U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
AMENDMENT NO. 1 TO
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to ____________
Commission file number: 000-14553
F&M BANCORPORATION, INC.
(Exact name of registrant as specified in its charter)
Wisconsin 39-1365327
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Bank Avenue, Kaukauna, Wisconsin 54130
(Address of principal executive offices)
Issuer's telephone number: (920) 766-1717
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
_______None__________ ____________N/A________________
Securities registered pursuant to Section 12(g) of the Act:
$1.00 Par Value Common Stock
(Title of Class)
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 _____
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 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. [X]
As of March 16, 1998, 9,898,170 shares of Common Stock were
outstanding, and the aggregate market value of the Common Stock (based
upon the $42.00 last sale price on that date on the NASDAQ Stock
Market) held by non-affiliates (excludes a total of 472,055 shares
reported as beneficially owned by directors and executive officers --
does not constitute an admission as to affiliate status) was
approximately $395 million.
F&M Bancorporation, Inc. (the "Company") hereby amends Item 7A of
its annual report on Form 10-K for the year ended December 31, 1997
(the "1997 10-K") to read as follows:
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest rate risk is the most significant market risk affecting
F&M Bancorporation, Inc. (the "Company"). Other types of market risk,
such as foreign currency exchange rate risk and commodity price risk
do not arise in the normal course of the Company's business
activities. 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.
The Company's Asset and Liability Management Committee ("ALCO")
attempts to structure the Company's balance sheet to provide for an
approximately equal amount of rate sensitive assets and rate sensitive
liabilities. In addition to facilitating liquidity needs, this
strategy assists management in maintaining relative stability in net
interest income despite unexpected fluctuations in interest rates.
The Company believes its market risk exposure, based on the potential
of near-term losses in future earnings, fair values, and cash flows
from reasonably possible near-term changes in market rates or prices
is acceptable at this time.
The Company employs various strategies to reduce its exposure to
interest rate fluctuations. These strategies include: selling longer
term maturity mortgages to the secondary market, utilizing the Federal
Home Loan Bank and other sources to fund assets, and applying various
asset positioning strategies consistent with the overall needs of the
Company at any given time. Management has chosen to sell 15 year and
30 year mortgages to the secondary market as a means of removing such
a long original stated maturity asset off of the bank's balance sheet
and reduce the accompanying interest rate risk associated with the
assets. Instead, member banks are encouraged to retain adjustable
rate mortgages with 1-5 year rate locks on their balance sheets.
Federal Home Loan Bank membership by affiliate banks has enabled banks
to diversify their funding maturity options as well as employ match
funding strategies for longer duration assets. Depending on the
interest rate risk position of the Company, the ALCO, which meets
quarterly, implements strategies to re-balance the Company to its
desired position. When the Company is overly liability sensitive,
floating/variable rate commercial loans by subsidiary banks are
encouraged by management. Furthermore, the purchase of
floating/variable rate investment securities are directly coordinated
through the Company's Investment Department when loan demand for this
loan type is not present. To help offset longer assumed maturity core
deposits or to extend the duration of the Company's assets at any
given time, longer term securities are purchased directly through the
Company's Investment Department. In addition to these strategies, the
Company has chosen to offer a premium rate money market deposit
product to customers maintaining average balances exceeding $10,000.
The rate on the product is tied directly to the weekly average auction
rate on the 3 month United States Treasury Bill, which management
believes positions the Company competitively in the market.
The method of analysis presented is "earnings at risk" ("EAR").
While the model employed by the Company is capable of both EAR and
"value at risk" ("VAR"), it has chosen to place greater emphasis on
EAR because the measurement is believed to be of greatest concern to
Company shareholders, as evidenced by the marketplace's focus on
quarterly and annual earnings. Furthermore, an immediate rate shock
of up or down 100-200 basis points is likely to have a more visible
immediate impact on the Company's earnings as compared to its market
value. Nevertheless, EAR has shortcomings inherent in its analysis.
First, the whole issue as to what maturity should be assigned to the
Company's core deposits is one that can vastly impact the results that
the model produces. The model employed assumes a longer duration
assignment to these liabilities based off of historical experience.
Second, the model assumes a normal bell-shaped curve distribution,
although this assumption is elusive in volatile financial markets.
Frequently, the extreme may be the reality as evidenced by the
experience seen in the early 1980s. Third, the model assumes fairly
normal correlation patterns. In reality, however, correlation
structures are unstable over time. Fourth, most EAR approaches
measure risk over less than two years. However, this is likely not
enough time to detect structural relationships between variables. And
fifth, the model assumes theoretical pricing based off of a linear
relationship between market rates and earnings. This relationship
actually has more of a curvature relationship based off of the
inherent convexity present in all fixed rate instruments having a
defined maturity; in other words, a fixed rate instrument will
appreciate by a greater amount than it will decline.
Based on the model utilized, the interest rate risk of the Company
expressed as a percentage change in net interest income over a one-
year time horizon due to changes in interest rates, at December 31,
1997, is as follows:
________Basis Point Change________
+200 +100 -100 -200
Percentage change in
net interest income
due to an immediate
change in interest
over a one-year time
horizon (1.85%) (0.93%) 0.86% 1.67%
Management has only recently begun to evaluate the Company's
interest rate risk by using EAR. As a result, no set EAR parameters
have yet been identified. Instead, management continues to utilize
rate sensitive asset/rate sensitive liability (RSA/RSL) measurements
for establishing interest rate risk parameters. (See Item 7 -
"Management's Discussion and Analysis--Liquidity, Interest Sensitivity
and Market Risk Management.") Nevertheless, management is expected to
establish conservative EAR parameters consistent with its .70 - 1.20
acceptable range for 0 - 6 month RSA/RSL and .80 - 1.10 acceptable
range for 0 - 1 year RSA/RSL interest rate risk parameters.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this
amendment to the Report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Dated the 15th day of May, 1998.
F&M BANCORPORATION, INC.
By_____/s/__John W. Johnson__________
John W. Johnson
President and Chief Executive Officer
