In between big and small is exactly the size Gail E. Janssen wants to be.

Mr. Janssen, chief executive of F&M Bancorp., Kaukauna, Wis., is out to prove that being neither a community bank nor a regional bank is a viable and even preferable thing to be.

He's built F&M into a $1.1 billion organization in the past 16 years and wants to grow it another billion or so before he's done. 'F&M is positioned to provide services offered by the larger banks, but in a community bank setting," he said.

Mr. Janssen's optimism runs smack into forecasts of a tough future for banks that range in asset size between $1 billion and $3 billion. These "tweener" banks, the viewpoint goes, lack the human touch of the locals. Nor do they benefit from the economies of scale of the regionals, and are stuck with the disadvantages of both.

But Mr. Janssen and his peers contend they can carve a niche for themselves in the consolidating - but still highly fragmented - Midwestern market by selecting their markets and niches wisely.

Their reasoning is this: The Midwest's economy, while well-developed, is still largely rural; in such an environment a bank like F&M can flourish, beating small community banks as well as larger regionals.

"F&M can best compete with a community banking strategy," Mr. Janssen, 65, said.

But analysts point out that the 31 midwestern bank holding companies with $1 billion to $3 billion of assets face big challenges.

This "is a very difficult size for a bank," said William W. McGinnis Jr., first vice president of research for Robert W. Baird & Co., Milwaukee. "It's becoming large enough that it's hard to provide individualized attention to the customers, but not large enough that you can compete in larger markets and attain economies of scale.

"It's not impossible to survive in that category, but it's going to be exceptional," he added.

Also, in general the middle-tier banks are susceptible to takeovers because the big banks have better-performing stocks, said Joel Gomberg, banking analyst for Chicago-based Howe Barnes Investments Inc. He added that some of the middle-tier banks are fattening themselves for acquisition.

But, analysts point out, many of these banks are beneath the notice of the industry behemoths, and are likely to remain so as the regionals grow ever larger. So if a bank wants to remain independent in an ever- competitive environment, there's a chance it can.

F&M is one of the middle-tier institutions that is likely to succeed, Mr. McGinnis said.

"They're a very good organization that's focused on rural or on suburban markets," Mr. McGinnis said. "They understand the needs of the customer."

A glance at F&M's financials indicate it is a solid performer. Assets have doubled since 1993, and during the first months of 1996 it posted a 14.49% return on equity, up 7.4% from the year-earlier period.

F&M has made a place for itself by filling a niche: small communities served by few, if any, other financial institutions. According to Mr. Janssen, F&M is the only bank in a third of the nearly 50 communities it serves.

"In Wisconsin you have a lot of communities of 5,000, a lot of small towns that are good, stable business centers," he said.

F&M has grown by acquisition - in the past two years it has announced six merger deals - but it maintains local ties by retaining local management and boards that set credit policy, Mr. Janssen said.

The F&M approach of banking small towns is similar to that of other middle-tier players, notably Community First Bankshares, Fargo, N.D. With $2.3 billion in assets, that bank's market covers 64 communities in Colorado, Iowa, Minnesota, Nebraska, North Dakota, South Dakota, and Wisconsin.

Donald R. Mengedoth, chief executive of Community First, maintained that a focused middle-tier bank can run rings around both regional and local banks in small towns.

"The regionals have to have a dual strategy of serving large and small markets," he said. "And with the small community banks, at some point there is a resource challenge. There is a size where keeping abreast of regulation, employment law, compliance, and everything else gets overwhelming."

There are other niches besides geographic regions.

For example, Mississippi Valley Bancshares, St. Louis, concentrates on providing credit and other services to small and middle-market businesses. Paul M. Strieker, executive vice president of the $1 billion-asset bank, believes there is room for middle-tier players in between the big and little players.

His reasoning: Business owners can't always get access to decision makers at the big banks and they can't always get sufficient credit from smaller banks.

While the specter of NationsBank Corp.'s imminent takeover of local rival Boatmen's Bancshares might cause some banks to tremble, Mr. Strieker said he is looking forward to it.

"I think increased consolidation is what provides us with opportunities," he said.

Still others specialize in particular product lines to distinguish themselves from the competition. So doing, they deploy resources where they make a profit and avoid losers.

For example, Chicago-based Corus Bankshares, with $2.2 billion in assets, focusses on three credit products: commercial and residential real estate lending and student lending.

That strategy allowed Corus to rack up a 21.2% return on equity during the first nine months of 1996, up from 20.15% in the year-earlier period.

Joseph A. Stieven, a banking analyst for Stifel, Nicolaus & Co., St. Louis, argues that there will always be a place for shrewd middle-tier banks.

"The $1 billion to $3 billion range is a decent place to be," he said. "You're small enough to be entrepreneurial but large enough to make an impact."

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