<PAGE>   1

                                    FORM 10-Q

                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

For the quarterly period ended            September 30, 1998                 
                               ----------------------------------------------

                                       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      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)                      (Zip Code)


                                 (920) 766-1717
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last 
report)

    Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. 
Yes X  No   
   ---   ---
                      APPLICABLE ONLY TO CORPORATE ISSUERS:

    Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of November 10, 1998.

        $1.00 par value common
        15,558,611 shares



<PAGE>   2




                           F & M BANCORPORATION, INC.
                                AND SUBSIDIARIES
                           --------------------------

                                      INDEX
                                      -----


                                                                        Page
                                                                       Number
                                                                       ------
PART I.  FINANCIAL INFORMATION:
-------------------------------
Item l.  Financial Statements                                             3

         Condensed Consolidated Balance Sheets
           as of September 30, 1998 and December 31,
           1997 (Unaudited)                                               4

         Condensed Consolidated Statements of Earnings
           for the nine months ended September 30, 1998
           and 1997 (Unaudited)                                           5

         Condensed Consolidated Statements of Changes in
           Stockholders' Equity for the nine months ended
           September 30, 1998 and 1997 (Unaudited)                        6

         Condensed Consolidated Statements of Cash Flows
           for the nine months ended September 30, 1998
           and 1997 (Unaudited)                                           7

         Notes to Condensed Consolidated Financial
           Statements (Unaudited)                                         8

Item 2.  Managements Discussion and Analysis of Financial
         Condition and Results of Operations                             11

Item 3.  Quantitative and
         Qualitative Disclosure about Market Risk                        19

PART II. OTHER INFORMATION
-----------------------------


Item 5.  Other Matters                                                    21

Item 6.  Exhibits and Reports on Form 8-K                                 21



                                       -2-


<PAGE>   3







                         PART I - FINANCIAL INFORMATION

Item 1.  Financial Statements.
-------  ---------------------

The condensed consolidated financial statements included herein have been
included by F & M Bancorporation, Inc. (the "Company") pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not
misleading. This information is unaudited but includes all adjustments
(consisting only of normal recurring accruals) which, in the opinion of Company
management, are necessary for a fair presentation of the results for such
periods.

The results of operations for interim periods are not necessarily indicative of
the results of operations for the entire year. It is suggested that these
condensed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1997 Annual Report.









                                      -3-




<PAGE>   4






                                                          

                   F & M BANCORPORATION, INC. AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                        September 30,    December 31,
                                                            1998              1997   
                                                        ------------      -----------

ASSETS
<S>                                                    <C>               <C>
Cash and cash equivalents                                 $ 59,738         $ 70,006
Investment securities (Note B)
  Held to maturity                                         165,427          192,184
  Available for sale - stated at fair value                324,053          293,450
Federal funds sold                                          84,139           39,222
Loans (Note C)                                           1,665,700        1,532,660
  Less:  Allowance for loan losses                         (23,125)         (21,148)
                                                        ----------       ----------
                  Net loans                              1,642,575        1,511,512

Bank premises and equipment, net                            48,320           43,818
Other real estate                                            3,392            2,283
Other assets                                                46,471           39,228
                                                        ----------       ----------
         TOTAL ASSETS                                   $2,374,115       $2,191,703
                                                        ==========       ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
  Deposits
    Non-interest bearing                                  $241,907         $219,801
    Interest bearing                                     1,700,297        1,600,166
                                                        ----------       ----------
                  Total deposits                         1,942,204        1,819,967

  Short-term borrowing                                      75,509           74,770
  Other borrowings                                          95,833           71,026
  Accrued expenses and other liabilities                    25,355           25,007
                                                        ----------       ----------

                  Total liabilities                      2,138,901        1,990,770



Shareholders' Equity 
  Common stock - $1 par value:
    Authorized - 50,000,000 shares
    Issued - 15,608,657 and
                  13,404,043 shares, respectively           15,609           13,404
  Capital surplus                                          143,915           87,653
  Retained earnings                                         72,647           98,472
  Net unrealized gain on securities available for sale       4,774            1,796
  Less-Common stock held in treasury at cost-
    52,211 shares and 24,020, respectively                  (1,731)            (392)
                                                        ----------       ----------
                  Total shareholders' equity               235,214          200,933
                                                        ----------       ----------
         Total liabilities and shareholders' equity     $2,374,115       $2,191,703
                                                        ==========       ==========
</TABLE>


     See accompanying notes to unaudited consolidated financial statements.



                                      -4-                


<PAGE>   5




                   F & M BANCORPORATION, INC. AND SUBSIDIARIES
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
                  (Dollars in thousands, except per share data)

<TABLE>
<CAPTION>

                                                        Three months ended       Nine months ended
                                                           September 30,           September 30,
                                                        1998        1997       1998        1997    
                                                     ----------- ----------- ----------- -----------
<S>                                                     <C>         <C>         <C>         <C>
Interest income
  Interest and fees on loans                            $37,582     $33,986     $111,588    $97,455
  Interest on investment securities
    Taxable                                               5,032       5,183       15,785     15,445
    Exempt from federal tax                               2,336       2,108        7,154      6,288
  Other interest income                                     970         277        2,149        984
                                                        -------     -------      -------    -------


     Total interest income                               45,920      41,554      136,676    120,172
                                                        -------     -------      -------    -------

Interest expense
  Interest on deposits                                   19,902      18,200       59,607     53,176
  Interest on short-term borrowing                          812       1,154        2,970      3,378
  Interest on other borrowing                             1,300       1,026        3,528      2,193
                                                        -------     -------      -------    -------
        Total interest expense                           22,014      20,380       66,105     58,747
                                                        -------     -------      -------    -------

        Net interest income                              23,906      21,174       70,571     61,425

Provision for loan losses                                   357         737        1,813      2,166
                                                        -------     -------      -------    -------

        Net interest income after
          provision for loan losses                      23,549      20,437       68,758     59,259
                                                        -------     -------     --------    -------

Other income
  Service charges on deposit accounts                     1,628       1,504        4,681      4,357
  Other operating income                                  2,599       1,524        7,336      4,707
  Net securities gain (loss)                                143          (3)         146         85
                                                        -------    --------     --------    -------
                                                          4,370       3,025       12,163      9,149
                                                        -------    --------     --------    -------

Other expenses
  Salaries and employee benefits                          8,583       7,503       25,400     21,884
  Other operating expense                                 7,220       5,842       20,346     17,291
                                                        -------    --------     --------    -------
                                                         15,803      13,345       45,746     39,175
                                                        -------    --------     --------    -------

Income before income taxes                               12,116      10,117       35,175     29,233

Income taxes                                              3,530       3,012       10,546      8,786
                                                        -------    --------     --------    -------

   NET INCOME                                          $  8,586   $   7,105    $  24,629   $ 20,447
                                                        =======    ========     ========    =======


EARNINGS PER SHARE - BASIC                                $0.55       $0.48        $1.58      $1.39
EARNINGS PER SHARE - DILUTED                              $0.55       $0.48        $1.58      $1.39
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.





                                       -5-



<PAGE>   6




                    F&M BANCORPORATION, INC. AND SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>


                                                                Nine Months                Nine Months
                                                                  Ended                        Ended
                                                            September 30, 1998         September 30, 1997
                                                            ------------------         ------------------
                                                          Shares      Equity Total    Shares      Equity Total
                                                          ------      ------------    ------      ------------
<S>                                                    <C>              <C>          <C>            <C>
Balance-beginning of
period                                                 13,404,043       $200,933     11,798,168     $173,243
Acquisition of Financial Management
                  Services of Jefferson, Inc              641,854         12,599
Acquisition of Bank of South Wayne                        143,792          4,451
Acquisition of East Troy                                                                439,993        7,722
Acquisition of Green County                                                             182,967        3,237
Acquisition of Clear Lake                                                               161,040        1,952
Ten percent stock dividend                              1,418,968                       821,875
Comprehensive income:
  Net Income                                                              24,629                      20,447
  Other comprehensive
         income - Change in net
         unrealized gain (loss) on
         securities available for
         sale                                                              2,914                       1,482
                                                       -----------------------------------------------------
Total comprehensive
  income                                                                  27,543                      21,929
                                                       -----------------------------------------------------
Cash dividends                                                            (8,972)                     (5,370)
Purchase Treasury shares                                                  (1,985)                        (91)
Exercise of stock options                                                    645                          67
                                                       -----------------------------------------------------

Totals                                                 15,608,657       $235,214     13,404,043     $202,689
                                                       -----------------------------------------------------
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.





                                       -6-



<PAGE>   7





                   F & M BANCORPORATION, INC. AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
                             (Dollars in thousands)

<TABLE>
<CAPTION>
                                                                                                 Nine months ended
                                                                                                     September 30,
                                                                                             1998                 1997  
                                                                                          ---------            ---------
<S>                                                                                       <C>                 <C>
Increase (decrease) in cash and cash equivalents: 
  Cash flows from operating activities:
     Net income                                                                           $  24,629           $  20,447
  Adjustments to reconcile net income to net cash
          provided by operating activities:
              Provision for depreciation and net amortization                                  3,605              2,645
              Provision for loan losses                                                        1,813              2,166
              Gain on sale of investment securities                                             (146)               (85)
              Increase in other assets                                                        (2,052)            (1,929)
              Gain on sale of equipment                                                          (70)              (238)
              Increase in other liabilities                                                   (2,456)              (991)
              Provision for other real estate losses                                               2                  3
              Gain on sale of other real estate                                                 (401)               (44)
                                                                                              -------           -------
      Net cash provided by operating activities                                               24,924             21,974
                                                                                              -------           -------

      Cash flows from investing activities:
              Proceeds from sale of investment securities
                available for sale                                                             1,513                914
              Proceeds from maturities of investment
                securities available for sale                                                 93,741             65,507
              Purchase of investment securities
                available for sale                                                           (63,258)           (84,851)
              Proceeds from maturities of investment
                securities held to maturity                                                   14,190             14,509
              Purchase of investment securities
                held to maturity                                                              (6,566)           (18,049)
              Net increase in loans                                                          (46,023)          (134,669)
              Capital expenditures                                                            (5,213)            (6,380)
              Proceeds from sale of equipment                                                    553                322
              Proceeds from sale of other real estate                                            420              1,300
              Payment for purchase of stock of
                subsidiary banks, net of cash received                                         6,302             44,929
                                                                                            --------           --------
     Net cash used in investing activities                                                    (4,341)          (116,468)
                                                                                            --------           --------

      Cash flows from financing activities:
              Net increase in deposits                                                         3,273             50,532
              Net increase in short-term borrowings                                              238             25,421
              Dividends paid                                                                  (9,159)            (5,341)
              Purchase of common stock                                                        (1,863)                 0
              Net increase in other borrowings                                                21,109             39,517
              Net proceeds options exercised                                                     468                 58
                                                                                            --------            -------
    Net cash provided by financing activities                                                 14,066            110,187
                                                                                            --------            -------
Net increase in cash and cash equivalents                                                     34,649             15,693
Cash and cash equivalents at beginning of period                                             109,228             87,616
                                                                                             -------            -------
Cash and cash equivalents at end of period                                                  $143,877           $103,309
                                                                                             =======            =======
</TABLE>

     See accompanying notes to unaudited consolidated financial statements.






                                       -7-


<PAGE>   8




                   F & M BANCORPORATION, INC. AND SUBSIDIARIES
         NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 1998
                                   (Unaudited)

NOTE A - BASIS OF PRESENTATION
     The accompanying unaudited condensed consolidated financial statements,
which include the accounts of F&M Bancorporation, Inc. and its subsidiaries,
have been prepared in accordance with generally accepted accounting principles
for interim financial information. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. These statements have been restated to
reflect the acquisitions of Wisconsin Ban Corp, acquired on May 30, 1997,
Citizen's National Bancorporation, Inc., acquired August 14, 1997 and
BancSecurity Corporation, acquired on July 1, 1998. These transactions have been
accounted for using the pooling of interests method of accounting. The
acquisitions of East Troy Bancshares, acquired on January 10, 1997, Green County
Bank, acquired on February 27, 1997, Clear Lake Bancorp., acquired on August 12,
1997, Bank of South Wayne, acquired on February 9, 1998, and Financial
Management Services of Jefferson, Inc., acquired on May 28, 1998, accounted for
as pooling of interests, were not material to prior years' reported operating
results and, accordingly, previous years' results have not been restated. The
acquisitions of the Security office in Antigo, Wisconsin, acquired on September
29, 1997, and Sentry Bancorp, acquired on January 27, 1998, were accounted for
using the purchase method of accounting; accordingly, the financial data
includes results of operations only since the dates of acquisition. All per
share information has been adjusted to reflect the 10% stock dividends paid to
shareholders on June 9, 1997 and September 1, 1998. In the opinion of
management, all adjustments (consisting of normal recurring accruals) considered
necessary for fair presentation have been included.

 NOTE B - INVESTMENT SECURITIES
     Carrying amounts and market values of investment securities held to
maturity at September 30, 1998 are as follows:
                                                                                

<TABLE>
<CAPTION>
                                                                                Carrying     Market
                                                                                 Amount      Value 
                                                                                --------     ------
                                                                                   (in thousands)
<S>                                                                            <C>          <C>
Exempt obligations of states and political subdivisions                        $165,427     $175,543
                                                                               ========     ========


NOTE C - LOANS
     At September 30, 1998, loans are as follows:
                                  (in thousands)
Commercial and industrial                                             $367,996
Agricultural                                                           123,964
Real estate construction                                                50,010
Real estate mortgage                                                   996,323
Installment and other consumer                                         127,407
                                                                    ----------
                                                                     1,665,700
Less allowance for loan losses                                         (23,125)
       Net loans                                                    $1,642,575
                                                                    ==========
</TABLE>

NOTE D - EARNINGS PER SHARE OF COMMON STOCK
     Earnings per share are based on weighted average number of common shares
outstanding restated to reflect the 10% stock dividends paid to stockholders on
June 9, 1997 and September 1, 1998. The following shows the computation of the
basic and diluted earnings per share for the nine months ended September 30,
1998 and 1997.

<TABLE>
<CAPTION>

                                               Weighted
                                               Average
                                               Number of      Earnings Per
                                 Net Income    Shares         Share          
------------------------------------------------------------------------------
                               (in Thousands)
1998
<S>                              <C>        <C>               <C>
Earnings per share-Basic          $24,629    15,585,492        $1.58
Effect of Stock options                          36,496                     
------------------------------------------------------------------------------
Earnings per share-Diluted        $24,629    15,621,488        $1.58           
==============================================================================
1997
Earnings per share-Basic          $20,447    14,705,610        $1.39
Effect of stock options                          52,828              
------------------------------------------------------------------------------
Earnings per share-Diluted        $20,447    14,758,438        $1.39          
==============================================================================

</TABLE>
                                       -8-


<PAGE>   9




NOTE E - NON-PERFORMING ASSETS

     The following table sets forth the amount of non-performing loans, other
real estate owned and non-performing assets, and each of their percentages to
total loans at September 30, 1998:

<TABLE>

<S>                              <C>       <C>
(in thousands)
Non-accrual loans                 $12,723   0.76%
Loans past due 90 days or more      1,587   0.10
Restructured loans                      0   0.00
                                   ------   ----

Total non-performing loans         14,310   0.86

Other real estate owned             3,392   0.20
                                   ------   ----

Total non-performing assets       $17,702   1.06%
                                  =======   ====
</TABLE>

NOTE F - SUMMARY OF LOAN LOSS EXPERIENCE

     The following table summarizes loan balances at September 30, 1998; 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>

<S>                                     <C>
(in thousands)
Average balance of loans year to date    $1,644,453
                                         ==========

Allowance for loan losses at
  beginning of period                        21,148

Loans charged off
  Commercial and Industrial                   1,096
  Real Estate - Mortgage                        103
  Installments and Other Consumer Loans         676
                                              -----

  Total charge offs                           1,875

Recoveries on loans previously
  charged off
  Commercial and Industrial                     152
  Real Estate - Mortgage                         10
  Installment and Other Consumer Loans          176
                                              -----

  Total recoveries                              338

Net loans charged off                         1,537

Provisions for loan losses of banks
     acquired at date of acquisition          1,701

Provisions for loan
  losses                                      1,813
                                              -----
Allowance for loan losses
  at end of period                          $23,125
                                            =======

Ratio of net charge offs
  during period to average
  loans outstanding (annualized)               0.12%
Allowance for loan
  losses to total loans                        1.39%

</TABLE>                                                          
                                       -9-


<PAGE>   10




NOTE G - ALLOCATION OF ALLOWANCE FOR LOAN LOSSES

         The following table summarizes the allocation of allowances for loan
losses and gives a breakdown of the percentage of loans in each category at
September 30, 1998:

<TABLE>
<CAPTION>
                                                              Percent
                                                              of loans
                                                  Amount of   in each
                                                  reserve     category
                                                  for loan    to total
(in thousands)                                    losses      loans  
---------------------------------------------------------------------------
<S>                                              <C>          <C>
Commercial,
industrial, and
agricultural                                      $10,639       29.5%
Real estate -
construction                                          374        3.0
Real estate - mortgage                              8,199       59.8
Installment and other
consumer loans                                      3,913        7.7
                                                  -------      -----
                                                  $23,125      100.0%
                                                  =======      =====
</TABLE>



                                      -10-



<PAGE>   11





                      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 for the three and nine months ended September
30, 1998 and 1997 and financial condition at September 30, 1998. These
statements have been restated to reflect the acquisitions of Wisconsin Ban Corp
("WBC"), acquired on May 30, 1997, Citizens National Bancorporation, Inc.
("CNB"), acquired on August 14, 1997 and BancSecurity Corporation, acquired on
July 1, 1998. These transactions have been accounted for using the pooling of
interests method of accounting. The acquisition of East Troy Bancshares ("ETB"),
acquired on January 10, 1997, Green County Bank ("GCB"), acquired on February
27, 1997, Clear Lake Bancorp.("CLB"), Inc., acquired on August 12, 1997, Bank of
South Wayne, acquired on February 9, 1998, and Financial Management Services of
Jefferson, Inc., acquired on May 28, 1998, accounted for as pooling of
interests, were not material to prior years' reported operating results;
accordingly, previous years' results have not been restated. The acquisitions of
the Security office in Antigo, acquired on September 29, 1997 and Sentry
Bancorp, acquired on January 27, 1998, were accounted for using the purchase
method of accounting; accordingly, the Company's financial data includes results
of operations of these entities only since the dates of acquisition. All per
share information has been adjusted to reflect the 10% stock dividends paid to
shareholders on June 9, 1997 and September 1, 1998.

     The Company has also announced one pending acquisition which, if
consummated, would affect the Company's future operations. In July 1998, the
Company announced that it had signed a definitive agreement to acquire Community
Bank of Elkhorn ("Bank"). The Bank, which has assets of approximately $100
million and one location in Elkhorn, Wisconsin, is a wholly owned subsidiary of
CBE, Inc. This acquisition will be accounted for using the pooling of interests
method of accounting. Although the pending acquisition is expected to be
consummated in the first half of 1999, it remains subject to conditions
precedent and there can be no assurance of completion.


      Discussions in this Management's Discussion and elsewhere in the Annual
Report, that are not statements of historical fact (including statements in the
future tense or which include terms such as "believe", "expect", "anticipate" or
"may") are forward-looking statements that involve risks and uncertainties, and
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.



RESULTS OF OPERATIONS
---------------------

   For the three months ended September 30, 1998, net income increased $1.5
million, or 20.8%, to $8.6 million from $7.1 million in the third quarter of
1997. The annualized return on average assets was 1.45% for the third quarter of
1998 compared with 1.35% for the third quarter of 1997. Return on average
stockholders' equity on an annualized basis for the third quarter of 1998 and
1997 were 14.56% and 14.09%, respectively.

      For the nine months ended September 30, 1998, net income increased $4.2
million, or 20.5%, to $24.6 million from $20.4 million in the first nine months
of 1997. The annualized return on average assets was 1.41% for the nine months
ended September 30, 1998 compared with 1.34% for the first nine months of 1997.
Return on average stockholders' equity on an annualized basis for the nine
months ended September 30, 1998 and 1997 were 14.48% and 14.11%, respectively.






                                      -11-

<PAGE>   12










Net Interest Income

      Net interest income for the three months ended September 30, 1998
increased $2.7 million, or 12.9%, to $23.9 million from $21.2 million in the
third quarter of 1997. Total interest income for the third quarter of 1998
increased $4.4 million, or 10.5%, to $45.9 million from $41.5 million in the
third quarter of 1997. Interest expense increased $1.6 million, or 8.0%, to
$22.0 million in the third quarter of 1998 from $20.4 million in the third
quarter of 1997.

      Net interest income for the nine months ended September 30, 1998 increased
$9.1 million, or 14.9%, to $70.6 million from $61.4 million in the first nine
months of 1997. Total interest income for the nine months ended September 30,
1998 increased $16.5 million, or 13.7%, to $136.7 million from $120.2 million in
the first nine months of 1997, while interest expense increased $7.4 million, or
12.5%, to $66.1 million in the nine months ended September 30, 1998 from $58.7
million in 1997.

      Increased net interest income for the three and nine month periods is
attributable to the increase in asset volume due to the Company's acquisitions,
internal growth, and relative stability of the Company's net interest margin
(4.51% vs 4.49% at September 30, 1998 and 1997, respectively). Total interest
income increased for the three and nine month periods in 1998 compared to the
same periods last year as a result of an increase in interest and fees on loans
due to acquisitions, increased loan activity, and generally stable interest
rates, while total interest expense increased for the three and nine month
periods in 1998 compared to 1997 as a result of increased levels of deposits
primarily due to acquisitions.

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 of banking industry regulators for certain levels of allowances,
although no particular regulatory obligations have been imposed on the Company
in this regard.

      The provision for loan losses for the three months ended September 30,
1998 decreased $380,000, to $357,000 from $737,000 in the third quarter of 1997.
The provision for loan losses for the nine months ended September 30, 1998 was
$1.8 million, a decrease from $2.2 million for the nine months ended June 30,
1997. Charge offs increased from $760,000 in the first nine months of 1997 to
$1.5 million in the first nine months of 1998. Despite the increases in charge
offs and the loan portfolio, the Company was able to increase the loan loss
reserve as a percentage of loans to 1.39% due to the allowances of banks
acquired in 1998, provisions during the period, and recovery activity. See
"Allowance for Loan Losses" for further discussion.

Non-Interest Income

      The Company stresses the importance of growth in non-interest income as
one of its key long-term strategies. Non-interest income for the three months
ended September 30, 1998 increased $1.3 million, or 44.4%, to $4.4 million from
$3.0 million in the third quarter of 1997. Non-interest income for the nine
months ended September 30, 1998 increased $3.0 million, or 33.0%, to $12.2
million. The increase was due principally to increases in secondary market
commissions, service charges and other fee income. Purchase acquisitions and
acquisitions of banks for which prior period information was not restated also
contributed to the increase of non-interest income.






                                      -12-


<PAGE>   13



Non-Interest Expense

      Non-interest expense for the three months ended September 30, 1998
increased $2.5 million, or 18.5%, to $15.8 million from $13.3 million in the
third quarter of 1997. Non-interest expense for the nine months ended September
30, 1998 increased $6.6 million, or 16.8% to $45.8 million from $39.2 million in
the first nine months of 1997. The increase was primarily due to the
acquisitions in 1997 and 1998, resulting from both the cost of the acquisitions
and increases resulting from those with respect for which prior periods were not
restated (additional staffing, data processing fees, occupancy expense, etc.),
and the normal increases in salaries and employee benefits.

      The overhead ratio, which is computed by subtracting non-interest income
from non-interest expense (excluding net securities transactions) and dividing
by average total assets, was 1.94% in the first nine months of 1998 compared
with 1.98% in the first nine months of 1997. The decrease in this ratio in the
first nine months of 1998 was the result of the factors set forth above.

      Due to the sensitivity of the overhead ratio to changes in 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 53.0% in the first nine months of 1998 compared
with 53.1% in the first nine months of 1997. The slight decrease in this ratio
and the overhead ratio resulted from the various factors set forth above.

Provision for Income Taxes

      The Company's provision for income taxes for the three months ended
September 30, 1998 increased $518,000, or 17.2%, to $3.5 million from $3.0
million in the third quarter of 1997. The increase in income tax provision was
principally due to increased taxable income.

      The provision for income taxes for the nine months ended September 30,
1998 increased $1.8 million, or 20.0% to $10.5 million from $8.8 million in
1997. The increase in income tax provision was principally due to increased
taxable income.

Net Income

      As a result of the preceding factors, net income for the third quarter of
1998 increased by $1.5 million, or 20.8% to $8.6 million from $7.1 million in
the same period for 1997. Net income for the first nine months of 1998 increased
by $4.2 million, or 20.5%, to $24.6 million from $20.4 million in the first nine
months of 1997.

      Basic net income per common share was $0.55 for the third quarter of 1998
compared with $0.48 in the third quarter of 1997 an increase of 14.6%. The
Company maintains a stock option plans for officers and directors. Fully diluted
earnings per share are equal to the stated basic earnings per share numbers.

      Basic net income per share was $1.58 for the first nine months of 1998,
compared with $1.39 in the same period for 1997, an increase of 13.7%. As of
September 30, 1998, fully diluted earnings per share are equal to the stated
basic earnings per share numbers.






                                      -13-



<PAGE>   14


FINANCIAL CONDITION
-------------------

Loan Portfolio

      At September 30, 1998, total loans increased $133.0 million, or 8.7%, to
$1.666 billion from $1.533 billion at December 31, 1997. The loan mix in the
Company's portfolio at September 30, 1998 did not change in any material respect
compared with December 31, 1997. Approximately $89 million in loans, or 67% of
the first nine months of the year's growth, resulted from acquisitions in which
the Company did not restate its prior financial statements, and the remaining
balance resulted primarily from loan demand spread throughout the Company's
subsidiary banks.


Non-Performing Assets

      Maintaining excellent credit quality continues to be a priority for the
Company. At September 30, 1998, non-performing assets amounted to $17.7 million,
compared to $19.3 million at December 31, 1997. Non-performing loans at
September 30, 1998 were $14.3 million, or 0.86% of total loans, compared to
$17.8 million at December 31, 1997. Other real estate owned ("OREO") at
September 30, 1998 was $3.4 million as compared to $2.3 million at December 31,
1997. The ratio of non-performing assets to total loans at September 30, 1998
was 1.06%. Management continues to work at reducing the level of non-performing
assets. Non-performing assets decreased the first nine months of 1998 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 decrease (or that it necessarily is an
indication of expected future developments). However, management continues to
take an aggressive collection effort on these assets, carefully monitors these
(and other) loans, and regularly reviews and evaluates the non-performing
credits to determine appropriate handling and action.

Summary of Loan Loss Experience

      For the first nine months of 1998, total charge-offs were $1.9 million and
total recoveries were $338,000. The annualized ratio of net charge-offs to
average loans outstanding for the nine months ended September 30, 1998 was
0.12%. The charge-offs were not concentrated in any particular industry.

Allowance for Loan Losses

      The allowance for loan losses as a percentage of total loans was 1.39% and
1.38% at September 30, 1998 and December 31, 1997, respectively. Management
continually reviews the loan portfolio, and other factors, to determine the
appropriate allowance. The allowance for loan losses is an amount that
management believes will be adequate to absorb possible losses on existing loans
that may become uncollectible based on evaluations of the collectibility of
loans and prior loan loss experience. In determining the additions to the
allowance charged to operating expenses, management considered historical loss
experience, changes in the nature and volume of the loan portfolio, overall
portfolio quality, the reserve levels at acquired banks, and current economic
conditions that may affect the borrower's ability to pay. The ultimate recovery
of all loans is susceptible to future market and economic factors beyond the
Company's control as well as factors affecting particular borrowers. Also, the
process of setting loss reserves involves an estimation of future occurrences,
and is inherently uncertain. These factors may result in future losses or
recoveries differing significantly from the allowances and reserves provided in
the financial statements.

Investment Portfolio

      At September 30, 1998, the investment portfolio increased $3.8 million, or
0.8%, to $489.5 million from $485.6 million at December 31, 1997. At September
30, 1998 and December 31, 1997, the investment portfolio represented 20.6% and
22.2% of total assets, respectively. Increases in the investment portfolio is
primarily attributed to acquisitions that have not been restated.





                                      -14-


<PAGE>   15


Deposits

      Total deposits at September 30, 1998 increased $122.2 million, or 6.7%, to
$1.942 billion from $1.820 billion at December 31, 1997. Interest-bearing
deposits at September 30, 1998 increased $100.1 million, or 6.3%, to $1.700
billion from $1.600 billion at December 31, 1997. The increase in deposits is
primarily attributable to the three acquisitions in the first nine months of
1998 representing approximately $115 million and a slight internal increase in
deposits of approximately $7 million. Historically, deposits have typically
increased at year end and then gradually returned to prior levels.

Borrowings

      Short-term borrowings at September 30, 1998 were $75.5 million, as
compared to $74.8 million at December 31, 1997. Short-term borrowings consist
primarily of repurchase agreements and federal funds purchased. The Company has
used short-term borrowings to assist in funding its increasing loan demand.
Management has taken steps to monitor short-term borrowings and is comfortable
with the current level. Going forward, continued reliance on short-term funds
may be required if loan demand continues to outpace 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 September 30, 1998. These
borrowings are secured by pledges of mortgage loans, and totaled $95.8 million
at September 30, 1998, compared to $71.0 million at December 31, 1997. These
FHLB borrowings had original maturities of three months to nine years at
September 30, 1998. The increase in other borrowings in 1997 and early 1998 was
due to attractiveness of longer term rates and the Company's implementation of a
leverage program in which FHLB borrowings are matched to securities purchased.

CAPITAL ADEQUACY

      During the first nine months of 1998, stockholders' equity increased $34.3
million due to net income of $24.6 million in the first nine months of 1998 and
the acquisitions of Bank of South Wayne and Financial Management Services,
offset by dividends paid to stockholders. At September 30, 1998, the Company's
risk-based Tier 1 capital ratio was 12.04%. The total risk-based capital ratio
was 13.29% and the leverage ratio was 9.34%. All such ratios exceed regulatory
minimums of 4.0%, 8.0% and 3.0%, respectively. The average equity to average
assets ratio was 9.76% at September 30, 1998, compared with 9.52% at September
30, 1997.

      F & M's common stock dividend payout ratio was 31.5% in the first nine
months of 1998 as compared to 24.2% in the comparable 1997 period. These numbers
do not include the dividends historically paid by acquisitions prior to their
acquisitions by the Company.

      At September 30, 1998, each of the Company's subsidiary banks was in
compliance with all applicable capital requirements, and management believes
that the capitalization of those banks is adequate.

      During the first nine months of the year the Company incurred normal
expense levels of capital expenditures for replacement and renovation of
facilities. The Company to date has not committed to any major commitments to
build or purchase in 1998, but also expects to finance any such expenditures
through earnings and existing capital resources. The Company financed the cash
purchase of Cannon Valley Bank through earnings and existing capital resources.
See "Year 2000" below for a discussion of projects relating to F&M's Year 2000
compliance efforts.

LIQUIDITY

      As shown in the Company's Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998, cash and cash equivalents increased by
$34.6 million during the period to $143.9 million at September 30, 1998. The
increase primarily reflected $24.9 million in net cash provided by operating
activities and $14.1 million in net cash provided by financing activities,
offset by $4.3 million in net cash used in investing activities. Net cash
provided by operating activities primarily consisted of the Company's net income
in the period increased by adjustments for non-cash credits. Net cash provided
by financing activities principally reflected an increase in other borrowings.
Net cash used in investing activities consisted primarily of a net increase in
loans plus necessary capital expenditures offset by net cash received in
acquisitions for which prior periods were not restated.




                                      -15-


<PAGE>   16


      The Company manages its liquidity to provide adequate funds to support the
borrowing requirements and deposit flow of its customers. Management views
liquidity as the ability to raise cash at a reasonable cost or with a minimum of
loss and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the Company's
liquidity are investment securities available for sale and other marketable
assets maturing within one year. The Company attempts, when possible, to match
relative maturities of assets and liabilities, while maintaining the desired net
interest margin. The Company can also utilize borrowing capacities if
appropriate. Although the percentage of earning assets represented by loans is
increasing, management believes that its sources of liquidity are adequate.

YEAR 2000

     Like other financial institutions (and businesses of all kinds), F&M must
assure that its computers and other systems are "Year 2000 compliant." "Year
2000 compliant" means being capable of operating, and accurately recognizing
dates and processing information, in and after the Year 2000, and recognizing
the leap year which will occur in 2000. To help assure that F&M's systems are
year 2000 compliant on a timely basis, F&M began a focused compliance program
primarily using F&M personnel. As the program has continued, F&M has identified
certain functions and roles in which the use of outside consultants or experts
would help F&M address year 2000 issues on a more expedited basis or in more
depth. Therefore, in addition to the designation of particular F&M employees to
coordinate F&M's year 2000 compliance efforts, F&M has retained outside
assistance.

      Federal financial institution regulators, which are coordinating efforts
to assure year 2000 compliance, have identified five major phases to the Year
2000 compliance efforts. The phases are generally summarized as: Awareness,
Assessment, Renovation, Validation (testing) and Implementation. F&M is keying
its compliance efforts to those phases. Currently, F&M has completed its review
process, and has begun testing and implementing solutions where necessary.
Further information as to F&M's Year 2000 expected schedule for efforts by
phase, and its estimates of the percentage of completion of those phases, is set
forth in the following chart:

<TABLE>
<CAPTION>
                                    Estimated     
                                   Completion             Estimated Completion
      Phase                         Schedule                    Percentage     
      -----                        ----------             --------------------
<S>                               <C>                            <C>
      Awareness                     09/30/97                      100%
      Assessment                    09/30/97                      100%
      Renovation                    12/31/98                       75%
      Validation                    03/31/99                       40%
      Implementation                06/30/99                        0%

</TABLE>

      F&M has to date budgeted $1.5 million up from its original budget of
$500,000 for its compliance efforts, and expended $700,000 through September 30,
1998. To date, costs expended have been generally above the original budget;
differences have arisen primarily because of the use of outside consultants.

      As part of its effort, F&M is monitoring year 2000 compliance efforts by
its suppliers, because many of F&M's affected systems (such as data processing)
are contracted from third parties. Therefore, a significant part of F&M being
year 2000 compliant requires such compliance by the third parties, and F&M is
subject to their achievement of appropriate Year 2000 compliance on a timely
basis. F&M regularly receives updates from its "mission-critical" suppliers
(such as data processors) as to their Year 2000 compliance efforts. F&M has
identified its data processing function as one particularly critical function.
Based upon information obtained from its two primary data processing suppliers,
F&M believes that these systems are Year 2000 compliant. In the event that one
or both of these processors would not achieve Year 2000 compliance on a timely
basis (which F&M believes unlikely), F&M has written business resumptions plans
to address possible problems in the future and expects to monitor developments
carefully and adjust and reform its plans accordingly. F&M's plans also include
contingency plans, developed by our outside processors, which provides
alternative operating procedures in the event unforeseen problems arise.




                                      -16-



<PAGE>   17


      In addition, F&M has completed its review of internal computers and data
processing equipment and systems. Based upon that review, F&M believes that all
problems have been identified and will be able to be corrected before the year
2000. As part of its remediation plans, F&M intends to transfer data processing
for its 12 bank subsidiaries which are not currently being processed by one of
the two primary data processing suppliers to one of its processors. F&M has
agreed with the processor to convert these banks over a period from 2/19/99 to
10/22/99. While data processing conversions have an inherent risk of
complications, F&M believes this to be the most sound means of addressing the
needs of these banks.

      F&M's internal and third party reviews also include areas which are not
specifically "technology-related" but are also affected by year 2000 compliance
issues. For example, much of F&M's equipment (including building equipment and
systems such as security systems, HVAC, elevators, vaults and the like) includes
imbedded microchips which could be affected by Year 2000 related problems. As to
equipment owned by F&M, F&M has assessed and identified non-compliant equipment
and is in the process of working on solutions to correct them. As to services
supplied to F&M, F&M has contacted service providers and suppliers and obtained
assurance from them. Further testing with suppliers and providers will be done
in 1999. In particular, F&M has monitored compliance efforts by utilities and
others who provide services to large areas or customer groups including F&M. In
many of these cases, F&M is not sufficiently large a customer or user that it
can demand special treatment, assurances or information from the providers. In
those cases, F&M employees have monitored public statements by those providers
for their state of readiness, attempted to identify any clear issues, and
attempted to make appropriate arrangements to the extent any reasonable concerns
have been identified.

      The credit-worthiness of F&M's customers could also be affected by the
year 2000 compliance efforts and failures. F&M loan officers and others are
reviewing year 2000 efforts and compliance levels of F&M's commercial credit
customers. The failure of these customers to be year 2000 compliant could
adversely affect those businesses, which would in turn pose credit risks which
could have a material effect on F&M. F&M has reviewed information obtained from
approximately 50% of its commercial credit customers. Specific guidelines were
used to identify which customers were selected for the review. Based upon that
review, F&M believes that further review and careful monitoring of customers
will be required in the future. While F&M also recognizes that loans to
individuals loans could be affected by year 2000 issues (for example, loss of
employment due to an employer's Year 2000 related failure), F&M does not believe
there is any practical means to gather such information, which would provide
little practical benefit even if it could be obtained. F&M is also attempting to
meet customer needs stemming from possible year 2000 related disruptions by
creating awareness now to help resolve their potential future problems.

      Because of their concern for the integrity of the financial institutions
systems, federal regulators such as the Federal Reserve Board (which regulates
F&M and most of its subsidiary banks) and the FDIC (which insures deposits at
all F&M banks) have paid close attention to institutions' Year 2000 compliance
efforts. F&M and its subsidiaries have had such examinations, and have had to
address the personnel and other needs to facilitate the examinations. Because of
the regulators' stated desire that acquisition activity not interfere with Year
2000 readiness, F&M believes that it is possible that regulators may become more
reticent to approve additional acquisitions prior to 2000, which could
particularly affect F&M due to its historically active pattern of acquisitions.
Other than those possible effects, F&M does not believe that it has had, or is
likely to have, other material projects or initiatives delayed or affected
because of the need to focus on year 2000 compliance.

      Like many businesses, F&M is making contingency plans for Year 2000
related disruptions. The precise plans utilized would, of course, depend upon
the exact problems which develop. Disruptions could range from discrete
application-specific problems which can be easily resolved to systematic
failures affecting the banking industry (or other industries) as a whole, or all
persons in large geographical areas. F&M cannot identify every disruption that
may affect it but it has identified critical problems that may arise. Loss of
electricity or disruption of computer systems if F&M is not able to successfully
complete its Year 2000 remediation plans are the most likely "worst case"
scenarios identified by F&M. F&M has developed and adopted business resumption
plans to operate off line or without certain services to minimize disruption of
services provided to our customers. Contingency plans of F&M would include,
depending upon the magnitude of the problems actually experienced, the
processing plans discussed above, additional vault



                                      -17-


<PAGE>   18


cash reserves, additional funding lines of credit for liquidity, preparing pre
2000 documents on paper to verify post 2000 validity of information, paper based
systems for the short-term until corrected. Occurrences such as area-wide
utility failures may cause businesses, including F&M, to temporarily cease
operations at affected locations until the problem is rectified.

      F&M's Year 2000 compliance efforts are ongoing, and certain matters and
issues remain to be addressed, reviewed, tested and/or finally implemented.
However, based in part upon information being received from the third parties
providing services to F&M, F&M currently believes that it will be year 2000
compliant in a timely basis to avoid material operational disruptions and to
comply in material respects with the requirements of its regulators. To date,
F&M has not identified material extraordinary expenditures which will be
required to become Year 2000 compliant, although further expenditures remain to
be incurred and the use of outside personnel or other factors may increase the
costs of year 2000 compliance beyond F&M's current budget.

      As indicated, certain year 2000 remediation efforts remain to be
completed. Some are under F&M's control, but many efforts are those of third
parties (such as suppliers or customers), which are not under F&M's control. The
failure to successfully complete year 2000 remediation efforts by F&M, or by
third parties, could materially adversely affect F&M. While F&M has attempted to
monitor efforts by others, those efforts may not ultimately be satisfactory, and
information given to F&M may not be accurate.

      No one, including F&M, can conclusively predict exactly what Year 2000
related problems will eventually occur, or the degree of their impact. However,
it is all but certain that there will be at least some year 2000 related
problems that are not solved on a timely basis, and some of these will affect
F&M. The nature and the degree of impact on F&M would, of course, vary according
to the problem or problems which develop. For example, failure of mission
critical functions such as data processing or year 2000 failures affecting large
groups, such as utility failures or failures by others affecting the banking
industry as a whole, could cause F&M to limit (or even curtail) its operations
in affected areas until such time as the problems are cured. Similarly, failures
either particular to customers or affecting geographical areas or business
segments generally would affect customers, and the degree of disruption would
affect credit losses. F&M is unable to predict the magnitude of any such
disruptions, or the period of time during which they would affect F&M, although
it expects the effects would be most pronounced in the period of time shortly
after January 1, 2000.

      Statements which are not historical fact (including completion schedules,
expectations of future developments, results or scenarios and cost estimates)
are forward-looking statements, and actual results may differ due to factors
including those discussed above.

OTHER

Accounting Changes

      In June 1997, The FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information." This statement establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements. This statement supersedes SFAS No. 14,
"Financial Reporting for Segments of a Business Enterprise," but retains the
requirement to report information about major customers. It also amends SFAS No.
94, "Consolidation of All Majority-Owned Subsidiaries," to remove the special
disclosure requirements for previously unconsolidated subsidiaries. The
statement is effective for fiscal years beginning after December 15, 1997. In
the initial year of application, comparative information for earlier years is to
be restated. The statement is not expected to have an effect on the financial
position or operating results of the Company, but may require additional
disclosures in the consolidated financial statements.





                                      -18-



<PAGE>   19


Item 3. Quantitative and Qualitative Disclosures About Market Risk

      Interest rate risk is the most significant market risk affecting 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,


                                      -19-


<PAGE>   20


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 September 30, 1998, is as follows:

<TABLE>
<CAPTION>
                                         Basis Point Change                 
                                         ----------------------------------
                                        +200       +100        -100       -200
                                        ----       ----        ----       ----
<S>                                    <C>       <C>          <C>        <C>
Percentage change in net interest
income due to an immediate change
in interest over a one-year time
horizon                                (3.54%)    (1.76%)      1.76%      3.54%

</TABLE>

      Management continues to closely monitor the company's interest rate risk
position by utilizing both EAR and traditional RSA/RSL measurements. Because EAR
remains a relatively new measurement for the company, no target ranges have yet
been established. RSA/RSL target ranges are as follows: 0-6 months: .70 - 1.20
and 0-1 year: .80 - 1.20%



                                      -20-


<PAGE>   21




                           PART II. OTHER INFORMATION

Item 5.   Other Matters
          -------------

      The company recently adopted a revision to its bylaws providing for notice
by shareholders intending to propose a nominee for director, or a matter for
consideration at a shareholder meeting, in advance of a meeting. Notice,
together with specified information, must be given not less than 90 days, nor
more than 150 days, prior to the scheduled date of an annual meeting. (The 1999
annual meeting of shareholders is scheduled for April 27, 1999.) Similar notice
must be given within ten days of the announcement of a special meeting. Any
proposal not made in accordance with these provisions will not be considered at
a meeting.

Item 6.  Exhibits and Reports on Form 8-K
         --------------------------------

      (a)        Exhibits: See Exhibit Index, which follows the signature page 
                 hereof.

      (b)        Reports on Form 8-K:

                 The Registrant filed one report on Form 8-K during
              the second quarter of fiscal 1998. The Report on form 8-K,
              dated July 1, 1998, related to the Company's acquisition of
              BancSecurity Corporation on that date. That report included:

                  1. Audited financial statements of BancSecurity for the three 
                     years ended December 31, 1997 and quarters ended March 31, 
                     1998 and 1997;

                  2. Pro forma financial statements of the Company (at March
                     31, 1998, for three years ended December 31, 1997 and for 
                     quarters ended March 31, 1998 and 1997) giving effect to 
                     the acquisition.




                                      -21-



<PAGE>   22




                                   Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.


                                       F & M BANCORPORATION, INC.              
                                       -----------------------------------------
                                       (Registrant)


Date  November 12, 1998                 /s/ John W. Johnson                     
     -------------------               -----------------------------------------
                                       John W. Johnson
                                       President and Chief Executive Officer


Date  November 12, 1998                 /s/ Daniel E. Voet                     
     -------------------               -----------------------------------------
                                       Daniel E. Voet
                                       Chief Financial Officer and Treasurer






<PAGE>   23





                                  EXHIBIT INDEX

                           F & M BANCORPORATION, INC.

                 Form 10-Q for Quarter Ended September 30, 1998


     Exhibit No.                                      Description
     -----------                                      -----------

           3(ii)                            Bylaws of F&M Bancorporation, Inc. 
                                            as amended through October 30, 1998

           10.1                             Employment Agreement dated as of 
                                            August 1, 1998 between the Company 
                                            and John W. Johnson

           10.2                             Employment Agreement dated as of
                                            August 1, 1998 between the Company
                                            and Daniel E. Voet

           27                               Financial Data Schedule