An official from the Farmers & Merchants Bank of Tomah acknowledged his bank reported a loss of $726,000 in the second quarter but said its overall balance sheet remains strong.

F&M Bank President Tom Wierschem said the bank’s second quarter statement to the Federal Deposit Insurance Corporation accounted for loans that posed a potential for default. Wierschem said the bank must account for those loans on its balance sheet even if those loans aren’t in default.

“In the second quarter, we evaluated our loans and saw some weaknesses,” Wierschem said. “Those loans won’t necessarily lose money — they could lose money. The FDIC is very assertive that banks should identify potential losses.”

The bank remains in sound financial condition thanks to $18 million in reserves, Wierschem said. He said the bank’s deposits are absolutely secure.

“We are a well-capitalized bank,” Wierschem said. “We can take a tough year without a lot of problems. We’re building off 97 years of history and reserves.”

Individual deposits are insured by the FDIC for up to $100,000 for individual accounts and $200,000 for joint accounts. Retirement accounts are insured up to $250,000.

Wierschem acknowledged that the bank’s investors will be likely feel an impact.

“If it shows we made less money, our stock will not appreciate like it has in the past,” he said.

The stock of F&M Bancorp, the holding company that owns the bank, has risen from $63.50 per share in 2005 to $83 in 2008. The bank paid a $2.80 per-share dividend to its 140 shareholders in 2007.

A bank’s net income can vary considerably from quarter to quarter. F&M Bank recorded a net gain of $589,000 for the first quarter, which leaves a year-to-date loss of $137,000 as of June 30.

The bank reported a net gain of $2.3 million for all of 2007.

Tomah’s two other banks also had positive net income in 2007.