and another subsidiary has a Wisconsin net operating loss carryforward
of $3,015,000. 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 will be utilized.
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>
1996 1995 1994
--------------------------- --------------------------- ---------------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
------------- ---------- -------------- ---------- ------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Tax expense at
statutory rate $ 7,181 34.0 $ 5,968 34.0 $ 3,910 34.0
Increase (decrease)
in taxes resulting
from:
Tax-exempt interest (1,671) (7.9) (1,299) (7.4) (1,298) (11.3)
State income taxes 826 3.9 645 3.7 406 3.5
Goodwill
amortization 178 0.8 135 0.8 135 1.2
Other 194 1.0 117 0.6 (78) (0.7)
------------- -------- -------------- --------- ------------- --------
Provision for income
taxes $ 6,708 31.8 $ 5,566 31.7 $ 3,075 26.7
============= ======== ============== ========= ============= ========
</TABLE>
NOTE 14 - 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
based on the Company's return on equity. The Company may also make a
discretionary profit-sharing contribution.
F-27
<PAGE> 48
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - RETIREMENT PLANS (CONTINUED)
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 177,335 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, 1996.
F&M Bank - Algoma and F&M Bank - Superior sponsor defined contribution 401(k)
retirement savings plans which cover substantially all of their respective
employees. The contributions to these plans for 1996 were consistent with
those of the Company's 401(k) retirement savings plan discussed above. The
assets of these plans will be transferred into the Company's plan during 1997.
Retirement plan contribution expense charged to operations for all plans
(excluding the defined benefit pension plans discussed below) totaled $977,000,
$924,000, and $740,000 for 1996, 1995, and 1994, 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
$446,000 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.
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, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C>
Actuarial present value of benefit obligation $ (2,227) $ (2,136)
Plan assets at fair value 1,464 1,323
--------------- ---------------
Accrued pension cost recognized in the consolidated
balance sheets $ (763) $ (813)
=============== ===============
</TABLE>
F-28
<PAGE> 49
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14 - RETIREMENT PLANS (CONTINUED)
Net pension cost included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Service cost - Benefits earned during
the year $ $ $ 33
Interest cost on projected benefit
obligation 128 161 168
Net amortization and deferral (12) (36) (62)
--------------- --------------- ---------------
Total periodic pension cost 116 125 139
Less - Actual return on plan assets 90 105 61
--------------- --------------- ---------------
Net periodic pension cost $ 26 $ 20 $ 78
=============== =============== ===============
</TABLE>
The following assumptions were used in determining the projected benefit
obligation:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Discount rate 6.0% 6.0% 6.0%
Rates of increase in compensation levels 0.0% 0.0% 0.0%
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 15 - STOCKHOLDERS' EQUITY
On June 10, 1996, the Company issued 637,880 shares of common stock as a 10%
stock dividend. These shares had a value of $16,538,000 at the date of
issuance. All references to the number of shares of common stock in the
footnotes have been restated for the stock dividend, however, on the financial
statements, these shares are recognized as having been issued in 1996.
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.
F-29
<PAGE> 50
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
The Company is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory--and possibly additional discretionary--actions
by regulators that, if undertaken, could have a direct material effect on the
Company's consolidated financial statements. Under capital adequacy guidelines
and the regulatory framework for prompt corrective action, the Company must
meet specific capital guidelines that involve quantitative measures of the
Company's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Company's capital
amounts and classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company to maintain minimum amounts and ratios (set forth in the
table below) of total and Tier I capital to risk-weighted assets and of Tier I
capital to average assets. Management believes, as of December 31, 1996, that
the Company meets all capital adequacy requirements to which it is subject.
As of December 31, 1996, the most recent notifications from the Federal Reserve
Bank categorized all of the subsidiary banks as well capitalized under the
regulatory framework for prompt corrective action. To be categorized as well
capitalized, the banks must maintain minimum total risk-based, Tier I
risk-based, and Tier I leverage ratios of 8.0%, 4.0%, and 4.0%, respectively.
There are no conditions or events since those notifications that management
believes have changed the subsidiary banks' categories.
The Company's actual consolidated capital amounts (in thousands) and ratios, as
of December 31, are presented in the following table:
<TABLE>
<CAPTION>
1996
----------------------------------------------------------
For Capital
Actual Adequacy Purposes
---------------------------- ---------------------------
Amount Ratio Amount Ratio
---------------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 108,953 12.5% >= $ 69,730 >= 8.0%
Tier I capital (to risk-weighted assets) $ 98,351 11.3% >= $ 34,815 >= 4.0%
Tier I capital (to average assets) $ 98,351 8.6% >= $ 45,745 >= 4.0%
</TABLE>
F-30
<PAGE> 51
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 15 - STOCKHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
1995
------------------------------------------------------------------
For Capital
Actual Adequacy Purposes
---------------------------- -----------------------------------
Amount Ratio Amount Ratio
---------------- ---------- --------------- ---------
<S> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 99,085 13.4% >= $ 59,155 >= 8.0%
Tier I capital (to risk-weighted assets) $ 90,164 12.2% >= $ 29,562 >= 4.0%
Tier I capital (to average assets) $ 90,164 9.2% >= $ 39,202 >= 4.0%
</TABLE>
Banking subsidiaries are restricted by banking regulations from making dividend
distributions above prescribed amounts. At December 31, 1996, the Company's
subsidiaries could have paid $25,253,000 of additional dividends to the Company
without prior regulatory approval.
NOTE 16 - STOCK OPTION PLANS
The Company sponsors 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 165,000 shares were made
available, upon stockholder approval, to be subject to grant under these plans.
The fair value of each option granted is estimated on the grant date using the
Black-Scholes methodology. The following assumptions were made in estimating
fair value for options granted in 1996 and 1995:
<TABLE>
<S> <C>
Dividend yield 2.76%
Risk-free interest rate 5.13%
Weighted average expected life 4.3 years
Expected volatility 23.44%
</TABLE>
The weighted average fair value of options granted as of their grant date,
using the assumptions shown above, was computed at $3.57 and $2.54 per share
for options granted in 1996 and 1995, respectively.
F-31
<PAGE> 52
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - STOCK OPTION PLANS (CONTINUED)
The Company applies APB Opinion No. 25 in accounting for its stock option plan.
Accordingly, no compensation cost has been recognized for the plan. Had
compensation cost been determined on the basis of fair value pursuant to SFAS
No. 123, net income and earnings per share would have been reduced as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands,
Except Earnings Per Share)
<S> <C> <C>
Net income:
As reported $ 14,413 $ 11,987
======== ========
Pro forma $ 14,357 $ 11,941
======== ========
Earnings per share:
As reported $ 2.07 $ 1.76
======== ========
Pro forma $ 2.06 $ 1.76
======== ========
</TABLE>
Following is a summary of stock option transactions for the years ended
December 31:
<TABLE>
<CAPTION> Number of Shares
--------------------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 50,625 40,200
Granted during the year 25,575 21,925 40,200
Exercised during the year (at prices
ranging from $18.18 to $23.81 per share) (5,700) (4,500)
Canceled during the year (7,000)
------ ------- -------
Outstanding at end of year (at prices
ranging from $18.18 to $24.09 per share) 70,500 50,625 40,200
====== ======= =======
Weighted average exercise price per share $20.61 $ 18.78 $ 18.41
====== ======= =======
Available for grant at end of year 84,300 109,875 124,800
====== ======= =======
</TABLE>
Options granted under these plans expire ten years after the grant.
F-32
<PAGE> 53
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 16 - STOCK OPTION PLANS (CONTINUED)
In connection with the acquisition of Pulaski in 1994, an unexercised option
under a separate Pulaski stock option plan with an officer of Pulaski was
converted into an option for 15,171 shares of the Company's common stock with
an exercise price of $8.50 per share. During 1996, 1995, and 1994, this
officer, now an officer of the Company, exercised options for 2,000; 1,500; and
3,800 shares, respectively. These options expire December 15, 2002.
NOTE 17 - ADVERTISING COSTS
Advertising costs are expensed as incurred (or the first time advertising takes
place). Advertising expense for 1996, 1995, and 1994 was $685,000, $599,000,
and $541,000, respectively.
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, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in Thousands)
<S> <C> <C>
Commitments to extend credit $ 83,953 $ 50,095
Standby letters of credit 5,586 5,097
Credit card commitments 16,037 11,174
-------- --------
$105,576 $ 66,366
======== ========
</TABLE>
F-33
<PAGE> 54
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 18 - COMMITMENTS, CONTINGENCIES, AND CREDIT RISK (CONTINUED)
Financial Instruments With Off-Balance-Sheet 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 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.
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.
F-34
<PAGE> 55
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 19 - SUBSEQUENT EVENT
On January 10, 1997, the Company acquired 100% of the outstanding shares of
East Troy Bancshares, Inc., in exchange for 439,993 shares of Company stock in
a merger transaction. East Troy Bancshares, Inc. owned 100% of State Bank of
East Troy. This acquisition will be accounted for using the pooling of
interests method of accounting.
Pro forma unaudited results of operations, assuming the acquisition occurred on
January 1, 1994, are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
(Dollars in Thousands, Except Earnings Per Share)
<S> <C> <C> <C>
Net interest income $49,835 $44,466 $41,169
Net income 14,661 12,694 9,114
Earnings per share 1.98 1.75 1.25
</TABLE>
NOTE 20 - PENDING ACQUISITIONS
On January 2, 1997, the Company signed a Plan and Agreement of Merger and
Reorganization to acquire 100% of the outstanding shares of Green County Bank
in exchange for Company stock. This transaction has received regulatory
approval and is subject to Bank stockholder approval. The transaction is
expected to be completed in the first quarter of 1997.
On October 16, 1996, the Company signed a Letter of Intent to acquire 100% of
the outstanding shares of Prairie City Bank in exchange for Company stock.
This transaction is subject to the signing of a Plan and Agreement of Merger
and Reorganization and regulatory and stockholder approval. The transaction is
expected to be completed in the second quarter of 1997.
F-35
<PAGE> 56
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
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 values
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.
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.
F-36
<PAGE> 57
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 21 - FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The following table presents information for financial instruments:
<TABLE>
<CAPTION>
At December 31, 1996 At December 31, 1995
--------------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
---------- ---------- ------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash
equivalents $ 62,830 $ 62,830 $ 62,966 $ 62,966
Investment securities 206,228 208,022 204,847 206,444
Total loans 864,674 700,044
Allowance for credit
losses (10,602) (8,921)
---------- ---------- ------- --------
Net loans 854,072 878,175 691,123 716,523
---------- ---------- -------- --------
Total financial assets $1,123,130 $1,149,027 $958,936 $985,933
========== ========== ======== ========
Financial liabilities:
Deposits $1,005,760 $1,005,778 $866,712 $868,254
Short-term and other
borrowings 51,149 51,182 23,027 23,136
---------- ---------- -------- --------
Total financial
liabilities $1,056,909 $1,056,960 $889,739 $891,390
========== ========== ======== ========
</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 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.
F-37
<PAGE> 58
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS
BALANCE SHEETS
December 31, 1996 and 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 7,884 $ 2,764
Investment securities available for sale -
Stated at fair value 473 210
Investment in subsidiaries 95,128 89,121
Loans (Net of allowance for credit losses of
$80, at December 31, 1996) 384 232
Loans receivable from subsidiaries 300
Premises and equipment - Net 1,550 1,524
Other assets 229 203
-------- -------
TOTAL ASSETS $105,648 $94,354
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities - Accrued expenses $ 699 $ 287
Total stockholders' equity 104,949 94,067
-------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $105,648 $94,354
======== =======
</TABLE>
F-38
<PAGE> 59
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF INCOME
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividends received from subsidiaries $ 9,757 $ 6,225 $1,896
Interest and dividends 84 57 374
Data processing fees 1,448 1,191 651
Management and service fees 2,067 1,846 1,568
Gains on sale of securities 67 5
------- ------- ------
Total income 13,423 9,324 4,489
------- ------- ------
Expenses:
Salaries and benefits 1,807 1,309 1,244
Interest 18 359
Other 2,425 1,892 1,677
------- ------- ------
Total expenses 4,232 3,219 3,280
------- ------- ------
Income before provision (credit) for income
taxes and equity in undistributed net
income of subsidiaries 9,191 6,105 1,209
Provision (credit) for income taxes (174) 22 (247)
------- ------- ------
Income before equity in undistributed
net income of subsidiaries 9,365 6,083 1,456
Equity in undistributed net income of
subsidiaries 5,048 5,904 6,969
------- ------- ------
Net income $14,413 $11,987 $8,425
======= ======= ======
</TABLE>
F-39
<PAGE> 60
F&M BANCORPORATION, INC. AND SUBSIDIARIES
------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Increase (decrease) in cash and cash
equivalents:
Cash flows from operating activities:
Net income $ 14,413 $ 11,987 $ 8,425
--------------- --------------- ---------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Gain on sale of investments available
for sale (67) (5)
Provision for depreciation and
amortization 188 189 164
Provision for credit losses 80
Equity in undistributed net income
of subsidiaries (5,048) (5,904) (6,969)
Loss on sale of premises and
equipment 27
Change in other assets (26) 92 (34)
Change in accrued expenses 660 (143) (12)
--------------- --------------- ---------------
Total adjustments (4,213) (5,771) (6,824)
--------------- --------------- ---------------
Net cash provided by operating
activities 10,200 6,216 1,601
--------------- --------------- ---------------
Cash flows from investing activities:
Capital contributed to subsidiary banks (250)
Purchase of stock in subsidiary banks (48) (23)
Payment for purchase of securities
available for sale (726) (417)
Proceeds from sales and maturities of
investment securities available for sale 537 423 9,797
Net (increase) decrease in loans 68 968 (720)
Capital expenditures (214) (167) (27)
Proceeds from sale of premises
and equipment 24
--------------- --------------- ---------------
Net cash provided by (used in) investing
activities (383) 951 8,657
--------------- --------------- ---------------
</TABLE>
F-40
<PAGE> 61
F&M BANCORPORATION, INC. AND SUBSIDIARIES
-----------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 22 - PARENT COMPANY ONLY FINANCIAL STATEMENTS (CONTINUED)
STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 31, 1996, 1995, and 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Proceeds from exercise of
stock options $ 132 $ 106 $ 36
Principal payments on other
borrowings (1,000) (7,250)
Purchase of shares of treasury
common stock (846) (110)
Dividends paid (4,829) (3,477) (2,299)
------- ------- -------
Net cash used in financing activities (4,697) (5,217) (9,623)
------- ------- -------
Net increase in cash and cash equivalents 5,120 1,950 635
Cash and cash equivalents at beginning 2,764 814 179
------- ------- -------
Cash and cash equivalents at end $ 7,884 $ 2,764 $ 814
======= ======== =======
Supplemental cash flow information:
Cash received during the year for
income taxes $ 6,144 $ 4,859 $ 2,667
Cash paid during the year for:
Interest 50 360
Income taxes 5,800 5,108 2,373
</TABLE>
F-41
<PAGE> 62
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data of F&M
Bancorporation, Inc. (the "Company" or "F&M") and its subsidiaries for the five
years ended December 31, 1996. This information and the following discussion
and analysis should be read in conjunction with other financial information
presented elsewhere in this report. See Note (1) below regarding accounting for
business combinations.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -----------------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------------------
(dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS (1)
Interest income $86,877 $76,091 $63,942 $61,302 $65,792
Interest expense 39,246 33,807 25,074 25,164 30,882
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 47,631 42,284 38,868 36,138 34,910
Provision for loan losses 2,004 1,653 1,338 1,329 1,795
Non-interest income 5,876 4,649 4,112 5,286 5,196
Net income before extraordinary item and cumulative
effect of change in accounting principle (2) 14,413 11,987 8,425 8,827 8,498
Net income 14,413 11,987 8,425 8,900 9,213
Net income applicable to common stock 14,413 11,987 8,403 8,713 9,026
PERIOD END BALANCE SHEET DATA
Total assets 1,173,494 996,278 921,384 877,964 830,245
Net loans 854,072 691,123 642,135 553,291 497,355
Total deposits 1,005,760 866,712 805,431 768,144 735,427
Other borrowings 9,817 10,833 6,366 13,941 16,302
Preferred stock 0 0 0 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) 2.07 1.76 1.23 1.36 1.41
Net income per common share 2.07 1.76 1.23 1.35 1.49
Cash dividends (4) .67 .55 .44 .33 .25
</TABLE>
__________________________________
(1) Except as indicated, the data have been restated to reflect the Company's
acquisition of F&M Bank-Portage County in 1993, F&M Bank-Northeast
(including both the FNFC and PBI acquisitions) in 1994, F&M Bank-Waushara
County in 1995 and Community State Bank in 1996 using the pooling of
interests method of accounting. See Note 3 of Notes to the Company's
Consolidated Financial Statements. The Monycor BancShares, Inc. ("MBI")
acquisition in 1996, accounted for as pooling of interests, was not
material to prior years' reported operating results and accordingly,
previous years' results have not been restated. The acquisitions of
Bradley Bank and the TCF office in Little Chute in 1996 were accounted for
using the purchase method of accounting; accordingly, the financial data
includes results of operations only since the dates of acquisition. On
January 10, 1997, the Company acquired State Bank of East Troy and on
February 27, 1997 the Company acquired Green County Bank. Both
transactions are being accounted for using the pooling of interests method
of accounting, although the Company does not intend to restate prior
results because of the banks' relative sizes.
(2) Cumulative effect of change in accounting principle in 1992 and 1993
represents the adoption of SFAS No. 109 (Accounting for Income Taxes) by
the Company and its acquired subsidiary.
(3) Per share information has been restated to reflect the two-for-one stock
split paid to stockholders on March 19, 1993 and the 10% stock dividend
paid to stockholders on June 10, 1996.
(4) Cash dividends per common share are not restated to reflect the
acquisitions accounted for using the pooling of interests method of
accounting.
F-42
<PAGE> 63
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
GENERAL
The following discussion and analysis provides information regarding the
Company's results of operations and financial condition for the years ended
December 31, 1996, 1995 and 1994. These statements have been restated to
reflect the acquisitions of First National Financial Corporation ("FNFC"),
acquired February 11, 1994, Pulaski Bancshares, Inc. ("PBI") acquired March 21,
1994, Union State Bank ("USB") acquired January 9, 1995 and Community State
Bank ("CSB") acquired June 28, 1996. These transactions have been accounted for
using the pooling of interests method of accounting. The Monycor Bancshares,
Inc. ("MBI") acquisition, on February 5, 1996 was accounted for as pooling of
interests, was not material to prior years' reported operating results and
accordingly, previous years' results have not been restated. The acquisitions
Bradley Bank ("BB") acquired May 12, 1996 and the TCF office in Little Chute
acquired April 29, 1996 were accounted for using the purchase method of
accounting; accordingly, the financial data includes results of operations only
since the dates of acquisition.
The Company acquired State Bank of East Troy ("SBET") on January 10, 1997 and
Green County Bank ("GCB") on February 27, 1997. The acquisitions are being
accounted for using the pooling of interests method of accounting. See Notes 19
and 20 of Notes to the Company's Consolidated Financial Statements. Because
they were consummated after December 31, 1996, the SBET and GCB acquisitions
are not reflected in the following discussion. Because of the relative size of
SBET and GCB as compared to F&M, the Company does not intend to restate periods
prior to January 1, 1997 to reflect these acquisitions. While future results
and financial condition will reflect the addition of SBET and GCB, F&M does not
expect the effects to be material to the Company.
The Company has also announced two pending acquisitions: Prairie City Bank
("PCB") and The Citizens National Bank of Darlington ("CNBD"). These
acquisition will be accounted for using the pooling of interests method of
accounting. Because of the relative size of the entities, the acquisitions may
have a substantial affect upon the Company and its financial results or
condition. Although the pending acquisitions are expected to be consummated in
1997, each remains subject to conditions precedent and there can be no
assurance of completion.
Discussions in this Management's Discussion and Analysis, and elsewhere in this
Annual Report, 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, needs for technological change, and other
factors, including those described in this Management's Discussion and Analysis
and elsewhere in this report.
F-43
<PAGE> 64
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
RESULTS OF OPERATIONS
1996 was a year of continuing growth for F&M. Net interest income in 1996
increased $5.3 million, or 12.6%, to $47.6 million from $42.3 million in 1995
(compared with $38.9 million in 1994). Net income in 1996 increased $2.4
million, or 20.2%, to $14.4 million from $12.0 million in 1995 (compared with
$8.4 million in 1994).
Net income per common share was $2.07 in 1996 compared with $1.76 in 1995 and
$1.23 in 1994. Although the Company adopted a stock option plan in 1993, as of
December 31, 1996, fully diluted earnings per share are equal to the earnings
per share numbers mentioned above, due to the relatively small effect of
options.
Return on average assets was 1.32% in 1996, compared with 1.25% in 1995 and
0.95% in 1994. Return on average common stockholders' equity was 14.45% in
1996, compared with 13.66% in 1995 and 10.17% in 1994.
Increased net interest income, resulting from both acquisitions and internal
growth, 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.
NET INCOME APPLICABLE TO COMMON STOCK
[BAR GRAPH]
OPERATING EARNINGS PER SHARE
[BAR GRAPH]
RETURN ON AVERAGE ASSETS
[BAR GRAPH]
F-44
<PAGE> 65
MANAGEMENT'S DISCUSSION AND ALALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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 1996 increased $5.3 million, or 12.6%, to $47.6 million
from $42.3 million in 1995. This increase is attributable to the increase in
asset volume due to the Company's internal growth, acquisitions accounted for
using the purchase method of accounting, and relative stability of the
Company's net interest margin. Net interest income in 1995 increased 8.8% from
$38.9 million in 1994, this was also attributable to an 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. In both 1996 and 1995, the
Company experienced its greatest asset growth in loans, which enhanced the
Company's net interest income because loans tend to produce higher rates of
interest paid to the Company than other types of interest earning assets.
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, 1996 VS. 1995
--------------------------------------------------------------------
INCREASE (DECREASE) DUE TO (1)
--------------------------------------------------------------------
VOLUME
--------
INTERNAL OUT OF PERIOD
GROWTH ADJUSTMENTS(3) RATE NET
- ------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C> <C>
Interest earned on:
Loans (2) $6,246 $3,694 $ (68) $9,872
Taxable investment securities (913) 503 (13) (423)
Non-taxable investment securities (2) 1,287 73 (201) 1,159
Other interest income 527 34 (20) 541
- ------------------------------------------------------------------------------------------------------------
Total 7,147 4,304 (302) 11,149
- ------------------------------------------------------------------------------------------------------------
Interest paid on:
Savings deposits 707 782 777 2,266
Time deposits 1,135 1,214 521 2,870
Short-term borrowings 823 81 (58) 846
Other borrowings (502) 0 (40) (542)
- ------------------------------------------------------------------------------------------------------------
Total 2,163 2,077 1,200 5,440
- ------------------------------------------------------------------------------------------------------------
Net interest income $4,984 $2,227 $(1,502) $5,709
============================================================================================================
</TABLE>
F-45
<PAGE> 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1995 VS. 1994
---------------------------------------------------------------
INCREASE (DECREASE) DUE TO (1)
---------------------------------------------------------------
VOLUME
--------
INTERNAL OUT OF PERIOD
GROWTH ADJUSTMENTS(3) RATE NET
- -------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
Interest earned on:
Loans (2) $7,593 $4,161 $11,754
Taxable investment securities (479) 857 378
Non-taxable investment securities (2) 56 (137) (81)
Other interest income (84) 207 123
- -------------------------------------------------------------------------------------------------------
Total 7,086 5,088 12,174
- -------------------------------------------------------------------------------------------------------
Interest paid on:
Savings deposits (206) 944 738
Time deposits 3,011 4,425 7,435
Short-term borrowings (128) 255 127
Other borrowings 393 37 431
- -------------------------------------------------------------------------------------------------------
Total 3,070 5,661 8,731
- -------------------------------------------------------------------------------------------------------
Net interest income $4,016 $(573) $3,443
=======================================================================================================
</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.
(3) Out of period adjustment reflects the addition of BB, the TCF Little
Chute office and MBI.
F-46
<PAGE> 67
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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, 1996. Because of the increase in the percentage of
assets represented by loans, the Company's yield on interest-earning assets for
1996 increased from 1995, although the interest rates earned for various
classes of assets decreased slightly during the year. The increase over the
period is reflected in the 1996 yield on interest-earning assets which
increased by 0.01%, after an increase of 0.69% in 1995 and a decrease of 0.13%
in 1994. The Company's effective rate on interest-bearing liabilities increased
in 1996 as compared to 1995, as a result of increased prices paid on deposits.
The effective rate on liabilities as a percentage of interest-earning assets
increased by 0.07% in 1996 and 0.71% in 1995, respectively, producing a
negative impact on net interest margin on interest-earning assets of 0.06% and
0.02% for 1996 and 1995, respectively. In 1994, net interest margin on
interest-earning assets increased 0.07%.
NET INTEREST MARGIN
[BAR GRAPH]
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------------------------------
1996 1995 1994
------------------------------------------------------------------
YIELD/ CHANGE YIELD/ CHANGE YIELD/ CHANGE
RATE FROM 1995 RATE FROM 1994 RATE FROM 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Yield on interest-earning assets 8.71% 0.01% 8.70% 0.69% 8.01% (0.13)%
Effective rate on liabilities as a percent
of interest-earning assets 3.84% 0.07% 3.77% 0.71% 3.06% (0.20)%
- ----------------------------------------------------------------------------------------------------------------
Net interest margin on interest-earning assets 4.87% (0.06) 4.93% (0.02)% 4.95% 0.07%
================================================================================================================
</TABLE>
Despite the relatively small increase in interest rates during 1996, 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 increase in the discount rate. In the generally increasing interest rate
environment, the Company had a slight increase 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.
F-47
<PAGE> 68
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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>
1996 1995 1994
-----------------------------------------------------------------------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
(DOLLARS IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Interest earning assets
Loans (1) (2) (3) $791,826 $73,499 9.28% $685,260 $63,627 9.29% $601,309 $51,873 8.63%
Taxable investment
securities 123,693 7,723 6.24% 130,427 8,146 6.25% 138,595 7,768 5.60%
Nontaxable investment
securities (2) 84,798 6,609 7.79% 67,463 5,450 8.08% 66,775 5,531 8.28%
Other investments 22,155 1,213 5.47% 11,933 672 5.63% 13,858 549 3.96%
---------------------- ------------------ ------------------
Total $1,022,472 $89,044 8.71% $895,083 $77,895 8.70% $820,537 $65,721 8.01%
Non-interest earning assets
Cash and due from banks 31,185 31,596 36,509
Premises & Equip. - net 24,711 20,568 19,431
Other assets 20,383 16,857 16,287
Less: Allowance for loan loss (9,858 (8,477) (7,765)
---------- -------- --------
Total $1,088,893 $955,627 $884,999
========== ======== ========
LIABILITIES & STOCKHOLDERS' EQUITY
Interest bearing liabilities
Savings deposits $347,011 $10,050 2.90% $293,845 $7,784 2.65% $302,480 $7,046 2.33%
Time deposits 472,222 26,989 5.72% 430,593 24,119 5.60% 369,771 16,684 4.51%
Short-term borrowings 32,693 1,781 5.45% 16,164 935 5.79% 18,864 808 4.28%
Other borrowings 6,852 426 6.22% 14,888 968 6.50% 8,811 537 6.10%
-------------------- ------------------ ------------------
Total $858,778 $39,246 4.57% $755,490 $33,806 4.47% $699,926 $25,075 3.58%
Non-interest bearing liabilities
Demand deposits 118,678 102,211 95,691
Other liabilities 11,704 10,152 6,748
Stockholders' equity 99,733 87,774 82,634
---------- -------- --------
Total $1,088,893 $955,627 $884,999
========== ======== ========
Net interest income $49,798 $44,089 $40,646
Rate spread 4.14% 4.23% 4.43%
Net interest margin 4.87% 4.93% 4.95%
</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:
1996-$1,611,000; 1995-$1,150,000; 1994-$1,315,000.
F-48
<PAGE> 69
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (CONTINUED)
The following table sets forth the mix of average interest-earning assets and
average interest-bearing liabilities.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1996 1995 1994
----------------------------------------------------------
<S> <C> <C> <C>
Loans 77.4% 76.6% 73.3%
Taxable investment securities 12.1% 14.6% 16.9%
Non-taxable investment securities 8.3% 7.5% 8.1%
Other investments 2.2% 1.3% 1.7%
----------------------------------------------------------
100.0% 100.0% 100.0%
=========================================================
Savings deposits 40.4% 38.9% 43.2%
Time deposits 55.0% 57.0% 52.8%
Short-term borrowings 3.8% 2.1% 2.7%
Other borrowings 0.8% 2.0% 1.3%
----------------------------------------------------------
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% which it
believes to be the optimum level for F&M.
As interest rates fluctuated throughout 1996 and overall increased, savings
deposits increased slightly faster than time deposits. The increase was
partially attributed to the promotion of our new money market product.
Short-term borrowing increased because the Company took advantage of the
attractiveness of the short term rates in 1996. The decrease in other
borrowings is due to the Company's use of short term borrowings. For more
information regarding borrowing, see Notes 11 and 12 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
anticipated 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 $2.0 million in 1996, compared with $1.7
million in 1995 and $1.3 million in 1994. The allowance for loan losses as a
percentage of gross loans outstanding was 1.23% at December 31, 1996, as
compared to 1.27% and 1.25% at December 31, 1995 and 1994, respectively. The
reduction in percentage resulted from the relatively greater increase in the
level of loans as compared to net provision. Net charge-offs as a percentage of
average loans outstanding were 0.11% in 1996, 0.12% in 1995 and 0.13% in 1994.
Charge-offs in 1996 were not concentrated in any industry or business segment.
NON-INTEREST INCOME
The following table presents the major components of non-interest income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(dollars in thousands) 1996 1995 1994
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Service Fees $3,061 $2,611 $2,303
Net securities gains 115 37 70
Other operating income 2,700 2,001 1,739
- ----------------------------------------------------------------------
Total $5,876 $4,649 $4,112
======================================================================
</TABLE>
The Company stresses the importance of growth in non-interest income as one of
its key long-term strategies. Non-interest income for 1996 increased $1.2
million or 26.4% when compared to 1995. The increase in service fees during
1996 was attributable primarily to increased services (primarily relating to
checking and other depository accounts) provided, along with an increase in the
amount charged for those services.
F-49
<PAGE> 70
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
During all three periods, 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 1996 was due principally to
increases in secondary market commissions, along with an increase in other
miscellaneous charges. The volume of mortgage refinancings and new home
purchases increased in 1996, in spite of fluctuating interest rate conditions,
and therefore increased the Company's related secondary market commissions. The
increase in the operating income between 1994 and 1995 reflects primarily an
increase in mortgage refinancing (and, therefore, secondary market commissions)
resulting from the decreasing in interest rate environment in 1995.
NON-INTEREST EXPENSE
The following table presents the major components of non-interest expense.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
- -------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 1996 1995 1994
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Salaries and employee benefits $16,366 $14,257 $15,261
Occupancy expenses, net 4,277 4,002 3,990
Data processing 1,356 1,385 1,394
Goodwill amortization 524 398 398
FDIC insurance premiums 83 929 1,733
Other operating expenses 7,776 6,756 7,366
- -------------------------------------------------------------------------------------
Total $30,382 $27,727 $30,142
====================================================================================
</TABLE>
EFFICIENCY RATIO
[BAR GRAPH]
The Company's total non-interest expense in 1996 increased $2.7 million, or
9.6%, to $30.4 million from $27.7 million in 1995. The increase was primarily
due to acquisitions in 1996, resulting both from the costs of the acquisitions
and increase from those with respect for which prior periods were not restated.
Salary and employee benefits increased due to new locations as well as
increased salary levels. Occupancy expenses increased due to servicing of new
locations and operations. FDIC deposit insurance premiums were further reduced
due to the substantial reductions in rates charged to banks which became
effective in May 1995. The increase in other operating expenses resulted from a
variety of increases in other expense categories, including the acquisitions
for which prior periods were not restated. The total noninterest expense in
1995 represents an 8.0% decrease from $30.1 million in 1994 resulting primarily
due to acquisition and restructuring costs in 1994 in connection with the
addition of USB, FNFC and PBI, along with the reduction of FDIC insurance rates
and cost cutting initiatives implemented by the Company during 1994 and 1995.
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 2.26% in 1996, 2.42% in 1995, and 2.95%
in 1994.
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 54.68% in 1996, 56.93%
in 1995 and 67.45% in 1994. The decreases in this ratio and the overhead ratio
resulted from the various factors set forth above.
F-50
<PAGE> 71
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
INCOME TAXES
The Company's provision for income taxes in 1996 increased $1.1 million, or
20.5%, to $6.7 million from $5.6 million in 1995. The 1995 level represents a
81.0% increase from $3.1 million in 1994. As a percentage of taxable income,
the effective tax rate was 31.8% in 1996, 31.7% in 1995 and 26.7% in 1994 of
income before taxes. The effective tax rate has remained constant as compared
to 1995. For more information regarding income taxes see Note 13 of Notes to
the Company's Consolidated Financial Statements.
NET INCOME
Net income applicable to common stock increased by $2.4 million in 1996, or
20.2% to $14.4 million from $12.0 million in 1995. This compares with a
increase in income of $3.6 million, or 42.7%, for 1995 from $8.4 million in
1994. 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 14.45% in 1996 compared with
13.66% in 1995 and 10.17% in 1994. The return on average assets was 1.32% in
1996 compared with 1.25% in 1995 and 0.95% in 1994.
Net income per common share was $2.07 in 1996 compared with $1.76 in 1995 and
$1.23 in 1994. Although the Company adopted a stock option plan in 1993, as of
December 31, 1996, fully diluted earnings per share are equal to the earnings
per share numbers mentioned above, due to the relatively small effect of
options.
FINANCIAL CONDITION
1996 was a year of growth for F&M in total assets and equity. Year end total
assets in 1996 grew to $1.173 billion, a 17.8% increase from $996 million in
1995. Approximately 7% of the growth resulted from acquisitions for which prior
financial statements were not restated, and the balance resulted from internal
growth. Total shareholders' equity at December 31, 1996 was $105 million, an
11.6% increase from $94 million in 1995. The balance of this section further
discusses changes in the Company's assets, liabilities and equity.
ASSET GROWTH
[BAR GRAPH]
F-51
<PAGE> 72
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT % AMOUNT %
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial and industrial $169,141 19.5% $120,894 17.2% $107,599 16.5%
Agricultural 46,389 5.4% 41,875 6.0% 41,427 6.4%
Real estate construction 36,100 4.2% 22,791 3.3% 18,154 2.8%
Real estate mortgage 558,589 64.6% 466,137 66.6% 433,235 66.6%
Installment and other consumer loans 54,455 6.3% 48,347 6.9% 49,821 7.7%
- ------------------------------------------------------------------------------------------------------
Total $864,674 100.0% $700,044 100.0% $650,236 100.0%
======================================================================================================
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------------------
(DOLLARS IN THOUSANDS) AMOUNT % AMOUNT %
- --------------------------------------------------------------------------------
Commercial and industrial $102,954 18.4% $77,790 15.5%
Agricultural 41,358 7.4% 34,962 6.9%
Real estate construction 18,182 3.2% 14,094 2.8%
Real estate mortgage 352,928 62.9% 330,675 65.6%
Installment and other consumer loans 45,425 8.1% 46,601 9.2%
- --------------------------------------------------------------------------------
Total $560,847 100.0% $504,122 100.0%
================================================================================
</TABLE>
[GRAPH]
LOAN PORTFOLIO COMPOSITION
December 31, 1996
Real Estate Mortgage 65%
Commercial and Industrial 20%
Installment and Other Consumer 6%
Agricultural 5%
Real Estate Construction 4%
Loan growth was 23.5% in 1996 compared with 7.7% in 1995. The 1996 and 1995
increase was primarily a result of increased sales efforts at the Company's
subsidiary banks. Approximately $44.5 million in loans or 6% of the 1996 loan
growth resulted from acquisitions in which the Company did not restate its
prior financial statements and the remaining balance resulted from internal
growth.
During 1996 and 1995 the loan mix in the Company's portfolio remained
relatively constant, with a trend toward commercial loans.
The Company maintains a diversified loan portfolio and therefore, management
believes there is minimal exposure to loan concentration losses. At December
31, 1996, 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.
F-52
<PAGE> 73
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
The following table sets forth the scheduled repayments of the loan portfolio
and the sensitivity of loans to interest rate changes at December 31, 1996
(excluding one to four family residential property mortgages and consumer
loans).
<TABLE>
<CAPTION>
MATURITY
---------------------------------------
OVER ONE
ONE YEAR YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS
--------------------------------------
(In thousands)
<S> <C> <C> <C>
Commercial and industrial $122,016 $40,791 $6,334
Agricultural 41,463 4,525 401
Real estate construction 33,889 2,211 0
- ---------------------------------------------------------------------------------
Total $197,368 $47,527 $6,735
=================================================================================
</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 $42,110 $5,015
Agricultural 3,566 1,360
Real estate construction 2,187 24
- --------------------------------------------------------------------------------------------
Total $47,863 $6,399
============================================================================================
</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) 1996 % 1995 % 1994 %
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans $10,465 1.21% $6,189 0.88% $5,888 0.91%
Loans past due 90 days or more 31 0.00 212 0.03 145 0.02
Restructured loans 0 0.00 481 0.07 25 0.00
- -----------------------------------------------------------------------------------------
Total non-performing loans 10,496 1.21 6,882 0.98 6,058 0.93
Other real estate owned 1,824 0.21 809 0.12 1,237 0.19
- -----------------------------------------------------------------------------------------
Total non-performing assets $12,320 1.42% $7,691 1.10% $7,295 1.12%
=========================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------------
(DOLLARS IN THOUSANDS) 1993 % 1992 %
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-accrual loans $4,396 0.78% $4,940 0.98%
Loans past due 90 days or more 344 0.06 161 0.03
Restructured loans 259 0.05 497 0.10
- ----------------------------------------------------------------------------------
Total non-performing loans 4,999 0.89 5,598 1.11
Other real estate owned 2,544 0.45 3,663 0.73
- ----------------------------------------------------------------------------------
Total non-performing assets $7,543 1.34% $9,261 1.84%
==================================================================================
</TABLE>
Maintaining excellent credit quality continues to be a priority for the
Company. Non-performing assets as a percentage of total loans outstanding
increased in 1996 to 1.42% compared with 1.10% in 1995 and 1.12% in 1994.
Non-accrual loans increased in 1996 because of 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.
F-53
<PAGE> 74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LOAD QUALITY
(BAR GRAPH)
'92 '93 '94 '95 '96
Non-performing assets to 1.91 1.24 1.12 1.10 1.43
period end loans and
OMEO
Net Charge offs to average .19% .10% .12% .12% .11%
loans outstanding
Allowances for loan losses to 1.34% 1.35% 1.25% 1.27% 1.23%
period end loans
Non-accrual loans at December 31, 1996 increased 0.33% as a percentage of total
loans, as compared to 1995. Non-accrual loans are at a level the Company
considers manageable and continues to work at reducing the level of
nonperforming loans. 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 1996 if the loans had been current in accordance with their original terms
was approximately $811,000, of which approximately $236,000 was collected and
included in the Company's income for 1996.
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, 1996, which in the opinion of management, and to its best knowledge, will
not be paid according to their terms.
F-54
<PAGE> 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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) 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balance of loans for period $791,826 $685,260 $601,309 $530,520 $501,562
============================================================================================================================
Allowance for loan losses at beginning of period 8,921 8,100 7,556 6,767 5,943
Allowance for loan losses of banks
acquired in purchase transactions 587 -- -- -- --
Loans charged off
Commercial and Industrial 444 601 456 372 512
Agricultural 243 36 33 51 11
Real Estate - Mortgage 70 95 162 53 262
Installments and Other Consumer Loans 402 298 336 319 431
- ----------------------------------------------------------------------------------------------------------------------------
Total charge offs 1,159 1,030 987 795 1,216
Recoveries on loans previously charged off
Commercial and Industrial 105 54 74 92 93
Agricultural 10 5 8 1 10
Real Estate - Mortgage 17 39 11 44 26
Installment and Other Consumer Loans 117 100 100 118 116
- ----------------------------------------------------------------------------------------------------------------------------
Total recoveries 249 198 193 255 245
Net loans charged off 910 832 794 540 971
Provisions for loan losses 2,004 1,653 1,338 1,329 1,795
- ----------------------------------------------------------------------------------------------------------------------------
Allowance for loan losses at end of period $ 10,602 $ 8,921 $ 8,100 $ 7,556 $ 6,767
===============================================================================================================================
Ratio of net charge offs during period to
average loans outstanding 0.11% 0.12% 0.13% 0.10% 0.19%
Allowance for loan losses to total loans 1.23% 1.27% 1.25% 1.35% 1.34%
</TABLE>
F-55
<PAGE> 76
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994
----------------------------------------------------------------
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 $4,345 24.9% $3,681 23.2% $3,377 22.9%
Real estate - construction 223 4.2 147 3.3 114 2.8
Real estate - mortgage 3,970 64.6 3,315 66.6 3,232 66.6
Installment and other consumer loans 2,064 6.3 1,778 6.9 1,377 7.7
- ----------------------------------------------------------------------------------------------------------
$10,602 100.0% $8,921 100.0% $8,100 100.0%
==========================================================================================================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993 DECEMBER 31, 1992
------------------------------------------
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 $3,590 25.8% $3,085 22.4%
Real estate - construction 121 3.2 122 2.8
Real estate - mortgage 2,719 62.9 2,544 65.6
Installment and other consumer loans 1,126 8.1 1,016 9.2
- ------------------------------------------------------------------------------------
$7,556 100.0% $6,767 100.0%
====================================================================================
</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.
The degree of risk associated with the Company's loans is generally greater in
the commercial, industrial and agricultural categories, representing 24.9% of
total loans at December 31, 1996. These types of loans increased as a
percentage of the total loan portfolio in 1996. Accordingly, management has
allocated a significantly larger portion of the allowance for loan losses to
these types of loans and significantly increased the provision for loan loss;
however, due to the growth in loans, the provision as a percent of loans
decreased.
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.
F-56
<PAGE> 77
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
INVESTMENT PORTFOLIO
The following table sets forth the distribution of investments (securities held
to maturity and available for sale) and their percentage to total investments
at the dates indicated.
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------------------------
1996 1995 1994
(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 $ 32,486 15.8% $ 40,150 19.6% $ 49,356 24.9%
Obligations of states and political subdivisions 105,632 51.2 82,380 40.2 80,480 40.5
Debt securities issued by foreign government 25 0.0 25 0.0 25 0.0
Mortgage-backed securities 55,237 26.8 64,605 31.6 57,298 28.8
Other investments 12,848 6.2 17,687 8.6 11,579 5.8
- ----------------------------------------------------------------------------------------------------------
Total investments $206,228 100.0% $204,847 100.0% $198,738 100.0%
==========================================================================================================
</TABLE>
During 1996, the investment portfolio make-up changed slightly relative with
past years, with a slight decrease in U.S. treasuries and agencies and an
increase in obligations of states and political subdivisions. The Company took
advantage of attractive spread relationships in the non-taxable market and also
lengthened the average maturity in the investment portfolio.
INVESTMENT PORTFOLIO
December 31, 1996
<TABLE>
<CAPTION>
COMPOSITION QUALITY
<S> <C> <C> <C>
Municipals 51% Treasury Agency AAA 82%
Mortage Backed 27% Non-Rated 11%
Treasuries/Agencies 16% A 4%
Other 6% AA 2%
BAA 1%
</TABLE>
The following table shows the relative maturities and weighted average interest
rates on a tax equivalent basis of investment securities as of December 31,
1996. Although the maturities of the investment portfolio have lengthened from
1995, the Company feels liquidity remains adequate.
<TABLE>
<CAPTION>
AFTER ONE AFTER FIVE
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS
- -------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS) 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* $15,585 5.84% $30,599 5.68% $3,302 6.64% $38,237 6.48%
States and political
subdivisions (domestic) 3,041 8.11 31,384 8.18 28,236 8.27 42,971 8.08
Other investments 4,569 5.55 5,514 6.51 1,144 5.60 1,646 6.89
- -------------------------------------------------------------------------------------------
Total $23,195 6.08% $67,497 6.91% $32,682 8.01% $82,854 7.32%
===========================================================================================
</TABLE>
*Includes floating rate securities which reprice monthly but which mature
during the indicated time period.
F-57
<PAGE> 78
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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, 1996,
are as follows: fixed rate mortgage-backed pass-throughs-$17.0 million;
variable rate mortgage-backed pass-throughs-$5.4 million; fixed rate real
estate mortgage investment conduits/collateralized mortgage obligations-$15.2
million; and floating rate real estate mortgage investment
conduits/collateralized mortgage obligations-$17.6 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,
-------------------------------------------------------------------
1996 1995 1994
-------------------------------------------------------------------
AMOUNTS PERCENT AMOUNTS PERCENT AMOUNTS PERCENT
- -------------------------------------------------------------------------------------------------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing demand $118,678 12.7% $102,211 12.4% $95,691 12.4%
Interest-bearing demand 86,534 9.2 87,187 10.5 94,310 12.3
Savings deposits 260,477 27.8 206,658 25.0 208,170 27.1
Time deposits 472,222 50.3 430,593 52.1 369,771 48.2
- -------------------------------------------------------------------------------------------------
Total $937,911 100.0% $826,649 100.0% $767,942 100.0%
=================================================================================================
</TABLE>
Year-end deposits increased 16.0% in 1996 compared with an increase of 7.6% in
1995 over 1994.
The amount of time certificates of deposit issued in amounts of $100,000 or
more and outstanding as of December 31, 1996 was $88,021,000. Their maturing
distribution is as follows:
--three months or less $32,121,000
--over three months and through twelve months $43,714,000
--over one year $12,186,000
Neither F&M or its subsidiaries have any deposits in foreign banking offices.
BORROWINGS
Short-term borrowings at December 31, 1996 were $41.3 million, as compared to
$12.2 million at December 31, 1995. Short-term borrowings consist primarily of
repurchase agreements and federal funds purchased. During 1996, F&M has used
short-term borrowings (along with increased deposits) to fund its increasing
loan demand. Use of short-term funds at year end 1996 reflected the
attractiveness of rates for those funds. Going forward, 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. However
continued reliance on short-term borrowings may be required if loan demand
outpaces deposit growth, and 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, 1996 and 1995.
These borrowings are secured by pledges of mortgage loans, and totaled $9.8
million at December 31, 1996, compared to $10.8 million at December 31, 1995.
These borrowings had original maturities of three months to nine years, with
rates at December 31, 1996 ranging from 5.49% to 7.73%.
F-58
<PAGE> 79
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
CAPITAL ADEQUACY
Stockholders' equity increased in 1996 by $10.9 million, to $104.9 million.
This increase was a result of net income during the year, offset by the net
decrease in the SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" adjustment which decreased stockholders' equity by $479,000,
along with dividends of $4.8 million paid to common stockholders.
[EQUITY BAR GRAPH] [REGULATORY CAPITAL RATIOS BAR GRAPH]
At December 31, 1996, the risk-based capital ratio for Tier 1 capital was
11.28% and the total risk-based capital ratio was 12.50%, as compared to
minimum regulatory requirements of 4.0% and 8.0%, respectively. The ratio of
average equity to average assets amounted to 9.16% at December 31, 1996
compared with 9.18% at December 31, 1995 and 9.34% at December 31, 1994. The
Company's leverage ratio at December 31, 1996 was 8.65%, as compared to a
minimum regulatory requirement of 3.0%.
At December 31, 1996, the F&M subsidiary banks in the aggregate could have paid
approximately $25,253,000 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, 1996, 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.
Because of the effect of one cash acquisition, one of the Bank's is currently
precluded from paying dividends to the holding company until its capital ratios
improve; see below. The Company's common stock dividend payout ratio was 33.5%
in 1996, as compared to 31.5% in 1995 and 32.2% in 1994. These numbers include
the dividends historically paid by CSB, USB, FNFC and PBI prior to their
acquisitions by the Company; differences in dividend policies affect the
comparability of information.
F&M's acquisitions of MBI, CSB, SBET and GCB were, and its pending acquisitions
of PCB, and CNBD are, stock for stock transactions, and therefore additive to
the Company's capital. The acquisitions which have been consummated did not
significantly affect F&M's capital ratios and F&M does not expect the pending
acquisitions to do so.
F&M's acquisition of BB was effected for approximately $6.2 million in cash,
paid by F&M Bank-Lakeland as a part of BB's merger with that bank. While this
acquisition did not significantly affect the capital ratios of F&M as a whole,
and F&M Bank-Lakeland remains well capitalized, F&M Bank-Lakeland has agreed to
defer paying dividends to F&M until its capital reverts to pre-acquisition
levels, which F&M expects will occur in 1997 due to the bank's earning
capacity.
In addition to acquisitions, F&M incurred significant capital expenditures in
1996 relating to the acquisition of its second Green Bay office and the
relocation or replacement of offices in Stevens Point, Amherst and Lancaster.
Such capital expenditures in 1996 totalled approximately $5.5 million. Capital
expenditures were financed through earnings and existing capital resources.
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.
F-59
<PAGE> 80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
LIQUIDITY AND INTEREST SENSITIVITY MANAGEMENT
As shown in the Company's Consolidated Statement of Cash Flow for 1996, cash
and cash equivalents decreased by $136,000 during 1996 to $62.8 million at
December 31, 1996. The decrease primarily reflected $102.3 million in net cash
provided by financing activities plus $16.1 million in net cash provided by
operating activities offset by $118.5 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 1996,
increased by adjustments for non-cash credits. Net cash provided by financing
activities principally reflected a net increase in deposits and short-term
borrowings, offset by dividends paid. During 1994, the Company began accounting
for federal funds sold as a cash equivalent. The effect of this change was to
increase total cash and cash equivalents by $18.2 million, $22.1 million and
$5.8 million for 1996, 1995, and 1994, respectively. There was no effect on
stockholders' equity or net income for 1996, 1995, and 1994 as a result of this
change in accounting.
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, 1996,
the carrying value of securities maturing within one year was $23.2 million, or
11.2% 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, 1996.
<TABLE>
0-90 91-365 1-5 OVER 5
DAYS DAYS YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Loans $ 247,149 $314,802 $255,189 $ 47,534 $ 864,674
Investment securities 26,278 23,316 64,295 92,339 206,228
Other earnings assets 18,204 0 0 0 18,204
- ------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive assets (RSA) $ 291,631 $338,118 $319,484 $139,873 $1,089,106
========================================================================================================================
Savings deposits $ 236,286 $ 0 $ 84 $ 3,642 $ 240,012
Time deposits 154,788 243,202 86,219 6,609 490,818
Other non-deposit interest-bearing liabilities 48,649 0 1,100 1,400 51,149
- ------------------------------------------------------------------------------------------------------------------------
Total rate-sensitive liabilities (RSL) $ 439,723 $243,202 $ 87,403 $ 11,651 $ 781,979
========================================================================================================================
Interest sensitivity gap $(148,092) $ 94,916 $232,081 $128,222 $ 307,127
========================================================================================================================
Cumulative interest sensitivity gap $(148,092) $(53,176) $178,905 $307,127
========================================================================================================================
Ratio of cumulative rate sensitivity gap to RSA (50.8)% (8.4)% 18.8% 28.2%
Cumulative ratio of rate sensitive assets
to rate sensitive liabilities 66.3% 92.2% 123.2% 139.3%
</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.
F-60
<PAGE> 81
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
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 and 91-365-day intervals 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, 1996 net interest margin indicates
that the actual increase in interest rates for the year resulted in a slight
decrease in the margin to 4.87% from 4.93% for 1995. 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 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. The actual impact on a
continuing basis 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.
F-61
<PAGE> 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (continued)
The statement provides guidelines for classification of a transfer as a sale.
The statement also requires liabilities incurred or obtained by transferors as
part of a transfer of financial assets by initially recorded at fair value.
Subsequent to acquisition, the servicing assets and liabilities are to be
amortized over the estimated net servicing period. This statement is required
to be adopted for transfers and servicing of financial assets and
extinguishments of liabilities occurring after December 31, 1996.
In December 1996, the FASBissued No. 127, "Deferral of the Effective Date of
Certain Provisions of FASBStatement No. 125." This statement defers
implementation of certain provisions of SFAS No. 125 for one year. Adoption of
SFASNo. 127 is not anticipated to have a significant impact on the Company's
financial condition or results of operations once implemented.
SUMMARY QUARTERLY FINANCIAL INFORMATION
The following is a summary of the quarterly results of operations for the years
ended December 31, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
- ---------------------------------------------------------------------------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ---------------------------------------------------------------------------------------------------------------
(In thousands, except per share data)
<S> <C> <C> <C> <C>
1996
Interest income $20,500 $21,311 $22,087 $22,978
Interest expense 9,234 9,496 10,051 10,464
Net interest income 11,266 11,815 12,036 12,514
Provision for loan losses 419 401 469 715
Net income applicable to common stock 3,426 3,552 3,703 3,733
Earnings per common share .49 .51 .53 .54
1995
Interest income $17,719 $18,760 $19,674 $19,938
Interest expense 7,573 8,478 8,839 8,917
Net interest income 10,146 10,282 10,835 11,021
Provision for loan losses 337 298 492 527
Net income applicable to common stock 2,644 2,784 3,249 3,311
Earnings per common share .39 .41 .48 .49
</TABLE>
F-62
<PAGE> 83
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REGISTRATION
STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY
AUTHORIZED.
F&M BANCORPORATION, INC.
Dated March 26, 1997 By: /s/ Gail E. Janssen
-----------------------------------
Gail E. Janssen, Chairman of the Board
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Gail E. Janssen, Daniel E. Voet and Janet M.
Lakso, and each 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 report, 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 report has
been signed by the following persons in the capacities and on the dates
indicated.*
SIGNATURE AND TITLE
/s/ Gail E. Janssen /s/ Douglas A. Martin
------------------------------------- -----------------------------
Gail E. Janssen, Chairman of the Board, Douglass A. Martin, Director
Director and Chief Executive Officer
/s/ Daniel E. Voet /s/ Duane G. Peppler
- -------------------------------------- ----------------------------
Daniel E. Voet, Chief Financial Officer Duane G. Peppler, Director
and Treasurer
(also, Principal Accounting Officer)
/s/ Otto L. Cox /s/ Robert C. Safford
--------------------- ---------------------------
Otto L. Cox, Director Robert C. Safford, Director
/s/ Paul J. Hernke /s/ Glenn L. Schilling
------------------------ ----------------------------
Paul J. Hernke, Director Glenn L. Schilling, Director
/s/ John W. Johnson /s/ Joseph F. Walsh
-------------------------- ----------------------------
John W. Johnson, Director Joseph F. Walsh, Director
- --------------
* Each of the above signatures is affixed as of March 26, 1997
S-1
<PAGE> 84
F&M BANCORPORATION, INC.
(THE "REGISTRANT")
EXHIBIT INDEX
TO
1996 REPORT ON FORM 10-K
<TABLE>
<CAPTION>
Exhibit Incorporated Herein File
Number Description by Reference Herewith
<S> <C> <C> <C>
3(i) Restated Articles of Incorporation Exhibit 3(i) to Registrant's
as amended through May 14, Report on Form 10-Q for
1992 the quarter ended
March 31, 1996
3(ii) Bylaws, as amended through Exhibit 3.2 to Registrant's
February 4, 1994 Report on Form 10-K for the
year ended December 31, 1993
("1993 10-K")
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 Exhibit B to 1993
Plan for Non-Employee Directors Proxy Statement
10.3** Registrant's Executive Bonus Plan Description thereof
under "Commitee
Report on Executive
Compensation" in the
Registrant's Proxy
Statement for 1996
Annual Meeting of
Shareholders ("1996
Proxy Statement")
10.4** Registrant's Deferred Exhibit 10.6 to
Compensation 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 Officers' Stock Description thereof under
Purchase Plan "Officers' Stock Purchase
Plan" in 1996 Proxy
Statement
</TABLE>
QB2\279877.4 EI-1
<PAGE> 85
<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
Registrant and Robert C. Safford Form 8-K dated
February 11, 1994
10.7** Agreement dated November 4, Exhibit 10.1 to the
1993 between Pulaski Bank (n/k/a Registrant's Report on
F&M Bank Northeast) and John Form 8-K dated March 21,
W. Johnson 1994 ("3/21/94 8-K")
10.8** Option Agreement dated Exhibit 10.2 to
March 17, 1993 between 3/21/94 8-K
Pulaski Bancshares, Inc.
and John W. Johnson,
together with the assumption
thereof by the Registrant
dated March 21, 1994
10.9(a) Plan and Agreement of Merger Exhibit 2.1 to the
and Reorganization dated Registrants's Report on
November 1, 1995 among the Form 10-Q for the quarter
Registrant, Monycor Bancshares, ended September 30,
Inc. and F&M Merger Corporation 1995
("Merger Corp.")
10.9(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
10.10 Plan and Agreement of Merger Exhibit 10.11 to the
and Reorganization dated as of Registrant's Report on
January 11, 1996 by and Form 10-K for the year
between F&M Bank-Lakeland and ended December 31, 1995
Bradley Bank* ("1995 10-K")
10.11 Plan and Agreement of Merger Exhibit 10.12 to 1995
and Reorganization dated as of 10-K
February 22, 1996 by and among
the Registrant, F&M Interim Bank
and Community State Bank*
10.12 Branch Purchase Agreement dated Exhibit 10.13 to 1995
as of January 15, 1996 by and 10-K
between F&M Bank-Kaukauna and
TCF Bank Wisconsin fsb*
</TABLE>
EI-2
<PAGE> 86
<TABLE>
<CAPTION>
Exhibit Incorporated Herein Filed
Number Description By Reference Herewith
<S> <C> <C> <C>
10.13 Plan and Agreement of Merger Exhibit 10.14 to the
and Reorganization dated as of Registrant's Statement on
August 20, 1996 by and among Form S-4, No. 333-13321
the Registrant, East Troy ("1996 S-4")
Bancshares, Inc. and Merger
Corp.*
10.14 Plan and Agreement of Merger Exhibit B to Supplemental
and Reorganization dated as of Statement dated January
January 2, 1997 between the 23, 1997, filed as a Rule
Registrant and Green County 424(b)(3) Prospectus
Bank* relating to the 1996 S-4.
10.15 Plan and Agreement of X
Reorganization and Merger dated
as of February 27, 1997 among the
Registrant, Merger Corp. and
Citizen's National Bancorporation,
Inc.*
10.16 Plan and Agreement of Merger X
and Reorganization dated as of
March 19, 1997 among the
Registrant, Wisconsin Ban Corp.
and F&M Merger Corporation*
21 List of Subsidiaries X
23 Consent of Wipfli Ullrich Bertelson LLP X
24 Power of Attorney (contained on X
the Signature Page)
27 Financial Data Schedule X
</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.
** Designates management contracts or compensatory plans or
arrangements which are filed as exhibits hereto.
EI-3
<PAGE> 1
Exhibit 10.15
PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
Plan and Agreement of Merger and Reorganization (hereinafter referred
to as "Agreement"), made as of the 27th day of February, 1997, by and between F
& M Bancorporation, Inc., a Wisconsin corporation, F & M Merger Corporation, a
Wisconsin corporation and Citizen's National Bancorporation, Inc., a Wisconsin
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 The Citizen's National Bank of Darlington,
207 Wells Street, P.O. Box 90, Darlington, Wisconsin 53530.
1.3 "BANK Stock" shall mean BANK's voting capital stock $100.00
par value.
1.4 "CNB Shareholders" shall mean the shareholders of CNB
identified in the Schedule of Shareholders attached hereto as Exhibit 1.4.
1.5 "CNB Counsel" shall mean Boardman, Suhr, Curry & Field, 410
Firstar Plaza, One South Pinckney Street, P.O. Box 927, Madison, Wisconsin
53701-0927, Attn: John Knight, Esq.
1.6 "CNB" shall mean Citizen's National Bancorporation, Inc., 207
Wells Street, Darlington, Wisconsin 53530.
1.7 "CNB Common" shall mean CNB's voting common stock, no par
value.
1.8 "Closing Date" shall mean the date set by mutual agreement of
CNB and F & M and will not occur prior to the satisfaction or the waiver of all
of the conditions to the transaction.
1.9 "Effective Time" shall mean the date the Articles of Merger
are filed with the State of Wisconsin Department of Financial Institutions,
Division of Corporate and Consumer Services (the "Division"). The Articles of
Merger shall be filed as soon as possible after the conditions precedent to
this merger have been met or waived by F & M and CNB, but shall not be
effective prior to the Closing Date.
1.10 "F & M" shall mean F & M Bancorporation, Inc., One Bank
Avenue, Kaukauna, Wisconsin 54130.
1.11 "F & M Common" shall mean F & M's voting common stock, $1.00
par value.
1.12 "F & M Selling Price" shall mean the average closing price for
F & M Common, as quoted on the NASDAQ National Market System ("NASDAQ"), 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.
1.13 "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.
<PAGE> 2
1.14 "Securities Counsel" shall mean Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett,
Esq.
1.15 "Subsidiary" shall mean F & M Merger Corporation, One Bank
Avenue, Kaukauna, Wisconsin 54130, a wholly-owned subsidiary of F & M.
1.16 "Registration Statement" shall mean the Registration Statement
of F & M as amended 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 CNB to its
shareholders relating to approval of the merger (the "Prospectus/Proxy
Statement").
2. Preamble.
F & M and Subsidiary are multi-bank holding companies with subsidiary
banks located in Wisconsin. BANK is a national banking corporation located in
Darlington, Wisconsin and is a wholly-owned subsidiary of CNB. F & M and CNB,
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, Subsidiary and CNB each
believe that this transaction is in their best interests and in the best
interests of their shareholders and communities 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 CNB and Subsidiary resulting in BANK becoming a subsidiary of F
& M will be in the best interest of their respective corporations,
shareholders, and communities. The merger of CNB into Subsidiary 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 CNB into Subsidiary.
3.1 Surviving Corporation. At the Effective Time of the merger,
CNB shall be merged into Subsidiary in accordance with the laws of the State of
Wisconsin. Subsidiary shall be the surviving corporation and the separate
corporate existence, identity, and the organization of CNB, except as
specifically provided by law and this Agreement, shall cease. As the surviving
corporation, Subsidiary shall succeed to and possess all the assets,
properties, powers, privileges, rights and immunities of CNB 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 CNB Common. At the Effective Time, the shares of
the CNB Common shall be converted into shares of F & M Common as follows:
(a) All CNB Shareholders will receive shares of F & M Common
based upon the Exchange Ratio. The Exchange Ratio shall be calculated by
dividing the F & M Stock Offer by the number of outstanding shares of CNB
Common at the Effective Time, rounded to three decimal places. The Exchange
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Ratio shall be multiplied by the number of shares of CNB Common held by each
CNB Shareholder to determine the number of shares of F & M Common to be issued
to that CNB Shareholder.
(b) Subject to satisfying the requirements of paragraph 3.4,
the F & M Stock Offer is Five Hundred Twenty-five Thousand (525,000) shares
of F & M Common.
(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 Selling Price.
3.4 Adjustment to F & M Stock Offer. The F & M Stock Offer is
subject to adjustment as of the Closing Date by an amount equal to 1.65 times
the sum of all amounts determined under subparagraphs (a) through (g) below
divided by the F & M Selling Price, rounded to the nearest whole share. If
the sum is a negative number, the quotient thus determined shall be subtracted
from the F & M Stock Offer. If the sum is a positive number, the quotient thus
determined shall be added to the F & M Stock Offer. The adjustment factors are
as follows:
(a) The amount of all uncollected loans or leases which are
considered as, or have the probability of becoming, losses (i) as determined by
F & M's due diligence review of BANK, if any, as set forth in writing to CNB
(which shall be upon agreement of the parties regarding the loans and leases to
be included therein be designated as Exhibit 3.4 (a) to this Agreement) within
forty-five (45) days following execution of this Agreement, provided, however,
that CNB may terminate this Agreement without any liability or responsibility
to F & M whatsoever if CNB determines in its sole discretion within fifteen
(15) days following the notice of the proposed adjustment to CNB that CNB is
not satisfied with the proposed adjustment under this section of such review,
or (ii) based upon circumstances which first arise and become known to F & M
after the execution of this Agreement, subject, however, to the mutual
agreement of the parties, and if the parties are unable in good faith to reach
such a mutual agreement, either party may withdraw from the transaction;
(b) The amount by which the expenses of this transaction [as
set forth in paragraph 4.4(d)] exceed the limit set forth in paragraph 4.4(d);
(c) As a result of any change in accounting practices or
procedures adopted by CNB or BANK, other than at the request of F & M, after
the date of this Agreement and prior to the Closing Date which have an adverse
affect on BANK's equity;
(d) If the total actual 1997 earnings of BANK, determined in
accordance with generally accepted principles applied on a consistent basis
("GAAP"), net of tax effect (the "Actual Earnings") for the period from January
1, 1997, to the end of the month prior to the Closing Date are less than
Sixty-nine Thousand Dollars ($69,000) per month (the "Minimum Earnings"), the
amount of this difference shall be a negative adjustment to the F & M Stock
Offer. If the total 1997 Actual Earnings for the period from January 1, 1997,
to the end of the month prior to the Closing Date exceed Ninety Thousand
Dollars ($90,000) per month (the "Maximum Earnings") the amount of this excess
shall be a positive adjustment to the F & M Stock Offer. The actual expenses
of this transaction as set forth in Exhibit 4.4(d), any audit expenses arising
from an audit requested by F & M and any amount necessary to increase BANK's
reserve for loan and lease losses requested by F & M shall not be considered in
determining BANK's Maximum Earnings or Minimum Earnings, or BANK's equity under
paragraph 4.4(f);
(e) The amount equal to the difference between the fair
market value, if lesser than book value, of any OREO of BANK;
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(f) The amount of any obligation to any employee, officer,
director or shareholder which may become payable after the Closing Date at the
option of the employee, officer, director or shareholder as a result of the
change in control of BANK contemplated by this agreement; and
(g) As a result of any unfunded or underfunded liability in
any benefit plan maintained by BANK assuming the complete termination of such
plan, any costs of bringing such plan into compliance with law and any costs of
terminating such plan.
3.5 Right to Terminate. F & M shall have the right to terminate
this Agreement without liability to CNB or its shareholders by giving CNB
notice of its election to do so within fifteen (15) days after F & M completes
its due diligence review of CNB and BANK. F & M shall complete its due
diligence review of BANK within forty-five (45) days of execution of this
Agreement.
3.6 Articles of Incorporation. The Articles of Incorporation of
Subsidiary 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.
3.7 Bylaws. The Bylaws of Subsidiary 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.
3.8 Officers, Directors and Employees. The officers and directors
of Subsidiary at the Effective Time of the merger shall remain as the officers
and directors of the surviving corporation. F & M shall also enter into an
Employment Agreement in the form attached as Exhibit 3.8 with Timothy P.
McGettigan for the term described in such Employment Agreement.
4. Representations and Warranties of CNB. CNB, 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 CNB Shareholders are
identified in the Schedules attached hereto as Exhibit 1.4.
4.2 CNB Organization and Authority.
(a) CNB 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 shareholder and
regulatory approval. CNB is duly registered and authorized to operate as a
bank holding company. CNB is only qualified to do business in the State of
Wisconsin.
(b) CNB has good and marketable title to Seventy-five Hundred
(7,500)shares of BANK Stock, free and clear of any and all claims, mortgages,
liens, security interests, pledges or other encumbrances of any kind
whatsoever.
(c) CNB is presently authorized to issue Fifteen Thousand
(15,000) shares of CNB Common. CNB presently has Seven Thousand Thirteen
(7,013) shares of CNB Common validly and legally issued and outstanding, all of
which are fully paid and nonassessable, except as provided by Wis. Stats.
Section 180.0622(2)(b). Treasury shares will not participate in this exchange.
CNB has not issued, and does not have outstanding, any option, warrant or
convertible securities or other right to purchase or convert any obligation
into such corporation's securities and has not agreed to issue or sell any
additional securities of any type.
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<PAGE> 5
(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 exclusive of the shareholder vote
required under applicable law which will be taken before the Closing Date, and
will not violate any provision of CNB'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 CNB is a party, or by which CNB 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 CNB'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 CNB is
subject.
4.3 BANK Organization and Authority.
(a) BANK is duly organized, validly existing and in good
standing under the laws of the United States 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 has its main office in
Darlington, Wisconsin and has a branch office in Hazel Green, 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 Seventy-five Hundred (7,500)
shares of BANK Stock, BANK's only class of stock. BANK has Seventy-five
Hundred (7,500) shares of BANK Stock issued and outstanding, all of which are
legally and validly issued, fully paid and nonassessable except as provided by
the laws of the United States.
(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, exclusive of the shareholder vote
required under applicable law which will be taken before the Closing Date, and
will not violate any provision of BANK's articles of association 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.
4.4 Financial Matters.
(a) True copies of CNB's financial statements, consisting of
balance sheets, consolidated statements of operations, consolidated statements
of cash flow, and consolidated statements of stockholders' equity as of the
close of business on December 31, 1995, 1994, and 1993, have been delivered by
CNB to F & M ("CNB's Financial Statements"). All of CNB's Financial Statements
are true and correct in all material respects and present an accurate and
complete disclosure of the financial condition of CNB as of their respective
dates, and the earnings for the periods covered, all determined in accordance
with generally accepted accounting standards applied on a consistent basis.
(b) To the best knowledge of CNB and BANK, BANK does not have
any loans presently outstanding which may result in material adverse effect on
the financial condition of BANK because such loan is not in compliance with the
requirements of federal or state banking laws or regulations, which present any
greater than normal risk of collection or which were not made in the normal
course of business. BANK's last
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examination by the Office of the Comptroller of the Currency ("OCC") was as of
September 30, 1995 for which a report has been prepared and as of September 30,
1996 for which a report has not yet been delivered to BANK. CNB was last
examined by the Federal Reserve Bank of Chicago ("FRB") as of December 31,
1993. To the best knowledge of CNB and BANK as of the date hereof BANK does
not have any loans which are reasonably expected to result in a loss to BANK
before the Closing Date, except as set forth in the attached Exhibit 4.4(b).
Neither CNB nor BANK has notice of any adverse regulatory action or proceeding
against BANK, or CNB or their respective officers, directors, or employees, nor
to their best knowledge has any such action been threatened against BANK, or
CNB or their respective officers, directors or employees.
(c) CNB and BANK have good marketable title to all of their
assets, business and properties including, without limitation, all such
properties reflected in the CNB Financial Statements as of December 31, 1995,
except (i) to the extent such assets and properties have been disposed of for
fair value in the ordinary course of business since the date of the Financial
Statements referred to in paragraph 4.4(a), as set forth in Exhibit 4.4(c),
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; (ii) as noted in the Financial
Statements or the notes thereto; (iii) statutory liens not yet delinquent; (iv)
security interests granted incident to borrowings by BANK from the Federal
Reserve Banks, the Federal Home Loan Banks or secured deposits of funds by
federal, state, municipal or other governmental agencies; (v) minor defects and
irregularities in title and encumbrances which do not materially impair the use
thereof for the purposes for which they are held; and (vi) liens in connection
with repurchase agreements. Neither CNB nor BANK has any notice of any special
assessment which will be levied or assessed against any real property owned or
leased by either of them. To the best of CNB's and BANK's knowledge, all real
property owned, operated and leased by CNB and/or BANK is in full compliance in
all material respects with all applicable federal, state and local statutes and
regulations as currently applicable to CNB or BANK as the case may be
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. Neither CNB nor BANK has received any citations, notices, charges
or other complaints claiming a violation of the foregoing nor is either CNB or
BANK aware of any investigation of any alleged violation.
(d) For the period from January 1, 1997 to December_31, 1997,
BANK has projected in good faith that its ordinary earnings determined in
accordance with generally accepted accounting principles, applied on a
consistent basis, net of tax effect shall be Eight Hundred Ninety-two Thousand
Nine Hundred Fifty and 00/100 Dollars ($883,468.00). The expenses of this
transaction are those incurred by CNB and BANK for legal, accounting and/or
auditing or investment banking and/or brokerage fees or expenses associated
with the acquisition of CNB by F & M (exclusive of the audit performed at the
request of F & M) and will be reasonable and customary and will not in any
event exceed One Hundred Twenty Thousand and 00/100 Dollars ($120,000.00).
(e) All property and assets owned or currently in use by CNB
and BANK, 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 either CNB's or BANK's possession, are in good
operating condition and repair subject only to normal wear and tear and are set
forth on the attached Exhibit 4.4(e) [for personal property only items with an
original cost basis of Five Hundred and 00/100 Dollars ($500.00) or more]. If
CNB or BANK lease any real or personal property, a separate schedule clearly
identifying such leased property will be included in Exhibit 4.4(e). As of the
Closing Date, all such property and assets will be in the condition represented
above.
(f) As of December 31, 1996, BANK's equity, determined in
accordance with GAAP, but excluding (i) any adjustment (positive or negative)
to such equity pursuant to FASB 115, and (ii) the year end adjustment to
increase its reserve for loan and lease losses to 1.50 percent of loans and
leases was Nine Million Six Hundred Twenty-eight Thousand and 00/100 Dollars
($9,628,000.00).
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(g) For the fiscal year ended December 31, 1996, after
excluding amounts paid for new positions, temporary employees and student
apprentices created in 1996, BANK did not increase the amount of the salaries,
wages, bonuses or other cash compensation by an aggregate amount which exceeds
six and 88/100 percent (6.88%) of the aggregate amount of such salaries, wages,
bonuses or other cash compensation for the fiscal year ended December 31, 1995.
4.5 Changes Since December 31, 1996. Since December 31, 1996,
with respect to CNB and BANK there has not been:
(a) Any loss, damage, destruction or failure to maintain the
tangible assets of CNB or BANK (whether or not covered by insurance), or
affecting its business or properties, which will materially adversely affect
the financial condition or operations of CNB or 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
CNB or BANK ineffective in whole or in part.
(c) Any acquisition by CNB or BANK of a capital asset at a
cost in excess of Five Thousand Dollars ($5,000.00).
(d) Any amendment to their Articles of Incorporation or
Bylaws.
(e) Any change in accounting procedures, practices or methods
from those used by CNB or BANK in prior years provided, however, that prior to
December 31, 1996, (i) BANK increased its reserve for loan and lease losses to
one and 50/100 percent (1.50%) of loans and leases, provided, however, such
increase in excess of 0.95% of BANK's reserve for loans and leases shall not
reduce the purchase price payable by F & M under this Agreement, and such
purchase price shall be calculated as if such increase in reserves for loan and
lease losses did not occur, unless the increase results from losses charged to
the reserve, and (ii) BANK and CNB paid certain expenses associated with this
transaction with the prior consent of F & M.
(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 1997, BANK may (i) grant wage and/or salary increases consistent with
past practices which do not exceed, in the aggregate, four and 36/100ths
percent (4.36%) of the wages and salaries being paid as of December 31, 1996,
and (ii) pay bonuses for the 1996 fiscal year which do not exceed those paid
for the fiscal year ended December 31, 1995 without the prior consent of F & M.
(g) Any issuance, or agreement to issue, on or before the
Closing Date or thereafter, directly or indirectly, any additional shares of
CNB Common or BANK Stock, any other class of stock, or other securities of CNB
or BANK.
(h) Any declaration, setting aside or payment of any dividend
or any distribution in respect to CNB Common or BANK Stock or any redemption,
purchase or other acquisition by CNB or BANK of any stock or any other
repayments to the shareholders of CNB or BANK except for dividends declared for
the 1996 fiscal year will not exceed Three Hundred Twenty-five Thousand and
00/100 Dollars ($325,000.00) and for the 1997 fiscal year will not exceed One
Hundred Seventy-five Thousand and 00/100 Dollars ($175,000.00).
(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 CNB's and BANK's December
31, 1996 Financial Statements, provided, however, that (i)
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under no circumstances shall the total outstanding balances of such borrowings
or other indebtedness (except for borrowings under subpart (ii) below exceed
the total amount historically borrowed by BANK for similar purposes, and (ii)
in the case of borrowings from the Federal Home Loan Bank (the "FHLB"), the
total outstanding borrowings shall not at any time exceed Two Million and
00/100 Dollars ($2,000,000.00).
(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 CNB or BANK in addition to those disclosed by
CNB's December 31, 1996 Financial Statements, except to provide security for
deposits with BANK in the ordinary course of its business as set forth in
Exhibit 4.4(k), and to the Federal Home Loan Bank in connection with borrowings
from that Bank as and to the extent permitted under this Agreement.
(l) Any sale, transfer or other disposition of assets of CNB
or BANK except in the normal course of business and consistent with past
practices, and except for transfers made to its investment subsidiary for
investment purposes and not for resale BANK has not sold, transferred or
disposed of any securities prior to maturity.
(m) Any material change in the manner in which business was
being conducted by CNB or BANK prior to December 31, 1996, or other material
failure by CNB or BANK to use their 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 requirement or other
condition which are materially different from those upon which BANK made loans
prior to December 31, 1996, except to the extent such difference is in response
to competitive conditions encountered by BANK.
(o) Any change in the arrangements currently utilized by BANK
for performing its data processing without the prior written consent of F & M.
(p) Any other materially adverse change in CNB's or BANK's
prospects, financial condition, assets, liabilities, properties or business.
4.6 Liabilities.
(a) Neither CNB nor BANK has any liabilities, whether
accrued, absolute, contingent or otherwise, which arose or relate to any
transaction or occurrence involving CNB or BANK or their respective officers,
directors, employees, agents or servants prior to the date of this Agreement
which are not disclosed by the CNB's Financial Statements described above or in
Exhibit 4.6(a). To the best of their knowledge, 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 CNB or BANK.
(b) To the best of their knowledge and except as disclosed on
Exhibits 3.4(a) and 8.19, all parties with whom CNB and BANK have contractual
arrangements are in compliance therewith. Neither CNB nor BANK has declared,
nor is either of them prepared to declare, any such parties in default under
any such contractual arrangements. Neither CNB nor BANK is in default in any
material respect under any contracts to which either of them 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 CNB or BANK or result
in the creation of any lien, charge, assessment, encumbrance or other claim
whatsoever upon any asset of CNB or BANK. None of the contracts to which CNB
or BANK is a party will be adversely affected by the transaction contemplated
by this Agreement.
(c) To the best of their knowledge, CNB and BANK are in
compliance in all material respects with all applicable federal, state, county
and local statutes, ordinances, regulations, decrees, orders, or other laws,
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<PAGE> 9
the violation of which would have a material adverse effect on the financial
condition of CNB or BANK. Neither CNB nor BANK has received notice of any
alleged violation of any such statutes, ordinances, regulations, decrees,
orders or other laws.
(d) 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 CNB or BANK or
affecting their assets, properties or business. Neither CNB nor BANK knows 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) A schedule of all insurance policies in effect as to CNB
and BANK is set forth in Exhibit 4.6(e). All policies of insurance carried by
BANK 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 CNB or BANK required to be
bonded. 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.
4.7 Taxes. CNB and BANK 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 has paid all taxes
including any interest, penalties and assessments which are due and required to
be paid. The taxes provided for in CNB'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. CNB's federal income tax return has never
been audited. Neither CNB nor BANK has waived any restrictions on the
assessment or collection of any taxes or consented to the extension of any
statute of limitations relating to any tax liability. Neither CNB nor BANK has
determined or been advised that either CNB or 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 CNB or BANK.
4.8 Contracts and Commitments. Except as disclosed in Exhibit
4.8, neither CNB nor BANK has 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 CNB or BANK.
4.9 Reporting and Withholding on Payment of Interest. To the best
of CNB's and BANK's 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 CNB's and BANK's 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.
4.10 Employees and Employee Benefits.
(a) CNB does not have any employees. Neither CNB nor BANK is
a party to or is bound by any written or oral (i) employment or
employment-related consulting contract which is not terminable at will by
either CNB or BANK as the case may be 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 paragraphs
4.10(b) and 4.10(c) to this Agreement.
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(b) CNB does not have any pension, profit sharing or other
types of employee pension benefits plan. All pension, profit sharing, or other
employee pension benefit plans of BANK ("the Plans") are described in Exhibit
4.10(b) 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 CNB's and
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. Neither CNB nor BANK has
any 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) CNB does not have any employee welfare benefit plans.
All employee welfare benefit plans of BANK (the "Welfare Plans") are described
in Exhibit 4.10(c) 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 CNB's and 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. Neither CNB nor BANK has any 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.
(d) No person or governmental agency has made any claim
against CNB or BANK or their respective 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 CNB or BANK has committed an
unfair labor practice(s).
4.11 Environmental Matters.
(a) To the best knowledge of CNB and 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 CNB or BANK or,
to the best of CNB's and 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) Based upon such information which has come to BANK in the
ordinary course of business, but without making any independent investigation
or verification, neither CNB nor BANK is specifically aware of any such
releases on, upon or into any real property adjoining or in the vicinity of the
property described in paragraph 4.11(a) above, which through air, soil or
groundwater migration could have come to be located upon any property owned or
leased by CNB or BANK, or which secures a loan made by BANK or which may be
acquired by BANK in foreclosure.
4.12 Accuracy of All Statements. No representation or warranty by
CNB or BANK in this Agreement or otherwise, in any of CNB's Financial
Statements, or in any other statement, certificate, schedule or exhibit hereto
furnished or to be furnished by or on behalf of CNB or BANK pursuant to this
Agreement, nor any document or certificate delivered to F & M pursuant to this
Agreement or in connection with actions
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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.
4.13 Prospectus/Proxy Statement. The parts of the Prospectus/Proxy
Statement which are provided or reviewed by CNB with respect to CNB or BANK
will not, at the date it is first mailed or delivered to the CNB's
Shareholders, and will not, at the date or dates of the meeting of CNB'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, CNB 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.
4.14 Financial Adviser. Except for the services of Robert W. Baird &
Co. Incorporated ("Baird"), CNB 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 CNB, which fees and expenses are included in the
estimate of expenses set forth in paragraph 4.4(d).
5. Representations and Warranties of F & M.
F & M, by its duly authorized officers, employees or other agents
makes the following representations to CNB, 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.
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 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
approval of its shareholders and the federal and state regulatory authorities.
Subsidiary is only qualified to do business in the State of Wisconsin.
(c) F & M is authorized to issue Twenty Million (20,000,000)
shares of F & M Common and has Seven Million Four Hundred Twenty-one Thousand
Nine Hundred Thirty-three(7,421,933) shares issued and outstanding. F & M will
issue additional shares of F & M Common prior to the Closing Date. 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 action
and will not violate any provision of F & M's or Subsidiary'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 or Subsidiary is a
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party, or by which F & M or Subsidiary 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 or Subsidiary 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). Such
shares of F & M Common shall have been registered by F & M under the Securities
Act of 1993, and shall be freely transferrable thereunder (except for
restrictions on transfer applying to affiliates of F & M and BANK).
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, 1995 and 1994, 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, except that such financial
statements have not been restated to reflect F & M's acquisition of F & M
Bank-Algoma (f/k/a Community State Bank), which is being accounted for as a
pooling of interests.
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 which may have a material adverse effect on F & M or
Subsidiary or their properties or business, nor does F & M or Subsidiary know,
or have 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 Severance Plans. The Restated Employee Severance Benefits
Plan and the Restated Executive Severance Benefits Plan, as adopted and amended
by F & M, shall apply to all employees of BANK following the closing of the
transaction contemplated by this Agreement, provided, however, Timothy P.
McGettigan or Robert D. Martin are terminated by F & M or BANK without cause or
due to reduction in workforce within twelve (12) months of the Closing Date
Robert D. Martin shall receive the greater of the benefits payable under such
plan or fifty-two (52) weeks of benefits under such plan and Timothy P.
McGettigan shall only be entitled to the severance benefits under his
employment agreement. Continuous years of service for all employees with BANK
prior to the Closing Date shall be considered years of service with F & M under
these plans.
5.7 Accuracy of All Statements. No representation or warranty by
F & M or Subsidiary 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 or Subsidiary pursuant to this
Agreement, nor any document or certificate delivered to CNB 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 CNB Shareholders,
and will not, at the date or dates of the meeting of the CNB 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 makes no representation or
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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
relates to CNB or 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
CNB 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.
5.10 BANK's Status. F & M has no present plans to alter BANK's
status as an independent bank operating under its own charter, although F & M
may convert BANK to a state member bank following the Closing Date. F & M may,
at some future time, determine that merger, consolidation, reorganization or
sale of substantially all of the assets of BANK with or to other subsidiary
banks of F & M, Subsidiary or others may occur and nothing herein shall be
construed to limit or diminish the rights of F & M or Subsidiary or their
successors or assigns from taking any such action.
6. Covenants of CNB.
CNB 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 CNB and BANK and CNB or
BANK as the case may be shall furnish or cause to be furnished to F & M or its
authorized representative all information with respect to the affairs and
business of CNB or 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, CNB and BANK:
(a) Shall carry on their business diligently and
substantially in the same manner as heretofore and shall not engage in or
institute any unusual or novel methods of doing business or changes in
accounting procedures or practices without the prior written consent of F & M,
provided, however, that BANK will increase its reserve for loan and lease
losses to one and 50/100 percent (1.50%) of loans and leases prior to December
31, 1996 and shall use their 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 which became effective on or after January 1,
1997 for the 1997 calendar year (regardless if approved before or after January
1, 1997) exceed in the aggregate four and 36/100 percent (4.36%) of the total
compensation paid to the officers, directors or employees of BANK as of
December 31, 1996, (ii) for the fiscal year ended December 31, 1996, increase
the amount of any bonus paid by BANK in excess of the amount paid by BANK for
the year ended December 31, 1995, (iii) pay any bonuses for the 1997 fiscal
year, or(iv) increase or decrease the benefits provided under, the contribution
to, or the cost sharing allocation of any employee fringe benefit or any of the
benefit plans described in Exhibits 4.10(b) and 4.10(c), except for normal
adjustments imposed by third party providers.
(c) Except with the prior written consent of F & M 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 CNB's or
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
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F & M, (iii) indebtedness to the FHLB subject to the dollar limit set forth in
paragraph 4.5(j), or (iv) 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, 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 CNB prior to the Closing Date provided that the total
of all dividends declared in the fiscal year ended December 31, 1996 do not
exceed Three Hundred Twenty-five Thousand and 00/100 Dollars ($325,000.00), and
that the total of all dividends declared in the 1997 fiscal year do not exceed
One Hundred Seventy-five Thousand and 00/100 Dollars ($175,000.00) without the
prior written consent of F & M.
(f) Shall not amend their 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 or 1997 earnings accrued prior to the
Closing Date 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 CNB and BANK.
(j) Shall use their best efforts (without making any
commitments on behalf of F & M) to preserve their business organization intact,
to keep available to F & M the present key officers and employees of CNB and
BANK and to preserve for F & M the present relationships of CNB and BANK with
their 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 or its investment subsidiary prior
to their normal maturity dates without the prior written consent of F & M.
(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 CNB or
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 understands 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.
(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%).
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(o) Shall remain in compliance with all agreements,
commitments, understandings, undertakings or other obligations to the OCC, the
FRB or any other regulatory agency having jurisdiction over CNB and 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 CNB and
BANK, or their businesses or operations.
(q) Shall not take any action which would be reasonably
likely to make unavailable either the pooling of interests 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, at F & M's expense,
deliver audited financial statements to F & M for the period ended December 31,
1996 on or before April 15, 1997. The audit will be performed by Wipfli
Ullrich & Bertelson, L.L.P.
6.4 Stock Records. Prior to the special shareholders meeting to
approve the Merger, the Board of Directors of CNB, 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.
6.5 1997 Budget. Prior to formal adoption by BANK, CNB will
submit BANK's 1997 budget to F & M.
6.6 Reserves for Loan and Lease Losses. Prior to December 31,
1996, BANK increased its reserve for loan and lease losses to one and 50/100
percent (1.50%) of loans and leases and shall take such action as may be
necessary to maintain this reserve at this level until the Closing Date,
provided however that the amount of such increase from Ninety-five one
hundredths percent (0.95%) of loans and leases to one and 50/100 percent
(1.50%) of loans and leases shall not be considered in determining BANK's
Minimum Earnings under paragraph 3.4(d), or equity under paragraph 4.4(f)
unless the amount results from a loss or expense charged to such reserve.
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 CNB and 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 CNB and 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 CNB Shareholders 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 CNB's Shareholders.
(b) As promptly as practicable after the execution of this
Agreement, F & M shall take such action as may be necessary to cause Subsidiary
to perform its obligations in connection with this transaction under this
Agreement.
(c) As promptly as practicable after the execution of this
Agreement, F & M shall take action to obtain regulatory approval of this
transaction.
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(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.
7.2 Officers, Directors and Employees. The present members of
BANK's Board of Directors will be retained by F & M as directors of the BANK
provided that continued membership on the board is consistent with safe and
sound banking practices and is in the best interest of F & M and BANK.
Retirement from the Board of Directors will occur at age seventy (70), as
provided by F & M policy, provided that any current director may remain a
director until the earlier of either two (2) years from the Effective Date or
the 1999 annual shareholders' meeting of the BANK. F & M contemplates that
BANK's current employees will continue to be responsible for the BANK's
operations in general, subject to review and supervision by F & M, as
determined by F & M to be consistent with safe and sound banking practices
and the best interest of F & M and BANK. The salaries and benefits to be
offered will be consistent with those currently received by the employees of F
& M or its subsidiary banks holding similar positions. Years of service with
BANK shall, to the extent permitted by applicable law, be counted as years of
service with F & M and the surviving corporation. In the unlikely event
positions with the BANK are eliminated as a result of the transaction
contemplated by this Agreement, the employees affected by such action will be
covered by F & M's severance plan, applicable to their position at the time the
positions are eliminated, based upon their years of service with BANK.
7.3 Directors' and Officers' Liability Insurance. F & M will
provide the officers and directors of BANK and CNB with directors' and
officers' liability insurance (without any exclusion of prior acts) with the
same limits of liability, deductibility and terms and conditions as is provided
by F & M to its other subsidiaries. This representation is intended to create
a contractual right for the benefit of BANK's and CNB's officers and directors
and may be separately enforced by them subsequent to consummation of the
transaction contemplated by this Agreement in the event F & M fails to comply
with this covenant, provided, however, that nothing herein shall obligate F &
M to provide such coverage if it determines in its sole discretion not to
provide such coverage to all of its subsidiary banks or to offer such coverage
to its subsidiary banks, including BANK, with different limits of liability,
deductibilities or other terms and conditions than those under the coverage
currently in force, without any exclusion for prior acts, however.
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 CNB and BANK
hereunder, shall have been continuously true and correct from the date of
execution of this Agreement to the Closing Date, except as publicly announced
by CNB or BANK and/or as reflected in public filings made by CNB or BANK with
the OCC or the FRB, 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 CNB and BANK shall have
complied with all other terms, conditions and covenants of this Agreement.
8.2 Compliance with Covenants. CNB and BANK shall have performed
all of their obligations, and complied with all of the covenants under this
Agreement which are to be performed or complied with by them 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, CNB 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.
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8.4 BANK's Director and Shareholder Authorization. The merger
contemplated by this Agreement shall have been duly and validly authorized by
CNB's and BANK's directors and shareholders in accordance with the laws of the
State of Wisconsin.
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, provided the failure to obtain the same was not the result of an act
or omission by F & M.
8.6 Accuracy of Financial Statements. In the event interim
financial statements are provided to F & M by CNB or 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 CNB or
BANK furnished to F & M and Subsidiary for periods ended after December 31,
1995.
8.7 Legal Opinion. F & M shall have received the opinion of CNB
Counsel referred to in subparagraph 10.3(d).
8.8 Time Limit on Closing. Closing shall have taken place by
August 31, 1997.
8.9 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. CNB and 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.
8.10 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 CNB Common to consummate the
merger.
8.11 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.
8.12 Exchange of Stock Certificates. As a condition of delivery of
the consideration required by this Agreement, the CNB Shareholders shall have
executed and delivered documents assigning their shares of CNB Common 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.
8.13 Affiliates of BANK. Each person who shall be deemed to be an
"affiliate" of CNB 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 8.13,
dated as of the Effective Time.
8.14 Pooling Accounting. The merger contemplated herein shall be
treated as and qualify for accounting using the pooling of interests method.
8.15 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.
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8.16 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.
8.17 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 CNB Shareholders who exercise their dissenters rights under Wis.
Stats. Section 180.
8.18 Employment Agreements. BANK and Timothy P. McGettigan shall
have executed the employment agreement in the form attached hereto as Exhibit
3.8.
8.19 Accounting Adjustments. Prior to the Valuation Date, the loans
identified on Exhibit 3.4(a) shall either be collected in full or the
uncollected portion thereof written off and charged against the reserve for
loan and lease losses. In addition, BANK shall, prior to the Valuation Date,
make the adjustments for the items shown on Exhibit 8.19.
8.20 BANK Earnings. The Actual Earnings of BANK from January 1,
1997 through the month end prior to the month in which closing occurs,
determined in accordance with generally accepted accounting principles, applied
on a consistent basis shall not be less than the Minimum Earnings from January
1, 1997, through the month end prior to the month in which closing occurs.
9. Conditions Precedent to CNB's Obligations.
Each and every obligation of CNB to be performed on the Closing Date
shall be subject to the satisfaction prior thereto of the following conditions:
9.1 Truth of Representations and Warranties. The representations
and warranties made by F & M and Subsidiary in this Agreement or given on their
behalf hereunder, shall have been continuously true and correct from the date
of execution of this Agreement to the Closing Date, except as publicly
announced by F & M or Subsidiary and/or reflected in public filings made by F &
M or Subsidiary with the SEC or the FRB as this may affect the statements in
paragraph 5.1(c), 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 F & M and Subsidiary shall have
complied with all other terms, conditions and covenants of this Agreement.
9.2 F & M's Compliance. F & M and Subsidiary shall have performed
and complied with all of their obligations under this Agreement which are to be
performed or complied with by them 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, CNB 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 or Subsidiary in
connection with the transaction contemplated by this Agreement shall have
occurred and all appropriate documents incident thereto as CNB may reasonably
request shall have been delivered to CNB. F & M shall have delivered
certificates in such detail as CNB may reasonably request as to compliance with
the conditions set forth in this Article 9.
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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 CNB or BANK.
9.6 Time Limit on Closing. Closing shall have taken place by
August 31, 1997.
9.7 Legal Opinion. CNB 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 CNB 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. CNB Shareholders shall have received an opinion
from F & M Counsel satisfactory to CNB and for the benefit of CNB shareholders
to the effect that the transaction contemplated by this Agreement shall be
tax-free to those CNB Shareholders who receive F & M Common in exchange for
their CNB Common (excluding fractional or dissenting shares).
9.11 Shareholder Vote. CNB Shareholders and directors shall have
approved the transaction as required by applicable law.
9.12 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 or Subsidiary, 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 CNB
Stock to consummate the merger.
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 CNB Shareholders After the Effective Time. After
the Effective Time and until the surrender of a stock certificate representing
shares of CNB Common, each such outstanding certificate, which prior to the
Effective Time represented shares of CNB Common, 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 CNB Common 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 CNB
Common has been converted, shall be withheld by F & M. Upon the subsequent
surrender and exchange of such CNB Common certificates, such holder of record
of the certificates formerly representing shares of CNB Common (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 CNB Shareholders who
have tendered their certificates for their shares of CNB Common at or before
the Effective Time shall be made as soon as reasonably possible after the
Effective Time.
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<PAGE> 20
10.3 Documents to be Delivered by CNB. At the time of or prior to
the closing, CNB shall deliver the following documents:
(a) A certificate by the chairman, vice-chairman or president
of CNB and BANK that to the best of such officers' knowledge (i) that the
representations and warranties made by CNB and/or 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 CNB and BANK have performed and
complied with all of their 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 CNB and/or 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 CNB
and BANK, duly certified by their respective custodians as true, correct and
complete copies thereof, including any amendments as of the Closing Date.
(d) A written opinion from CNB 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(d).
(e) Certified copies of resolutions adopted by CNB'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 CNB's Shareholders to approve the merger as provided by the
laws of the State of Wisconsin.
(f) 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 which condition shall be met by authorization
by F & M to its exchange agent to release such shares to the CNB Shareholders
when all conditions to this transaction have been met or waived. Such
certificates will be in the name of CNB Shareholders entitled to the same in
accordance with their interest in CNB 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 the CNB 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 CNB 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 CNB and CNB Counsel in form and
substance substantially in the form attached hereto as Exhibit 10.4(d).
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<PAGE> 21
(e) A written opinion from Securities Counsel dated as of the
Effective Time addressed to F & M and CNB, 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 CNB.
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) If the parties are unable to reach agreement pursuant to
paragraph 3.4(a), or by mutual consent of F & M and CNB;
(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 Selling Price is more than Thirty-three and
50/100 Dollars ($33.50) per share provided, however, that if this price per
share is exceeded after F & M has publicly announced that it is being acquired
by a third party this right to terminate shall not be applicable; or
(c) By CNB if (i) exercises its rights to terminate under
paragraph 3.4(a), (ii) 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, (iii)
a public announcement by F & M that an agreement has been reached for F & M
to be acquired by a third party if CNB gives written notice to F & M of its
election to do so within twenty (20) days of the date of such announcement, or
(iv) the F & M Selling Price is less than Twenty-seven and 50/100 Dollars
($27.50) per share.
(d) In the event of a breach of this Agreement, by notice
from the other 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
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<PAGE> 22
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 Selling 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 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.
(e) If this Agreement or the transaction contemplated hereby
is terminated by F & M for any reason other than those set forth in
subparagraphs 14(a) or (b), F & M shall promptly [in any event within five (5)
business days after such termination] pay CNB a fee equal to Five Hundred
Thousand and 00/100 Dollars ($500,000.00).
If this Agreement or the transaction contemplated hereby is terminated
by CNB for any reason other than those set forth in subparagraphs 14(a) or (c),
CNB shall promptly [in any event within five (5) business days after such
termination] pay F & M a fee equal to Five Hundred Thousand and 00/100 Dollars
($500,000.00).
(f) In the event F & M declares a stock dividend or stock
split, the maximum and minimum F & M Selling Price set forth in subparagraphs
(b) and (c), above, and in paragraph 1.12, shall be proportionately adjusted
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 CNB, to Timothy P. McGettigan, c/o The Citizen's
National Bank of Darlington, 207 Wells Street, P.O. Box 90, Darlington,
Wisconsin, FAX: 608-776-2689, with a copy to John Knight, Esq., Boardman, Suhr,
Curry & Field, 410 Firstar Plaza, One South Pinckney Street, P.O. Box 927,
Madison, Wisconsin 53701-0927, FAX: 608-283-1709.
(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.
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<PAGE> 23
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
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 CNB.
21. Further Documents.
F & M, Subsidiary, and CNB 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.
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
-----------------------------------
Gail E. Janssen, Chairman and CEO
ATTEST:
By:/s/ Janet M. Lakso
------------------------------------
Janet M. Lakso, Secretary
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<PAGE> 24
F & M MERGER CORPORATION ("Subsidiary")
By:/s/ Gaile E. Janssen
--------------------------------
Gail E. Janssen, Chairman
ATTEST:
By:/s/ Daniel E. Voet
--------------------------------
Daniel E. Voet, Secretary
CITIZEN'S NATIONAL BANCORPORATION, INC.
("CNB")
By:/s/ Timothy P. McGettigan
--------------------------------
Timothy P. McGettigan, President
ATTEST:
By:/s/ Robert D. Martin
---------------------------------
Robert D. Martin, Executive
Vice President
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<PAGE> 1
Exhibit 10.16
PLAN AND AGREEMENT OF MERGER AND REORGANIZATION
Plan and Agreement of Merger and Reorganization (hereinafter referred
to as "Agreement"), made as of the 19th day of March, 1997, by and between F &
M Bancorporation, Inc., a Wisconsin corporation, Wisconsin Ban Corp., a
Wisconsin corporation and F & M Merger Corporation, a Wisconsin 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 Prairie City Bank, 300 East Blackhawk
Avenue, P.O. Box 338, Prairie Du Chien, Wisconsin 53821.
1.3 "BANK Stock" shall mean BANK's voting capital stock $100.00
par value.
1.4 "Closing Date" shall mean the date set by mutual agreement of
WBC and F & M and will not occur prior to the satisfaction or the waiver of all
of the conditions to the transaction.
1.5 "Effective Time" shall mean the date on which the Articles of
Merger are filed with the State of Wisconsin Department of Financial
Institutions. A copy of the proposed Articles of Merger is attached as Exhibit
1.5 and is incorporated herein by reference. The Articles of Merger shall be
filed as soon as possible after the conditions precedent to this merger have
been met or waived by F & M and WBC, but not prior to the Closing Date.
1.6 "WBC" shall mean Wisconsin Ban Corp., 300 East Blackhawk
Avenue, P.O. Box 338, Prairie Du Chien, Wisconsin 53821.
1.7 "WBC Common" shall mean WBC's voting common stock, no par
value.
1.8 "WBC Preferred" shall mean WBC's preferred stock, $100.00 par
value.
1.9 "Exchange Ratio" shall mean the ratio determined by dividing
the F & M Stock Consideration by the total number of shares of WBC Common
outstanding as of the Closing Date.
1.10 "WBC Counsel" shall mean Peterson, Antoine & Peterson SC,
Attn: Leary Peterson, 165 Ocean Way, Vero Beach, FL 32963.
<PAGE> 2
1.11 "WBC Shareholders" shall mean the shareholders of WBC shown on
the attached Exhibit 1.11.
1.12 "F & M" shall mean F & M Bancorporation, Inc., One Bank
Avenue, Kaukauna, Wisconsin 54130.
1.13 "F & M Common" shall mean F & M's voting common stock, $1.00
par value.
1.14 "F & M Common 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.
1.15 "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.
1.16 "Securities Counsel" shall mean Quarles & Brady, 411 East
Wisconsin Avenue, Milwaukee, Wisconsin 53202-4497, Attn: Kenneth V. Hallett,
Esq.
1.17 "Subsidiary" shall mean F & M Merger Corporation, One Bank
Avenue, Kaukauna, Wisconsin 54130.
1.18 "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 WBC to its shareholders
relating to approval of the merger (the "Prospectus/Proxy Statement").
2. Preamble.
F & M and Subsidiary are multi-bank holding companies with
subsidiaries located in Wisconsin. Subsidiary is a wholly-owned subsidiary of
F & M. WBC is a one-bank holding company which presently owns 100% of the
issued and outstanding stock of BANK. F & M, Subsidiary and WBC, 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, Subsidiary and WBC 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 WBC and Subsidiary will be the best interest of their respective
corporations and shareholders. The merger of WBC into Subsidiary is intended
to constitute a reorganization
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<PAGE> 3
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 WBC into Subsidiary.
3.1 Surviving Corporation. At the Effective Time of the merger,
WBC shall be merged into Subsidiary in accordance with the laws of the State of
Wisconsin. Subsidiary will be the surviving corporation and the separate
corporate existence, identity and organization of WBC, except as specifically
provided by law and this Agreement, shall cease. As the surviving corporation,
Subsidiary shall succeed to and possess all the assets, properties, powers,
privileges, rights and immunities of WBC and shall be subject to all
liabilities, obligations, limitations and duties of WBC as described in this
Agreement, including but not limited to the liabilities for loans made to WBC
by the WBC Shareholders which will be repaid by Subsidiary on the Closing Date.
3.2 Subsidiary Stock Subscription. Subject to 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 and cash as may be
necessary to effect the merger, as described under paragraph 3.3 below.
3.3 Exchange of WBC Common. At the Effective Time, the shares of
the WBC Common shall be converted into shares of F & M Common as follows:
(a) All WBC Shareholders will receive shares of F & M
Common based upon the Exchange Ratio. The Exchange Ratio shall be calculated
by dividing the F & M Stock Consideration by the number of shares of WBC Common
issued and outstanding as of the Closing Date (excluding any treasury shares).
The Exchange Ratio shall be multiplied by the number of shares of WBC Common
held by each WBC Shareholder on the Closing Date to determine the number of
shares of F & M Common to be issued to that WBC Shareholder.
(b) The F & M Stock Consideration will be Five Hundred
Seventy-five Thousand (575,000) shares of F & M Common, adjusted
proportionately as necessary to reflect any stock dividend declared between the
date of this Agreement and the Closing Date and subject to F & M's right to
terminate under paragraph 3.4.
(c) In the event F & M declares a stock dividend or a stock
split in the form of a stock dividend with respect to F & M Common, the record
date for which is prior to the Closing Date, the F & M Stock Consideration will
be adjusted proportionately to reflect such stock dividend. For example, if F
& M declared a ten
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<PAGE> 4
percent (10%) stock dividend, the F & M Stock Consideration shall be increased
by ten percent (10%) from 575,000 shares to 632,500 shares.
3.4 Exchange of WBC Preferred. At the Effective Time, the
outstanding shares of WBC Preferred shall be converted into cash equal to its
par value of One Hundred and 00/100 Dollars ($100.00) per share plus any
dividends accrued and unpaid since the last dividend payment date, pro rated to
the Closing Date.
3.5 Right to Terminate. F & M shall have the right to terminate
this Agreement, if any of the following occurs prior to the Closing Date:
(a) WBC is or becomes obligated, to increase the number
of outstanding shares of WBC Common as of the Closing Date and the sum of the
actual number of shares of WBC Common outstanding and any additional shares
which WBC is obligated to issue as of the Closing Date is not used to determine
the Exchange Ratio.
(b) The expenses of this transaction [as set forth in
paragraph 4.4(d)] exceed the limit established in paragraph 4.4(d).
(c) The actual earnings of BANK, determined in accordance
with generally accepted accounting principles, applied on a consistent basis,
net of tax effect (the "Actual Earnings") as of the end of the month
immediately preceding the Closing Date are less than the amount corresponding
to such month end as shown on the attached Schedule A (the "Minimum Earnings").
The expenses of this transaction [as defined in paragraph 4.4(d)] and any
expense necessary to increase the BANK's reserve for loan and lease losses
shall not be considered in determining BANK's Actual Earnings or Minimum
Earnings under this paragraph.
3.6 Articles of Incorporation. The Articles of Incorporation of
Subsidiary 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.
3.7 Bylaws. The Bylaws of Subsidiary 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.
3.8 Officers, Directors and Employees. The present members of
BANK's Board of Directors will be retained by F & M as directors of the
surviving corporation provided that continued membership on the board is
consistent with safe and sound banking practices and is in the best interest of
F & M and BANK. Retirement from the Board of Directors will occur at age
seventy (70), as provided by F & M policy, provided that any director who is
age seventy (70) at the time of consummation of the acquisition of BANK by F &
M may remain a director until the earlier of either two (2) years from
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<PAGE> 5
the Effective Date or the 1999 annual shareholders' meeting of the surviving
corporation. F & M contemplates that BANK's current employees will continue to
be responsible for the BANK's operations in general, subject to review and
supervision by F & M, as determined by F & M to be consistent with safe and
sound banking practices and the best interest of F & M and BANK. The salaries
and benefits to be offered will be consistent with those currently received by
the employees of F & M or its subsidiary banks holding similar positions.
Years of service with BANK shall, to the extent permitted by applicable law, be
counted as years of service with F & M and the surviving corporation. In the
unlikely event positions with the BANK are eliminated as a result of the
transaction contemplated by this Agreement, the employees affected by such
action will be covered by F & M's severance plan, applicable to their position
at the time the positions are eliminated, based upon their years of service
with BANK. 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, and except as expressly set forth above, 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 WBC. WBC, 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. These representations and warranties shall not survive the
closing.
4.1 Ownership and Authority. The current WBC Shareholders are
listed on the attached Exhibit 1.11.
4.2 WBC Organization and Authority.
(a) WBC 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 shareholder and regulatory approval. WBC is duly registered and
authorized to operate as a bank holding company. WBC is only qualified to do
business in the State of Wisconsin.
(b) WBC has good and marketable title to Two Thousand
Eight Hundred (2,800) shares of BANK Stock, free and clear of any and all
claims, mortgages, liens, security interests, pledges or other encumbrances of
any kind whatsoever, except for the pledge to Firstar Bank, N.A., to secure a
line of credit, with an outstanding balance of zero dollars as of this date.
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<PAGE> 6
(c) WBC is presently authorized to issue Two Thousand
Eight Hundred (2,800) shares of WBC Common. WBC presently has One Thousand
Five Hundred Sixty (1,560) shares of WBC Common validly and legally issued and
outstanding, all of which are fully paid and nonassessable, except as provided
by Wis. Stats. Section 180.0622(2)(b). WBC is also authorized to issue Three
Thousand One Hundred Ninety-seven (3,197) shares of WBC Preferred, One Hundred
and 00/100 ($100.00) par value, of which Three Thousand One Hundred
Ninety-seven (3,197) are validly and legally issued and outstanding, except as
provided by Wis. Stats. Section 180.0622(2)(b).
WBC has not issued, and does not have outstanding, any option, warrant
or convertible securities or other right to purchase or convert any obligation
into such corporation'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 WBC'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 WBC is
a party, or by which WBC 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 WBC'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 WBC is subject.
4.3 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 has its main office and a
branch office in Prairie Du Chien, Wisconsin and additional branches in Seneca,
Eastman and Bagley, 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 Two Thousand Eight
Hundred (2,800) shares of BANK Stock, BANK's only class of stock. BANK has Two
Thousand Eight Hundred (2,800) 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.
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<PAGE> 7
(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 bank regulatory agencies and will not violate any other
restriction of any kind or character to which BANK is subject.
(e) PCB Investments, Inc. ("PCB") is duly organized, validly
existing and in good standing under the laws of the State of Nevada and had and
continues to have all requisite corporate power and authority and regulatory
approvals to carry on its business as conducted in the past and as presently
conducted. PCB is a wholly-owned subsidiary of BANK.
4.4 Financial Matters.
(a) True copies of WBC's consolidated financial statements,
consisting of consolidated balance sheets, consolidated statements of
operations, consolidated statements of cash flow and consolidated statements of
stockholders' equity as of the close of business on December 31, 1995, 1994,
and 1993 have been delivered by WBC to F & M ("WBC's Financial Statements").
To the best knowledge of WBC's officers and directors, after due and diligent
inquiry all of WBC's Financial Statements are true and correct in all material
respects and present an accurate and complete disclosure of the financial
condition of WBC as of their respective dates, and the earnings for the periods
covered, all determined in accordance with generally accepted accounting
principles, applied on a consistent basis.
(b) To the best of BANK's knowledge, after due and
diligent inquiry, BANK does not have any loans presently outstanding which are
not in compliance with the requirements of federal or state banking laws or
regulations, except as set forth in Exhibit 4.4(b), which present any greater
than normal risk of collection or which were not made in the normal course of
business. BANK's last examination by the Federal Deposit Insurance Corporation
("FDIC") was as of June 12, 1995, and by the State of Wisconsin Department of
Financial Institutions, Division of Banking Commissioner ("Division") June 27,
1996. WBC's last examination by the Federal Reserve Bank of Chicago (the
"FRB") was May 2, 1989. Since the dates of these examinations, WBC and BANK,
after making due and diligent inquiry, are not aware of any outstanding loans
which are or may be subject to adverse classification except as set forth in
BANK's watch list as of January 31, 1997, a copy of which is attached hereto as
Exhibit 4.4(b), or of any adverse regulatory
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<PAGE> 8
action or proceeding against BANK, WBC or their respective officers, directors,
or employees, except as shown in the examination reports prepared by the FDIC,
the Division and the FRB as a result of their most recent examinations.
(c) WBC and BANK have good marketable title to all of
their assets, business and properties including, without limitation, all such
properties reflected in the WBC'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. WBC and BANK do not have any
notice of any special assessment which will be levied or assessed against any
real property owned or leased by them. To the best knowledge of WBC's officers
and directors, after due and diligent inquiry all real property owned, operated
and leased by WBC and 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 neither WBC
nor BANK has received any citations, notices, charges or other complaints
claiming a violation of the foregoing nor are WBC or BANK aware of any
investigation of any alleged violation.
(d) All property and assets owned or currently in use by
WBC and BANK, 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. A
schedule of all real and personal property owned by WBC and BANK is attached as
Exhibit 4.4(c). If WBC or BANK lease any real or personal property, a separate
schedule clearly identifying such leased property will be included as a part of
Exhibit 4.4(c). As of the Closing Date, all such property and assets will be
in the condition represented above.
(e) For the period from January 1, 1997 to the Closing
Date, BANK has projected in good faith that its ordinary earnings determined in
accordance with generally accepted accounting principles, applied on a
consistent basis, net of tax effect, shall be as set forth in the attached
Exhibit 4.4(e). The expenses of this transaction are those incurred by BANK
for legal, tax opinion, 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 Ten Thousand
and 00/100 Dollars ($10,000.00).
(f) For the fiscal year ended December 31, 1996, after
excluding amounts paid for new positions created in 1996, BANK did not increase
the amount of the salary, wages, bonuses or other cash
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<PAGE> 9
compensation for all employees by an aggregate amount which exceeds four
percent (4%) of the aggregate amount of such salary, wages, bonuses or other
cash compensation for the fiscal year ended December 31, 1995.
4.5 Changes Since Specific Dates. Since the dates set forth
below, with respect to WBC and BANK there have not been:
(a) Since December 31, 1995, any loss, damage,
destruction or failure to maintain the tangible assets of WBC or BANK (whether
or not covered by insurance), or affecting their business or properties, which
will materially adversely affect the financial condition or operations WBC or
BANK.
(b) Since November 13, 1996, 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 WBC or BANK ineffective in whole or in part.
(c) Since December 31, 1995, any acquisition by WBC or
BANK of a capital asset at a cost in excess of Ten Thousand Dollars
($10,000.00) without prior approval of F & M, except as shown on the attached
Exhibit 4.5(c).
(d) Since November 13, 1996, any amendment to their
Articles of Incorporation or Bylaws.
(e) Since December 31, 1995, any change in accounting
procedures, practices or methods from those used by WBC and BANK in prior
years.
(f) Since November 13, 1996, any issuance, or agreement
to issue, on or before the Closing Date or thereafter, directly or indirectly,
any additional shares of stock of WBC or BANK.
(g) Since November 13, 1996, any declaration, setting
aside or payment of any dividend or any distribution in respect to WBC's stock
or any redemption, purchase or other acquisition by WBC or BANK of any stock or
any other repayments to the shareholders of WBC or BANK except for a dividend
of Five Hundred Thousand and 00/100 Dollars ($500,000.00) declared in December
1996, and paid in January, 1997.
(h) Since December 31, 1996, any sale, transfer, or other
disposition, prior to maturity, of any security or other earning asset
(exclusive of loans and leases), except as approved in writing by F & M.
(i) Any borrowings or other indebtedness (excluding
deposit liabilities) the balance of which currently exceeds the amounts
disclosed by WBC's December 31, 1995 Financial Statements.
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<PAGE> 10
(j) Any mortgage, lien, pledge, security interest,
assessment, levy, charge, claim or other encumbrance made with respect to any
of the properties or assets of WBC or BANK except as disclosed by WBC's
December 31, 1995 Financial Statements and for the pledge to Firstar Bank,
N.A., as described in paragraph 4.2(b).
(k) Since November 13, 1996, any sale, transfer or other
disposition of assets of WBC or BANK except in the normal course of business
and consistent with past practices, provided, however, that WBC or BANK may not
dispose of any securities prior to maturity without the prior consent of F & M.
(l) Any material change in the manner in which business
was being conducted by WBC or BANK prior to December 31, 1995, or other
material failure by WBC or BANK to use their best efforts to maintain its
present business organization (subject to the terms of this Agreement),
employees and customers.
(m) 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 September 30, 1996, except to the extent such difference is in
response to competitive conditions encountered by BANK.
(n) Since November 13, 1996, any other materially adverse
change in WBC's or BANK's prospects, financial condition, assets, liabilities,
properties or business.
4.6 Liabilities.
(a) Neither WBC nor BANK have any liabilities, whether
accrued, absolute, contingent or otherwise, which arose or relate to any
transaction or occurrence involving WBC or BANK or their respective officers,
directors, employees, agents or servants prior to the date of this Agreement
which are not disclosed by WBC's or BANK's Financial Statements described
above. As of the date of this Agreement, WBC is indebted to the WBC
Shareholders for the principal amount shown on the attached Exhibit 4.6(a). To
the best of their 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 WBC or BANK.
(b) To the best of their knowledge, all parties with
whom WBC and BANK have contractual arrangements are in compliance therewith,
except for those loan customers of BANK identified on the attached Exhibit
4.6(b). Neither WBC nor BANK has declared, and is not prepared to declare, any
such parties in default under any such contractual arrangements. Neither WBC
nor BANK 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
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<PAGE> 11
under any such contract or obligation or cause the acceleration of any
obligation of WBC or BANK or result in the creation of a lien, charge,
assessment, encumbrance or other claim whatsoever upon any asset of WBC or
BANK. None of the contracts to which WBC or BANK is a party will be adversely
affected by the transaction contemplated by this Agreement.
(c) To the best of their knowledge, WBC and BANK are in
compliance in all material respects with all applicable federal, state, county
and local statutes, ordinances, regulations, decrees, orders, or other laws.
Neither WBC nor BANK has received notice of any alleged violation of any such
statutes, ordinances, regulations, decrees, orders or other laws, except as set
forth in the attached Exhibit 4.6(c).
(d) 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 their knowledge, threatened against or involving WBC or BANK or
affecting their assets, properties or business. WBC and BANK do 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, except for normal foreclosure, repossession and
collection litigation described in the attached Exhibit 4.6(d).
(e) The assets and liabilities or potential liabilities
of WBC and BANK are fully insured (except for the deductible thereunder),
except for taxes, deposits, repurchase agreements or other similar deposit-type
instruments, and all policies of insurance carried by WBC or BANK 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 WBC or BANK required to be bonded. The
limits of coverage, deductibles and other material nonstandard provisions of
such insurance and bonds are disclosed in the attached Exhibit 4.6(e). 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.
4.7 Taxes. WBC and BANK 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 WBC's Financial Statements and which will
be accrued prior to the Closing Date will be adequate for the payment of any
unpaid taxes as of the Closing Date. WBC's and BANK's income tax returns have
never been audited. Neither WBC nor BANK has waived any restrictions on the
assessment or collection of
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<PAGE> 12
taxes or consented to the extension of any statute of limitations relating to
any tax liability. Neither WBC nor BANK have determined or been advised that
WBC or 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 WBC or BANK.
4.8 Contracts and Commitments. Neither WBC nor BANK 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 WBC or BANK.
4.9 Reporting and Withholding on Payment of Interest. To the best
of their knowledge, after due and diligent inquiry, WBC and BANK have 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 them,
and have complied with all provisions requiring the withholding for income
taxes on such amounts when required. WBC and BANK have instituted adequate
procedures to assure compliance with such provisions. To the best of their
knowledge, all reporting to the IRS required of WBC and BANK has been done in a
timely manner via proper medium. Neither WBC nor BANK have been advised of any
violation or potential violation with respect to such reporting requirements.
4.10 Employees and Employee Benefits.
(a) WBC and BANK are not parties to or bound by any
written or oral (i) employment or employment-related consulting contract which
is not terminable at will by WBC or BANK, as the case may be without penalty,
except as set forth in the attached Exhibit 4.10(a), or (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 on the
attached Exhibits 4.10(b) and 4.10(c).
(b) All pension, profit sharing, or other employee
pension benefit plans of WBC and BANK("the Plans") are described in Exhibit
4.10(b) 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 WBC's and
BANK's best knowledge, after due and diligent inquiry, 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.
Neither WBC nor BANK have knowledge of any fact or circumstance which would
materially and adversely affect such Plans' qualified status or compliance as
above described, or of any
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<PAGE> 13
"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 WBC and 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 WBC and BANK
(the "Welfare Plans") are described in Exhibit 4.10(c) 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 WBC's
and 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. Neither WBC nor BANK have
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.
(d) No person or governmental agency has any pending or
threatened claim against WBC or BANK or their directors, officers, employees or
agents arising out of any statute, ordinance or regulation alleging that WBC or
BANK (i) has discriminated against applicants for employment, employees or the
public, (ii) has any employment practices, policies or procedures which are
discriminatory or have been breached, (iii) failed to comply with federal and
state wage and hour laws, rules or regulations, (iv) violated occupational
safety and health statutes, regulations or standards or (v) has committed an
unfair labor practice(s).
4.11 Environmental Matters.
(a) To the knowledge of WBC and 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 by or leased to WBC or BANK
or, except for loan number 524068915 to the best of WBC's and BANK's knowledge
upon any real estate or property which secures any loan made by WBC or BANK or
which WBC or BANK have a right to acquire upon foreclosure or otherwise.
(b) To the knowledge of WBC and BANK, there have been no
such releases on, upon or into any real property adjoining or in the vicinity
of the property described in paragraph 4.11(a) above,
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<PAGE> 14
which through air, soil or groundwater migration could have come to be located
upon any property owned or leased by WBC or BANK, or which secures a loan made
by WBC or BANK or may be acquired by WBC or BANK in foreclosure.
4.12 Accuracy of All Statements. No representation or warranty by
WBC or BANK in this Agreement or otherwise, in any of WBC's or BANK's Financial
Statements, or in any other statement, certificate, schedule or exhibit hereto
furnished or to be furnished by or on behalf of WBC or 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.
4.13 Prospectus/Proxy Statement. The parts of the Prospectus/Proxy
Statement which were provided or reviewed by WBC and BANK with respect to WBC
and BANK will not, at the date it is first mailed or delivered to WBC's
Shareholders, and will not, at the date or dates of the meeting of WBC'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, WBC 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.
4.14 Financial Adviser. WBC 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.
5. Representations and Warranties of F & M.
F & M, by its duly authorized officers, employees or other agents
makes the following representations to WBC, 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 WBC except as set forth herein. These representations
and warranties shall not survive the closing.
5.1 Organization and Authority.
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<PAGE> 15
(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 is a corporation duly organized, validly
existing and in good standing under the laws of the State of Wisconsin will 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
approval of its shareholders and the federal and state regulatory authorities.
Subsidiary is only qualified to do business in the State of Wisconsin.
(c) F & M is authorized to issue Twenty Million
(20,000,000) shares of F & M Common and has Seven Million Four Hundred
Twenty-one Thousand Nine Hundred Thirty-three (7,421,933) shares issued and
outstanding. F & M anticipates that additional shares of F & M Common will be
issued by it prior to the Closing Date. F & M does not anticipate a public
sale offering at this time. All 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 or Subsidiary'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 or Subsidiary is a
party, or by which F & M or Subsidiary 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 or Subsidiary are 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).
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<PAGE> 16
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, 1995, 1994 and 1993, have been delivered by F & M to WBC (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 which may have a material
adverse effect on F & M or Subsidiary either threatened, pending or outstanding
against or involving F & M or Subsidiary, nor do F & M or Subsidiary know, or
have 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 or
its directors, officers, employees, agents, attorneys or accountants have made
or will make any representations or warranties as to any further positions with
BANK or F & M following the consummation of the transaction contemplated by
this Agreement to any director, officer or employee of WBC or BANK, except as
set forth in written agreements between BANK and any of its employees as
disclosed to F & M and except as provided in paragraph 3.8. F & M will provide
the officers and directors of BANK with directors' and officers' liability
insurance with the same limits of liability and terms and conditions as are
provided by other subsidiaries of F & M (without any exclusion for prior acts).
This representation is intended to create a contractual right for the benefit
of BANK's officers and directors and may be separately enforced by them
subsequent to consummation of the transaction contemplated by this Agreement in
the event F & M fails to comply with this representation, provided, however,
nothing herein shall obligate F & M to provide such coverage if it determines
in its sole discretion not to provide such average to its subsidiary banks.
5.7 Accuracy of All Statements. No representation or warranty by
F & M or Subsidiary 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 or Subsidiary pursuant to this Agreement,
nor any document or certificate delivered to WBC 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
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<PAGE> 17
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 WBC's shareholders,
and will not, at the date or dates of the meeting of the WBC 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 and Subsidiary 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 WBC and BANK.
5.9 No Broker. All negotiations relative to this Agreement and
the transaction contemplated hereby have been carried on directly by F & M and
Subsidiary with WBC without the intervention of any broker or third party on
behalf of F & M and Subsidiary. F & M and Subsidiary have 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 WBC.
WBC 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 WBC and BANK and WBC and
BANK shall furnish or cause to be furnished to F & M or its authorized
representatives all information with respect to the affairs and business of WBC
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, WBC and BANK:
(a) Shall carry on their business diligently and
substantially in the same manner as heretofore and WBC and BANK shall not
engage in or institute any unusual or novel methods of doing business and shall
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 which became effective on or after
January 1, 1997, for the 1997 calendar
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<PAGE> 18
year (regardless if approved before or after January 1, 1997) exceed in the
aggregate four percent (4%) of the total compensation paid to the officers,
directors or employees of BANK as of December 31, 1996, (ii) for the fiscal
year ended December 31, 1996, increase the amount of any bonus paid by BANK in
excess of the amount paid by BANK for the year ended December 31, 1995, except
for the payment of Five Hundred and 00/100 Dollars ($500.00) paid to the
employees hired as BANK's new assistant vice-president in November 1996, (iii)
pay any bonuses for the 1997 fiscal year, and (iv) increase or decrease the
benefits provided under, the contribution to, or the cost sharing allocation of
any employee fringe benefit or any of the benefit plans described in Exhibits
4.10(b) and 4.10(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 WBC's and BANK's past business practices.
(d) Shall not create any indebtedness without the prior
written consent 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, (iii) indebtedness incurred to do the acts and
things contemplated by this Agreement, or (iv) increase the indebtedness to the
WBC Shareholders or to Firstar Bank, N.A., except for accrued interest.
(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, stock 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
for the payment of dividends from BANK to WBC for WBC's normal operations
consistent with past practices.
(f) Shall not amend their 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 and
property (real and personal) taxes which will be due with respect to any 1997
earnings and shall file all tax reports or returns and pay all income,
franchise, real estate, personal property, sales, use, excise or other taxes on
or before the date on which such reports, returns, or payments are due.
-18-
<PAGE> 19
(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 WBC and BANK.
(j) Shall use their best efforts (without making any
commitments on behalf of F & M) to preserve their business organization intact,
to keep available to F & M the present key officers and employees of WBC and
BANK and to preserve for F & M the present relationships of WBC and BANK with
their 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 WBC, BANK or PCB 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 WBC or
BANK, except for routine collection litigation which is initiated by BANK and
is not expected to result in any loss to BANK, provided that if any
counterclaim, cross-claim or third-party claim is asserted in such litigation,
F & M shall be given notice thereof.
(m) Shall not make loans or grant credit to any customer
on terms materially more favorable than those which are available under BANK's
current underwriting guidelines. F & M, WBC 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.
(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 by more than 25 basis points unless BANK has disclosed the
reason for the decline to F & M in advance and F & M has consented in writing
to the adjustment causing such decline.
(o) Shall remain in compliance with all agreements,
commitments, understandings, undertakings or other obligations to the Director,
the FDIC or any other regulatory agency having jurisdiction over WBC and 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 WBC and
BANK, or their businesses or operations.
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<PAGE> 20
(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.
(r) Shall operate PCB so that its business and operations
comply and are in accordance with the provisions of parts (c) through (q) of
this paragraph 6.3.
6.4 Stock Records. Prior to the special shareholders meeting to
approve the Merger, the Board of Directors of WBC, 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 or obtain unanimous
consent of shareholders as provided by statute and WBC's bylaws.
6.5 Audited Financial Statements. If audited financial statements of
WBC and/or BANK are required to permit the shares of F & M Common to be
registered with the SEC, WBC agrees to furnish such statements for the required
years to F & M, provided, however, that the expenses of preparing such
statements shall not be considered in determining BANK's expenses under
paragraph 3.4(b) or BANK's Minimum Earnings under paragraph 3.4(c).
6.6 Reserves for Loan and Lease Losses. BANK shall take such
action as may be necessary to maintain its reserve for loan and lease losses at
one and 45/100 percent (1.45%) of loans and leases until the Closing Date, or
shall have the prior written consent of F & M to establish a lower reserve for
loan and lease losses.
7. Covenants of F & M. F & M and Subsidiary hereby covenant and agree as
follows:
(a) As promptly as practicable after the execution of
this Agreement, F & M and Subsidiary, with the cooperation of WBC, 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 and Subsidiary, with the cooperation
of WBC, 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 and Subsidiary shall also use their best efforts to
qualify under the blue sky laws of the various states in which common
shareholders of WBC 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 and Subsidiary shall pay the expenses of preparing and
delivering the joint Prospectus/Proxy Statement for WBC's Shareholders.
-20-
<PAGE> 21
(b) As promptly as practicable after the execution of
this Agreement, F & M and Subsidiary shall take action to obtain regulatory
approval of this transaction.
(c) 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.
(d) Notify WBC, at the time of any public announcement,
of any tender offer by another financial institution or holding company to
acquire F & M Common, or of F & M's intention to enter into a merger agreement
with another financial institution or holding company.
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 WBC and 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 WBC 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, WBC and BANK shall have performed all of their obligations, and
complied with all of the covenants under this Agreement which are to be
performed or complied with by them 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, WBC 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 WBC's Director and Shareholder Authorization. The merger
contemplated by this Agreement shall have been duly and validly authorized by
WBC's directors and shareholders in accordance with the laws of the State of
Wisconsin.
-21-
<PAGE> 22
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. F & M and Subsidiary and
their representatives shall be reasonably satisfied as to the accuracy of all
year end and interim period balance sheets, statements of income and other
financial statements of WBC or BANK furnished to F & M and Subsidiary for
periods ended after December 31, 1995.
8.7 BANK Earnings. The Actual Earnings of BANK from January 1,
1997 through the month end prior to the month in which closing occurs,
determined in accordance with generally accepted accounting principles applied
on a consistent basis, reference shall not be less than the Minimum Earnings
[as defined in paragraph 3.5(c)] from January 1, 1997, through the month end
prior to the month in which closing occurs.
8.8 Legal Opinion. F & M shall have received the opinion of WBC
Counsel referred to in subparagraph 10.3(e).
8.9 Time Limit on Closing. Closing shall have taken place by June
30, 1997.
8.10 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 and Subsidiary may reasonably
request shall have been delivered to F & M and Subsidiary. WBC and 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.
8.11 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 or Subsidiary, on or prior to the Effective Time, have been initiated
or threatened by the SEC. F & M and Subsidiary 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 WBC
Stock to consummate the merger.
8.12 Prospectus/Proxy Statement. The Prospectus/Proxy Statement will
not contain any untrue statement of a material fact or omit any material fact
regarding WBC or BANK 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.
-22-
<PAGE> 23
8.13 Exchange of Stock Certificates. As a condition of delivery of
the consideration required by this Agreement, the WBC Shareholders shall have
executed and delivered documents assigning their shares of WBC Common and WBC
Preferred 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.
8.14 Affiliates of WBC. Each person who shall be deemed to be an
"affiliate" of WBC 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 8.14,
dated as of the Effective Time.
8.15 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.
8.16 Tax Status. F & M shall have delivered to WBC an opinion of legal
counsel selected by F & M to the effect that the shares of F & M Common
to be issued in this transaction in exchange for shares of WBC Common and WBC
Preferred will be issued as part of a tax-free reorganization. F & M covenants
to proceed diligently and in good faith to obtain such opinion as soon as
practically possible.
8.17 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 accounting
treatment, shall be paid in cash, including amounts paid for fractional shares
and amounts paid to WBC Shareholders who exercise their dissenters rights under
Wis. Stats. Section Section 180. 1301 et seq.
9. Conditions Precedent to WBC's Obligations.
Each and every obligation of WBC to be performed on the Closing Date
shall be subject to the satisfaction prior thereto of the following conditions:
9.1 Truth of Representations and Warranties. The representations
and warranties made by F & M and Subsidiary 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 and Subsidiary's Compliance. F & M and Subsidiary
shall have performed and complied with all of its obligations under this
Agreement which are to be performed or
-23-
<PAGE> 24
complied with by them 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, WBC 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 and Subsidiary in
connection with the transaction contemplated by this Agreement shall have
occurred and all appropriate documents incident thereto as WBC may reasonably
request shall have been delivered to WBC. F & M and Subsidiary shall have
delivered certificates in such detail as WBC may reasonably request to comply
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 and shareholder approval which WBC shall make a good faith,
best efforts to obtain, 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 WBC or BANK.
9.6 Time Limit on Closing. Closing shall have taken place by June
30, 1997.
9.7 Legal Opinion. WBC 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. WBC shall have received an opinion of legal counsel
selected by F & M to the effect that the shares of F & M Common to be issued in
this transaction in exchange for shares of WBC Common will be issued as part of
a tax-free reorganization. F & M covenants to proceed diligently and in good
faith to obtain such opinion as soon as practically possible.
10. Closing.
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<PAGE> 25
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 WBC Shareholders After the Effective Time. After
the Effective Time and until the surrender of a stock certificate representing
shares of WBC Common or WBC Preferred, each such outstanding certificate, which
prior to the Effective Time represented shares of WBC Common or WBC Preferred,
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 or cash into which such shares have been converted as provided in this
Agreement; provided, however, that unless and until any such certificates
representing WBC Common or WBC Preferred shall be so surrendered, the cash or
stock certificate representing the shares, any interest dividends or other
distributions of any kind payable shall be withheld by F & M. Upon the
subsequent surrender and exchange of such WBC Common or WBC Preferred
certificates, such holder of record of the certificates formerly representing
shares of WBC Common or WBC Preferred (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. Delivery of certificates
representing shares of F & M Common or cash payment to former WBC Shareholders
who have tendered their certificates for their shares of WBC Common or WBC
Preferred 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 WBC. At the time of or prior to
the closing, WBC shall deliver the following documents:
(a) A certificate by the chairman, vice-chairman or
president of WBC and BANK (i) that the representations and warranties made by
WBC or 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
WBC and BANK have performed and complied with all of their 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 WBC 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
WBC and BANK, duly certified by their respective custodians as true, correct
and complete copies thereof, including any amendments as of the Closing Date.
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<PAGE> 26
(d) A written opinion from WBC counsel dated as of the
Closing Date addressed to F & M and F & M Counsel, that the matters set forth
in paragraphs 4.2, 4.3, 4.4(c), 4.5(d), 4.5(h) and 4.6(d) are true and correct
as represented in the form attached hereto as Exhibit 10.3(d).
(e) Certified copies of resolutions adopted by WBC'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.
(f) 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. As of the
Close Date, F & M and Subsidiary shall deliver the following documents:
(a) Certificates for shares of F & M Common and cash
payments as determined under Article 3 of this Agreement. Such checks or
certificates will be in the name of WBC Shareholders entitled to the same in
accordance with their interest in WBC as of the Effective Time provided,
however, that such cash and 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 and Subsidiary 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 WBC 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 WBC and WBC Counsel that the matters
set forth in paragraphs 5.1, 5.2, and 5.3 are true and correct as represented
in the form attached hereto as Exhibit 4.10(d).
(e) 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.
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<PAGE> 27
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, Subsidiary and WBC.
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, Subsidiary and WBC;
(b) By F & M and Subsidiary, pursuant to paragraph 3.4,
or if 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 Subsidiary.
(c) By WBC if any of the conditions provided for in
Article 9 of this Agreement have not been met and have not been waived in
writing by WBC.
(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 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
-27-
<PAGE> 28
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 diminish
the liability of the party that failed to comply with the conditions of this
Agreement, provided, however, that termination pursuant to paragraph 3.4 shall
be without liability of any party to any other party. 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, after
the date of this Agreement, a stock dividend or stock split, the F & M Stock
Consideration shall be adjusted proportionately based upon the stock dividend
or 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 WBC, to Wisconsin Ban Corp., c/o Prairie City
Bank, 300 East Blackhawk Avenue, P.O. Box 338, Prairie Du Chien, Wisconsin
53821, Attn: William L. Adamany FAX: 608-326- 6839, with a copy to Peterson,
Antoine & Peterson SC, Attn: Leary Peterson, 165 Ocean Way, Vero Beach,
Florida, 32963.
(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.
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<PAGE> 29
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 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 WBC.
21. Further Documents.
F & M, Subsidiary, and WBC 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.
-29-
<PAGE> 30
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
------------------------------------
Gail E. Janssen
CEO and Chairman of the Board
ATTEST:
By: /s/ Janet Lakso
------------------------------------
Janet Lakso, Secretary
F & M MERGER CORPORATION ("SUBSIDIARY")
By: /s/ Gail E. Janssen
------------------------------------
Gail E. Janssen, President
ATTEST:
By: /s/ Daniel E. Voet
------------------------------------
Daniel E. Voet, Secretary
WISCONSIN BAN CORP. ("WBC")
By: /s/ William L. Adamany
------------------------------------
William L. Adamany, President
ATTEST:
By: /s/ Franklin A. Weeks
------------------------------------
Franklin A. Weeks, Director
-30-
<PAGE> 1
EXHIBIT 21 1996 10-K
F&M BANCORPORATION, INC.
LIST OF SUBSIDIARIES
F&M Bank-Kaukauna*
F&M Merger Corporation
F&M Bank-East Troy*
F&M Bank-Fennimore*
F&M Bank-Kiel*
F&M Bank-Lakeland*
F&M Bank-Northeast*
F&M Bank-Portage County*
F&M Bank-Potosi*
F&M Bank-Superior*
F&M Bank-Winnebago County*
BancUnion Corporation
F&M Bank-Lancaster*
F&M Bank-Algoma*
F&M Bank-Appleton*
F&M Bank-Brodhead
F&M Bank-Hilbert*
F&M Bank-New London*
F&M Bank-Waushara County*
Each of the above named subsidiaries is organized and existing under
the laws of the State of Wisconsin.
- ---------------------
*Each of these banks has a subsidiary organized and existing under the
laws of the State of Nevada which holds and manages that bank's investments.
<PAGE> 1
[Wipfli Ullrich Bertelson CPAs letterhead]
Exhibit 23
1996 10-K
Independent Accountants' Consent
--------------------------------
We consent to incorporation by reference in the Registration Statement on Form
S-3 (No. 33-45385), the Registration Statement on Form S-4 (No. 333-13321), and
the Registration Statements on Form S-8 (Nos. 33-81178, 33-81180, 33-81182 and
333-01937) of F&M Bancorporation, Inc. of our report dated January 31, 1997,
relating to the consolidated balance sheets of F&M Bancorporation, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in stockholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1996, which
report is included in the December 31, 1996 annual report on Form 10-K of F&M
Bancorporation, Inc.
/s/ WIPFLI ULLRICH BERTELSON CPAs
---------------------------------
Certified Public Accountants
Appleton, Wisconsin
March 24, 1997
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 44,626
<INT-BEARING-DEPOSITS> 97
<FED-FUNDS-SOLD> 18,204
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 111,101
<INVESTMENTS-CARRYING> 95,030
<INVESTMENTS-MARKET> 96,824
<LOANS> 864,674
<ALLOWANCE> 10,602
<TOTAL-ASSETS> 1,173,494
<DEPOSITS> 1,005,760
<SHORT-TERM> 41,332
<LIABILITIES-OTHER> 11,636
<LONG-TERM> 9,817
0
0
<COMMON> 7,017
<OTHER-SE> 97,932
<TOTAL-LIABILITIES-AND-EQUITY> 1,173,494
<INTEREST-LOAN> 73,254
<INTEREST-INVEST> 12,410
<INTEREST-OTHER> 1,213
<INTEREST-TOTAL> 86,877
<INTEREST-DEPOSIT> 37,039
<INTEREST-EXPENSE> 39,246
<INTEREST-INCOME-NET> 47,631
<LOAN-LOSSES> 2,004
<SECURITIES-GAINS> 115
<EXPENSE-OTHER> 30,382
<INCOME-PRETAX> 21,121
<INCOME-PRE-EXTRAORDINARY> 21,121
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,413
<EPS-PRIMARY> 2.07
<EPS-DILUTED> 2.07
<YIELD-ACTUAL> 4.87
<LOANS-NON> 10,465
<LOANS-PAST> 31
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 8,921
<CHARGE-OFFS> 1,159
<RECOVERIES> 249
<ALLOWANCE-CLOSE> 10,602
<ALLOWANCE-DOMESTIC> 10,602
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
